EXHIBIT 99.10
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM 10-KSB/A
AMENDMENT NO. 3
/X/ ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934.
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001
OR
/ / TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934.
FOR THE TRANSITION PERIOD FROM ________________ TO ________________.
COMMISSION FILE NUMBER: 0-288-42
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PLANETCAD INC.
(Name of Small Business Issuer in Its Charter)
DELAWARE ▇▇-▇▇▇▇▇▇▇
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
(Address of Principal Executive Offices) (Zip Code)
(▇▇▇) ▇▇▇-▇▇▇▇
(Issuer's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
Common Stock, $.01 Par Value American Stock Exchange
Series A Junior Participating Preferred Stock American Stock Exchange
Purchase Rights
Securities registered pursuant to Section 12(g) of the Act: NONE
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes /X/ No
/ /
Check if no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is contained in this form, and no disclosure will be contained,
to be the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. / /
The issuer's revenue for its most recently completed fiscal year was
$1,801,000.
The aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the closing sales price per share as
reported on the American Stock Exchange on March 14, 2002 was $1,587,000.*
The number of shares of common stock outstanding on July 31, 2002 was
12,462,858.
Transitional Small Business Disclosure Format. Yes / / No /X/
DOCUMENTS INCORPORATED BY REFERENCE
No documents are incorporated by reference into this
Annual Report on
Form 10-KSB.
--------------------------
* Excludes 4,508,520 shares of common stock based upon the assumption that
directors, executive officers and stockholders whose beneficial ownership
exceeds five percent of the shares outstanding are affiliates. This
assumption should not be construed to indicate that any such person
possesses the power, direct or indirect, to direct or cause the direction of
the management or policies of the issuer, or that such person is controlled
by or under common control with the issuer.
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PLANETCAD INC.
ANNUAL REPORT ON FORM 10-KSB
TABLE OF CONTENTS
PAGE
--------
PART I
Item 1 Description of Business..................................... 1
Item 2 Description of Property..................................... 11
Item 3 Legal Proceedings........................................... 12
Item 4 Submission of Matters to a Vote of Security Holders......... 12
PART II
Item 5 Market for Common Equity and Related Stockholder Matters.... 12
Item 6 Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 12
Item 7 Financial Statements........................................ 22
Item 8 Changes in and Disagreements with Accountants on Accounting
and Financial Disclosures.................................
PART III
Item 9 Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange
Act....................................................... 39
Item 10 Executive Compensation...................................... 41
Item 11 Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters................ 44
Item 12 Certain Relationships and Related Transactions.............. 46
Item 13 Exhibits, List and Reports on Form 8-K...................... 50
Signatures.................................................. 54
PlanetCAD Inc. and the names of all other products and services of PlanetCAD
used herein are trademarks or registered trademarks of
PlanetCAD Inc. All other
product and service names used are trademarks or registered trademarks of their
respective owners.
i
THIS
ANNUAL REPORT ON FORM 10-KSB CONTAINS FORWARD-LOOKING STATEMENTS
(WITHIN THE MEANING OF SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934 AND
SECTION 27A OF THE SECURITIES ACT OF 1933) THAT HAVE BEEN MADE PURSUANT TO THE
PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. SUCH
FORWARD-LOOKING STATEMENTS ARE BASED ON CURRENT EXPECTATIONS, ESTIMATES, AND
PROJECTIONS ABOUT OUR INDUSTRY, MANAGEMENT BELIEFS, AND CERTAIN ASSUMPTIONS MADE
BY OUR MANAGEMENT. WORDS SUCH AS "ANTICIPATES," "EXPECTS," "INTENDS," "PLANS,"
"BELIEVES," "SEEKS," "ESTIMATES," VARIATIONS OF SUCH WORDS, AND SIMILAR
EXPRESSIONS ARE INTENDED TO IDENTIFY SUCH FORWARD-LOOKING STATEMENTS. THESE
STATEMENTS ARE NOT GUARANTEES OF FUTURE PERFORMANCE AND ARE SUBJECT TO CERTAIN
RISKS, UNCERTAINTIES, AND ASSUMPTIONS THAT ARE DIFFICULT TO PREDICT; THEREFORE,
ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE EXPRESSED OR FORECASTED IN ANY
SUCH FORWARD-LOOKING STATEMENTS. SUCH RISKS AND UNCERTAINTIES INCLUDE, BUT ARE
NOT LIMITED TO, THOSE SET FORTH HEREIN UNDER "FACTORS AFFECTING OUR BUSINESS,
OPERATING RESULTS, FINANCIAL CONDITION AND COMMON STOCK" ON PAGES 7 THROUGH 11.
UNLESS REQUIRED BY LAW, WE UNDERTAKE NO OBLIGATION TO UPDATE PUBLICLY ANY
FORWARD-LOOKING STATEMENTS, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE
EVENTS, OR OTHERWISE. HOWEVER, YOU SHOULD CAREFULLY REVIEW THE RISK FACTORS SET
FORTH IN OTHER REPORTS AND DOCUMENTS THAT WE FILE FROM TIME TO TIME WITH THE
SECURITIES AND EXCHANGE COMMISSION, PARTICULARLY THE QUARTERLY REPORTS ON
FORM 10-QSB AND ANY CURRENT REPORTS ON FORM 8-K.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
PlanetCAD Inc. was incorporated in Delaware on July 7, 1986. We develop,
market and support cycle time reduction software solutions that integrate
engineering processes and data for the manufacturing supply chain. We operate
predominantly in the manufacturing industry with special focus on the
computer-aided design (CAD), manufacturing (CAM) and engineering (CAE) markets.
In July 2000, we acquired certain assets and liabilities of Prescient
Technologies, Inc. and with it major manufacturing customers in the automotive,
aerospace, electronics and other discrete manufacturing markets worldwide. The
Prescient product line, PrescientQA-TM-, is an integrated suite of engineering
quality tools that allows users, managers and key executives to quantitatively
assess and improve the quality of their product models.
In November 2000, we sold our component software division to a subsidiary of
Dassault Systemes Corp. in a cash transaction for approximately $25 million,
subject to certain adjustments contemplated by the purchase agreement, and
changed our name from "Spatial Technology Inc." to "
PlanetCAD Inc." The sale of
our component software division enabled us to focus our efforts entirely on our
PlanetCAD division, which at the time was primarily an Internet-based services
platform, with the goal of addressing problems that affect data quality and
interoperability in manufacturing. In the first quarter of 2001, however, we
made a strategic decision, for a period of time, to use our Internet-based
services as marketing tools to create name recognition in our market niche and
to promote our enterprise solutions software, rather than to generate revenue
directly from our Internet-based services. Because we had recently sold our
component software division, which had been our most widely recognized division,
we emphasized increasing our presence in our targeted market. This strategy
allowed us to concentrate on developing and selling our enterprise software
solutions.
In June 2001, we acquired our supply chain management software from Capstone
Ventures SBIC, L.P. and AI Research Corporation for an aggregate purchase price
of $200,000 cash plus warrants to purchase up to 125,000 shares of our common
stock for $1.00 per share. Our supply chain solution performs background
processing and enhances our other products and services that we market and sell
to our customers. It also enables us to bundle, market and sell our software
products and services directly to suppliers and manufacturers, which contract
with original equipment manufacturers, or OEMs, for the outsourced materials and
manufacturing of products developed and designed by others,
1
including our existing OEM customers. Including supply chain manufacturers among
our targeted customers significantly increases the potential market for our
suite of software solutions. The software's background processing function
benefits our targeted customers by reducing the manual operation and
manipulation of the CAD, CAM or CAE data during the product translation process
from the end-user's or the OEM's native CAD, CAM or CAE software application
into a format that can be easily and readily used by our customers. The software
also facilitates the rapid communication, tracking and quality checking of that
data to and from authorized parties. The automated process enables our customer
to view and manipulate accurate data received electronically from the end-user
or OEM and simultaneously receive other project information and instructions.
This allows our customer, the supply chain manufacturer, to prepare a more
accurate cost and timeline proposal for the manufacture of the product during
the request-for-quote phase of the manufacturing process. It also helps to avoid
manufacturing errors that can result from the supply chain manufacturer's
inability to view uncorrupted electronic data without using the same software
application used by the end-user or OEM. This cycle time reduction function,
therefore, helps to speed the end-product's time to market. Additionally, supply
chain manufacturers which contract with end-users or OEMs that have not
installed our supply chain management software benefit from the automatic
background processing such as conversion, and translation upon its receipt of
the electronic data in the end-user's or OEM's native computer-aided design,
manufacturing or engineering software application. We have been developing and
enhancing the software since we acquired it, and we launched our first
commercially available version of our supply chain management software,
SCS--Envoy, in late January 2002. While we have yet to close our first sale of
our recently released SCS--Envoy product, we believe that it will develop into
our core product offering over time.
