AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 2, 2000
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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ACCOUNT4.COM, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 7372 04-3002234
(STATE OR OTHER JURISDICTION
OF INCORPORATION OR (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
75 WELLS AVENUE
NEWTON, MASSACHUSETTS 02459
(617) 964-1633
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
JOHN J. LUCAS, PRESIDENT
ACCOUNT4.COM, INC.
75 WELLS AVENUE
NEWTON, MASSACHUSETTS 02459
(617) 964-1633
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
--------------------------
COPIES TO:
WILLIAM C. ROGERS, ESQ. PAUL D. BROUDE, ESQ.
CHOATE, HALL & STEWART EPSTEIN BECKER & GREEN, P.C.
EXCHANGE PLACE 75 STATE STREET
53 STATE STREET BOSTON, MASSACHUSETTS 02109
BOSTON, MASSACHUSETTS 02109 (617) 342-4000
(617) 248-5000 (617) 342-4001(FAX)
(617) 248-4000 (FAX)
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
--------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
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CALCULATION OF REGISTRATION FEE
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES AGGREGATE OFFERING AMOUNT OF
TO BE REGISTERED PRICE (1)(2) REGISTRATION FEE
Common Stock, $.01 par value per share...................... $64,400,000 $17,001.60
(1) Includes shares of common stock issuable upon exercise of the underwriters'
over-allotment option.
(2) Estimated solely for the purpose of calculating the amount of the
registration fee in accordance with Rule 457(o) of the Securities Act of
1933.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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SUBJECT TO COMPLETION, DATED MAY 2, 2000
P R O S P E C T U S
The information in this Prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any jurisdiction where the offer or sale is not permitted.
4,000,000 SHARES
[LOGO]
COMMON STOCK
----------------
Account4.com, Inc. is offering for sale 4,000,000 shares of common stock.
This is our initial public offering. Prior to this offering, no public market
has existed for our common stock. The initial public offering price of our
common stock is expected to be between $12.00 and $14.00 per share. We have
applied to list our common stock on the Nasdaq National Market under the symbol
"AFOR".
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INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING
ON PAGE 5.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
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PER SHARE TOTAL
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Public offering price..................................... $ $
Underwriting discounts.................................... $ $
Proceeds to Account4.com.................................. $ $
Certain of our shareholders have granted the underwriters a 30-day option to
purchase up to 600,000 additional shares of common stock to cover
over-allotments.
The underwriters are offering the shares on a firm commitment basis. The
underwriters expect to deliver the shares on or about , 2000.
------------------------
The Robinson-Humphrey Company
Gerard Klauer Mattison & Co., Inc.
FAC/Equities
[DESCRIPTION OF INSIDE COVER ARTWORK]
The Account4 product logo appears as the title of this graphic with the
subtitle "Internet-based Professional Services Automation."
Underneath this is a shaded oval. Inside the shaded oval is a list of
features that comprise the Account4 product. These are grouped under three
main categories: "Business Development," "Service Delivery," and
"Administration."
Under the "Business Development" category the following features are listed:
"Contact Management," "Opportunity Management," "Client Management," and "Work
Requests."
Under the "Service Delivery" category the following features are listed:
"Engagement Management," "Work Tracking," "Skills Management," "Resource
Management," "Schedules & Assignments," and "Forecasting."
Under the "Administration" category the following features are listed: "Time &
Expense Reporting," "Invoicing," "Chargebacks," and "Project Accounting."
Pointers from the Account4 oval lead to two illustrations underneath it. The
illustration on the left shows a multi-story building labeled "Professional
Services Organizations (PSOs)" with "Account4" indicated within the building;
bidirectional arrows go from "Account4" to rectangles labeled "Clients"
outside of the building. The illustration on the right shows a large
commercial building labeled "Corporate Information Technology (IT)
Departments" with "Account4" indicated within the building; bidirectional
arrows go from "Account4" to different areas of the building.
Underneath the two buildings is a globe graphic labeled "Internet."
A set of two curved arrows overlaps the globe and the multi-story building
graphic on the left side of the page as described above. One arrow labeled
"Communicate" points from the building into the globe; another arrow labeled
"Collaborate" points back from the globe to the building indicating a
circular flow.
A second set of two curved arrows overlaps the globe and the large commercial
building graphic on the right side of the page as described above. One arrow
labeled "Communicate" points from the building into the globe; another arrow
labeled "Collaborate" points back from the globe to the building indicating a
circular flow.
Beneath the globe is a bulleted list labeled "Business & Technology
Benefits...". The list is in two columns.
The first column includes: "Increased Revenue Opportunities," "Improved
Employee Utilization," "Increased Operational Efficiency," "Improved Client
Satisfaction," and "Increased Profitability."
The second column includes: "Rapid Deployment," "Cost Minimization," "Ease of
Personalization," "Adaptable to Customer's Business," and "Central Data
Repository."
The Account4.com logo appears under the list.
TABLE OF CONTENTS
PAGE
--------
Summary..................................................... 1
Risk Factors................................................ 5
Forward-Looking Statements.................................. 12
Use of Proceeds............................................. 13
Dividend Policy............................................. 13
Capitalization.............................................. 14
Dilution.................................................... 15
Selected Financial Information.............................. 16
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 17
Business.................................................... 29
Management.................................................. 40
Related Party Transactions.................................. 46
Principal Shareholders...................................... 47
Description of Capital Stock................................ 48
Shares Eligible for Future Sale............................. 50
Underwriting................................................ 51
Experts..................................................... 54
Legal Matters............................................... 54
Where You Can Find More Information......................... 54
Index to Financial Statements............................... F-1
i
SUMMARY
THIS SECTION SUMMARIZES INFORMATION CONTAINED IN OTHER PARTS OF THIS
PROSPECTUS. THIS SUMMARY DOES NOT CONTAIN ALL OF THE INFORMATION YOU SHOULD
CONSIDER BEFORE INVESTING IN OUR COMMON STOCK. YOU SHOULD READ THE ENTIRE
PROSPECTUS CAREFULLY IN DECIDING WHETHER TO INVEST IN OUR COMMON STOCK.
UNLESS WE STATE OTHERWISE, THE INFORMATION IN THIS PROSPECTUS ASSUMES THAT
THE UNDERWRITERS' OVER-ALLOTMENT OPTION IS NOT EXERCISED AND THAT THE INITIAL
PUBLIC OFFERING PRICE IS $13.00 PER SHARE, THE MIDPOINT OF THE RANGE OF
ANTICIPATED INITIAL PUBLIC OFFERING PRICES.
ACCOUNT4.COM, INC.
OUR BUSINESS
We provide Internet-based software products and services that enable
professional services organizations (PSOs) and corporate information technology
(IT) departments to successfully manage projects and to increase the
utilization, productivity, effectiveness and retention of their workforces. Our
customers purchase our fully-integrated, end-to-end Account4 product because of
its comprehensive features and "100% thin-client" architecture that allow users
to access Account4 using only a Web browser and an Internet connection. These
features help our customers minimize both their total cost of ownership and
their need to change their business processes to accommodate a Professional
Services Automation (PSA) software solution. Account4 is installed on a single
server, making installation, personalization, modification and updates easy and
quick to implement. Installation on a central server and our thin-client
architecture will also allow us to modify Account4 to incorporate emerging
technologies and be fully functional with hand-held or other wireless computing
devices as demand for these features increases.
We have developed Account4 based on our 13 years of experience in providing
project and work management solutions. We have provided these solutions,
including Account4, to a premier customer base of over 150 companies
representing over 267,000 licensed users. We believe we have established a
reputation for developing and providing innovative enterprise software solutions
that has positioned Account4 as a leading product in the rapidly emerging PSA
market. To date, 47 customers, representing over 30,000 users, have licensed
Account4.
Account4's comprehensive features provide our customers with:
- increased revenue and profit opportunities and accelerated billing
processes by providing real-time collection of, and access to,
information;
- improved employee utilization and retention by providing continuous access
to personnel scheduling and availability, and project distribution;
- increased efficiency of operations through the distribution, sharing and
reuse of critical knowledge, data and information across an enterprise;
and
- improved client satisfaction resulting from efficient resource utilization
and project management.
Benefits of Account4's flexible, thin-client architecture include:
- rapid deployment and immediate availability to all users;
- ease of personalization, modification and scalability provided by
installation on a central server and the use of HTML;
1
- flexibility to extend Account4 to meet additional requirements or modify
Account4 to accommodate existing business processes; and
- consolidation of data into a central database.
We believe these business and technology benefits collectively provide a
fully-integrated and comprehensive PSA solution that minimizes our customers'
total cost of ownership, creating a compelling competitive advantage for
Account4.
OUR INDUSTRY
Aberdeen Group estimates that the worldwide market potential for PSA
software solutions was approximately $1.6 billion in 1998 and should increase
20% annually to approximately $4.0 billion in 2003. The served portion of this
market is expected to increase by over 90% annually, from $106 million in 1999
to $1.6 billion in 2003, creating a large unserved market opportunity.
The vast majority of PSA software solutions are directed toward IT
consulting firms and corporate IT organizations, as the IT services sector
represents one of the largest and fastest-growing segments of the professional
services industry. Dataquest estimates that worldwide spending on IT services
will grow by 13.9% per year to nearly $800 billion in 2003, and Gartner Group
estimates that by 2003, 30% of all e-business projects will be suspended or
cancelled due to the unavailability of IT resources. We believe that the strain
on IT service providers caused by the shortage of IT workers will force IT
service providers to automate the management and delivery of their services in
order to maximize their utilization of resources and profitability.
OUR BUSINESS STRATEGY
Our objective is to be the leading global supplier of PSA solutions to PSOs
and corporate IT departments. We intend to leverage our 13 years of experience
in providing project and workforce management solutions and extend our
established reputation for developing and providing the most innovative,
comprehensive, functional and cost-effective products. Our strategy to
accomplish these goals includes:
- capitalizing on the rapidly growing market for PSA software solutions;
- investing in sales and marketing programs to generate significant brand
awareness for Account4;
- advancing our technology leadership position by continuing to focus
significant resources on innovative product development;
- expanding our sales, marketing, administrative and technology
infrastructure as well as our facilities and services to further develop
our international operations; and
- developing additional complementary business and technology partnerships
with third parties to augment our existing distribution channels, provide
access to additional customers and enhance the features of our PSA
solution.
HOW TO REACH US
Our principal executive offices are located at 75 Wells Avenue, Newton,
Massachusetts 02459, and our telephone number is (617) 964-1633. Our website is
located at www.account4.com. Information on our website is not, however,
intended to be part of this prospectus, and you should rely only on the
information contained in this prospectus before deciding to invest in our common
stock.
2
THE OFFERING
Common stock we are offering................................ 4,000,000 shares
Common stock to be outstanding immediately after this
offering.................................................. 15,384,521 shares(1)
Use of proceeds............................................. Repayment of debt, expansion of sales
and marketing activities, enhancement
of our products and technology, and
general corporate purposes, including
working capital and potential
acquisitions.
Proposed Nasdaq National Market symbol...................... AFOR
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(1) The number of shares of common stock to be outstanding excludes
1,458,421 shares that we may issue upon the exercise of stock options
outstanding as of May 1, 2000.
3
SUMMARY FINANCIAL DATA
You should read the following summary historical and as adjusted financial
and operating information in conjunction with "Use of Proceeds," our financial
statements and related notes, including the unaudited interim financial
information, and other financial information, which appears later in this
prospectus.
QUARTER ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
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1997 1998 1999 1999 2000
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(DOLLARS AND SHARES IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
STATEMENTS OF OPERATIONS DATA:
Revenues:
Account4 revenue............................... $ 40 $ 296 $ 2,938 $ 877 $1,364
Other revenue.................................. 4,273 5,723 5,123 1,433 510
------ ------- ------- ------- ------
Total revenues............................... 4,313 6,019 8,061 2,310 1,874
Income (loss) from operations.................... 642 507 335 465 (629)
Net income (loss)................................ 534 389 145 265 (390)
Net income (loss) per share
Basic.......................................... $ 0.07 $ 0.05 $ 0.02 $ 0.03 $(0.05)
====== ======= ======= ======= ======
Diluted........................................ $ 0.06 $ 0.03 $ 0.01 $ 0.02 $(0.05)
====== ======= ======= ======= ======
Weighted average shares used in computing net
income (loss) per share:
Basic.......................................... 7,685 8,541 8,541 8,541 8,541
====== ======= ======= ======= ======
Diluted........................................ 9,689 12,206 12,194 12,194 8,541
====== ======= ======= ======= ======
OTHER OPERATING DATA:
New Account4 licenses............................ 1 8 20 2 14
Cumulative Account4 licenses at end of period.... 1 9 29 11 43
AS OF MARCH 31, 2000
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ACTUAL AS ADJUSTED (1)
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(IN THOUSANDS)
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 477 $47,041
Working capital............................................. 868 47,433
Total assets................................................ 2,533 49,097
Total debt and capital lease obligations, including current
portion................................................... 1,110 14
Total stockholders' equity (deficit)........................ (55) 47,605
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(1) Reflects the receipt of the net proceeds from the sale of 4,000,000 shares
of common stock offered by us at the assumed public offering price of
$13.00 per share, the midpoint of the range of anticipated initial public
offering prices, and the application of the net proceeds from the offering
including repayment of approximately $1.1 million of indebtedness, after
deducting underwriting discounts and commissions and estimated offering
expenses.
Account4-Registered Trademark- and the Account4.com logo are trademarks of
Account4.com. All other trade names and trademarks referred to in this
prospectus are the property of their respective owners.
4
RISK FACTORS
INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD
CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS, AS WELL AS OTHER INFORMATION
PRESENTED IN THIS PROSPECTUS, IN DECIDING WHETHER TO INVEST IN OUR COMMON STOCK.
EACH OF THESE FACTORS COULD ADVERSELY AFFECT OUR OPERATIONS, THE MARKET PRICE OF
OUR COMMON STOCK AND OUR FINANCIAL RESULTS, AND COULD RESULT IN A COMPLETE LOSS
OF YOUR INVESTMENT.
RISKS RELATED TO OUR BUSINESS
BECAUSE WE HAVE A LIMITED HISTORY IN SELLING ACCOUNT4 AND WE OPERATE IN A
RAPIDLY EMERGING INDUSTRY, IT IS DIFFICULT TO EVALUATE OUR BUSINESS AND
PROSPECTS
It is difficult to evaluate our business and prospects because our Account4
revenue and income potential are not fully proven. We did not begin commercial
sales of Account4, our Internet-based product, until the third quarter of 1998.
Because of our limited operating history with Account4, and because we expect
Account4 to be our primary source of revenue in the future, there may not be an
adequate basis for forecasts of future operating results and there can be no
assurance that we will ever achieve or sustain profitability.
WE ANTICIPATE LOSSES AND NEGATIVE CASH FLOW IN THE FUTURE. OUR LOSSES MAY
INCREASE BECAUSE WE PLAN TO INCREASE OPERATING EXPENSES, AND WE CANNOT GUARANTEE
THAT WE WILL BECOME PROFITABLE
We have recently increased our operating expenses in anticipation of future
revenues and expect to continue to increase our operating expenses because of
increases in:
- the number of our employees;
- sales and marketing activities; and
- other costs related to implementing our growth strategy.
As a result, we expect to experience losses and negative cash flow even if
sales of our products and services continue to grow, and we may not generate
sufficient revenues to achieve profitability in the future.
WE ARE CURRENTLY EXPERIENCING A PERIOD OF SIGNIFICANT GROWTH THAT MAY PLACE A
STRAIN ON OUR RESOURCES
We are experiencing and expect to continue to experience significant growth
in our operations. This expansion will place additional demands on our
management, operational capacity and financial resources. Our management, sales,
technical and accounting resources may not be adequate to support our
anticipated future growth. We need to hire additional personnel and devote
significant resources to improving or replacing existing operational, accounting
and information systems, procedures and controls. Our future operating results
will depend on our ability to manage our growth effectively by, among other
things:
- predicting accurately the growth in the demand for Acccount4 and related
services;
- attracting, training and retaining key employees;
- expanding and improving our financial systems, procedures and controls;
- acquiring and installing new equipment and facilities; and
- responding quickly and effectively to unanticipated changes in the PSA
industry.
If we are unable to manage our growth effectively, our business may suffer.
5
THE GROWTH OF OUR BUSINESS DEPENDS ON THE ADOPTION OF PSA SOLUTIONS BY PSOS AND
CORPORATE IT DEPARTMENTS
We derive our revenues from the sale of PSA solutions to PSOs and corporate
IT departments. This is a relatively new market, and it is uncertain whether
these organizations will adopt PSA solutions on a widespread basis. Accordingly,
the market for our products and services may not continue to grow, or, even if
the market does grow in the immediate term, such growth may not be sustainable.
Even if this market continues to grow, if we fail to continue to increase our
penetration of this industry, our operating results may suffer.
THE LOSS OF OUR CHIEF EXECUTIVE OFFICER OR OTHER KEY EXECUTIVE PERSONNEL COULD
SIGNIFICANTLY HARM OUR BUSINESS
Our future success depends to a significant extent on the continued services
of our senior management and other key personnel, particularly John J. Lucas,
our Chairman, President and Chief Executive Officer. The loss of the services of
Mr. Lucas or other key employees would hurt our business. We do not maintain key
person life insurance on the lives of Mr. Lucas or any of our other senior
officers or key employees. Additionally, none of our key personnel is bound by
employment agreements.
OUR MARKETS ARE HIGHLY COMPETITIVE AND COMPETITION COULD HARM OUR ABILITY TO
SELL OUR PRODUCTS AND SERVICES AND REDUCE OUR MARKET SHARE
Some of our competitors have significantly greater financial, technical,
marketing or other resources, or greater name recognition than we do. Many of
our competitors may be able to respond more quickly than us to new or emerging
technologies and changes in customer requirements. Our competitors have made and
may continue to make strategic acquisitions or establish cooperative
relationships among themselves or with other software vendors, possibly
increasing their ability to address the need for PSA solutions. Our competitors
may also establish or strengthen cooperative relationships with parties with
whom we have relationships, thereby limiting our success with these parties.
IF WE CANNOT HIRE AND RETAIN QUALIFIED PERSONNEL, WE WILL NOT BE ABLE TO CONDUCT
OUR OPERATIONS SUCCESSFULLY, IF AT ALL
Due to significant competition for skilled workers and high turnover rates
for such workers, we may experience difficulty in hiring and retaining the
highly skilled employees we need. Our operating results may be harmed if we
experience increased expenses related to attracting, training and retaining
qualified employees. Like many other technology companies, we rely on stock
options as a component of our employee compensation. If the market price of our
common stock increases or decreases substantially, some current or potential
employees may not perceive our equity incentives as attractive. Our failure to
attract new personnel or retain and motivate our current personnel could
adversely affect our business, financial condition and results of operations.
WE MAY LOSE EXISTING CUSTOMERS OR BE UNABLE TO ATTRACT NEW CUSTOMERS IF WE DO
NOT DEVELOP NEW PRODUCTS OR ENHANCE OUR EXISTING PRODUCTS
If we are unable to maintain and improve our product line and develop new
products, we may lose existing customers or be unable to attract new customers.
We may not be successful in developing and marketing product enhancements or new
products on a timely or cost-effective basis. If we develop new products, they
may not achieve market acceptance and our business could suffer.
6
OUR OPERATING RESULTS MAY VARY SIGNIFICANTLY DUE TO THE LENGTHY AND
UNPREDICTABLE SALES CYCLES OF OUR PRODUCTS AND SERVICES AND POTENTIAL RESISTANCE
TO ADOPTION OF OUR SOFTWARE
Because our products and services have lengthy and unpredictable sales
cycles, it is difficult to forecast the timing and recognition of revenues from
sales of our products and services. Since we are unable to control many of the
factors that influence our customers' buying decisions, lengthy and
unpredictable sales cycles could cause our operating results to be below the
expectations of analysts and investors, which could cause the price of our
common stock to fall.
Customers in our target market often take an extended time to evaluate our
products before purchasing them. During the evaluation period, a variety of
factors, including the introduction of new products or aggressive discounting by
competitors and changes in our customers' budgets and purchasing priorities, may
lead customers to not purchase, or reduce orders for, our products.
In addition, because we are offering a new, Internet-based technology
solution, we often must educate our prospective customers regarding the use and
benefits of our technology, which may cause additional delays during the
evaluation process.
WE MAY ENCOUNTER PROBLEMS EXPANDING OUR OPERATIONS INTERNATIONALLY
We may not be able to successfully market, sell, deliver and support our
products and services internationally. Our failure to build and manage effective
international operations could limit the future growth of our business. Entry
into international markets will require significant management attention and
financial resources to open international offices and hire international sales
and support personnel. Localizing our products is difficult and may take longer
than we anticipate. We may experience delays in recruiting and training
international staff. In addition, we have no experience in developing local
versions of our products, and we have limited experience in marketing and
selling our products and services overseas. We may experience longer sales
cycles for our products and services in international markets. Doing business
internationally involves greater expense and many additional risks, including:
- changes in regulatory requirements, taxes, trade laws, tariffs,
intellectual property rights and labor regulations;
- changes in political or economic conditions;
- difficulty in establishing, staffing and managing foreign operations; and
- fluctuating exchange rates.
IF OUR PRODUCTS DO NOT CONTINUE TO BE COMPATIBLE WITH WIDELY USED SOFTWARE
PROGRAMS, OUR REVENUES MAY BE ADVERSELY AFFECTED
Our software must be installed on a computer server running the Microsoft
Windows NT operating system and the Microsoft Internet Information Server system
and have connectivity to the same computer server, or another computer server,
running database software from Microsoft Corporation or Oracle Corporation. If
we cannot obtain access to these software products, we may be unable to build
and enhance our products on schedule. If these operating systems and software
products do not remain widely used, or if we do not update our software to be
compatible with newer versions of these systems and programs, our business could
suffer.
Our software connects to and uses data from a variety of our customers'
existing software systems. If we fail to enhance our software to connect to and
use data from newer versions of these products, we may lose potential customers.
7
OUR BUSINESS MAY SUFFER IF WE ARE NOT ABLE TO PROTECT OUR INTELLECTUAL PROPERTY
Our success is dependent upon our ability to develop and protect our
proprietary technology and intellectual property rights. We seek to protect our
software, documentation and other written materials primarily through a
combination of trade secret, trademark and copyright laws, confidentiality
procedures and contractual provisions. While we have attempted to safeguard and
maintain our proprietary rights, we do not know whether we have been or will be
successful in doing so.
Despite our efforts to protect our proprietary rights, unauthorized parties
may attempt to copy aspects of our products or obtain and use information that
we regard as proprietary. Policing unauthorized use of our products is
difficult. While we are unable to determine the extent to which piracy of our
software products exists, software piracy can be expected to be a persistent
problem, particularly in foreign countries where the laws may not protect
proprietary rights as fully as in the United States. We can offer no assurance
that we can adequately protect our proprietary rights or that our competitors
will not reverse engineer or independently develop similar technology.
IF OTHERS CLAIM THAT WE ARE INFRINGING ON THEIR INTELLECTUAL PROPERTY, WE COULD
INCUR SIGNIFICANT EXPENSES OR BE PREVENTED FROM SELLING OUR PRODUCTS
We cannot provide assurance that others will not claim that we are
infringing on their intellectual property rights or that we do not in fact
infringe on those intellectual property rights. We have not conducted a search
for existing intellectual property registrations, and we may be unaware of
intellectual property rights of others that may cover some of our technology.
Any litigation regarding intellectual property rights could be costly and
time-consuming and divert the attention of our management and key personnel from
our business operations. The complexity of the technology involved and the
uncertainty of intellectual property litigation increase these risks. Claims of
intellectual property infringement might also require us to enter into costly
royalty or license agreements, and in such event, we may not be able to obtain
royalty or license agreements on terms acceptable to us, if at all. We also may
be subject to significant damages or an injunction against the use of our
products. A successful claim of patent or other intellectual property
infringement against us could cause immediate and substantial damage to our
business and financial condition.
