As filed with the Securities and Exchange Commission on April 28,June 4, 1999
Registration No. 333-333-77223
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
under
The Securities Act of 1933
-------------------------
SHOWCASE CORPORATION
(Exact name of registrant as specified in its charter)
Minnesota 7372 41-1628214
(State or other (Primary Standard (I.R.S. Employer
jurisdiction Industrial Identification Number)
of incorporation or Classification Code
organization) Number)
4115 Highway 52 North, Suite 300
Rochester, Minnesota 55901-0144
(507) 288-5922
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
Kenneth H. Holec
ShowCase Corporation
4115 Highway 52 North, Suite 300
Rochester, Minnesota 55901-0144
(507) 288-5922
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
-------------------------
Copies to:
Kenneth L. Cutler David K. Michaels
Thad C. Johnson Robert A. Freedman
Philip E. Bauer Cynthia E. Garabedian
Dorsey & Whitney LLP Fenwick & West LLP
220 South Sixth Street Two Palo Alto Square
Minneapolis, Minnesota 55402-1498 Palo Alto, California 94306
(612) 340-2600 (650) 494-0600
-------------------------
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 earliest 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 earliest 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: [_]
CALCULATION OF REGISTRATION FEE
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Titles of Each Class of Proposed Maximum Proposed
Securities to be Amount to be Offering Price Maximum Aggregate Amount of
Securities to be Registered Registered (1) Per Share (2) Offering Price (1)(2) Registration Fee
- ---------------------------------------------------------------------------------------------------------------------------------------------------------------
Common Stock, par value
$.01 per share..... $35,000,000 $9,730share......... 3,450,000 $11.00 $37,950,000 $10,551(3)
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(1) Includes 450,000 shares that the Underwriters have the option to purchase
to cover over-allotments, if any.
(2) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(o)457(a).
(3) $9,730 of this fee was previously paid with the original filing.
-------------------------
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 the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+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 state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion
Preliminary Prospectus dated ,June 4, 1999
PROSPECTUS
3,000,000 Shares
Common Stock
------------------------
This is ShowCase Corporation's initial public offering of common stock.
We expect the public offering price to be between $$9.00 and $$11.00 per
share. Currently, no public market exists for the shares. After pricing of this
offering, we expect that the common stock will trade on the Nasdaq National
Market under the symbol "SHWC."
Investing in the common stock involves risks which are described in the
"Risk Factors" section beginning on page 4 of this prospectus.
------------------------
Per Share Total
--------- -----
Public Offering Price........................... $ $
Underwriting Discount........................... $ $
Proceeds, before expenses, to ShowCase..........ShowCase
Corporation.................................... $ $
The underwriters may also purchase up to an additional 450,000 shares at
the public offering price, less the underwriting discount, within 30 days from
the date of this prospectus to cover over-allotments.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
The shares of common stock will be ready for delivery in New York, New York
on or about , 1999.
------------------------
Merrill Lynch & Co.
U.S. Bancorp Piper Jaffray
Dain Rauscher Wessels
a division of Dain Rauscher Incorporated
FAC/Equities
------------------------
The date of this prospectus is , 1999
[Inside[INSIDE FRONT COVER]
Work Smarter . . .
Make Smarter
Business Decisions . . .
Faster. [text in italics]
ShowCase(R) Corporation is the leading provider of fully integrated,
end-to-end, business intelligence solutions for IBM AS/400 customers.
The ShowCase STRATEGY(R) product suite and related services are
designed to enable organizations to rapidly implement business
intelligence solutions that create increased value from their
operational and customer data. The sophisticated data warehousing and
management capabilities of our product suite provide our clients with
tightly integrated and highly scalable solutions. ShowCase products
enable enterprise-wide ad hoc information access, enterprise reporting
and analytics through familiar applications and Internet browsers.
Companies require business intelligence to make faster, smarter
decisions. For ten years, ShowCase has helped meet this challenge by
building and leveraging technology to deliver business intelligence
solutions.
[ShowCase(R) Corporation Logo]
[INSIDE FRONT COVER GATEFOLD]
In the center of the gatefold, there appears the following title heading :
ShowCase
STRATEGY(R)
Enterprise
Business Intelligence
Below the heading is a three-dimensional rectangular box sitting on a larger
three-dimensional rectangular foundation. The left side of the rectangular
foundation is labeled WAREHOUSE MANAGEMENT and the front cover --of the rectangular
foundation is labeled WAREHOUSE GENERATION.
The left side of the rectangular box is divided into six columns labeled as
follows from the back to the front of the box, vertical text:
CUSTOMER SPECIFIC
FINANCIAL REPORTING
SALES ANALYSIS
SUPPLY CHAIN
CRM
1-1 MARKETING
The front of the rectangular box is divided into three sections labeled as
follows, from left to right, with the center section extending across the top of
the sections to the left and right:
AD HOC
INFORMATION ENTERPRISE REPORTING ANALYTICS
ACCESS
On the left-hand side of the gatefold there are four graphics appearing
vertically which separately break out the sections of the graphic appearing in
the center of the gatefold. Each of the first three graphics represents a
section of the rectangular box described above, and the fourth graphic
represents the three-dimensional rectangular foundation.
The first graphic is a three-dimensional cube with the same six vertical columns
appearing on the left side of the rectangular box as described above and AD HOC
INFORMATION ACCESS appearing on the front of the cube. The caption below this
graphic reads "Ad hoc information access tools enable users to come]customize the
manner in which information is accessed and viewed."
The second graphic is a three-dimensional cube with the same six vertical
columns appearing on the left side of the rectangular box as described above and
ANALYTICS appearing on the front
of the cube. The caption below this graphic reads "Analytics provide users with
speed-of- thought sophisticated data analysis."
The third graphic is a three-dimensional cube, extending to the left and right
at the very top of the cube as this section appears in the rectangular box in
the center of the page, and contains the same six vertical columns appearing on
the left side of the rectangular box as described above, with ENTERPRISE
REPORTING appearing on the front of the cube. The caption below this graphic
reads "Enterprise reporting tools enable widespread deployment of information."
The fourth graphic is a representation of the three-dimensional rectangular
foundation included in the graphic appearing in the center of the gatefold. The
caption below this graphic reads "Warehouse generation and management
capabilities enable IT to support enterprise business intelligence
implementations."
On the right-hand side of the gatefold there is the following text, superimposed
over the ShowCase compass logo:
Clients often buy and implement ShowCase STRATEGY(R) in an evolutionary way,
building upon their initial successes. Once their first business application is
implemented, many of our clients take advantage of additional STRATEGY
capabilities and extend it, or expand their use of STRATEGY for new
applications. Here are two typical examples.
Example 1 [bold text]
A company wants to enable its sales force to secure contract
information, pricing and profitability on a customer-by-customer
basis. Solution: the STRATEGY ad hoc capabilities. Based on the
success of this project, the company then applies the STRATEGY
analytic capabilities to develop an overall pricing strategy. Outcome:
the client licenses additional STRATEGY products to support the
functional expansion.
[Italic text]
Example 2 [bold text]
A company wants to analyze and manage its promotional mix. Solution: a
sales analysis data mart using the STRATEGY analytic capabilities.
Satisfied with its findings, the company expands its use of STRATEGY
for additional end user analytic applications, including store-level
profitability analysis. Outcome: the client licenses additional
STRATEGY products to support incremental users. [Italic text]
In the lower right-hand corner of the gatefold is the ShowCase STRATEGY logo
with the following caption: "Work Smarter...Faster."
TABLE OF CONTENTS
Page
----
Prospectus Summary....................................................... 1
Risk Factors............................................................. 54
Forward-Looking Statements............................................... 1514
Trademarks............................................................... 1514
Use of Proceeds.......................................................... 1615
Dividend Policy.......................................................... 15
Capitalization........................................................... 16
Capitalization...........................................................Dilution................................................................. 17
Dilution................................................................. 18
Selected Consolidated Financial Data..................................... 1918
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 2019
Business................................................................. 2928
Management............................................................... 4140
Certain Transactions..................................................... 4948
Principal Shareholders................................................... 5049
Description of Capital Stock............................................. 5251
Shares Eligible for Future Sale.......................................... 5554
Underwriting............................................................. 5756
Legal Matters............................................................ 5958
Experts.................................................................. 5958
Where You Can Find More Information...................................... 6059
Index to Consolidated Financial Statements .............................. F-1
INFORMATION IN PROSPECTUS
Unless specifically stated, the information in this prospectus has been
adjusted to reflect the automatic conversion of all outstanding shares of our
preferred stock into shares of common stock, but does not take into account the
possible sale of additional shares of common stock to the underwriters to cover
over-allotments.
You should rely only on the information contained in this prospectus. We
and the underwriters have not authorized any other person to provide you with
different information. If anyone provides you with different or inconsistent
information, you should not rely on it. We and the underwriters are not making
an offer to sell these securities in any jurisdiction where the offer or sale
is not permitted. You should assume that the information appearing in this
prospectus is accurate as of the date on the front cover of this prospectus
only. Our business, financial condition, results of operations and prospects
may have changed since that date.
i
PROSPECTUS SUMMARY
This summary is not complete and does not contain all of the information
that may be important to you. You should read the entire prospectus carefully,
including the consolidated financial statements and related notes, before
making an investment decision.
The terms "ShowCase," "we," "us" and "our" as
used in this prospectus refer to "ShowCase Corporation" and its subsidiaries as
a combined entity, except where it is made clear that these terms mean only the
parent company.
ShowCase Corporation
We are the leading provider of fully integrated, end-to-end, business
intelligence solutions for IBM AS/400 customers. Our ShowCase STRATEGY product
suite and related services are designed to enable organizations to rapidly
implement business intelligence solutions that create increased value from
their operational and customer data. The sophisticated data warehousing and
management capabilities of our product suite provide our clients with highly
scalable and tightly integrated solutions. Our products enable enterprise-wide
distribution of information and allow end-user access and analysis through
familiar applications and Internet browsers. We have eight years of experience
delivering business intelligence solutions to our clients. Our ShowCase
STRATEGY product suite, introduced in 1996, supports ad hoc information access,
enterprise reporting and analytics. We have eight years of experience delivering business
intelligence solutions to our clients.
The rapid growth of the Internet and the emergence of e-business are
transforming the way organizations conduct business, communicate and share
information. This transformation is driving broad and immediate demand for
better intelligence and information dissemination. Companies require business
intelligence to interpret and create value from the vast amounts of available
data to better tailor products and services, identify business opportunities
and improve operational efficiencies. A critical foundation technology for
business intelligence solutions is a scalable and reliable server platform. The
AS/400 is a leading server platform deployed in the mid-market for enterprise
resource applications, e-business and business intelligence and is particularly
popular with mid-market companies because of its reliability, scalability, ease
of deployment and low cost of operation.
Companies are often unable to realize the full potential of business
intelligence because of the difficulty of integrating components from multiple
vendors, adapting solutions to evolving end-user needs, scaling across the
enterprise and extending business intelligence through the Internet. Our
ShowCase STRATEGY product suite combines an intuitive user interface and
Internet capabilities with powerful functionality that allows end users to
easily access, customize and analyze information and reports with minimal IT
assistance. It consists of data warehouse generation and management, reporting,
relational analysis and multidimensional analysis components. In addition, we
also offer Deployment Accelerators, which provide adaptable applications for
targeted business functions and allow some of our clients to realize benefits
of business intelligence within days of deployment.
We sell our products and services in the U.S. and internationally through
our direct sales force, software application vendors, distributors and
resellers. Our channelThese distribution partners include Dimension Data Systems, Fiserv,
IBM, Infinium Software, Lawson Software, Silverlake, TSG and Walker
Interactive. As of March 31, 1999, we had over 2,000 active clients including
Abbott Laboratories, Burmah Castrol Trading, Cartier International, Interface,
Land O'Lakes, Sara Lee Casualwear, Skytel Communications, Tiffany & Company and
Toys "R" Us International.
Our principal offices are located at 4115 Highway 52 North, Suite 300,
Rochester, Minnesota 55901, and our telephone number is (507) 288-5922.
1
Recent Developments
Preliminary estimates of our results of operations for the three months
and the year ended March 31, 1999 (unaudited), together with statement of
operations data for the three months ended March 31, 1998 (unaudited) and for
the year ended March 31, 1998, are summarized below.
Three Months
Ended Year Ended
March 31, March 31,
---------------- ----------------
1998 1999 1998 1999
------- ------- ------- -------
(in thousands)
Consolidated Statement of Operations Data:
Total revenues.............................. $ 7,006 $10,257 $23,755 $35,519
Operating income (loss)..................... (982) 195 (3,602) (559)
Net income (loss)........................... (996) 218 (3,234) (616)
2
The Offering
Common stock offered.... 3,000,000 shares
Common stock outstanding after this offering....10,273,393 shares. The number of shares that will be outstanding after the
after this offering.... offering is based on the actual number outstanding as of March 31,June 1, 1999. It
excludes options to purchase 1,545,8071,606,507 shares of common stock outstanding as
of March 31,June 1, 1999 at a weighted average exercise price of $2.32$2.58 per share, and
13,580 shares of common stock issuable upon exercise of an outstanding
warrant at an exercise price of $4.00 per share. For more information regarding
our equity benefit plans, see "Management--Benefit Plans" and notenotes 9 and 13 of
notes to consolidated financial statements.
Use of proceeds......... We intend to use the net proceeds of this offering for general corporate
purposes, including expansion of our direct sales force, product development
and working capital.
Risk Factors............ See "Risk Factors" for a discussion of factors you should carefully consider
before deciding to invest in shares of our common stock.
Proposed Nasdaq National
Market symbol.......... SHWC
32
Summary Consolidated Financial Data
The summary consolidated financial data below should be read in
conjunctiontogether
with "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and the consolidated financial statements and the related notes
included elsewhere in this prospectus.
Year Ended March 31,
Nine Months Ended
-------------------------------------- -------------------------
December 31, December 31,
1994----------------------------------------
1995 1996 1997 1998 1997 1998
------1999
------- ------- ------- ------- ------------ -------------------
(in thousands, except per share data)
Consolidated Statement of Operations
Data:
Total revenues.......... $6,471revenues...................... $10,018 $13,278 $18,027 $23,755 $16,751 $25,262$35,519
Operating income (loss)................. 490............. 558 826 36 (3,602) (2,620) (753)(559)
Net income (loss)....... 387................... 397 814 50 (3,234) (2,238) (834)
====== =======(616)
======= ======= ======= ======= =======
Net income (loss) per share:
Basic................. $ 0.10Basic............................. $ 0.10 $ 0.21 $ 0.01 $ (0.82) $ (0.57) $ (0.19)
Diluted............... $ 0.07(0.14)
Diluted........................... $ 0.06 $ 0.13 $ 0.01 $ (0.82) $ (0.57) $ (0.19)(0.14)
Shares used in computing basic net
income (loss) per share.............. 3,867share............ 3,908 3,850 3,847 3,928 3,909 4,3484,384
Shares used in computing diluted net
income (loss) per share....... 5,907share............ 6,339 6,457 6,445 3,928 3,909 4,3484,384
As of DecemberMarch 31, 1998
--------------------------1999
-----------------------
Actual As Adjusted
----------- ------------------------ ------------
(in thousands)
Consolidated Balance Sheet Data:
Cash and marketable securities.....................securities........................ $ 7,637 $9,039 $36,339
Working capital.................................... 609capital....................................... 151 27,451
Total assets....................................... 19,546assets.......................................... 19,926 47,226
Long-term debt and capital lease obligations, less
current portion................................... 751portion...................................... 87 87
Total stockholders' equity......................... 2,118equity............................ 2,272 29,572
For an explanation of the determination of the number of shares used in
computing basic and diluted net income per share, see note 10 of notes to
consolidated financial statements.
The consolidated balance sheet data as of DecemberMarch 31, 1998,1999, as adjusted,
reflects our sale of 3,000,000 shares of common stock offered by this
prospectus at an assumed initial public offering price of $$10.00 per share,
after deducting the estimated underwriting discount and offering expenses that
we will pay. See "Use of Proceeds" and "Capitalization."
43
RISK FACTORS
Before investing in our common stock, you should be aware that there are
various risks, including those described below. As a ShowCase shareholder, you
will be subject to risks inherent in our business. The value of your investment
may increase or decline and could result in a loss. You should carefully
consider the following factors as well as other information contained in this
prospectus before deciding to invest in shares of our common stock.
We have a history of losses and we may not be able to achieve profitability
We incurred operating losses of approximately $3.6 million for the fiscal
year ended March 31, 1998 and $753,000$559,000 for the nine monthsfiscal year ended DecemberMarch 31,
1998.1999. We have also incurred operating losses in each quarter beginning with the
quarter ended June 30, 1997 through the quarter ended September 30, 1998. As of
DecemberMarch 31, 1998,1999, we had an accumulated deficit of approximately $4.0$3.8 million. We
expect to continue to incur significant sales and marketing, product
development and general and administrative expenses. In particular, we intend
to substantially increase our direct field sales force, and accordingly
increase our sales and marketing expenses. As a result, we may continue to
experience losses and negative cash flows. If we do achieve profitability, we
may not sustain or increase profitability on a quarterly or annual basis in the
future.
Our future operating results may not follow past trends due to many factors
The relatively recent introduction of a substantial portion of our
current product suite and our history of losses make prediction of future
operating results difficult. In the past, our revenues and operating results
have varied significantly, and we expect these fluctuations to continue.
Although our revenues have grown significantly in recent periods, you should
not rely on past performance as any indication of future growth rates or
operating results. Future operating results will depend on many factors,
including:
. demand for the IBM AS/400 platform;
. growth of the market for business intelligence solutions;
. demand for and acceptance of our products, product enhancements
and services;
. maintenance and development of our strategic relationships with
application vendors, resellers and distributors;
. the introduction, timing and competitive pricing of products and
services by us and our competitors;
. expansion and rate of success of our direct sales force and
indirect distribution channels both domestically and
internationally; and
. attraction and retention of key personnel.
Our quarterly operating results fluctuate significantly and are difficult to
predict
Quarterly operating results. Our operating results have varied and in the
future are likely to vary significantly from quarter to quarter for a number of
reasons, including:
. the size and timing of significant orders;
. the length of our sales cycles and the sales cycles of our
distribution partners;
. the mix of products and services that we sell and the mix between
direct and indirect sales of our products;
. our ability to control costs;
. our ability to introduce new products and enhancements in a timely
manner;
54
. the rate of success of our international expansion and the effect
of foreign currency exchange rate fluctuations;
. the discovery of software defects; and
. general economic conditions as well as those specific to our
customers and markets.
Revenues. We cannot predict our quarterly revenues with any significant
degree of accuracy for several reasons. We have historically operated with a
low software order backlog because we generally ship our software products
shortly after we receive orders. Accordingly, our product license revenues for
any quarter depend significantly on orders booked and shipped during that
quarter. In recent periods, we have experienced an increase in the average size
of our licenses, and we expect this trend to continue. This focus on larger
licenses will result in greater sales volatility from quarter to quarter.
Moreover, we often recognize a substantial portion of our quarterly product
license revenues in the last few weeks of a quarter. As a result, delays in
booking client orders could adversely affect our reported revenues for a
particular quarter. Finally, a significant percentage of our sales are through
indirect channels that are less predictable than sales through our direct sales
force.
We have often realized a greater percentage of our license revenue and
operating income in our third fiscal quarter than in other quarters due to
customer purchasing patterns. In addition, due to seasonal factors, our sales
often tend to slow during the summer months. We expect these trends to
continue.
Product license revenues also vary because the market for our products is
evolving rapidly and because sales cycles, which may last many months, vary
widely from client to client. Sales cycles are affected by many factors,
including:
. our clients' budgetary constraints;
. the timing of our clients' budget cycles;
. our clients' decisions as to whether, and on what scale, to adopt
business intelligence solutions;
. our clients' concerns about the introduction of new products by us
or our competitors; and
. potential downturns in the economy, which may reduce demand for
our products.
Maintenance and support fees depend largely on revenues from our existing
clients and vary with their maintenance and support needs. Professional service
revenues are often unpredictable because they depend in part on the scope of
the services we provide and whether our clients utilize those services.
Expenses. Because we plan to expand our business, we anticipate
substantial increases in operating costs and expenses, including
administration, consulting and training, maintenance and technical support,
product development and sales and marketing expenses. In general, we base our
operating expense budgets on anticipated revenue trends, and we may not be able
to reduce these expenses in the short term. Because our expenses are relatively
fixed in the near term, any shortfall from anticipated revenues or any delay in
recognition of revenues could result in significant variations in our quarterly
operating results.
For the foregoing reasons, we believe that quarter-to-quarter comparisons
of our operating results are not a good indication of our future performance.
It is likely that in one or more future quarters, our operating results may not
meet the expectations of analysts and investors. In this event, the price of
our common stock may fall.
The growth of our business depends on the growth of the market for business
intelligence software
All of our revenues to date have been attributable to the sale of
business intelligence software and related maintenance, support, consulting and
professional services. Business intelligence software enables
5
organizations to transform data from disparate sources into accessible,
understandable and useful information. We expect such software and services to
6
continue to account for substantially all of our revenues for the foreseeable
future. Although demand for business intelligence software has grown in recent
years, we cannot assure that the market will continue to grow or that, even if
the market does grow, businesses will adopt our products. If such growth does
not materialize, our business and operating results would be seriously harmed.
We believe that future growth in the market for business intelligence
software will depend in large part on growth in e-business--business-to-
business, business-to-employee and business-to-customer communications and
transactions over the Internet, corporate intranets and extranets.intranets--internal computer networks
based on the Internet protocol--and extranets--networks that have connectivity
beyond corporate intranets. E-business has only recently emerged, and may not
continue to grow. Continued growth in e-business depends on a number of
factors, including the Internet's ability to efficiently handle increased
activity and to operate as a fast, reliable and secure network. Critical issues
concerning the commercial use of the Internet, including data corruption,
security, bandwidth availability and quality of service, remain and may
negatively affect the growth of e-business, and accordingly, the demand for
business intelligence software.
Our products currently operate primarily onIf the current levels of use of the IBM AS/400 and IBM's support of the AS/400
do not continue, we may not be able to increase our sales
The server components of our products currently operate only on the IBM
AS/400. To date, virtually all of our revenues have been derived from the
AS/400 customer base. Therefore, our ability to increase sales of our products
will depend on the continued use of the AS/400 and the continued support of the
AS/400 by IBM. Instead of using the AS/400, many businesses have implemented
client/server computer systems based on UNIX or Windows NT platforms. The
current levels of use by customers of the AS/400 customers and support of the AS/400 by IBM may
not continue and the use of the AS/400 may not increase in the future. To
develop products that operate on platforms other than the AS/400 would require
us to commit a substantial investment of resources, and we may not successfully
introduce these products on a timely or cost-effective basis or at all.
We may lose existing clients or be unable to attract new clients if we do not
develop new products and enhance our current products
We compete in markets where technology changes rapidly, competitors make
frequent new product introductions and enhancements, products have uncertain
life cycles and customer demands change unexpectedly. Our future success
depends on our ability to satisfy diverse and evolving customer requirements
and achieve market acceptance. It will also depend on our ability to improve
and expand our product line to keep pace with our competitors' product
introductions and technological developments. We cannot be certain that we will
be successful in developing and marketing product enhancements or new products
on a timely or cost-effective basis, or that these products, if developed, will
achieve market acceptance.
As a result of the complexities of business intelligence software, major
new products and product enhancements can require long development and testing
periods. In addition, customers may delay their purchasing decisions in
anticipation of the general availability of new or enhanced versions of the
Company's products and products of competitors. We have experienced delays in
releasing new products and product enhancements and may experience similar
delays in the future. Delays or problems in releasing our new products, or
significant problems in the installation or implementation of our products, may
cause clients to delay or cancel purchases or to purchase products from our
competitors, which would seriously harm our business and operating results.
If our relationships with channeldistribution partners are not successful and if we
cannot recruit additional channeldistribution partners we may not be able to expand
our sales
In addition to our direct sales force, we rely on channeldistribution partners
including application vendors, resellers and distributors to license and
support our products in the United States and internationally. Our ability to
expand the sales of our products and our future success will depend in part
upon recruiting channeldistribution partners and maintaining successful relationships
with these partners. Our channeldistribution partners may
6
offer products from several different companies, including, in some cases,
products that compete with our products. In 7
addition, in the future our
channeldistribution partners may develop products that compete with our products. Our
existing and potential channeldistribution partners may be influenced to scale back or
end their relationships with us by our competitors who may have significantly
greater resources and market clout than we do. These channel strategicdistribution partners may
not devote adequate resources to selling our products. If we are unable to
retain our existing channeldistribution partners or enter into additional
relationships, we may have to devote substantially more resources to the
distribution, sale and marketing of our products and services.
Sales through channeldistribution partners are typically at lower margins for us
than those through direct sales. Therefore, if we are successful in increasing
the amount of sales through our channeldistribution partners our operating margins
could decrease.
Our relationships with Hyperion Solutions Corporation and IBM are important to
our successrevenue, which would be harmed by a deterioration in these relationships
Maintaining our strategic relationships with Hyperion Solutions
Corporation and IBM is important to our continued success, and a deterioration
or termination of these relationships could seriously harm our business and
operating results. We have a contractual relationship with Hyperion Solutions
that grants us the exclusive right to distribute its analytical online
processing product, Essbase, as ported by us to the AS/400, subject to limited
distribution rights retained by Hyperion Solutions. License fees for this
product, Essbase/400, were 39.5% and 39.4% of our total license fees for fiscal 1998 and
the nine months ended December 31, 1998, respectively.41.0% for fiscal 1999. Hyperion Solutions has retained the right, upon twelve
months notice, to terminate the exclusivity of our distribution rights.
Further, we must pay Hyperion Solutions minimum royalty payments, which
increase over the term of our license agreement, to maintain our distribution
rights to Essbase/400. The loss of our right to distribute Essbase/400 would
seriously harm our business and operating results. Finally, our Analyzer and
Analyzer for the Web products are based on technology licensed from Hyperion
Solutions under a 1996 license agreement that expires in January 2001. In order
to continue to offer products with the capabilities provided by our Analyzer
and Analyzer for the Web products after January 2001, we would need to develop
the necessary technology internally, extend or replace our license agreement
with Hyperion Solutions or license technology from a third party. If we are
unable to do so, the capabilities of our product suite would be significantly
reduced, which would seriously harm our business and operating results. For
more information regarding our relationship with Hyperion Solutions, see
"Business--Strategic Relationships--
HyperionRelationships--Hyperion Solutions."
In December 1998, we entered into a new agreement with IBM, which has
been a reseller of some of our products for several years. Under this new
agreement, our products are marketed and sold as IBM products by IBM's software
data management group sales force. This agreement has an initial term of seven
years, and expands the scope of our reseller relationship with IBM. Also, we
have engaged in joint marketing campaigns and research and development projects
with IBM since our inception. We believe our relationship with IBM has been a
significant factor in our success to date, and any deterioration or termination
of this relationship would seriously harm our business and operating results.
For more information regarding our relationship with IBM, see "Business--
Strategic Relationships--IBM."
We need to increase the size of our direct sales force, which has a limited
operating history, to grow our sales
We intend to increase sales of our products by growing our direct sales
force. Because it has only existed since September 1996, our direct field sales
force has had a limited operating history and may be unsuccessful in
implementing our strategy of focusing sales efforts on potential clients that
will deploy our product suite on a large scale. Typically, our salespeople have
taken approximately six months from their hiring date to become productive
selling our products. Furthermore, we believe that there is significant
competition for direct sales personnel with the advanced sales skills and
technical knowledge we need. Our inability to hire competent sales personnel,
or our failure to retain them, would seriously harm our business and operating
results.
87
Our markets are highly competitive which may lead to lower prices, reduced
gross margins and loss of market share
The markets for our products are intensely competitive and subject to
rapidly changing technology. We compete primarily against providers of decision
support software and data warehousing and data mart software. Data warehousing
is the organization and storage of data into specified formats that enable easy
searches and analyses. Data marts are simpler implementations of data
warehouses. Our competitors providing business intelligence solutions for
AS/400 customers include Silvon and Infomanager. We also compete with vendors
that provide business intelligence products implemented on Unix or Windows NT
platforms and then connected to the AS/400. These vendors include Brio
Technology, Business Objects, Cognos, Hyperion Solutions, Information
Advantage, Microsoft, MicroStrategy, Oracle, PLATINUM Technology, which has
entered into an agreement to be acquired by Computer Associates, Sagent
Technology and SAS Institute. In addition, enterprise resource planning
software vendors including Baan Company, PeopleSoft and SAP are beginning to
offer decision support and analytical modules primarily to support the analysis
of data from their own operational systems. One or more of these companies may
expand their technologies to support greater business intelligence
functionality. Finally, in the future, IBM may expand the functionality of the
operating system for the AS/400, or of its database products, to provide some
of the functions provided by our products.
Many of our competitors have longer operating histories, significantly
greater financial, technical, marketing or other resources and greater name
recognition than we do. In addition, they may be able to respond more quickly
to new or emerging technologies and changes in customer requirements. Increased
competition may harm our ability to sell additional software and maintenance
and support renewals on terms favorable to us and lead to price cuts, reduced
gross margins and loss of market share, which may seriously harm our business
and operating results.
Our competitors may make strategic acquisitions or establish cooperative
relationships among themselves or other parties that may increase their
abilities to meet the needs of our current and potential clients. The business
intelligence software industry has recently experienced consolidation and many
industry analysts expect this trend to continue. This consolidation may provide
our competitors with expanded sales, distribution and marketing capabilities
and broader product offerings. In addition, our current or future channeldistribution
partners may establish cooperative relationships with our competitors, which
may limit our ability to sell our products through various distribution
channels.
Sales may be delayed or lost dueOur lengthy sales cycles can result in uncertainty and delays with regard to
our lengthy sales cyclesproduct licenses and expected revenues
Our clients often take an extended period of time evaluating our products
before licensing them. The period of time between initial client contact and a
purchase order may span from one month to over twelve months. During this
period, clients may decide not to purchase or may scale down their orders for
our products for various reasons, including:
. reductions in demand for business intelligence solutions;
. new products introduced or announced by competitors;
. price competition;
. decisions to use hardware platforms other than the AS/400 for
their business intelligence solutions;
. changes in our clients' budgets and purchasing priorities; and
. diversion of clients' resources and management's attention to
other information technology issues, including Year 2000
compliance issues.
In addition, we often must provide a significant level of education to
our prospective clients regarding the use and benefit of our products, which
may cause additional delays during the evaluation and acceptance process. These
and other factors make it difficult for us to forecast the timing and
recognition of revenues from
8
sales of our products and services. In recent periods, we have experienced an
increase in the average size of our licenses, and we expect this trend to
continue. This focus on larger licenses will lengthen our average sales cycle.
9
We need to expand our management systems and controls to support our
anticipated growth
Our operations are growing rapidly and we expect this expansion to
continue as we execute our business strategy. Our total number of employees
grew from 125 on March 31, 1996 to 240 on March 31, 1999, and we anticipate
further increases in the number of employees. Sustaining our growth has placed
significant demands on management and our administrative, operational,
personnel and financial resources.
We may not be able to successfully manage our growth which could lead to
customer dissatisfaction. Therefore, the inability to sustain or manage our
growth could seriously harm our business and operating results.
Difficulties presented by international economic, political, legal and
business factors could negatively affect our business in international markets
Sales to clients outside North America represented 34.4% of our total
revenues for each of fiscal 1997 and 1998 and 37.6%38.2% of our total revenues for
the nine months ended December 31, 1998.fiscal 1999. We currently have wholly-owned subsidiaries in Belgium, Germany,
France the Netherlands and the United Kingdom. We plan to expand our existing international
operations and enter into additional international markets, which will require
significant management attention and financial resources. In order to expand
our international operations successfully, we will have to hire additional
personnel and recruit additional international resellers and distributors. Our
failure to do so in a timely manner may limit the growth of our international
operations. We may not be able to maintain or increase international market
demand for our products. In addition, our products must be localized--
customized to meet user needs--in order to be sold in particular foreign
countries. Our localized products may not be accepted in the targeted
countries.