Our enterprise software products are installed behind a corporate firewall
to help manage transactions and interactive business processes by speeding
engineering data flows between design and manufacturing engineers and their
suppliers. Key features of our enterprise products include:
- engineering data quality tools that allow engineers, managers and key
executives to quantitatively assess and improve the quality of their
product model data;
- communication of product design data inside a corporate Intranet and
between the end-users and OEMs and the supply chain manufacturers; and
- a full featured viewing solution enabling a user to view, mark-up, measure
and convert file formats without requiring the native applications.
Our products include software solutions for data interoperability, data
quality management, visualization and collaboration, and process automation. We
focus on providing applications to enhance business practices in the following
areas:
- improve the accuracy of the design-to-manufacture process;
- automate time consuming process such as translation, shipping and tracking
of data;
- improve new product time to market;
- lower manufacturing costs; and
- enable the manufacturing of higher quality products.
We maintain our corporate headquarters in Boulder, Colorado, from which all
executive, marketing, finance and administrative functions, customer service and
research and development functions are executed. We have one wholly owned
subsidiary, PlanetCAD Limited (United Kingdom), which assists in sales and
licensing of our products internationally.
2
PRODUCTS AND TECHNOLOGY
GENERAL
We provide software tools and applications that enhance the value of
engineering data in the manufacturing design and procurement supply chain by
enabling cycle time reduction. During the traditional manufacturing process, if
the supply chain manufacturer receives a product's specifications and design
electronically, important data may be lost if the supply chain manufacturer does
not use the same software application used by the data originator. In that
event, a sample manufactured product is provided to the end-user or OEM for
approval or modification. If the sample does not meet the end-user's or OEM's
specifications, it must be modified by the supply chain manufacturer and sent
again for approval or modification. This process is often repeated several times
and is costly. "Cycle time" is a term used to describe the cycle of
trial-and-error iterations it takes for the supply chain manufacturer to produce
an end product satisfactory to the end-user or OEM. Our cycle time reduction
solutions enhance engineering processes and reduce product time-to-market by
addressing product data quality, communication and downstream data
interoperability. This includes, but is not limited to, computer-aided design,
data translation and data movement and data tracking that enables communication
of engineering data with varying formats and precision, and data quality
assurance tools that improve design quality and reduce or even eliminate
iterations from electronic design to the finished product meeting the electronic
design standards.
Our technology and products are based on JAVA, which is a cross-platform,
highly-scalable and internet-enabled development software programming platform.
Our JAVA-based technology and products enable efficient engineering information
exchange and integration for professional manufacturing and design engineers
worldwide. Engineers and managers can benefit from lower costs of production and
accelerated introduction of products to market.
Our enterprise software products include PrescientQA, IntraVision and our
new SCS--Envoy supply chain solution software. In addition, we offer
professional services that help implement a transparent integration of cycle
time reduction solutions with existing manufacturing systems in corporate
product design and production processes.
PRESCIENTQA
Our PrescientQA product line is an integrated suite of engineering quality
tools that provides quality software solutions for manufacturers in the
aerospace, automotive, electronics and other discrete manufacturing industries.
These enterprise-based products detect, assess, correct and prevent product
development problems caused by inaccurate, incomplete or inconsistent design
modeling practices. The core components of the PrescientQA suite include:
- DriveQA-TM-: DriveQA is a management tool that acquires, summarizes,
analyzes, reports and depicts engineering quality metrics to
determine the effectiveness of an engineering organization's
design process. It provides the critical quality measurement
data that a company can use to improve the product
development process, and to institute training, standards
reviews or other corrective measures to solve costly and
time-consuming quality errors.
- DesignQA-Registered DesignQA detects, assesses, corrects and prevents product
Trademark-: development problems caused by inaccurate, incomplete or
inconsistent design modeling practices.
3
- Geometry-QA-TM-: Geometry-QA reduces the number of iterations from electronic
design to the finished product meeting the electronic design
standards required to bring new products to market by
identifying and eliminating geometric problems that hinder
data exchange with suppliers and internal customers and
impact the manufacturability of the end product.
- Certify-QA-TM-: Certify-QA is a tool that analyzes computer-aided design
data within the product data management (PDM) system to
report substandard models and prevents poor models from
being submitted to the system.
- Audit-QA-TM-: Audit-QA is the initial consultation service to help
companies identify quality problems affecting the
organization and establish an economic return-on-investment
and implementation plan for deploying quality tools in the
engineering process.
Our PrescientQA suite provides quality solutions that work in many different
design environments and interacts with and obtains design information from
leading engineering design systems. To help ensure that our PrescientQA software
products contain the best quality programming code and to help ensure that we
provide the best quality support for these design systems, we seek to maintain
close and high-level relationships with each of these developers.
INTRAVISION-REGISTERED TRADEMARK-
Our IntraVision product provides users with a single tool to access various
forms of product data (legacy information, plot files, documents and
computer-aided design models) produced from a variety of different applications,
enabling them to share, communicate and review data used in the creation,
support and maintenance of manufactured products. IntraVision preserves the
intelligence found in the native computer-aided design, manufacturing and
engineering files. Supporting over 300 file formats, IntraVision provides users
the ability to view, measure, mark-up and manipulate the accurate data of
original designs and concurrent engineering processes without the native
applications. IntraVision supports all major computer-aided design formats,
including ACIS-Registered Trademark-, SAT-Registered Trademark-, AutoCAD,
CATIA-Registered Trademark-, IGES, Pro/ENGINEER-Registered Trademark- (Pro/E),
STEP, STL, VDA-FS and VRML. IntraVision's robust direct format support preserves
the intelligence of native computer-aided design, manufacturing and engineering
files, enabling the user to work with accurate, original design data and
concurrent engineering processes. In this way, IntraVision preserves
high-quality data for down-stream systems, suppliers and business partners,
without the errors that typically come with conversion to a proprietary format.
SCS--ENVOY SOLUTION
Our SCS--Envoy supply chain solution software provides users with a tool
that automatically converts, translates, packages and communicates business
information and engineering data from the end-user or OEM to their supply chain.
This automatic processing, packaging and communication enables the supply chain
manufacturer to view, quality check and manipulate accurate data received
electronically from the end-user or OEM. Additionally, manufacturers with access
to our supply chain solution can send, receive and collaborate with anyone in
the supply chain instantly, with accurate real-time information, anywhere in the
world. We first released our SCS--Envoy product in late January, and as of
July 31, 2002, had not made any sales.
DEVELOPMENT CONSULTING SERVICES
We also provide consulting services to our customers to help them
understand, integrate and use our products in their current supply chain
processes. We can customize our products to address their
4
unique requirements and business needs. We believe that providing our customers
with this high level of service will help retain and attract new business and
differentiate us from our competitors.
CUSTOMERS
Our existing customers are typically from the automotive, aerospace,
electronics and other discrete manufacturing markets worldwide and they use our
cycle time reduction solutions to access, exchange and share product data
throughout their engineering and manufacturing processes to reduce their costs
of innovation and product development. Many customers are Fortune 1000
manufacturers that manage the production process through a wide network of
suppliers needing access to engineering data rapidly and without manual
intervention. Our current customers, which are also targeted customers with
respect to our recently released SCS--Envoy product, include Lockheed ▇▇▇▇▇▇,
Black & ▇▇▇▇▇▇, Freightliner Trucks and Boeing Helicopter. While one customer
accounted for 13% of our sales for 2000, we are not dependent on any one major
customer and no customer accounted for more than 10% of our sales during 2001.
With the introduction in late January 2002 of SCS--Envoy, our supply chain
management software, we are targeting middle market supply chain manufacturers
which service our existing customers and other OEMs and which have annual
revenues of approximately $200 million to $800 million. By providing the supply
chain manufacturers with accurate access to product design data, they may
interface directly with an OEM's procurement, design and engineering divisions
to access, exchange and share product data accurately and efficiently, reducing
manufacturing iterations, improving the end-product's time to market and
reducing overall manufacturing costs.