IF OUR PRODUCTS CONTAIN SIGNIFICANT DEFECTS OR IF OUR SERVICES ARE NOT PERCEIVED
AS HIGH QUALITY, WE COULD LOSE POTENTIAL CUSTOMERS OR BE SUBJECT TO CLAIMS FOR
DAMAGES
Our products are complex and may contain unknown errors, defects or
failures, particularly since we frequently release new versions. In the past we
have discovered software errors in some of our products after introduction. We
may not be able to detect and correct errors before releasing our products
commercially. If our commercial products contain errors, we may:
- need to expend significant resources to locate and correct the errors;
- need to delay introduction of new products or commercial shipment of
products;
- need to compensate dissatisfied customers; or
- experience reduced sales and harm to our reputation from dissatisfied
customers.
IF OUR CUSTOMERS ENCOUNTER PROBLEMS WITH OUR PRODUCTS, WE MAY BE SUBJECT TO
PRODUCT LIABILITY CLAIMS
Product defects may give rise to product liability claims. Although our
license agreements with customers typically contain provisions designed to limit
our exposure, some courts may not enforce all of these limitations. Product
liability claims, whether or not successful, could:
- divert the attention of our management and key personnel from our
business;
8
- be expensive to defend; and
- result in large damage awards.
We have product liability insurance, but it may not be adequate to cover all
of the expenses resulting from a claim.
WE MAY REQUIRE ADDITIONAL FINANCING TO MAINTAIN AND EXPAND OUR BUSINESS, WHICH
MAY NOT BE AVAILABLE ON FAVORABLE TERMS, IF AT ALL
We expect to incur losses as we pursue our growth strategy. We may need
additional funds to expand or meet all of our operating needs. If we need
additional financing, we cannot be certain that it will be available on
favorable terms, if at all. Further, if we issue additional shares of our
capital stock, shareholders will experience additional dilution, which may be
substantial. If we need funds and cannot raise them on acceptable terms, we may
not be able to continue our operations at the current level.
RISKS RELATED TO THIS OFFERING
THERE HAS BEEN NO MARKET FOR OUR COMMON STOCK AND OUR STOCK PRICE MAY DECLINE
AFTER THIS OFFERING
Our common stock has never been sold in a public market. An active trading
market for our common stock may not develop or be sustained after this offering.
The initial public offering price may not be indicative of the prices that will
prevail in the public market after the offering, and the market price of our
common stock could fall below the initial public offering price. The initial
public offering price will be determined through negotiations between
representatives of the underwriters and us and may not be representative of the
price of our common stock after this offering. The price of our common stock may
fluctuate substantially in the future. These fluctuations may be caused by
several factors, including the prices we are able to charge for our products and
services, competition and changes in technology. Other factors which may cause
your investment in our common stock to be adversely affected or which may cause
significant fluctuations in our stock price include:
- our actual or anticipated operating results;
- changes in our actual or anticipated growth rates;
- changes in financial estimates or investment recommendations by securities
analysts;
- our operating results falling below analysts' or investors' expectations
in any given period;
- general economic and PSA market conditions;
- changes in economic and capital market conditions;
- changes in market valuations or earnings of our competitors;
- announcements by us or our competitors of new products, service offerings,
acquisitions or strategic relationships;
- changes in business or regulatory conditions; and
- trading volume of our common stock.
Many companies' equity securities, including equity securities of Internet
and other technology companies, have recently experienced extreme price and
volume fluctuations. Often, these fluctuations are unrelated to the companies'
operating performance. Elevated levels in market prices for securities, often
reached following these companies' initial public offerings, may not be
sustainable and may not bear any relationship to operating performance. Our
common stock may not trade at the same levels as other stocks in our industry,
and Internet stocks and other technology stocks in general may not sustain
9
their current market prices. In the past, following periods of market
volatility, shareholders have instituted securities class action litigation. If
we become involved in securities litigation, it could be costly and divert
resources and the attention of management from our business.
We intend to apply to have our common stock included for quotation on the
Nasdaq National Market. If we are approved for quotation on the Nasdaq National
Market, we would be subject to financial and market-related tests established by
Nasdaq to maintain our listing. We may not be able to maintain these listing
criteria in the future, and our inability to do so could hinder the liquidity of
our common stock and your ability to buy or sell it.
WE MAY NOT USE THE PROCEEDS OF THIS OFFERING EFFECTIVELY
We intend to use the proceeds from this offering to repay debt; expand our
business, including increasing sales, marketing and product development
expenses; and for general corporate purposes, including working capital. We may
use a portion of the proceeds to acquire other businesses, products or
technologies. Investors will be relying on our judgment regarding the use of the
proceeds from this offering. If we do not use these funds effectively, our
business and stock price may be harmed.
FUTURE SALES OF OUR COMMON STOCK MAY DEPRESS OUR STOCK PRICE
If our shareholders sell substantial amounts of our common stock in the
public market following this offering, the market price of our common stock
could fall. Such sales also might make it more difficult for us to sell equity
or equity-related securities in the future at a time and price that we deem
appropriate.
After this offering, we will have 15,384,521 shares of our common stock
outstanding. All of the shares sold in this offering, and 10,132 shares of
common stock outstanding prior to this offering, will be freely tradable. The
remaining shares of common stock will be available for sale in the public market
180 days after the date of this prospectus.
OUR OFFICERS, DIRECTORS AND THEIR AFFILIATED ENTITIES WILL BENEFICIALLY OWN
APPROXIMATELY 74% OF OUR COMMON STOCK AND NO CORPORATE ACTION REQUIRING
SHAREHOLDER APPROVAL CAN BE TAKEN WITHOUT THEIR APPROVAL, WHICH COULD ADVERSELY
AFFECT THE VALUE OF OUR COMMON STOCK
Our executive officers and directors, together with their affiliates, will
beneficially own an aggregate of approximately 74% of our outstanding common
stock following the completion of this offering. These shareholders, if acting
together, will be able to control all matters requiring approval by our
shareholders, including the election of directors and the approval of mergers or
similar transactions, even if other shareholders disagree.
WE DO NOT INTEND TO PAY DIVIDENDS AND YOU MAY NOT EXPERIENCE A RETURN ON
INVESTMENT WITHOUT SELLING YOUR SHARES
We have never declared or paid any cash dividends on our capital stock and
do not intend to pay any dividends in the future. Therefore, you may not
experience a return on your investment in our common stock without selling your
shares.
10
WE HAVE IMPLEMENTED ANTI-TAKEOVER PROVISIONS THAT COULD DISCOURAGE OR PREVENT A
TAKEOVER, EVEN IF AN ACQUISITION WOULD BE BENEFICIAL TO OUR SHAREHOLDERS
Provisions of our Certificate of Incorporation and By-Laws, as well as
provisions of Delaware law, could make it more difficult for a third party to
acquire us, even if doing so would be beneficial to our shareholders. These
provisions include:
- authorizing the issuance of "blank check" preferred stock that could be
issued by our Board of Directors to increase the number of outstanding
shares and thwart a takeover attempt;
- prohibiting cumulative voting in the election of directors, that would
otherwise allow less than a majority of shareholders to elect director
candidates;
- limiting the ability of shareholders to call special meetings of
shareholders; and
- establishing advance notice requirements for nominations for election to
the Board of Directors or for proposing matters to be acted upon by
shareholders at shareholder meetings.
In addition, Section 203 of the Delaware General Corporation Law and the
terms of our stock purchase and stock option plans may discourage, delay or
prevent a change in control of us.
INVESTORS IN THIS OFFERING WILL SUFFER IMMEDIATE AND SUBSTANTIAL DILUTION IN THE
NET TANGIBLE BOOK VALUE OF THEIR SHARES
The initial public offering price is substantially higher than the pro forma
net tangible book value per share of our outstanding common stock immediately
after this offering. Accordingly, purchasers of common stock in this offering
will experience immediate and substantial dilution of approximately $9.91 in pro
forma net tangible book value per share, or approximately 76.2% of the assumed
offering price of $13.00 per share, the midpoint of the range of initial public
offering prices.
11
FORWARD-LOOKING STATEMENTS
Some of the information in this prospectus represents our expectations or
projections. You can generally identify these forward-looking statements by the
use of the words "may," "will," "expects," "intends," "plans," "estimates,"
"anticipates," "believes" or similar language. These forward-looking statements
are made only as of the date of this prospectus and therefore involve
substantial risks and uncertainties. We believe that it is important to
communicate our expectations for the future to our investors, and we believe the
expectations expressed in our forward-looking statements are reasonable and
accurate based on information we currently have. However, our expectations may
not prove to be correct due to future events that we have not accurately
predicted or over which we have no control, and our actual results may be
materially different from our estimates or predictions. Important factors that
could cause actual results to differ from our expectations are disclosed under
"Risk Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Business" and in other parts of this prospectus.
Subject to any obligation that we may have to amend or supplement this
prospectus as required by law and the rules of the SEC, we are under no duty to
update any of these forward-looking statements after the date of this prospectus
to conform these statements to actual results.
12
USE OF PROCEEDS
We estimate that we will receive net cash proceeds from this offering of
approximately $47,660,000, after deducting estimated underwriting discounts and
estimated offering expenses and based upon an initial public offering price of
$13.00 per share, which is the midpoint of the estimated price range.
The principal purposes of this offering are to establish a public market for
our common stock, to increase our visibility in the marketplace, to facilitate
future access to public capital markets, to provide liquidity to existing
stockholders and to obtain additional working capital.
We currently intend to use the net proceeds of this offering received by us
as follows:
- to repay approximately $1.1 million in debt;
- to expand domestic and international sales and marketing activities;
- to expand customer service and operating capabilities;
- to continue enhancement of our products and technologies; and
- to develop our business infrastructure.
We expect to use the remainder of the net proceeds for other general
corporate purposes, including working capital, capital expenditures and possible
acquisitions. The amount of funds that we actually use for these purposes will
depend upon many factors, including revisions to our business plan, material
changes in our revenues or expenses, and other factors described under "Risk
Factors." Accordingly, our management will have significant discretion over the
use and investment of the net proceeds from this offering.
The indebtedness we intend to repay bears interest at a bank's prime rate
(9.5% at March 31, 2000) plus 3.5% per year and matures on December 31, 2001.
Pending the uses described above, we will invest the net proceeds in
interest-bearing accounts or short-term, interest-bearing securities, or both.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock. We
currently intend to retain any future earnings and do not anticipate paying any
cash dividends in the foreseeable future.
13
CAPITALIZATION
The following table sets forth our capitalization as of March 31, 2000. Our
capitalization is presented:
- on an actual basis; and
- on an as adjusted basis to reflect (i) our receipt of the net proceeds
from the sale of 4,000,000 shares of common stock in this offering, as if
it had occurred as of March 31, 2000 and (ii) the application of a portion
of the net proceeds to repay approximately $1.1 million of indebtedness.
The information in the table should be read in conjunction with the
financial statements and accompanying notes that we have included elsewhere in
this prospectus. The share numbers exclude 1,458,421 shares of common stock
issuable upon the exercise of stock options outstanding at May 1, 2000 at a
weighted average exercise price of $.68 per share and 932,826 shares of common
stock available for issuance under our 1997 Stock Plan as of May 1, 2000.
AS OF MARCH 31, 2000
----------------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
Cash and cash equivalents................................... $ 477 $47,041
====== =======
Current portion of capital lease obligations................ 5 5
====== =======
Long-term debt and capital lease obligations, net of current
portion................................................... $1,105 $ 9
------ -------
Stockholders' equity (deficit):
Undesignated preferred stock; 10,000,000 shares authorized;
no shares issued and outstanding, actual and as
adjusted.................................................. -- --
------ -------
Common stock, $.01 par value; 40,000,000 shares authorized;
11,384,521 shares issued and outstanding, actual;
15,384,521 shares issued and outstanding, as adjusted..... 114 154
Additional paid-in capital.................................. 3,037 50,657
Subscriptions receivable.................................... (11) (11)
Deferred compensation....................................... (2,327) (2,327)
Accumulated deficit......................................... (868) (868)
------ -------
Total stockholders' equity (deficit)........................ (55) 47,605
------ -------
Total capitalization........................................ $1,050 $47,614
====== =======
14
DILUTION
The assumed initial public offering price of $13.00 per share exceeds our
net tangible book value per share. As of March 31, 2000, our net tangible book
deficit was approximately $55,000 or $0.00 per share. Net tangible book value
per share is determined by subtracting our total liabilities from our total
tangible assets and dividing this difference by the number of shares of common
stock issued and outstanding.
The sale of shares of common stock by us in this offering and the
application of the net proceeds therefrom will result in an immediate increase
in pro forma net tangible book value to $47.6 million or $3.09 per share to
existing shareholders and an immediate dilution of $9.91 per share to investors
purchasing shares of common stock in this offering. The following table
illustrates this per share dilution:
Assumed initial public offering price per share............ $ 13.00
Net tangible book deficit per share as of March 31, 2000... $ 0.00
Increase per share attributable to this offering........... 3.09
------
Net tangible book value per share after this offering...... 3.09
-------
Dilution per share purchased in this offering.............. $ 9.91
=======
The following table summarizes the number of shares of common stock we will
sell in this offering, the total price to be paid for these shares, the number
of shares of common stock previously issued, the total consideration paid and
the average price per share paid.
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE PURCHASE
--------------------- ---------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- -------- ----------- -------- ----------------
New investors......................... 4,000,000 26.0% $52,000,000 98.8% $13.00
Existing shareholders................. 11,384,521 74.0% 625,422 1.2% 0.05
---------- ----- ----------- -----
Total............................... 15,384,521 100% $52,625,422 100%
========== ===== =========== =====
The foregoing tables assume:
- a public offering price of $13.00 per share;
- no exercise of the underwriters' over-allotment option; and
- no exercise of any of the 1,458,421 options to purchase common stock
outstanding as of May 1, 2000.
If the underwriters exercise their over-allotment option in full, the shares
to be held by existing shareholders will decrease to 10,784,521, or 70.1% of the
total shares to be outstanding after the exercise, and the number of shares to
be held by new investors will increase to 4,600,000, or 29.9% of the total
shares to be outstanding after the exercise.
15
SELECTED FINANCIAL INFORMATION
The selected statement of operations data for each of the years ended
December 31, 1997, 1998 and 1999, and the selected balance sheet data as of
December 31, 1998 and 1999 have been derived from our financial statements,
audited by Arthur Andersen LLP, independent public accountants, and are included
elsewhere in this prospectus. The selected statement of operations data for the
year ended December 31, 1996, and the selected balance sheet data as of
December 31, 1996 and 1997 have been derived from our financial statements,
audited by Arthur Andersen LLP, not included in this prospectus. The selected
statement of operations data for the year ended December 31, 1995 and the
balance sheet data as of December 31, 1995 have been derived from our unaudited
financial statements. The selected statement of operations data for the quarters
ended March 31, 1999 and 2000 and the selected balance sheet data as of
March 31, 2000 are derived from our unaudited financial statements and the
related notes included elsewhere in this prospectus. The unaudited financial
statements have been prepared on substantially the same basis as the audited
financial statements and include, in the opinion of our management, all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the information set forth therein. The selected statement
of operations data for the quarter ended March 31, 2000 are not necessarily
indicative of the results that may be expected for the year ending December 31,
2000 or any other future period. This data should be read in conjunction with
our financial statements and related notes and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" appearing elsewhere
in this prospectus.
QUARTER ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------------------------- -------------------
1995 1996 1997 1998 1999 1999 2000
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Revenues:
Software licenses............................. $1,156 $ 793 $1,564 $ 1,066 $ 2,423 $ 913 $ 796
Consulting, support services and
maintenance................................. 1,903 2,370 2,749 4,953 5,638 1,397 1,078
------ ------ ------ ------- ------- ------- ------
Total revenues.............................. 3,059 3,163 4,313 6,019 8,061 2,310 1,874
Costs and expenses:
Software licenses............................. 215 378 436 281 242 80 --
Consulting, support services and
maintenance................................. 651 780 1,191 2,168 2,377 653 457
Sales and marketing........................... 529 691 1,028 1,475 2,939 574 1,196
Product development........................... 478 479 561 925 1,434 349 455
General and administrative.................... 483 425 456 663 708 189 233
Stock-based compensation...................... -- -- -- -- 26 -- 162
------ ------ ------ ------- ------- ------- ------
Income (loss) from operations................... 703 410 641 507 335 465 (629)
Interest income (expense), net.................. (139) (115) (101) (112) (80) (23) (21)
------ ------ ------ ------- ------- ------- ------
Income (loss) before income taxes............... 564 295 540 395 255 442 (650)
Provision for (benefit from) income taxes....... (5) 10 6 6 110 177 (260)
------ ------ ------ ------- ------- ------- ------
Net income (loss)............................... $ 569 $ 285 $ 534 $ 389 $ 145 $ 265 $ (390)
====== ====== ====== ======= ======= ======= ======
Net income (loss) per share:
Basic......................................... $ 0.10 $ 0.05 $ 0.07 $ 0.05 $ 0.02 $ 0.03 $(0.05)
====== ====== ====== ======= ======= ======= ======
Diluted....................................... $ 0.10 $ 0.05 $ 0.06 $ 0.03 $ 0.01 $ 0.02 $(0.05)
====== ====== ====== ======= ======= ======= ======
Weighted average shares used in computing net
income (loss) per share
Basic......................................... 5,687 5,687 7,685 8,541 8,541 8,541 8,541
====== ====== ====== ======= ======= ======= ======
Diluted....................................... 5,687 5,687 9,689 12,206 12,194 12,194 8,541
====== ====== ====== ======= ======= ======= ======
AS OF DECEMBER 31,
---------------------------------------------------- AS OF MARCH 31,
1995 1996 1997 1998 1999 2000
-------- -------- -------- -------- -------- ----
(IN THOUSANDS)
BALANCE SHEET DATA:
Cash and cash equivalents.................... $ 695 $ 854 $1,045 $ 729 $1,752 $ 477
Working capital.............................. (131) 126 599 (119) 1,094 868
Total assets................................. 1,182 1,322 2,288 2,429 3,171 2,533
Total debt and capital lease obligations,
including current portion.................. 1,096 1,096 1,118 1,115 1,111 1,110
Total stockholders' equity (deficit)......... (1,207) (923) (386) 2 173 (55)
16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
YOU SHOULD READ THE FOLLOWING DISCUSSION IN CONJUNCTION WITH OUR FINANCIAL
STATEMENTS AND RELATED NOTES AND OTHER FINANCIAL INFORMATION INCLUDED ELSEWHERE
IN THIS PROSPECTUS. THIS DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS RELATED
TO SUCH MATTERS AS OUR FUTURE FINANCIAL PERFORMANCE, BUSINESS STRATEGY AND
FINANCIAL PLANS THAT INVOLVE RISKS AND UNCERTAINTY. OUR ACTUAL RESULTS COULD
DIFFER MATERIALLY FROM THE RESULTS ANTICIPATED IN THESE FORWARD-LOOKING
STATEMENTS AS A RESULT OF MANY KNOWN AND UNKNOWN FACTORS, INCLUDING THOSE UNDER
"RISK FACTORS" AND ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
We are a leading provider of Internet-based business software solutions to
the PSA market. We license our 100% thin-client, Internet-based PSA solution,
Account4, to PSOs and corporate IT departments, and we provide related
consulting, personalization, implementation, integration, training and
maintenance services. Account4 helps our customers increase the utilization,
productivity and effectiveness of their workforces.
We began commercial sales of Account4 in 1998 following approximately 3
years of development. In March 2000, we changed our name to Account4.com, Inc.
to better reflect our focus on Internet-based software solutions for the PSA
market. While we have operated profitably in each of the past 5 years, we
incurred losses for the quarter ended March 31, 2000, and we expect to continue
to incur losses as we invest to expand our business and further establish
Account4 as a leading PSA solution. We increased our personnel from 48 employees
as of January 1, 1999 to 68 employees as of May 1, 2000, as we added personnel
in marketing, sales and product development.
We began operations in 1988 as MultiTrak Software Development Corporation
and provided mainframe computer-based work management software. In 1993, we
began selling client-server-based work management software developed by
PlanView, Inc., and in 1994 we changed our name to Work Management
Solutions, Inc. Since our inception, we have licensed software solutions to over
150 customers for use by over 267,000 users, including 47 organizations who have
licensed Account4 for over 30,000 users.
We currently focus all of our efforts on selling Account4 and related
services, and we no longer actively sell software licenses and related services
for mainframe computer-based and client-server based project and work management
software. We believe our 13 years of experience in project and workforce
management solutions and our innovative product advancements serve as important
competitive advantages and will allow us to extend our leadership position in
the emerging market for PSA solutions.
SOURCES OF REVENUES AND REVENUE RECOGNITION
We classify our revenues as revenue from software licenses or revenue from
consulting, support services and maintenance. These classifications represent
the way in which we operate our business and the way in which we position our
software and services to our customers. Since we introduced Account4, our
software license revenue has been generated primarily from Account4. Consulting,
support services and maintenance revenue has been generated in association with
a combination of Account4 licenses and licenses of prior project and work
management software products. While we continue to support prior products, we no
longer actively sell software licenses for them. We do not expect that the
revenues or costs related to prior products will have a material impact on our
future financial results.
Software license agreements typically represent a one-time license fee for
the use of our software, the price of which is based primarily on the number of
users. We license Account4 as an integrated
17
system which provides full access to all features, as opposed to many of our
competitors who sell individual modules or components of their products
separately. Customers are charged additional license fees as they increase the
number of users.
Consulting, support services and maintenance revenue includes revenue from
maintenance agreements and consulting projects. A customer has the option to
purchase, at the time of an initial license, a maintenance agreement which
entitles the customer to software upgrades and technical support over a stated
term, generally 12 months. In subsequent years, customers can renew the
maintenance agreement, for which they pay a renewal fee at the beginning of the
maintenance period. We charge customers at the same rate for maintenance whether
the fee is for an initial maintenance agreement or a renewal fee.
Consulting projects typically involve implementation services as well as
evaluating our customers' business practices, organizational structure and
business requirements; designing, developing and configuring any requested
personalization; and training our customers' staff. Although consulting services
are not required for the implementation of Account4 or essential to its
functionality, most customers choose to purchase consulting services. Some
customers also purchase consulting services to develop and install interfaces
between Account4 and third party enterprise software applications. Consulting
services normally are performed on a per diem basis by our internal staff based
on the number of days of services requested by our customers.
Generally, we recognize software license revenue when all of the following
conditions are met:
- we have persuasive evidence of an arrangement with the customer;
- we have delivered the product;
- the amount of fees to be paid by the customer is fixed or determinable;
- we believe that collection of these fees is probable; and
- we have fulfilled all significant obligations related to the software
license.
We recognize revenue from maintenance support contracts ratably over the
contract period. Consulting services are not essential to the functionality of
the software products and are recognized as the services are performed.
COSTS AND EXPENSES
COST OF REVENUES
Our cost of software license revenue historically has been comprised of
royalty payments to third parties for sales of prior products, primarily to
PlanView. Generally, there have been no material costs associated with sales of
Account4 software licenses. To the extent we sell Account4 through resellers, we
may incur commissions or other payments that may be categorized as costs of
software license revenue. Our cost of providing consulting, support services and
maintenance is comprised principally of personnel costs.
OTHER OPERATING EXPENSES
Our other operating expenses consist of 3 general categories: sales and
marketing, product development, and general and administrative. We classify all
charges to these operating expense categories based on the nature of the
expenditures. Although each of these categories includes expenses that are
unique to the category type, there are expenditures that are typically included
in each of these categories, such as salaries, employee benefits, travel and
entertainment expenses, and third party professional fees. In addition, certain
common costs such as communication, rent and facilities costs are allocated to
each of these areas based on headcount. Sales and marketing costs include sales
18
commissions, public relations and advertising, trade shows and marketing
materials. Software development costs incurred prior to the establishment of
technological feasibility are included in product development costs as incurred.
To date, all product development costs have been expensed as incurred. General
and administrative costs include non-allocated salaries, other general overhead
expenses and depreciation expenses. We expect that the absolute dollar amount of
all 3 categories of operating expenses will continue to increase in future
quarters as we hire additional employees and make investments to expand our
business.