Our international operations are subject to other inherent risks,
including:
. the impact of recessions in economies outside the United States;
. greater difficulty in collecting accounts receivable and longer
collection periods;
. unexpected changes in regulatory requirements, tariffs or other
trade barriers;
. difficulties in and costs of staffing and managing foreign
operations;
. weaker intellectual property right protection in some countries;
. potentially adverse tax consequences;
. political and economic instability;
. costs of localizing products for foreign countries;
. the effect of foreign currency exchange rate fluctuations; and
. the burden of complying with a wide variety of foreign laws.
Any of these risks could seriously harm our future international sales
and therefore our business.
FluctuationsOur international revenues and expenses are subject to fluctuations in foreign
currency exchange rates which may lead toresult in reduced operating margins
Our international revenues and expenses are denominated in foreign
currencies. The functional currency of each of our foreign subsidiaries is its
local currency. We currently do not engage in foreign exchange hedging
activities. Therefore, our international revenues and expenses are subject to
foreign currency fluctuations. Our foreign currency translation gains and
losses have so far been immaterial. However, future fluctuations in exchange
rates between the U.S. dollar and foreign currencies may seriously harm our
business, particularly our operating margins.
109
PossibleWe are currently unable to predict the possible consequences of euro conversion
on our business and operating results
On January 1, 1999, eleven of the fifteen member countries of the
European Union set fixed conversion rates between their existing sovereign
currencies and the euro, the only currency that will be used in European Union
countries starting July 1, 2002, and adopted the euro as their legal currency.
Currently, we are assessing the impact of these events on our company. In
addition to tax and accounting issues, we are considering:
. the technical challenges of adapting our systems to accommodate
euro-denominated transactions;
. the impact on currency exchange costs and currency exchange rate
risk; and
. the impact on existing contracts.
At this early stage, we cannot yet predict the consequences of euro
conversion on our business and operating results.
Our executive officers and key personnel are critical to our business and these
officers and key personnel may not remain with us in the future
Our future success depends on our ability to hire, train, assimilate and
retain highly qualified employees. Competition for these individuals is
intense, and we may not be able to attract, assimilate or retain additional
highly qualified personnel in the future. Because our executive offices are
located in Rochester, Minnesota, with a population of approximately 80,000, we
must frequently recruit qualified employees from outside the vicinity of our
headquarters, which may put us at a competitive disadvantage.
Our success is highly dependent upon the continued service and skills of
key management, technical, sales and marketing personnel, none of whom, except
Patrick Dauga and Kenneth H. Holec, are bound by formal employment agreements.
If we lose the services of any of these key personnel, it may have a negative
impact on our business. Mr. Holec's employment agreement is a year-to-year
agreement which either party may elect not to renew by giving the other party
notice at least 30 days before the termination of any one-year term. Mr. Dauga
may terminate his employment agreement at any time by giving us notice at least
three months before this termination. We do not maintain life insurance
policies covering any of our employees.
We may face increased competition if we are unable to protect our intellectual
property rights, and we may be subject to intellectual property infringement
claims
Our success and ability to compete depend substantially upon our
internally developed technology. We attempt 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, which afford only limited protection. We have one
patent issued and one patent application pending in the United States with
respect to aspects of our software. The pending patent application may not be
issued, or, if issued, it and our previously issued patent may not survive a
legal challenge to their validity or provide us significant protection.
Despite our efforts to protect our proprietary rights, unauthorized
parties may attempt to copy aspects of our products or otherwise obtain and use
our products and technology. Policing unauthorized use of our products is
difficult, particularly in foreign countries where the laws may not protect our
proprietary rights as fully as in the United States. Our means of protecting
our intellectual property rights may not be adequate or our competitors may
independently develop similar technology.
We anticipate that software product developers will increasingly be
subject to infringement claims as the number of products and competitors in our
industry segment grows and the functionality of products in different industry
segments overlaps. As a result, we may become involved in these claims from
time to time. Any of these claims, with or without merit, could result in
costly litigation, divert our management's time,
1110
attention and resources, delay our product shipments, or require us to enter
into royalty or licensing agreements. A third party may not be willing to enter
into a royalty or licensing agreement on acceptable terms or at all. If a claim
of product infringement against us is successful and we fail to obtain a
license or to develop or license non-infringing technology, our business and
operating results could be seriously harmed.
If we discover software defects, we may have product-related liabilities and
marketing difficulties that may lead to a loss of revenue or delay in market
acceptance for our products
Our software products are complex and may contain errors, defects or
failures, especially when first introduced or when new versions are released.
In the past, we have discovered software errors in some of our products after
their introduction. Despite extensive testing, we may not be able to detect and
correct errors in products or releases before commencing commercial shipments,
which may result in harm to our reputation and loss of revenue or delay in
market acceptance.
Our license agreements with clients typically contain provisions designed
to limit our exposure to potential product liability claims. Various domestic
and international jurisdictions may not enforce these limitations. Although we
have not experienced any product liability claims to date, we may encounter
these claims in the future. Product liability claims, whether or not
successful, brought against us could have a material adverse effect on our
business. Defending a suit, with or without merit, could entail substantial
expense and require the time and attention of key management personnel.
Our products, systems and sales may be subject to Year 2000 problems
Many currently installed computer systems and software products store
dates using only the last two digits of the calendar year. As a result, these
systems may not be able to distinguish whether "00" means 1900 or 2000, which
may cause system failures or erroneous results. We believe our current products
are Year 2000 compliant. However, our products operate in complex network
environments and directly or indirectly interact with a number of other
hardware and software systems. Despite preliminary testing, we cannot predict
all the possible Year 2000 issues arising from the interaction of our products
with older hardware and software systems. Known or unknown errors associated
with this interaction could result in a delay or loss of revenue, interruption
of service, cancellation of client contracts, diversion of development
resources, damage to our reputation, increased service and warranty costs and
litigation. Any of these outcomes could seriously harm our business and
operating results. For a further discussion of this issue, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations--Year
2000."
We currently cannot predict the extent to which the Year 2000 problem
will affect our clients, strategic partners or suppliers, or the extent to
which we would be vulnerable to any failure by our clients, strategic partners
or suppliers to remediate any Year 2000 issue on a timely basis. The failure of
our major clients, partners or suppliers to convert their systems on a timely
basis or to implement a conversion that is compatible with our systems would
seriously harm our business. Furthermore, we may lose potential sales of our
products as companies divert information technology resources to solve their
Year 2000 problems.
We are currently reviewing our information technology and other
technology systems to assess and remediate any Year 2000 problems. While the
amount of remediation work required to address Year 2000 problems is not
expected to be extensive, we will be required to modify some of our existing
hardware and software for our internal computer systems to function properly in
the year 2000 and thereafter.
Concentration of ownership of our company may give some shareholders
substantial influence and may prevent or delay a change in control
We anticipate that our executive officers and directors, together with
their affiliates, will, in the aggregate, beneficially own approximately percent43.8% of our
outstanding common stock following the completion of this offering. These
shareholders may be able to exercise substantial influence over all matters
requiring shareholder approval, including the election of directors and
approval of significant corporate transactions. This concentration of ownership
may also have the effect of delaying or preventing a change in control of
ShowCase.
1211
Our shareholders may be adversely affected by provisions of our charter
documents and Minnesota law that may discourage an acquisition of our company
Provisions of our articles of incorporation, bylaws and Minnesota law
could make it more difficult for a third party to acquire us, even if doing so
would be beneficial to our shareholders. For instance, our bylaws provide for a
classified board of directors with each class of directors subject to re-
election every three years. This will make it more difficult for third parties
to insert their representatives on our board of directors and gain control of
our company. These provisions could also discourage proxy contests and make it
more difficult for shareholders to elect directors and take other corporate
actions. See "Description of Capital Stock" for a discussion of these
provisions.
Management could spend or invest the proceeds of this offering in ways with
which the shareholders may not agree
Our management can spend or invest the proceeds from this offering in
ways with which the shareholders may not agree. The investment of these
proceeds may not yield a favorable return. See "Use of Proceeds."
No prior public market has existed forThe price of our common stock and stock prices could be highly volatile Our common stock has never been sold indue to a public market.number of
variables
An active trading market for our common stock may not develop or be
sustained after completion of this offering. The initial public offering price
of our common stock 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. For a further discussion,
see "Underwriting."
The trading price of our common stock may fluctuate widely as a result of
a number of factors, including:
. quarterly variations in our operating results;
. technological innovations or new products;
. market perception and customer acceptance of business intelligence
software;
. increased competition;
. disputes concerning intellectual property rights;
. demand for the IBM AS/400 platform;
. general conditions in the software industry; and
. changes in earnings estimates by analysts.
In addition, the stock market has experienced extreme price and volume
fluctuations, which have particularly affected the market prices of many
computer software companies and which have often been unrelated to the
operating performance of these companies.
Future sales of our common stock in the public market after the offering could
cause our stock price to decline
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 decline. Upon completion of the offering, we will have 10,273,393 shares
of common stock outstanding, assuming no exercise of the underwriters' over-
allotment option and no exercise of outstanding options or warrants after March
31,June
1, 1999. Other than the shares sold in this offering, 22,440 shares will be
freely tradeable as of the date of this prospectus, an additional 28,62039,920 shares
will be freely tradeable 90 days after the date of this prospectus and the
remaining shares will be subject to 180
1312
day lockup agreements between our existing shareholders and the underwriters.
The remaining outstanding shares will become freely tradeable at varying dates
beginning 180 days after the date of this prospectus. For more information, see
"Shares Eligible for Future Sale."
SomeIf the holders of our common stock that have registration rights require us to
register a large number of their shares for sale into the public market, the
market price of our common stock and our ability to raise needed capital could
be adversely affected
After the offering, the holders of 2,759,226 shares of our common stock,
which represent percentapproximately 26.9% of our common stock outstanding after this
offering, can require that we register their shares for sale under the
Securities Act of 1933. If these holders require that we register a large
number of securities to be sold ininto the public market, these sales could cause
the market price for our common stock to decline. In addition, if we are
required to include shares held by these holders in a company-initiated
registration, these sales may have an adverse effect on our ability to raise
needed capital.
You will incur immediate and substantial dilution
If you purchase shares of our common stock, you will incur immediate and
substantial dilution in pro forma net tangible book value. If the holders of
outstanding options or warrants exercise those options or warrants, you will
experience further dilution. See "Dilution."
We do not intend to pay dividends
We have never declared or paid any cash dividends on our capital stock.
We currently intend to retain any future earnings for funding the development
and growth of our business and, therefore, do not expect to pay any dividends
in the foreseeable future. See "Dividend Policy."
1413
FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements. We have based these
forward-looking statements on our current expectations and projections about
future events. These forward-looking statements are subject to risks,
uncertainties, and assumptions about us, including:
. uncertainty of our future operating results;
. our ability to introduce new products;
. delays or losses of sales due to long sales and implementation
cycles for our products;
. the possibility of lower prices, reduced gross margins and loss of
market share due to increased competition; and
. increased demands on our resources due to anticipated growth.
In light of these risks, uncertainties and assumptions, the forward-
looking events discussed in this prospectus might not occur. We undertake no
obligation to publicly update or revise any forward-looking statements, whether
as a result of new information or future events.
TRADEMARKS
Each trademark, trade name or service mark appearing in this prospectus
belongs to its respective holder. ShowCase(R) and ShowCase STRATEGY(R) are
registered trademarks of ShowCase Corporation.
1514
USE OF PROCEEDS
We estimate our net proceeds from the sale of the 3,000,000 shares of our
common stock offered in this offering to be approximately $$27.3 million, or
approximately $$31.5 million if the underwriters' over-allotment option is
exercised in full, based on an assumed initial public offering price of $$10.00
per share and after deducting the estimated underwriting discount and offering
expenses.
We intend to use the net proceeds from this offering for general
corporate purposes, including expansion of our direct sales force, product
development and working capital. In addition, we may acquire businesses,
products and technologies that are complementary to ours, and a portion of the
net proceeds may be used for these acquisitions. We have no agreements with
respect to any material acquisitions as of the date of this prospectus.
Pending these uses, we intend to invest the net proceeds from this
offering in short-term, investment-grade, interest-bearing securities.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock
and do not anticipate paying any cash dividends in the foreseeable future. We
plan to retain any earnings to fund the development and growth of our business.
1615
CAPITALIZATION
The following table summarizes our capitalization as of DecemberMarch 31, 19981999 as
follows:
. on an actual basis;
. on a pro forma basis to give effect to the conversion of all
outstanding shares of our preferred stock into common stock; and
. on a pro forma, as adjusted basis to reflect the application of
the net proceeds from our initial public offering and the
conversion of all outstanding shares of our preferred stock into
common stock.
As of DecemberMarch 31, 19981999
-----------------------------
Pro Forma
Actual Pro Forma As Adjusted
------ --------- -----------
(in thousands)
Long-term debt and capital lease obligations,
less current portion........................ $ 75187 $ 75187 $ 87
------ ------ Stockholders-------
Stockholders' equity:
Preferred stock, $0.01 par value, 5,000,000
shares authorized, 1,348,757 shares
outstanding, actual; no shares outstanding,
pro forma and pro forma as adjusted........ 14 -- --
Common stock, $0.01 par value, 10,000,000
shares authorized,
4,486,3274,502,867 shares outstanding, actual;
50,000,000 shares authorized, 7,245,5537,262,093
shares outstanding, pro forma; 50,000,000
shares authorized, 10,262,093 shares
outstanding, pro forma as adjusted (1)..... 45 7273 103
Additional paid-in capital.................. 6,313 6,3006,316 6,302 33,572
Accumulated deficit......................... (4,001) (4,001)(3,783) (3,783) (3,783)
Unrealized holding gain (loss) on
securities................................. (147) (147)(181) (181) (181)
Deferred compensation....................... (197) (197)(186) (186) (186)
Foreign currency translation adjustment..... 91 9147 47 47
------ ------ -----------------
Total stockholders' equity................. 2,118 2,1182,272 2,272 29,572
------ ------ -----------------
Total capitalization..................... $2,869 $2,869 $$2,359 $2,359 $29,659
====== ====== =================
- --------
(1) The number of shares outstanding is based on the actual number of shares
outstanding as of DecemberMarch 31, 1998.1999. It excludes:
. options to purchase 1,545,807 shares outstanding as of March 31,
1999 at a weighted average exercise price of $2.32 per share; and
. 13,580 shares of common stock issuable upon exercise of an
outstanding warrant at an exercise price of $4.00 per share.
For more information regarding our equity benefit plans, see
"Management--Benefit Plans" and notenotes 9 and 13 of notes to consolidated
financial statements.
1716
DILUTION
If you invest in our common stock, your interest will be diluted to the
extent of the difference between the public offering price per share of our
common stock and the pro forma net tangible book value per share of our common
stock after this offering. Pro forma net tangible book value dilution per share
represents the difference between the amount per share paid by purchasers of
shares of common stock in this offering and the pro forma net tangible book
value per share of common stock immediately after completion of this offering.
Our pro forma net tangible book value as of March 31, 1999, after giving
effect to the conversion of our outstanding preferred stock into common stock
in connection with this offering, was $approximately $2.2 million or $$0.30 per
share of common stock. Pro forma net tangible book value per share is equal to
our total tangible assets less total liabilities, divided by the number of
outstanding shares of common stock after giving effect to the conversion of our
outstanding preferred stock into common stock in connection with this offering.
After giving effect to our sale of the 3,000,000 shares of common stock offered
by this prospectus at an assumed initial public offering price of $$10.00 per
share and after deducting the estimated underwriting discount and offering
expenses, our as adjusted pro forma net tangible book value as of March 31,
1999 would have been $approximately $29.5 million or $$2.87 per share of common
stock. This represents an immediate increase in net tangible book value to
existing shareholders of $$2.57 per share and an immediate dilution to new
investors of $$7.13 per share. The following table illustrates the per share
dilution to new investors:
Assumed initial public offering price per share $$10.00
Pro forma net tangible book value per share as of March 31,
1999 $$0.30
Increase per share attributable to this offering 2.57
Pro forma net tangible book value per share after the offering ----------2.87
------
Dilution per share to new investors in this offering $ ==========7.13
======
The following table sets forth, on a pro forma basis as of March 31,
1999, after giving effect to the conversion of all outstanding shares of our
preferred stock into shares of our common stock in connection with this
offering, the difference between the number of shares of common stock purchased
from us, the total consideration paid to us and the average price per share
paid by existing shareholders and new investors:
Total
Shares Purchased Total Consideration
----------------- ------------------ ------------------- Average Price
Number Percent Amount Percent Per Share
------------------- ------- --------------------- ------- -------------
Existing shareholders 7,262,093 % $6,187,176 % $0.8570.8% $ 6,155,248 17.0% $ 0.85
New public investors --------- ----3,000,000 29.2 30,000,000 83.0 $10.00
---------- --------- ----------- -----
Total ========= ====10,262,093 100.0% $36,155,248 100.0%
========== ========= =========== =====
If the underwriters' over-allotment option is exercised in full, the
number of shares held by new investors will increase to ,3,450,000, or %,32.2%, of
the total shares of common stock outstanding after this offering.
The foregoing discussion and tables assume no exercise of any stock
options outstanding as of March 31, 1999. They exclude:
. options to purchase 1,545,807 shares outstanding as of March 31,
1999 at a weighted average exercise price of $2.32 per share; and
. 13,580 shares of common stock issuable upon exercise of an
outstanding warrant at an exercise price of $4.00 per share.
To the extent that any of these shares are issued, there will be further
dilution to new investors. For more information regarding our equity benefit
plans, see "Management--Benefit Plans" and notenotes 9 and 13 of notes to
consolidated financial statements.
1817
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated statement of operations data shown below for
the years ended March 31, 1996, 1997, 1998 and 19981999 and the consolidated balance
sheet data as of March 31, 19971998 and 19981999 are derived from our audited
consolidated financial statements included elsewhere in this prospectus. The
selected consolidated statement of operations data shown below for the years
ended March 31, 19941995 and 19951996 and the consolidated balance sheet data as of
March 31, 1994, 1995, 1996 and 19961997 are derived from audited financial statements not
included elsewhere in this prospectus. The selected consolidated financial data
for the nine months ended December 31, 1997 and 1998 and as of December 31,
1998 were derived from our unaudited financial statements which, in the opinion
of management, include all adjustments, consisting solely of normal recurring
adjustments, necessary for a fair presentation of the financial information
shown in these statements. Please read the consolidated financial
statements and related notes included elsewhere in this prospectus and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." Historical results are not necessarily indicative of future
results.
Year Ended March 31,
Nine Months Ended
------------------------------------- -------------------------
December 31, December 31,
1994--------------------------------------
1995 1996 1997 1998 1997 1998
------1999
------ ------ ------- ------- ------------ -------------------
Consolidated Statement of
Operations Data: (in thousands, except per share data)
Revenues:
License fees............ $5,491fees................... $8,131 $9,451 $11,639 $14,279 $10,077 $15,077$21,021
Maintenance and support................ 608support........ 1,469 2,707 4,888 6,651 4,765 7,30210,390
Professional service fees................... 372fees...... 418 1,120 1,500 2,825 1,909 2,883
------4,108
------ ------ ------- ------- -------
-------
Total revenues......... 6,471revenues................ 10,018 13,278 18,027 23,755 16,751 25,26235,519
------ ------ ------ ------- ------- ------- -------
Cost of revenues:
License fees............ 536fees................... 1,145 1,145 1,365 2,645 1,709 2,8943,809
Maintenance and support................ 224support........ 511 520 990 1,572 1,122 1,8282,646
Professional service fees................... 274fees...... 602 676 1,172 2,005 1,343 1,9952,990
------ ------ ------ ------- ------- ------- -------
Total cost of revenues.............. 1,034revenues........ 2,258 2,341 3,527 6,222 4,174 6,717
------9,445
------ ------ ------- ------- -------
-------
Gross margin............. 5,437margin.................... 7,760 10,937 14,500 17,533 12,577 18,54526,074
Operating expenses:
Sales and marketing..... 2,676marketing............ 4,152 6,661 9,940 15,494 11,153 13,72319,050
Product development..... 1,052development............ 1,821 2,070 2,553 3,051 2,204 3,2364,371
General and administrative......... 1,219administrative..... 1,229 1,380 1,971 2,590 1,840 2,339
------3,212
------ ------ ------- ------- -------
-------
Total operating expenses.............. 4,947expenses...... 7,202 10,111 14,464 21,135 15,197 19,298
------26,633
------ ------ ------- ------- -------
-------
Operating income (loss).. 490......... 558 826 36 (3,602) (2,620) (753)(559)
Other income (expense), net..................... (3)net..... 9 138 14 543 507 54143
------ ------ ------ ------- ------- ------- -------
Net income (loss) before income
taxes............ 487taxes.......................... 567 964 50 (3,059) (2,113) (699)(416)
Income taxes............. 100taxes.................... 170 150 -- 175 125 135
------200
------ ------ ------- ------- -------
-------
Net income (loss)........ $ 387............... $ 397 $ 814 $ 50 $(3,234) $(2,238) $ (834)(616)
====== ====== ====== ======= ======= ======= =======
Net income (loss) per share
Basic................... $ 0.10Basic.......................... $ 0.10 $ 0.21 $ 0.01 $ (0.82) $ (0.57) $ (0.19)
Diluted................. $ 0.07(0.14)
Diluted........................ $ 0.06 $ 0.13 $ 0.01 $ (0.82) $ (0.57) $ (0.19)(0.14)
Shares used in computing basic
net income (loss) per
share(1)............ 3,867....................... 3,908 3,850 3,847 3,928 3,909 4,3484,384
Shares used in computing diluted
net income (loss) per share........ 5,907share.... 6,339 6,457 6,445 3,928 3,909 4,348
4,384
As of March 31,
----------------------------------
As of
December 31,
1994--------------------------------------
1995 1996 1997 1998 19981999
------ ------ ------ ------ ------ ------------------- ------- -------
Consolidated Balance Sheet Data: (in thousands)
Cash and marketable securities................... $1,404securities.. $1,326 $2,587 $2,989 $5,847 $7,637$ 2,989 $ 5,847 $ 9,039
Working capital............... 966capital................. 1,106 1,165 1,060 1,579 609151
Total assets.................. 3,355assets.................... 5,344 6,666 11,400 16,315 19,54619,926
Long-term debt and capital lease
obligations, less current
portion.............. 122portion........................ 570 446 682 1,157 75187
Total stockholders' equity.... 1,329equity...... 1,725 2,519 2,602 3,105 2,1182,272
- --------
(1) For an explanation of the determination of the number of shares used in
computing net income per share, see note 10 of notes to consolidated
financial statements.
1918
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations contains forward-looking statements that involve
risks and uncertainties. Our actual results could differ substantially from
those anticipated in these forward-looking statements as a result of many
factors, including those set forth under "Risk Factors" and elsewhere in this
prospectus. The following discussion should be read together with our
consolidated financial statements and related notes thereto included elsewhere
in this prospectus.
Overview
We are the leading provider of fully integrated, end-to-end, business
intelligence solutionssolutions--solutions designed to work closely and efficiently
together to provide all the functionality required for the delivery of business
intelligence to end users--for IBM AS/400 customers. Our ShowCase STRATEGY
product suite and related services are designed to enable organizations to
rapidly implement business intelligence solutions that create increased value
from their operational and customer data. The sophisticated data warehousing
and management capabilities of our product suite provide our clients with
solutions that are highly scalablescalable--that is, capable of increasing in
deployment size from a limited number of end users to a large number of end
users, and tightly integrated solutions.integrated--that is, consisting of components that are
designed to work closely and efficiently together. Our products enable
enterprise-wide distribution of information and allow end-user access and
analysis through familiar applications and Internet browsers. Our ShowCase STRATEGY product
suite, introduced in 1996, supports ad hoc information access, enterprise
reporting and analytics. We have eight
years of experience delivering business intelligence solutions to our clients.
Our ShowCase STRATEGY product suite, introduced in 1996, supports ad hoc
information access--the ability to look for information in an unstructured
manner, enterprise reporting--the ability to generate and distribute pre-
defined reports and query and analysis results, and analytics--the ability to
analyze large volumes of data through Internet browsers and personal computers.
We were incorporated in 1988, and in 1991, we introduced the first
Windows-based query tool for the IBM AS/400, ShowCase VISTA. During the next
four years, we continued to broaden our family of data access products, expand
our comprehensive service and support programs, grow our telesales and indirect
sales channels and invest in marketing and administrative functions. In 1996,
we introduced ShowCase STRATEGY, our fully integrated, end-to-end business
intelligence solution for the AS/400. To support our introduction of ShowCase
STRATEGY, we created a direct field sales force and increased our global
distribution presence, which resulted in a significant increase in our
operating expenses. Our headcount increased from 20 employees at April 1, 1991
to 240 employees at March 31, 1999. Our revenues increased from $18.0 million
in fiscal 1997 to $23.8 million in fiscal 1998 and were $25.3to $35.5 million for the
nine months ended December 31, 1998.in fiscal
1999. Although our revenues have increased significantly during these periods,
this growth may not continue. We had a net income of approximately $50,000 in fiscal 1997, a
net loss of $3.2 million in fiscal 1998 and a net loss of approximately $834,000 for the nine months ended
December 31, 1998$616,000 in fiscal
1999 as a result of increased cost of sales and operating expenses. We intend
to continue to invest significant resources in the development of our product
suite, sales and marketing and general and administrative functions. See "Risk
Factors--We have a history of losses and we may not be able to achieve
profitability."
Our revenues come from three principal sources: license fees, maintenance
and support and professional service fees. We adopted the provisions of
Statement of Position ("SOP") No. 97-2, Software Revenue Recognition, as
amended by SOP No. 98-4, Deferral of the Effective Date of Certain Provisions
of SOP No. 97-2, effective April 1, 1998. Under SOP No. 97-2, we recognize
license revenue when the software product has been delivered, if a signed
contract exists, the fee is fixed and determinable, collection of resulting
receivables is probable and product returns are reasonably estimable. License
fee revenues that are contingent upon sale to an end user by distributors and
other channeldistribution partners are recognized upon receipt of a report of delivery.delivery
to the end user. Maintenance and support fees committed as part of new product
license sales and maintenance resulting from renewed maintenance contracts are
deferred and recognized ratably over the contract period. Professional service
revenue is recognized when services are performed. The adoption of SOP No. 97-2
did not have a material effect on our operating results.
19
We sell our products through our direct sales force and through our
channel partners.indirect
distribution channels. Direct sales are made by our telesales organization and
direct field sales force in North America and by our wholly-owned subsidiaries
in Germany, France, the United Kingdom and Belgium, including its branch office
in the Netherlands. Our channeldistribution partners include IBM, software application
vendors, resellers and distributors located
20
in the United States, Italy,
Switzerland, Mexico, Japan, Australia, Singapore, Hong Kong, Thailand and South
Korea. Sales through our channel partnersindirect distribution channels accounted for
approximately 40% of license fee revenues for fiscal 1997, 20% for fiscal 1998
and 20%21% for the nine months ended December 31, 1998.fiscal 1999. If sales through our channel salesindirect distribution channels
increase, our profit margins could decrease. In particular, expansion of sales
through IBM under our recent agreement with IBM could result in decreased
profit margins.
Revenues from clients outside North America represented 34.4% of our
total revenue for each of fiscal 1997 and 1998 and 37.6%38.2% of our total revenue
for the nine months ended December 31, 1998.fiscal 1999. A majority of these sales was derived from European sales. We
intend to continue to expand our international operations and have committed,
and will continue to commit, significant management time and financial
resources to developing our direct and indirect international sales channels.
Results of Operations
The following table indicates the percentage of total revenues
represented by items reflected in our consolidated statements of operations.
Year Ended March
31,
Nine Months Ended
------------------- -------------------------
December 31, December 31,
1996--------------------
1997 1998 1997 19981999
----- ----- -----
------------ ------------
As a Percentage of Total Revenues:
Revenues:
License fees................ 71.2%fees........................................... 64.6% 60.1% 60.2% 59.7%59.2%
Maintenance and support..... 20.4support................................ 27.1 28.0 28.4 28.929.3
Professional service fees... 8.4fees.............................. 8.3 11.9 11.4 11.4
----- -----11.6
----- ----- -----
Total revenues............ 100.0 100.0revenues....................................... 100.0 100.0 100.0
Cost of revenues:
License fees................ 8.6fees........................................... 7.6 11.1 10.2 11.510.7
Maintenance and support..... 3.9support................................ 5.5 6.6 6.7 7.27.5
Professional service fees... 5.1fees.............................. 6.5 8.4 8.0 7.9
----- -----8.4
----- ----- -----
Total cost of revenues.... 17.6revenues............................... 19.6 26.2 24.9 26.6
----- ----- -----
----- -----
Gross margin.................. 82.4margin............................................. 80.4 73.8 75.1 73.4
Operating expenses:
Sales and marketing......... 50.2marketing.................................... 55.1 65.2 66.6 54.353.6
Product development......... 15.6development.................................... 14.2 12.8 13.2 12.812.3
General and administrative.. 10.4administrative............................. 10.9 10.9 11.0 9.3
----- -----9.0
----- ----- -----
Total operating expenses.. 76.1expenses............................. 80.2 89.0 90.7 76.4
----- -----75.0
----- ----- -----
Operating income (loss)....... 6.2.................................. 0.2 (15.2) (15.6) (3.0)(1.6)
Other income (expense), net... 1.0net.............................. 0.1 2.3 3.0 0.2
----- -----0.4
----- ----- -----
Net income (loss) before income taxes................. 7.3taxes.................... 0.3 (12.9) (12.6) (2.8)(1.2)
Income taxes.................. 1.1taxes............................................. -- 0.7 0.7 0.5
----- -----0.6
----- ----- -----
Net income (loss)............. 6.1%........................................ 0.3% (13.6)% (13.4)(1.7)% (3.3)%
===== =====
===== ===== =====
Revenues
Total revenues. Revenues increased from $13.3 million in fiscal 1996 to
$18.0 million in fiscal 1997 and to
$23.8 million in fiscal 1998 and to $35.5 million in fiscal 1999, representing
increases of 35.8% in fiscal 1997 and 31.8% in fiscal 1998. Revenues increased
from $16.8 million for the nine months ended December 31, 1997 to $25.3 million
for the nine months ended December 31, 1998 representing an increase of 50.8%.and 49.5% in fiscal 1999.
20
License fees. License fee revenues increased from $9.5 million in fiscal
1996 to $11.6 million in fiscal
1997 and to $14.3 million in fiscal 1998 and to $21.0 million in fiscal 1999,
representing increases of 23.2% in fiscal 1997 and 22.7% in fiscal 21
1998. License fee revenues increased from $10.1 million for the nine months
ended December 31, 1997 to $15.1 million for the nine months ended December 31,
1998 representing an increase of 49.6%.and 47.2% in fiscal 1999.
License fee revenues as a percentage of total revenues were 71.2% for fiscal 1996, 64.6% for fiscal
1997, 60.1% for fiscal 1998 and 59.7%59.2% for the nine months ended December 31, 1998.fiscal 1999. These increases in total
license fee revenues are largely attributable to increases in the number of
licenses sold, reflecting the results of an expanded direct field sales force
and the introduction of new products and product enhancements, as well as
increases in average transaction size. Beginning in fiscal 1997, revenues from
Essbase/400 licenses became a significant percentage of total license fee
revenues.
Maintenance and support. Maintenance and support revenues increased from
$2.7 million in fiscal 1996 to $4.9 million in fiscal 1997 and to $6.7 million in fiscal 1998 and to $10.4 million
in fiscal 1999, representing increases of 80.6% in fiscal 1997 and 36.1% in fiscal 1998. Maintenance1998 and support revenues increased from $4.8 million for
the nine months ended December 31, 1997 to $7.3 million for the nine months
ended December 31, 1998, representing an increase of 53.2%.56.2% in
fiscal 1999. Maintenance and support revenues as a percentage of total revenues
were 20.4% for fiscal 1996,
27.1% for fiscal 1997, 28.0% for fiscal 1998 and 28.9%29.3% for the nine months
ended December 31, 1998.fiscal 1999.