RESEARCH AND PRODUCT DEVELOPMENT
We believe that our continued growth will depend in large part on our
ability to maintain and enhance our current products, develop new products and
maintain technological competitiveness. We have built a development group with
specialized industry-specific development techniques in advanced mathematics and
C++ programming. During 2001 and 2000, our research and development expenses
were $4.4 million and $6.3 million, respectively. Because of our working capital
restraints, however, we expect our 2002 research and development expenditures to
be significantly reduced.
We augment our internal development capabilities through a network of
development partners who have complementary programming expertise. Depending on
the product involved, we may own, co-own or license the technology we market and
distribute. For many products, we have exclusive rights to market and distribute
the technology. We utilize development partners to reduce our research and
development expenses and to obtain the expertise of skilled programmers who are
not our employees.
SALES, MARKETING AND DISTRIBUTION
We sell our software products through our direct and indirect worldwide
sales organization. We maintain two offices for our direct sales force: one is
located in Boulder, Colorado and the other is located in the United Kingdom.
Application specialists provide support to prospective customers on product
information and deployment options to compliment our direct sales force. Our
pre-sales support is comprised of four employees.
We primarily target our marketing efforts at senior executive and
engineering management. In connection with SCS--Envoy, our supply chain
management software product, we are primarily targeting our marketing efforts at
senior executive management and engineering, procurement and manufacturing
executives. Our marketing efforts are designed to generate new sales
opportunities for our various products and create brand awareness. We engaged in
numerous marketing activities in 2001, including online and offline advertising,
direct e-mail campaigns, participation in trade shows and
5
public relations. Because of our working capital restraints, however, we expect
our 2002 marketing expenditures to be significantly reduced.
CUSTOMER SERVICE AND SUPPORT
We believe that customer service and support is critical to the success of
our products. Customer phone calls or e-mails are answered and managed by our
support professionals who review customer communications with the appropriate
development group and coordinate the response to the customer. Our response time
varies depending upon the complexity of the question or issue at hand, but we
generally respond within 24 hours.
As part of our licensing arrangements for all products, we offer maintenance
services that include technical updates and product support. To date, a majority
of our customers have purchased these maintenance services, which we offer on a
renewable basis for an annual fee. These services allow our customers full
access to the products they have licensed, including all new releases, telephone
support and other support required to effectively utilize our products.
COMPETITION
The markets for our products are highly competitive, subject to rapid change
and characterized by constant demand for new product features and pressure to
accelerate the release of new products and product enhancements and to reduce
prices. The principal methods of competition in the markets in which we compete
include: product functionality and quality; product-related services such as
customer support and implementation services; price; compliance with industry
standards and requirements; the ability of the solution to generate business
benefits; rapid return on investment; and financial stability. We face
competition on several fronts, including both larger mechanical engineering
software and supply chain management software companies and smaller start-ups.
Depending on the product, our competitors include INCAT Systems, Inc.,
Parametric Technology Corporation, TransCAT GmbH, International TechneGroup
Incorporated, Proficiency, Inc. and Manugistics Inc. A number of other large
companies compete with us indirectly because they provide similar products to
our customers, or potential customers, bundled with the purchase of other
products. Because most of our competitors or potential competitors have
significantly greater financial, managerial, technical and marketing resources
than we do, our competitive position is relatively disadvantaged.
INTELLECTUAL PROPERTY
We regard our technology as proprietary and we rely heavily on a combination
of copyright, trademark and trade secret laws, employee and third party
nondisclosure agreements, and other intellectual property protection methods to
protect our products and technology. Currently, we do not have any patents with
respect to our technology. Existing copyright laws afford only limited
protection, and it may be possible for unauthorized third parties to copy our
products or to reverse engineer or obtain and use information that we regard as
proprietary. Because we license portions of our technology and also resell
certain component extensions of third party software developers to unrelated
third parties, it is difficult to monitor what those third parties do with the
licensed or sold property.
While we are not aware that any of our products infringe upon the
proprietary rights of any third parties, it is possible that third parties may
claim infringement by us with respect to current or future products. We expect
that we could increasingly be subject to such claims as the number of products
and competitors in the supply chain management, enterprise solutions and product
data software markets grow and the functionality of such products overlap with
other industry segments.
6
EMPLOYEES
As of December 31, 2001, we had 31 full-time employees, 19 of whom were
engaged in product development, quality assurance and technical support, 7 of
whom were engaged in sales and marketing and 5 of whom were engaged in
administration. Our employees are not subject to any collective bargaining
agreements, and we believe our relations with our employees are good.
FACTORS AFFECTING OUR BUSINESS, OPERATING RESULTS, FINANCIAL CONDITION AND
COMMON STOCK
THE FOLLOWING RISK FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING
PLANETCAD AND OUR BUSINESS BECAUSE SUCH FACTORS CURRENTLY HAVE A SIGNIFICANT
IMPACT, OR MAY HAVE A SIGNIFICANT IMPACT, ON THE FUTURE OF OUR BUSINESS,
OPERATING RESULTS OR FINANCIAL CONDITION, AND THE MARKET FOR OUR COMMON STOCK.
WE HAVE A HISTORY OF LOSSES AND EXPECT LOSSES TO CONTINUE FOR THE
FORESEEABLE FUTURE
As of December 31, 2001 and 2000, we recorded an accumulated deficit of
$30.1 million and $18.8 million, respectively. On a stand-alone basis, our
PlanetCAD division experienced operating losses in each quarterly period since
its inception. We expect to continue to incur net losses for the foreseeable
future because our expected operating and marketing expenses will increase as we
attempt to grow our business. With increased expenses, we will need to generate
significant additional revenue to achieve profitability. As a result, we may
never become profitable. Even if we do achieve profitability in any period, we
may not be able to sustain or increase profitability on a quarterly or an annual
basis.
WE ARE IMPLEMENTING A NEW AND UNPROVEN BUSINESS MODEL THAT MAY NEVER BE
SUCCESSFUL.
Our business model of providing products and services to reduce cycle time
for supply chain manufacturers is new and unproven and may never be successful.
The success of the business plan depends on a number of factors. These factors
include:
- competition from other supply chain management software developers;
- size of information technology budgets for the purchase of our enterprise
software solutions and services;
- confidence in our long-term strength as a service provider;
- our ability to introduce and sell our products, specifically SCS--Envoy,
to supply chain manufacturers of our existing customers;
- our ability to differentiate our product offerings, specifically
SCS--Envoy, from those of our competitors; and
- our ability to continue to differentiate and support our PrescientQA-TM-
line of products.
OUR FAILURE TO DEVELOP NEW PRODUCTS AND ENHANCE EXISTING PRODUCTS MAY REDUCE
REVENUE AND ENDANGER OUR VIABILITY.
We will need to develop new products and enhance existing products, services
and software that stimulate and satisfy customer demand. If we fail to achieve
these objectives, any decline in sales of existing products, services and
software will reduce revenue and may eventually jeopardize our viability.
OUR INABILITY TO RAISE ADDITIONAL CAPITAL ON FAVORABLE TERMS OR AT ALL MAY
LIMIT OUR ABILITY TO DEVELOP OUR BUSINESS, WHICH COULD RESULT IN DECLINING
REVENUES AND STOCK PRICE.
We may need to raise additional capital to fund operating losses, develop
and enhance our services and products, fund expansion, respond to competitive
pressures or acquire complementary products, businesses or technologies. We may
not be able to raise additional financing on favorable terms, if at
7
all. If we raise additional funds through the issuance of equity or convertible
debt securities, the percentage ownership of our stockholders will be reduced
and the securities issued may have rights, preferences or privileges senior to
those of our common stock. If we cannot raise adequate funds on acceptable
terms, our ability to fund growth, take advantage of business opportunities,
develop or enhance services or products or otherwise respond to competitive
pressures will be significantly limited. In that event, our business could be
harmed by declining sales and revenue, our operating results and financial
condition would be adversely affected and the market price for our common stock
could decline.
IF OUR SUPPLY CHAIN MANAGEMENT SOFTWARE IS NOT WIDELY ACCEPTED BY THE
MARKETPLACE, OUR REVENUE AND STOCK MAY DECLINE.