STOCK-BASED COMPENSATION
In connection with the granting of stock options to our employees in the
year ended December 31, 1999 and the quarter ended March 31, 2000, we recorded
deferred stock-based charges totaling approximately $314,000 in the year ended
December 31, 1999 and $2.2 million in the quarter ended March 31, 2000. These
amounts represent the difference between the exercise prices at which the stock
options were granted and the deemed fair value of our common stock on the date
of the grants. This amount is included as a component of stockholders' equity
(deficit), in accordance with the method described in Financial Accounting
Standards Board Interpretation No. 28. At March 31, 2000, the remaining
unamortized stock-based compensation totaled approximately $2.3 million and will
be amortized over the following periods:
9 months ending December 31, 2000 $ 493,000
Year ending December 31, 2001 657,000
Year ending December 31, 2002 646,000
Year ending December 31, 2003 370,000
Year ending December 31, 2004 162,000
----------
Total $2,328,000
==========
We expect to record significant additional stock-based compensation for stock
options granted subsequent to March 31, 2000 including options to purchase
240,000 shares of common stock at an exercise price of $3.00 per share granted
in May 2000.
19
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth, for the periods presented, certain quarterly
financial results and other operating data for the 7 quarters since we began
commercial sales of Account4. The information for each of these quarters is
unaudited and has been prepared on the same basis as our audited financial
statements appearing elsewhere in this prospectus. In the opinion of management,
all necessary adjustments, consisting only of normal recurring adjustments, have
been included to present fairly the unaudited quarterly results when read in
conjunction with our financial statements and related notes included elsewhere
in this prospectus. We have experienced and expect to continue to experience
fluctuations in operating results from quarter-to-quarter. Historical operating
results are not necessarily indicative of the results that we may expect for any
future period.
To enable you to better understand the trends in our business, the revenues
in the following table have been divided into revenue from Account4 and other
revenue.
QUARTER ENDED
----------------------------------------------------------------------------
SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1998 1998 1999 1999 1999 1999 2000
--------- -------- -------- -------- --------- -------- --------
(DOLLARS IN THOUSANDS)
STATEMENTS OF OPERATIONS DATA:
Revenues:
Account4 software licenses....................... $ 23 $ 218 $ 770 $ 306 $ 448 $ 425 $ 796
Account4 consulting, support services and
maintenance.................................... 8 37 107 179 312 391 568
----- ----- ----- ----- ----- ----- -----
Total Account4 revenue......................... 31 255 877 485 760 816 1,364
Other revenue.................................... 1,577 1,409 1,433 1,532 1,255 903 510
----- ----- ----- ----- ----- ----- -----
Total revenues............................. 1,608 1,664 2,310 2,017 2,015 1,719 1,874
Costs and expenses:
Software licenses................................ -- -- 80 124 -- 38 --
Consulting, support services and maintenance..... 582 591 653 635 577 512 457
Sales and marketing.............................. 415 464 574 660 736 969 1,196
Product development.............................. 249 290 349 329 364 392 455
General and administrative....................... 178 193 189 144 163 212 233
Stock-based compensation......................... -- -- -- -- -- 26 162
----- ----- ----- ----- ----- ----- -----
Income (loss) from operations...................... 184 126 465 125 175 (430) (629)
Interest income (expense), net..................... (26) (30) (23) (24) (18) (15) (21)
----- ----- ----- ----- ----- ----- -----
Income (loss) before income taxes.................. 158 96 442 101 157 (445) (650)
Provision for (benefit from) income taxes.......... 5 1 177 40 63 (170) (260)
----- ----- ----- ----- ----- ----- -----
Net income (loss).................................. $ 153 $ 95 $ 265 $ 61 $ 94 $(275) $(390)
===== ===== ===== ===== ===== ===== =====
OTHER OPERATING DATA:
New Account4 licenses.............................. 1 6 2 6 5 7 14
Cumulative Account4 licenses at end of period...... 3 9 11 17 22 29 43
REVENUES
Total revenues increased approximately $266,000 from approximately
$1.6 million for the quarter ended September 30, 1998 to approximately
$1.9 million for the quarter ended March 31, 2000. This increase reflects a
$1.3 million increase in Account4 revenue, partially offset by a $1.1 million
reduction in other revenue, as summarized below.
ACCOUNT4 REVENUE. Total Account4 revenue increased from approximately
$31,000 for the quarter ended September 30, 1998 to approximately
$1.4 million for the quarter ended March 31, 2000. Account4 software license
revenue increased from approximately $23,000 for the quarter ended
September 30, 1998 to approximately $796,000 for the quarter ended
March 31, 2000. This increase was primarily attributable to an increase in
the number of new licenses sold from 1 in the quarter ended September 30,
1998 to 14 in the quarter ended March 31, 2000. Quarter-to-quarter
20
Account4 license revenue has fluctuated due to the varying size of the
licenses sold during each quarter. While the level of Account4 license
revenue and the number of new Account4 licenses sold per quarter have
generally increased over this period, during the quarter ended December 31,
1999 we experienced a reluctance on the part of potential customers to enter
into license arrangements due to their internal Year 2000 remediation
efforts. Additionally, we sold a single $750,000 Account4 license in the
quarter ended March 31, 1999, which represented 97.4% of our Account4
software license revenue in that quarter. During the 7-quarter period
presented above, cumulative Account4 licenses sold increased from 3 as of
September 30, 1998 to 43 as of March 31, 2000. Account4 consulting, support
services and maintenance revenue increased approximately $560,000 from
approximately $8,000 for the quarter ended September 30, 1998 to
approximately $568,000 for the quarter ended March 31, 2000.
OTHER REVENUE. Other revenue, which is derived from software license
revenue and consulting, support services and maintenance revenue related to
prior project and work management products, declined approximately
$1.1 million from approximately $1.6 million for the quarter ended
September 30, 1998 to approximately $510,000 for the quarter ended
March 31, 2000, as we no longer actively sell software licenses, maintenance
agreements or consulting services for these products.
COSTS AND EXPENSES
SOFTWARE LICENSES. Generally there are no costs associated with sales of
Account4 licenses. However, during this 7-quarter period we did incur some
royalty payments to third parties related to our sale of prior products and
one payment to a value added reseller related to an Account4 license.
CONSULTING, SUPPORT SERVICES AND MAINTENANCE. Costs of consulting, support
services and maintenance declined approximately $125,000 from approximately
$582,000 for the quarter ended September 30, 1998 to approximately $457,000
for the quarter ended March 31, 2000. This decrease resulted from decreased
incentives paid to staff based on lower utilization during the transition to
Account4 from prior products.
SALES AND MARKETING. Sales and marketing expenses increased approximately
$781,000 from approximately $415,000 for the quarter ended September 30,
1998 to approximately $1.2 million for the quarter ended March 31, 2000.
This increase was primarily attributable to an increase in costs related to
our Account4 marketing programs, and an increase in sales and marketing
employees from 14 to 27, reflecting our investment in Account4. We expect
that the absolute dollar amount of sales and marketing expenses will
continue to increase due to the planned growth of our sales force, including
the establishment of additional domestic and international sales offices,
and due to expected increases in marketing programs including advertising,
public relations, website development, and other brand enhancement and
promotional activities.
PRODUCT DEVELOPMENT. Product development expenses increased approximately
$206,000 from approximately $249,000 for the quarter ended September 30,
1998 to approximately $455,000 for the quarter ended March 31, 2000. This
increase reflects our investment in Account4 and was attributable to an
increase in development staff employees from 11 to 18. We believe that
continued investment in Account4 product development is essential to our
future success and expect that the absolute dollar amount of product
development expenses will increase in future periods.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
approximately $55,000 from approximately $178,000 for the quarter ended
September 30, 1998 to approximately $233,000 for the quarter ended
March 31, 2000. This increase was primarily attributable to an increase in
general overhead costs resulting from the increase in our overall number of
employees. We expect general and administrative expenses to increase in
absolute dollars in future periods.
21
STOCK-BASED COMPENSATION. Prior to the quarter ended December 31, 1999, we
did not recognize any stock-based compensation. We incurred stock-based
compensation expense related to the amortization of deferred compensation
resulting from the grant of stock options to our employees of approximately
$26,000 during the quarter ended December 31, 1999 and approximately
$162,000 during the quarter ended March 31, 2000.
RESULTS OF OPERATIONS
The following table sets forth certain revenue and expense data as a
percentage of our total revenues for each period presented:
QUARTER ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------- -------------------
1997 1998 1999 1999 2000
-------- ---------- -------- -------- --------
Revenues:
Software licenses.............................. 36.3% 17.7% 30.1% 39.5% 42.5%
Consulting, support services and maintenance... 63.7 82.3 69.9 60.5 57.5
----- ----- ----- ----- ------
Total revenues............................... 100.0 100.0 100.0 100.0 100.0
Costs and expenses:
Software licenses.............................. 10.1 4.7 3.0 3.5 0.0
Consulting, support services and maintenance... 27.6 36.0 29.5 28.3 24.4
Sales and marketing............................ 23.8 24.5 36.4 24.8 63.8
Product development............................ 13.0 15.4 17.8 15.1 24.3
General and administrative..................... 10.6 11.0 8.8 8.2 12.5
Stock-based compensation....................... 0.0 0.0 0.3 0.0 8.6
----- ----- ----- ----- ------
Income (loss) from operations.................... 14.9 8.4 4.2 20.1 (33.6)
Interest income (expense), net................... (2.4) (1.8) (1.0) (1.0) (1.1)
----- ----- ----- ----- ------
Income (loss) before income taxes................ 12.5 6.6 3.2 19.1 (34.7)
Provision for (benefit from) income taxes........ 0.1 0.1 1.4 7.6 (13.9)
----- ----- ----- ----- ------
Net income (loss)................................ 12.4% 6.5% 1.8% 11.5% (20.8)%
===== ===== ===== ===== ======
QUARTER ENDED MARCH 31, 1999 COMPARED TO QUARTER ENDED MARCH 31, 2000
REVENUES
Total revenues decreased approximately $436,000, or 18.9%, from
approximately $2.3 million for the quarter ended March 31, 1999 to approximately
$1.9 million for the quarter ended March 31, 2000. This decrease reflects an
increase of approximately $487,000 in revenue related to Account4 offset by a
decrease of approximately $923,000 in revenue related to prior products, for
which we no longer actively sell software licenses, maintenance agreements or
consulting services. The components of this net decrease are summarized below:
SOFTWARE LICENSES. Software license revenue decreased approximately
$117,000, or 12.9%, from approximately $913,000 for the quarter ended
March 31, 1999 to approximately $796,000 for the quarter ended March 31,
2000. Account4 software license revenue increased approximately $26,000,
while software license revenue from prior products decreased by
approximately $143,000.
CONSULTING, SUPPORT SERVICES AND MAINTENANCE. Consulting, support services
and maintenance revenue decreased approximately $319,000, or 22.9%, from
approximately $1.4 million for the quarter ended March 31, 1999 to
approximately $1.1 million for the quarter ended March 31, 2000. Consulting,
support services and maintenance revenue related to Account4 increased by
22
approximately $461,000 during this period, while consulting, support
services and maintenance revenue from prior products decreased by
approximately $780,000.
COSTS AND EXPENSES
SOFTWARE LICENSES. Software license costs decreased from approximately
$80,000 for the quarter ended March 31, 1999 to $0 for the quarter ended
March 31, 2000. As there were no material software costs associated with
Account4 licenses in either period, this decrease was attributable to a
decrease in royalties paid to third parties associated with prior products.
CONSULTING, SUPPORT SERVICES AND MAINTENANCE. Consulting, support services
and maintenance costs decreased approximately $196,000, or 30.1%, from
approximately $653,000 for the quarter ended March 31, 1999 to approximately
$457,000 for the quarter ended March 31, 2000. This decrease was primarily
due to a decrease in royalties paid to third parties for sales of prior
products, as well as a decrease in incentives paid to staff based on lower
utilization during the transition to the sale of Account4.
SALES AND MARKETING. Sales and marketing expenses increased approximately
$622,000, or 108.3%, from approximately $574,000 for the quarter ended
March 31, 1999 to approximately $1.2 million for the quarter ended
March 31, 2000. The increase was due to increased costs related to our
Account4 marketing program and the addition of sales and marketing
employees.
PRODUCT DEVELOPMENT. Product development expenses increased approximately
$106,000, or 30.5%, from approximately $349,000 for the quarter ended
March 31, 1999 to approximately $455,000 for the quarter ended March 31,
2000. The increase was due to the addition of product development employees.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
approximately $44,000, or 23.0%, from approximately $189,000 for the quarter
ended March 31, 1999 to approximately $233,000 for the quarter ended
March 31, 2000. The increase was due to an increase in general overhead
costs incurred as a result of company-wide growth.
STOCK-BASED COMPENSATION. During the quarter ended March 31, 2000, we
amortized stock-based compensation expense of approximately $162,000. There
was no comparable charge during the quarter ended March 31, 1999.
INTEREST INCOME (EXPENSE), NET. Net interest expense decreased
approximately $2,000, or 10.7%, from approximately $23,000 for the quarter
ended March 31, 1999 to approximately $21,000 for the quarter ended
March 31, 2000. The decrease was due to an increase in interest earned on
higher cash balances.
PROVISION FOR (BENEFIT FROM) INCOME TAXES. We provided approximately
$177,000 for income taxes for the quarter ended March 31, 1999 at an
effective tax rate of 40%. For the quarter ended March 31, 2000, we
recognized $260,000 of tax benefit based upon an effective tax rate of 40%.
There was no provision for income taxes because we recognized an operating
loss.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1999
REVENUES
Total revenues increased approximately $2.0 million, or 33.9%, from
approximately $6.0 million for the year ended December 31, 1998, to
approximately $8.1 million for the year ended December 31, 1999. This reflects
an increase of approximately $2.6 million in revenue related to Account4 offset
by a decrease of approximately $600,000 in revenue related to prior products.
The increase in Account4
23
revenue reflects further market penetration of Account4 as evidenced by an
increase in cumulative Account4 licenses from 9 as of December 31, 1998 to 29 as
of December 31, 1999.
SOFTWARE LICENSES. Software license revenue increased approximately
$1.4 million, or 127.3%, from approximately $1.1 million for the year ended
December 31, 1998 to approximately $2.4 million for the year ended
December 31, 1999. Account4 software license revenue increased approximately
$1.7 million, while software license revenue from prior products decreased
by approximately $341,000. This increase was primarily due to an increase in
the number of Account4 licenses, including a single $750,000 license in
1999.
CONSULTING, SUPPORT SERVICES AND MAINTENANCE. Consulting, support services
and maintenance revenue increased approximately $685,000, or 13.8%, from
approximately $5.0 million for the year ended December 31, 1998 to
approximately $5.6 million for the year ended December 31, 1999. Account4
consulting, support services and maintenance revenue increased approximately
$944,000, while consulting, support services and maintenance revenue from
prior products decreased by approximately $259,000. This reflects the
increase in Account4 consulting projects and maintenance revenue from a
growing installed base of Account4 customers.
COSTS AND EXPENSES
SOFTWARE LICENSES. Software license costs decreased approximately $39,000,
or 13.7%, from approximately $281,000 for the year ended December 31, 1998
to approximately $242,000 for the year ended December 31, 1999. As there
were no material software license costs associated with Account4 licenses in
either period, this decrease was attributable to a decrease in royalties
paid to third parties associated with prior products.
CONSULTING, SUPPORT SERVICES AND MAINTENANCE. Consulting, support services
and maintenance costs increased approximately $209,000, or 9.6%, from
approximately $2.2 million for the year ended December 31, 1998 to
approximately $2.4 million for the year ended December 31, 1999. This
increase was attributable to the expansion of our professional services
organization.
SALES AND MARKETING. Sales and marketing expenses increased approximately
$1.5 million, or 99.2%, from approximately $1.5 million for the year ended
December 31, 1998 to approximately $2.9 million for the year ended
December 31, 1999. This increase was due to an increase in costs related to
our Account4 marketing programs and the addition of sales and marketing
employees.
PRODUCT DEVELOPMENT. Product development expenses increased approximately
$509,000, or 54.9%, from approximately $925,000 for the year ended
December 31, 1998 to approximately $1.4 million for the year ended
December 31, 1999. This increase was attributable to the addition of product
development employees.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
approximately $45,000, or 6.7%, from approximately $663,000 for the year
ended December 31, 1998 to approximately $708,000 for the year ended
December 31, 1999. This increase was due to an increase in general overhead
costs incurred due to company-wide growth.
STOCK-BASED COMPENSATION. During the year ended December 31, 1999, we
amortized stock-based compensation expense of approximately $26,000. There
was no comparable charge during the year ended December 31, 1998.
INTEREST INCOME (EXPENSE), NET. Net interest expense decreased
approximately $32,000, or 28.1%, from approximately $112,000 for the year
ended December 31, 1998 to approximately $80,000 for the year ended
December 31, 1999. This decrease was due to an increase in interest earned
on higher cash balances.
24
PROVISION FOR INCOME TAXES. Provision for income taxes increased
approximately $104,000 from approximately $6,000 for the year ended
December 31, 1998 to approximately $110,000 for the year ended December 31,
1999. The provision for income taxes was recorded at an effective tax rate
of 40%. The provision for income taxes in 1998 was reduced by the
utilization of our net operating loss carryforwards.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1998
REVENUES
Total revenues increased approximately $1.7 million, or 39.6%, from
approximately $4.3 million for the year ended December 31, 1997 to approximately
$6.0 million for the year ended December 31, 1998. This increase reflects an
increase of approximately $255,000 in revenue related to Account4 and an
increase of approximately $1.5 million in revenue related to prior products. The
increase in Account4 revenue reflects further market penetration of the Account4
product as evidenced by an increase in cumulative Account4 licenses from 1 as of
December 31, 1997 to 9 as of December 31, 1998. Also contributing to the
increase was an increase in revenue associated with a large implementation of a
prior product.
SOFTWARE LICENSES. Software license revenue decreased approximately
$498,000, or 31.9%, from approximately $1.6 million for the year ended
December 31, 1997 to approximately $1.1 million for the year ended
December 31, 1998. Account4 software license revenue increased approximately
$226,000, while software license revenue from prior products decreased by
approximately $724,000.
CONSULTING, SUPPORT SERVICES AND MAINTENANCE. Consulting, support services
and maintenance revenue increased approximately $2.2 million, or 80.2%, from
approximately $2.7 million for the year ended December 31, 1997 to
approximately $5.0 million for the year ended December 31, 1998. Account4
consulting, support services and maintenance revenue increased approximately
$30,000 and consulting, support services and maintenance revenue from prior
products increased approximately $2.2 million. The increase associated with
prior products was primarily attributable to revenue associated with a large
implementation of a prior product.
COSTS AND EXPENSES
SOFTWARE LICENSES. Software license costs decreased approximately $155,000,
or 35.6%, from approximately $436,000 for the year ended December 31, 1997
to approximately $281,000 for the year ended December 31, 1998. As there are
generally no software costs associated with Account4 licenses, this decrease
was attributable to a decrease in royalties paid to third parties associated
with prior products.
CONSULTING, SUPPORT SERVICES AND MAINTENANCE. Consulting, support services
and maintenance costs increased approximately $977,000, or 82.1%, from
approximately $1.2 million for the year ended December 31, 1997 to
approximately $2.2 million for the year ended December 31, 1998. This
increase was primarily due to the increased costs associated with a large
implementation of a prior product as well as the increased costs associated
with the addition of consulting employees.
SALES AND MARKETING. Sales and marketing expenses increased approximately
$447,000, or 43.5%, from approximately $1.0 million for the year ended
December 31, 1997 to approximately $1.5 million for the year ended
December 31, 1998. This increase was due to an increase in costs related to
our Account4 marketing programs, an increase in commissions paid due to
increased revenue, and the addition of sales and marketing employees.
PRODUCT DEVELOPMENT. Product development expenses increased approximately
$364,000, or 65.1%, from approximately $561,000 for the year ended
December 31, 1997 to approximately
25
$925,000 for the year ended December 31, 1998. This increase was due to the
addition of product development employees.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
approximately $207,000, or 45.4%, from approximately $456,000 for the year
ended December 31, 1997 to approximately $663,000 for the year ended
December 31, 1998. This increase was due to an increase in general overhead
costs associated with company-wide growth and an increase in compensation
expense.
INTEREST INCOME (EXPENSE), NET. Net interest expense increased
approximately $11,000, or 10.6%, from approximately $101,000 for the year
ended December 31, 1997 to approximately $112,000 for the year ended
December 31, 1998. This increase was due to a decrease in interest earned on
cash balances.
PROVISION FOR INCOME TAXES. Provision for income taxes remained constant at
approximately $6,000 for the year ended December 31, 1997 and for the year
ended December 31, 1998. The provision for income taxes was recorded at an
effective tax rate of 40%, which was reduced by the utilization of our net
operating less carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
Since 1993, we have financed our operations through cash flow from
operations. The net cash flow from operations for each of the years in the
3-year period ended December 31, 1999 and quarter ended March 31, 2000 have been
impacted by net income (loss) along with changes in accounts receivable,
accounts payable and accrual expense (including deferred maintenance). Net cash
flow from operations was approximately $282,000 for the year ended December 31,
1997 and approximately $1.2 million for the year ended December 31, 1999. Net
cash used in operations was approximately $235,000 for the year ended
December 31, 1998 and approximately $1.3 million for the quarter ended
March 31, 2000, due to the changes noted above.
Cash used in investing activities, consisting of the purchase of computer
equipment, furniture and other equipment to support our corporate growth was
approximately $23,000, $138,000, $78,000 and $92,000 for the quarter ended
March 31, 2000, and the years ended December 31, 1999, December 31, 1998 and
December 31, 1997, respectively.
For the quarter ended March 31, 2000, and the years ended December 31, 1999
and December 31, 1998, cash used in financing activities was approximately
$1,000, $4,000 and $3,000, respectively. This cash used was primarily for the
payments on a capital lease obligation. For the year ended December 31, 1997, we
had cash provided by financing activities of approximately $1,000 due to
proceeds from the exercise of stock options.
We have notes payable to a shareholder of approximately $1.0 million and a
note payable to a non-shareholder of $50,000. All notes are due on December 31,
2001 and bear interest at a bank's prime rate (9.5% at March 31, 2000) plus
3.5%.
We expect to devote substantial resources to our product development
efforts, our sales and marketing programs, and the continued support and
maintenance of our growing customer base. We also expect to expand
internationally and to grow our infrastructure as necessary to support our
continued growth. As a result, we anticipate that capital expenditures will
continue to increase in absolute dollars in the foreseeable future. We believe
that the net proceeds from this offering, together with our current cash and
cash equivalents, will be sufficient to fund our operations for at least the
next 12 months.
26
QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK
The following discusses our exposure to market risk related to foreign
currency exchange rates, changes in interest rates and equity prices. This
discussion contains forward-looking statements that are subject to risks and
uncertainties. Actual results could vary materially as a result of a number of
factors including those set forth in the risk factors section of this
prospectus.
FOREIGN CURRENCY EXCHANGE RATE RISK
All of our revenues have been denominated in U.S. dollars, primarily from
customers in the United States, and we have no exposure to foreign currency
exchange rate changes. We expect, however, that future Account4 revenues may
also be derived from international markets and may be denominated in the
currency of the applicable market. As a result, our operating results may become
subject to significant fluctuations based upon changes in the exchange rates of
other currencies in relation to the U.S. dollar. Furthermore, to the extent that
we engage in international sales denominated in U.S. dollars, an increase in the
value of the U.S. dollar relative to foreign currencies could make our products
less competitive in international markets. Although we intend to monitor our
exposure to currency fluctuations, and, when appropriate, may use financial
hedging techniques in the future to minimize the effect of these fluctuations,
we cannot assure you that exchange rate fluctuations will not adversely affect
our financial results in the future.
INTEREST RATE RISK
As of March 31, 2000, we had approximately $477,000 of cash and highly
liquid short-term investments. Declines in interest rates would reduce our
interest income from our short-term investments. As of March 31, 2000, we had
total debt outstanding of approximately $1.1 million, which accrued interest at
a bank's prime rate (9.5% as of March 31, 2000) plus 3.5%. An increase in the
bank's prime rate would result in an increase in our interest expense.