These increases in maintenance and support revenues were largely a result of
the renewal of maintenance and support contracts as our installed base
continued to grow, as well as new maintenance and support contracts associated
with new product licenses.
Professional service fees. Professional service fee revenues increased
from $1.1 million in fiscal 1996 to $1.5 million in fiscal 1997 and to $2.8 million in fiscal 1998 and to $4.1
million in fiscal 1999, representing increases of 33.9% in fiscal 1997 and
88.3% in fiscal 1998. Professional service fee revenues increased from $1.9
million for the nine months ended December 31, 1997 to $2.9 million for the
nine months ended December 31, 1998 representing an increase of 51.0%.and
45.4% in fiscal 1999. Professional service fee revenues as a percentage of
total revenues were 8.4%
for fiscal 1996, 8.3% for fiscal 1997, 11.9% for fiscal 1998 and 11.4%11.6% for
the
nine months ended December 31, 1998.fiscal 1999. These increases in professional service fee revenues were largely
a result of the service revenues associated with the sale of new product
licenses.
Costs of Revenues
Cost of license fees. Cost of license fees consists primarily of the
costs of product manuals, media, packaging, shipping and royalties paid to
third parties. Cost of license fees increased from $1.1 million in fiscal 1996
to $1.4 million in fiscal
1997 and to $2.6 million in fiscal 1998 and to $3.8 million in fiscal 1999,
representing 12.1%11.7% of license fee revenues in fiscal 1996, 11.7% in fiscal 1997, and 18.5% in fiscal 1998. Cost of license fees increased from $1.7 million for the nine
months ended December 31, 1997 to $2.9 million for the nine months ended
December 31, 1998
representing 17.0% and 19.2% of license fee revenues for
these periods.18.1% in fiscal 1999. The increase in cost of license fees was primarily
attributable to the increase in the percentage of our revenues from our
Essbase/400 product, which requires us to pay royalties. We anticipate that
cost of license fees will increase in dollar amount in future periods as
license fee revenues increase. Cost of license fees as a percentage of license
fee revenues may increase if we license additional technologies or products or
if sales of Essbase/400 or other products which carry a royalty obligation
increase as a percentage of license fee revenues.
Cost of maintenance and support. Cost of maintenance and support consists
primarily of personnel costs associated with providing maintenance and support
services and payments to third parties to provide maintenance and support,
primarily with respect to our Essbase/400 product. Cost of maintenance and
support increased from $0.5 million in fiscal 1996 to $1.0 million in fiscal 1997 and to $1.6 million in fiscal
1998 and to $2.6 million in fiscal 1999, representing 19.2%20.3% of total
maintenance and support revenues in fiscal 1996, 20.3% in fiscal 1997, and 23.6% in fiscal 1998. Cost of maintenance1998 and support increased from $1.1 million for
the nine months ended December 31, 1997 to $1.8 million for the nine months
ended December 31, 1998, representing 23.5% and 25.0% of total license fee
revenues for these periods.25.5%
in fiscal 1999. The increase in cost of maintenance and support from fiscal
1997 to 1998 was primarily due to the hiringopening of additional personnelour regional maintenance
support center in Brussels, Belgium and the payment of maintenance and support
fees with respect to Essbase/400. The increase from fiscal 1998 to 1999 was
primarily attributable to increasing our maintenance and support staff from 25
to 35 people and the implementation of a new client management system. We
anticipate that cost of maintenance and support will increase in dollar amount
in future periods as maintenance and support revenues increase.
22
Cost of professional service fees. Cost of professional service fees
consists primarily of the costs of providing training and consulting services.
Cost of professional service fees increased from $0.7 million in fiscal 1996 to
$1.2 million in fiscal 1997 and to
$2.0 million in fiscal 1998 and to $3.0 million in fiscal 1999, representing
60.4%78.1% of professional service fee revenues in fiscal 1996, 78.1% in fiscal 1997,
and 71.0% in fiscal 1998. Cost of professional service fees increased from $1.3
million for the nine months ended December 31, 1997 to $2.0 million for the
nine months ended December 31, 1998
representing 70.4% and 69.2% of
professional service fee revenues for these periods.72.8% in fiscal 1999. The dollar increase in cost of professional service
fees from fiscal 1997 to 1998 was primarily attributable to an increase in the
utilization of third party service providers to deliver professional services.
The increase from fiscal 1998 to 1999 was primarily due to the expansion of our
professional services staff.staff from 14 to 21 people. Cost of professional
21
service fees as a percentage of professional service fee revenues has decreased
from 1997 to 1998 as a result of increased efficiency from increases in scale
and utilization of our staff. We anticipate that cost of professional service
fees will increase in dollar amount in future periods as professional service
fee revenues increase.
Operating Expenses
Sales and marketing. Sales and marketing expenses consist primarily of
salaries, benefits, bonuses, commissions and travel and promotional expenses.
Sales and marketing expenses have increased from $6.7 million in fiscal 1996 to
$9.9 million in fiscal 1997 and to
$15.5 million in fiscal 1998 and to $19.0 million in fiscal 1999, representing
50.2%55.1% of total revenues in fiscal 1996, 55.1% in fiscal 1997, and 65.2% in fiscal 1998. Sales1998 and marketing expenses increased from $11.2 million for the
nine months ended December 31, 1997 to $13.7 million for the nine months ended
December 31, 1998, representing 66.6% and 54.3% of total revenues for these
periods.53.6% in
fiscal 1999. This increase in both dollar amount and as a percentage of total
revenues from fiscal 1996 through fiscal 1998primarily reflected the
establishment of a direct field sales force and the hiring of additional sales
and marketing personnel and, to a lesser extent, reflects the expansion of
promotional activities. Our sales and marketing staff grew from 78 people in
fiscal 1997 to 91 in fiscal 1998 and to 107 in fiscal 1999. We anticipate that
sales and marketing expenses will increase in dollar amount in future periods.
Product development. Product development expenses consist primarily of
development personnel compensation and related costs associated with the
development of new products, the enhancement of existing products, quality
assurance and testing. Product development expenses increased from $2.1 million
in fiscal 1996 to $2.6 million
in fiscal 1997 and to $3.1 million in fiscal 1998 and to $4.4 million in fiscal
1999, representing 15.6%14.2% of total revenues in fiscal 1996, 14.2% in fiscal 1997,
and 12.8% in fiscal 1998. Product development expenses increased from
$2.2 million for the nine months ended December 31, 1997 to $3.2 million for
the nine months ended December 31, 1998
representing 13.2% and 12.8% of total
revenues for these periods.12.3% in fiscal 1999. This increase in dollar amount iswas due to expenses
associated with the development of new products and the hiring of additional
personnel. Our product development staff grew from 33 people in fiscal 1997 to
41 in fiscal 1998 and to 49 in fiscal 1999. Product development expenses
decreased as a percentage of total revenues in fiscal 19971998 and fiscal 1998 and for the nine months ended December
31, 19981999
primarily due to faster revenue growth. We anticipate that we will continue to
devote significant resources to our product development efforts and that
product development expenses will increase in dollar amount in future periods.
To date, all product development costs have been expensed as incurred.
General and administrative. General and administrative expenses consist
primarily of salaries of executive, financial, human resource and information
services personnel as well as outside professional fees. General and
administrative expenses increased from $1.4 million in fiscal 1996 to $2.0 million in fiscal 1997 and to $2.6
million in fiscal 1998 and to $3.2 million in fiscal 1999, representing 10.4%10.9%
of total revenues in fiscal 1996 and 10.9% in each of fiscal 1997 and 1998.
General1998 and administrative expenses increased from $1.8 million for the nine
months ended December 31, 1997 to $2.3 million for the nine months ended
December 31, 1998 representing 11.0% and 9.3% of total revenues for these
periods.9.0% in fiscal 1999.
These increases in dollar amounts were primarily due to increased staffing and
related expenses necessary to manage and support the expansion of our
operations. Our general and administrative staff grew from 17 people in fiscal
1997 to 23 in fiscal 1998 and to 28 in fiscal 1999. General and administrative
expenses decreased as a percentage of total revenues primarily due to faster
revenue growth. We anticipate that our general and administrative expenses will
increase in dollar amount in the future as a result of increased personnel and
infrastructure costs necessary to support the expansion of our operations as
well as the additional expenses associated with being a public company.
23
Other Income
Other income consists primarily of earnings from investments and sales of
securities, equity in net income of unconsolidated affiliates and gains or
losses from disposal of fixed assets, net of any interest expense. Other income
decreasedincreased from $137,000 in fiscal 1996 to $14,000 in fiscal 1997 and increased
to $543,000 in fiscal 1998. Other income1998 and decreased
from $507,000 for the nine
months ended December 31, 1997 to $54,000 for the nine months ended December
31, 1998.$143,000 in fiscal 1999. The increase in other income in fiscal 1998 can be attributed
primarily to earnings on investment ofand the proceeds from our sale of preferred
stock. The
decrease in other income for the nine months ended December 31, 1998
from the nine months ended December 31, 1997 can be attributedfiscal 1999 was primarily due to the gain on the sale of a security
of a third party during the nine months ended
December 31, 1997.in fiscal 1998.
Provision (Benefit) for Income Taxes
Income taxes decreasedincreased from $150,000 in fiscal 1996 to no income taxes in fiscal 1997 due to lower income from operations in fiscal 1997. Income taxes
were $175,000 in
fiscal 1998 and $135,000 for the nine months ended December
31, 1998,to $200,000 in fiscal 1999, primarily due to foreign income
taxes paid which could not be realized as tax credits in the United States due
to our consolidated losses from operations.
22
We have recorded deferred tax assets for temporary differences of $1,055,000$1.8
million as of March 31, 19971998 and $1,840,000$2.7 million as of March 31, 1998,1999, primarily
related to deferred revenue on which taxes have been paid. See note 78 to the
consolidated financial statements. We periodically evaluate the need for a
valuation allowance against these deferred tax assets. Due to uncertainty
regarding future taxable income in 1997, and our operating losses in each of
fiscal 1998 and 1999, we have determined that it is more likely than not that
only a portion of the deferred tax assets will be realized and accordingly,
there is a corresponding valuation allowance of $415,000$1.5 million as of March 31,
19971998 and $1,500,000$2.2 million as of March 31, 1998.1999. The amount recognized approximates
the amount of cash refundable that could be generated if we were to continue
our operating loss position.
2423
Selected Quarterly Operating Results
The following table shows unaudited consolidated financial information
for each of the four quarters in our fiscal yearyears ended March 31, 1998 and for
the first three quarters in our fiscal year ended March 31,
1999. In management's opinion, this unaudited quarterly information has been
prepared on the same basis as the audited consolidated financial statements and
related notes and includes all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of the information for the
quarters presented in accordance with generally accepted accounting principles.
Three Months Ended
------------------------------------------------------------------------------------------------------------------------------------
June 30, Sept 30, Dec 31, Mar 31, June 30, Sept 30, Dec 31, Mar 31,
1997 1997 1997 1998 1998 1998 1998 1999
-------- -------- ------- ------- -------- -------- ------- -------
Consolidated Statements of
Operations Data: (in thousands)
Revenues:
License fees............ $2,346 $3,301 $4,429 $4,203 $4,224 $5,019 $5,834 $ 5,944
Maintenance and
support................. 1,398 1,692 1,675 1,886 2,161 2,365 2,776 3,088
Professional service
fees.................... 621 575 712 917 913 1,037 933 1,225
------- ------ ------ ------ ------ ------ ------ -------
Total revenues........ 4,365 5,568 6,816 7,006 7,298 8,421 9,543 10,257
Cost of revenues:
License fees............ 389 475 844 937 817 1,000 1,077 915
Maintenance and
support................. 367 373 382 450 565 605 658 818
Professional service
fees.................... 437 411 494 663 613 577 805 995
------- ------ ------ ------ ------ ------ ------ -------
Total cost of
revenues............. 1,193 1,259 1,720 2,050 1,995 2,182 2,540 2,728
------- ------ ------ ------ ------ ------ ------ -------
Gross margin.............. 3,172 4,309 5,096 4,956 5,303 6,239 7,003 7,529
Operating expenses:
Sales and marketing..... 3,418 3,412 4,322 4,342 4,387 4,378 4,958 5,327
Product development..... 686 742 776 847 979 1,219 1,038 1,135
General and
administrative.......... 559 614 668 749 736 748 855 873
------- ------ ------ ------ ------ ------ ------ -------
Total operating
expenses............. 4,663 4,768 5,766 5,938 6,102 6,345 6,851 7,335
------- ------ ------ ------ ------ ------ ------ -------
Operating income (loss)... (1,491) (459) (670) (982) (799) (106) 152 194
Other income (expense),
net...................... (3) 2 508 36 6 25 23 89
------- ------ ------ ------ ------ ------ ------ -------
Net income (loss) before
income taxes............. (1,494) (457) (162) (946) (793) (81) 175 283
Income taxes.............. 50 25 50 50 40 45 50 65
------- ------ ------ ------ ------ ------ ------ -------
Net income (loss)......... $(1,544) $ (482) $ (212) $ (996) $ (833) $ (126) $ 125 $ 218
======= ====== ====== ====== ====== ====== ====== =======
Three Months Ended
------------------------------------------------------------------------------------------------------------------------------------------
June 30, Sept 30, Dec 31, Mar 31, June 30, Sept 30, Dec 31, Mar 31,
1997 1997 1997 1998 1998 1998 1998 1999
Percent of Total Revenues: -------- -------- ------- ------- -------- -------- ------- -------
Revenues:
License fees............ 53.7% 59.3% 65.0% 60.0% 57.9% 59.6% 61.1% 58.0%
Maintenance and
support................. 32.0 30.4 24.6 26.9 29.6 28.1 29.1 30.1
Professional service
fees.................... 14.2 10.3 10.4 13.1 12.5 12.3 9.8 11.9
----- ----- ----- ----- ----- ----- ----- -----
Total revenues........ 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Cost of revenues:
License fees............ 8.9 8.5 12.4 13.4 11.2 11.9 11.3 8.9
Maintenance and
support................. 8.4 6.7 5.6 6.4 7.7 7.2 6.9 8.0
Professional service
fees.................... 10.0 7.4 7.2 9.5 8.4 6.9 8.4 9.7
----- ----- ----- ----- ----- ----- ----- -----
Total cost of
revenues............. 27.3 22.6 25.2 29.3 27.3 25.9 26.6 26.6
----- ----- ----- ----- ----- ----- ----- -----
Gross margin.............. 72.7 77.4 74.8 70.7 72.7 74.1 73.4 73.4
Operating expenses:
Sales and marketing..... 78.3 61.3 63.4 62.0 60.1 52.0 52.0 51.9
Product development..... 15.7 13.3 11.4 12.1 13.4 14.5 10.9 11.1
General and
administrative.......... 12.8 11.0 9.8 10.7 10.1 8.9 9.0 8.5
----- ----- ----- ----- ----- ----- ----- -----
Total operating
expenses............. 106.8 85.6 84.6 84.8 83.6 75.3 71.8 71.5
----- ----- ----- ----- ----- ----- ----- -----
Operating income (loss)... (34.2) (8.2) (9.8) (14.0) (10.9) (1.3) 1.6 1.9
Other income (expense),
net...................... (0.1) -- 7.5 0.5 0.1 0.3 0.2 0.9
----- ----- ----- ----- ----- ----- ----- -----
Net income (loss) before
income taxes............. (34.2) (8.2) (2.4) (13.5) (10.9) (1.0) 1.8 2.8
Income taxes.............. 1.1 0.4 0.7 0.7 0.5 0.5 0.5 0.6
----- ----- ----- ----- ----- ----- ----- -----
Net income (loss)......... (35.4)% (8.7)% (3.1)% (14.2)% (11.4)% (1.5)% 1.3% 2.1%
===== ===== ===== ===== ===== ===== ===== =====
2524
Our operating results have varied and may in the future vary
significantly from quarter to quarter. These fluctuations may result in
volatility in the price of our common stock. We believe that quarter-to-quarter
comparisons of our financial results are not necessarily meaningful and should
not be relied upon as an indication of future performance.
In general, we base our operating expense budgets on anticipated revenue
trends, and we may not be able to reduce these expenses in the short-term.
Because our expenses are relatively fixed in the near term, any shortfall from
anticipated revenues or any delay in recognition of revenues could result in
significant variations in our quarterly operating results. In the future, our
operating results may fluctuate for this reason or as a result of a number of
other factors, including increased expenses, timing of product releases,
increased competition, variations in the mix of sales, announcements of new
products by our competitors and capital spending patterns of our clients.
Because we have experienced and may continue to experience seasonality, we may
not be able to maintain profitability on a quarterly basis. We have often
realized a greater percentage of our license revenue and operating income in
our third fiscal quarter than in other quarters due to customer purchasing
patterns. In addition, due to seasonal factors, our sales often tend to slow
during the summer months. We expect these trends to continue. See "Risk
Factors--Our quarterly operating results may fluctuate significantly and are
difficult to predict."
Liquidity and Capital Resources
Historically, we have funded operations primarily through cash provided
by operations, the sale of equity securities and bank borrowings. Our operating
activities provided cash of $2.2 million in fiscal 1996 and $1.2 million in fiscal 1997, and used cash of $833,000$817,000
in fiscal 1998. Our operating activities
used cash of $2.0 million for the nine months ended December 31, 19971998 and provided cash of $2.6$5.3 million for the nine months ended December 31, 1998.in fiscal 1999. The decrease
in cash from operations for fiscal 1998 was due primarily to our net loss in
that year, offset in part by $2.7 million increase in deferred revenue and a
$1.4 million increase in accrued liabilities. The increase in cash from
operations for the nine months ended December 31, 1998 compared to the nine
months ended December 31, 1997fiscal 1999 was due primarily to improved results of operations
and increased deferred revenue, offset in part by an increase in accounts
receivable. In each period, the increase in deferred revenue consisted
primarily of prepayment of clients' maintenance fees.
Our investing activities used cash of approximately $646,000 in fiscal
1996, $1.1 million in fiscal 1997,
and $566,000 in fiscal 1998. Our investing
activities used cash of approximately $302,0001998 and $247,000 for the nine months
ended December 31, 1997 and December 31, 1998, respectively.$487,000 in fiscal 1999. In all of these periods,
the principal use of cash in investing activities was for capital expenditures
related to the expansion of our operations.
Our financing activities used cash of approximately $323,000 in fiscal
1996 and provided cash of approximately $290,000 in fiscal 1997 and
$3.8 million in fiscal 1998. Our financing activities used cash of approximately
$6,000 in the nine months ended December 31, 19971998, and used cash of approximately $290,000$1.4 million in the nine months ended December 31, 1998.fiscal 1999. For
fiscal 1997, financing activities provided cash primarily from issuance of
long-term debt, offset in part by long-term debt repayment and payments under
capital lease obligations. For fiscal 1998, financing activities provided cash
primarily from proceeds received from the issuance of preferred stock, offset
in part by long-term debt repayment and payments under capital lease
obligations. For the nine months ended December 31, 1998,fiscal 1999, cash used by financing activities consisted
primarily of long-term debt repayment and payments under capital lease
obligations.
Our sources of liquidity as of DecemberMarch 31, 19981999 consisted principally of
cash and marketable securities of $7.6$9.0 million. We believe that cash generated
from operations, existing cash and marketable securities, and cash generated
from this offering will be sufficient to fund operations for at least the next
twelve months. Thereafter, we may need to raise additional funds through public
or private financing. Additional funds may not be available or, if available,
we may not be able to obtain them on terms favorable to us and our
shareholders.
26
Quantitative and Qualitative Disclosure About Market Risks
We are exposed to market risk from changes in interest rates on
borrowings under our revolving line of credit that bear interest from time to
time at a variable rate based on a prime rate. In addition, our Belgian
subsidiary maintains a small line of credit with a variable interest rate and
maximum available borrowings which we do not believe are material. As of June
1, 1999, we had no borrowings outstanding under either of
25
these lines of credit. Because we have no borrowings outstanding under our
lines of credit, we believe that the effect, if any, of reasonably possible
near-term changes in interest rates on our financial position would not be
material.
We have no derivative financial instruments in our cash and cash
equivalents and investments. We invest our cash and cash equivalents in
investment grade, highly liquid investments, consisting of money market
instruments, bank certificates of deposit and overnight investments in
commercial paper. We anticipate investing our net proceeds from this offering
in similar investment grade and highly liquid investments pending their use as
described in this prospectus. See "Use of Proceeds."
We are exposed to market risk from fluctuations in foreign currency
exchange rates. We manage exposure to variability in foreign currency exchange
rates primarily through the use of natural hedges, whereby funding obligations
and assets are both managed in the local currency. However, different durations
in our funding obligations and assets may expose us to the risk of foreign
exchange rate fluctuations. We have not entered into any derivative
transactions to manage this risk. Based on our overall foreign currency rate
exposure at DecemberMarch 31, 1998,1999, we do not believe that movementsa hypothetical 10% change in
foreign currency rates would not materially adversely affect our financial
position.
Year 2000
Many currently installed computer systems and software products store
dates using two digits of the calendar year. These date code fields will need
to accept four-digit entries to distinguish 21st century dates from 20th
century dates. This problem could result in system failures or miscalculations
causing disruptions of business operations, including a temporary inability to
process transactions, send invoices or engage in other similar business
activities. As a result, many companies' computer systems and software will
need to be upgraded or replaced in order to comply with Year 2000 requirements.
The potential global impact of the Year 2000 problem is not known. If Year 2000
problems are not corrected in a timely manner, they could affect us and the
U.S. and world economy generally.
Even though our current products are Year 2000 compliant, we may lose
potential sales because companies may be diverting resources to assess and fix
their internal systems that may not be Year 2000 compliant.
We have formed a project team to address internal Year 2000 issues. Our
internal financial and other computer systems are being reviewed to assess and
remediate Year 2000 problems. Our assessment of internal systems includes our
information technology, or IT, systems as well as other systems which include
embedded technology in equipment containing microprocessors or other similar
circuitry. Our Year 2000 compliance program includes the following phases:
. identifying systems that need to be modified or replaced;
. carrying out remediation work to modify existing systems or
convert to new systems; and
. conducting validation testing of systems and applications to
ensure compliance.
The amount of remediation work required to address internal Year 2000
problems is not expected to be extensive. We have replaced some of our
operational systems and most of our personal computers in the last several
years. We believe that new equipment and software, including new accounting
software to be installed in 1999, substantially addresses Year 2000 issues.
However, we will be required to modify some of our existing hardware and
software in order for our computer systems to function properly in the year
2000 and thereafter. We estimate that we will complete our Year 2000 compliance
program for all of our significant internal systems no later than September 30,
1999, at an estimated cost of $50,000. There can be no assurance that the
estimates are correct or that actual costs will not be materially greater than
anticipated.
26
In addition, we plan to survey our major suppliers and evaluate their
plans to address potential Year 2000 issues. However, itWe anticipate that this evaluation
will be completed by September 30, 1999. We will rely primarily on the
suppliers' commitments to accomplish this task but have no contractual
commitments from the suppliers regarding Year 2000 issues. It is impossible to
fully assess the potential consequences in the event interruptions from
27
suppliers occur or in the event that there are disruptions in infrastructure
areas as utilities, communications, transportation, banking or government.
Although we have not surveyed our current clients regarding Year 2000
compliance, we are unaware of any reason why a Year 2000 problem experienced by
these clients would have a significant adverse effect on our operating results.
Based on our assessments to date, we believe we will not experience any
material disruptions as a result of Year 2000 problems in internal processes,
information processing, interfaces with major clients or with processing orders
and billing. However, our ability to timely ship products to our clients would
be disrupted if suppliers or other third-party providers, such as
those providing electricity, water or telephone services, experience
difficulties in providing products or services to us. Such aus because of their Year 2000
problems, we believe the most reasonably likely worst case scenario would be
that our ability to timely ship products to our clients would be disrupted.
This could result in the loss of current or potential clients which could
seriously harm our business and results of operations. In addition, if our IT
systems are not Year 2000 compliant, we would have to devote significant
resources to correct such problems and we may be unable to process client
orders, which could lead to shipment delays. We have not yet developed a
contingency plan to address these potential issues, but we will assess the need
to develop such a plan based on the outcome of our Year 2000 review. Assuming
no major disruption in service from suppliers or other third-parties, we
believe that we will be able to manage our total Year 2000 transition without
any substantial effect onharm to our business and operating results.
New Accounting Pronouncements
The American Institute of Certified Public Accountants ("AICPA") issued
SOP No. 98-1, Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use in March 1998, and SOP No. 98-5, Reporting on the
Costs of Start-Up Activities in April 1998. SOP No. 98-1 requires that entities
capitalize certain costs related to internal-use software once certain criteria
have been met. SOP No. 98-5 requires that all start-up costs related to new
operations must be expensed as incurred. In addition, all start-up costs that
were capitalized in the past must be written off when SOP No. 98-5 is adopted.
Although we will be required to adopt SOP Nos. 98-1 and 98-5 for the fiscal
year ending March 31, 2000, we do not expect them to have a material impact on
our financial position, results of operations or cash flows.
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 established methods of
accounting for derivative financial instruments and hedging activities related
to those instruments as well as other hedging activities. SFAS No. 133 will be
effective for us in April 2001. We are currently reviewing the potential impact
of this accounting standard.
In December 1998, the AICPA issued SOP No. 98-9, Modification of SOP 97-
2, Software Revenue Recognition, with Respect to Certain Transactions. SOP No.
98-9 requires recognition of revenue using the "residual method" in a multiple-
element software arrangement when fair value does not exist for one or more of
the delivered elements in the arrangement. Under the "residual method," the
total fair value of the undelivered elements is deferred and recognized in
accordance with SOP No. 97-2. We will be required to implement SOP No. 98-9 for
the fiscal year ending March 31, 2000. SOP No. 98-9 also extends the deferral
of the application of SOP No. 97-2 to certain other multiple element software
arrangements until SOP 98-9 becomes effective. We do not expect a material
change in our accounting for revenues as a result of the provisions of SOP 98-
9.
2827
BUSINESS
Overview
We are the leading provider of fully integrated, end-to-end, business
intelligence solutions for IBM AS/400 customers. Our ShowCase STRATEGY product
suite and related services are designed to enable organizations to rapidly
implement business intelligence solutions that create increased value from
their operational and customer data. The sophisticated data warehousing and
management capabilities of our product suite provide our clients with highly
scalable and tightly integrated solutions. Our products enable enterprise-wide
distribution of information and allow end-user access and analysis through
familiar applications and Internet browsers. We have eight years of experience
delivering business intelligence solutions to our clients. Our ShowCase
STRATEGY product suite, introduced in 1996, supports ad hoc information access,
enterprise reporting and analytics. We have eight years of experience delivering business
intelligence solutions to our clients.
Industry Background
The rapid growth of the Internet and the emergence of e-business are
transforming the way organizations conduct business, communicate and share
information. This transformation is driving broad and immediate demand for
better intelligence and information dissemination. In recent years, the
deployment of enterprise resource planning applications, the integration of
supply chains and the emergence of e-business have increased the amount of data
available to companies. Nevertheless, many companies have failed to organize,
manage and disseminate this data in an accessible, intuitive manner. Companies
require business intelligence to interpret and create value from the vast
amounts of available data by better tailoring products and services,
identifying business opportunities and improving operational efficiencies. In
addition, as organizations have become more closely linked with suppliers and
customers, there is an increasing need to extend business intelligence beyond
organizational boundaries.
Business Intelligence. Employees, customers and suppliers require
business intelligence to make faster, smarter business decisions. Business
intelligence software enables organizations to transform data from disparate
sources into accessible, understandable and useful information. It is also the
foundation of an enterprise information portal, a centralized location where
users can access necessary corporate information. Business intelligence
solutions provide employees, customers and suppliers with useful information
through ad hoc information access, enterprise reporting and analytics. Ad hoc
information access enables users to customize the manner in which information
is viewed and analyzed. Enterprise reporting delivers timely analysis and
drill-down capabilities on a structured basis to broad user populations.
Finally, analytic applications provide management insight by enabling users to
analyze transactional data to identify operational trends and variances.
Examples of analytic applications include fraud detection, credit scoring and
budgeting applications. To support these functional uses, robust business
intelligence solutions require a strong infrastructure of data warehouse
generation and management.
Business intelligence is deployed in many ways to increase revenues and
operating efficiencies. For instance, in e-commerce, companies can use business
intelligence to better manage customer relationships by analyzing past
purchases, service history, product utilization and demographics. Consumer
product companies and retailers use business intelligence to deploy management
applications to determine which products to promote in specific markets and
channels. Companies engaged in supply chain management use business
intelligence to more efficiently manage product and material order flow among
distribution facilities, multiple plants and suppliers. Companies from all
industries can use business intelligence to benchmark performance against goals
and best business practices.
The demand for business intelligence solutions and the deployment of
enterprise information portals is driven by increased competitive pressures,
the emergence of e-business and the availability of large amounts of
operational data. A June 1998 Information Week survey of 250 information
technology executives indicated that data warehousing, a core element of
business intelligence, is their top post-millennium technology priority.
2928
Dataquest estimates that the business intelligence software market will grow
from approximately $1.9 billion in 1998 to approximately $6.9 billion in 2002,
a compound annual growth rate of approximately 38%.
Business intelligence solutions are data intensive and draw on a broad
range of data sources. A critical foundation technology for business
intelligence solutions is a scalable and reliable server platform capable of
supporting a broad array of users and environments.
The IBM AS/400. The AS/400 is a leading server platform used by mid-
market companies to deploy enterprise resource planning, e-business and
business intelligence applications. The Gartner Group estimated the AS/400
installed base to be approximately 500,000 units in 1998 and growing to
approximately 650,000 units by 2001. The large number of applications developed
for the AS/400 include business management systems, inventory and demand
planning applications. Leading application vendors include Fiserv, Infinium
Software, J.D. Edwards, Lawson Software, Lotus, PeopleSoft, SAP and System
Software Associates.
The popularity of the AS/400 as an application and e-business server is a
function of its ease of use, reliability, security, scalability and ability to
deploy Java and Windows NT business applications. Expanded interoperability
with other systems facilitate the use of the AS/400 as a server in
heterogeneous computing environments. New models of the AS/400 provide strong
price performance and include an expanded multi-processor architecture and
networking capabilities and software products for Internet delivery of
applications and e-business. The AS/400's integrated hardware, operating
system, database, middleware and software applications provide organizations
with the performance and tools to implement a robust business intelligence
solution. The AS/400 is a leading server platform deployed in the mid-market
for enterprise resource applications, e-business and business intelligence and
is particularly popular with mid-market companies because of its reliability,
scalability, ease of deployment and low cost of operation.
Problems faced by traditional approaches to business intelligence.
Companies have spent extensive time and resources collecting, organizing and
delivering operational data through various applications. Nevertheless, many of
these companies have been unable to implement and realize the benefits of a
business intelligence solution because they lack the necessary technical
expertise. This problem is especially prevalent for AS/400 customers because
they typically have limited IT staff and resources. Traditionally, companies
have implemented business intelligence solutions through the purchase and
integration of many software products from multiple vendors. However, these
companies are often unable to realize the full potential of business
intelligence because of the following challenges:
Integrating components from multiple vendors. As a result of the
fragmented business intelligence market, implementing a business
intelligence solution has traditionally required the evaluation, selection,
purchase and integration of many different software products from multiple
vendors. Integrating these products requires extensive use of an
organization's IT staff and resources and often limits the overall
capability of the implemented solution. Furthermore, because these
components are supplied by multiple vendors, and use many different
interfaces, the solution is often difficult to use.
Adapting solutions to evolving end-user needs. The initial
implementation of a traditional business intelligence solution frequently
provides a limited set of functionality. As organizations realize the
benefits of business intelligence, they frequently wish to add more
business functionality to their solutions. Integrating this increased
functionality may not be possible with an organization's existing tools, or
may be extremely costly or laborious. Furthermore, the resulting solution
is often of limited overall effectiveness. As a result, end users
frequently require sustained IT staff involvement to perform the customized
reporting and follow-on analysis necessary to derive increased value from
corporate data.