The market for SCS--Envoy, our supply chain management software, and our
related services is at an early stage of development. Our success depends on a
significant number of buying organizations and marketplaces implementing our
products and services. The implementation of our products by these organizations
is often perceived as complex, time consuming and expensive. In many cases,
these organizations must change established business practices and conduct
business in new ways. Our ability to attract additional customers for our
products and services will depend in large part on our ability to use our
existing customers as reference accounts. Unless a ▇▇▇▇▇▇▇▇ ▇▇▇▇ of buying
organizations, their suppliers and marketplaces adopt our supply chain
management solutions, our products and services may not achieve widespread
market acceptance and our business could be materially adversely affected by
declining or no revenues and declining stock price. We began marketing
SCS--Envoy in late January 2002 and, as of July 31, 2002, have not made any
sales.
OUR LIMITED OPERATING HISTORY MAKES IT DIFFICULT TO ASCERTAIN OUR FUTURE
PROSPECTS FOR REVENUE GROWTH AND PROFITABILITY.
Although we have existed since July 1986, the PlanetCAD division was not
introduced until June 1999 and its first PlanetCAD application service was not
launched until November 1999. In November of the following year, we sold our
component software division, the division around which we were founded, to a
wholly-owned subsidiary of Dassault Systemes Corp. Since that time, with the
acquisition in June 2001 of our supply chain management application services
capabilities, we have changed the focus of our operations from providing
Web-based applications services to providing cycle time reduction services and
solutions for the manufacturing supply chain. The limited history and continuing
evolution of our operations makes it difficult to evaluate our business and
prospects. Our prospects must be considered in light of the risks,
uncertainties, expenses and difficulties frequently encountered by companies in
their early stages of development, particularly companies with limited resources
attempting to use technology to change long-established businesses and consumer
behavior. These risks and uncertainties are discussed throughout this section.
If we fail to address these risks and uncertainties, we may be unable to
grow our business, increase our revenue or become profitable.
8
OUR INABILITY TO COMPETE WITH COMPETITORS WITH SUPERIOR RESOURCES MAY CAUSE
OUR REVENUES AND STOCK PRICE TO DECLINE SIGNIFICANTLY.
The markets for our products and services are highly competitive, rapidly
changing and subject to constant technological innovation. Participants in these
markets face constant pressure to accelerate the release of new products,
enhance existing products, introduce new product features and reduce prices.
Most of our competitors or potential competitors have significantly greater
financial, managerial, technical and marketing resources than we do.
Accordingly, we may be unable to compete effectively in our markets and as a
result, our revenues and stock price may decline significantly.
OUR REVENUE MAY FLUCTUATE AND DECLINE BECAUSE OF THE EFFECT OF CHANGING
ECONOMIC CONDITIONS ON OUR CUSTOMERS.
Our operating results can vary significantly based upon the impact of
changes in economic conditions on our customers. More specifically, the
macro-economic environment of 2001 proved more uncertain than in recent prior
periods. The revenue growth and profitability of our business depends on the
overall demand for supply chain management software and services, particularly
in the markets in which we compete. Because our sales are primarily to corporate
customers whose businesses fluctuate with general economic and business
conditions, a softening of demand for computer software caused by a weakening
economy may result in decreased revenue and lower growth rates. Customers may
defer or reconsider purchasing our products if they experience a downturn in
their business or if there is a downturn in the general economy.
OUR PRODUCTS MAY CONTAIN UNDETECTED ERRORS THAT COULD HARM OUR SALES AND
REVENUE AND RESULT IN INCREASED OPERATING EXPENSES AND LIABILITIES.
Our business depends on complex computer software, both internally developed
and licensed from third parties. Complex software often contains defects,
particularly when first introduced or when new versions are released. Although
we conduct extensive testing, we may not discover software defects that affect
our new or current products and services or enhancements until after they are
deployed. If we market products and services that contain errors or that do not
function properly, we may experience negative publicity, loss of or delay in
market acceptance, or claims against us by customers, any of which could harm
our current and future sales, or result in expenses and liabilities that could
reduce our operating results and adversely affect our financial condition and
market for our common stock. In the past, we have discovered software errors in
some new products and enhancements after their introduction. We may find errors
in current or future new products or releases after commencement of commercial
use.
IF WE ARE UNABLE TO DEVELOP AND INTRODUCE NEW AND SUCCESSFUL PRODUCTS IN A
TIMELY MANNER WE WILL NOT BE ABLE TO EFFECTIVELY COMPETE IN THE MARKETPLACE AND
WILL SUFFER A DECLINE IN REVENUE.
We compete in an industry continuously faced with evolving standards and
rapid technological developments. New products are introduced frequently and
customer requirements change with technology developments. Delays in product
development may adversely affect our ability to compete with other providers.
Negative reviews of new products or product versions could also materially
adversely affect market acceptance. We have experienced delays in the
development of certain new products and product versions. Additionally, we use
third party development partners to facilitate the development of product
enhancements and extensions, which could result in delays in product
development.
9
OUR INABILITY TO EFFICIENTLY COMPLETE OR INTEGRATE RECENT ACQUISITIONS OR
FUTURE STRATEGIC ACQUISITIONS MAY DIVERT MANAGEMENT RESOURCES AWAY FROM BUSINESS
OPERATIONS AND CAUSE GREATER EXPENSES AND DECREASED REVENUES AND SALES.
In June 2001, we completed the acquisition of our supply chain management
software solutions. In the future, we may find it necessary or desirable to
acquire additional complementary businesses, products or technologies.
Integrating our recent product acquisition and completing any future acquisition
could cause significant diversions of management time and resources. Managing
acquired businesses entails numerous operational and financial risks. These
risks include difficulty in assimilating acquired operations, diversion of
management's attention and the potential loss of key employees or customers of
acquired operations. We may not be able to effectively integrate any such
acquisitions, and our failure to do so could result in significant expenses and
lost revenue.
IF WE ARE UNABLE TO PROTECT OUR PROPRIETARY RIGHTS, OUR ABILITY TO COMPETE
WILL SUFFER.
Our proprietary technologies are critical to our success and ability to
compete. We rely on trade secret and copyright laws to protect our proprietary
technologies, but our efforts may be inadequate to protect these proprietary
rights. Further, effective trade secret and copyright protection may not be
available in all foreign countries. The unauthorized misappropriation of our
technology could have a material adverse effect on our ability to compete. In
addition, if we resort to legal proceedings to enforce our proprietary rights,
the proceedings could be burdensome and expensive and could involve a high
degree of risk.
WE MAY INADVERTENTLY INFRINGE ON THIRD PARTY PROPRIETARY RIGHTS, WHICH COULD
RESULT IN COSTLY LITIGATION, REDUCED SALES AND REVENUE AND A DECLINE IN THE
PRICE OF OUR STOCK.
We also may be subject to claims alleging that we have infringed third party
proprietary rights. Litigating such claims, whether meritorious or not, is
costly. The expenditure of such costs, and the accompanying diversion of
management time to such litigation, may cause a decrease in attention to sales
and product development and a corresponding decrease in revenue. These claims
might require us to enter into royalty or license agreements with terms
unfavorable to us. If we were found to have infringed upon the proprietary
rights of third parties, we could be required to pay damages, cease sales of the
infringing products or redesign or discontinue such products, any of which could
materially reduce our sales and revenue and cause a decline in the market price
for our common stock.
OUR CERTIFICATE OF INCORPORATION, BYLAWS AND ANTI-TAKEOVER PROTECTIONS COULD
DELAY OR PREVENT AN ACQUISITION OR SALE OF US AND THUS, PREVENT OUR STOCKHOLDERS
FROM RECEIVING ANY POTENTIAL BENEFIT FROM AN OFFER TO ACQUIRE US.
Our charter and bylaws, as well as the General Corporation Law of the State
of Delaware, may deter, discourage or make more difficult a change in control,
even if such a change in control would benefit our stockholders. As a result,
stockholders may be unable to receive any economic or other benefit contained in
any proposal. In particular, our board of directors may issue preferred stock
having such designations, rights and preferences as they determine; only
stockholders owning not less than two-thirds of the outstanding shares may call
special meetings of stockholders; advance notice is required for presentation of
new business and nominations of directors at meetings of stockholders; and our
bylaws may be amended only by the board of directors or by the holders of
two-thirds of the outstanding our voting stock.
In addition, under our stockholder rights plan, in general, if a person or
group acquires more than 15% of the outstanding shares of our common stock, all
of our other stockholders would have the right to purchase securities from us at
a discount to such securities' fair market value, thus causing substantial
dilution to the holdings of that acquiring person or group. The proposed merger
with
10
Avatech Solutions, Inc. will not cause the distribution or triggering of these
rights. Finally, under Delaware law, a corporation may not engage in a business
combination with any holder of 15% or more of its capital stock until the holder
has held the stock for three years unless, among other possibilities, the board
of directors approves the transaction.