EQUITY PRICE RISK
We do not own any equity securities. Therefore, we are not subject to any
direct equity price risk.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities," that requires companies to
record derivative financial instruments on their balance sheets as assets or
liabilities, measured at fair value. Gains or losses resulting from changes in
the values of those derivatives would be accounted for depending on the use of
the derivative instrument and whether it qualifies for hedge accounting. The key
criterion for hedge accounting is that the hedging relationship must be highly
effective in achieving offsetting changes in fair value or cash flows. In
June 1999, the FASB issued SFAS No. 137, "Accounting For Derivative Instruments
and Hedging Activities--Deferral of the Effective Date of FASB Statement
No. 133," that amends SFAS No. 133 to be effective for all fiscal quarters or
all fiscal years beginning after June 15, 2000.
In December 1999, the Securities and Exchange Commission released Staff
Accounting Bulletin No. 101, REVENUE RECOGNITION IN FINANCIAL STATEMENTS. This
bulletin summarizes certain views of the staff on applying generally accepted
accounting principles to revenue recognition in financial statements. The staff
believes that revenue is realized or realizable and earned when all of the
following criteria are met: persuasive evidence of an arrangement exists;
delivery has occurred or services have been rendered; the seller's price to the
buyer is fixed or determinable; and collectibility is reasonably assured. We
believe that our current revenue recognition policy complies with SEC
guidelines.
27
YEAR 2000 IMPACT
We have not experienced any problems with our computer systems or products
relating to distinguishing twenty-first century dates from twentieth century
dates, which generally are referred to as Year 2000 problems. We are also not
aware of any material Year 2000 problems with our clients or vendors.
Accordingly, we do not anticipate incurring material expenses or experiencing
any material operational disruptions as a result of any Year 2000 problems.
INFLATION
We believe that our revenues and results of operations have not been
significantly impacted by inflation during the past 3 fiscal years.
28
BUSINESS
OVERVIEW
We are a leading provider of Internet-based software solutions that PSOs and
corporate IT departments are using to successfully manage projects and to
increase the utilization, productivity, effectiveness and retention of their
workforces. Our fully-integrated Account4 solution utilizes 100% thin-client
architecture that allows users to access Account4 using only a Web browser and
an Internet connection. This is particularly attractive to organizations with
employees who work at multiple locations and at client sites. Account4 is
installed in a central location, making installation, personalization and
updates easy to implement and helping to make our customers' total cost of
ownership as low as possible. Installation on a central server and our
thin-client architecture will also allow us to modify Account4 to incorporate
emerging technologies and be fully-functional with hand-held and other computing
devices as demand for these features increases.
Account4 enables our customers to manage the processes that are key to their
businesses: developing new business; tracking employees' skills and
availability; assigning people to and managing projects; tracking work
performed, employee time and expenses incurred on a particular project; and
managing reports to clients. We also help our customers manage their workforce
data more efficiently by enabling the information collected by Account4 to be
transferred to and from other enterprise software programs, such as accounting
and human resources software.
As of May 1, 2000, we have licensed Account4 to 47 organizations for use by
over 30,000 users. A representative sample of our Account4 customers includes
ChaseMellon Shareholder Services, Inc., Continental Casualty Company, e-Sbiz,
Inc., infoWorks, a business unit ot Viacom International, Inc., Mellon Bank
Corporation, NSTAR, Octane Software, Inc., Silicon Graphics, Inc. and TXU Europe
Group, Inc. We designed and built Account4 as an entirely new, full-featured
Internet-based product. In designing the features and architecture of Account4,
we have drawn on our 13 years of experience in designing and implementing
project and workforce management solutions. We have provided these solutions,
including Account4, to over 267,000 users in more than 150 PSOs and corporate IT
departments.
THE PROFESSIONAL SERVICES AUTOMATION (PSA) MARKET OPPORTUNITY
PSOs and corporate IT departments are facing growth opportunities
constrained by inefficient internal management processes. Dataquest estimates
that worldwide spending on IT services will increase at the rate of 13.9% per
year to nearly $800 billion in 2003. A significant factor in the growth of the
IT services market has been the emergence of the Internet as a major platform
for business.
According to Gartner Group, demand for IT services will outpace the supply
of qualified IT personnel by as much as 20% per year through 2005. This
imbalance has caused tremendous strain on IT service providers. Gartner
estimates that by 2003, 30% of all e-business projects will be suspended or
cancelled due to the inavailability of IT resources.
The strain on IT service providers caused by the shortage of IT workers will
force IT service providers to automate the management and delivery of their
services to maximize their utilization of resources and profitability. The
largest opportunity exists for PSA software applications that provide end-to-end
solutions to automate and integrate processes which were previously paper-based,
manual or performed using various stand-alone and disparate software programs
within an organization. Such PSA solutions must also provide integrated access
to third party content, commerce and services in order to fully exploit this
opportunity.
The market for PSA solutions is exhibiting robust growth. Aberdeen Group
estimates that the worldwide market potential for PSA software solutions was
approximately $1.6 billion in 1998 and should increase 20% annually to
approximately $4.0 billion in 2003. The served portion of this market
29
is expected to increase by over 90% annually from $106 million in 1999 to
$1.6 billion in 2003, creating a large unserved market opportunity.
A comprehensive PSA solution enables executives, managers and staff to
become more productive and profitable by:
- increasing resource utilization through planning and scheduling;
- better managing new business opportunities;
- reducing billing turnaround time;
- increasing access to and sharing of knowledge across an organization;
- rapidly deploying the PSA solution across the enterprise;
- integrating with existing enterprise applications;
- capturing the inherently virtual, collaborative and people-centric
characteristics of the workforce; and
- offering an open, scalable and integrated architecture.
Current resource utilization among PSOs averages only 60-65%. Aberdeen Group
estimates that a PSA solution can increase the resource utilization of a
workforce by 3-8%. The impact of such an increase in resource utilization can be
significant. For example, a 1,000 person organization with a 3% increase in
resource utilization would have the equivalent of 30 additional people added to
its workforce.
THE ACCOUNT4 SOLUTION
Account4 provides a fully-integrated business solution that provides PSOs
and corporate IT departments with enhanced revenue and profit opportunities,
increased operational efficiency, higher resource utilization and productivity,
and improved customer satisfaction. We built Account4 on a technology platform
that delivers this business solution in a way that helps our customers minimize
both their total cost of ownership and their need to change their business
processes to accommodate our software.
BUSINESS BENEFITS OF THE ACCOUNT4 SOLUTION
We believe Account4 provides the following business benefits to our
customers:
- INCREASED REVENUE AND PROFIT OPPORTUNITIES. PSOs and corporate IT
departments can increase the number of projects and revenues and profits
per project on which they work by providing more efficient service
delivery and more accurate financial management. By monitoring available
resources in a real-time environment, our customers can deploy their
resources across more projects. Customers use the time and expense
tracking capabilities of Account4 to accelerate their billing process,
permitting more timely payment for services.
- IMPROVED EMPLOYEE UTILIZATION AND RETENTION. Managers can access employee
utilization data and distribute assignments to maximize the efficiency of
their workforce. Account4 relieves employees of many administrative
burdens and enables them to monitor their schedules, assignments, and time
and expenses, and perform other administrative functions, all in a
real-time environment. Account4 enables employees to improve their
billable hours, job satisfaction and career development. In addition,
improving employee utilization and retention reduces recruitment and
training expenses, protects key knowledge assets and can have a
significant impact on operating results.
30
- INCREASED EFFICIENCY OF OPERATIONS. Account4 enhances the capabilities and
effectiveness of knowledge workers within PSOs and corporate IT
departments by enabling the dissemination, sharing and reuse of critical
information throughout the enterprise. With Account4's Internet-based
access, service professionals can communicate and collaborate throughout
all phases of a project, allowing our customers to maximize the
productivity and improve the quality of work of each project member and
the project team as a whole.
- IMPROVED CLIENT SATISFACTION. Account4 improves client satisfaction by
more effectively matching client needs with the most appropriate resources
available for a project. Account4 enables our customers to provide their
clients constant project status updates, permitting better control of the
entire project. This efficiency allows PSOs and corporate IT departments
to develop closer relationships with their clients, fostering repeat
business.
TECHNOLOGY BENEFITS OF THE ACCOUNT4 SOLUTION
We believe our 100% thin-client architecture provides the following benefits
to our customers:
- RAPID DEPLOYMENT. Once installed, Account4 is immediately available to any
number of users without requiring installation on the users' computers.
Users can quickly and easily learn to use Account4.
- COST MINIMIZATION. Account4 minimizes the cost of implementation,
consulting, support and maintenance.
- EASE OF PERSONALIZATION, MODIFICATION AND SCALABILITY. Account4 can be
quickly and cost-effectively modified to conform to the specific needs of
a customer and to add users. New custom features can be easily added.
- ADAPTABILITY TO CUSTOMER'S BUSINESS. Account4 is designed to be process
neutral so that our customers can modify Account4 to accommodate their
business processes.
- CENTRAL DATABASE REPOSITORY. Account4 collects data into a single
integrated database, which allows our customers to make better business
decisions.
We believe these business and technology benefits collectively provide a
fully-integrated and comprehensive PSA solution that offers the lowest total
cost of ownership, creating a compelling competitive advantage for Account4.
GROWTH STRATEGY
Our objective is to be the leading global supplier of PSA solutions to PSOs
and corporate IT departments. We intend to achieve this goal by providing the
most innovative, functional and efficient PSA solutions. Key elements of our
strategy include:
- EXTENDING OUR LEADERSHIP POSITION IN THE RAPIDLY GROWING PSA MARKET. We
believe that the projected shortage of qualified IT personnel will
contribute to the rapid growth in the market for PSA solutions, currently
projected by Aberdeen Group to be over 90% annually. We will focus our
expanding sales and marketing efforts on leading PSOs and corporate IT
departments that need more efficient and robust PSA solutions to maximize
the utilization of their workforces. Account4 addresses the complex
collaboration and business processes that PSOs and corporate IT
departments face in selling, managing and delivering their services. Our
experience working with PSOs and IT customers to address their project and
workforce management needs allows us to quickly and efficiently assess and
meet their PSA needs and to attract new customers.
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- ENHANCING THE ACCOUNT4 BRAND TO CAPITALIZE ON SIGNIFICANT UNSERVED PSA
MARKET DEMAND. We intend to enhance our sales and marketing infrastructure
to increase brand awareness of Account4. Increased brand awareness will
allow us to capitalize on the significant current and future unserved
demand for PSA solutions. Aberdeen Group estimates that approximately
$2.0 billion of the $2.4 billion PSA market is currently unserved, and
that the unserved portion of the PSA market will grow to $2.4 billion of
the $4.0 billion market in 2003.
- ADVANCING ACCOUNT4'S TECHNOLOGY LEADERSHIP. Our Acccount4 technology
offers a unique PSA solution by combining 100% thin-client, XML compliant
capabilities with traditional technology standards such as HTML, HTTP and
SQL. Our technology objective is to continually improve our customers'
experience and enhance Account4's functionality, such as the extension of
our platform to support hand-held devices and voice-activated input. The
functionality and versatility of our technology will allow us to continue
to adapt Account4 to the specific requirements of an expanding customer
base in both the PSO and corporate IT markets.
- EXPANDING GLOBAL OPERATIONS. We believe there is a significant opportunity
to become a leading provider of PSA solutions to PSOs and corporate IT
departments internationally. We intend to invest significant resources in
our sales and marketing infrastructure to promote global recognition of
the Account4 brand. We also plan to continue to expand our other
operations needed to support a global concern, including administrative
and technology infrastructure, facilities and services.
- DEVELOPING OUR BUSINESS AND TECHNOLOGY RELATIONSHIPS. We intend to pursue
complementary business and technology partnerships that will allow us to
extend our technology development efforts and enhance the marketing, sales
and distribution of our products and services. In particular, we are
currently pursuing partnerships with IT staffing firms; other enterprise
software application firms, such as providers of human resources, customer
relationship management and accounting software products; application
service providers; value added resellers; and systems integrators. We
believe that these partnerships can provide us with access to additional
customers and technology that will enhance our existing PSA solutions and
allow us to further penetrate the PSO and corporate IT markets.
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PRODUCT AND SERVICES
ACCOUNT4
Account4 provides a fully-integrated, end-to-end PSA solution grouped into 3
major areas that mirror the business model of a typical PSO or corporate IT
department: Business Development, Service Delivery and Administration. Because
Account4 is an integrated Internet-based application, it provides users in an
organization the ability to access, share and collaborate on key data integral
to the success of their business.
[DESCRIPTION OF GRAPHIC ON PAGE 33]
The graphic is a shaded table titled "Account4 PSA Solution" with 3 boxed
categories beneath the title: "Business Development", "Service Delivery" and
"Administration". Features listed under each category are as follows:
Underneath "Business Development": "Contact Management", "Opportunity
Management", "Client Management" and "Work Requests".
Underneath "Service Delivery": "Engagement Management", "Work Tracking", "Skills
Management", "Resource Management", "Scheduling & Assignments" and
"Forecasting".
Underneath "Administration": "Time & Expense Reporting", "Invoicing",
"Chargebacks" and "Project Accounting".
BUSINESS DEVELOPMENT
Account4 supports the business development process from the identification
of a new business opportunity through the development and acceptance of an
engagement proposal. Features of Account4 that support business development
include:
- CONTACT MANAGEMENT. Users can establish their own individualized
categories for contacts, record activities such as telephone calls and
correspondence, and schedule future tasks.
- OPPORTUNITY MANAGEMENT. Sales managers are able to track the entire
sales cycle, price projects, forecast revenue and assess the
probability of completing a sale using "what if" scenarios based on
labor and nonlabor requirements, best practices templates or their own
model. Capacity planning is supported to maximize resource utilization.
- CLIENT MANAGEMENT. Users have immediate access to client portfolios and
all interactions with employees and contractors including documents,
contacts, telephone calls, contracts and statements of work to review
and manage client relationships.
- WORK REQUESTS. IT workgroups can manage a large number of requests for
services, regardless of complexity, and can assess their impact on the
group's business. Requests are initiated directly into the database and
are then electronically routed to the proper individuals so that
workers, requestors and evaluators are fully informed throughout the
project life cycle.
SERVICE DELIVERY
Account4 supports the service delivery process from the beginning of an
engagement through the completion of the project. Features of Account4 that
support service delivery include:
- ENGAGEMENT MANAGEMENT. Users can access information to manage work,
resources, time and expenses, and other project details.
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- WORK TRACKING. Users can identify, manage and track specific project
details to keep projects on time and within budget.
- SKILLS MANAGEMENT. Managers can access information and search for
resources within an organization based on the skills and proficiency
levels of service providers.
- RESOURCE MANAGEMENT. Managers can approve work requests, monitor and
approve time and expenses, monitor capacity and otherwise manage
resource utilization.
- SCHEDULING AND ASSIGNMENTS. Managers can review resource availability,
allocate resources to projects, and establish billing rates or charge
back allocation percentages for internal work.
- FORECASTING. Employees can communicate project status information and
managers can use the information to determine the effect any changes in
the project forecast would have on staff utilization.
ADMINISTRATION
Account4 provides the administrative services needed to support an
engagement and work efforts of a project from authorization to completion.
Features of Account4 that support administrative services include:
- TIME AND EXPENSE REPORTING. Users are able to quickly, easily and
accurately report 100% of their time and expenses spent on projects,
work requests, administrative tasks and vacation.
- INVOICING. Managers can collect and review expense items and create
invoices.
- CHARGEBACKS. Chargebacks are the internal billing of project costs
associated with work being performed by the IT staff of an
organization. IT managers can create, review and approve chargebacks
using Account4.
- PROJECT ACCOUNTING. Management can see the status of all work being
performed by staff, forecast the effects any new work may have on
staffing requirements and revenue potential, and perform win/loss
analysis on past opportunities.
ADDITIONAL FEATURES AND BENEFITS OF ACCOUNT4
Based on our experience in the project and work management markets, we have
added the following capabilities to enhance the usability of Account4:
- ACCOUNT4 MICROSOFT PROJECT PORTAL (MSP PORTAL). The MSP Portal provides a
bi-directional interface between Account4 and Microsoft's desktop project
management software, Microsoft Project. The MSP Portal allows customers to
create or store projects that pertain to new or previous work. These
projects may embody a company's best practices templates or may simply be
a knowledge base of how to perform familiar work. Using the MSP Portal,
information can be transferred to Account4, and the tasks from these
templates can be immediately distributed to all appropriate resources.
After time is entered, updates are made to the work in Account4, which can
be transferred back to Microsoft Project via the MSP Portal, automatically
updating the corresponding project. This provides managers with a means of
constantly updating projects using best practices and producing project
and resource-based graphical reports.
- ACCOUNT4 REPORT SERVER. The report server allows users to run reports
either on request or automatically at scheduled intervals. A comprehensive
selection/filtering mechanism within the report system allows managers to
select data from the Account4 knowledge base to focus on critical issues.
Reports can be added or modified at the user's discretion.
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CONSULTING, SUPPORT SERVICES AND MAINTENANCE
Our Professional Services Group assists our customers with the successful
implementation of Account4 by providing experienced and knowledgeable
professionals for implementation, development, training and support activities.
The Professional Services Group partners with our customers to:
- define their business requirements;
- create a design that meets their requirements;
- successfully implement Account4;
- provide user training and support;
- train system administrators to maintain the technical environment and
support their users;
- write customer-specific process, product and system documentation; and
- develop personalized HTML pages and processes, interfaces and reports.
We have successfully implemented enterprise business software systems in
organizations numbering from under a hundred to several thousand users for the
past 13 years. We build upon this experience and share our knowledge with
customers to help them achieve their goals.
Gartner Group estimates that total expenditures to implement traditional
client-server based enterprise software solutions can range from 3 to 5 times
the cost of licensing the software. Account4 has been designed to effectively
support customers having between 50 and several thousand users "out of the box".
Our experience indicates that even for customers who choose to purchase
implementation services from us the cost of implementing Account4 is, on
average, less than the cost of acquiring the Account4 software license.
We believe that high quality customer support is critical to ongoing
customer satisfaction. Our customer support group provides high quality
maintenance and technical support to our customers. Our customers have the
option to purchase a maintenance agreement, which is typically a one-year
renewable contract that entitles them to receive software updates and technical
support including telephone support and 24-hour access to the support area of
our website, www.account4.com.
CUSTOMERS
Our 13 years of experience in providing project work management solutions to
a customer base of more than 150 companies, representing over 267,000 licensed
users, have enabled us to establish a
35
reputation for developing and providing leading edge technology solutions for
the PSA market. The following table provides a representative sampling of our 47
customers who have licensed Account4:
Ascension Health, Inc. National Council on Compensation
Blue Dingo, Inc. Insurance
Boehringer Ingelheim Corporation Navion Software Solutions, Inc.
Chase Manhattan Corporation Nice Systems, Inc.
ChaseMellon Shareholder Services, NSTAR
Inc.
Concord Communications, Inc. Octane Software, Inc.
Continental Casualty Company Osage Systems Group, Inc.
CNC Professional Services, Inc. Radnet, Inc.
e-SBiz, Inc. Salt River Project
Giant Step, LLC Silicon Graphics, Inc.
Hartford Technology Service Company Software Architects, Inc.
Hitachi America, Ltd. TXU Europe Group, Inc.
infoWorks, a business unit of Viacom Valmet Information Services
International, Inc. International
Innovative Business Knowledge Western Digital Corporation
Interactive Intelligence, Inc.
Mellon Bank Corporation
CUSTOMERS CASE STUDIES
CONTINENTAL CASUALTY COMPANY (CNA) is one of the largest insurance companies in
the United States.
BUSINESS CHALLENGE: CNA's IT department utilized a proprietary mainframe
application to track work, budgets and time. CNA was seeking an Internet-based
application that was easy-to-use and focused on work management and project
tracking.
SOLUTION: Account4's functionality permitted greater insight into the IT
department's budgetary spending then CNA's former mainframe application. By not
forcing changes to CNA's existing business models, Account4's process-neutral,
Internet-based technology enabled CNA to extensively personalize Account4 to
meet its requirements and permit rapid training and migration of the workforce
to the new system. Account4 currently is being implemented for use by over 1,000
employees.
NSTAR is a leading utility service provider in the northeastern United States.
BUSINESS CHALLENGE: NSTAR's IT department receives a significant volume of
work requests and needed a PSA solution that could manage its service delivery
process. The merger of BEC Energy and Commonwealth Energy System, which created
NSTAR, necessitated the consolidation of the systems used by those companies for
tracking project requests and project status. The solution needed to be
implemented quickly and without changing existing business processes.
SOLUTION: Account4 is automating NSTAR's process of recording, prioritizing
and approving work requests and tracking project status without modifying the IT
department's existing processes. Account4's thin-client architecture will allow
NSTAR to implement Account4 rapidly. Using only Web browsers the IT department
staff will be able to easily access and exchange project data from any location.
TXU EUROPE, a subsidiay of TXU Corporation, is one of the largest energy
companies in the United Kingdom.
BUSINESS CHALLENGE: The TXU-Europe Center recognized the need to streamline
its current manual processes of resource management, reporting time and work
tracking. The organization needed an
36
application that was easy to install, use and place into production. The
selected solution needed to be nimble, customizable to specific needs and
accessible internationally.
SOLUTION: The TXU-Europe Center selected Acount4 to optimize its European
work force. Skills availability is leveraged within Account4 to match the right
person with the right job. The TXU-Europe Center successfully implemented
Account4 within its target timeline after passing a two-week proof-of-concept.
Account4's flexibility accommodated TXU-Europe Center's unique business
requirements on a timely basis. As a result of the partnership between
Account4.com and TXU's implementation team, Account4 allows the TXU-Europe
Center to realize its business design principles to enable a more responsive and
customer-focused service.
SALES AND MARKETING
We focus our marketing efforts on achieving brand recognition, market
awareness and lead generation. The market for Account4 includes PSOs and
corporate IT departments, and we typically market directly to the senior
management teams of those organizations.
We primarily sell our software through our direct sales force located in
Newton, Massachusetts, San Jose and Huntington Beach, California, Washington,
D.C. and Melbourne, Florida. Our direct sales teams consist of tele-sales
representatives and sales, executives and software sales engineers. The
tele-sales representatives identify and qualify prospects, the sales executives
manage the sales cycle and the sales engineers provide technical support
throughout the sales cycle. Our direct sales teams are responsible for
geographic territories. We intend to enhance the distribution and market
presence of Account4 through the expansion of our direct sales staff and through
alliances with systems integrators and other third parties that will allow us to
expand domestically and internationally.
In selling Account4, we approach both business users and IT professionals
with our direct sales team. Initial sales activities typically include a
demonstration of Account4's capabilities followed by one or more detailed
technical reviews. Our sales process requires that we work closely with our
customers to identify short-term PSA needs and long-term PSA goals. The direct
sales teams then work with each customer to develop a proposal to address these
needs. The level of customer analysis and financial commitment required to
implement a PSA solution has resulted in our sales cycle ranging from 3 to 6
months.
We use a variety of marketing programs to build market awareness of our
company, brand name and product, and to attract potential customers. These
programs include targeted advertising in selected publications, product and
strategy updates with industry analysts, online marketing at our website,
www.account4.com, as well as tele-sales, attendance at seminars and tradeshows,
and speaking engagements by members of our management. Our marketing programs
allow us to qualify leads quickly, demonstrate the value of our products to
potential customers and measure customer feedback.
In addition, we sponsor PSASoftware.com, a website we launched in
April 2000 to provide a forum for participants in the PSA industry to share
their knowledge with PSOs and corporate IT departments. PSASoftware.com also
provides PSA industry news and analysis. Microsoft and Aberdeen Group are
co-sponsors of PSASoftware.com with us. We intend to continually enhance
PSASoftware.com by adding new content and seeking additional sponsors.
TECHNOLOGY
We built Account4 using state-of-the-art Internet technologies, embodying
accepted technology standards (HTML, HTTP and SQL) as well as emerging Internet
standards, such as XML.