Scaling across the enterprise. When implementing traditional business
intelligence solutions, organizations frequently do not recognize the
importance of strong data warehouse generation and management capabilities.
As a result, the data warehouse generation and management infrastructure of
a business intelligence solution is often unable to meet the demands placed
on it as the diversity and size of the end-user population grows. Without
this infrastructure, companies frequently experience significant data
integrity and performance problems when they attempt to scale their
business intelligence solutions to serve broader user populations.
3029
Extending business intelligence through the Internet. Extending business
intelligence through the Internet exacerbates the limitations of
traditional business intelligence solutions. As companies implement
enterprise information portals in an e-business environment, business
intelligence solutions must be easy to use and provide a high degree of
scalability and adaptability to deliver business intelligence to a growing
population of employees, customers and suppliers with diverse needs. To
support this large-scale deployment, business intelligence solutions must
also have sufficient management, security, intuitive user interfaces and
Internet browser-based capabilities.
We believe that the demand for business intelligence, the limitations of
traditional approaches and the large and growing AS/400 installed base provide
a significant opportunity for fully integrated, end-to-end business solutions
for AS/400 customers.
The ShowCase Solution
We are the leading provider of business intelligence solutions for AS/400
customers. Our ShowCase STRATEGY product suite and related services are
designed to enable organizations to rapidly implement and deploy business
intelligence solutions that create increased value from their operational and
customer data. We believe our solution provides the following key benefits:
Full integration and end-to-end business intelligence functionality. Our
product suite and professional services are designed to provide our clients
with a complete, fully integrated, end-to-end business intelligence solution.
Our products can be easily integrated with industry leading enterprise software
applications provided by vendors such as Fiserv, Infinium Software, J. D.
Edwards, Lawson Software, Lotus and SSA. Our end-to-end solution provides each
of the three functional business intelligence uses -- aduses--ad hoc information access,
enterprise reporting and analytics. Our business intelligence solutions
incorporate a strong infrastructure of data warehouse generation and
management. This end-to-end approach eliminates the need for AS/400 customers
to evaluate, select, purchase and integrate components from different vendors
to realize the benefits of business intelligence.
Easy deployment and expansion. Our comprehensive product suite and
accompanying professional services enable our clients to quickly and easily
deploy a manageable business intelligence solution that minimizes the burden on
their IT departments. Our clients can deploy our modular business intelligence
solution in stages as their business intelligence needs grow. Companies can
start with any one of the three functional business intelligence uses and
extend their solutions to include the other two as end users realize the
benefits of and discover other uses for business intelligence. We also offer
Deployment Accelerators, which provide adaptable applications for targeted
business functions and allow some of our clients to realize benefits of
business intelligence within days of deployment.
Robust scalability for enterprise-wide deployment. Our product suite
addresses the challenges faced by IT departments as business intelligence
solutions expand in functionality and in the number of applications and end
users supported. Our data warehouse generation and management capabilities and
our hub-and-spoke architecture enable modular expansion of data warehouses and
data marts, andwhich are simpler implementations of data warehouses, to support
additional applications and end users. Further, our product suite supports
enterprise performance capabilities and scalability through its tight
integration with and leverage of the AS/400 platform.
Ease of use and Internet accessibility. Our product suite combines a
consistent and intuitive user interface with powerful functionality that allows
end users to easily access, customize and analyze information and reports with
minimal IT assistance. Because users can realize the benefits of our solution
through familiar applications, such as Microsoft Excel, Lotus 1-2-3 and
Microsoft Word, organizations are able to leverage existing software
applications and user skills. These capabilities are enhanced by our easy-to-
use Internet browser-based capabilities, including query and user-defined
calculations, powerful graphics and drag-and-drop features.
3130
ShowCase Strategy
Our objective is to extend our position as the leading provider of fully
integrated, end-to-end business intelligence solutions for AS/400 customers.
The following are key elements of our strategy:
Expand product functionality and technology leadership. We intend to
continue expending significant resources to expand our product functionality
and technology leadership. One of our initiatives is to strengthen our product
suite's enterprise reporting capabilities to publish specified business
intelligence to defined users on a regularly scheduled basis. We also intend to
further leverage Internet browser technologies to enable companies to
disseminate information and business intelligence through a portal framework
that will enable growing user populations both within and outside the
organization to more easily search and receive information through the
Internet. Furthermore, we plan to increase our product suite's ability to
access additional data sources to ensure that a broader range of information is
available to end users.
Offer additional application Deployment Accelerators. We believe that
there is a large market for adaptive applications that utilize the underlying
capabilities of our product suite and offer out-of-the-box functionality in
targeted markets. Our Deployment Accelerators are designed to serve as
architectural models for our clients' business intelligence solutions. In 1998,
we introduced Deployment Accelerators for sales and financial analysis. We
believe these adaptive applications allow our clients to quickly realize
benefits from our products and will extend their use for additional
applications. Consequently, we plan to tightly integrate leading enterprise
resource planning applications with our Deployment Accelerators, which will
also incorporate future technological advancements. We also intend to leverage
the knowledge gained from our experience with client implementations to develop
additional Deployment Accelerators for areas such as inventory and customer
relationship management.
Increase our direct sales efforts. We intend to expand our direct sales
force to extend market penetration to new clients and expand penetration of our
product suite within existing clients. We believe a strong direct sales force
is necessary to educate potential clients about the benefits of and uses for
the relatively new area of business intelligence. A strong direct sales force
is particularly important for AS/400 customers, which typically have relatively
small IT staffs. An expanded direct sales force presence will also provide
increased front-line insight into the business intelligence needs of AS/400
customers. A unit of our direct sales force has been specifically designed to
build upon our existing client relationships. We believe there is a significant
opportunity to sell additional components of our product suite to these clients
as they decide to increase the functionality of their business intelligence
solutions and make them available to a greater number of end users.
Expand our distribution channels. We have recently expanded our
relationship with IBM to allow us to leverage the distribution capabilities
provided by IBM's large software data management group sales force. In the
future, we intend to expand the number of distribution channels available for
our products by increasing the number of enterprise resource planning
applications with which our products are integrated. Some of our products are
currently integrated with applications provided by vendors such as Dimension
Data Systems, Fiserve, IBM, Infinium Software, Lawson Software, Silverlake, TSG
and Walker Interactive. In addition, we are targeting the expansion of our
marketing relationships to increase market awareness of our product suite and
customer referrals for our direct sales force. We currently have marketing
relationships with several companies, including CMDS, Data Systems
International and J.D. Edwards.
Provide high quality services and support to our clients. We provide
comprehensive implementation, training and support services to our clients to
aid them in quickly implementing and realizing the benefits of our solutions.
Our focus on high quality service and support is critical to success in the
AS/400 market because many of our clients do not have the internal resources
necessary to implement and maintain business intelligence solutions. We
currently anticipate expanding our support and professional service
capabilities and our service partnerships to support the deployment of our
product suite.
3231
Products
The ShowCase STRATEGY product suite includes all of the elements of a
complete business intelligence solution. Typical configurations of business
intelligence solutions include the following components of our product suite:
Analyzer
Report for the Warehouse Warehouse
Query Writer Essbase/400 Analyzer Web Builder Manager
----- ------ ----------- -------- -------- --------- ---------
Ad hoc information
access................. X X X
Enterprise reporting.... X X X X
Analytics............... X X X X
Our Deployment Accelerators provide our clients with both enterprise
reporting and analytic capabilities and currently provide sales and financial
analysis functionality.
[GRAPHIC]
[The graphic consists of three rectangular boxes with symbolic representations
as described below.
Above the entire graphic are the words "Deployment
Accelerator."
Box on the extreme left: On the extreme left is a rectangular box with atwo
symbolic representationrepresentations of a computer server, bearingdata sources. The first one bears the words "Any
AS/400DB2 Data Source." Above this representation isare the acronym "OLTP.words "Sales, Marketing,
Financial, Human Resources, and e-Business Data." The second one bears the
words "NT and Unix Data Sources." Below this representation are the words
"Legacy, Human Resources, Marketing, Sales,"Oracle, SQL Server, Sybase and FinancialInformix-based Data External Data."
Box in the center: In the center is a rectangular box with several symbolic
representations. An arrow points to the right from the symbolic representation
of a computer serverthe DB2 Data Source in the rectangular box on the extreme left to a box in
the center rectangular box bearing the words "Warehouse"STRATEGY Warehouse Builder." An
arrow points to the right from the symbolic representation of the NT and Unix
Data Sources in the rectangular box on the extreme left to a box in the center
rectangular box bearing the words "IBM and Third Party ETL." Two arrows point
to the right from this rectangular box to a symbolic representation of a data
warehouse. Above this representation are the words "DB2/"AS/400 Data Warehouse." An
arrow points to the right from this symbolic representation to a box in the
middle of the center rectangular box bearing the words "Warehouse"STRATEGY Warehouse
Builder." Two arrows point to the right from this middle box. The upper arrow
points to a symbolic representation of a multidimensional data mart. Above this
symbolic representation are the words "ESSBASE/"STRATEGY ESSBASE/400 Multidimensional
Data Mart." The lower arrow points to a symbolic representation of a relational
data mart. AboveBelow this symbolic representation are the words "DB2/400 Relational
Data Mart." An arrow points between the symbolic representations of the
multidimensional data mart and the relational data mart. To the right of these
symbolic representations is a rectangular box bearing the words "Warehouse"STRATEGY
Warehouse Manager."
Box on the extreme right: On the extreme right is a rectangular box with five
symbolic representations of desk-top computers. To the leftright of these symbolic
representations are the words "Query,"STRATEGY Query," "Report"STRATEGY Report Writer,"
"Essbase/400,"Excel & 1-2-3," "Analyzer,"STRATEGY Analyzer," and "Analyzer"STRATEGY Analyzer for the Web."]
Below the entire graphic an arrow points to the right with the words "STRATEGY
Deployment Accelerator" appearing within the arrow.]
Ad hoc information access, enterprise reporting and analytics
Query. Query provides end users high-performance access to relational
data on the AS/400 for ad hoc querying and results-oriented data analysis.
Users may access data warehouses and operational data through the product's
interface on their desktop computer, or through familiar applications, such as
Microsoft Excel, Lotus 1-2-3 and Microsoft Word. Query also provides scheduling
and sophisticated search functions for the advanced end user.
Report Writer. Report Writer enables end users to create fast,
specialized reports for data analysis. Report Writer also combines drag-and-
drop features, graphics and calculation capabilities that make report design
easy and intuitive.
Analyzer. Analyzer enables end users to analyze relational data--data
with two variables--and/or multidimensional and/or
relational data throughdata--data with more than two
variables--through desktop computers. End users can display data as charts,
spreadsheets or custom report forms. The end user can drill down to the
underlying data and sort, rank, filter, calculate and graph this data for more
in-depth analysis and can drill
down to the underlying data.analysis.
Analyzer for the Web. Analyzer for the Web is a "thin" version of
Analyzer that allows end users to conduct basic data analysis tasks over a
company's intranet or extranet. Analyzer for the Web is Java-based and
accessible through Internet browsers, such as Microsoft Explorer and Netscape
Navigator.
Essbase/400. Essbase/400 is a 64-bit implementation of Hyperion
Solutions' online analytical processing product, Essbase, on the AS/400.
Essbase/400 allows end users to perform multidimensional analysis on AS/400
data. It consists of a multidimensional database server, a desktop-based tool
for creating
32
and maintaining the database and Microsoft Excel and Lotus 1-2-3 add-ins that
provide end-user access. Essbase/400 can also be used with our Analyzer and
Analyzer for the Web products, as well as the many third-party applications
developed for use with Hyperion's Essbase product. Essbase/400 is easy to use
and deploy rapidly, has robust calculation capabilities, provides rapid
responses to end-user requests and incorporates user-generated scenario data.
Data warehouse generation and management
Warehouse Builder. For clients desiring enterprise-wide business
intelligence solutions, Warehouse Builder automates the process of building a
centralized data warehouse. Warehouse Builder transforms online transaction
processing data from any AS/400 data source into data marts or data warehouses.
Warehouse Builder enables clients to create multidimensional data marts or data
warehouses by moving data from IBM's DB2 database for the AS/400 to
Essbase/400.
33
Warehouse Manager. Warehouse Manager provides the tools to manage data
warehouses and data marts on a day-to-day basis by integrating data
simplification, warehouse security, resource allocation and user access.
Warehouse Manager also enables administrators to allow users easier access to
data in complicated databases and to create a simplified view of any AS/400
database, whether it is used for transaction processing or analysis. In
addition, Warehouse Manager provides capabilities to interact with most AS/400
data types and with many third-party database extensions, such as the J.D.
Edwards interactive data dictionary and Infinium's security system.
Deployment Accelerators
Sales and Financial Analysis Deployment Accelerators. ShowCase STRATEGY
Deployment Accelerators are pre-configured functional data models or templates
that may be used to quickly implement and adapt sales and/or financial analysis
applications. These adaptive applications are designed to serve as
architectural models for our clients' business intelligence solutions. Sales
Analysis Deployment Accelerators includeprovide order and performance/variance
analysis, sales, customer and shipping tracking, sales history and forecasting
and impact analysis. Financial Analysis Deployment Accelerators includeprovide
accounting and financial reporting, profit and loss analysis, budgeting,
forecasting and overhead calculation, variance and unit cost analysis and
business segmentation.
Services
Customer Support. Our support team provides comprehensive support
services to our clients, including the following services:
. unlimited technical support via telephone, facsimile, the Internet
and e-mail;
. program temporary fixes;
. technical documents on demand; and
. product upgrades.
As of March 31, 1999, we had over 2,000 clients on our annual maintenance
plan. We offer maintenance support through our regional support centers in
North America, Europe, Malaysia and a partnership in Japan. Currently, our
regional support offices have access to an integrated customer database that
provides each office with real-time information regarding our clients and their
installed product base. A client that has a maintenance problem after hours and
is unable to contact its regional support office may contact any one of our
other regional support offices and obtain maintenance support.
Professional Services. Because they often have limited IT staff and
resources, our clients require a high level of service and support. To address
this need, we offer a full range of educational, consulting and support
services. We work with clients to design customized service plans that will
enable them to rapidly
33
implement and realize the benefits of business intelligence solutions that can
evolve with end-user needs. As an example of this approach, we recently
introduced service offerings that allow clients to leverage our Deployment
Accelerators to quickly implement pilot applications. For existing clients, we
offer services designed to assist them in expanding their use of our product
suite and using our product suite in more sophisticated applications. To
increase the ability of end users to realize the functionality provided by our
product suite, our educational services provide comprehensive, hands-on
training through both public and on-site sessions. In addition to our own
professional services personnel, we have service partners in North America,
Europe and Asia Pacific that provide training and consulting for our clients.
We recently entered into service partner relationships with Pinnacle and
Austin/400 to provide our clients with a range of additional implementation and
training options.
34
Product Development
We have ten years experience delivering business intelligence solutions
to our clients. During this time, we have focused on delivering rapid return on
investment and enterprise-wide deployment capabilities for our clients. Our
core technology competence lies in extracting and transforming raw data from
IBM's DB/2 database and other unique AS/400 data structures into business
intelligence. We extend the AS/400 operating system to support business
intelligence with features such as data simplification, enhanced security and
resource management. We also tightly integrate these database management and
infrastructure technologies with end user query and reporting products and
multidimensional analytical technology.
Since our inception, we have made substantial investments in product
development. During the fiscal years 1997, and 1998 and the nine months ended
December 31, 1998, product development expenses were $2.6
million, during fiscal 1998 they were $3.1 million and $3.2during fiscal 1999 they
were $4.4 million. Our product development group consists of product managers,
software engineers, quality assurance engineers, technical documentation
specialists and integration specialists and is organized by small teams. As of
March 31, 1999, we had 49 employees engaged in product development. Our product
development process is intended to be repeatable yet flexible thereby allowing
us to reuse both source code and the processes used to develop source code. To
better serve client needs and incorporate those needs into new releases, we
actively solicit product enhancement requests from employees, clients, industry
analysts, partners and IBM.
Our product development efforts currently focus on continued
compatibility with and leverage of new developments in the AS/400. We intend to
develop many of our future products in Java, which will enable us to deliver
our products to additional platforms as the opportunity arises. One of our
initiatives is to strengthen our product suite's enterprise reporting
capabilities to publish specified business intelligence to defined users on a
regularly scheduled basis. We also intend to further leverage Internet browser
technologies to enable companies to disseminate information and business
intelligence through a portal framework that will enable growing user
populations both within and outside the organization to more easily search and
receive information through the Internet. Furthermore, we plan to increase our
product suite's ability to access additional data sources to ensure that a
broader range of information is available to end users. Although we expect that
certain of our new products will be developed internally, we may, based on
timing and cost considerations, acquire technology or products from third
parties. See "Risk Factors--We may lose existing clients or be unable to
attract new clients if we do not develop new products and enhance our current
products."
Sales and Marketing
Sales. We sell our products and services through our direct sales force
and channeldistribution partners including IBM, software application vendors,
distributors and resellers. Our direct sales force operates in North America,
Belgium, France, Germany, the Netherlands and the United Kingdom. Our North
American direct sales force is divided into three units. Each salesperson in
the new accounts unit focuses on specific potential accounts. The existing
accounts unit targets existing clients. Because many of our clients initially
deploy our products on a departmental basis, we believe that our existing
clients represent a significant sales opportunity as
34
they discover the potential of business intelligence and look to leverage its
benefits enterprise-wide to increase operational efficiency and profitability.
Our internal telesales unit focuses primarily on smaller transactions, and
generally sells individual components of our product suite to new accounts,
additional components of our product suite to existing clients and maintenance
services. Our overseas direct sales force consists of a direct sales unit and a
telesales unit that target both new clients and existing accounts. See "Risk
Factors--We need to increase the size of our direct sales force, which has a
limited operating history, to grow our sales."
Our software application vendor channeldistribution partners include vendors
that integrate our products within their own applications and sell the
integrated products to their customers, such as Dimension Data Systems,
Fiserve, IBM, Infinium Software, Lawson Software, Silverlake, TSG and Walker
Interactive; and vendors with which we have joint marketing and sales
arrangements, such as Data Systems International and J.D. Edwards. We also sell
our products through IBM's software data management group sales force and
distributors located in countries not served by our direct sales force,
including Eastern European, African and Asian countries.
35
Marketing. We are focused on building market awareness and acceptance of
our product suite as the leading provider of business intelligence solutions
for the AS/400 customer. Our marketing organization provides a wide-range of
programs, materials and events that support our sales force. These include
extensive public relations activities, user group meetings, conference and
trade show appearances, as well as programs to work closely with analysts and
other influential third parties. We use our Internet site to augment our market
presence, promote our products and services and generate sales leads.
Furthermore, we have invested in building a partner and channel marketing
function to help recruit, train, support and conduct cooperative marketing with
strategic partners, resellers and certified service providers.
Strategic Relationships
IBM
We have maintained a strategic relationship with IBM in sales and
marketing and research and development. Our close relationship with IBM's
Rochester, Minnesota facility, which has developed the AS/400, has enabled us
to quickly leverage new AS/400 capabilities and influence the future direction
of the AS/400 for the benefit of our clients. This association with IBM has
resulted in our products being recognized as a standard business intelligence
technology on the AS/400. For example, our ShowCase STRATEGY product suite is
used by IBM in new database release quality control efforts. We also
participate in several formal and informal programs with IBM which we believe
afford us valuable experience with AS/400 products and insights into IBM's
product development and marketing plans. We are one of IBM's designated
"Premier Business Partners" and have won several awards from IBM, including,
most recently, IBM's Powered by AS/400e Award. IBM has been a reseller of
several of our products for several years. In December 1998, we entered into an
expanded agreement with IBM under which our products are marketed and sold as
IBM products by IBM's software data management group sales force. This
agreement has an initial term of seven years. For a description of some of the
risks of our relationship with IBM, see "Risk Factors--Our relationships with
Hyperion Solutions and IBM are important to our success.revenue, which would be harmed
by a deterioration in these relationships."
Hyperion Solutions
Our relationship with Hyperion Solutions began in late 1995 when we
searched the marketplace for a high performance multidimensional database
server and selected its online analytical processing product, Essbase. We
expended significant resources in 1995 and 1996 porting Essbase to and
optimizing its performance on the AS/400. We have the exclusive right to
distribute the resulting product, Essbase/400, subject to limited distribution
rights retained by Hyperion Solutions. The addition of Essbase/400 to our
product line provides us with the ability to access a broader customer base,
including users of multidimensional analyses. Furthermore, our Essbase/400
product provides us with additional partnering opportunities by extending
Essbase to the AS/400 platform. In addition, our Analyzer and Analyzer for the
Web products are based on technology licensed from Hyperion Solutions under a
license agreement that expires in January 2001.
35
For a description of some of the risks of our relationship with Hyperion
Solutions, see "Risk Factors--Our relationships with Hyperion Solutions and
IBM are important to our success.revenue, which would be harmed by a deterioration in
these relationships."
Our exclusive Essbase/400 distribution rights are conditioned upon us
paying minimum royalties and are subject to a buy-back right. Hyperion
Solutions must give us notice 12 months before exercising this buy-back right.
If minimum royalty payments are not made, we have the option of paying the
remaining balance to retain our exclusive distribution rights. If we do not
retain our exclusive distribution rights, we must pay Hyperion Solutions
minimum royalty payments to retain non-exclusive distribution rights to
Essbase/400.
36
Clients
As of March 31, 1999, we had over 2,000 active clients. The following is
a representative list of our clients that each accounted for over $150,000 in
total revenues since March 31, 1998:
ADT Automotive Mississippi Chemical Corporation
Abbott Laboratories Old Dominion Freight Lines
AmeriServe Olympus America
Ball Foster Container Corp. One 2 One/Mercury Personal
Bass Brewers Limited Communications
Burmah Castrol Trading Limited Omron Healthcare
Cartier International Pokka Corporation Inc.
Clark Construction Group Randstad Automation Center
Distribution & Auto Services Rugby Joinery UK Limited
EMI Compact Disc (Holland) Sara Lee Casualwear Company
Groupe Point.P Skytel Communications
Interface Tiel Utrecht Verzekeringen
Johnsonville Sausage Tiffany & Company
Land O'Lakes Toys "R" Us International
Managed Health Network United Rentals
Master Halco Universal Flavors Corp.
York International
Case Studies
The following case studies illustrate how three of our clients have
utilized the ShowCase STRATEGY product suite:
Helzberg Diamonds
Helzberg Diamonds is a jewelry retailer with nearly 200 stores
throughout the United States.
Challenge. Each Helzberg store generates large amounts of point-of-sale
transaction data, which are fed nightly into the company's AS/400 host
merchandise system and J.D. Edwards financial system. This transactional
information is required to evaluate store performance and sales productivity
and is used by managers in virtually all of the company's corporate functions,
including general administration, finance, sales and merchandising. The
largely manual process of transforming this data into useful information and
delivering it to end users was time-consuming and error-prone. Furthermore,
users were often dissatisfied with the content and presentation of the
information provided to them.
Solution. To evaluate store performance and productivity, Helzberg
installed our STRATEGY product suite. Within a week, Helzberg had used our
Financial Analysis Deployment Accelerator to develop a working financial
analysis application prototype to show managers comparative balance sheets,
profit and loss statements and store performance. Our products have enabled
end users throughout the enterprise to access business-critical information on
their own, without IT staff assistance. Managers have also become more
sophisticated in their uses of information, creating ad hoc data views and
performing speed-of-thought data analysis. Our products' ability to provide
users increased access to timely, useful information has enabled
36
Helzberg to make better decisions regarding such issues as where to open and
close stores, how to staff stores and how best to develop incentives for
increasing sales productivity. Because of its early successes with our
products, Helzberg has plans to develop a merchandising application that will
allow greater day-to-
dayday-to-day inventory control, a corporate planning, budgeting and
forecasting application, and a centralized data warehouse to serve multiple
data marts and the entire enterprise. Helzberg has licensed Analyzer for the
Web to enable access to this data warehouse from Helzberg field locations.
37
Abbott Laboratories
Abbott Laboratories is an international health care and pharmaceutical
leader with approximately 56,000 employees worldwide.
Challenge. Managers in Abbott's UK nutritional products division were
having difficulty pricing products and services to meet corporate profit goals
because they could not quickly access necessary information. Although
operational data was available to optimize pricing, it resided on Abbott's
AS/400 system in forms that sales and marketing managers could only access with
extensive IT staff support. Abbott's end users were also interested in
accessing and analyzing additional sales, marketing and financial information
from the system's wealth of data, without being dependent on IT staff to do so.
Solution. To effectively leverage its existing operational data, Abbott
originally pieced together a solution consisting of point products available at
the time, including SQL Server and an NT server. With our 1996 introduction of
ShowCase STRATEGY, Abbott was able to implement an end-to-end business
intelligence solution. Our software enabled Abbott fast and flexible access to
its AS/400 data, providing decision support functionality for quoting and
pricing contracts. This permitted Abbott to identify profitable contracts that
it previously would not have pursued due to uncertainty. From this initial
success, Abbott has expanded its use of the ShowCase STRATEGY product suite to
include access to additional sales, marketing and financial data. Abbott's end
users now are able to create ad hoc queries, develop reports and perform
analyses fast and easily without IT staff assistance. As a result of its
success in the United Kingdom, Abbott has expanded its use of STRATEGY to
operations in the United States, Canada and Germany.
Famous Footwear
Famous Footwear is a nationwide chain of shoe stores selling branded
footwear for the entire family, with over 800 retail stores in 46 states.
Challenge. Famous Footwear tracks its target market through daily
transaction information collected from each of its retail stores. This
information includes over 600,000 daily point-of-sale transactions, which are
fed into the company's AS/400-based operational data systems. Decision-makers
relied on weekly reports generated from this data to make decisions about
pricing, inventory, promotions and other areas. Users were frequently unable to
make these decisions quickly and efficiently because they were spending up to a
few weeks searching for information they needed from these reports.
Solution. Famous Footwear chose our ShowCase STRATEGY product suite to
implement a sales analysis data mart, a store inventory analysis data mart and
an item trend analysis data mart. Currently, approximately 150 of the company's
managers use this business intelligence system. The sales analysis data mart
has enabled the company to adjust its promotional mix to meet specific campaign
goals. For example, the company has learned that freestanding inserts generate
more sales than traditional newspaper advertising. The company's store
inventory analysis data mart enables the company to analyze cash register
activities thereby providing the company with an early indicator of point-of-
sale concerns. Famous Footwear's item trend analysis data mart enables its
merchandising department to dynamically tailor merchandising orders to meet
unexpected demand. Our product suite has also enabled the company's IT
department to redirect its activities from preparing the weekly reports to
developing additional business applications to increase company productivity.
37
Competition
The markets for our products are intensely competitive and subject to
rapidly changing technology. We compete primarily against providers of decision
support software and data warehousing and data mart software. The bases of
competition in these markets include breadth of solution, functionality,
performance, scalability, ease of use, operating platform and cost. Our
competitors providing business intelligence solutions for AS/400 customers
38
include Silvon and Infomanager. We also compete with vendors that provide
business intelligence products implemented on Unix or Windows NT platforms and
then connected to the AS/400. These vendors include Brio Technology, Business
Objects, Cognos, Hyperion Solutions, Information Advantage, MicroStrategy,
Microsoft, Oracle, PLATINUM Technology, which has entered into an agreement to
be acquired by Computer Associates, Sagent Technology and SAS Institute. In
addition, enterprise resource planning software vendors including Baan Company,
PeopleSoft and SAP are beginning to offer decision support and analytical
modules primarily to support the analysis of data from their own operational
systems. One or more of these companies may expand their technologies to
support greater business intelligence functionality. Finally, in the future,
IBM may expand the functionality of the operating system for the AS/400, or of
its database products, to provide some of the functions provided by our
products.
Many of our competitors have longer operating histories, significantly
greater financial, technical, marketing or other resources and greater name
recognition than we do. As a result, they may be able to respond more quickly
to new or emerging technologies and changes in customer requirements. The
business intelligence software industry has recently experienced consolidation
and many industry analysts expect this trend to continue. This consolidation
may provide our competitors with expanded sales, distribution and marketing
capabilities and broader product offerings. See "Risk Factors--Our markets are
highly competitive which may lead to lower prices, reduced gross margins and
loss of market share."
Intellectual Property
We attempt 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 require licensees to
enter into license agreements which impose restrictions on their use of the
software. In addition, we have made efforts to avoid disclosure of our trade
secrets, including requiring those persons with access to our proprietary
information to enter into confidentiality agreements with us and restricting
access to our source code.
We have one patent issued and one patent application pending in the
United States with respect to aspects of our software. The pending patent
application may not be issued. In addition, our patents may not survive a legal
challenge to their validity or provide us significant protection. Our means of
protecting our intellectual property rights may not be adequate or our
competitors may independently develop similar technology. Policing unauthorized
use of our products is difficult, particularly in foreign countries where the
laws may not protect our proprietary rights as fully as in the United States.
We anticipate that software product developers increasingly will be
subject to infringement claims as the number of products and competitors in our
industry segment grows and the functionality of products in different industry
segments overlaps. As a result, we may become involved in these claims. Any of
these claims, with or without merit, could result in costly litigation, divert
our management's time, attention and resources, delay our product shipments or
require us to enter into royalty or licensing agreements. If a claim of product
infringement against us is successful, our business and operating results could
be seriously harmed. See "Risk Factors--We may face increased competition if we
are unable to protect our intellectual property rights, and we may be subject
to intellectual property infringement claims."
Employees
As of March 31, 1999, we had a total of 240 employees, including 107 in
sales and marketing, 49 in product development, 56 in professional services and
customer support and 28 in administration. Our future
38
performance depends in significant part on our ability to attract, train and
retain highly qualified personnel. None of our employees are represented by a
labor union, and we believe that our relations with our employees are good.
39
Facilities
Our principal offices currently occupy approximately 27,000 square feet
in Rochester, Minnesota under a lease which expires June 30, 2004. In addition,
we also lease offices domestically and internationally in a variety of
locations, including domestic offices in the metropolitan areas of Atlanta,
Boston, Chicago and Dallas and international offices in Belgium, France,
Germany, Malaysia, the Netherlands and the United Kingdom. We believe that our
facilities are adequate for the next 12 months and that, if required, suitable
additional or alternative space will be available on commercially reasonable
terms to accommodate expansion of our operations.
4039
MANAGEMENT
Executive Officers and Directors
The following table provides information as of March 31,June 1, 1999 concerning
our executive officers and directors:
Name Age Position
- ---- --- --------
Kenneth H. Holec........... 44 President, Chief Executive Officer and Director
Craig W. Allen............. 44 Chief Financial Officer
Jonathan P. Otterstatter... 39 Senior Vice President, Technology and Services
Roger E. Bottum............ 40 Vice President, Marketing
Patrick Dauga.............. 39 Vice President, International
Jonathan P. Otterstatter... 39 Vice President, Development
Kevin R. Potrzeba.......... 38 Vice President, Sales
Promod Haque............... 51 Director
C. McKenzie Lewis III...... 52 Director
Jack Noonan................ 51 Director
Dennis J. Semerad.......... 58 Director
Kenneth H. Holec has been our president and chief executive officer and a
member of our board of directors since November 1993. From 1985 to 1993, Mr.
Holec was president and chief executive officer of Lawson Software, a provider
of high-end financial and human resource management software solutions.
Currently, Mr. Holec is a director of IntraNet Solutions, Inc., a maker of Web-
based document management products for corporate intranets. Mr. Holec holds a
B.S. degree in business administration from the University of Minnesota.
Craig W. Allen joined us as controller in July 1993 and was promoted to
chief financial officer in March 1997. From 1982 to 1993, Mr. Allen was vice
president of operations at Metafile Information Systems, Inc., a software
development and systems integration company. Prior to 1982, Mr. Allen was audit
manager at the accounting firm McGladrey Pullen & Co. in Rochester, Minnesota.
Mr. Allen holds a B.S. degree in business from the University of Minnesota and
is a certified public accountant.