THE HIGH VOLATILITY OF OUR STOCK PRICE COULD MATERIALLY AND ADVERSELY AFFECT
THE PRICE OF OUR STOCK.
The market price of our common stock has been highly volatile and is likely
to continue to be volatile. Factors affecting our stock price may include:
- fluctuations in our sales or operating results;
- announcements of technological innovations or new software standards by us
or our competitors;
- published reports of securities analysts;
- developments in patent or other proprietary rights;
- changes in our relationships with development partners; and
- general market conditions, especially regarding the general performance of
comparable technology stocks.
Many of these factors are beyond our control. These factors may materially
adversely affect the market price of our common stock, regardless of our
operating performance.
BARRIERS TO DOING BUSINESS IN INTERNATIONAL MARKETS MAY ADVERSELY AFFECT OUR
ABILITY TO COMPETE ABROAD AND MAY ACCORDINGLY ADVERSELY AFFECT PROFITABILITY.
Our ability to sell our products and services in international markets will
depend in part on risks inherent in doing business on an international level.
Factors that may affect our international expansion efforts include:
uncertainties concerning territorial rights to software; non-uniform copyright
laws; export restrictions; longer payment cycles; ability to attract, maintain
and effectively manage our non-U.S. reselling partners; collection problems;
political and economic instability; and potentially adverse tax consequences.
Our inability to compete effectively and be successful in international markets
may negatively impact our revenues and our profitability.
OUR DEPENDENCE UPON A SMALL NUMBER OF CUSTOMERS MEANS THAT THE LOSS OF ONE
OR MORE OF OUR SIGNIFICANT CUSTOMERS COULD CAUSE OUR REVENUES TO DECLINE
MATERIALLY.
We strategically focuses our marketing efforts on developing long-term
relationships with large and multinational companies in targeted industries. As
a result, we derive approximately 40 percent of our revenues from 10 customers.
The loss of one or more of our significant customers could cause our revenues to
decline materially. We cannot assure you that we will not become more dependent
on a few significant customers, that we will be able to retain any of our
largest customers, that the volumes or profit margins of our most significant
programs will not be reduced, or that we would be able to replace such customers
or programs with customers or programs that generate a comparable amount of
profits.
ITEM 2. DESCRIPTION OF PROPERTY
Our principal executive office is located at ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇,
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, where we lease approximately 15,600 square feet of
office space. Monthly base lease payments for this facility are approximately
$33,100 and the lease for this facility expires September 1, 2007. Management
believes that our leased property is suitable and adequate for its intended use
and that the property is adequately covered by insurance.
11
ITEM 3. LEGAL PROCEEDINGS
From time to time we have been involved in litigation relating to claims
arising out of our operations in the normal course of business. As of the date
of this filing, we are not a party to, nor are any of our properties subject to,
any legal proceedings other than routine litigation incidental to our business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock is listed on the American Stock Exchange under the symbol
"PCD". The following table indicates the high and low sales prices per share,
rounded to the nearest whole cent, reported by the American Stock Exchange, for
the periods indicated.
2001 2000
------------------- -------------------
HIGH LOW HIGH LOW
-------- -------- -------- --------
First Quarter............................................... $1.38 $0.30 $12.00 $3.88
Second Quarter.............................................. $0.75 $0.40 $ 8.00 $3.13
Third Quarter............................................... $0.55 $0.15 $ 4.44 $1.75
Fourth Quarter.............................................. $0.24 $0.10 $ 3.25 $0.50
As of July 31, 2002, there were approximately 113 holders of record of our
common stock.
We have never declared or paid dividends on our common stock. We currently
intend to retain any future earnings to finance the growth and development of
our business and therefore do not anticipate paying any cash dividends in the
foreseeable future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth our selected financial data. The selected
financial data has been derived from our consolidated financial statements,
which have been audited by KPMG LLP, our independent auditors. The component
software division, sold in November 2000, has been presented as a discontinued
operation in the table below, and in the accompanying consolidated financial
statements. The following data should be read in conjunction with the
consolidated financial statements and related notes included in Item 7 of this
Annual Report on Form 10-KSB.
12
STATEMENT OF OPERATIONS DATA:
YEAR ENDED
DECEMBER 31,
---------------------
2001 2000
--------- ---------
(IN THOUSANDS EXCEPT
PER SHARE DATA)
Revenue:
License fees............................................ $ 522 $ 1,513
Services................................................ 1,279 587
-------- --------
Total revenue......................................... 1,801 2,100
Cost of sales:
License fees and royalties.............................. 512 818
Services................................................ 959 220
-------- --------
Total cost of sales................................... 1,471 1,038
Gross profit................................................ 330 1,062
Operating expenses:
Sales and marketing..................................... 3,121 3,102
Research and development................................ 4,403 6,291
General and administrative.............................. 4,226 2,697
Restructuring costs..................................... 1,023 --
Acquired in-process research and development............ -- 332
-------- --------
Total operating expenses.............................. 12,773 12,422
Interest income (expense), net.............................. 72 (46)
-------- --------
Net loss from continuing operations......................... (12,371) (11,406)
Discontinued operations:
Loss from discontinued operations, net of income tax of $0
and $28, respectively................................... -- (4,818)
Gain on sale of discontinued operations, net of income tax
expense of $0 and $70, respectively..................... 1,021 17,379
-------- --------
Net earnings (loss)......................................... $(11,350) $ 1,155
======== ========
Earnings (loss) per common share:
Basic and diluted earnings (loss) per common share:
Continuing operations................................. $ (0.99) $ (1.00)
Discontinued operations............................... 0.08 1.10
Net earnings (loss)................................. $ (0.91) $ 0.10
Basic and diluted weighted average number of common shares
outstanding............................................... 12,416 11,439
BALANCE SHEET DATA:
DECEMBER 31, 2001
------------------
(IN THOUSANDS)
Cash and cash equivalents................................... $5,411
Working capital............................................. 4,354
Total assets................................................ 7,932
Long-term debt and capital lease obligations................ --
Total stockholders' equity.................................. 6,057
13
OVERVIEW
Except for the historical information contained herein, the following
discussion contains forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from those discussed
here. Factors that could cause or contribute to such differences include, but
are not limited to, those discussed under the caption "Factors Affecting Our
Business, Operating Results, Financial Condition and Common Stock" in Part I of
this
Annual Report on Form 10-KSB.
Historically, our core business has been to provide three-dimensional
modeling software to the computer aided design, manufacturing and architecture
industries. In 1999, we supplemented our core business when we launched our
PlanetCAD division operations, which has evolved since its initial launch and
now provides interoperability and cycle time reduction solutions and services
for the manufacturing supply chain. Key milestones for our transition to
focusing exclusively on our PlanetCAD operations include:
- ACQUISITION OF PRESCIENT TECHNOLOGY, INC. In July 2000, we acquired
certain assets and liabilities of Prescient Technologies, Inc. and with it
major manufacturing customers in the automotive, aerospace, electronics
and other discrete manufacturing markets worldwide. Prescient's product
line, PrescientQA-TM-, is an integrated suite of engineering quality tools
that allow users, managers and key executives to quantitatively assess and
improve the quality of their product models.
- SALE OF COMPONENT SOFTWARE DIVISION. In November 2000, we sold our
component software division to a subsidiary of Dassault Systemes Corp. and
changed our name to "
PlanetCAD Inc." The sale of our component software
division enabled us to focus our efforts entirely on our PlanetCAD
operations, which at the time was primarily an Internet-based services
platform, with the goal of addressing problems that affect data quality
and interoperability in manufacturing. In the first quarter of 2001,
however, we made a strategic decision, for a period of time, to use our
Internet-based services as marketing tools to create name recognition in
our market niche and to promote our enterprise solutions software, rather
than to generate revenue directly from our Internet-based services.
Because we had recently sold our component software division, which had
been our most widely recognized division, we emphasized increasing our
presence in our targeted market. This strategy allowed us to concentrate
on developing and selling our enterprise software solutions, which are
software products that are installed within a corporate firewall to help
manage transactions and interactive business processes by speeding
engineering data flows between design and manufacturing engineers and
their suppliers.