37
Account4 consists of an application server and a database. Account4 is a
100% thin-client application, which means the customer may access Account4 using
only a Web browser with an Internet connection. The Account4 architecture
includes the following strategic components:
- ACCOUNT4 APPLICATION SERVER. The Account4 Application Server fully
leverages the benefits of Internet and thin-client computing. The program
operates on Windows NT 4.0 with Microsoft Internet Information Server.
Account4 is entirely server-based, unlike other applications that are
retrofitted for the Internet using Java applets and ActiveX components.
Upgrades and updates to Account4 are performed once, on the central server
computer, and are available immediately to users across the customer's
organization.
- ACCOUNT4 APPLICATION. The Account4 application code is installed entirely
on a server computer and not on individual users' computers. The Account4
application source pages are written in the Account4 XML language. These
pages define the display of HTML pages and forms, specify business rule
validation and define database query and update functions. We have built
these pages using XML standards. Based on these pages, the Account4
Application Server dynamically generates HTML that is sent to the browser.
The Account4 application allows our customers to modify, personalize and
extend Account4 quickly and inexpensively.
- ACCOUNT4 APPLICATION PROGRAMMING INTERFACE. The Account4 Application
Programming Interface (API) provides comprehensive access to the Account4
database. The API allows for the sharing of data between Account4 and
other applications, other databases and other platforms. The API can be
used for synchronizing distributed information, eliminating redundant data
entry and capturing data via Account4 to interface to other systems. It
can be used to build full-featured linking applications between Account4
and other enterprise software programs, such as human resources or
accounting systems.
- ACCOUNT4 DATABASE STRUCTURE. Account4 supports both the Microsoft
SQLServer and Oracle relational databases. Account4 can utilize these
databases on any platform supported by Microsoft or Oracle. The Account4
database is designed to be easily extended and personalized by our
customers.
- ACCOUNT4 SYSTEM SECURITY. All Account4 pages are secured and require a
valid user ID and password to be accessed. The system administrator issues
an Account4 user ID and password that controls the database information
that each user can view and the functions that each user can access.
PRODUCT DEVELOPMENT
We believe that technology changes and market demand will require us to
continually introduce new and enhanced products and effectively maintain our
core technology and product functionality. In order to provide the necessary
stimulus for further technology and product development, we have incorporated a
strategy which combines our own internal research with customer input and
feedback from our sales force. In addition, we believe that constantly
evaluating new technologies and concepts for Account4 allows us to maintain our
competitive position. We invest significant resources in product development and
expect to continue to do so in the future.
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
Our success is dependent upon our ability to develop and protect our
proprietary technology and intellectual property rights. We seek to protect our
software, documentation and other written materials primarily through a
combination of trade secret, trademark and copyright laws, confidentiality
procedures and contractual provisions. For example, we license, rather than
sell, our software, and we require licensees to enter into license agreements
that impose restrictions on the licensees' ability to
38
utilize the software. In addition, we seek to avoid disclosure of our trade
secrets, by, among other things, requiring people with access to our proprietary
information to execute confidentiality agreements with us and by restricting
access to our source code.
COMPETITION
Competition in the PSA market is fragmented and growing increasingly
intense. Early entrants are attempting to establish technology excellence and
product superiority in an effort to gain acceptance and command market share.
Our competitors have chosen a variety of technology platforms for their
products. Although differing platforms offer individual advantages, we feel that
Account4's thin-client platform offers increased independence, greater
scalability, platform stability and personalization with significantly lower
development costs. We believe these factors, coupled with Account4's flexibility
to adapt to customer requirements in a cost-effective and user-friendly manner,
give Account4 a distinct competitive advantage.
We believe that the primary competitive factors in our market include:
- product quality, performance, features, functionality and usability;
- ease of integration with customers' existing business processes;
- an underlying technology architecture that facilitates low cost of
ownership and maintenance, and ease of expandability and personalization
to quickly meet unique customer requirements;
- knowledge of the PSA market and experience in the enterprise software
industry;
- a critical mass of prominent referenceable customers that have
successfully implemented PSA solutions; and
- customer service and support.
We believe we compete favorably with respect to these factors.
EMPLOYEES
As of May 1, 2000, we had 68 full-time employees, of which 26 were in sales
and marketing, 18 were in product development and support, 16 were in
professional services, and 8 were in executive management and administration. We
believe that our benefits package and corresponding costs are commensurate with
industry standards. None of our employees is covered by collective bargaining
agreements, and we have not experienced a strike or work stoppage. We believe
our relationship with our employees is good.
FACILITIES
Our corporate headquarters are located in Newton, Massachusetts. We have a 5
year lease for approximately 12,000 square feet of office space that expires in
July 2002, with an option for 3 additional years. This facility is strategically
located within the high technology belt of the northeastern United States and is
near colleges and universities in the Boston area. This location enables us to
actively recruit talented and experienced professionals. As a result of our
recent growth and anticipated expansion, we are currently seeking additional
office space in the Boston area. Additionally, we have sales offices in San Jose
and Huntington Beach, California, Washington, D.C. and Melbourne, Florida.
LEGAL PROCEEDINGS
We are not currently party to any material legal proceedings.
39
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information about our directors and executive
officers, including their ages, as of May 1, 2000:
NAME AGE POSITION
- ---- -------- --------
John J. Lucas..................... 55 Chairman, President, Chief Executive Officer and Director
Stephen M. Grange................. 54 Senior Vice President, Chief Financial Officer and
Director
E. Richard Artus.................. 57 Vice President of Marketing
Michael J. Beringer............... 47 Vice President of Sales
David M. Cooper................... 45 Vice President of Development and Chief Technology Officer
Stephen M. Fahey.................. 35 Vice President of Sales, Eastern Region
Louis A. Pereira.................. 36 Vice President of Professional Services
Richard F. Stenquist.............. 48 Vice President of Business Development
Joseph J. Freeman................. 67 Director
H. William Howard................. 65 Director
Edward P. Marram, Ph.D............ 63 Director
John P. McGrath................... 59 Director
JOHN J. LUCAS has been our President and Chief Executive Officer since 1993
and our Chairman and a director since April 2000. From 1991 to 1993 Mr. Lucas
was President of Mitech Corporation, a developer and marketer of manufacturing
software. In 1986, Mr. Lucas founded Bechtel Software, Inc., a division of the
Bechtel Group, an engineering company, and served as President of Bechtel
Software from 1986 to 1991. From 1979 to 1986, Mr. Lucas served as Executive
Vice President of Project Software & Development, Inc., a provider of asset
management, project management and maintenance management software and services.
Mr. Lucas holds a B.S. in Engineering from the University of Notre Dame and an
M.B.A. in Management Science from the University of Buffalo.
STEPHEN M. GRANGE has been our Chief Financial Officer since 1990 and a
director since April 2000. From February 1993 to February 2000, Mr. Grange was
also our Vice President of Professional Services. From 1986 to 1989, Mr. Grange
was the Chief Financial Officer, and from 1988 to 1989 was also President, of
Atlantic Microsystems, Inc., a software company. Mr. Grange holds a B.S. in
Business Finance from Northwestern University and an M.B.A. from the Graduate
School of Business at the University of Chicago.
E. RICHARD ARTUS has been our Vice President of Marketing since 1996. From
1989 to 1995, Mr. Artus held various senior management positions at Productivity
Solutions, Inc., a developer of software solutions for managing projects,
workflow and resources, including Chairman, President and CEO. From 1987 to
1989, he was Senior Vice President of Bechtel Software. Mr. Artus holds a B.S.
in Engineering from Northeastern University.
MICHAEL J. BERINGER has been our Vice President of Sales since
January 1997. From 1993 to January 1997, Mr. Beringer was Vice President of
Sales and Marketing for Metra Corporation, a software developer and marketer of
manufacturing control systems. From 1992 to 1993, Mr. Beringer was Director of
Sales of Mitech. From 1989 to 1992, Mr. Beringer was Vice President of Sales for
CimTelligence Corporation, a software developer and marketer of manufacturing
process and expert
40
systems software. Mr. Beringer holds a B.S. in Biology, a B.A. in Psychology and
an M.B.A. from Loyola University at Los Angeles.
DAVID M. COOPER has been our Chief Technology Officer since 1996 and our
Vice President of Development since January 2000. From 1993 to 1996, Mr. Cooper
was an independent software and Internet consultant. From 1988 to 1993,
Mr. Cooper was our Vice President of Product Development. Mr. Cooper holds a
B.S. in History and Psychology from Tufts University and an M.A. in Law and
Diplomacy from the Fletcher School of Law and Diplomacy at Tufts University.
STEPHEN M. FAHEY has been our Vice President of Sales, Eastern Region since
March 1998. From 1997 to 1998, Mr. Fahey served as Manager of Strategic Accounts
of InfoMation Publishing Corporation. From 1994 to 1997, he served as Vice
President of Sales and Marketing of 4Point Software, Inc. Mr. Fahey holds a B.A.
in Economics from the University of Massachusetts.
LOUIS A. PEREIRA has been our Vice President of Professional Services since
January 2000. From 1997 to 1999, Mr. Pereira served as our director of
Application Development. From 1996 to 1997, Mr. Pereira was an Assistant Vice
President and Senior Product Manager at Fidelity Investments. From 1990 to 1996,
Mr. Pereira served as a Client Service Officer for State Street Bank and Trust
Company. Mr. Pereira holds a B.S. in Accounting and Finance from Bridgewater
State College.
RICHARD F. STENQUIST has been our Vice President of Business Development
since January 2000. From 1994 to 1999, Mr. Stenquist served as a Manager for
KPMG L.L.P.'s consulting practice in the area of time and expense and labor
costing software. Mr. Stenquist holds a B.S. in Liberal Arts from the University
of Illinois at Urbana.
JOSEPH J. FREEMAN has served as one of our directors since April 1988. Since
1986, Mr. Freeman has been the President and a director of LRF
Investments, Inc., a privately held investment firm. Mr. Freeman also serves as
a director of Hanover Capital Mortgage Holdings, Inc. a publicly held mortgage
banking company, a director of Merrimack Mortgage Co., Inc., and a director of
the Newton Group, Inc. Mr. Freeman holds a B.S. in Business Administration from
Boston University.
H. WILLIAM HOWARD has served as one of our directors since April 2000. Since
1998, Mr. Howard has been Chief Information Officer of Sun Microsystems, Inc., a
publicly held provider of network computing environments. From 1990 to 1998,
Mr. Howard served as the Corporate Vice President of Information Technology and
Chief Information Officer for Inland Steel Industries, Inc. Prior to 1990,
Mr. Howard was Vice President of Information Technology of the Bechtel Group. He
has also held sales and management positions at IBM, Systems Industries, Inc.
and Memorex. Mr. Howard holds a B.S. in Science and Engineering from Princeton
University and an M.B.A. from Stanford University's Graduate School of Business.
EDWARD P. MARRAM, PH.D. has served as one of our directors since April 2000.
Dr. Marram is the Chairman and Chief Executive Officer of Geo-Centers, Inc., a
privately held high-technology professional services firm, which he founded in
1972. Dr. Marram is Entrepreneur-in-Residence at Babson College and an adjunct
professor at the European Institute of Business Administration in France.
Dr. Marram holds a B.S. in Chemistry and an M.S. in Physics from the University
of Massachusetts, and a Ph.D. in Physical Chemistry from Tufts University.
JOHN P. MCGRATH has served as one of our directors since April 2000. Since
1996 Mr. McGrath has served as Chairman of MFP Financial Services Limited, a
publicly held technology equipment lease financing company in Mississauga,
Ontario. Mr. McGrath is also a Senior Associate (limited partner) and, from 1971
to 1998 was a director and Vice President, of RBC Dominion Securities, an
investment banking firm and a division of Royal Bank of Canada. Mr. McGrath also
serves as a director of Atelier America, Inc., a manufacturer and distributor of
textured art work reproductions. Mr. McGrath holds a Bachelor of Commerce degree
from the University of Toronto.
41
TERM OF DIRECTORS AND EXECUTIVE OFFICERS
Our directors are elected annually by our shareholders and serve until their
successors are elected and qualified. Our officers are elected annually by our
board of directors and serve until their successors are elected and qualified.
COMMITTEES OF THE BOARD OF DIRECTORS
Our Board of Directors has established an audit committee and compensation
committee. Our Board of Directors selects the directors who will serve as
members of these committees and may reduce or enlarge the size of the committees
or change the scope of their responsibilities. Our Board of Directors has no
current plans to take any of these actions. The rules of the Nasdaq National
Market, on which our common stock is proposed to be listed, require us to
maintain an audit committee consisting of at least 2 directors who are not our
employees.
The audit committee consists of Dr. Marram and Messrs. Freeman and McGrath.
The audit committee reviews the scope and timing of the audit services and any
other services our independent auditors are asked to perform, the auditor's
report on our financial statements following completion of their audit, and our
policies and procedures with respect to internal accounting and financial
controls. In addition, the audit committee makes annual recommendations to our
Board of Directors for the appointment of independent auditors for the following
year.
The compensation committee consists of Messrs. Howard and McGrath. The
compensation committee reviews and recommends to our Board of Directors the
salaries, incentive compensation and benefits of our senior officers and
administers our stock option and stock purchase plans and other employee benefit
plans.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Our Board of Directors established the compensation committee in
April 2000. Prior to establishing the compensation committee, our Board of
Directors, with consultation from senior management, performed the functions
delegated to the compensation committee. No member of our compensation committee
has served as a member of our Board of Directors or compensation committee of
any entity that has one or more of its executive officers serving as a member of
our Board of Directors or compensation committee. Since the formation of the
compensation committee, none of its members has been one of our officers or
employees.
Employee directors, who currently include John J. Lucas and Stephen M.
Grange, are eligible to participate in our 2000 Employee Stock Purchase Plan.
COMPENSATION OF DIRECTORS
Members of our Board of Directors are reimbursed for expenses incurred in
attending any meeting of our Board of Directors or any committee thereof. In
addition, our non-employee directors receive annual compensation in the amount
of $8,000 for services performed in their capacity as directors. Also, each new
non-employee director receives a grant of a stock option to purchase 15,000
shares of our common stock on the date on which the person becomes a director.
The option vests over 3 years. One-third of the shares subject to such options
vest on the first anniversary of the date on which the person became a director,
and 1/36(th) of the total number of shares vest each month thereafter while such
individual continues to serve as a director.
EXECUTIVE COMPENSATION
The following table sets forth in summary form the compensation paid or
accrued by us during the years ended December 31, 1997, 1998 and 1999, to our
Chairman, President and Chief Executive
42
Officer, and each of our 5 other most highly compensated officers. In accordance
with the rules of the SEC, the compensation described in this table does not
include perquisites and other personal benefits received by the executive
officers named in the table below that do not exceed the lesser of $50,000, or
10% of the total salary and bonus reported for these officers.
LONG-TERM
COMPENSATION
ANNUAL AWARDS
COMPENSATION SECURITIES
-------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(#) COMPENSATION($)
- --------------------------- -------- --------- -------- ------------- ---------------
John J. Lucas......................... 1999 189,915 121,766 -- --
Chairman, President and 1998 166,980 137,327 -- --
Chief Executive Officer 1997 166,980 150,025 -- --
Stephen M. Grange..................... 1999 154,596 99,943 -- --
Senior Vice President and 1998 139,150 112,884 -- --
Chief Financial Officer 1997 139,150 123,322 -- --
E. Richard Artus...................... 1999 109,167 6,346 -- --
Vice President of Marketing 1998 100,000 6,140 -- --
1997 90,000 7,115 126,655 --
Michael J. Beringer................... 1999 103,333 59,550 -- --
Vice President of Sales 1998 98,333 34,123 -- --
1997 82,500 48,061 101,324 --
David M. Cooper....................... 1999 109,167 6,346 -- --
Vice President of Development and 1998 100,000 5,769 -- --
Chief Technology Officer 1997 93,333 7,308 177,317 --
Stephen M. Fahey...................... 1999 78,417 126,919 25,331 --
Vice President of Sales, Eastern 1998 57,000 39,116 25,331 --
Region 1997 -- -- -- --
STOCK OPTION GRANTS IN 1999
The following table sets forth, as to the named executive officers and key
employees, information concerning stock options granted during the year ended
December 31, 1999.
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
------------------------- ANNUAL RATE OF
NUMBER OF PERCENT OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION ---------------------
GRANTED 1999 SHARE DATE 5% 10%
---------- ------------- --------- ---------- --------- ---------
Stephen M. Fahey............... 25,331 12.3% $.59 4/1/09 $533,400 $842,650
AGGREGATED OPTION EXERCISES IN LAST YEAR AND YEAR-END OPTION VALUES
The following tables sets forth for the named executive officers exercisable
and unexercisable options held by them as of December 31, 1999. The named
executive officers did not exercise any options during the year ended
December 31, 1999. All options granted to these executive officers in the last
year were granted under the 1997 Stock Plan. All options were granted at a fair
market value as determined by our Board of Directors on the date of the grant.
43
The "Value of Unexercised In-the-Money Options at December 31, 1999" is
based on a value of $.59 per share, the fair market value of our common stock as
of December 31, 1999, as determined in good faith by our Board of Directors,
less the per share exercise price, multiplied by the number of shares issuable
upon exercise of the option.
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT DECEMBER 31, 1999 AT DECEMBER 31, 1999
ACQUIRED VALUE ----------------------------- ---------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- -------- ------------ -------------- ----------- -------------
John J. Lucas............ -- -- -- -- -- --
Stephen M. Grange........ -- -- -- -- -- --
E. Richard Artus......... -- -- -- 126,655 -- $ 74,750
Michael J. Beringer...... -- -- -- 101,324 -- $ 59,800
David M. Cooper.......... -- -- -- 177,317 -- $104,650
Stephen M. Fahey......... -- -- -- 50,662 -- $ 10,000
BENEFIT PLANS
2000 EMPLOYEE STOCK PURCHASE PLAN
Our 2000 Employee Stock Purchase Plan was adopted by our Board of Directors
and shareholders in April 2000. The 2000 Employee Stock Purchase Plan provides
for the issuance of a maximum of 250,000 shares of our common stock.
Our 2000 Employee Stock Purchase Plan will be administered by the
compensation committee of our Board of Directors. All employees who have
completed at least 90 days of employment and whose customary employment is for
more than 20 hours per week and for more than 3 months in any calendar year are
eligible to participate in the 2000 Employee Stock Purchase Plan. Employees who
would own 5% or more of the total combined voting power or value of our capital
stock immediately after the grant of the option may not participate in the 2000
Employee Stock Purchase Plan. To participate, an employee must authorize us to
deduct an amount not less than one percent and not more than 10% of his or her
total cash compensation from his or her pay during 6-month payment periods. The
first payment period will commence on the earlier to occur of June 1, 2000 and
the first day of the first calendar month following the effective date of a
registration statement on Form S-8 to be filed with respect to the shares issued
under the 2000 Employee Stock Purchase Plan and shall end December 31, 2000.
Thereafter, the 6-month payment periods will commence on each January 1 and
July 1. In no case shall an employee be entitled to purchase more than
shares in any one payment period. The price of each share of common stock
purchased in each payment period is 85% of the lesser of the last reported sale
price of our common stock on the first or last business day of the payment
period, in either event rounded up to the nearest cent. If an employee is not a
participant on the last day of the payment period, such employee is not entitled
to purchase any shares of common stock for that period pursuant to the 2000
Employee Stock Purchase Plan, and the amount of his or her accumulated payroll
deductions will be refunded. Rights pursuant to the 2000 Employee Stock Purchase
Plan may not be transferred or assigned. An employee's rights under the 2000
Employee Stock Purchase Plan terminate upon his or her voluntary withdrawal from
the plan at any time or upon termination of employment. No rights have been
granted to date under the 2000 Employee Stock Purchase Plan.
1997 STOCK PLAN
Our 1997 Stock Plan was adopted by our Board of Directors and by our
shareholders in 1997. As of May 1, 2000, we had reserved a total of 2,401,379
shares of common stock for issuance under the plan, of which options to purchase
of 1,458,421 shares were outstanding. The 1997 Stock Plan provides
44
for the granting to our employees of incentive stock options within the meaning
of Section 422 of the United States Internal Revenue Code, and for the granting
of restricted stock and non-statutory stock options to employees, including
officers and directors, non-employee directors and consultants.
Options and restricted stock granted under our 1997 Stock Plan are not
generally transferable by the option holder, and each option is exercisable
during the lifetime of the option holder only by the option holder. Options
granted under the 1997 Stock Plan must generally be exercised within 3 months of
the end of option holder's status as our employee or consultant, or within
180 days after termination by death or disability, but in no event later than
the expiration of the option's 10 year term.
401(K) PLAN
In 1989, we adopted a 401(k) plan to provide eligible employees with a tax
deferred savings and investment program. Eligible participants may elect to
reduce their current compensation up to the lesser of 15% of eligible
compensation or the statutorily prescribed annual limit, currently $10,500, and
have such reduction contributed to the 401(k) plan. Each participant can direct
the investment of his or her account among selected investment options.
Contributions by participants to the 401(k) plan, and income earned on plan
contributions, are generally not taxable to the participants until withdrawn.
LIMITATION OF LIABILITY AND INDEMNIFICATION
Pursuant to the Delaware General Corporation Law we have adopted provisions
in our Certificate of Incorporation that eliminate the personal liability of our
directors and officers to us and our shareholders for monetary damages for
breach of the directors' fiduciary duties in certain circumstances. Our By-Laws
require us to indemnify our directors, officers, employees and other agents to
the fullest extent permitted by law.
We believe that the limitation of liability provisions in our Certificate of
Incorporation and the indemnification provisions of our By-Laws will enhance our
ability to continue to attract and retain qualified individuals to serve as
directors and officers.
There is no pending litigation or proceeding involving any of our directors,
officers or employees to which the indemnification provisions would apply. We
plan to purchase officers' and directors' liability insurance coverage.
45
RELATED PARTY TRANSACTIONS
Other than the compensation and other arrangements which are described in
"Management", and the transactions described below, since we were formed, there
has not been nor is there currently proposed, any transaction or series of
similar transactions to which we were or will be a party:
- in which the amount involved exceeded or will exceed $60,000; and
- in which any of our directors, executive officers, holders of more than 5%
of our common stock or any member of their immediate families had or will
have a direct or material interest.
From 1988 to 1992 we borrowed funds from LRF Investments, Inc., a principal
shareholder. The following provides additional detail with respect to these
borrowings:
- $100,000 revolving credit line, interest at a bank's prime rate (9.50% at
March 31, 2000) plus
3.5%, due December 31, 2001, of which $45,564 is outstanding as of
March 31, 2000
- $400,000 of subordinated notes payable, interest at a bank's prime rate
(9.50% at March 31, 2000) plus 3.5%, due December 31, 2001
- $500,000 note payable, interest at a bank's prime rate (9.50% at
March 31, 2000) plus
3.5%, due December 31, 2001
- $240,000 line of credit, interest at a bank's prime rate (9.50% at
March 31, 2000) plus
3.5%, due December 31, 2001, of which $100,000 is outstanding as of
March 31, 2000
We have a consulting agreement with LRF Investments, Inc. pursuant to which
we pay approximately $1,000 each month during which there are any amounts
outstanding under these borrowings.
We believe that all of the above transactions were made on terms no less
favorable to us than could have been obtained from unaffiliated third parties on
an arm's-length basis. Following the completion of this offering, all
transactions with our shareholders, officers and directors, and their
affiliates, if any, will be subject to the approval of a majority of the
disinterested outside directors and will continue to be conducted on terms no
less favorable to us than could be obtained from unaffiliated third parties on
an arm's-length basis.
46
PRINCIPAL SHAREHOLDERS
The following table sets forth information with respect to the beneficial
ownership of our common stock as of May 1, 2000, and as adjusted to reflect our
sale of common stock in this offering, by:
- each of our directors;
- each shareholder known to us to be the beneficial owner of more than 5% of
our common stock; and
- all of our executive officers and directors as a group.