Jonathan P. Otterstatter joined us as vice president, development in May
1994 and was promoted to senior vice president, technology and services in May
1999. From 1983 to May 1994, Mr. Otterstatter was employed by IBM where his
last position was senior development manager. Mr. Otterstatter holds a B.S.
degree in computer science from the University of Wisconsin at LaCrosse and an
M.S. degree in management of technology from the Massachusetts Institute of
Technology.
Roger E. Bottum has been our vice president, marketing since August 1998.
From August 1994 to July 1998, Mr. Bottum worked at System Software Associates,
a designer of business information systems for manufacturing companies, where
his last position was general manager of product management. From 1987 to July
1994, Mr. Bottum worked at Andersen Consulting, where his last position was
associate partner and director of marketing. Mr. Bottum holds a B.S. degree in
political science from Colorado College.
Patrick Dauga joined us as vice president, European operations in June
1997 and was promoted to vice president, international in March 1998. From 1986
to 1997, Mr. Dauga worked at Comshare, Inc., a software company specializing in
decision support systems, where his last position was vice president for
southern Europe. Mr. Dauga holds a degree from Sup de Co Bordeaux, a business
school in France.
Jonathan P. Otterstatter has been our vice president, development since
May 1994. From 1983 to May 1994, Mr. Otterstatter was employed by IBM where his
last position was senior development manager. Mr. Otterstatter holds a B.S.
degree in computer science from the University of Wisconsin at LaCrosse and an
M.S. degree in management of technology from the Massachusetts Institute of
Technology.
Kevin R. Potrzeba has been our vice president, sales since September
1996. From 1987 to August 1996, Mr. Potrzeba was employed by Software AG, a
software products company, where his last position was vice president of sales
for eastern operations. Mr. Potrzeba holds a B.A. degree in advertising and
marketing from Northern Illinois University.
40
Promod Haque has been one of our directors since March 1992. Dr. Haque
joined Norwest Venture Capital Management, Inc.,Partners, a venture capital firm, in November 1990.1990 and
is currently managing general partner of the general partner of Norwest Venture
Partners VI, L.P. and a partner of the general partner of Norwest Venture
Partners VII, L.P. He is also currently a partner of Itasca
41
Partners V, L.L.P.,
the general partner of Norwest Equity Partners V, L.P., and a partner of Itasca
Partners, the general partner of Norwest Equity Partners IV, L.P. Dr. Haque is
a director of Connect,Extreme Networks, Inc., Information Advantage, Inc.,
Optical Sensors, Inc., Raster
Graphics, Inc., Transaction Systems Architects, Inc. and several privately held
companies. Dr. Haque holds a B.S.E.E.Ph.D.E.E. degree from the University of Delhi, India,and an M.S.E.E. degree and a Ph.D.E.E. degree
from
Northwestern University, and an M.M. degree from the J.L. Kellogg Graduate School
of Management, Northwestern University.University, and a B.S.E.E. degree from the
University of Delhi, India.
C. McKenzie Lewis III has been one of our directors since June 1994. Mr.
Lewis is president of Sherpa Partners LLC, an investment and management
company, and the managing general partner of Minnesota Management Partners,
L.P., a venture capital fund. From 1986 through 1995 he was the president and
chief executive officer of Computer Network Technology Corporation, a developer
and manufacturer of high performance extended channel networking systems. Mr.
Lewis currently is a director of Digital Biometrics, Inc. and several privately
held companies. Mr. Lewis holds a B.S.E.E. degree from Princeton University.
Jack Noonan has been one of our directors since February 1995. Mr. Noonan
has been president and chief executive officer and a director of SPSS Inc., a
statistical software products company, since January 1992. Mr. Noonan was
president and chief executive officer of Microrim Corp., a developer of
database software products, from 1990 until December 1991. From 1985 to 1990,
Mr. Noonan was vice president of the Product Group of Candle Corporation, a
developer of IBM mainframe system software. Mr. Noonan holds an engineering
degree from the Rockford School of Business and Engineering in Rockford,
Illinois.
Dennis J. Semerad was one of our initial investors and has been one of
our directors since 1989. Mr. Semerad founded Cord Cable Co., a manufacturer of
computer equipment, and was its president from 1979 to 1987.
Board Composition
Following the offering, our board of directors will consist of five
directors divided into three classes with each class serving for a term of
three years. At each annual meeting of shareholders, directors will be elected
by the holders of common stock to succeed those directors whose terms are
expiring. Mr. Semerad will be a Class I director whose term will expire in
2000, Dr. Haque and Mr. Holec will be Class II directors whose terms will
expire in 2001 and Messrs. Lewis and Noonan will be Class III directors whose
terms will expire in 2002.
Board Committees
Our board of directors has established a compensation committee and an
audit committee.
Dr. Haque and Mr. Lewis are members of our compensation committee and Mr.
Lewis is the chairman. Our compensation committee makes recommendations to the
board of directors concerning executive compensation and administers our stock
option plans.
Dr. Haque and Messrs. Lewis and Noonan are members of our audit committee
and Mr. Noonan is the chairman. Our audit committee reviews the results and
scope of the audit and other accounting related services and reviews our
accounting practices and systems of internal accounting controls.
Director Compensation
We do not currently pay any compensation to directors for serving in that
capacity, but we reimburse directors for out-of-pocket expenses incurred in
attending board meetings. Our board of directors has the discretion to grant
options to non-employee directors pursuant to our stock option plans. Each of
Messrs. Lewis and Noonan currently holds options to purchase 45,000 shares of
our common stock. See "Principal Shareholders."
4241
Compensation Committee Interlocks and Insider Participation
Dr. Haque and Mr. Lewis currently serve on compensation committee.
Neither of these individuals has at any time been an officer or employee of
ShowCase. Prior to the formation of our compensation committee, all decisions
regarding executive compensation were made by the full board of directors. No
interlocking relationship exists between the board of directors or the
compensation committee and the board of directors or compensation committee of
any other company, nor has any interlocking relationship existed in the past.
On March 26, 1998, we sold an aggregate of 875,000 shares of our Series B
convertible preferred stock at a purchase price of $4.00 per share, including
625,000 shares to Norwest Equity Partners V, L.P. Dr. Haque, one of our
directors and a member of our compensation committee, is a partner of Itasca
Partners V, L.L.P., a general partner of Norwest Equity Partners V, L.P.
Employment Agreements
We entered into an employment agreement with Kenneth H. Holec, our
president and chief executive officer, on November 22, 1993 that governs Mr.
Holec's employment with us. The agreement establishes Mr. Holec's compensation
level and eligibility for salary increases, bonuses, benefits and option grants
under our stock option plans. The initial employment term was one year. Mr.
Holec's employment term is automatically renewed for additional one-year terms,
unless either we or Mr. Holec provide written notice to the other party at
least 30 days before the expiration of any one-year employment term that the
employment agreement will not be renewed. We may also terminate Mr. Holec's
employment without cause if we give him written notice 30 days before this
termination. If we do not renew the agreement or terminate his employment
without cause, we must pay Mr. Holec severance equal to six months salary plus
salary for up to six additional months until he finds full-time employment.
We also entered into an employment agreement with Patrick Dauga, our vice
president, international, on March 17, 1998. The agreement establishes Mr.
Dauga's minimum compensation level and eligibility for salary increases,
bonuses, benefits and option grants. We may terminate Mr. Dauga's employment
agreement if we give him written notice twelve months before his termination.
We may terminate his employment immediately without notice if we pay to Mr.
Dauga his base salary, targeted commissions, bonus and fringe benefits. Mr.
Dauga may terminate his employment agreement if he gives us written notice
three months before his termination.
Under the terms of our offer letter dated July 31, 1998 to Mr. Bottum,
our vice president, marketing, and our offer letter dated August 23, 1996 to
Mr. Potrzeba, our vice president, sales, if we terminate either Mr. Bottum's or
Mr. Potrzeba's employment without cause, we must continue to pay his base
salary for up to six months until he has obtained permanent employment
elsewhere. In the case of Mr. Potrzeba, if after six months he has been unable
to obtain employment elsewhere and we believe he has made a good faith effort
to do so, we will continue to pay Mr. Potrzeba his base salary for up to six
months until he has obtained full-time employment elsewhere. Neither Mr. Bottum
nor Mr. Potrzeba is entitled to salary continuance if he voluntarily terminates
his employment with us for any reason other than a change in control that
results in a substantial change in the scope of his employment responsibilities
or job location.
4342
Executive Compensation
The following table provides information concerning compensation paid or
accrued by us to or on behalf of our chief executive officer and each of our
other four most highly compensated executive officers during the fiscal year
ended March 31, 1999:
Summary Compensation Table
Long Term
Annual Compensation
Compensation (1) Awards
-------------------- ------------
Shares
Name and Principal Underlying All Other
Position Salary Bonus Options Compensation
- ------------------ -------- -------- ------------ ------------
Kenneth H. Holec
President and Chief
Executive Officer........ $205,000 $127,625 200,000 $ 4,245(4)
Patrick Dauga
Vice President,
International............ 180,654 92,053(3) 30,000 45,275(5)
Kevin R. Potrzeba
Vice President, Sales.... 135,000 109,476(3) 20,000 4,245(4)
Jonathan P. Otterstatter
Vice President,
Development.............. 126,000 40,100 60,000 4,245(4)
Roger E. Bottum
Vice President,
Marketing................ 109,375(2) 13,125 135,000 2,995(4)(6)
- --------
(1)1999. The aggregate amount of perquisites and other personal
benefits, securities or property received by each named executive officer was
less than either $50,000 or 10% of the total annual salary and bonus reported
for each respective named executive officer.
(2)Summary Compensation Table
Long Term
Annual Compensation
Compensation Awards
----------------- ------------
Shares
Underlying All Other
Name and Principal Position Salary Bonus Options Compensation
- --------------------------- -------- -------- ------------ ------------
Kenneth H. Holec
President and Chief Executive
Officer........................ $205,000 $127,625 200,000 $ 4,245(3)
Patrick Dauga
Vice President, International.. 180,654 92,053(2) 30,000 45,275(4)
Kevin R. Potrzeba
Vice President, Sales.......... 135,000 109,476(2) 20,000 4,245(3)
Jonathan P. Otterstatter
Senior Vice President,
Technology and Services........ 126,000 40,100 60,000 4,245(3)
Roger E. Bottum
Vice President, Marketing (1).. 109,375 13,125 135,000 2,995(3)
- --------
(1) Mr. Bottum joined ShowCase in August 1998. His annual salary as of March
31, 1999 is $175,000. (3)The amount included under the all other compensation
column includes 401(k) plan matching contributions in the amount of $500.
(2) Includes sales commissions in the amount of $79,003 for Mr. Dauga and
$76,226 for Mr. Potrzeba.
(4)(3) Includes amounts which, at the recipient's discretion, may be allocated
toward our 401(k) plan or toward medical premiums, medical expense
reimbursement or dependent care expense reimbursement on a pre-tax basis
under our flexible benefit plan.
(5)(4) Includes amounts we pay for health insurance and retirement benefits.
(6) Includes 401(k) plan matching contributions in the amount of $500.
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The following table provides information concerning the stock option
grants we made to each of our named executive officers during the fiscal year
ended March 31, 1999. AnOptions to purchase an aggregate of 765,500 shares of
common stock were granted to our employees during fiscal 1999. All stock
options were granted with an exercise price equal to the fair market value of
the common stock as determined by our board of directors on the grant date. The
5% and 10% assumed annual rates of compounded stock price appreciation are
required by rules of the Securities and Exchange Commission and do not
represent our estimates or projections of our future stock prices.
Option Grants in Fiscal 1999
Potential
Realizable Value
at Assumed Annual
% of Total Rates of Stock
Number of Options Exercise Price
Securities Granted to PriceExercise Appreciation for
Underlying Employees PerPrice Option Term (5)
Options in Fiscal SharePer Expiration -----------------
Name Granted 1999 (4)Share Date 5% 10%
- ---- ---------- ---------- -------- ---------- -------- --------
Kenneth H. Holec........ 125,000(1) 16.3% $1.50 06/02/08 $117,918 $298,827
75,000(2) 9.8 5.35 02/12/09 252,344 639,489
Patrick Dauga........... 30,000(2) 3.9 5.35 02/12/09 100,938 255,796
Kevin R. Potrzeba....... 20,000(2) 2.6 5.35 02/12/09 67,292 170,530
Jonathan P.
Otterstatter........... 25,000(1) 3.3 1.50 06/02/08 23,584 59,765
35,000(2) 4.6 5.35 02/12/09 117,761 298,428
Roger E. Bottum......... 90,000(1) 11.8 2.00 08/17/08 113,201 286,874
45,000(3) 5.9 2.00 08/17/08 56,601 143,437
- --------
(1) These options vest over a five-year period beginning on the grant date.
(2) These options vest over a five-year period beginning on the earlier of the
date of the closing of an initial public offering of our common stock or
April 1, 2000.
(3) This option vests nine years and 11 months after the grant date unless Mr.
Bottum meets objectives included in his stock option agreement, in which
case this option vests over a five-year period beginning on the grant date.
(4) All stock options were granted with an exercise price equal to the fair
market value of the common stock as determined by our board of directors on
the grant date.
(5) The 5% and 10% assumed annual rates of compounded stock price appreciation
are required by rules of the Securities and Exchange Commission and do not
represent our estimates or projections of our future stock prices.
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The following table provides information concerning the exercise of
options to purchase common stock by our named executive officers during fiscal
1999 and the number and value of unexercised stock options held by these
executive officers as of March 31, 1999. The value of unexercised in-the-money
options is based on a value of $7.12 per share, the fair market value of our
common stock as of March 31, 1999, as determined by our board of directors,
less the applicable per share exercise price multiplied by the number of shares
issued on exercise of the option.
Aggregated Option Exercises in Fiscal 1999 and
Fiscal Year-End Option Values
Number of Securities
Underlying Value of Unexercised
Unexercised Options In-the-Money Options
Shares at Fiscal Year-End at Fiscal Year-End
Acquired Value ------------------------- -------------------------
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- -------- ----------- ------------- ----------- -------------
Kenneth H. Holec........ 450,807 $886,852 27,312 207,365 $156,486 $918,530
Patrick Dauga........... -- -- 10,000 90,000 57,000 395,100
Kevin R. Potrzeba....... -- -- 28,000 82,000 169,120 409,880
Jonathan P.
Otterstatter........... -- -- 86,667 78,333 570,766 316,984
Roger E. Bottum......... -- -- 10,500 124,500 53,760 637,440
Benefit Plans
1991 Long-Term Incentive and Stock Option Plan
Our 1991 Long-Term Incentive and Stock Option Plan, as amended (the
"Stock Option Plan") provides for the grant of options to purchase shares of
common stock and other long-term incentive awards to any of our full or part-
time employees, officers, directors, consultants and independent contractors.
Options granted under the Stock Option Plan may qualify as incentive stock
options under the Internal Revenue Code of 1986, as amended, or may be options
that do not qualify as incentive stock options. Other long-term incentive
awards that may be granted under the Stock Option Plan include stock
appreciation rights, restricted stock and performance awards. We have reserved
an aggregate of 2,481,524 shares of common stock for issuance under the Stock
Option Plan of which 816,714828,014 shares have been issued upon exercise of options
through March 31,June 1, 1999. The Stock Option Plan is administered by our compensation
committee. Our compensation committee has the discretion to select the people
to whom options are granted and to establish the terms and conditions of each
stock option, subject to the provisions of the Stock Option Plan and to any
special provisions approved by our board of directors. The exercise price of an
incentive stock option granted under the Stock Option Plan must not be less
than 100% of the fair market value of the common stock on the date the option
is granted. In the event that a proposed optionee owns more than 10% of our
common stock, any incentive stock option granted to this optionee must have an
exercise price not less than 110% of the fair market value of our common stock
on the grant date. The term of each option is determined by the compensation
committee, but in any event the term of an incentive stock option may not
exceed 10 years from the date of grant and the term of a non-qualified stock
option may not exceed 15 years from the date of grant. In the case of an
incentive option granted to an owner of more than 10% of our common stock, the
term may not exceed five years from the date of grant. The Stock Option Plan is
subject to amendment by our board of directors, except that the board may not,
without the approval of our shareholders, increase the number of shares which
may be issued under the Stock Option Plan, decrease the minimum exercise price
of options granted under the Stock Option Plan, extend the maximum option term
or extend the term of the Stock Option Plan beyond February 28, 2001.
As of March 31,1999,June 1, 1999, options to purchase an aggregate of 1,545,8071,606,507 shares
of common stock, at a weighted average exercise price of $2.32$2.58 per share, were
outstanding under the Stock Option Plan, and a total of 119,00347,003 shares were
available for future option grants. We expect to continue to grant options
under the Stock Option Plan until no shares remain available for grant.
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1999 Stock Incentive Plan
Our 1999 Stock Incentive Plan (the "1999 Incentive Plan") was approved by
our board of directors and shareholders in April 1999. The 1999 Incentive Plan
provides for the granting of:
. stock options, including incentive stock options, as defined by the
Internal Revenue Code, and non-qualified stock options;
. stock appreciation rights;
. restricted stock and restricted stock units;
. performance awards; and
. other stock-based awards.
We have reserved 2,500,000 shares of common stock for issuance under the
1999 Incentive Plan. The 1999 Incentive Plan is administered by our
compensation committee. The compensation committee has the authority to
establish rules for the administration of the 1999 Incentive Plan, to select
the persons to whom awards are granted, to determine the types of awards to be
granted and the number of shares of common stock covered by the awards and to
set the terms and conditions of the awards. The compensation committee may also
determine whether the payment of any amounts received under any award shall be
deferred. Awards may provide that upon grant or exercise, the holder will
receive shares of common stock, cash or any combination of both, as the
compensation committee shall determine.
In order to meet the requirements of Section 162(m) of the Internal
Revenue Code, the 1999 Incentive Plan contains a limitation on the number of
options that may be granted to any single person in any one calendar year.
The exercise price per share under any incentive stock option or the
grant price of any stock appreciation right cannot be less than 100% of the
fair market value of our common stock on the date of the grant of the incentive
stock option or stock appreciation right. Options may be exercised by payment
in full of the exercise price, either in cash or, at the discretion of the
compensation committee, in whole or in part by the tendering of shares of
common stock or other consideration having a fair market value on the date the
option is exercised equal to the exercise price. Determinations of fair market
value under the 1999 Incentive Plan are made in accordance with methods and
procedures established by the compensation committee.
The holder of a stock appreciation right is entitled to receive the
excess of the fair market value (calculated as of the exercise date or, if the
compensation committee shall so determine, as of any time during a specified
period before or after the exercise date) of a specified number of shares over
the grant price of the stock appreciation right.
The holder of restricted stock may have all of the rights of a
shareholder of ShowCase, including the right to vote the shares subject to the
restricted stock award and to receive any dividends, or these rights may be
restricted. Restricted stock may not be transferred by the holder until the
restrictions established by the compensation committee lapse. Holders of
restricted stock units have the right, subject to any restrictions imposed by
the compensation committee, to receive shares of common stock (or a cash
payment equal to the fair market value of the shares) at some future date. Upon
termination of the holder's employment during the restriction period,
restricted stock and restricted stock units shall be forfeited, unless the
compensation committee determines otherwise.
If any shares of common stock subject to any award or to which an award
relates are not purchased or are forfeited, or if any award terminates without
the delivery of shares or other consideration, the shares previously used for
these awards become available for future awards under the 1999 Incentive Plan.
Except as provided under procedures adopted by the compensation committee to
avoid double counting with respect to
4746
awards granted together with or in substitution for other awards, all shares
relating to awards granted are counted against the aggregate number of shares
available for granting awards under the 1999 Incentive Plan.
Our board of directors may amend, alter or discontinue the 1999 Incentive
Plan at any time, however shareholder approval must be obtained for any change
that, absent shareholder approval:
. would cause Rule 16b-3 of the Securities Exchange Act or section
162(m) of the Internal Revenue Code to become unavailable with
respect to the 1999 Incentive Plan;
. would violate any rules or regulations of the National Association of
Securities Dealers, Inc., the Nasdaq National Market or any
securities exchange applicable to us; or
. would cause us to be unable under the Internal Revenue Code to grant
incentive stock options under the 1999 Incentive Plan.
Under the 1999 Incentive Plan, the compensation committee may permit
participants receiving or exercising awards, subject to the discretion of the
compensation committee and upon terms and conditions as it may impose, to
surrender shares of common stock (either shares received upon the receipt or
exercise of the award or shares previously owned by the optionee) to us to
satisfy federal and state withholding tax obligations. In addition, the
compensation committee may grant, subject to its discretion and the rules it
may adopt, a bonus to a participant in order to provide funds to pay all or a
portion of federal and state taxes due as a result of the receipt or exercise
of (or lapse of restrictions relating to) an award.
1999 Employee Stock Purchase Plan
Our 1999 Employee Stock Purchase Plan (the "Stock Purchase Plan") will
become effective upon consummation of this offering and is intended to qualify
as an employee stock purchase plan within the meaning of Section 423 of the
Code. The Stock Purchase Plan covers an aggregate of 500,000 shares of common
stock. In order to participate in the Stock Purchase Plan, employees must meet
specific eligibility requirements. Participating employees will be able to
direct the company to make payroll deductions of up to 15% of their
compensation during a purchase period for the purchase of shares of common
stock. Each purchase period, with the exception of the initial offering period,
will be six months. The Stock Purchase Plan will provide participating
employees with the right, subject to limitations, to purchase our common stock
at a price equal to 85% of the lesser of the fair market value of our common
stock on the first day or the last day of the applicable purchase period,
except that the price on the first day of the initial purchase period will be
the initial public offering price of the shares of the common stock offered by
this prospectus. The Stock Purchase Plan will terminate on the date our board
of directors may determine, or automatically as of the date on which all of the
shares of common stock reserved for purchase under the Stock Purchase Plan have
been sold.
401(k) Plan
We have established a 401(k) plan, a tax-qualified employee savings and
retirement plan, for all of our employees who satisfy eligibility requirements,
including requirements relating to age and length of service. Pursuant to the
401(k) plan, employees may elect to reduce their current compensation by up to
the lower of 15% or the statutorily prescribed limit and have the amount of
this reduction contributed to the 401(k) plan. The 401(k) plan permits us to
make additional discretionary matching contributions. The 401(k) plan is
intended to qualify under Section 401 of the Code so that contributions by
employees or by us to the 401(k) plan, and income earned on plan contributions,
are not taxable to employees until withdrawn from the 401(k) plan, and so that
our contributions, if any, will be deductible by us when made.
Indemnification Matters and Limitation of Liability
Minnesota law and our bylaws provide that we will, subject to
limitations, indemnify any person made or threatened to be made a party to a
proceeding by reason of that person's former or present official capacity with
us. We will indemnify this person against judgments, penalties, fines,
settlements and reasonable expenses,
4847
and, subject to limitations, we will pay or reimburse reasonable expenses
before the final disposition of the proceeding.
As permitted by Minnesota law, our articles of incorporation provide that
our directors will not be personally liable to us or our shareholders for
monetary damages for a breach of fiduciary duty as a director, subject to the
following exceptions:
. any breach of the director's duty of loyalty to us or our
shareholders;
. acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
. liability for illegal distributions under section 302A.559 of the
Minnesota Business Corporation Act or for civil liabilities for state
securities law violations under section 80A.23 of the Minnesota
statutes;
. any transaction from which the director derived an improper personal
benefit; and
. any act or omission occurring before the effective date of Article
VIII of our articles of incorporation.
Dr. Haque may be entitled to indemnification in his role as one of our
directors by Norwest Equity Partners IV, L.P., Norwest Equity Partners V, L.P.
and/or Norwest Venture Capital Management, Inc.
Presently, there is no pending litigation or proceeding involving any of
our directors, officers, employees or agents where indemnification will be
required or permitted. We are not aware of any threatened litigation or
proceeding that might result in a claim for indemnification.
CERTAIN TRANSACTIONS
On March 26, 1998, we sold an aggregate of 875,000 shares of our Series B
convertible preferred stock at a purchase price of $4.00 per share, including
625,000 shares to Norwest Equity Partners V, L.P. These shares are convertible
into 617,284 shares of our common stock. Dr. Haque, one of our directors, is a
partner of Itasca Partners V, L.L.P., a general partner of Norwest Equity
Partners V, L.P.
We believe that the shares issued in the transactions described above
were sold at the then fair market value of the shares and that the terms of the
transactions were no less favorable than we could have obtained from
unaffiliated third parties.
4948
PRINCIPAL SHAREHOLDERS
The following table provides information concerning beneficial ownership
of our common stock as of March 31,June 1, 1999 by:
. each shareholder that we know owns more than 5% of our outstanding
common stock;
. each of our named executive officers;
. each of our directors; and
. all of our directors and executive officers as a group.
The following table lists the applicable percentage of beneficial
ownership based on 7,262,0937,273,393 shares of common stock outstanding as of March 31,June 1,
1999. The table also lists the applicable percentage of beneficial ownership
based on 10,273,393 shares of common stock outstanding upon completion of this
offering, assuming no exercise of the underwriters' overallotment option.
Except where noted, the persons or entities named have sole voting and
investment power with respect to all shares shown as beneficially owned by
them. The principal address of each of the shareholdersholders of more than 5% of our
outstanding common stock listed below is c/o ShowCase Corporation, 4131 Highway
52 North, Suite G111, Rochester, Minnesota 55901, except where another address
is listed below.
The fourth column shows separately shares which may be acquired by
exercise of stock options within sixty days after June 1, 1999 by the directors
and executive officers individually and as a group as shown. These shares are
included in the numbers included in the first column. Shares of common stock
which may be acquired by exercise of stock options are deemed outstanding for
purposes of computing the percentage beneficially owned by the persons holding
these options but are not deemed outstanding for purposes of computing the
percentage beneficially owned by any other person.
Percentage of Common
Stock Owned
--------------------
Number of Stock Owned
Shares
--------------------Shares Subject
Beneficially Before the After the to
Name and Address of Beneficial Owner Owned Offering Offering Options
- ------------------------------------ ------------ ---------- --------- -------
Promod Haque and
Norwest Equity Partners
(1)
245 Lytton Avenue, Suite 250
Palo Alto, California 94301...............94301....... 2,812,312 38.7% 27.4% --
David G. Wenz
2924 Salem Point Dr. S.W.
Rochester, Minnesota 55902................55902........ 910,000 12.5 8.9 --
Dennis Semerad (2)............................................... 856,960 11.8 8.3 --
Kenneth H. Holec (3)(5)..................... 783,439 10.7................... 788,761 10.8 7.6 37,954
David N. Youngers
8223 75th Avenue, N.W.
Oronoco, Minnesota 55460..................55460.......... 479,815 6.6 4.7 --
Jonathan P. Otterstatter (4)(5)............. 144,833........... 145,667 2.0 1.4 90,667
C. McKenzie Lewis III (5)
5759 Long Brake Circle
Edina, Minnesota 55439.................... 27,083III............... 27,917 0.4 0.3 27,917
Jack Noonan (5)
SPSS Inc.
233 South Wacker Drive, 11th Floor
Chicago, Illinois 60606-6307.............. 27,083........................ 27,917 0.4 0.3 27,917
Kevin R. Potrzeba (5)......................................... 28,000 0.4 0.3 28,000
Roger E. Bottum (5)......................... 13,500.................... 16,500 0.2 0.2 16,500
Patrick Dauga (5)................................................. 10,000 0.1 0.1 10,000
All directors and executive officers
as a group (10 persons) (5)..................... 4,750,961 63.2........... 4,762,283 63.3 45.2 267,204
- --------
(1) Includes49
Dr. Haque's beneficial ownership includes 1,895,028 shares held by
Norwest Equity Partners IV, L.P. and 917,284 shares held by Norwest Equity
Partners V, L.P. PromodDr. Haque, one of our directors, is a general partner of
Itasca Partners, which is the general partner of Norwest Equity Partners IV,
L.P., and he is a general partner of Itasca Partners V, L.L.P.,which is the general partner
of Norwest Equity Partners V. Dr. Haque shares voting and dispositive power of
the shares held by the Norwest funds with other general and managing partners
of the Norwest funds. Dr. Haque disclaims beneficial ownership of shares held
by Norwest Equity Partners, IV, L.P. and Norwest Equity Partners V, L.P.
50
(2) IncludesMr. Semerad's beneficial ownership includes 20,000 shares registered in
the name of Mr. Semerad's wife, Rita M. Semerad. (3) IncludesMr. Holec's beneficial
ownership includes 3,738 shares registered in the name of each of Mr. Holec's
three minor children. (4) IncludesMr. Otterstatter's beneficial ownership includes 17,000
shares registered jointly in the name of Jonathan and Pamela Otterstatter and
1,000 shares registered in the name of each of Mr. Otterstatter's three minor
children.
(5) Shares of common stock subject to options currently exercisable or
exercisable within 60 days of March 31, 1999 are deemed outstanding for
purposes of computing the percentage beneficially owned by the person
holding these options but are not deemed outstanding for purposes of
computing the percentage beneficially owned by any other person. The
following table indicates those people whose total number of beneficially
owned shares include shares subject to options exercisable within 60 days
of March 31, 1999:
Shares Subject to Options
-------------------------
Kenneth H. Holec................................. 32,632
Jonathan P. Otterstatter......................... 89,833
Kevin R. Potrzeba................................ 28,000
Craig W. Allen................................... 27,750
C. McKenzie Lewis III............................ 27,083
Jack Noonan...................................... 27,083
Roger E. Bottum.................................. 13,500
Patrick Dauga.................................... 10,000
5150
DESCRIPTION OF CAPITAL STOCK
Effective upon the filing of our amended and restated articles of
incorporation upon the closing of this offering, our authorized capital stock
will consist of 50,000,000 shares of capital stock. Unless otherwise designated
by our board of directors, all issued shares shall be deemed common stock with
equal rights and preferences.
Common Stock
As of March 31,June 1, 1999, there were 7,262,0937,273,393 shares of common stock
outstanding, held by 5863 shareholders of record, including 2,759,226 shares that
will be issued upon the automatic conversion of the outstanding shares of our
preferred stock into common stock upon the closing of this offering.
Holders of our common stock do not have cumulative voting rights and are
entitled to one vote for each share held of record on all matters submitted to
a vote of the shareholders, including the election of directors. Holders of our
common stock are entitled to receive ratably dividends, if any, as may be
declared by the board of directors out of funds legally available for these
dividends, subject to the prior rights of any preferred stock then outstanding.
See "Dividend Policy."
Upon a liquidation, dissolution or winding up of ShowCase, the holders of
our common stock will be entitled to share ratably in the net assets legally
available for distribution to shareholders after the payment of all debts and
other liabilities of ShowCase, subject to the prior rights of any preferred
stock then outstanding. Holders of our common stock have no preemptive or
conversion rights or other subscription rights and there are no redemption or
sinking funds provisions applicable to the common stock. All outstanding shares
of common stock are, and the common stock outstanding upon completion of this
offering will be, fully paid and nonassessable.
Preferred Stock
Effective upon the closing of this offering, our board of directors will
have the authority, without further action by the shareholders, to issue from
time to time shares of preferred stock in one or more series and to fix the
number of shares, designations and preferences, powers and relative,
participating, optional or other special rights and the qualifications or
restrictions thereof. The preferences, powers, rights and restrictions of
different series of preferred stock may differ with respect to dividend rates,
amounts payable on liquidation, voting rights, conversion rights, redemption
provisions, sinking fund provisions and purchase funds and other matters.
The issuance of preferred stock could decrease the amount of earnings and
assets available for distribution to holders of common stock or adversely
affect the rights and powers, including voting rights, of the holders of common
stock. It may also have the effect of delaying, deferring or preventing a
change in control of ShowCase.
Warrant
Effective upon the closing of this offering, the outstanding warrant to
purchase 13,750 shares of our Series B preferred stock will represent the right
to purchase 13,580 shares of our common stock. If we lease more than $1 million
in equipment from the holder of this warrant, the holder will be entitled to
purchase additional shares of our common stock equal to 5.5% of the amount
leased in excess of $1 million, divided by the exercise price of $4.00.