- ACQUISITION OF SUPPLY CHAIN SOFTWARE. In June 2001, we acquired our supply
chain management software from Capstone Ventures SBIC, L.P. and AI
Research Corporation. The software integrates or interfaces with our
existing software solutions to perform background processing and enhances
our other products and services that we market and sell to our customers.
It also enables us to bundle, market and sell our software products and
services directly to supply chain manufacturers, which contract with
end-users and original equipment manufacturers, or OEMs, for the
outsourced manufacturing of products developed and designed by others,
including our existing OEM customers. Including supply chain manufacturers
among our targeted customers significantly increases the potential market
for our suite of software solutions.
- RELEASE OF SCS--ENVOY. On January 22, 2002, we launched our first
commercially available version of our supply chain management software,
SCS--Envoy, which is an enterprise interoperability solution that
streamlines the handling, security and transmission of all manufacturing
data so that it can be distributed rapidly throughout the supply chain.
SCS--Envoy is specifically created to handle all enterprise data
distribution processes, including engineering and product data, database
information, financial and procurement information to multiple authorized
recipients while reducing the "down time" of lengthy manual processes. We
believe our solution addresses the remaining areas in manufacturing that
cause manufacturing delays,
14
reducing costs and decreasing time-to-market, and addresses the critical
need to get the right data out to the right people in a format that can be
used immediately. As of July 31, 2002, we have not made any sales of our
SCS--Envoy product.
We have two sources of revenue: license fees and service fees, the latter of
which includes fees for our maintenance, training and consulting services.
License fees consist of fees paid by customers to license our products for use
in our customers' product development efforts. Revenue from license fees is
recognized upon completion of a signed contract and shipment of product assuming
all other criteria for revenue recognition are met. Revenue from service fees is
recognized as follows: maintenance fee revenue, consisting of fees received by
us for customer support and product upgrades, is generally based on annual
contracts and is recognized ratably over the period of the contract; and
training and consulting fee revenue is recognized upon completion of a training
class or the performance of services, respectively.
For the year ended December 31, 2001, we had a net loss of $11.4 million (or
$0.91 per share) on total revenue of $1.8 million, as compared to net income of
$1.2 million (or $0.10 per share) on total revenue of $2.1 million reported for
2000. The net loss for 2001 includes a $1 million gain on the sale of our
component software division and the net income for 2000 includes a $4.8 million
loss from discontinued operations and a $17.4 million gain on the sale of our
component software division.
As of December 31, 2001, we had net operating loss carryforwards totaling
approximately $24.6 million, which may be used to reduce future income taxes.
Utilization of these net operating loss carryforwards may be limited under
certain circumstances. See Note 6 to our Consolidated Financial Statements
included under Item 7 of this
Annual Report on Form 10-KSB.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated certain statement
of operations data expressed as a percentage of total revenue:
YEAR ENDED
DECEMBER 31,
-------------
2001 2000
----- -----
Revenue:
License fees............................................ 29% 72%
Services................................................ 71 28
---- ----
Total revenue......................................... 100 100
Cost of sales:
License fees and royalties.............................. 28 39
Services................................................ 54 10
---- ----
Total cost of sales................................... 82 49
Gross profit................................................ 18 51
Operating expenses:
Sales and marketing..................................... 173 148
Research and development................................ 244 300
General and administrative.............................. 235 128
Restructuring costs..................................... 57 --
Acquired in-process research and development............ -- 16
---- ----
Total operating expenses.............................. 709 592
Interest income (expense), net.............................. 4 (2)
---- ----
Loss from continuing operations............................. (687) (543)
---- ----
Discontinued operation:
Loss from discontinued operation, net of tax.............. -- (229)
Gain on sale of discontinued operation, net oftax......... 57 828
---- ----
Net earnings (loss)......................................... (630)% 55%
==== ====
15
FISCAL YEARS ENDED DECEMBER 31, 2001 AND 2000
REVENUE.
Our revenue consists of software license revenue and service revenue.
Software license revenue consists of sales of software licenses, which are
recognized in accordance with the American Institute of Certified Public
Accountants' Statement of Position SOP 97-2, Software Revenue Recognition, as
modified by SOP 98-9 ("SOP 97-2"). Under SOP 97-2, software license revenue is
recognized upon execution of a contract and delivery of software, provided that
the license fee is fixed and determinable, no significant production,
modification or customization of the software is required and collection is
considered probable. In addition, SOP 97-2 requires that revenue recognized from
software arrangements be allocated to each element of a multiple element
arrangement based on vendor specific objective evidence of fair value for each
element. Service revenue is primarily derived from customer maintenance
agreements generally entered into in connection with the initial license sale
and subsequent renewals, and fees for implementation of, consulting on and
training services for our software products. Maintenance revenue is recognized
ratably over the term of the maintenance period and service revenue is
recognized as the services are performed. Payments for maintenance fees are
generally collected in advance of performance.
Total revenue decreased 14.2% to $1.8 million for 2001 as compared to $2.1
million for 2000. License fees decreased 65.5% to $552,000 for 2001, as compared
to $1.5 million for 2000. The decrease in software license revenues in 2001 was
partly the result of a decline in sales arising from the weakening macroeconomic
environment and a decline in demand for our products and services, which was
partly due to increased competition. All of the decline occured in the Prescient
product line. Poor economic conditions caused a significant decrease in
technology and capital spending and extended the decision cycles of many
potential customers. We were particularly affected because we have historically
derived a large percentage of our revenue from the aerospace and automotive
industries, which appear to have been more significantly adversely impacted by
the poor economic conditions. The terrorist attacks on September 11, 2001
further compounded the recession-like environment, causing customers to postpone
or cancel projects and disrupting sales cycles. In addition, our release of
updated products in June 2001 was the first release of an updated product
offering in eighteen months. During this period, companies developing
computer-aided-design software expanded their product lines to include software
with some features similar to our Prescient products. This increased competition
further contributed to the decline of our license revenue. Service revenue
increased 117.9% to $1.3 million for 2001, as compared to $587,000 for 2000,
reflecting a full year of service revenue in 2001, compared to six months of
revenue in 2000.
COST OF REVENUE.
Cost of license fees consists primarily of royalty fees associated with
third-party software included with our software and the cost of reproduction and
delivery of the software. Cost of license fees was $512,000 and $818,000 for the
years December 31, 2001 and 2000, respectively, representing 98% and 54% of
license revenue, respectively. The increase in cost of license revenue was
primarily attributable to an increase in royalty fees associated with third
party software. Certain agreements have minimum royalty fees, which can exceed
the revenue related to product sales.
Cost of services consists primarily of costs associated with providing
software maintenance to customers such as telephone support and packaging and
shipping costs related to new releases, as well as costs associated with our
implementation, consulting and training services. Cost of services was $959,000
and $220,000 for the years ended December 31, 2001 and 2000, respectively,
representing 75% and 37% of services revenue, respectively. The increase in cost
of services as a percentage of services revenue in dollar amount is attributable
to the hiring and training of additional consultants, and increased product
support, and reflects a full year of service costs in 2001, compared to six
months of service costs in 2000.
16
OPERATING EXPENSES.
Total operating expenses increased 0.3% to $12.8 million for 2001 from $12.4
million for 2000. The increase in total operating expenses reflects a full year
of expenses for the Prescient product line in 2001, compared to six months of
expenses in 2000. The increase in operating expenses was also due to increased
staffing to support the development of our supply chain management software. As
a percent of total revenue, total operating expenses increased to 709% for 2001
as compared to 592% for 2000.
SALES AND MARKETING EXPENSES.
Sales and marketing expenses consist primarily of personnel costs,
commissions, travel, office facilities, promotional events such as trade shows,
seminars and technical conferences, advertising and public relations programs.
Sales and marketing expense was $3.1 million for both 2001 and 2000. Although
sales and marketing expenses for 2001 reflect a full year of costs for the PQA
product line, compared to six months of costs in 2000, total expenses remained
flat due to savings from closing field offices, headcount reductions and lower
commission expenses due to decreased revenue. Sales and marketing expense for
2001 increased as a percent of total revenue to 173% versus 148% for 2000. The
increase in sales and marketing expenses as a percentage of total revenue is
primarily a result of decreased revenue.
RESEARCH AND DEVELOPMENT EXPENSES.
Research and development expenses consist primarily of personnel costs,
third party consultant costs, and depreciation of development related assets.