As of May 1, 2000 we had 11,384,521 shares of common stock issued and
outstanding. A person is deemed to be a beneficial owner of a security if that
person has or shares "voting power," which includes the power to vote or direct
the voting of a security, or "investment power," which includes the power to
dispose of or direct the disposition of a security. Except as otherwise
indicated, and subject to applicable community property laws, the persons named
below have sole voting and investment power with respect to all shares of common
stock beneficially owned by them. Unless otherwise indicated, the address of
each beneficial owner below is 75 Wells Avenue, Newton, Massachusetts 02459.
PERCENTAGE OF
COMMON STOCK
OUTSTANDING(1)
NUMBER OF SHARES -------------------
BENEFICIALLY BEFORE AFTER
NAME OF BENEFICIAL OWNER OWNED(1) OFFERING OFFERING
- ------------------------ ---------------- -------- --------
LRF Investments, Inc........................................ 5,687,194 50.0% 37.0%
John J. Lucas(2)(3)......................................... 2,342,697 20.6% 15.2%
Stephen M. Grange(4)(5)..................................... 2,255,265 19.8% 14.7%
Joseph J. Freeman(6)........................................ 5,687,194 50.0% 37.0%
H. William Howard........................................... -- --
Edward P. Marram, Ph.D...................................... -- --
John P. McGrath............................................. -- --
All directors and executive officers as a group (12
persons).................................................. 10,285,156 90.3% 66.9%
- ------------------------
(1) If the underwriters exercise their overallotment option in full, LRF
Investments, Inc. will own 5,387,194 shares, or 35.0%, of our outstanding
shares; Mr. Lucas will own 2,217,697 shares, or 14.4%, of our outstanding
shares; and Mr. Grange will own 2,150,265 shares, or 14.0%, of our
outstanding shares.
(2) Excludes 785,261 shares as to which Mr. Lucas disclaims beneficial
ownership and which are owned beneficially by, or held in trust for,
Mr. Lucas' children.
(3) Includes 1,563,979 restricted shares which are subject to a repurchase
option that expires upon the completion of this offering. When this
repurchase option expires, Mr. Lucas will repay to us a $6,174.17 promissory
note with which he paid for these shares.
(4) Excludes 303,972 shares as to which Mr. Grange disclaims beneficial
ownership and which are held beneficially by Mr. Grange's children.
(5) Includes 1,279,618 restricted shares which are subject to a repurchase
option that expires upon the completion of this offering. When this
repurchase option expires, Mr. Grange will repay to us a $5,051.59
promissory note with which he paid for these shares.
(6) Represents shares owned by LRF Investments of which Mr. Freeman is
President and a director. Mr. Freeman disclaims beneficial ownership of
these shares.
47
DESCRIPTION OF CAPITAL STOCK
The following description of our capital stock is only a summary and is not
complete. You should read the full text of our Certificate of Incorporation and
By-Laws, which were filed as exhibits to the registration statement of which
this prospectus is a part.
AUTHORIZED AND OUTSTANDING CAPITAL STOCK
Our authorized capital stock consists of 40,000,000 shares of common stock,
$.01 par value per share, and 10,000,000 shares of preferred stock, $.01 par
value per share. Upon the completion of this offering, there will be
15,384,521 shares of common stock outstanding.
COMMON STOCK
As of May 1, 2000, there were outstanding 11,384,521 shares of common stock
held by 12 shareholders of record. There will be 15,384,521 shares of common
stock outstanding assuming no exercise of outstanding options after May 1, 2000,
after giving effect to the sale of our common stock in this offering. There are
outstanding options to purchase a total of 1,458,421 shares of our common stock.
Holders of our common stock are entitled to one vote per share on all matters
upon which shareholders have the right to vote. Cumulative voting is not
permitted. Subject to preferences that may be applicable to any outstanding
preferred stock, holders of our common stock are entitled to receive ratably any
dividends as may be declared by our Board of Directors out of legally available
funds. In the event of our liquidation, dissolution or winding up, holders of
our common stock are entitled to share ratably in all assets remaining after
payment of liabilities, and after payment of any preferential amounts to which
holders of our preferred stock may be entitled. Holders of our common stock have
no preemptive or other subscription or conversion rights. There are no
redemption or sinking fund provisions applicable to our common stock.
PREFERRED STOCK
Our Certificate of Incorporation authorizes our Board of Directors to issue,
without further action by the holders of the common stock, shares of preferred
stock in one or more series and to fix any preferences, conversion and other
rights, voting powers, restrictions, limitations, qualifications and terms and
conditions of redemption as shall be set forth in resolutions adopted by our
Board of Directors. A certificate of designation or a certificate of amendment
must be filed with the Delaware Secretary of State prior to the issuance of any
shares of preferred stock of the applicable series. Any preferred stock so
issued may rank senior to the common stock with respect to the payment of
dividends or amounts payable upon liquidation, dissolution or winding-up, or
both. In addition, any shares of preferred stock issued may have class or series
voting rights. Issuances of preferred stock, while providing us with flexibility
in connection with general corporate purposes, may, among other things, have an
adverse effect on the rights of holders of common stock and could have the
effect of discouraging or making it more difficult for a third party to acquire
a majority of our outstanding voting stock or the effect of decreasing the
market price of our common stock. As of the date of this prospectus, no shares
of preferred stock are outstanding, and we have no present plan to issue any
shares of preferred stock.
CHARTER PROVISIONS AND DELAWARE LAWS THAT MAY HAVE AN ANTI-TAKEOVER EFFECT
Some provisions of Delaware law and our Certificate of Incorporation and
By-Laws could make the following more difficult:
- acquisition of us by means of a tender offer;
- acquisition of us by means of a proxy contest or otherwise; or
48
- removal of our incumbent officers and directors.
These provisions, summarized below, are expected to discourage coercive
takeover practices and inadequate takeover bids. These provisions are also
designed to encourage persons seeking to acquire control of us to first
negotiate with our Board of Directors. We believe that the benefits of increased
protection of our potential ability to negotiate with the proponent of an
unfriendly and unsolicited proposal to acquire or restructure us outweigh the
disadvantages of discouraging such proposals because negotiation of such
proposals could result in an improvement of their terms.
REQUIREMENTS FOR ADVANCE NOTIFICATION OF SHAREHOLDER NOMINATIONS AND PROPOSALS
Our By-Laws establish advance notice procedures with respect to shareholder
proposals and the nomination of candidates for election as directors, other than
nominations made by or at the direction of our Board of Directors or one of its
committees.
SHAREHOLDER MEETINGS
Under our By-Laws, only our Board of Directors, Chairman of the Board or
Chief Executive Officer may call special meetings of shareholders.
DELAWARE ANTI-TAKEOVER LAW
We are subject to Section 203 of the Delaware General Corporation Law, an
anti-takeover law. In general, Section 203 prohibits a publicly held Delaware
corporation from engaging in a "business combination" with an "interested
shareholder" for a period of 3 years following the date the person became an
interested shareholder, unless the "business combination" or the transaction in
which the person became an interested shareholder is approved in a prescribed
manner. Generally, a "business combination" includes a merger, asset or stock
sale, or other transaction resulting in a financial benefit to the interested
shareholder. Generally, an "interested shareholder" is a person who, together
with affiliates and associates, owns or within 3 years prior to the
determination of interested shareholder status, did own, 15% or more of a
corporation's voting stock. The existence of this provision may have an
anti-takeover effect with respect to transactions not approved in advance by the
Board of Directors, including discouraging attempts that might result in a
premium over the market price for the shares of common stock held by
shareholders.
AMENDMENT OF CHARTER PROVISIONS
The amendment of any of the above provisions requires approval by holders of
at least 66 2/3% of our outstanding common stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is ChaseMellon
Shareholder Services, LLC.
LISTING
We have applied for listing of our common stock on the Nasdaq National
Market under the symbol "AFOR".
49
SHARES ELIGIBLE FOR FUTURE SALE
Immediately prior to this offering, there was no public market for our
common stock. Future sales of substantial amounts of our common stock in the
public market could adversely affect the market price of our common stock.
Upon completion of this offering, based on shares outstanding as of May 1,
2000, we will have 15,384,521 outstanding shares of common stock, assuming no
exercise of options after May 1, 2000. All of the shares sold in this offering
will be freely tradable without restriction or further registration under the
Securities Act. However, the sale of any of these shares, if purchased by
"affiliates," as that term is defined in Rule 144, are subject to certain
limitations and restrictions that are described below.
The 11,384,521 shares of common stock held by existing shareholders were
issued and sold by us in reliance on exemptions from the registration
requirements of the Securities Act. These shares are "restricted shares" as that
term is defined in Rule 144 and therefore may not be sold publicly unless they
are registered under the Securities Act or are sold pursuant to Rule 144 or
another exemption from registration. In addition, our directors and officers as
well as certain other shareholders and option holders have entered into "lock-up
agreements" with the underwriters. These lock-up agreements provide that, except
under limited exceptions, the shareholder or option holder may not offer, sell,
contract to sell, pledge or otherwise dispose of any of our common stock or
securities that are convertible into or exchangeable for, or that represent the
right to receive, our common stock for a period of 180 days after the effective
date of this prospectus without the prior written consent of The
Robinson-Humphrey Company, LLC.
As of May 1, 2000, there were a total of 1,458,421 shares of common stock
subject to outstanding options, none of which were vested, and nearly all of
which are subject to lock-up agreements. Immediately after the completion of
this offering, we intend to file a registration statement on Form S-8 under the
Securities Act to register all of the shares of common stock issued or reserved
for future issuance under our 1997 Stock Plan and our 2000 Employee Stock
Purchase Plan. On the date 180 days after the date of this prospectus, the date
that the lock-up agreements expire, a total of 676,338 shares of our common
stock subject to outstanding options will be vested. After the effective date of
the registration statement on Form S-8, shares purchased upon exercise of
options granted pursuant to our 1997 Stock Plan and our 2000 Employee Stock
Purchase Plan generally would be available for resale in the public market.
DAYS AFTER THE DATE APPROXIMATE SHARES
OF THIS PROSPECTUS ELIGIBLE FOR FUTURE SALE COMMENT
- ----------------------------------- ------------------------ -----------------------------------
Immediately........................ 4,010,132 Freely tradable shares sold in this
offering and restricted shares
salable under Rule 144(k) that are
not subject to 180-day lockup.
180 Days........................... 11,374,389 Lockup released; restricted shares
salable under Rule 144, 144(k)
50
UNDERWRITING
The Robinson-Humphrey Company, LLC, Gerard Klauer Mattison & Co., Inc. and
FAC/Equities, a division of First Albany Corporation and are acting as
representatives of the underwriters named below. Subject to the terms and
conditions contained in the underwriting agreement between us, the selling
shareholders and the representatives of the underwriters, each underwriter named
below has separately agreed to purchase from us the number of shares of common
stock indicated opposite the name of each underwriter, at the public offering
price less the underwriting discount set forth on the cover page of this
prospectus:
UNDERWRITER NUMBER OF SHARES
- ----------- ----------------
The Robinson-Humphrey Company, LLC..........................
Gerard Klauer Mattison & Co., Inc...........................
FAC/Equities, a division of First Albany Corporation........
----------
Total................................................... 4,000,000
==========
The underwriters are obligated to purchase all of the shares, other than
those covered by the over-allotment option described below, if they purchase any
of the shares. The offering is a firm underwritten offering. However, the
underwriting agreement generally contains standard terms found in an
underwriting agreement for an offering of this type that gives the underwriters
the right to withdraw, cancel or modify the offering and to reject orders in
whole or in part. These rights would generally be exercised upon the occurrence
of a materially adverse change in our business, financial condition or results
of operations or upon the occurrence of a major downturn in the general economy.
The underwriters propose to offer part of the shares directly to the public
at the public offering price set forth on the cover page of this prospectus and
part of the shares to dealers at that price less a concession not in excess of
$ per share. The underwriters may allow, and such dealers may reallow, a
concession not in excess of $ per share on sales to other dealers. After
the initial public offering, the representatives may change the public offering
price and the other selling terms.
Certain of our shareholders have granted to the underwriters an option,
exercisable for 30 days from the date of this prospectus, to purchase up to
600,000 additional shares of common stock at the public offering price less the
underwriting discount. The underwriters may exercise the option solely for the
purpose of covering over-allotments, if any, in connection with this offering.
To the extent the option is exercised, each underwriter will be obligated,
subject to certain conditions, to purchase a number of additional shares
approximately proportionate to each underwriter's initial purchase commitment.
We and the selling shareholders will pay the underwriters a commission of
[ ]% of the per share public offering price for each share of common stock that
the underwriters purchase in the offering. The following table shows the
underwriting fees that we and the selling shareholders will pay to the
underwriters in connection with the offering. These amounts are shown assuming
both no exercise and full exercise of the underwriters' over-allotment option to
purchase additional shares of our common stock.
TO BE PAID BY TO BE PAID BY SELLING
ACCOUNT4.COM SHAREHOLDERS
---------------------- ----------------------
FULL FULL
NO EXERCISE EXERCISE NO EXERCISE EXERCISE
----------- -------- ----------- --------
Per share................................................... $ $ $-- $
Total....................................................... $ $ $-- $
51
We estimate our expenses of this offering, exclusive of the underwriting
discount, will be approximately $ million. Additionally, we and the selling
shareholders have agreed to indemnify the underwriters against specified
liabilities, including civil liabilities under the Securities Act, or to
contribute to payments the underwriters may be required to make in respect
thereof.
The representatives have informed us that the underwriters do not expect to
make sales of common stock offered by this prospectus to accounts over which
they exercise discretionary authority in excess of 5% of the number of shares of
common stock offered by this prospectus.
The underwriters have reserved for sale, at the initial public offering
price, up to shares of common stock for our employees, directors and other
persons we have designated, who have expressed an interest in purchasing shares
of our common stock. The number of shares available for sale to the general
public in this offering will be reduced to the extent those persons purchase the
reserved shares. Any reserved shares not so purchased will be offered to the
general public on the same basis as other shares offered by this prospectus.
Substantially all of our shareholders have agreed that during the 180-day
period following the date of the prospectus, they will not, without the prior
written consent of The Robinson-Humphrey Company, LLC:
- directly or indirectly make, agree to or cause any offer, sale (including
short sale), loan, pledge or other disposition of, or grant any options,
rights or warrants to purchase with respect to, or otherwise transfer or
reduce any risk of ownership of, directly or indirectly, any shares of our
common stock or any securities convertible into or exchangeable or
exercisable for our common stock;
- enter into any swap or other arrangement that transfers all or a portion
of the economic consequences associated with the ownership of the common
stock; or
- make any demand for, or exercise any right with respect to, the
registration of shares of our common stock or any securities convertible
into or exchangeable or exercisable for our common stock.
In addition, during the 180-day period, we have also agreed not to issue, or
to file any registration statement with respect to the registration of, any
shares of our common stock or any securities convertible into or exercisable for
our common stock, except that we intend to file a registration statement on
Form S-8 under the Securities Act within 90 days after the completion of the
offering to register shares of common stock issuable under outstanding stock
options or reserved for issuance under our 1997 Stock Plan and 2000 Employee
Stock Purchase Plan. This will permit holders of those shares to sell them in
the public market without compliance with any holding period requirement.
Before this offering, there has been no public trading market for our common
stock. Consequently, the initial public offering price of our common stock will
be determined by negotiations among us, the representatives of the selling
shareholders, and the representatives of the underwriters. The factors to be
considered in determining the initial public offering price will include the
following:
- our history and future prospects and those of our industry;
- our past and present revenues and earnings and the propects for growth in
our revenues and earnings;
- the present state of our development;
- an assessment of our management;
- the general condition of the economy and the securities markets at the
time of this offering; and
52
- the market prices of and demand for publicly traded common stock of
comparable companies at the time of the offering.
Until the distribution of our common stock is completed, rules of the SEC
may limit the ability of the underwriters and specified selling group members to
bid for and purchase our common stock. As an exception to these rules, the
representatives of the underwriters are permitted to engage in specified
transactions that stabilize the price of our common stock. These transactions
may occur on the Nasdaq National Market or otherwise. These transactions consist
of bids or purchases for the purpose of pegging, fixing or maintaining the price
of our common stock. If the underwriters create a short position in our common
stock in connection with this offering (that is, if they sell more shares of
common stock than are set forth on the cover page of this prospectus), the
representatives may reduce that short position by purchasing common stock in the
open market. The representatives of the underwriters may also elect to reduce
any short position by exercising all or part of the over-allotment option
described above. The representatives of the underwriters may also impose a
penalty bid on underwriters and selling group members in some cases. This means
that if the representatives purchase shares of common stock in the open market
to reduce the underwriters' short position or to stabilize the price of the
common stock, they may reclaim the amount of the selling concession from the
underwriters and selling group members who sold those shares as part of the
offering.
In general, purchase of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of those purchases. The imposition of a penalty bid
might also have an effect on the price of a security if it discourages resales
of the security. Neither we, the selling shareholders nor any of the
underwriters make any representation or prediction as to the direction or
magnitude of any effect that the transactions described above may have on the
price of our common stock. In addition, the underwriters are not required to
engage in these activities and may end any of these activities at any time. The
representatives intend to make a market in our common stock after the completion
of the offering.
From time-to-time in the future in the ordinary course of business, the
representatives may provide investment banking services to us.
There are restrictions on the offer and sale of our common stock in the
United Kingdom. All applicable provisions of the Financial Services Act 1986 and
the Public Offers of Securities Regulations 1995 with respect to anything done
by any person in relation to our common stock in, from or otherwise involving
the United Kingdom must be complied with.
Each underwriter has also agreed that it has:
- not offered or sold, and prior to the date six months after the date of
issue of the shares of common stock will not offer or sell, any shares of
common stock to persons in the United Kingdom except to persons whose
ordinary activities involve them in acquiring, holding, managing or
disposing of investments (as principal or agent) for the purpose of their
businesses or otherwise in circumstances which have not resulted and will
not result in an offer to the public in the United Kingdom within the
meaning of the Public Offers of Securities Regulations 1995;
- complied, and will comply with, all applicable provisions of the Financial
Services Act 1986 of Great Britain with respect to anything done by it in
relating to the shares of common stock in, from or otherwise involving the
United Kingdom; and
- only issued or passed on, and will only issue or pass on, in the United
Kingdom any document received by it in connection with the issuance of the
shares of common stock to a person who is of a kind described in
Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1996 (as amended) of Great Britain or
is a person to whom the document may otherwise lawfully be issued or
passed on.
53
EXPERTS
The audited financial statements as of December 31, 1998 and 1999 and for
each of the years in the 3-year period ended December 31, 1999 included in this
prospectus have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report with respect thereto, and are included
herein in reliance upon the authority of said firm as experts in giving said
report.
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for us
by Choate, Hall & Stewart, Boston, Massachusetts. Certain legal matters relating
to this offering will be passed upon for the underwriters by Epstein Becker &
Green, P.C., Boston, Massachusetts.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the
Securities Act to register the common stock we are offering. This prospectus is
part of that registration statement and, as permitted by SEC rules, omits some
of the information in the registration statement and the exhibits and schedules
to the registration statement. For further information about us and our common
stock, you should read the registration statement, together with the
accompanying exhibits and schedules. Statements contained in this prospectus
regarding the content of any contract or other document are necessarily
summaries. You should read the exhibit for a more complete description of the
contract or document. We qualify each statement contained in this prospectus
regarding the contents of any contract or document filed as an exhibit to the
registration statement by reference to the exhibit.
You may read the registration statement at the SEC's Public Reference Room
at 450 Fifth Street, N.W., Washington, D.C. 20549 and may obtain copies of the
registration statement from the Public Reference Room at prescribed rates. You
may obtain information on the operation of the Public Reference Room by calling
the SEC at 1-800-SEC-0330. Additionally, the SEC maintains an Internet site at
www.sec.gov through which you may review the registration statement.
We are not presently a reporting company and do not file reports or other
information with the SEC. On the effective date of the registration statement,
however, we will become a reporting company, and we will register our securities
under the Securities Exchange Act of 1934. Accordingly, the additional reporting
requirements of the Exchange Act will apply to us, and we will be required to
file reports, proxy statements and other information with the SEC. In addition,
after the completion of this offering, we intend to furnish our shareholders
with annual reports containing audited financial statements, and with quarterly
reports, containing unaudited summary financial information for each of the
first 3 quarters of each fiscal year.
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with additional or different
information. We are not making an offer of these securities in any state where
the offer is not permitted. You should not assume that the information contained
in this prospectus is accurate as of any date other than the date on the front
of this prospectus.
54
INDEX TO FINANCIAL STATEMENTS
ACCOUNT4.COM, INC.
PAGES
--------
Report of Independent Public Accountants.................... F-2
Balance Sheets.............................................. F-3
Statements of Operations.................................... F-4
Statements of Stockholders' Equity (Deficit)................ F-5
Statements of Cash Flows.................................... F-6
Notes to Financial Statements............................... F-7
F-1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Account4.com, Inc.:
We have audited the accompanying balance sheets of Account4.com, Inc. (a
Delaware corporation) as of December 31, 1998 and 1999 and the related
statements of operations, stockholders' equity (deficit) and cash flows for each
of the three years in the period ended December 31, 1999. 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 auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Account4.com, Inc. as of
December 31, 1998 and 1999 and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1999 in conformity
with accounting principles generally accepted in the United States.
Arthur Andersen LLP
Boston, Massachusetts
February 23, 2000 (except with respect to the matters
discussed in Note 7 to the financial statements,
as to which the date is April 26, 2000)
F-2
ACCOUNT4.COM, INC.
BALANCE SHEETS
DECEMBER 31,
----------------------- MARCH 31,
1998 1999 2000
---------- ---------- -----------
(UNAUDITED)
ASSETS
Current Assets:
Cash and cash equivalents.............................. $ 729,149 $1,751,660 $ 476,816
Accounts receivable, net of allowance for bad debts of
approximately $25,000, $44,000 and $64,000 at
December 31, 1998 and 1999 and March 31, 2000,
respectively......................................... 1,479,678 1,097,770 1,413,482
Refundable income taxes................................ -- -- 260,000
Prepaid expenses and other current assets.............. 83,201 134,986 200,567
---------- ---------- -----------
Total current assets............................... 2,292,028 2,984,416 2,350,865
---------- ---------- -----------
Property and Equipment, at cost.......................... 250,750 386,890 410,598
Less--Accumulated depreciation......................... 117,962 207,410 234,260
---------- ---------- -----------
132,788 179,480 176,338
---------- ---------- -----------
Other Assets............................................. 4,300 6,646 5,846
---------- ---------- -----------
$2,429,116 $3,170,542 $ 2,533,049
========== ========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Current portion of capital lease obligations........... $ 3,884 $ 4,700 $ 4,931
Current portion of long-term debt...................... 1,095,564 -- --
Accounts payable....................................... 126,419 219,123 335,525
Accrued expenses....................................... 636,613 677,171 475,196
Deferred revenue....................................... 548,749 989,834 666,939
---------- ---------- -----------
Total current liabilities............................ 2,411,229 1,890,828 1,482,591
Capital Lease Obligations, less current portion.......... 15,425 10,724 9,400
Long-term Debt, less current portion..................... -- 1,095,564 1,095,564
---------- ---------- -----------
Total liabilities.................................... 2,426,654 2,997,116 2,587,555
---------- ---------- -----------
Commitments and Contingencies (Note 5)
Stockholders' Equity (Deficit):
Preferred stock, $.01 per value; 10,000,000 shares
authorized and none outstanding (Note 7)
Common stock, $.01 par value--
Authorized--40,000,000 shares (Note 7)
Issued and outstanding--11,384,521 shares............ 113,845 113,845 113,845
Additional paid-in capital........................... 522,803 837,074 3,037,713
Subscriptions receivable............................. (11,226) (11,226) (11,226)
Deferred compensation................................ -- (288,220) (2,327,140)
Accumulated deficit.................................. (622,960) (478,047) (867,698)
---------- ---------- -----------
Total stockholders' equity (deficit)............... 2,462 173,426 (54,506)
---------- ---------- -----------
$2,429,116 $3,170,542 $ 2,533,049
========== ========== ===========
The accompanying notes are an integral part of these financial statements.
F-3
ACCOUNT4.COM, INC.
STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, QUARTER ENDED MARCH 31,
----------------------------------------- -------------------------
1997 1998 1999 1999 2000
----------- ------------ ------------ ----------- -----------
(UNAUDITED)
Revenues:
Software licenses........ $ 1,563,787 $ 1,065,645 $ 2,422,707 $ 913,291 $ 795,750
Consulting, support
services and
maintenance............ 2,749,153 4,953,531 5,638,496 1,397,108 1,077,753
----------- ------------ ------------ ----------- -----------
Total revenues......... 4,312,940 6,019,176 8,061,203 2,310,399 1,873,503
Costs and expenses:
Software licenses........ 436,264 280,790 242,274 80,100 --
Consulting, support
services and
maintenance............ 1,190,314 2,167,821 2,376,885 653,139 456,826
Sales and marketing...... 1,027,980 1,475,077 2,939,044 574,035 1,195,910
Product development...... 560,522 925,476 1,433,636 348,572 454,774
General and
administrative......... 456,217 663,313 707,999 189,490 233,115
Stock-based
compensation(1)........ -- -- 26,051 -- 161,719
----------- ------------ ------------ ----------- -----------
Total costs and
expenses............. 3,671,297 5,512,477 7,725,889 1,845,336 2,502,344
Income (loss) from
operations................. 641,643 506,699 335,314 465,063 (628,841)
----------- ------------ ------------ ----------- -----------
Interest income.............. 49,805 38,148 66,391 12,259 17,918
Interest expense............. (150,951) (150,020) (146,792) (35,552) (38,728)
----------- ------------ ------------ ----------- -----------
Interest income (expense),
net........................ (101,146) (111,872) (80,401) (23,293) (20,810)
----------- ------------ ------------ ----------- -----------
Income (loss) before
income taxes......... 540,497 394,827 254,913 441,770 (649,651)
Provision for (benefit from)
income taxes............... 6,241 5,950 110,000 176,600 (260,000)
----------- ------------ ------------ ----------- -----------
Net income (loss)...... $ 534,256 $ 388,877 $ 144,913 $ 265,170 $ (389,651)
=========== ============ ============ =========== ===========
Net income (loss) per share
Basic.................. $ 0.07 $ 0.05 $ 0.02 $ 0.03 $ (0.05)
=========== ============ ============ =========== ===========
Diluted................ $ 0.06 $ 0.03 $ 0.01 $ 0.02 $ (0.05)
=========== ============ ============ =========== ===========
Weighted average shares
Basic.................. 7,684,633 8,540,924 8,540,924 8,540,924 8,540,924
=========== ============ ============ =========== ===========
Diluted................ 9,688,911 12,206,297 12,193,896 12,193,896 8,540,924
=========== ============ ============ =========== ===========
(1) The following table summarizes the departmental allocation of stock-based compensation:
Consulting, support
services and
maintenance............ $ -- $ -- $ 2,605 $ -- $ 21,649
Sales and marketing...... -- -- 13,677 -- 98,490
Product development...... -- -- 3,908 -- 22,626
General and
administrative......... -- -- 5,861 -- 18,954
----------- ------------ ------------ ----------- -----------
Total stock-based
compensation......... $ -- $ -- $ 26,051 $ -- $ 161,719
=========== ============ ============ =========== ===========
The accompanying notes are an integral part of these financial statements.
F-4
ACCOUNT4.COM, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
COMMON STOCK TOTAL
---------------------- ADDITIONAL STOCKHOLDERS'
NUMBER OF $.01 PAID-IN SUBSCRIPTIONS DEFERRED ACCUMULATED EQUITY
SHARES PAR VALUE CAPITAL RECEIVABLE COMPENSATION DEFICIT (DEFICIT)
---------- --------- ---------- ------------- ------------- ------------ -------------
Balance at December 31,
1996....................... 5,687,194 $ 56,872 $ 566,550 $ -- $ -- $(1,546,093) $(922,671)
Issuance of common stock to
principal officers of the
Company.................. 5,687,195 56,872 (45,646) (11,226) -- -- --
Exercise of stock
options.................. 10,132 101 1,899 -- -- -- 2,000
Net income................. -- -- -- -- -- 534,256 534,256
---------- -------- ---------- -------- ----------- ----------- ---------
Balance at December 31,
1997....................... 11,384,521 113,845 522,803 (11,226) -- (1,011,837) (386,415)
Net income................. -- -- -- -- -- 388,877 388,877
---------- -------- ---------- -------- ----------- ----------- ---------
Balance at December 31,
1998....................... 11,384,521 113,845 522,803 (11,226) -- (622,960) 2,462
Deferred compensation on
stock options............ -- -- 314,271 -- (314,271) -- --
Amortization of deferred
compensation............. -- -- -- -- 26,051 -- 26,051
Net income................. -- -- -- -- -- 144,913 144,913
---------- -------- ---------- -------- ----------- ----------- ---------
Balance at December 31,
1999....................... 11,384,521 113,845 837,074 (11,226) (288,220) (478,047) 173,426
Deferred compensation on
stock options
(unaudited).............. -- -- 2,200,639 -- (2,200,639) -- --
Amortization of deferred
compensation
(unaudited).............. -- -- -- -- 161,719 -- 161,719
Net loss (unaudited)....... -- -- -- -- -- (389,651) (389,651)
---------- -------- ---------- -------- ----------- ----------- ---------
Balance at March 31, 2000
(unaudited)................ 11,384,521 $113,845 $3,037,713 $(11,226) $(2,327,140) $ (867,698) $ (54,506)
========== ======== ========== ======== =========== =========== =========
The accompanying notes are an integral part of these financial statements.
F-5
ACCOUNT4.COM, INC.
STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, QUARTER ENDED MARCH 31,
----------------------------------- ------------------------
1997 1998 1999 1999 2000
---------- --------- ---------- ---------- -----------
(UNAUDITED)
Cash Flows from Operating Activities:
Net income (loss)................................. $ 534,256 $ 388,877 $ 144,913 $ 265,170 $ (389,651)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating
activities--
Depreciation.................................... 33,378 69,747 89,448 20,504 26,850
Stock-based compensation expense................ -- -- 26,051 -- 161,719
Changes in current assets and liabilities--
Accounts receivable........................... (676,872) (401,012) 381,908 (305,997) (315,712)
Refundable and deferred income taxes.......... -- -- -- -- (260,000)
Prepaid expenses and other current assets..... (15,858) (48,426) (51,785) 18,809 (65,581)
Accounts payable.............................. 230,088 (191,335) 92,704 248,005 116,402
Accrued expenses.............................. 134,187 144,289 40,558 58,465 (201,975)
Deferred revenue.............................. 42,810 (197,124) 441,085 86,441 (322,895)
---------- --------- ---------- ---------- -----------
Net cash provided by (used in) operating
activities................................ 281,989 (234,984) 1,164,882 391,397 (1,250,843)
---------- --------- ---------- ---------- -----------
Cash Flows from Investing Activities:
Purchases of property and equipment............... (89,795) (75,641) (136,140) (34,024) (23,708)
(Increase) decrease in other assets............... (2,154) (2,146) (2,346) (4,329) 800
---------- --------- ---------- ---------- -----------
Net cash used in investing activities....... (91,949) (77,787) (138,486) (38,353) (22,908)
---------- --------- ---------- ---------- -----------
Cash Flows from Financing Activities:
Payments on capital lease obligations............. (1,389) (3,209) (3,885) (903) (1,093)
Proceeds from exercise of stock options........... 2,000 -- -- -- --
---------- --------- ---------- ---------- -----------
Net cash provided by (used in) financing
activities................................ 611 (3,209) (3,885) (903) (1,093)
---------- --------- ---------- ---------- -----------
Net Increase (Decrease) in Cash and Cash
Equivalents....................................... 190,651 (315,980) 1,022,511 352,141 (1,274,844)
Cash and Cash Equivalents, beginning of period.... 854,478 1,045,129 729,149 729,149 1,751,660
---------- --------- ---------- ---------- -----------
Cash and Cash Equivalents, end of period.......... $1,045,129 $ 729,149 $1,751,660 $1,081,290 $ 476,816
========== ========= ========== ========== ===========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for--
Interest.......................................... $ 126,880 $ 139,403 $ 134,796 $ 33,557 $ 34,848
========== ========= ========== ========== ===========
Income taxes...................................... $ -- $ 10,580 $ 58,169 $ 5,820 $ 47,400
========== ========= ========== ========== ===========
Supplemental Disclosure of Noncash Investing and
Financing Activities:
Purchases of equipment through capital leases..... $ 23,907 $ -- $ -- $ -- $ --
========== ========= ========== ========== ===========
Stock issued in exchange for subscriptions
receivable...................................... $ 11,226 $ -- $ -- $ -- $ --
========== ========= ========== ========== ===========
Deferred compensation on stock options............ $ -- $ -- $ 314,271 $ -- $ 2,200,639
========== ========= ========== ========== ===========
The accompanying notes are an integral part of these financial statements.
F-6
ACCOUNT4.COM, INC.
NOTES TO FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(1) NATURE OF BUSINESS
Account4.com, Inc. (the Company), formerly known as Work Management
Solutions, Inc., was incorporated in December 1987. The Company provides
Internet-based software products and services that enable professional services
organizations (PSOs) and corporate information technology (IT) departments to
successfully manage projects and to increase the utilization, productivity,
effectiveness and retention of their workforces.
The Company is subject to a number of risks common to rapidly growing
technology-based companies, including rapid technological change, the ability to
obtain adequate financing, competition from substitute products and larger
companies, dependence on key individuals, and the need for successful
development and marketing of commercial products and services.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements reflect the application of certain
accounting policies described in this note and elsewhere in the notes to
financial statements.
(A) INTERIM FINANCIAL STATEMENTS
The accompanying balance sheet as of March 31, 2000 and the statements of
operations, cash flows and stockholders' equity (deficit) for the three months
ended March 31, 1999 and 2000 are unaudited, but, in the opinion of management,
include all adjustments, consisting only of normal recurring adjustments
necessary for a fair presentation of results for these interim periods. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted in the
United States have been omitted, although the Company believes that the
disclosures included are adequate to make the information presented not
misleading. The results of operations for the three months ended March 31, 2000
are not necessarily indicative of the results to be expected for the entire
fiscal year or any other interim period.
(B) REVENUE RECOGNITION
The Company recognizes revenue in accordance with the provisions of
Statement of Position (SOP) No. 97-2, SOFTWARE REVENUE RECOGNITION, as amended,
issued by the American Institute of Certified Public Accountants (AICPA).
Revenue is derived from the licensing of computer software products and the sale
of software maintenance contracts and consulting services. Revenues from
software products are recognized upon execution of a persuasive evidence of an
arrangement, provided that the license fee is fixed and determinable, delivery
of product has occurred via physical shipment or electronically, a determination
has been made by management that collection is probable, and the Company has no
remaining obligations. The Company executes separate contracts that govern the
terms and conditions of each software license, maintenance arrangement and each
professional services arrangement. These contracts may be elements in a
multiple-element arrangement. Revenues under multiple-element arrangements,
which may include several different software products or services sold together,
are allocated to each element based on their respective fair values, with these
fair values being determined using the price charged when that element is sold
separately.
F-7
ACCOUNT4.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company recognizes revenues from maintenance support contracts ratably
over the contract period. The Company has time and materials contracts for the
consulting services and recognizes consulting revenues as the services are
performed.
Software license costs consist primarily of the media on which the product
is delivered and any related third-party royalties. The costs of consulting and
support services consist primarily of salaries and benefits related to
consulting personnel and the customer support group.
(C) CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash and investments with original
maturities of 3 months or less. Cash equivalents consist of money market
investments.
(D) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and depreciated using the
straight-line method over the estimated useful lives of the respective assets,
as follows:
ESTIMATED USEFUL
ASSET CLASSIFICATION LIFE
- -------------------- ----------------
Furniture and fixtures...................................... 3 years
Computer and office equipment............................... 3 years
Equipment under capital lease............................... useful life
(E) DEFERRED REVENUE
Deferred support revenue consists of advance payments for maintenance and
support services that have not yet been performed. Deferred product revenue
consists of orders for which the software has been shipped, yet post-delivery
obligations remain.
(F) USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of expenses during the
reporting period. Actual results may differ from those estimates.
(G) CONCENTRATION OF CREDIT RISK
Statement of Financial Accounting Standards (SFAS) No. 105, DISCLOSURE OF
INFORMATION ABOUT FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET-RISK AND
FINANCIAL INSTRUMENTS WITH CONCENTRATIONS OF CREDIT RISK, requires disclosure of
any significant off-balance-sheet and credit risk concentrations. As of
December 31, 1999 and March 31, 2000, the Company had no significant off-balance
sheet risks, such as foreign currency exchange contracts or other hedging
instruments. Financial instruments that potentially expose the Company to
significant concentrations of credit risk consist primarily of cash and cash
equivalents and trade accounts receivable. The Company places its cash and cash
equivalents in
F-8
ACCOUNT4.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
several highly rated financial institutions. The Company maintains an allowance
for potential bad debt but historically has not experienced any significant
losses related to individual customers or groups of customers in any particular
industry or geographic area.
The following table represents customers that account for more than 10% of
revenue in any of the periods reported:
YEAR ENDED
DECEMBER 31, QUARTER ENDED MARCH 31,
------------------------------ -----------------------
CUSTOMER 1997 1998 1999 1999 2000
- -------- -------- -------- -------- ---------- ----------
(UNAUDITED)
A................................... 13% 45% 36% 37% 16%
B................................... * * 11 33 *
C................................... * * * * 12
* REVENUES DERIVED FROM THIS CUSTOMER WERE LESS THAN 10% OF THE COMPANY'S TOTAL
REVENUE FOR THE PERIOD.
The following table represents customers that account for more than 10% of
total accounts receivable at any of the dates reported:
DECEMBER
31, MARCH 31,
------------------- -------------------
CUSTOMER 1998 1999 1999 2000
- -------- -------- -------- -------- --------
(UNAUDITED)
A.................................................... 59% 35% 53% 16%
B.................................................... * * 23 *
C.................................................... * * * 19
D.................................................... * * 11 *
* ACCOUNTS RECEIVABLE FROM THIS CUSTOMER WERE LESS THAN 10% OF THE COMPANY'S
TOTAL ACCOUNTS RECEIVABLE AT THE DATE REPORTED.
(H) BASIC AND DILUTED NET INCOME (LOSS) PER SHARE
Basic net loss per share is computed by dividing the net income (loss) for
the period by the weighted average number of unrestricted common shares
outstanding during the period. Diluted net loss per share is computed by
dividing the net income (loss) for the period by the weighted average number of
unrestricted common shares and potential common stock outstanding during the
period, if dilutive. Potential common stock is comprised of restricted shares of
common stock and the incremental common shares issuable upon the exercise of
stock options. The following illustrates a
F-9
ACCOUNT4.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
reconciliation of the number of shares used in the calculation of basic and
diluted net income (loss) per share for all periods presented:
YEAR ENDED DECEMBER 31, QUARTER ENDED MARCH 31,
-------------------------------------- -------------------------
1997 1998 1999 1999 2000
---------- ----------- ----------- ----------- -----------
(UNAUDITED)
Net income (loss).................... $ 534,256 $ 388,877 $ 144,913 $ 265,170 $ (389,651)
========== =========== =========== =========== ===========
Weighted average common shares
outstanding........................ 7,388,588 11,384,521 11,384,521 11,384,521 11,384,521
Less-weighted average restricted
common shares outstanding.......... 849,184 2,843,597 2,843,597 2,843,597 2,843,597
---------- ----------- ----------- ----------- -----------
Shares used in computing basic net
income (loss) per share............ 7,684,633 8,540,924 8,540,924 8,540,924 8,540,924
---------- ----------- ----------- ----------- -----------
Restricted shares--of common stock
and the dilutive effect of assumed
exercise of stock options.......... 2,004,278 3,665,373 3,652,972 3,652,972 --
---------- ----------- ----------- ----------- -----------
Shares used in computing diluted net
income (loss) per share............ 9,688,911 12,206,297 12,193,896 12,193,896 8,540,924
---------- ----------- ----------- ----------- -----------
Basic net income (loss) per share.... $ 0.07 $ 0.05 $ 0.02 $ 0.03 $ (0.05)
========== =========== =========== =========== ===========
Diluted net income per share......... $ 0.06 $ 0.03 $ 0.01 $ 0.02 $ (0.05)
========== =========== =========== =========== ===========
Antidilutive potential common
stock.............................. -- -- -- -- 4,072,152
========== =========== =========== =========== ===========
(I) COMPREHENSIVE INCOME
The Company is required to disclose all components of comprehensive income
on an annual and interim basis. Comprehensive income is defined as the change in
equity of a business enterprise during a period from transactions or other
events and circumstances from nonowner sources. The Company has no such items
for the years ended December 31, 1997, 1998 and 1999, or for the quarter ended
March 31, 1999 and 2000.
(J) ACCOUNTING FOR DERIVATIVES
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS
No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. This
statement requires companies to record derivatives on the balance sheet as
assets or liabilities, measured at fair value. Gains or losses resulting from
changes in the values of these derivatives would be accounted for depending on
the use of the derivative and whether it qualifies for hedge accounting. The
Company has no derivative instruments at December 31, 1998 and 1999, or at
March 31, 2000.
F-10
ACCOUNT4.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(K) FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS,
requires disclosure of an estimate of the fair value of certain financial
instruments. The Company's financial instruments consist of cash equivalents,
accounts receivable, accounts payable and debt. The estimated fair value of
these financial instruments approximates their carrying value at December 31,
1998 and 1999 and March 31, 2000. The estimated fair values have been determined
through information obtained from market sources and management estimates.
(L) SOFTWARE DEVELOPMENT COSTS
SFAS No. 86, ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE TO BE SOLD,
LEASED OR OTHERWISE MARKETED, requires capitalization of certain computer
software development costs upon the establishment of technological feasibility.
The Company has determined that the costs incurred from the time of
technological feasibility to the completion of development are minimal and,
therefore, expenses all costs to product development as incurred.
(M) ACCOUNTING FOR THE COST OF COMPUTER SOFTWARE DEVELOPED OR OBTAINED FOR
INTERNAL USE
In March 1998, AICPA issued SOP 98-1, ACCOUNTING FOR THE COST OF COMPUTER
SOFTWARE DEVELOPED OR OBTAINED FOR INTERNAL USE. SOP 98-1 is effective for
financial statements with fiscal years beginning after December 15, 1998.
SOP 98-1 provides guidance regarding accounting for computer software developed
or obtained for internal use, including the requirement to capitalize specified
costs and amortization of such costs. The adoption of this standard has not had
a significant impact on the Company's financial results.
(N) RECENT ACCOUNTING PRONOUNCEMENTS
In December 1999, the Securities and Exchange Commission released Staff
Accounting Bulletin No. 101, REVENUE RECOGNITION IN FINANCIAL STATEMENTS. This
bulletin summarizes certain views of the staff on applying accounting principles
generally accepted in the United States to revenue recognition in financial
statements. The staff believes that revenue is realized or realizable and earned
when all of the following criteria are met: persuasive evidence of an
arrangement exists; delivery has occurred or services have been rendered; the
seller's price to the buyer is fixed or determinable; and collectibility is
reasonably assured. The Company believes that its current revenue recognition
policy complies with the SEC guidelines.
(O) STOCK-BASED COMPENSATION
SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, requires the
measurement of the fair value of stock options or warrants to be included in the
statements of operations or disclosed in the notes to financial statements. The
Company has determined that it will account for stock-based compensation for
employees under the intrinsic-value method of the Accounting Principles Board
(APB) Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and elect the
disclosure-only alternative under SFAS No. 123. The Company accounts for
stock-based compensation for
F-11
ACCOUNT4.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
nonemployees under the fair value method prescribed by SFAS No. 123. To date,
there have been no material grants to nonemployees.
(3) PROPERTY AND EQUIPMENT
Property and equipment is stated at cost and consists of the following:
DECEMBER 31, MARCH 31,
1998 1999 2000
-------- -------- -----------
(UNAUDITED)
Furniture and fixtures...................................... $ 5,208 $ 26,897 $ 26,897
Computer and office equipment............................... 221,635 336,086 359,794
Equipiment under capital lease.............................. 23,907 23,907 23,907
-------- -------- --------
250,750 386,890 410,598
Less-Accumulated depreciation........................... 117,962 207,410 234,260
-------- -------- --------
$132,788 $179,480 $176,338
======== ======== ========
(4) ACCRUED EXPENSES
Accrued expenses consists of the following:
DECEMBER 31,
------------------- MARCH 31,
1998 1999 2000
-------- -------- -----------
(UNAUDITED)
Accrued commissions......................................... $226,428 $135,827 $ 80,574
Accrued royalties........................................... -- 17,380 15,588
Accrued payroll and related expenses........................ 294,156 310,121 250,017
Other accrued expenses...................................... 116,029 213,843 129,017
-------- -------- --------
$636,613 $677,171 $475,196
======== ======== ========
In 1993, the Company executed a nonexclusive value added reseller agreement
with PlanView, Inc. (PlanView), which gives the Company rights to market and
sell the PlanView work management system and obligates the Company to pay
royalties to PlanView for all sales of the PlanView system. The agreement is
renewable on an annual basis and is contingent upon the Company attaining
specified minimum quarterly revenue targets. For the years ended December 31,
1997, 1998 and 1999 and for the three months ended March 31, 1999 and 2000, the
Company recognized license revenues of approximately $1,070,000, $568,000,
$322,000, $113,136 and $0, respectively, and expensed the related royalties as a
component of software licenses, of $436,000, $281,000, $204,000, $80,000, and
$0, under this reseller arrangement. Effective January 1, 1999, the agreement
was modified to create a joint and cooperative marketing program. Under the
modified agreement, the Company may continue to perform consulting services for
existing and future PlanView customers. The Company is liable to PlanView for a
15% fee on all future referrals by PlanView of the Company's Account4 software.
In addition, PlanView will be liable to the Company for a 15% fee on all future
referrals by the Company of the PlanView system. At December 31, 1999 and
March 31, 2000, the Company had approximately
F-12
ACCOUNT4.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(4) ACCRUED EXPENSES (CONTINUED)
$124,000 and $73,490, respectively, due to PlanView for royalties which is
included as a component of accounts payable and accrued expenses in the
accompanying balance sheet.
(5) COMMITMENTS AND CONTINGENCIES
The Company leases certain equipment and office space under noncancelable
operating and capital lease agreements, which expire at various dates through
2002.
Future minimum lease payments under noncancelable operating leases and the
present value of future minimum capital lease payments as of December 31, 1999
are as follows:
CAPITAL LEASES OPERATING LEASES
-------------- ----------------
Year ended December 31,
2000...................................................... $ 7,265 $384,236
2001...................................................... 7,265 369,330
2002...................................................... 5,448 219,508
------- --------
Total future minimum lease payments................... 19,978 $973,074
========
Less--Amounts representing interest......................... 4,554
-------
Present value of future minimum net capital lease
payments............................................ 15,424
Less--Current portion....................................... 4,700
-------
Capital lease obligations, less current portion....... $10,724
=======
Total rent expense under operating leases was approximately $158,000,
$340,000, $387,000, $93,000 and $113,000 for the years ended December 31, 1997,
1998 and 1999 and for the quarters ended March 31, 1999 and 2000, respectively.
F-13
ACCOUNT4.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(6) LONG-TERM DEBT
Notes payable to a stockholder consists of the following for all periods
presented:
$100,000 revolving credit line, interest at a bank's prime
rate (9.50% at March 31, 2000) plus 3.5%, due December 31,
2001...................................................... $ 45,564
Subordinated notes payable, interest at a bank's prime rate
plus 3.5%, due December 31, 2001.......................... 400,000
Note payable, interest at a bank's prime rate plus 3.5%, due
December 31, 2001......................................... 500,000
$240,000 line of credit, interest at a bank's prime rate
plus 3.5%, due December 31, 2001.......................... 100,000
----------
$1,045,564
----------
Notes payable to a non-stockholder consisting of the
following for all periods presented:
Note payable, subordinated to stockholder notes, interest at
a bank's prime rate plus 3.5%, due December 31, 2001...... 50,000
----------
Total long-term debt.................................... $1,095,564
==========
All debt was classified as current as of December 31, 1998. During 1999, all
debt instruments were amended to be due December 31, 2001 and, therefore, are
classified as long-term as of December 31, 1999 and March 31, 2000. During the
years ended December 31, 1997, 1998, 1999 and for the quarters ended March 31,
1999 and 2000, the Company incurred approximately $136,000, $134,000, $131,000,
$32,000 and $35,000, respectively, of interest expense related to the notes
payable.