52
Registration Rights
After this offering, the holders of 2,759,226 shares of common stock will
be entitled to rights with respect to the registration of these shares under
the Securities Act as follows:
51
. Demand Registration Rights: At any time, the holders of at least 51%
of these shares of common stock can request that we register all or a
portion of their shares. Upon this request, we must, subject to
restrictions and limitations, use our best efforts to cause a
registration statement covering the number of shares of common stock
that are subject to the request to become effective. The holders may
only require us to file two registration statements in response to
their demand registration rights.
. Piggyback Registration Rights: The holders of these shares can
request that we register their shares anytime we are filing a
registration statement to register securities for our own account.
These registration opportunities are unlimited but the number of
shares that can be registered may be cut back in limited situations
by the underwriters.
. S-3 Registration Rights: The holders of these shares can request that
we register their shares if we are eligible to file a registration
statement on Form S-3 and if the aggregate price of the shares
offered to the public is at least $1,000,000. The holders may only
require us to file two registration statements on Form S-3 per
calendar year.
These registration rights terminate for each holder when all of these
shares held by the holder may be sold under Rule 144 under the Securities Act
during any 90-day period.
All holders of these registration rights have waived their registration
rights to participate in this offering and have signed agreements with the
underwriters prohibiting the exercise of these registration rights for 180 days
following the date of this prospectus.
Provisions of our Restated Articles and Bylaws and State Law Provisions with
Potential Antitakeover Effects
The existence of authorized but unissued preferred stock, described
above, and provisions of Minnesota law, described below, could have an
antitakeover effect. These provisions are intended to provide management with
flexibility, to enhance the likelihood of continuity and stability in the
composition of our board of directors and the policies of our board and to
discourage an unsolicited takeover of ShowCase, if our board of directors
determines that this takeover is not in the best interests of ShowCase and our
shareholders. However, these provisions could have the effect of discouraging
attempts to acquire ShowCase, which could deprive our shareholders of
opportunities to sell their shares of common stock at prices higher than
prevailing market prices.
Upon the closing of this offering, our board of directors will be divided
into three classes serving staggered three-year terms. As a result of this
division, generally at least two shareholders' meetings will be required for
shareholders to effect a change in control of the board of directors. In
addition, our bylaws will contain provisions that establish specific procedures
for calling meetings of shareholders and appointing and removing members of the
board of directors.
Section 302A.671 of the Minnesota Business Corporation Act applies, with
exceptions, to any acquisition of our voting stock from a person other than us,
and other than in connection with certain mergers and exchanges to which we are
a party, that results in the beneficial ownership of 20% or more of the voting
stock then outstanding. Section 302A.671 requires approval of these
acquisitions by a majority vote of our shareholders before its consummation. In
general, shares acquired in the absence of this approval are denied voting
rights and are redeemable by us at their then fair market value within 30 days
after the acquiring person has failed to give a timely information statement to
us or the date the shareholders voted not to grant voting rights to the
acquiring person's shares.
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Section 302A.673 of the Minnesota Business Corporation Act generally
prohibits any business combination by us, or by any of our subsidiaries, with
any shareholder that purchases 10% or more of our voting shares within four
years following this interested shareholder's share acquisition date. The
business combination may be permitted if it is approved by a committee of all
of the disinterested members of our board of directors before the interested
shareholder's share acquisition date.
Listing
We have applied for quotation of our common stock on the Nasdaq National
Market under the symbol "SHWC."
Transfer Agent and Registrar
The transfer agent and registrar for our common stock will be Norwest
Bank Minnesota, N.A. Its address is 161 North Concord Exchange, South Saint
Paul, Minnesota 55075, and its telephone number is (651) 450-4064.
5453
SHARES ELIGIBLE FOR FUTURE SALE
Upon the closing of this offering, we will have 10,273,393 shares of
common stock outstanding, assuming no exercise of the underwriters' over-allotmentover-
allotment option and no exercise of outstanding options to purchase common
stock.stock after June 1, 1999. All of our directors and executive officers and
substantially all of our shareholders, holding in the aggregate in excess of
95% of the outstanding shares of our common stock, have agreed that they will
not, without the prior written consent of the representatives of the
underwriters, sell or otherwise dispose of any shares of common stock or
options to acquire shares of common stock during the 180-day period following
the closing of this offering. See "Underwriting."
All of the shares of common stock being sold in this offering will be
freely tradeable without restriction or further registration under the
Securities Act, except for shares held by our "affiliates," as defined in Rule
144 under the Securities Act, which may generally only be sold in compliance
with the limitations of Rule 144, described below. The remaining 7,262,0937,273,393
shares were issued and sold by us in private transactions and are deemed
restricted securities under Rule 144. These shares may be sold in the public
market only if registered under the Securities Act or if exempt from
registration under Rules 144, 144(k) or 701 under the Securities Act, which
rules are summarized below. Subject to the agreements between our shareholders
and the underwriters, described above, and the provisions of Rules 144, 144(k)
and 701, additional shares will be available for sale in the public market,
subject in the case of shares held by affiliates to compliance with volume
restrictions, as follows:
. 22,440 shares will be available for immediate sale in the public
market on the date of this prospectus;
. 28,62039,920 shares will be available for sale beginning 90 days after the
date of this prospectus; and
. 7,211,033 shares will be available for sale under Rules 144 and 701
upon the expiration of agreements between our shareholders and the
underwriters at varying dates beginning 180 days after the date of
this prospectus.
In general, under Rule 144, beginning 90 days after the date of this
prospectus, a person or persons whose shares are aggregated, including an
affiliate, who has beneficially owned restricted shares for at least one year,
is entitled to sell within any three-month period a number of shares that does
not exceed the greater of 1% of the then outstanding shares of common stock,
approximately 102,734 shares immediately after this offering, or the average
weekly trading volume of our common stock on the Nasdaq National Market during
the four calendar weeks preceding the date of the sale. Sales under Rule 144
also are subject to requirements pertaining to the manner and notice of the
sales and the availability of current public information concerning ShowCase.
Under Rule 144(k), a person who is not deemed to have been an affiliate
of ShowCase at any time during the 90 days before a sale and who has
beneficially owned the shares proposed to be sold for at least two years would
be entitled to sell these shares without regard to the requirements described
above. To the extent that shares were acquired from an affiliate of ShowCase,
the transferee's holding period for the purpose of effecting a sale under Rule
144(k) commences on the date of transfer from the affiliate.
Rule 701 provides that, beginning 90 days after the date of this
prospectus, persons other than affiliates may sell shares of common stock
acquired from us in connection with written compensatory benefit plans,
including our stock option plans, subject only to the manner of sale provisions
of Rule 144. Beginning 90 days after the date of this prospectus, affiliates
may sell these shares of common stock subject to all provisions of Rule 144
except the one-year minimum holding period.
Shortly after the closing of this offering, we intend to file a
registration statement on Form S-8 under the Securities Act to register all
shares of common stock issuable under the Stock Option Plan, the 1999 Incentive
Plan and the Stock Purchase Plan. See "Management--Benefit Plans." This Form S-
8 registration statement is expected to become effective immediately upon
filing and shares covered by that registration statement will then be eligible
for sale in the public markets, subject to the Rule 144 limitations applicable
to affiliates.
5554
Prior to this offering there has been no public market for our common
stock, and no predictions can be made regarding the effect, if any, that sales
of shares in the open market or the availability of shares for sale will have
on the market price prevailing from time to time. Nevertheless, sales of
substantial amounts of our common stock in the public market could adversely
affect the prevailing market price.
After the closing of this offering, the holders of 2,759,226 shares of
our common stock will be entitled to rights with respect to the registration of
these shares under the Securities Act. Registration of these shares under the
Securities Act would result in these shares becoming freely tradeable without
restriction under the Securities Act, except for shares purchased by
affiliates, immediately upon the effectiveness of registration. For a
discussion of these rights, see "Description of Capital Stock--Registration
Rights."
5655
UNDERWRITING
General
We intend to offer our common stock in the United States through a number
of underwriters. Merrill Lynch, Pierce, Fenner & Smith Incorporated, U.S.
Bancorp Piper Jaffray Inc., Dain Rauscher Wessels, a division of Dain Rauscher
Incorporated, and FAC/Equities, a division of First Albany Corporation, are
acting as representatives of each of the underwriters named below. Subject to
the terms and conditions set forth in a purchase agreement between us and the
underwriters, we have agreed to sell to the underwriters, and each of the
underwriters severally and not jointly has agreed to purchase from us, the
number of shares of our common stock indicated opposite its name below.
Number of
Underwriters Shares
------------ ---------------
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.............................................Incorporated.........................................
U.S. Bancorp Piper Jaffray Inc. ................................................................
Dain Rauscher Wessels.............................................Wessels, a division of Dain Rauscher
Incorporated.................................................
FAC/Equities, a division of First Albany Corporation..............
-------
Total........................................................
=======Corporation..........
---------
Total.................................................... 3,000,000
=========
In the purchase agreement, the several underwriters have agreed, subject
to the terms and conditions provided in that agreement, to purchase all of the
shares of our common stock being sold under the terms of the agreement if any
of the shares of common stock are purchased. Under the purchase agreement, the
commitments of non-defaulting underwriters may be increased.
We have agreed to indemnify the underwriters against liabilities under
the Securities Act or to contribute to payments the underwriters may be
required to make in respect of those liabilities. The expenses of this
offering, exclusive of the underwriting discount, are estimated at $$600,000 and
are payable by us.
The shares of common stock are being offered by the several underwriters,
subject to prior sale, when, as and if issued to and accepted by them, subject
to approval of legal matters by counsel for the underwriters and other
conditions. The underwriters reserve the right to withdraw, cancel or modify
this offer and to reject orders in whole or in part.
Commissions and Discounts
The representatives have advised us that the underwriters propose
initially to offer the shares of our common stock to the public at the initial
public offering price on the cover page of this prospectus, and to dealers at
this price less a concession not in excess of $ per share of common stock.
The underwriters may allow, and the dealers may reallow, a discount not in
excess of $ per share of common stock to other dealers. After the initial
public offering, the public offering price, concession and discount may be
changed.
The following table shows the per share and total public offering price,
the underwriting discount to be paid by us to the underwriters and the proceeds
before expenses to us. This information is presented assuming either no
exercise or full exercise by the underwriters of their over-allotment options.
Without With
Per Share Option Option
--------- ------- ------
Public offering price............................ $ $ $
Underwriting discount............................ $ $ $
Proceeds, before expenses, to ShowCase........... $ $ $
5756
Over-Allotment Option
We have granted an option to the underwriters, exercisable for 30 days
after the date of this prospectus, to purchase up to an aggregate of an
additional 450,000 shares of our common stock at the initial public offering
price on the cover of this prospectus, less the underwriting discount. The
underwriters may exercise this option solely to cover over-allotments, if any,
made on the sale of our common stock offered by this prospectus. To the extent
that the underwriters exercise this option, each underwriter will be obligated
to purchase a number of additional shares of our common stock in proportion to
the underwriter's initial amount reflected in the table above.
Reserved Shares
At our request, the underwriters have reserved for sale, at the initial
public offering price, up to 150,000 of the shares offered by this prospectus
to be sold to some of our employees and directors and other persons with whom
we have relationships. The number of shares of our common stock available for
sale to the general public will be reduced to the extent that those persons
purchase the reserved shares. Any reserved shares that are not orally confirmed
for purchase within one day of the pricing of the offering will be offered by
the underwriters to the general public on the same terms as the other shares
offered by this prospectus.
No Sales of Similar Securities
We and our executive officers and directors and substantially all of our
shareholders, holding in the aggregate in excess of 95% of the outstanding
shares of our common stock, have agreed not to directly or indirectly
. offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant for the sale of, lend or otherwise dispose of or
transfer any shares of our common stock or securities convertible
into or exchangeable or exercisable for our common stock, whether now
owned or later acquired by the person executing the agreement or with
respect to which the person executing the agreement later acquires
the power of disposition, or file any registration statement under
the Securities Act relating to any shares of our common stock or
. enter into any swap or other agreement or any other agreement that
transfers, in whole or in part, the economic consequence of ownership
of our common stock whether this swap or transaction is to be settled
by delivery of our common stock or other securities, in cash or
otherwise
without the prior written consent of Merrill Lynch on behalf of the
underwriters for a period of 180 days after the date of the prospectus. See
"Shares Eligible for Future Sale."
Nasdaq National Market Listing
We expect our common stock to be approved for listing on the Nasdaq
National Market, subject to notice of issuance, under the symbol "SHWC."
Before this offering, there has been no market for our common stock. The
initial public offering price will be determined through negotiations between
us and the representatives of the underwriters. The factors to be considered in
determining the initial public offering price, in addition to prevailing market
conditions, include the valuation multiples of publicly traded companies that
the representatives believe to be comparable to us, some of our financial
information, the history of, and the prospects for, us and the industry in
which we compete, and an assessment of our management, its past and present
operations, the prospects for, and timing of, our future revenues, the present
state of our development, the percentage interest of ShowCase being sold as
57
compared to the valuation for ShowCase and the above factors in relation to
market values and various valuation measures of other companies engaged in
activities similar to ours. There can be no assurance that an active trading
market will develop for our common stock or that our common stock will trade in
the public market subsequent to the offering at or above the initial public
offering price.
58
We expect our common stock to be approved for listing on the Nasdaq
National Market, subject to notice of issuance, under the symbol "SHWC."
The underwriters do not expect sales of our common stock to any accounts
over which they exercise discretionary authority to exceed 5% of the number of
shares being offered under the prospectus.
Price Stabilization and Short Positions
Until the distribution of our common stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the underwriters
and selling group members to bid for and purchase our common stock. As an
exception to these rules, the underwriters are permitted to engage in
transactions that stabilize the price of our common stock. 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 the offering, that is, if they sell more shares of our common
stock than are indicated on the cover page of this prospectus, the underwriters
may reduce that short position by purchasing our common stock in the open
market. The underwriters may also elect to reduce any short position by
exercising all or part of the over-allotment option described above.
Penalty Bids
The underwriters may also impose a penalty bid on other underwriters and
selling group members. This means that if the underwriters purchase shares of
our common stock in the open market to reduce their short position or to
stabilize the price of our 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, purchases 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 these purchases. The imposition of a penalty
bid might also have an effect on the price of our common stock to the extent
that it discourages resales of our common stock.
Neither we nor any of the underwriters makes 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, neither
we nor any of the underwriters make any representation that the representatives
will engage in these transactions or that these transactions, once commenced,
will not be discontinued without notice.
LEGAL MATTERS
Dorsey & Whitney LLP, Minneapolis, Minnesota, will pass upon the validity
of the issuance of shares of common stock offered by this prospectus for
ShowCase. Fenwick & West LLP, Palo Alto, California, will pass upon certain
legal matters in connection with the offering for the underwriters.
EXPERTS
The consolidated balance sheets as of March 31, 19971998 and 19981999 and the
related consolidated statements of operations and comprehensive income (loss),
of
stockholders' equity, and cash flows for each of the years in the three-year
period ended March 31, 19981999 included in this prospectus have been included in
reliance on the report of KPMG Peat Marwick LLP, independent certified public
accountants, given on their authority as experts in auditing and accounting.
5958
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 with respect to the common stock offered by this
prospectus. This prospectus, which constitutes a part of the registration
statement, does not contain all of the information provided in the registration
statement or the exhibits and schedules which are part of the registration
statement. For further information on ShowCase and our common stock, you should
review the registration statement, including exhibits and schedules. You may
read and copy any document we file at the Commission's public reference room in
Washington, D.C. Please call the Commission at 1-800-SEC-0330 for further
information on the public reference room. Our filings are also available to the
public from the Commission's web site at http://www.sec.gov.
Upon completion of this offering, we will be required to file periodic
reports, proxy statements and other information with the Commission. These
periodic reports, proxy statements and other information will be available for
inspection and copying at the Commission's public reference rooms and the
website of the Commission referred to above.
6059
SHOWCASE CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Independent Auditors' Report..............................................Report............................................. F-2
Consolidated Balance Sheets, March 31, 19971998 and 1998......................1999..................... F-3
Consolidated Statements of Operations and Comprehensive Income (Loss),
Years ended March 31, 1996, 1997, 1998, and 1998...............................1999............................ F-4
Consolidated Statements of Stockholders' Equity, Years ended March 31,
1996, 1997, 1998, and 1998...............................1999.................................................... F-5
Consolidated Statements of Cash Flows, Years ended March 31, 1996, 1997, 1998,
and 1998...............................1999................................................................ F-6
Notes to Consolidated Financial Statements................................Statements............................... F-7
Unaudited Consolidated Balance Sheet, December 31, 1998................... F-17
Unaudited Consolidated Statements of Operations and Comprehensive Income
(Loss),
Nine months ended December 31, 1997 and 1998............................. F-18
Unaudited Consolidated Statements of Cash Flows,
Nine months ended December 31, 1997 and 1998............................. F-19
Notes to Unaudited Consolidated Financial Statements...................... F-20
F-1
Independent Auditors' Report
The Board of Directors and Stockholders
of ShowCase Corporation:
We have audited the accompanying consolidated balance sheets of ShowCase
Corporation and subsidiaries (the Company) as of March 31, 19971998 and 1998,1999, and
the related consolidated statements of operations and comprehensive income
(loss), stockholders' equity, and cash flows for each of the years in the
three-year period ended March 31, 1998.1999. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in 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 accompanying consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
ShowCase Corporation and subsidiaries as of March 31, 19971998 and 1998,1999, and the
results of their operations and their cash flows for each of the years in the
three-year period ended March 31, 19981999 in conformity with generally accepted
accounting principles.
/s/ KPMG Peat Marwick LLP
Minneapolis, Minnesota
May 15, 1998
Minneapolis, MN7, 1999
F-2
SHOWCASE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
March 31,
---------------
1997----------------
1998 1999
Assets ------- -------
Current assets:
Cash......................................................... $ 2,989Cash........................................................ $ 5,404 $ 8,900
Marketable securities........................................ --securities....................................... 443 139
Accounts receivable, net of allowances of $300 in 1997 and
$500 in 1998................................................ 4,891net.................................... 6,162 7,070
Prepaid expenses and other current assets.................... 656assets................... 1,032 1,059
Income taxes receivable......................................receivable..................................... 251 -- 251
Deferred income taxes........................................ 640taxes....................................... 340 550
------- -------
Total current assets....................................... 9,176assets...................................... 13,632 17,718
------- -------
Property and equipment, net................................... 1,513net................................. 2,191 2,092
Investment in affiliates...................................... 165affiliates.................................... 192 --
Product rights, net of accumulated amortization............... 310amortization............. 124 --
Goodwill, net of accumulated amortization..................... 236amortization................... 176 116
------- -------
Total assets............................................... $11,400assets.............................................. $16,315 $19,926
======= =======
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable............................................. $ 1,067payable............................................ $ 1,094 $ 1,373
Accrued liabilities.......................................... 1,510liabilities......................................... 2,885 4,121
Current portion of long-term debt............................ 275debt........................... 397 5
Current portion of obligations under capital leases.......... 134leases......... 135 127
Income taxes payable.........................................payable........................................ -- 295
--
Deferred revenue............................................. 4,835revenue............................................ 7,542 11,646
------- -------
Total current liabilities.................................. 8,116liabilities................................. 12,053 17,567
------- -------
Long-term debt, less current portion.......................... 624portion........................ 944 2
Capital lease obligations, less current portion............... 58portion............. 213 85
------- -------
Total liabilities.......................................... 8,798liabilities......................................... 13,210 17,654
------- -------
Commitments (note 12)
Stockholders' equity:
Series A convertible preferred stock; $.01 par value;
473,757 shares authorized, issued, and outstanding,
total liquidation preference of $2,400......................$2,400..................... 5 5
Series B convertible preferred stock; $.01 par value;
1,777,500 shares authorized, 875,000 issued and
outstanding,
total liquidation preference of $3,500...................... --$3,500..................... 9 9
Common stock, $.01 par value, 10,000,000 shares authorized,
3,852,7313,988,560 and 3,988,5604,502,867 shares issued and outstanding....... 39outstanding...... 40 45
Additional paid-in capital................................... 2,465capital.................................. 5,988 6,316
Accumulated other comprehensive income:
Cumulative translation adjustment........................... 26adjustment.......................... 107 47
Unrealized holding gain (loss) on securities.......................securities............... 123 (181)
Deferred compensation....................................... -- 123
Retained earnings (accumulated deficit)...................... 67(186)
Accumulated deficit......................................... (3,167) (3,783)
------- -------
Total stockholders' equity................................. 2,602equity................................ 3,105 2,272
------- -------
Total liabilities and stockholders' equity................. $11,400equity................ $16,315 $19,926
======= =======
See accompanying notes to consolidated financial statements.
F-3
SHOWCASE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME (LOSS)
(in thousands, except per share amounts)
Years ended March 31,
-------------------------
1996 1997 1998
------- ------- -------
Revenues:
1997 1998 1999
------- ------- -------
Revenues:
License fees....................................... $ 9,451 $11,639 $14,279 $21,021
Maintenance and support............................ 2,707 4,888 6,651 10,390
Professional service fees.......................... 1,120 1,500 2,825 4,108
------- ------- -------
Total revenues................................... 13,278 18,027 23,755 35,519
------- ------- -------
Cost of revenues:
License fees....................................... 1,145 1,365 2,645 3,809
Maintenance and support............................ 520 990 1,572 2,646
Professional service fees.......................... 676 1,172 2,005 2,990
------- ------- -------
Total cost of revenues........................... 2,341 3,527 6,222 9,445
------- ------- -------
Gross margin........................................ 10,937 14,500 17,533 26,074
------- ------- -------
Operating expenses:
Sales and marketing................................ 6,661 9,940 15,494 19,050
Product development................................ 2,070 2,553 3,051 4,371
General and administrative......................... 1,380 1,971 2,590 3,212
------- ------- -------
Total operating expenses......................... 10,111 14,464 21,135 26,633
------- ------- -------
Operating income (loss)............................. 826 36 (3,602) (559)
------- ------- -------
Other income (expense), net:
Interest expense................................... (97) (97) (123) (164)
Interest income.................................... 104 156 74 277
Equity in income (losses) of unconsolidated
affiliates........................................ (52) (33) 27 26
Gain on sales of securities........................ -- -- 551 32
Other income (expense), net........................ 183 (12) 14 (28)
------- ------- -------
Total other income (expense), net................ 138 14 543 143
------- ------- -------
Net income (loss) before income taxes............... 964 50 (3,059) (416)
Income taxes........................................ 150 -- 175 200
------- ------- -------
Net income (loss)................................... 814$ 50 (3,234)$(3,234) $ (616)
------- ------- -------
Other comprehensive income (loss):income:
Foreign currency translation adjustment............ (5) 31 81 (60)
Unrealized holding gain (loss) on securities.............. --securities....... -- 123 (304)
------- ------- -------
Comprehensive income (loss)......................... $ 80981 $(3,030) $ 81 $(3,030)(980)
======= ======= =======
Net income (loss) per share (note 10):
Basic.............................................. $ 0.21 $ 0.01 $ (0.82) $ (0.14)
======= ======= =======
Diluted............................................ $ 0.13 $ 0.01 $ (0.82) $ (0.14)
======= ======= =======
Weighted average shares outstanding used in
computing basic net income (loss) per share........ 3,850 3,847 3,928 4,384
Weighted average shares outstanding used in
computing diluted net income (loss) per share...... 6,457 6,455 3,928 4,384
See accompanying notes to consolidated financial statements.
F-4
SHOWCASE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands, except share data)
Series A Series B
convertible convertible
preferred preferred
stock stock Common stock
-------------- -------------- ---------------------------------
Accumulated
other Retained
Number Number Additional othercomprehensive earnings Total
of of Number of paid-in comprehensiveincome Deferred (accumulated stockholders'
shares Amount shares Amount shares Amount capital income (loss) compensation deficit) equity
------- ------ ------- ------ --------- ------ ---------- ------------- ------------ ------------ -------------
Balances at
March 31,
1995..........1996........... 473,757 $ 5 -- $-- 3,907,7803,842,941 $38 $2,464 $ 39 $2,478(5) $ -- $ (797) $1,72517 $2,519
Net income.........income...... -- -- -- -- -- -- -- -- 814 814
Change in foreign
currency
translation
adjustment........ -- -- -- -- -- -- -- (5) -- (5)
Stock purchased and
retired under
stock repurchase
agreement......... -- -- -- -- (72,779) (1) (17) -- -- (18)
Stock issued
pursuant to stock
option plan....... -- -- -- -- 7,940 -- 3 -- -- 3
------- ---- ------- --- --------- ---- ------ ---- ------- ------
Balances at March
31, 1996.......... 473,757 5 -- -- 3,842,941 38 2,464 (5) 17 2,519
Net income......... -- -- -- -- -- -- -- -- 50 50
Change in
foreign
currency
translation
adjustment........adjustment..... -- -- -- -- -- -- -- 31 -- -- 31
Stock issued
pursuant to
stock option
plan.......plan........... -- -- -- -- 9,790 1 1 -- -- -- 2
------- --- ------- ---- ---------------- --- --------- ---- ------ --------- ----- ------- ------
Balances at
March 31,
1997..........1997........... 473,757 5 -- -- 3,852,731 39 2,465 26 -- 67 2,602
Net loss...........loss........ -- -- -- -- -- -- -- -- -- (3,234) (3,234)
Change in
foreign
currency
translation
adjustment........adjustment..... -- -- -- -- -- -- -- 81 -- -- 81
Unrealized
holding gain on
marketable
securities........securities..... -- -- -- -- -- -- -- 123 -- -- 123
Stock issued
pursuant to
stock option
plan.......plan........... -- -- -- -- 135,829 1 32 -- -- -- 33
Preferred Series
B stock
issued......issued......... -- -- 875,000 9 -- -- 3,491 -- -- -- 3,500
------- --- ------- ---- ---------------- --- --------- ---- ------ --------- ----- ------- ------
Balances at
March 31,
1998..........1998........... 473,757 5 875,000 9 3,988,560 40 5,988 230 -- (3,167) 3,105
Net loss........ -- -- -- -- -- -- -- -- -- (616) (616)
Change in
foreign
currency
translation
adjustment..... -- -- -- -- -- -- -- (60) -- -- (60)
Unrealized
holding gain
(loss) on
marketable
securities..... -- -- -- -- -- -- -- (304) -- -- (304)
Stock issued
pursuant to
stock option
plan........... -- -- -- -- 514,307 5 109 -- -- -- 114
Deferred
compensation... -- -- -- -- -- -- 219 -- (219) -- --
Amortization of
deferred
compensation... -- -- -- -- -- -- -- -- 33 -- 33
------- --- ------- ---- --------- --- ------ ----- ----- ------- ------
Balances at
March 31,
1999........... 473,757 $ 5 875,000 $ 9 3,988,560 $ 40 $5,988 $230 $(3,167) $3,1054,502,867 $45 $6,316 $(134) $(186) $(3,783) $2,272
======= === ======= ==== ================ === ========= ==== ====== ========= ===== ======= ======
See accompanying notes to consolidated financial statements.
F-5
SHOWCASE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Years Ended March 31,
-----------------------
1996 1997 1998 ------1999
------ ------- ------
Cash flows from operating activities:
Net income (loss).................................... $ 81450 $(3,234) $ 50 $(3,234)(616)
Adjustments to reconcile net income (loss)
to cash provided by (used in) operating activities:
Depreciation and amortization...................... 408amortization....................... 618 749 925
Provision for returns and doubtful accounts, net of
returns and write-offs............................. 50 200 305
Equity in income (losses) of unconsolidated
affiliates........................................ 52affiliates......................................... 32 (27) (26)
Deferred income taxes.............................. (125)taxes............................... (515) 300 (210)
Gain on sale of securities.........................securities.......................... -- (551) (32)
Deferred compensation amortization.................. -- -- (551)33
Loss on disposition of property and equipment......equipment....... 13 13 14 35
Changes in operating assets and liabilities, net of
acquisitions:
(Increase) decrease in:effect of foreign
exchange rate changes:
Accounts receivable.............................. 942 (2,998) (1,271)receivable................................ (3,049) (1,455) (1,214)
Prepaid expenses and other current assets........ 131assets.......... (394) (376) (27)
Income taxes receivable.......................... --receivable............................ -- (251) Increase (decrease) in:251
Accounts payable................................. 23payable................................... 314 27 279
Accrued liabilities.............................. (65)liabilities................................ 765 1,375 1,236
Deferred revenue................................. 44revenue................................... 3,022 2,707 4,104
Income taxes payable............................. (7)payable............................... 262 (295) ------295
------ ------- ------
Net cash provided by (used in) operating
activities..................................... 2,230 1,169 (833)activities....................................... 1,168 (817) 5,338
------ ------- ------ -------
Cash flows from investing activities:
Purchase of property and equipment................... (307) (804) (822) (925)
Investments in affiliates............................ (20) (198) -- --
Proceeds from dissolution of affiliate............... -- -- 218
Proceeds from sale of securities..................... -- -- 256 Acquisition32
Proceeds from sale of subsidiaries, net of cash acquired.... (119)property and equipment......... -- -- 188
Purchase of product rights........................... (200) (55) -- --------
------ ------- ------
Net cash used in investing activities........... (646)activities............. (1,057) (566) ------(487)
------ ------- ------
Cash flows from financing activities:
Proceeds from exercise of stock options.............. 3 2 33 114
Proceeds from issuance of preferred stock............ -- 3,500 -- 3,500
Proceeds from issuance of long-term debt............. -- 722 784 --
Payments on long-term debt........................... (179) (236) (342) Repurchase of common stock........................... (18) -- --(1,334)
Payments under capital lease obligations............. (129) (198) (161) ------(136)
------ ------- ------
Net cash provided by (used in) financing
activities..................................... (323)activities....................................... 290 3,814 ------(1,356)
------ ------- ------
Effect of foreign exchange rate changes on cash....... 1 (16) 1
------ ------- ------
Net increase in cash.................................. 1,261 402 2,415 3,496
Cash, beginning of year............................... 1,326 2,587 2,989 ------5,404
------ ------- ------
Cash, end of year..................................... $2,587 $2,989 $ 5,404 ======$8,900
====== ======= ======
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest............................................ $ 97 $ 97123 $ 123
======164
====== ======= ======
Income taxes........................................ $ 282 $ 207 $ 240 ======$ 259
====== ======= ======
Cash received during the year from income tax
refunds............................................. $ -- $ -- $ 395
====== ======= ======
Supplemental disclosure of noncash investing and financing activities:
The Company acquired property and equipment totaling $109 and $317 under capital
leaseslease during 1996 and 1998, respectively.1998.
During 1998, the Company sold stock purchase warrants in another company
with a basis of $25 in exchange for marketable securities with a fair
market value of $320 and cash.
See accompanying notes to consolidated financial statements.
F-6
SHOWCASE CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1997 and 1998
(1) Summary of Significant Accounting Policies
(a) Nature of Operations
ShowCase Corporation (the "Company" or "ShowCase") was incorporated in
1988, and in 1991, introduced a Windows-based query tool for the IBM
AS/400, ShowCase VISTA.Vista. The Company has subsequently introduced
additional data access products.products and services to support an end-to-end business
intelligence solution for IBM AS/400 customers. The Company's product
suite is sold under the name ShowCase STRATEGY.
The Company has wholly owned subsidiaries in Germany, the United
Kingdom, Belgium, and France that distribute ShowCase products and
provide related services to clients in these countries.
TheDuring fiscal year 1999, the Company ownsdissolved its 40% ofownership
position in ShowCase Japan and its 20% ofownership interest in ShowCase
Italia SpA
(Italy), which distribute ShowCase products and provide related servicesSpA. Prior to clients in these countries. Thedissolution, the Company usesused the equity method to
account for its investment in these two affiliates.
(b) Principles of Consolidation
The consolidated financial statements include the accounts of ShowCase
Corporation and its wholly owned subsidiaries. All significant
intercompany balances and transactions have been eliminated in
consolidation.
(c) Revenue Recognition
The Company adopted the provisions of Statement of Position ("SOP") No.