Research and development expense decreased 30% to $4.4 million for 2001 from
$6.3 million for 2000. Decreased research and development expense resulted from
staffing reductions relating to the termination of development of our 3DShare
product line, as well as general headcount reductions and cost controls.
Research and development expenses for both 2001 and 2000 also included
approximately $700,000 for outside consulting services related to development of
the PQA product line. As a percent of total revenue, research and development
expense decreased to 244% for 2001 from 300% for 2000. The decrease in research
and development expenses as a percentage of total revenue is also attributable
to decreased headcount and general cost controls.
GENERAL AND ADMINISTRATIVE EXPENSES.
General and administrative expenses include the personnel and other costs of
our finance, accounting, human resources, information systems and executive
departments, as well as corporate facilities expenses. General and
administrative expenses increased 57% to $4.2 million for 2001 from $2.7 million
for 2000. As a percent of total revenue, general and administrative expense
increased to 235% for 2001 from 128% for 2000. The increase in general and
administrative expenses in dollar amount and as a percentage of total revenue is
primarily attributable to increased staffing, $845,000 in office space expenses,
severance payments made in connection with our reduction in force, legal and
accounting fees of $475,000 and $275,000 in other infrastructure expenses
incurred in support of our PlanetCAD operations as a stand-alone public
corporation. General and administrative expenses for 2000 reflect only those
costs associated with the PlanetCAD division of our company, which at the time
also had a separate component software division.
IN-PROCESS RESEARCH AND DEVELOPMENT.
In-process research and development expense of $332,000 for 2000 relates to
the acquisition of certain assets and liabilities of Prescient. There was no
acquired in-process research and development expense for 2001.
RESTRUCTURING CHARGES.
During the third quarter of 2001, the Company initiated a restructuring plan
to reduce our operating expenses and strengthen both our competitive and
financial positions by eliminating
17
employee positions and reducing office space and related overhead expenses. In
addition to terminating our 3DShare product line, the cost reductions impacted
all departments. Overall expense reductions were necessary both to lower
existing cost structure and to reallocate resources to pursue future operating
strategies in response to declining revenue and other performance measures
during 2001. Restructuring charges primarily consisted of $623,000 for severance
and termination costs associated with the reduction in force of 21 employees,
all of which was paid in 2001. In connection with the restructuring, the Company
accrued an additional $400,000 in lease abandonment costs, $245,000 of which was
paid during 2001. The remaining $155,000 represents the lease costs due over the
next four years not offset by sublease income. Each quarter the Company expects
to save $725,000 in salary and benefits expense, $75,000 in facility related
expenses and $150,000 in consulting costs. These expense reductions will be
reflected in service costs of sales and sales and marketing, research and
development and general and administrative expenses. Total operating costs
decreased $1.1 million in the fourth quarter of 2001 when compared to the total
operating costs before restructuring costs in the third quarter of 2001.
Additional details of the restructuring charges are presented in Note 10--
Restructuring Costs in the Notes to Consolidated Financial Statements included
in Item 7 of this report.
DISCONTINUED OPERATIONS, COMPONENT SOFTWARE DIVISION.
Net loss from discontinued operations was $4.8 million for 2000. The net
loss in 2000 was primarily due to decreased revenue due in part to increased
resistance to up-front license fees by software developers in an increasingly
competitive market, as well as from changes to the pricing model for our
component software division products. Under a new pricing model, component
licensees paid only recurring fixed and variable partner fees upon the release
and shipment of a software application that incorporated our component software.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 2001, we had $5.4 million in cash and cash equivalents.
Cash and cash equivalents decreased $12.9 million for the year ended December
31, 2001, as compared to an increase of $17.0 million for the prior year. This
decrease is primarily due to a net operating loss of $11.4 million, a $3.4
million decrease in accounts payable and accrued liabilities, partially offset
by the $1.0 million gain on the disposal of our component software division. The
increase in cash in 2000 was primarily due to the sale of the component software
division, the sale of 555,556 shares of our common stock to Dassault, and the
sale of shares of our common stock to investors in a February 2000 private
equity transaction. The 555,556 shares were sold to Dassault for $2.0 million or
approximately $3.60 per share. In the private equity transaction, we sold 1.9
million shares of our common stock for $6.84 million, or $3.60 per share, and
warrants to purchase an aggregate of 1.2 million shares of our common stock for
$60,000, or $0.05 per warrant. The warrants are exercisable for shares of our
common stock at a price of $6.50 per share.
Net cash used by operating activities was $13.4 million for the year ended
December 31, 2001 as compared to $12.4 million for the year ended December 31,
2000. For the year ended December 31, 2001, net cash used by operations related
primarily to our net loss of $11.4 million. For the year ended December 31,
2000, net cash used by operations related primarily to our net loss, which
excludes the gain on the sale of the component software division.
Net cash from investing activities for the year ended December 31, 2001 was
$516,000, comprised of $505,000 used for software and equipment purchases,
including $200,000 used for the Castalink technology acquisition, offset by the
$1 million gain on the sale of the component software division. This gain
resulted from the final settlement of the $1.0 million of funds escrowed by
Dassault in November 2000. Net cash provided by investing activities totaling
$16.1 million for the year ended December 31, 2000 which reflects $1.7 million
used for equipment purchases, $500,000 used for purchased computer software and
$100,000 paid for the Prescient assets, offset by net proceeds of $18.4 million
received in the sale of the component software division to Dassault.
18
Net cash provided by financing activities was $11,000 for the year ended
December 31, 2001, related to proceeds from the exercise of common stock
options. Net cash provided by financing activities was $13.1 million for the
year ended December 31, 2000, primarily comprised of proceeds from the $6.9
million equity transaction in February 2000, proceeds from the $2.0 million
equity investment of Dassault in November 2000 and $200,000 from the exercise of
stock options. An additional $4.0 million was received from Dassault in the form
of notes payable that were advanced prior to the closing of the sale of the
component software division and which were repaid as an offset against the
purchase price for the division.
Other than disclosed below, we have no other contractual cash obligations or
other commercial commitments. As a result, certain line items in the following
tabular disclosure regarding other contractual cash obligations, such as
long-term debt, capital lease obligations, unconditional purchase obligations
and commercial commitments, have been omitted.
PAYMENTS DUE BY PERIOD (IN THOUSANDS)
-----------------------------------------------------------
LESS THAN 1 AFTER 5
TOTAL YEAR 1-3 YEARS 4-5 YEARS YEARS
-------- ----------- --------- --------- ----------
CONTRACTUAL CASH OBLIGATIONS
Operating Lease Obligations...................... $2,324 $459 $1,438 $427 $ --
Other Long-Term Obligations...................... -- -- -- -- --
------ ---- ------ ---- ----------
Total Contractual Cash Obligations............... $2,324 $459 $1,438 $427 $ --
====== ==== ====== ==== ==========
We believe that our current cash will be sufficient to meet our current
operating cash needs and that there will be no need to seek additional capital.
Our long-term liquidity, however, is materially dependent upon our ability to
achieve significant sales of our SCS--Envoy product line. If we fail to achieve
such sales or if our plans or assumptions change or are inaccurate or if we make
any acquisitions, we will need to seek additional capital through public or
private debt or equity offerings. There can be no assurance we will be able to
obtain any additional financing. If we raise funds through the issuance of
equity securities, the holders of new equity securities may have rights,
preferences or privileges senior to our common stock. If we obtain additional
funds through a bank credit facility or through issuance of debt securities or
preferred stock, this indebtedness or preferred stock would have rights senior
to the rights of our common stock, and their terms could impose significant
restrictions on our operations. If we are unable to obtain additional financing,
our business, financial condition and operating results will be significantly
impaired.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS
141, "Business Combinations," and SFAS 142, "Goodwill and Other Intangible
Assets." Under these new standards all business combinations initiated after
June 30, 2001 must use the purchase method of accounting. Intangible assets
acquired in a business combination must be recorded separately from goodwill if
they arise from contractual or other legal rights or are separable from the
acquired entity and can be sold, transferred, licensed, rented or exchanged,
either individually or as part of a related contract, asset or liability.
Goodwill and intangible assets with indefinite lives are not amortized but are
tested for impairment annually, except in certain circumstances, and whenever
there is an impairment indicator and all acquired goodwill must be assigned to
reporting units for purposes of impairment testing and segment reporting. SFAS
142 will be effective for the Company for the fiscal year beginning January 1,
2002. Management does not believe adoption of these statements will have any
impact on the Company's financial position, results of operations or cash flows.