The Company also has a consulting agreement with the stockholder noted
above. The Company paid approximately $12,000 under this agreement for services
provided in each of the years ended December 31, 1997, 1998 and 1999 and $3,000
in the quarter ended March 31, 1999 and 2000. This agreement expires upon the
repayment of all debt owed to this stockholder.
(7) STOCKHOLDERS' EQUITY (DEFICIT)
On April 26, 2000, the Company declared a 5.0662-for-1 stock split and
authorized 50,000,000 shares of capital stock of which 40,000,000 shares are
designated as common stock, $.01 par value and 10,000,000 shares are
undesignated preferred stock, $0.01 par value per share. All share and per share
amounts in the accompanying financial statements and notes have been
retroactively adjusted in all periods presented to reflect this stock split.
In April 1997, the Company issued 5,687,195 shares of common stock to two
principal officers of the Company at a price of $0.002 per share, which was the
fair market value at the date of issuance as determined by the Board of
Directors. As a condition of the common stock issuance, the two officers each
executed a Restricted Stock and Voting Agreement under which the Company retains
the right to repurchase any or all of the restricted shares until a minimum
liquidation level is achieved, or upon the occurrence of certain trigger events,
as defined, including a qualified initial public offering, for the shorter of
the duration of the officers' employment with the Company or 10 years. The
agreement further states that certain transactions, as defined, require the
approval of all stockholders prior to execution of the transaction. As of
December 31, 1999, 2,843,598 shares were subject to restrictions.
F-14
ACCOUNT4.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(7) STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
The two principal officers executed promissory notes totaling approximately
$11,000 in connection with this issuance. The promissory notes are payable on
demand with annual interest at a fixed rate of 8%.
(8) STOCK OPTION PLAN
The Company has a stock plan (1997 Stock Plan) pursuant to which the Board
of Directors may grant an aggregate of 2,401,379 shares of common stock through
incentive and nonqualified stock options and restricted stock grants and
opportunities to make direct purchases of stock to certain employees, directors
and consultants. Incentive stock options may not be less than the fair market
value of the stock at the date of the grant, as determined by the Board of
Directors. The exercise price of nonqualified options is determined by the Board
of Directors at the date of the grant. Options may be exercised, subject to
certain vesting requirements, for a period up to 10 years from the date of
grant. At March 31, 2000 there are 1,162,693 options available for future grant.
At December 31, 1999 and March 31, 2000, there were no stock options
exercisable.
The following is a summary of the stock option activity through March 31,
2000:
RANGE OF
EXERCISE
SHARES PRICES
--------- ------------
Outstanding at December 31, 1996............... 476,223 $ 0.197
Granted...................................... 754,864 0.002
Exercised.................................... (10,132) 0.197
Canceled..................................... (288,774) 0.197
--------- ------------
Outstanding at December 31, 1997............... 932,181 $0.002-0.197
Granted...................................... 93,725 0.197-0.276
Canceled..................................... (111,457) 0.002-0.197
--------- ------------
Outstanding at December 31, 1998............... 914,449 $0.002-0.276
Granted...................................... 206,447 0.592
Canceled..................................... (136,787) $0.002-0.592
--------- ------------
Outstanding at December 31, 1999............... 984,109 $0.002-0.592
Granted (unaudited).......................... 257,110 0.592
Canceled (unaudited)......................... (12,665) 0.592
--------- ------------
Outstanding at March 31, 2000 (unaudited)...... 1,228,554 $0.002-0.592
========= ============
Exercisable March 31, 2000..................... 0 --
========= ============
Exercisable December 31, 1999.................. 0 .197
========= ============
Exercisable December 31, 1998.................. 96,258 .197
========= ============
Exercisable December 31, 1997.................. 116,523 .197
========= ============
Based upon the Company's vesting schedule, there are no options exerciseable
at December 31, 1997, 1998, 1999 and March 31, 2000.
F-15
ACCOUNT4.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(8) STOCK OPTION PLAN (CONTINUED)
In connection with the granting of stock options to our employees in the
year ended December 31, 1999 and the quarter ended March 31, 2000, we recorded
deferred stock-based charges totaling approximately $314,000 in the year ended
December 31, 1999 and $2.2 million in the quarter ended March 31, 2000. These
amounts represent the difference between the exercise prices at which the stock
options were granted, and the deemed fair value of our common stock on the date
of the grants. This amount is included as a component of shareholders' equity
(deficit) and, in accordance with the method described in Financial Accounting
Standards Board Interpretation No. 28. The Company recorded amortization of
approximately $23,000 and $162,000 in the year ended December 31, 1999 and the
quarter ended March 31, 2000. At March 31, 2000, the remaining unamortized
stock-based compensation totaled approximately $2.3 million and will be
amortized over the following periods:
9 months ending December 31, 2000 $ 493,000
Year ending December 31, 2001 657,000
Year ending December 31, 2002 646,000
Year ending December 31, 2003 370,000
Year ending December 31, 2004 162,000
----------
Total $2,328,000
==========
In April 2000, the Company granted 240,000 shares of common stock at $3.00
per share.
The following table summarizes information regarding the Company's stock
options outstanding at March 31, 2000:
OPTIONS OUTSTANDING
----------------------------------------
WEIGHTED
AVERAGE WEIGHTED
REMAINING AVERAGE
CONTRACTUAL EXERCISE
RANGE OF EXERCISE PRICES NUMBER LIFE PRICE
- ------------------------ --------- ----------- --------
$0.002.................................................... 701,674 7.4 $0.002
$0.197-0.276.............................................. 86,126 8.4 0.229
$0.592.................................................... 440,754 9.5 0.592
--------- --- ------
1,228,554 8.2 $ 0.22
========= === ======
F-16
ACCOUNT4.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(8) STOCK OPTION PLAN (CONTINUED)
The Company has computed the pro forma disclosures required under SFAS
No. 123 for all stock options granted as of March 31, 2000 using the
Black-Scholes option pricing model prescribed by SFAS No. 123. The weighted
average information and assumptions used are as follows:
QUARTER ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------------- -----------------------
1997 1998 1999 1999 2000
--------- --------- -------- -------- --------
(UNAUDITED)
Risk-free interest rate........... 5.83-6.20% 4.65-5.72% 4.65% 4.65% 5.80%
Expected dividend yield........... -- -- -- -- --
Expected lives.................... 7 years 7 years 7 years 7 years 7 years
Expected volatility............... -- -- -- -- --
The following table summarizes the weighted average grant date fair value
and weighted average exercise price of options granted during the years ended
December 31, 1997, 1998 and 1999 and during the quarter ended March 31, 2000.
For purposes of the table below, the weighted average grant date fair value was
computed using the Black-Scholes option pricing model.
WEIGHTED AVERAGE WEIGHTED AVERAGE
SHARES FAIR VALUE EXERCISE PRICE
--------- ---------------- ----------------
Exercise price equals fair value.................... 928,382 $0.10 $0.10
Exercise price less than fair value................. 300,172 8.70 0.59
--------- ----- -----
1,228,554 $2.20 $0.22
========= ===== =====
The pro forma effect of applying SFAS No. 123 would be as follows:
DECEMBER 31, MARCH 31,
------------------------------ --------------------
1997 1998 1999 1999 2000
-------- -------- -------- -------- ---------
(UNAUDITED)
Net income (loss)--
As reported............................ $534,256 $388,877 $144,913 $265,170 $(389,651)
Pro forma.............................. 534,224 388,154 139,486 264,735 (395,937)
Diluted net income (loss) per share--
As reported............................ $ 0.06 $ 0.03 $ 0.01 $ 0.02 $ (0.05)
Pro forma.............................. 0.06 0.03 0.01 0.02 (0.05)
(9) INCOME TAXES
The Company provides for income taxes in accordance with the provisions of
SFAS No. 109, ACCOUNTING FOR INCOME TAXES. Accordingly, the Company recognizes a
current tax liability or asset for current taxes payable or refundable and a
deferred tax liability or asset for the estimated future tax effects of
temporary differences and carryforwards to the extent that they are realizable.
F-17
ACCOUNT4.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(9) INCOME TAXES (CONTINUED)
The Company provides deferred income taxes for temporary differences between
assets and liabilities recognized for financial reporting and income tax
purposes. The income tax effects of these temporary differences at December 31
are as follows:
1997 1998 1999
--------- --------- ---------
Nondeductible reserves and accruals......................... $ 2,591 $ 31,791 $ 79,969
Deferred revenue............................................ (15,384) (19,782) 1,418
Credit carryforwards........................................ 293,318 205,192 185,192
Net operating loss carryforwards............................ 152,075 -- --
--------- --------- ---------
Total deferred tax asset................................ 432,600 217,201 266,579
Less--Valuation allowance................................... (432,600) (217,201) (266,579)
--------- --------- ---------
$ -- $ -- $ --
========= ========= =========
The Company has certain tax credit carryforwards of approximately $185,192.
If not utilized, these carryforwards expire at various dates beginning 2008.
A reconciliation of the statutory rate to the Company's effective tax rate
is as follows:
YEAR ENDED QUARTER ENDED
DECEMBER 31, MARCH 31,
------------------------------ -------------------
1997 1998 1999 1999 2000
-------- -------- -------- -------- --------
(UNAUDITED)
Income tax provision at federal statutory rate.............. 34% 34% 34% 34% (34)%
State tax expense (net of federal benefit).................. 6 6 6 6 (6)
Permanent timing differences................................ 2 2 3 -- --
Utilization of credits and net operating loss
carryforwards............................................. (41) (40) -- -- --
--- --- -- -- ---
Effective tax rate.................................... 1% 2% 43% 40% (40)%
=== === == == ===
(10) EMPLOYEE BENEFIT PLAN
In 1989, the Company established a 401(k) Employee Savings Plan (the Plan).
The Plan is open to eligible full-time employees, as defined, and operates on a
payroll deduction basis. All eligible employees, as defined, may contribute
specified percentages of their salaries up to a maximum of 15%, subject to
Internal Revenue Service limitations. Employee contributions are 100% vested at
all times. To date, the Company has not made any contributions to the Plan.
(11) SEGMENT INFORMATION
Operating segments are defined as components of an enterprise about which
separate discrete financial information is available for evaluation by the chief
operating decision maker, or decision making group, in making decisions how to
allocate resources and assess performance. The Company's chief decision maker is
the chief executive officer. Based on criteria established by SFAS No. 131,
DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION, the Company
has one reportable operating segment, the results of which are disclosed in the
accompanying financial statements.
F-18
ACCOUNT4.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(11) SEGMENT INFORMATION (CONTINUED)
The following table represents a breakdown of revenues by individual
products:
QUARTER ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------ -----------------------
1997 1998 1999 1999 2000
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
Account4 software licenses......... $ 24,750 $ 250,550 $1,948,810 $ 770,000 $ 795,750
Account4 services.................. 15,450 45,105 989,335 107,415 568,231
Other software licenses............ 1,539,037 815,095 473,897 143,291 --
Other services..................... 2,733,703 4,908,426 4,649,161 1,289,693 509,522
---------- ---------- ---------- ---------- ----------
$4,312,940 $6,019,176 $8,061,203 $2,310,399 $1,873,503
========== ========== ========== ========== ==========
(12) VALUATION AND QUALIFYING ACCOUNTS
The following is a rollforward of the Company's allowance for bad debts:
BALANCE AT BALANCE AT
BEGINNING END OF
OF PERIOD ADDITIONS DEDUCTIONS PERIOD
---------- --------- ---------- ----------
Year ended December 31, 1997........................ $ -- $ -- $ -- $ --
======= ======== ========= =======
Year ended December 31, 1998........................ $ -- $ 25,140 $ -- $25,140
======= ======== ========= =======
Year ended December 31, 1999........................ $25,140 $136,894 $(118,294) $43,740
======= ======== ========= =======
Quarter ended March 31, 2000 (unaudited)............ $43,740 $ 20,000 $ -- $63,740
======= ======== ========= =======
F-19
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
4,000,000 SHARES
[LOGO]
COMMON STOCK
---------------
P R O S P E C T U S
------------------------
The Robinson-Humphrey Company
Gerard Klauer Mattison & Co., Inc.
FAC/Equities
, 2000
Until , 2000, all dealers that buy, sell or trade our common
stock, whether or not participating in this offering, may be required to deliver
a prospectus. This is in addition to the dealers' obligation to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the registrant in connection
with the sale of the securities being registered. All amounts are estimates
except the SEC registration fee, the NASD fee and the Nasdaq National Market
listing fee. None of the following expenses will be paid by the selling
shareholders.
SEC registration fee........................................ $ 17,002
NASD filing fee............................................. 6,940
Nasdaq National Market listing fee.......................... 90,500
Printing.................................................... 150,000
Legal fees and expenses..................................... 150,000
Accounting fees and expenses................................ 100,000
Blue sky fees and expenses.................................. *
Transfer agent and registrar fees........................... *
Directors and officers insurance............................ *
Miscellaneous............................................... *
-----------
Total................................................. $
===========
- ------------------------
* To be filed by amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law authorizes a court to
award, or a corporation's Board of Directors to grant, indemnity to directors
and officers in terms sufficiently broad to permit such indemnification under
certain circumstances for liabilities (including reimbursement for expenses
incurred) arising under the Securities Act of 1933, as amended (the "Securities
Act").
As permitted by the Delaware General Corporation Law, the registrant's
Certificate of Incorporation includes a provision that eliminates the personal
liability of its directors for monetary damages for breach of fiduciary duty as
a director, except to the extent that exculpation from liability is not
permitted under the Delaware General Corporation Law as in effect at the time
such liability is determined.
As permitted by the Delaware General Corporation Law, the By-Laws of the
registrant provide that (i) the registrant is required to indemnify its
directors, officers, employees and agents to the fullest extent permitted by the
Delaware General Corporation Law, subject to certain very limited exceptions,
(ii) the registrant is required to advance expenses, as incurred, to its
directors, officers, employees and agents in connection with a legal proceeding
to the fullest extent permitted by the Delaware General Corporation Law, subject
to certain very limited exceptions and (iii) the rights conferred in the By-Laws
are not exclusive.
Reference is also made to Section of the Underwriting Agreement, the
form of which has been filed as Exhibit number to this registration
statement, which provides for the indemnification of officers, directors and
controlling persons of the registrant against certain liabilities. The
indemnification provisions in the registrant's Certificate of Incorporation and
By-Laws may be sufficiently broad to permit indemnification of the registrant's
directors and executive officers for liabilities arising under the Securities
Act of 1933.
The registrant intends to purchase directors and officers liability
insurance.
II-1
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
During the past 3 years, the following securities were sold or issued by the
registrant without registration under the Securities Act of 1933, as amended
(the "Act"):
(a) Issuances of Capital Stock
- In 1997, the registrant issued and sold to John J. Lucas, in exchange for
a promissory note in the amount of $6,174.17, and subject to a restricted
stock and voting agreement, 3,127,958 shares of our common stock
- In 1997, the registrant issued and sold to Stephen M. Grange, in exchange
for a promissory note in the amount of $5,051.59, and subject to a
restricted stock and voting agreement, 2,559,237 shares of our common
stock
- In 1997, the registrant issued and sold to John Sayles upon the exercise
of stock options, 10,132 shares of our common stock at an exercise price
of $1.00 per share.
(b) Grants of stock options
- Our 1997 Stock Plan was adopted by the board of directors in 1997. At
various times since 1997 we issued 1,552,147 options for shares of our
common stock to employees at purchase prices of between $.002 per share
and $.59 per share, and 60,000 options for shares of common stock to
directors at purchase prices of $3.00 per share pursuant to our 1997 Stock
Plan.
The above securities were issued in reliance on the exemption from
registration under Section 4(2) as not involving any public offering. Claims of
such exemptions are based upon the following: (i) all of the purchasers in such
transactions were sophisticated investors with the requisite knowledge and
experience in financial and business matters to evaluate the merits and risks of
an investment in the registrant, were able to bear the economic risk of an
investment in the registrant, had access to or were furnished with the kinds of
information that registration under the Act would have provided and acquired
securities for their own accounts in transactions not involving any general
solicitations or advertising, and not with a view to the distribution thereof,
(ii) a restrictive legend was placed on each certificate evidencing the
securities; and (iii) each purchaser acknowledged in writing that he knew the
securities were not registered under the Act or any State securities laws, and
were "Restricted Securities" as that term defined in Rule 144 under the Act,
that the securities may not be offered for sale, sold or otherwise transferred
within the United States except pursuant to an effective Registration Statement
under the Act and any applicable State securities laws, or pursuant to any
exemption from registration under the Act, the availability of which is to be
established to the satisfaction of the registrant.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
The following exhibits are filed as part of this registration statement:
NUMBER DESCRIPTION
- ------ ------------------------------------------------------------
1.1* Form of Underwriting Agreement
3.1* Certificate of Incorporation of the registrant, as amended
to date
3.2* By-Laws of the registrant, as amended to date
4.1* Form of registrant common stock certificate
5.1* Opinion of Choate, Hall & Stewart regarding the legality of
the securities being registered
10.1* 2000 Employee Stock Purchase Plan
10.2* 1997 Stock Plan
II-2
NUMBER DESCRIPTION
- ------ ------------------------------------------------------------
10.3* Proprietary Software License Agreement between registrant
and Keane, Inc., dated February 22, 1999
10.4* Services Agreement between registrant and State Farm Mutual
Automobile Insurance Company, dated September 26, 1996
10.5* Master Consulting Services Agreement between registrant and
State Farm Mutual Automobile Insurance Company, dated
July 16, 1998
10.6* Wells Research Center Office Lease between Wells Avenue
Senior Holdings LLC and registrant, dated May 6, 1997
10.7* Restricted Stock and Voting Agreement between registrant,
LRF Investments, Inc., Echo Services, Inc. and Stephen M.
Grange, dated April 10, 1997
10.8* Restricted Stock and Voting Agreement between registrant,
LRF Investments, Inc., Echo Services, Inc. and John J.
Lucas, dated April 10, 1997
10.9* Extension of Maturity of Promissory Notes dated
December 14, 1999 between registrant and LRF Investments,
Inc.
10.10* Maturity extension letter dated April 30, 1992 between
registrant and LRF Investments, Inc.
10.11* $240,000 Line of Credit Note payable by the registrant to
LRF Investments, Inc., dated January 29, 1990
10.12* $500,000 Note payable by the registrant to LRF Investments,
Inc., dated August 15, 1989
10.13* $160,000 Subordinated Note payable by the registrant to LRF
Investments, Inc., dated October 25, 1988
10.14* $50,000 Promissory Note payable by the registrant to
Michael B. Shattow, dated July 22, 1988
10.15* $100,000 Revolving Credit Note payable by the registrant to
LRF Investments, Inc., dated April 20, 1988
10.16* $240,000 Subordinated Note payable by the registrant to LRF
Investments, Inc., dated April 20, 1988
10.17* Securities Purchase Agreement between the registrant,
Michael Shattow, and LRF Investments, Inc., dated April 20,
1988
23.1 Consent of Arthur Andersen LLP
23.2* Consent of Choate, Hall & Stewart (included in Exhibit 5.1)
24.1* Power of Attorney (contained on page II-5)
27.1 Financial Data Schedule
- ------------------------
* To be filed by amendment
(b) Financial Statements and Schedule
See Index to Financial Statements on page F-1 of the prospectus which
forms a part of this registration statement.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described under Item 14 above, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission, such indemnification is against public policy as
expressed in the Securities Act of 1933, as amended and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or
II-3
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a) of the Securities
Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the Securities Act
of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities being offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of
the offering.
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Boston, Commonwealth of
Massachusetts, on the 2nd day of May, 2000.
ACCOUNT4.COM, INC.
By:
-----------------------------------------
John J. Lucas
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE
OFFICER
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
immediately below constitutes and appoints John J. Lucas or Stephen M. Grange or
any of them, his true and lawful attorney-in-fact and agent, with full power of
substitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement, and any and all additional registration
statements pursuant to Rule 462(b) under the Securities Act of 1933, as amended,
in connection with or related to the offering contemplated by this Registration
Statement and its amendments, if any, and to file the same with all exhibits
thereto, and other documents in connection therewith, with the Commission,
granting unto said attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent or his
substitute or substitutes may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on May , 2000.
SIGNATURE TITLE DATE
--------- ----- ----
Chairman, President and
/s/ JOHN J. LUCAS Chief Executive Officer
------------------------------------------- (principal executive May 2, 2000
John J. Lucas officer)
Senior Vice President and
/s/ STEPHEN M. GRANGE Chief Financial Officer
------------------------------------------- (principal financial and May 2, 2000
Stephen M. Grange accounting officer)
/s/ JOSEPH J. FREEMAN
------------------------------------------- Director May 2, 2000
Joseph J. Freeman
/s/ E. WILLIAM HOWARD
------------------------------------------- Director May 2, 2000
E. William Howard
/s/ EDWARD P. MARRAM
------------------------------------------- Director May 2, 2000
Edward P. Marram
/s/ JOHN P. MCGRATH
------------------------------------------- Director May 2, 2000
John P. McGrath
II-5
EXHIBIT INDEX
NUMBER DESCRIPTION
- ------ ------------------------------------------------------------
1.1* Form of Underwriting Agreement
3.1* Certificate of Incorporation of the registrant, as amended
to date
3.2* By-Laws of the registrant, as amended to date
4.1* Form of registrant common stock certificate
5.1* Opinion of Choate, Hall & Stewart regarding the legality of
the securities being registered
10.1* 2000 Employee Stock Purchase Plan
10.2* 1997 Stock Option Plan
10.3* Proprietary Software License Agreement between registrant
and Keane, Inc., dated February 22, 1999
10.4* Services Agreement between registrant and State Farm Mutual
Automobile Insurance Company, dated September 26, 1996
10.5* Master Consulting Services Agreement between registrant and
State Farm Mutual Automobile Insurance Company, dated
July 16, 1998
10.6* Wells Research Center Office Lease between Wells Avenue
Senior Holdings LLC and registrant, dated May 6, 1997
10.7* Restricted Stock and Voting Agreement between registrant,
LRF Investments, Inc., Echo Services, Inc. and Stephen M.
Grange, dated April 10, 1997
10.8* Restricted Stock and Voting Agreement between registrant,
LRF Investments, Inc., Echo Services, Inc. and John J.
Lucas, dated April 10, 1997
10.9* Extension of Maturity of Promissory Notes dated
December 14, 1999 between registrant and LRF Investments,
Inc.
10.10* Maturity extension letter dated April 30, 1992 between
registrant and LRF Investments, Inc.
10.11* $240,000 Line of Credit Note payable by the registrant to
LRF Investments, Inc., dated January 29, 1990
10.12* $500,000 Note payable by the registrant to LRF Investments,
Inc., dated August 15, 1989
10.13* $160,000 Subordinated Note payable by the registrant to LRF
Investments, Inc., dated October 25, 1988
10.14* $50,000 Promissory Note payable by the registrant to
Michael B. Shattow, dated July 22, 1988
10.15* $100,000 Revolving Credit Note payable by the registrant to
LRF Investments, Inc., dated April 20, 1988
10.16* $240,000 Subordinated Note payable by the registrant to LRF
Investments, Inc., dated April 20, 1988
10.17* Securities Purchase Agreement between the registrant,
Michael Shattow, and LRF Investments, Inc., dated April 20,
1988
23.1 Consent of Arthur Andersen LLP
23.2* Consent of Choate, Hall & Stewart (included in Exhibit 5.1)
24.1* Power of Attorney (contained on page II-5)
27.1 Financial Data Schedule
- ------------------------
* To be filed by amendment