97-2, Software Revenue Recognition, as amended by SOP No. 98-4,
Deferral of the Effective Date of Certain Provisions of SOP No. 97-2,
effective April 1, 1998. SOP No. 97-2 supersedes SOP No. 91-1, Software
Revenue Recognition. SOP 97-2 generally requires revenue earned on
software arrangements involving multiple elements to be allocated to
each element based on its relative fair value. The fair value of the
element must be based on objective evidence that is specific to the
vendor. If the vendor does not have objective evidence of the fair
value of all elements in a multiple-element arrangement, all revenue
from the arrangement must be deferred until such evidence exists or
until all elements have been delivered.
Under SOP No. 97-2, the Company recognizes license revenue when the
software has been delivered, if a signed contract exists, the fee is
fixed and determinable, collection of resulting receivables is probable
and product returns are reasonably estimable. License fees that are
contingent upon sale to an end user by distributors and other channel
partners are recognized upon receipt of a report of delivery to the end
user. Maintenance and support fees including product upgrade rights
committed as part of new product licenses and maintenance resulting
from renewed maintenance contracts are deferred and recognized ratably
over the contract period. Professional service revenue is recognized
when services are performed. Revenues related to multiple element
arrangements are allocated to each element of the arrangement based on
the fair values of elements such as license fees, maintenance and
support and professional services. The determination of fair value is
based on vendor specific objective evidence. If such evidence of fair
value for each element of the arrangement does not exist, all revenue
from the arrangement is deferred until such time that evidence of fair
value does exist or until all elements of the arrangement are
delivered. Such arrangements typically do not involve end user
cancellation rights, rights of return, or significant acceptance
periods. The Company accrues license revenue through the end of the
reporting period based upon reseller royalty reports or other forms of
customer-specific historical information. The adoption of SOP No. 97-2
did not have a material effect on the Company's operating results.
F-7
SHOWCASE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Prior to the adoption of SOP No. 97-2, the Company followed the
provisions of SOP No. 91-1. Revenues derived from software licenses
arewere only recognized upon (a) the execution of a license agreement, (b)
delivery of the software product, (c) reasonable assurance of
customercustomers' acceptance of the software and the probable collectibility
of the receivable, and (d) fulfillment of any other of the Company's
contract obligations. For software provided for demonstration or pilot
purposes, or where significant post-delivery obligations exist,
revenues arewere deferred until execution of a license agreement and the
fulfillment of all revenue recognition requirements. Revenues derived
from maintenance contracts which arewere bundled with the initial licenses
and all revenues from extended maintenance contracts arewere deferred and
recognized ratably over the term of the maintenance contract. Revenues
from maintenance contracts are included in
maintenance and support revenues. Revenues from training and consultingprofessional services arewere recognized as the services are performed. The Company's
policy is in compliance withwere
preformed. License fees that were contingent upon sale to an end user
by distributors and other channel partners were recognized upon receipt
of a report of delivery to the provisions of the American Institute of
Certified Public Accountants' Statement of Position ("SOP") 91-1,
Software Revenue Recognition. SOP No. 97-2, Software Revenue
Recognition, will be effective for the Company beginning April 1, 1998.
The Company does not expect the adoption of SOP No. 97-2 to have a
material effect on the Company's operating results.end user.
(d) Capitalized Software Costs
Costs associated with the planning and designing phase of software
development, including coding and testing activities necessary to
establish technological feasibility, are classified as research and
development and expensed as incurred. Once technological feasibility
has been determined, additional costs incurred in development,
including coding, testing, and product quality assurance are
capitalized. During 1996, 1997, 1998 and 1998,1999, no software development costs
were capitalized.
(e) Product Rights
The Company purchases rights to software source code used in
conjunction with certain of its products. The product rights have been
capitalized and are amortized on a straight-line basis over periodsthe life of
the product rights, which are three to five years. Unamortized product
rights are reviewed periodically to determine
F-7
SHOWCASE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
March 31, 1997 and 1998 recoverability based upon
undiscounted forecasted cash flows. If it is determined that the asset
is impaired, the Company recognizes an impairment charge to reduce the
unamortized balance to its net realizable value. As of March 31, 1998,1999,
no impairment charges have been recognized. Accumulated amortization
was $269,584$431,250 and $431,250$555,000 as of March 31, 19971998 and 1998,1999, respectively.
(f) Goodwill
The excess of the cost over fair value of net assets acquired is
recorded as goodwill and amortized on a straight-line basis over five
years. Unamortized goodwill balances are reviewed periodically to
determine recoverability based upon forecasted undiscounted cash flows.
If it is determined that the asset is believed to be impaired, the
Company recognizes an impairment charge to reduce the unamortized
balance to its net realizable value. As of March 31, 1998,1999, no
impairment charges have been recognized. Accumulated amortization was
$64,000$124,000 and $124,000$184,000 as of March 31, 19971998 and 1998,1999, respectively.
(g) Income Taxes
Deferred taxes are provided on an asset and liability method for
temporary differences and operating loss and tax credit carryforwards.
Temporary differences are the differences between the reported amounts
of assets and liabilities and their tax bases. Deferred tax assets are
reduced by a valuation allowance when, in the opinion of management, it
is more likely than not that some portion or all of the deferred tax
assets will not be realized. Deferred tax assets and liabilities are
adjusted for the effects of changes in tax laws and rates on the date
of enactment.
F-8
SHOWCASE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(h) Foreign Currency Translation
Exchange adjustments resulting from foreign currency transactions are
generally recognized in net income (loss), whereas adjustments
resulting from the translation of financial statements are reflected as
a separate component of accumulated other comprehensive income within
stockholders' equity. Revenues and expenses of foreign subsidiaries are
translated at the average exchange rates that prevail over the
applicable year. The functional currency of each foreign operation is
the local currency.
(i) Use of Estimates
Management of the Company has made certain estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the
financial statements and the reported amounts of revenue and expenses
during the periods. Actual results could differ from those estimates.
(j) Stock-based Compensation
Compensation expense for employee stock option grants is recognized in
accordance with Accounting Principles Board ("APB") Opinion 25,
Accounting for Stock Issued to Employees. The pro forma effect on net
income (loss) is provided as if the fair value based method defined in
SFASStatement of Financial Accounting Standards ("SFAS") No. 123,
Accounting for Stock-based Compensation, had been applied.
(k) Marketable Securities
All marketable securities are classified as available-for-sale and
available to support current operations or to take advantage of other
investment opportunities. These securities are stated at the estimated
fair value based upon market quotes with unrealized holding gains or
losses reported as a separate component of accumulated other
comprehensive income within stockholders' equity. Realized gains and
losses are included in net interest and other income. The cost of securities sold is
based on the specific identification method.
F-8
SHOWCASE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
March 31, 1997 and 1998
(l) Comprehensive Income (Loss)
Comprehensive income represents the change in stockholders' equity
resulting from other than stockholder investments and distributions.
For ShowCase, comprehensive income consists of net earnings or loss
plus changes in foreign currency translation adjustment and unrealized
holding gains (losses) on marketable securities available for sale as
displayed in the accompanying consolidated statements of stockholders'
equity.operations and
comprehensive income (loss). Amounts recognized in net income (loss)
which previously were reported as other comprehensive income (loss) are
reclassified to avoid duplication. The effect of deferred income taxes
on other comprehensive income (loss) is not material.
(m) Reclassifications
Certain amounts previously reported have been reclassified to conform
to the 1999 presentation.
(n) New Accounting Pronouncements
In March 1998, presentation.the American Institute of Certified Public Accountants
("AICPA") issued SOP No. 98-1, Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use, and in April 1998, the
AICPA issued SOP No. 98-5, Reporting on the Costs of Start-up
Activities. SOP No. 98-1 requires that entities capitalize certain
costs related to internal-use software once certain criteria have been
met. SOP No. 98-5 requires that all start-up costs related to new
operations must be
F-9
SHOWCASE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
expensed as incurred. In addition, all start-up costs that were
capitalized in the past must be written off when SOP No. 98-5 is
adopted. The Company will be required to adopt SOP Nos. 98-1 and 98-5
for the year ending March 31, 2000. The Company expects that SOP Nos.
98-1 and 98-5 will not have a material impact on its financial
position, results of operations or cash flows.
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, Accounting for Derivative Instruments and Hedging Activities. SFAS
No. 133 established methods of accounting for derivative financial
instruments and hedging activities related to those instruments, as
well as other hedging activities. SFAS No. 133 will be effective for
the Company in April 2001. The Company is currently reviewing the
potential impact of this accounting standard.
In December 1998, the AICPA issued SOP No. 98-9, Modification of SOP
97-2, Software Revenue Recognition, with Respect to Certain
Transactions. SOP No. 98-9 requires recognition of revenue using the
"residual method" in a multiple-element software arrangement when fair
value does not exist for one or more of the delivered elements in the
arrangement. Under the "residual method," the total fair value of the
undelivered elements is deferred and recognized in accordance with SOP
No. 97-2. The Company will be required to implement SOP No. 98-9 for
the year beginning April 1, 1999. SOP No. 98-9 also extends the
deferral of the application of SOP No. 97-2 to certain other multiple
element software arrangements until the date SOP 98-9 becomes
effective. The Company does not expect a material change to its
accounting for revenues as a result of the provisions of SOP 98-9.
(2) Accounts Receivable
Accounts receivable consist of the following (in thousands):
March 31,
--------------
1998 1999
------ ------
Accounts receivable...................................... $6,662 $7,875
Less allowance for sales returns......................... (320) (520)
Less allowance for doubtful accounts..................... (180) (285)
------ ------
Accounts receivable, net................................. $6,162 $7,070
====== ======
(3)Profit Sharing and Savings Plan
The Company has adopted a profit sharing plan under Section 401(k) of
the Internal Revenue Code. This plan allows employees to defer a
portion of their income through contributions to this plan. At the
Company's board of directors' discretion, the Company may match a
percentage of employees' voluntary contributions or may make additional
contributions based on profits. In fiscal 1998, the Company initiated a
Company match determined annually by the Company's board of directors.
This Company match was approximately $44,000 and $50,000 in fiscal 1998.1998
and fiscal 1999, respectively. There were no Company contributions to
this plan in fiscal 1996 or 1997.
(3) (4)Significant Customers
Revenues from one unaffiliated customer aggregated approximately 15% and
21% of revenue in 1996 and 1997, respectively. Accounts receivable from
this unaffiliated customer were not significant as of March 31, 1997.
Revenues from the Company's former Japan affiliate aggregated
approximately 6% of total revenue for 1998. Accounts receivable from
the Company's former Japan affiliate aggregated approximately 6% of
total accounts receivable as of March 31, 1998. (4) Revenues from one
unaffiliated customer aggregated approximately 21% in fiscal 1997.
F-10
SHOWCASE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(5)Marketable Securities
During 1998, the Company acquired stock in a vendor, which is classifiedit
classifies as available for sale. The estimated fair value and cost basis of this security atis
$319,972. The estimated fair value of this security was $442,986 and
$139,244 as of March 31, 1998 were $442,986 and $319,972,1999, respectively. UnrealizedThe change in the
related unrealized holding gain (loss) was $123,014 and $(303,742) for
the yearyears ended March 31, 1998 was $123,014.
(5) and 1999, respectively.
(6)Property and Equipment
PropertyPropoerty and equipment are recorded at cost. Depreciation and
amortization are computed using the straight-line method over the
estimated useful lives of the assets. Property and equipment are
summarized as follows (in thousands):
March 31,
----------------
Estimated useful life 1997 1998 1999
--------------------- ------- -------
Computers and software..........software 3 to 5 years $ 2,0402,930 $ 2,9303,314
Office furniture and equipment..equipment 4 to 10 years 559 645 610
Leasehold improvements..........improvements 5 to 9 years 75 102 172
------- -------
2,674 3,677 4,096
Less accumulated depreciation
and amortization............... (1,161) (1,486) (2,004)
------- -------
Net property and equipment...... $ 1,5132,191 $ 2,1912,092
======= =======
F-9(7)Long-term Debt
Long-term debt consists of the following (in thousands):
March 31,
--------------
1998 1999
------ ------
Note payable to bank with principal due in monthly
installments of $31, plus interest at the bank's base
rate plus 1.5% through September 2002................ $1,312 $ --
Note payable to Belgian bank with interest at 6.95%,
due in monthly installments of $3 through December
1998................................................. 18 --
Note payable to IBM, interest at 6.25%, principal and
interest payable quarterly through November 2000..... 11 7
------ ------
1,341 7
Less current portion.................................. (397) (5)
------ ------
$ 944 $ 2
====== ======
The Company has a $3,000,000 revolving line of credit agreement with a
bank through June 30, 2000, bearing interest at the bank's base rate
(7.75% at March 31, 1999) plus 1.5%. Borrowings are limited to 75% of
eligible accounts receivable and are payable on demand. The revolving
line of credit note is secured by substantially all of the Company's
assets and contains certain restrictive financial covenants, including
the maintenance of prescribed tangible net worth and debt to tangible
net worth ratios. No borrowings were outstanding under the line of
credit at March 31, 1999.
F-11
SHOWCASE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
March 31, 1997 and 1998
(6) Investment in Affiliate
On March 26, 1997, the Company entered into a joint venture agreement
and acquired a 40% interest in ShowCase Japan for $165,000. ShowCase
Japan began operations April 1, 1997 as the distributor of ShowCase
products and services in Japan.
(7) (8)Income Taxes
Income (loss) before income taxes was derived from the following
sources (in thousands):
Year Ended March
31,
---------------------
1996 1997 1998 ------1999
---- ------- ------
Domestic........................................... $1,158Domestic.......................................... $(34) $(2,597) Foreign............................................ (194)$ (421)
Foreign........................................... 84 (462) ------5
---- ------- $ 964------
$ 50 $(3,059) ======$ (416)
==== ======= ======
The provision for current income tax expense consists of the following (in
thousands):
Year Ended March
31,
----------------------
1996-------------------
1997 1998 ------ ------ ------1999
----- ----- -----
Current:
Federal......................................... $ 263Federal........................................... $ 490 $(325) $ 220
State and local................................. 12local................................... 25 -- Foreign.........................................35
Foreign........................................... -- 200 155
Deferred:
Federal........................................... (492) 300 (210)
State and local................................... (23) -- --
200
Deferred:
Federal......................................... (125) (492) 300
State and local................................. -- (23) --
------ ------ ------
$ 150----- ----- -----
$ -- $ 175 $ 200
===== ===== =====
The significant components of deferred tax expense are as follows (in
thousands):
Year Ended March
31,
------------------
1997 1998 1999
------ ---- -----
Deferred tax expense (exclusive of the effects of
other components listed below)................... $(515) $-- $(210)
Increase in beginning-of-the-year balance of
the valuation allowance for deferred tax assets.. -- 300 --
------ ---- -----
$(515) $300 $(210)
====== ====== ========== =====
The provision for income taxes differs from the expected tax expense,
computed by applying the federal corporate tax rate of 34% to earnings
before income taxes, as follows (in thousands):
Year Ended March
31,
--------------------
1996 1997 1998 -----1999
---- ------- -----
Expected federal income tax expense (benefit)...... $ 328.... $ 17 $(1,040) $(142)
State taxes, net of federal benefit................ 9benefit.............. 2 (52) 23
Change in valuation allowance...................... (158)allowance.................... -- 1,085 678
Research and experimentation credits............... --credits............. (23) -- (203)
Foreign sales corporation.......................... (30)corporation........................ (20) -- (61)
Foreign operations and withholding taxes........... --taxes......... -- 152 Other.............................................. 1(135)
Other............................................ 24 30 -----40
---- ------- $ 150 $ -------
$-- $ 175 =====$ 200
==== ======= =====
F-10F-12
SHOWCASE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
March 31, 1997 and 1998
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and deferred tax liabilities at March
31, 19971998 and 19981999 are presented below (in thousands):
1997March 31,
----------------
1998 ------1999
------- -------
Deferred tax assets:
Accounts receivable allowances.........................allowances...................... $ 102170 $ 170241
Vacation and other accruals............................ 82accruals......................... 111 163
Deferred revenues...................................... 874revenues................................... 1,266 2,153
Foreign net operating loss carryforwards............... 24carryforwards............ 161 204
Research and experimentation credit carryforwards...... --carryforwards... 196 Other.................................................. 5038
Other............................................... 46 ------42
------- 1,132-------
1,950 2,841
Valuation allowance...................................... (415)allowance................................... (1,500) ------(2,178)
------- 717-------
450 663
Deferred tax liabilities:
Depreciation........................................... (77)Depreciation........................................ (110) ------(113)
------- -------
Net deferred tax asset................................... $ 640asset................................ $ 340 ======$ 550
======= =======
The valuation allowance for deferred tax assets as of March 31, 19971998
and 19981999 was $415,000$1,500,000 and $1,500,000,$2,178,000, respectively. In assessing the
realizability of deferred tax assets, management considers whether it
is more likely than not that some portion or all of the deferred tax
assets will be realized. The ultimate realization of the deferred tax
asset is dependent upon the ability to generate tax refunds from the
carryback of losses to prior periods and the generation of future
taxable income during the periods in which those temporary differences
become deductible. Management considers its projected taxable income
and tax planning strategies in making this assessment.
At March 31, 1998,1999, there are foreign net operating loss carryforwards
of approximately $473,000,$600,000, which will expire through 2012.
(8) Long-term Debt
Long-term debt consists of the following (in thousands):
1997 1998
----- ------
Note payable to bank with principal due in monthly
installments
of $31, plus interest at the bank's base rate
(8.5% at March 31, 1998) plus 1.5% through September
2002..................................................... $ 854 $1,312
Note payable to Belgian bank with interest at 6.95%, due
in
monthly installments of $3 through December 1998......... 45 18
Note payable to IBM, interest at 6.25%, principal and
interest
payable quarterly through November 2000.................. -- 11
----- ------
899 1,341
Less current portion...................................... (275) (397)
----- ------
$ 624 $ 944
===== ======
F-11
SHOWCASE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
March 31, 1997 and 1998
The Company has a $2,000,000 revolving line of credit agreement with a
bank through September 30, 1998, bearing interest at the bank's base
rate plus 1.5%. Borrowings are limited to 75% of eligible accounts
receivable reduced by 50% of the outstanding term loan and are payable
on demand. No borrowings were outstanding under the line of credit at
March 31, 1998.
The note payable to bank and the revolving line of credit note are
secured by substantially all of the Company's assets and contain certain
restrictive financial covenants which, among other things, require the
Company to maintain $1,500,000 of tangible net worth, a debt to tangible
net worth ratio of not more than 6.5 to 1, and restrict property and
plant acquisitions as well as the incurring of additional debt. The bank
has granted a waiver related to an event of default as of March 31,
1998.
Future maturities of long-term debt as of March 31, 1998 are as follows
(in thousands):
1999............................................................... $ 397
2000............................................................... 380
2001............................................................... 377
2002............................................................... 187
------
$1,341
======
(9)Stockholders' Equity
(a) Series A Convertible Preferred Stock
In 1991, the Company issued convertible preferred stock under the terms
of an investment agreement (the "Agreement")Agreement). Each preferred share is
convertible at the option of the holder at any time at a rate of four
shares of common stock for each preferred share, subject to certain
adjustments. In the event of a qualified public offering, the preferred
stock is required to be converted to common stock. The preferred
stockholders arestockholder is entitled to the same number of votes as if the preferred
stock was converted into common shares. In addition, if the Company
decides to sell additional shares of capital stock, the Company must
first offer the preferred stockholder its pro rata share of capital
stock on the same terms and conditions.
The Series A convertible preferred stock may be converted into
1,895,028 common shares at March 31, 1999. The per share conversion
rate will be adjusted if the Company sells common stock or issues stock
options (other than those designated in the March 1991 stock option
plan as amended) or warrants at less than the conversion price in
effect, which is $1.26645 per common share at March 31, 1998.1999.
F-13
SHOWCASE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Agreement contains certain restrictive covenants that, among other
things, limit additional indebtedness, declaration and payment of
dividends, guarantees, and investments.
In connection with the issuance of the Company's convertible preferred
stock, the common and preferred stockholders entered into an agreement
that prohibits the common stockholders from selling shares of common
stock unless the preferred stockholder is permitted to sell a pro rata
number of preferred shares, except in the event of sales related to a
public offering or certain other events, as defined.
(b) Series B Convertible Preferred Stock
In 1998, the Company issued convertible preferred stock under the terms
of an investment agreement (the "1998 Agreement"). Each preferred share
is convertible at the option of the holder at any time at a rate of one
share of common stock for each preferred share, subject to certain
adjustments. In the event of a qualified public offering, the preferred
stock is required to be converted to common stock. The preferred
stockholders arestockholder is entitled to the same number of votes as if the preferred
stock was
F-12
SHOWCASE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
March 31, 1997 and 1998 converted into common shares. In addition, if the Company
decides to sell additional shares of capital stock, the Company must
first offer the preferred stockholder its pro rata share of capital
stock on the same terms and conditions.
The per share conversion rate willSeries B convertible preferred stock may be adjusted if the Company sellsconverted into 864,198
common stock or issues stock options (other than those designated in the
March 1991 stock option plan as amended) or warrants at less than the
conversion price in effect, which is $4.00 per common shareshares at March 31,
1998. The conversion price will also vary from $3.00 to $4.50 per common
share depending upon the revenue the Company achieves in fiscal year 1999.
The 1998 Agreement contains certain restrictive covenants that, among
other things, limit additional indebtedness, declaration and payment of
dividends, guarantees, and investments.
(c) Undesignated Preferred Shares
As of March 31, 1998,1999, the Company has authorized 2,748,743 undesignated
preferred shares, none of which are outstanding.
(d) Warrants Issued
In May 1998, the Company issued a warrant to purchase 13,750 shares of
Series B Convertible Preferred Stock Optionsat an exercise price of $4.00 per
share in consideration for the warrant-holder executing certain
equipment leases with the Company. The warrant is exercisable through
the earlier of May 13, 2008 or five years from the effective date of
the Company's initial public offering. The warrant had not been
exercised in whole or in part as of March 31, 1999. The Company
has adopted arecognizes lease expense equal to the aggregate fair value of the
warrant, approximately $9,000, amortized over the related lease term.
The fair value of the warrant is estimated on the date of grant using
the Black-Scholes pricing model with the following assumptions: risk-
free interest rate of 6.0%, expected dividend yield of 0%, expected
volatility of 0%, and expected life of three years.
(e) Deferred Compensation
During the fiscal year 1999, in connection with the grant to employees
of options to purchase 438,900 shares of common stock, the Company
recorded deferred compensation of $219,000, representing the difference
between the deemed value of the common stock for accounting purposes
and the option exercise price of such options on the date of grant. The
Company recognized an expense of approximately $33,000 for the fiscal
year ended March 31, 1999 for these stock option plan.grants based upon the
intrinsic value method in accordance with APB Opinion No. 25,
Accounting for Stock Issued to Employees, and will recognize the
remainder of the deferred compensation cost over the respective vesting
periods (five years) of the options granted.
F-14
SHOWCASE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(f) Stock Options
Options granted under thisthe Company's stock option plan may be incentive
stock options or non-qualified stock options. Incentive stock options
may be granted to certain employees and directors at a price not less
than the fair market value of the common stock on the day the option is
granted and must be exercisable no later than ten years after the date
of grant. Nonqualified stock options may be granted for terms up to ten
years after the date of grant, at prices determined by the stock option
committee.
At March 31, 1998,1999, the Company had 1,539,117has 1,664,810 shares of its common stock
reserved for issuance upon the exercise of options granted under the
Company's stock option plan.
The following table summarizes the activity of the Company's incentive
stock option plan:
Weighted average
Shares exercise price
--------- ----------------
Outstanding--March 31, 1996.................. 1,107,553 $ .37
Options granted............................ 398,650 1.08
Options exercised.......................... (9,790) .19
Options canceled........................... (123,460) .96
---------
Outstanding--March 31, 1997.................. 1,372,953 .53
Options granted............................ 181,400 1.42
Options exercised.......................... (135,829) .25
Options canceled........................... (53,740) 1.04
---------
Outstanding--March 31, 1998.................. 1,364,784 .65
Options granted............................ 820,900 3.61
Options exercised.......................... (514,307) .22
Options canceled........................... (125,570) 1.10
---------
Outstanding--March 31, 1999.................. 1,545,807 2.32
=========
The following table summarizes the Company's stock options outstanding
at March 31, 1999:
Options outstanding Options exercisable
-------------------------------- --------------------
Number of Weighted Number
outstanding average Weighted exercisable Weighted
at remaining average at average
March 31, contractual exercise March 31, exercise
Range of exercise price 1999 life price 1999 price
----------------------- ----------- ----------- -------- ----------- --------
$ .07- .21.............. 95,677 4 years $.12 63,312 $.08
.35- .87.............. 173,800 6 years .47 164,357 .48
.98-1.42.............. 464,430 8 years 1.20 139,282 1.14
1.50-7.12.............. 811,900 9 years 3.61 61,400 1.62
--------- -------
1,545,807 428,351
========= =======
The Company has elected to continue to follow Accounting Principles
Boardaccounts for its Plan under APB Opinion No. 25, Accounting
for Stock Issued to Employees, and related interpretations to account for its stock options. Accordingly,
no compensation expense related to stock option plans has been recorded
in 1998, 1997 and 1996.interpretations. The
following pro forma amounts, in accordance with the disclosure
requirements of Statement of Financial Accounting Standards No. 123,
Accounting for Stock-based Compensation ("SFAS 123")(SFAS 123), were determined as
if the Company had accounted for its stock options using the fair value
method as described in that statement:
F-15
SHOWCASE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
1996Year Ended March
31,
-------------------
1997 1998 ----1999
---- ------- -----
Net income (loss) (in thousands):
As reported........................................... $814reported....................................... $50 $(3,234) Pro forma............................................. 811$(616)
Proforma.......................................... 34 (3,266) (677)
Because the method of accounting under SFAS 123 has not been applied to
stock options granted prior to April 1, 1995, the resulting pro forma
compensation cost may not be representative of compensation cost to be
disclosed in future years.
The weighted average grant date fair value of stock options granted was
$.27, $.30, $.39 and $.39$1.19 per option in 1996, 1997, 1998 and 1998,1999, respectively.
The fair value atof each option grant is estimated on the date of grant was estimated
using the Black-Scholes stock option pricing model with the following
average assumptions for 1996, 1997, 1998 and 1998: a
weighted average risk free1999: risk-free interest rate
ofranging from 6.0% to 6.5%; weighted averageexpected dividend yieldyields of 0%; weighted average expected
volatility of 0%; and weighted average expected lives of five years.
F-13
SHOWCASE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
March 31, 1997 and 1998
The following table summarizes the activity of the Company's stock option
plan:
Weighted average
Shares exercise price
--------- ----------------
Outstanding--March 31, 1995.................... 957,153 $ .25
Options granted.............................. 205,700 .98
Options exercised............................ (7,940) .35
Options canceled............................. (47,360) .56
--------- -----
Outstanding--March 31, 1996.................... 1,107,553 .37
Options granted.............................. 398,650 1.08
Options exercised............................ (9,790) .19
Options canceled............................. (123,460) .96
--------- -----
Outstanding--March 31, 1997.................... 1,372,953 .53
Options granted.............................. 181,400 1.42
Options exercised............................ (135,829) .25
Options canceled............................. (53,740) 1.04
--------- -----
Outstanding--March 31, 1998.................... 1,364,784 $ .65
========= =====
The following table summarizes the Company's stock options outstanding at
March 31, 1998:
Options outstanding Options exercisable
-------------------------------------- -------------------------
Number Weighted Number Weighted
outstanding Weighted average average exercisable average
at March 31, remaining exercise at March 31, exercise
Range of exercise price 1998 contractual life price 1998 price
----------------------- ------------ ---------------- -------- ------------ --------
$ .07- .21.............. 592,484 5 years $.19 493,387 $.18
.35- .87.............. 178,800 7 years .47 139,797 .48
.98-1.42.............. 593,500 9 years 1.17 95,180 1.05
--------- -------
1,364,784 728,364
========= =======
(10)Net Income (Loss) per Share
The Company calculates net income (loss) per share in accordance with
SFAS No. 128, Earnings per Share. For ShowCase, basic income (loss) per
share represents net income (loss) divided by the weighted average
number of common shares outstanding during the period. Diluted income
(loss) per share represents net income (loss) divided by the sum of the
weighted average number of common shares outstanding plus shares
derived from other potentially dilutive securities. For ShowCase,
potentially dilutive securities include "in-the-money" fixed stock
options and warrants and the amount of weighted average common shares
which would be added by the conversion of outstanding convertible
preferred stock. The number of shares added for stock options and
warrants is determined by the treasury stock method, which assumes
exercise of these options and the use of any proceeds from such
exercise to repurchase a portion of these shares at the average market
price for the period. When the results of operations are a loss, other
potentially dilutive securities are not included in the calculation of
loss per share.
F-14
SHOWCASE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
March 31, 1997 and 1998
The following computations reconcile net income (loss) with basic and
diluted net income (loss) per share (in thousands, except for per share
data):
YearsYear ended March
31,
------------------------
1996--------------------
1997 1998 1999
----- ------- ------- -------------
Basic income (loss) per share:
Net income (loss)............................ $ 814................................. $ 50 $ (3,234)$(3,234) $(616)
Weighted average shares...................... 3,850shares........................... 3,847 3,928 4,384
----- ------- ------- -------------
Basic income (loss) per share................ $ .21share..................... $ .01 $ (.82) (.14)
===== ======= ======= =============
Diluted income (loss) per share:
Net income (loss)............................ $ 814................................. $ 50 $ (3,234)$(3,234) $(616)
Weighted average shares...................... 3,850shares........................... 3,847 3,928 4,384
Effect of dilutive "in-the-money" stock options..................................... 712options
and warrants..................................... 713 -- --
Effect of conversion of preferred stock...... 1,895stock........... 1,895 -- --
----- ------- ------- -------------
Total dilutive shares...................... 6,457shares............................ 6,455 3,928 4,384
----- ------- ------- -------------
Diluted income (loss) per share................ $ .13share.................... $ .01 $ (.82) $(.14)
===== ======= ======= =============
The total number of weighted average option and warrant shares excluded
from the calculation of potentially dilutive securities either because
the exercise price exceeded the average market price or
F-16
SHOWCASE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
because their inclusion in a calculation of net loss per share would
have been antidilutive was 902,469 and 792,138 for fiscal 1998.years 1998
and 1999, respectively.
For the yearyears ended March 31, 1998 and 1999, the effect of conversion
of the Company's Series A and Series B convertible preferred stock was
excluded from the calculation of net loss per diluted share because the
resulting impact would have been antidilutive. At March 31, 1998,1999, the
Series A and Series B convertible preferred stock were convertible into
1,895,028 and 875,000864,198 common shares, respectively.
(11)Geographic Segment Data
The operations of the Company are primarily conducted in the United
States, the Company's country of domicile. Geographic data, determined
by references to the location of the Company's operations, as of March
31, 19971998 and 19981999 and for each of the years for the three-year period
ended March 31, 19981999 is as follows (in thousands):
YearsYear ended March 31,
-----------------------
1996------------------------
1997 1998 -------1999
-------- ------- -------
Revenues:
U.S. operations................................. $11,009 $14,904U. S. operations............................... $ 14,904 $17,890 Non-U.S. operations............................. 2,269 3,123 5,865$24,894
United Kingdom................................. 945 2,751 3,695
France......................................... -- 360 3,166
Other non-U.S.operations....................... 2,178 2,754 3,764
-------- ------- -------
-------
$13,278 $18,027$ 18,027 $23,755 =======$35,519
======== ======= =======
March 31,
---------------
1997------------------
1998 1999
------- -------------
Tangible long-lived assets:
U.S. operations................................. $ 1,307U. S. operations....................................... $ 1,842 $1,736
Non-U.S. operations............................. 206operations.................................... 349 356
------- -------
$ 1,513------
$ 2,191 $2,092
======= =============
F-15
SHOWCASE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
March 31, 1997 and 1998
(12)LeasesCommitments
(a) Capital Leases
The Company has entered into capital lease agreements for computers and
software, office furniture and equipment, vehicles and product rights.
The following is a summary of the leased property (in thousands):
1997March 31,
-----------
1998 1999
----- ---------
Computers and software.......................................software........................................ $ 337 $ 645 $645
Office furniture and equipment............................... 55equipment................................ 53 52
Product rights...............................................rights................................................ 325 325--
----- -----
717----
1,023 697
Less accumulated amortization................................ (405)amortization................................. (609) (419)
----- -----
$ 312----
Net property and equipment.................................... $ 414 $278
===== =========
F-17
SHOWCASE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following is a schedule of future minimum lease payments under
capital lease with the present value of the minimum lease payments as
of March 31, 19981999 (in thousands):
Years ending March 31:
----------------------
1999................................................................ $ 173
2000................................................................ 144
2001................................................................ 82
-----2000................................................................. $144
2001................................................................. 83
----
Total minimum lease payments........................................ 399payments......................................... 227
Less amount representing interest fromat 5% to 16%.................... (51)
-----....................... (15)
----
Present value of minimum lease payments............................. 348payments.............................. 212
Less current portion................................................ (135)
-----portion................................................. (127)
----
$ 213
=====85
====
(b) Operating Leases
The Company leases certain office facilities and equipment under
operating leases. Total lease expense aggregated $559,713, $1,056,102, $1,363,336
and $1,363,336$1,857,731 in 1996, 1997, 1998 and 1998,1999, respectively. Minimum future
obligations as of March 31, 1998,1999, including operating costs under non-
cancelable leases, are approximately as follows (in thousands):
Years ending March 31:
----------------------
1999............................................................... $ 842
2000............................................................... 378
2001............................................................... 214
2002............................................................... 48
2003............................................................... 10
-------
$ 1,492
=======2000................................................................ $1,223
2001................................................................ 1,041
2002................................................................ 722
2003................................................................ 321
2004................................................................ 305
Thereafter.......................................................... 61
------
$3,673
======
F-16
SHOWCASE CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEET
(in thousands, except share(c) Royalty Agreement
The Company is obligated to make royalty payments under certain
distribution and license agreements. Minimum royalties required by
these agreements in order for them to remain exclusive are $2,535,000
in 2000, increasing by 30% per share amounts)
December 31,
1998
------------
Assets
Current assets:
Cash............................................................. $ 7,464
Marketable securities............................................ 173
Accounts receivable, net of allowances of $675................... 8,453
Prepaid expenses and other current assets........................ 856
Deferred income taxes............................................ 340
-------
Total current assets........................................... 17,286
-------
Property and equipment, net........................................ 1,949
Investment in affiliates........................................... 180
Goodwill, net of accumulated amortization.......................... 131
-------
Total assets................................................... $19,546
=======
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable................................................. $ 1,019
Accrued liabilities.............................................. 4,187
Current portion of long-term debt................................ 375
Current portion of obligations under capital leases.............. 161
Income taxes payable............................................. 131
Deferred revenue................................................. 10,804
-------
Total current liabilities...................................... 16,677
-------
Long-term debt, less current portion............................... 656
Capital lease obligations, less current portion.................... 95
-------
Total liabilities.............................................. 17,428
-------
Stockholders' equity:
Series A convertible preferred stock; $.01 par value;
473,757 shares authorized, issued, and outstanding,
total liquidation preference of $2,400.......................... 5
Series B convertible preferred stock; $.01 par value;
1,777,500 shares authorized, 875,000 issued and
outstanding, total liquidation preference of $3,500............. 9
Common stock, $.01 par value, 10,000,000 shares
authorized, 4,486,327 shares issued and outstanding............. 45
Additional paid-in capital....................................... 6,313
Accumulated other comprehensive income:
Cumulative translation adjustment.............................. 91
Unrealized holding loss on securities.......................... (147)
Deferred compensation............................................ (197)
Accumulated deficit.............................................. (4,001)
-------
Total stockholders' equity................................... 2,118
-------
Total liabilities and stockholders' equity................... $19,546
=======
See accompanying notesyear for each year from 2001 to unaudited consolidated financial statements.
F-17
SHOWCASE CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(in thousands, except per share amounts)
Nine Months
Ended December
31,
----------------
1997 1998
------- -------
Revenues:
License fees................................................ $10,077 $15,077
Maintenance and support..................................... 4,765 7,302
Professional service fees................................... 1,909 2,883
------- -------
Total revenues............................................ 16,751 25,262
------- -------
Cost of revenues:
License fees................................................ 1,709 2,894
Maintenance and support..................................... 1,122 1,828
Professional service fees................................... 1,343 1,995
------- -------
Total cost of revenues.................................... 4,174 6,717
------- -------
Gross margin................................................. 12,577 18,545
------- -------
Operating expenses:
Sales and marketing......................................... 11,153 13,723
Product development......................................... 2,204 3,236
General and administrative.................................. 1,840 2,339
------- -------
Total operating expenses.................................. 15,197 19,298
------- -------
Operating loss............................................... (2,620) (753)
Other income (expense), net:
Interest expense............................................ (109) (139)
Interest income............................................. 56 186
Gain on sales of securities................................. 551 --
Other income (expense), net................................. 9 7
------- -------
Total other income (expense), net......................... 507 54
------- -------
Net loss before income taxes................................. (2,113) (699)
Income taxes................................................. 125 135
------- -------
Net loss..................................................... (2,238) (834)
------- -------
Other comprehensive income (loss):
Foreign currency translation adjustment..................... 32 (16)
Unrealized holding loss on securities....................... -- (270)
------- -------
Comprehensive loss........................................... $(2,206) $(1,120)
======= =======
Net loss per share (note 3):
Basic....................................................... $ (0.57) $ (0.19)
======= =======
Diluted..................................................... $ (0.57) $ (0.19)
======= =======
Weighted average shares outstanding used in
computing basic net loss per share.......................... 3,909 4,348
Weighted average shares outstanding used in
computing diluted net loss per share........................ 3,909 4,348
See accompanying notes2004.
One of these agreements contains a buy-back clause under which the
vendor would be required to unaudited consolidated financial statements.pay the Company an amount, as defined in
the agreement, to revoke the exclusive rights. This amount would be
recognized as revenue if such revocation should occur. Royalty expense
under these agreements were $828,200, $2,144,150 and $3,068,890 for
years ending March 31, 1997, 1998 and 1999, respectively.
(13)Subsequent Events
(a) Initial Public Offering
On April 28, 1999, the Company filed a registration statement with the
Securities and Exchange Commission related to an initial public
offering. Upon consummation of the offering, shares of outstanding
preferred stock will be automatically converted into shares of common
stock and outstanding warrants to purchase shares of Series B
Convertible Preferred Stock will be converted to the right to purchase
shares of common stock (see note 9). Effective upon the filing of the
Company's amended and restated articles of incorporation upon the
closing of this offering, the number of authorized shares of capital
stock will be increased to 50,000,000 shares.
F-18
SHOWCASE CORPORATION
AND SUBSIDIARIES
UNAUDITEDNOTES TO CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Nine Months Ended
December 31,
------------------
1997 1998
-------- --------
Cash flows from operating activities:
Net loss.................................................. $ (2,113) $ (834)
Adjustments to reconcile net loss to cash provided
by (used in) operating activities:
Depreciation and amortization............................ 489 655
Gain on sale of securities............................... (551) --
Deferred compensation amortization....................... -- 22
Changes in operating assets and liabilities, net of
acquisitions:
(Increase) decrease in:
Accounts receivable.................................... (797) (2,141)
Prepaid expenses and other current assets.............. (248) 175
Income taxes receivable................................ -- 251
Increase (decrease) in:
Accounts payable....................................... (131) (75)
Accrued liabilities.................................... 847 1,302
Deferred revenue....................................... 888 3,112
Income taxes payable................................... (371) 130
-------- --------
Net cash provided by (used in) operating activities.. (1,987) 2,597
-------- --------
Cash flows from investing activities:
Purchase of property and equipment........................ (558) (259)
Proceeds from affiliates.................................. -- 12
Proceeds from sale of securities.......................... 256 --
-------- --------
Net cash used in investing activities................ (302) (247)
-------- --------
Cash flows from financing activities:
Proceeds from exercise of stock options................... 29 111
Proceeds from issuance of long-term debt.................. 338 --
Payments on long-term debt................................ (281) (281)
Payments under capital lease obligations.................. (92) (120)
-------- --------
Net cash used in financing activities................ (6) (290)
-------- --------
Net increase (decrease) in cash............................ (2,295) 2,060
Cash, beginning of period.................................. 2,989 5,404
-------- --------
Cash, end of period........................................ $ 694 $ 7,464
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest ................................................. $ 109 $ 139
======== ========
Income taxes.............................................. $ 391 $ 142
======== ========
Cash received during the period from income tax refunds.... $ 19 $ 389
======== ========
Supplemental disclosureFINANCIAL STATEMENTS--(Continued)
(b) 1999 Stock Incentive Plan
In April 1999, the Company's board of noncash investingdirectors and financing activities:
Duringshareholders
approved the nine months ended December 31, 1998,1999 Stock Incentive Plan (the "1999 Incentive Plan"). The
1999 Incentive Plan provides for the granting of incentive and
nonqualified stock options, stock appreciation rights, restricted
stock, restricted stock units, performance awards and other stock based
awards to eligible participants. The term and vesting
requirements of the awards under the 1999 Incentive Plan are subject to
the determination of the compensation committee of the Company's board
of directors. The Company has reserved 2,500,000 shares of common stock
for issuance under the 1999 Incentive Plan.
(c) 1999 Employee Stock Purchase Plan
The Company's 1999 Employee Stock Purchase Plan (the "Stock Purchase
Plan") will become effective upon consummation of the initial public
offering discussed above and is intended to qualify as an employee
stock purchase plan within the meaning of Section 423 of the Internal
Revenue Code. The Stock Purchase Plan covers an aggregate of 500,000
shares of common stock. Eligible participants will be able to direct
the Company sold stockto make payroll deductions of up to 15% of their
compensation during a period for the purchase warrants in another companyof shares of Company
common stock. Each purchase period, with a basis of $25 in exchange for
marketable securities with a fair market value of $320 and cash.
See accompanying notes to unaudited consolidated financial statements.
F-19
SHOWCASE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
(1)Basis of Presentation
The unaudited interim consolidated financial statements include the accounts of Showcase Corporation and its wholly owned subsidiaries and
have been prepared by the Company in accordance with generally accepted
accounting principles, pursuant to the rules and regulationsexception of the Securities and Exchange Commission. Accordingly, certain information and
footnote disclosures normally included in the financial statements have
been omitted or condensed pursuant to such rules and regulations.initial
offering period, will be six months. The accompanying unaudited interim consolidated financial statements should
be read in conjunctionStock Purchase Plan will
provide participants with the financial statements and related notes
included herein. The information furnished reflects, inright, subject to limitations, to
purchase the opinionCompany's common stock at a price equal to 85% of the
management of the Company, all adjustments, consisting primarily of
recurring accruals, considered necessary for a fair presentation of the
financial position and the results of operations.
(2)New Accounting Pronouncements
The Company adopted the provisions of Statement of Position ("SOP") No.
97-2, Software Revenue Recognition, as amended by SOP No. 98-4, Deferral
of the Effective Date of Certain Provisions of SOP No. 97-2, effective
April 1, 1998. SOP No. 97-2 supersedes SOP No. 91-1, Software Revenue
Recognition. SOP No. SOP 97-2 generally requires revenue earned on
software arrangements involving multiple elements to be allocated to
each element based on its relative fair value. The fair value of the
element must be based on objective evidence that is specific to the
vendor. If the vendor does not have objective evidencelesser of the fair value
of all elements in a multiple-element arrangement, all revenue from the
arrangement must be deferred until such evidence exists or until all
elements have been delivered. Under SOP No. 97-2, the Company recognizes
license revenue when the software product has been delivered, if a
signed contract exists, the fee is fixed and determinable, collection of
resulting receivables is probable and product returns are reasonably
estimable. License fee revenues that are contingent upon sale to an end
user by distributors and other channel partners are recognized upon
receipt of a report of delivery. Maintenance and support fees committed
as part of new product licenses and maintenance resulting from renewed
maintenance contracts are deferred and recognized ratably over the
contract period. Professional service revenue is recognized when
services are performed. The adoption of SOP No. 97-2 did not have a
material effect on the Company's operating results.
In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued SOP No. 98-1, Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use, and in April 1998, the
AICPA issued SOP No. 98-5, Reporting on the Costs of Start-up
Activities. SOP No. 98-1 requires that entities capitalize certain costs
related to internal-use software once certain criteria have been met.
SOP No. 98-5 requires that all start-up costs related to new operations
must be expensed as incurred. In addition, all start-up costs that were
capitalized in the past must be written off when SOP No. 98-5 is
adopted. The Company will be required to adopt SOP Nos. 98-1 and 98-5
for the year ending March 31, 2000. The Company expects that SOP Nos.
98-1 and 98-5 will have no material impact on its financial position,
results of operations or cash flows.
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 133, Accounting for
Derivative Instruments and Hedging Activities. SFAS No. 133 established
methods of accounting for derivative financial instruments and hedging
activities
F-20
SHOWCASE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998
related to those instruments, as well as other hedging activities. SFAS
No. 133 will be effective for the Company in April 2001. The Company is
currently reviewing the potential impact of this accounting standard.
In December 1998, the AICPA issued SOP No. 98-9, Modification of SOP 97-
2, Software Revenue Recognition, with Respect to Certain Transactions.
SOP No. 98-9 requires recognition of revenue using the "residual method"
in a multiple-element software arrangement when fair value does not
exist for one or more of the delivered elements in the arrangement.
Under the "residual method," the total fair value of the undelivered
elements is deferred and recognized in accordance with SOP No. 97-2. The
Company will be required to implement SOP No. 98-9 for the year
beginning April 1, 1999. SOP No. 98-9 also extends the deferral of the
application of SOP No. 97-2 to certain other multiple element software
arrangements until the date SOP No. 98-9 becomes effective. The Company
does not expect a material change to its accounting for revenues as a
result of the provisions of No. SOP 98-9.
(3)Net Income (Loss) per Share
For ShowCase Corporation, basic income (loss) per share represents net
income (loss) divided by the weighted average number of common shares
outstanding during the period. Diluted income (loss) per share
represents net income (loss) divided by the sum of the weighted average
number of common shares outstanding plus shares derived from other
potentially dilutive securities. For the Company, potentially dilutive
securities include "in-the-money" fixed stock options and warrants and
the amount of weighted average common shares which would be added by the
conversion of outstanding convertible preferred stock. The number of
shares added for stock options and warrants is determined by the
treasury stock method, which assumes exercise of these options and
warrants and the use of any proceeds from such exercise to repurchase a
portion of these shares at the average market price for the period. When
the results of operations are a loss, other potentially dilutive
securities are not included in the calculation of loss per share.
For the nine months ended December 31, 1997 and 1998, basic loss per
share is the same as diluted loss per share because the effect of the
inclusion of other potentially dilutive securities in the calculation of
diluted loss per share was antidilutive.
The total number of weighted average option and warrant shares excluded
from the calculation of potentially dilutive securities either because
the exercise price exceeded the average market price or because their
inclusion in the calculation of net loss per share would have been
antidilutive was 901,547 and 564,055 for the nine months ended December
31, 1997 and 1998, respectively. The effect of conversion of the
Company's preferred stock was also excluded from the calculation of net
loss per diluted share because the resulting impact would also have been
antidilutive for the nine months ended December 31, 1997 and 1998. At
December 31, 1998, the Series A and Series B convertible preferred stock
were convertible into 1,895,028 and 864,198 common shares, respectively.
(4)Deferred Compensation
During the nine months ended December 31, 1998, the Company granted
options to purchase 438,900 shares of stock to employees for which the
related exercise price was less than the deemed value of the Company's common stock for accounting purposes on the
date of grant. Deferred
compensation cost recognized for these option grants totaled
approximately $219,000. The Company recognized an expense of
approximately $22,000 forfirst day or the nine months ended December 31, 1998 for
these stock option grants based on the intrinsic value method in
accordance with APB Opinion No. 25, Accounting for Stock Issued to
Employees, and will recognize the remainderlast day of the deferred compensation
cost overapplicable purchase period.
F-19
[INSIDE BACK COVER]
ShowCase
STRATEGY(R)
Deployment Accelerators [ShowCase compass logo]
Adaptive applications that provide: Application Areas:
[arrow] A blueprint for refining end-user requirements Financial Analysis
Sales Analysis
[arrow] An extensible base for additional applications
[arrow] Rapid implementation
[arrow] Easy integration with ERP applications
[Converging arrow pointing to the respective vesting periods (five years)right, with upper branch bearing the words
"Application Time to Value" and lower branch bearing the words "Custom
Development Flexibility." The main branch of the options
granted.
F-21
SHOWCASE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998
(5) Warrants Issued
In May 1998,arrow bears the Company issued a warrant to purchase 13,750 shares of
series B convertible preferred stock at an exercise price of $4.00 per
share in consideration forwords
"Deployment Accelerator."]
[In the warrant-holder executing certain
equipment leaseslower right-hand corner is the ShowCase STRATEGY logo with the
Company. The warrant is exercisable through
the earlier of May 13, 2008 or five years from the effective date of the
Company's initial public offering. The warrant had not been exercised in
whole or in part as of December 31, 1998. The Company recognizes lease
expense equal to the fair value of the warrants amortized over the
related lease term.
(6) Undesignated Preferred Shares
As of December 31, 1998, the Company has authorized 2,748,743
undesignated preferred shares, none of which are outstanding.
F-22
[Inside back cover -- graphics to come]following caption: "Work Smarter...Faster."]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Through and including , 1999 (the 25th day after the date
of this prospectus), all dealers effecting transactions in these securities,
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.
3,000,000 Shares
Common Stock
-------------------------------------
P R O S P E C T U S
-------------------------------------
Merrill Lynch & Co.
U.S. Bancorp Piper Jaffray Inc.
Dain Rauscher Wessels
a division of Dain Rauscher Incorporated
FAC/Equities
, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
Except as set forth below, the following fees and expenses will be paid
by ShowCase in connection with the issuance and distribution of the securities
registered hereby and do not include underwriting commissions and discounts.
All such expenses, except for the SEC registration, NASD filing and Nasdaq
listing fees, are estimated.
SEC registration fee............................................... $9,730fee............................................. $ 10,551
NASD filing fee.................................................... $4,000fee.................................................. 4,000
Nasdaq National Market listing fee................................. $fee............................... 73,875
Legal fees and expenses............................................ $expenses.......................................... 175,000
Accounting fees and expenses....................................... $expenses..................................... 150,000
Transfer Agent's and Registrar's fees.............................. $fees............................ 5,000
Printing and engraving expenses.................................... $
Miscellaneous...................................................... $
Total.............................................................. $expenses.................................. 150,000
Miscellaneous.................................................... 31,574
--------
Total............................................................ $600,000
========
Item 14. Indemnification of Directors and Officers
Section 302A.521 of the Minnesota Statutes provides that a corporation
shall indemnify any person made or threatened to be made a party to a
proceeding by reason of the former or present official capacity of such person
against judgments, penalties, fines (including, without limitation, excise
taxes assessed against such person with respect to any employee benefit plan),
settlements and reasonable expenses, including attorneys' fees and
disbursements, incurred by such person in connection with the proceeding, if,
with respect to the acts or omissions of such person complained of in the
proceeding, such person (1) has not been indemnified therefor by another
organization or employee benefit plan for the same judgments, penalties or
fines; (2) acted in good faith; (3) received no improper personal benefit and
Section 302A.255 (with respect to director conflicts of interest), if
applicable, has been satisfied; (4) in the case of a criminal proceeding, had
no reasonable cause to believe the conduct was unlawful; and (5) in the case of
acts or omissions in such person's official capacity for the corporation,
reasonably believed that the conduct was in the best interests of the
corporation, or in the case of acts or omissions in such person's official
capacity for other affiliated organizations, reasonably believed that the
conduct was not opposed to the best interests of the corporation. Section
302A.521 also requires payment by a corporation, upon written request, of
reasonable expenses in advance of final disposition of the proceeding in
certain instances. A decision as to required indemnification is made by a
disinterested majority of the Board of Directors present at a meeting at which
a disinterested quorum is present, or by a designated committee of the Board,
by special legal counsel, by the shareholders or by a court.
Provisions regarding indemnification of officers and directors of
ShowCase to the extent permitted by Section 302A.521 are contained in
ShowCase's articles of incorporation and bylaws.
The Company maintains a policy of directors' and officers' liability
insurance that insures the Company's directors and officers against the cost of
defense, settlement or payment of a judgment under certain circumstances. In
conjunction with the effectiveness of the registration statement, the Company
plans to expand its coverage to include securities law claims.
II-1
Item 15. Recent Sales of Unregistered Securities
Since March 31, 1996, the Company has issued and sold the following
securities that were not registered under the Securities Act:
1. At various times during the period from March 31, 1996 through March
31,June 1,
1999, the Company has granted to employees and directors stock options under
its Stock Option Plan covering an aggregate of shares of the Company's
Common Stock, at exercise prices ranging from $1.08 to $7.12 per share.
2. On March 26, 1998, the Company sold an aggregate of 875,000 shares of
Series B Convertible Preferred Stock at a purchase price of $4.00 per share,
including 625,000 shares to Norwest Equity Partners V, L.P. and 250,000 shares
to Beacon Information Technology.
3. On May 13, 1998, the Company issued a warrant (the "Series B Warrant")
to purchase 13,750 shares of Series B Convertible Preferred Stock (at an
exercise price of $4.00 per share) to Comdisco, Inc. (the "Warrantholder") in
consideration for the Warrantholder executing and delivering certain equipment
leases (the "Leases") to the Company. Upon the closing of the offering, the
warrant will represent the right to purchase 13,580 shares of our common stock.
If the total cost of equipment leased by the Company pursuant to the Leases
exceeds $1,000,000, the Warrantholder has the right to purchase an additional
number of shares determined by multiplying the amount by which the
Warrantholder's total equipment cost exceeds $1,000,000 by 5.5% and dividing
the product thereof by the exercise price per share.
The sale and issuance of securities described above were deemed to be
exempt from registration under the Securities Act in reliance on Section 4(2)
of the Securities Act or Regulation D promulgated thereunder as transactions by
an issuer not involving a public offering, where the purchasers represented
their intention to acquire securities for investment purposes only and not with
a view to or for sale in connection with any distribution thereof, and received
or had access to adequate information about the Company, or Rule 701
promulgated thereunder in that they were offered and sold either pursuant to
written compensatory benefit plans or pursuant to a written contract relating
to compensation.
II-2
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
Number Description
- ------ -----------
1.1* Form of Purchase Agreement.
3.13.1** Articles of Incorporation of the Company, as currently in effect.
Amended and Restated Articles of Incorporation of the Company, adopted subject to
3.23.2** completion of this offering.
3.33.3** Amended and Restated Bylaws of the Company, as currently in effect.
Amended and Restated Bylaws of the Company, adopted subject to completion of the
3.43.4** offering.
4.1* Specimen of Common Stock certificate.
4.2** Warrant Agreement to purchase shares, of the Series B Preferred Stock of the
4.2 Company, issued to Comdisco, Inc.
4.34.3** Registration Rights Provisions, for preferred shareholders.
5.1*5.1 Opinion of Dorsey & Whitney LLP.
10.110.1** Amended 1991 Long-Term Incentive and Stock Option Plan.
10.210.2** 1999 Stock Incentive Plan.
10.310.3** 1999 Employee Stock Purchase Plan.
Lease Agreement dated as of November 30, 1998 between Mortenson Properties, Inc.
10.410.4** as Landlord and the Company as Tenant.
Employment Agreement dated as of November 22, 1993, between the Company and
10.510.5** Kenneth H. Holec.
Service Agreement dated as of March 17, 1998, between the Company and Patrick
10.610.6** Dauga.
10.710.7** Employment offer letter to Kevin R. Potrzeba dated as of August 23, 1996.
10.810.8** Employment offer letter to Roger E. Bottum dated as of July 31, 1998.
License Agreement, effective as of April 1, 1998, between the Company and Arbor
10.9*10.9+** Software Corporation (the "Hyperion License Agreement").
Amendment No. 1 to the Hyperion License Agreement, effective as of September 14,
10.10*10.10+** 1998, between the Company and Hyperion Solutions Corporation.
Software License and Marketing Agreement, effective as of January 4, 1996,
10.11*10.11+** between the Company and AppSource.
10.12*10.12+** Amendment to AppSource/Showcase License Agreement, effective as of March 7, 1997.
ShowCase License Agreement, dated as of December 9, 1998, between the Company and
10.13*10.13+** International Business Machines Corporation ("IBM").
Outbound License Agreement, dated as of December 9, 1998, between the Company and
10.14*10.14+** IBM.
Marketing Relationship Agreement, dated as of May 22, 1997, between the Company
10.15*10.15+** and IBM (the "Marketing Relationship Agreement").
Amendment No. 1, dated as of October 28, 1998, to Marketing Relationship
10.16*10.16+** Agreement between the Company and IBM.
Amendment No. 2, dated as of March 15, 1999, to Marketing Relationship Agreement
10.17*10.17+** between the Company and IBM.
21.121.1** Subsidiaries of the Company.
23.1 Consent of Independent Auditors and Report on Schedules.Schedule.
Consent of Dorsey & Whitney LLP (included in Exhibit No. 5.1 to the Registration
23.2 Statement).
24.124.1** Powers of Attorney (included on signature page).Attorney.
27.1 Financial Data Schedule.
- --------
* To be filed by amendment.
** Previously filed.
+ Confidential information has been omitted from these exhibits and filed
separately with the Securities and Exchange Commission accompanied by a
confidential treatment request pursuant to Rule 406 under the Securities Act
of 1933, as amended.
II-3
Pursuant to Item 601(b)(4)(iii) of Regulation S-K, copies of instruments
defining the rights of holders of certain long-term debt of the Company are not
filed, and in lieu thereof, the Company agrees to furnish copies thereof to the
Commission upon request.
(b) Financial Statement Schedules
II--Valuation and Qualifying Accounts
Schedules other than those listed have been omitted since they are not
required or are not applicable or the required information is shown in the
financial statements or related notes. Columns omitted from schedules filed
have been omitted since the information is not applicable.
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 foregoing provisions, 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
Act 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
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 Act and
will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statementAmendment No. 1 to the Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in
the City of Rochester, State of Minnesota, on April 28,June 3, 1999.
Showcase Corporation
/s/ Kenneth H. Holec
By:___________________________________________________________________
Kenneth H. Holec
President and Chief Executive Officer
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints Kenneth H. Holec and Craig W.
Allen, and each of them, his true and lawful attorneys-in-fact and agents,
with full powers of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to sign any and all (i) amendments
(including post-effective amendments) and additions to this registration
statement and (ii) registration statements, and any and all amendments thereto
(including post-effective amendments), relating to the offering contemplated
pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, and hereby grants to
such attorneys-in-fact and agents and each of them full power and authority to
do and perform each and every act and thing requisite or necessary to be done
in and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said attorneys-
in-fact and agents or any of them or his or their 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 statementAmendment No. 1 to the Registration Statement has been signed by the following
persons in the capacities andindicated on the dates indicated.June 3, 1999.
Signature Title Date
/s/ Kenneth H. Holec President, Chief Executive Officer
_____________________________________ and Director (principal executive
officer)
April 28,
_____________________________________ 1999
Kenneth H. Holec officer)
/s/ Craig W. Allen Chief Financial Officer (principal
_____________________________________ financial officer and principal
accounting officer)
April 28,
_____________________________________ 1999
Craig W. Allen /s/accounting officer)
Director
*
_____________________________________
Promod Haque
Director
April 28,*
_____________________________________ 1999
Promod Haque
/s/ C. McKenzie Lewis Director April 28,
_____________________________________ 1999
C. McKenzie Lewis III
/s/Director
*
_____________________________________
Jack Noonan
Director
April 28,*
_____________________________________ 1999
Jack Noonan
/s/
Dennis Semerad
Director April 28,
_____________________________________ 1999
Dennis Semerad/s/ Craig W. Allen
*By_____________________________
Craig W. AllenAttorney-in-Fact
II-5
SHOWCASE CORPORATION AND SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(In Thousands)(in thousands)
Allowance for Doubtful Accounts and Sales Returns
Year Ended March 31,
----------------------
1996 1997 1998 1999
------ ------ ------
Balance at beginning of year........................ $ 228150 $ 250175 $ 300320
Additions charged to revenue........................ 241 445 319
Returns............................................. (216) (300) (119)
------ ------ ------
Balance at end of year.............................. $ 175 $ 320 $ 520
====== ====== ======
Allowance for Doubtful Accounts
Year Ended March 31,
----------------------
1997 1998 1999
------ ------ ------
Balance at beginning of year........................ $ 100 $ 125 $ 180
Additions charged to costs and expenses............. 410 281 500
Write-offs and returns.............................. (388) (231) (300)39 55 163
Write-offs.......................................... (14) -- (58)
------ ------ ------
Balance at end of year.............................. 250 300 500$ 125 $ 180 $ 285
====== ====== ======
II-6
EXHIBIT INDEX
Number Description
- ------ -----------
1.1* Form of Purchase Agreement.
3.13.1** Articles of Incorporation of the Company, as currently in effect.
Amended and Restated Articles of Incorporation of the Company, adopted subject to
3.23.2** completion of this offering.
3.33.3** Amended & Restated Bylaws of the Company, as currently in effect.
Amended and Restated Bylaws of the Company, adopted subject to completion of the
3.43.4** offering.
4.1* Specimen of Common Stock certificate.
4.2** Warrant Agreement to purchase shares, of the Series B Preferred Stock of the
4.2 Company, issued to Comdisco, Inc.
4.34.3** Registration Rights Provisions, for preferred shareholders.
5.1*5.1 Opinion of Dorsey & Whitney LLP.
10.110.1** Amended 1991 Long-Term Incentive and Stock Option Plan.
10.210.2** 1999 Stock Incentive Plan.
10.310.3** 1999 Employee Stock Purchase Plan.
Lease Agreement dated as of November 30, 1998 between Mortenson Properties, Inc.
10.410.4** as Landlord and the Company as Tenant.
Employment Agreement dated as of November 22, 1993, between the Company and
10.510.5** Kenneth H. Holec.
Service Agreement dated as of March 17, 1998, between the Company and Patrick
10.610.6** Dauga.
10.710.7** Employment offer letter to Kevin R. Potrzeba dated as of August 23, 1996.
10.810.8** Employment offer letter to Roger E. Bottum dated as of July 31, 1998.
License Agreement, effective as of April 1, 1998, between the Company and Arbor
10.9*10.9+** Software Corporation (the "Hyperion License Agreement").
Amendment No. 1 to the Hyperion License Agreement, effective as of September 14,
10.10*10.10+** 1998, between the Company and Hyperion Solutions Corporation.
Software License and Marketing Agreement, effective as of January 4, 1996,
10.11*10.11+** between the Company and AppSource.
10.12*10.12+** Amendment to AppSource/ShowCase License Agreement effective as of March 7, 1997.
ShowCase License Agreement, dated as of December 9, 1998, between the Company and
10.13*10.13+** International Business Machines Corporation ("IBM").
Outbound License Agreement, dated as of December 9, 1998, between the Company and
10.14*10.14+** IBM.
Marketing Relationship Agreement, dated as of May 22, 1997, between the Company
10.15*10.15+** and IBM (the "Marketing Relationship Agreement").
Amendment No. 1, dated as of October 28, 1998, to Marketing Relationship
10.16*10.16+** Agreement between the Company and IBM.
Amendment No. 2, dated as of March 15, 1999, to Marketing Relationship Agreement
10.17*10.17+** between the Company and IBM.
21.121.1** Subsidiaries of the Registrant.
23.1 Consent of Independent Auditors and Report on Schedules.Schedule.
Consent of Dorsey & Whitney LLP (included in Exhibit No. 5.1 to the Registration
23.2 Statement).
24.124.1** Powers of Attorney (included on signature page).
27.1 Financial Data Schedule.
- --------
* To be filed by amendment.
** Previously filed.
+ Confidential information has been omitted from the exhibits and filed
separately with the Securities and Exchange Commission accompanied by a
confidential treatment request pursuant to Rule 406 under the Securities Act
of 1933, as amended.