In August 2001, the FASB issued SFAS 143, "Accounting for Asset Retirement
Obligations." SFAS 143 requires entities to record the then fair value of a
liability for legal obligations associated with the retirement obligations of
tangible long-lived assets in the period in which it is incurred and the
corresponding cost capitalized by increasing the carrying amount of the related
asset. The liability will
19
continue to be accreted to the fair value at the time of settlement over the
useful life of the asset with the capitalized cost being depreciated over the
useful life of the related asset. If the liability is settled for an amount
other than the recorded amount, a gain or loss is recognized. The standard is
effective for the Company beginning fiscal year January 1, 2002. Management does
not believe that this statement will have an impact on the Company's financial
position, results of operations, or cash flows.
In October 2001, the FASB issued SFAS 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." SFAS 144 supersedes SFAS 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of," and replaces the accounting and reporting provisions for segments of a
business to be disposed of under Accounting Principles Board ("APB") Opinion
No. 30, "Reporting Results of Operations--Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions." SFAS 144 maintains the requirement that an impairment
loss be recognized for a long-lived asset to be held and used if its carrying
value is not expected to be recoverable from its undiscounted cash flows. SFAS
144 requires that long-lived assets to be disposed of, other than by sales, be
considered held and used until actually disposed of and requires that
depreciable lives be revised in accordance with APB Opinion No. 20, "Accounting
Changes." SFAS 144 also requires that long-lived assets to be disposed of by
sale be measured at the lower of carrying amount or fair value less selling
costs, but retains the requirement to report discontinued operations separately
from continuing operations and extends that reporting to a component of an
entity that has either been disposed of or is classified as held for sale. The
provisions of SFAS 144 are effective for the Company for the fiscal year
beginning January 1, 2002. Management does not believe adoption of this
statement will have an impact on the Company's financial position, results of
operations or cash flows.
CRITICAL ACCOUNTING POLICIES
Our consolidated financial statements are impacted by the accounting
policies used and the estimates and the assumptions made by management during
their preparation. Critical account policies and estimates that most impact our
consolidated financial statements are those that relate to our revenue
recognition and intangibles. A summary of our significant accounting policies
can be found in the Notes to our Consolidated Financial Statements. Presented
below is a description of the accounting policies we deem critical to
understanding our consolidated financial statements.
Revenue Recognition: We earn revenue primarily from license fees,
maintenance fees and professional services sold through direct sales. Our
license arrangements do not provide for a right of return. Maintenance fees
include training and consulting that is not rendered essential to the
functionality of the software. We also offer different levels of maintenance and
support arrangements, which provide the customer the right to receive error and
bug fix releases and version releases of the product made available during the
term of the maintenance contract.
We recognize revenue in accordance with Statement of Position 97-2, Software
Revenue Recognition ("SOP 97-2"), as amended by SOP 98-9, and generally
recognize revenue when all of the following criteria are met as set forth in
paragraph 8 of SOP 97-2: (1) persuasive evidence of an arrangement exist; (2)
delivery has occurred; (3) the fee is fixed and determinable;
(4) collectibility is probable. We define each of these four criteria above as
follows:
- PERSUASIVE EVIDENCE OF AN ARRANGEMENT EXISTS. It is our customary practice
to have a written contract, which is signed by both the customer and us,
or, in situations where a contract is not required, a customer purchase
order has been received.
- DELIVERY HAS OCCURRED. Our software may be either physically or
electronically delivered to the customer. Delivery is deemed to have
occurred upon the earlier of notification by the customer of acceptance or
delivery of the software key. If undeliverable products or services exist
in an arrangement that are essential to the functionality of the delivered
product, delivery is not considered to have occurred until these products
or services are delivered.
20
- THE FEE IS FIXED OR DETERMINABLE. Our customers generally pay a per seat
fee for our products. Fees are generally due within 30 days of product
delivery. Fees payable to us pursuant to payment schedules that extend
beyond our customary payment terms are deemed not fixed or determinable,
and the revenue from such arrangements is recognized as payments become
due.
- COLLECTIBILITY IS PROBABLE. Collectibility is assessed on a
customer-by-customer basis. We typically sell to customers with high
credit ratings and solid payment practices. New customers are subjected to
a credit review process in which we evaluate the customers' financial
positions and ultimately their ability to pay. If it is determined form
the outset of an arrangement that collectibility is not probable based
upon our credit review process, revenue is recognized as cash payments are
received.
We allocate revenue on software arrangements involving multiple elements to
each element based on the relative fair value of each element. Our determination
of fair value of each element in multiple element arrangements is based on
vendor-specific objective evidence ("VSOE"). We limit our assessment of VSOE to
the price charged when the same element is sold separately. We have analyzed all
the elements included in our multiple element arrangements and determined that
we have sufficient VSOE to allocate revenue to maintenance and support services
and professional service of our license arrangements. We sell our professional
service separately, and have established VSOE on this basis. VSOE for
maintenance and support services is based on the customer's annual renewal rates
for these elements. Accordingly, assuming all other revenue recognition criteria
are met, revenue from license is recognized on delivery using the residual
method in accordance with SOP 98-9, and revenue from maintenance and support
services is recognized ratably over the respective term.
Our professional services generally are not essential to the functionality
of the software. Our software products are fully functional upon delivery and
implementation and do not require any significant modification or alteration.
Customers purchase these professional services to facilitate the adoption of our
technology and dedicate personnel to participate in the services being
performed, but they may also decide to use their own resources or appoint other
professional service organizations to provide these services. Software products
are typically billed separately and independently from professional services,
which are generally billed either on a time-and-materials or a
milestone-achieved basis. We generally recognize revenue from professional
services as the services are performed.
Accounts receivable is recorded net of allowance for doubtful accounts,
which totaled $203,000 as of December 31, 2001. We regularly review the adequacy
of our accounts receivable allowance after considering the size of the accounts
receivable aging, the ages of each invoice, each customer's expected ability to
pay and our collection history with each customer. We review any invoice greater
than 90 days past due to determine if an allowance is appropriate based on the
risk category using the factors discussed above. The allowance for doubtful
accounts represents our best estimate, but changes in circumstances relating to
accounts receivable may result in additional allowances or recoveries in the
near future.
Intangibles: We review long-lived assets, including intangible assets for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to the undiscounted future cash flow expected to be generated from the operation
of that asset. If the assets are considered to be impaired, the impairment to be
recognized is measured by the amount in which the carrying amount of the assets
exceeds the fair market value of the assets. An asset's fair market value will
be determined by future discounted net cash flows expected to be generated by
the asset. Assets to be disposed of are reported at the lower of the carrying
amount or fair value, less costs to sell. The Company did not recognize any
impairment in 2001 or 2000. As discussed above in "Recent Accounting
Pronouncements" we will adopt FAS No. 141 "Business Combinations" and FAS 142
"Goodwill and Other Intangibles" as of January 1, 2002. As a result, goodwill
and certain intangible assets will not be amortized, but instead, will be
reviewed for impairment at least annually, in accordance with the provisions of
this statement.
21
ITEM 7. FINANCIAL STATEMENTS
PLANETCAD INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
--------
Independent Auditors' Report................................ 23
Financial Statements:
Consolidated Balance Sheet, as of December 31, 2001....... 24
Consolidated Statements of Operations, for the years ended
December 31, 2001 and 2000.............................. 25
Consolidated Statements of Stockholders' Equity, for the
years ended December 31, 2001 and 2000.................. 26
Consolidated Statements of Cash Flows, for the years ended
December 31, 2001 and 2000.............................. 27
Notes to Consolidated Financial Statements................ 28
22
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
PlanetCAD Inc.:
We have audited the accompanying consolidated balance sheets of
PlanetCAD
Inc. and its subsidiary as of December 31, 2001, and the related consolidated
statements of operations, stockholders' equity and cash flows for the years
ended December 31, 2001 and 2000. 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 auditing standards generally
accepted in the United States of America. 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of PlanetCAD
Inc. and its subsidiary as of December 31, 2001, and the results of their
operations and their cash flows for the years ended December 31, 2001 and 2000
in conformity with accounting principles generally accepted in the United States
of America.
/s/ KPMG LLP
Boulder, Colorado
March 8, 2002
23
PLANETCAD INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
(AMOUNTS IN THOUSANDS, EXCEPT SHARES)
DECEMBER 31,
2001
-------------
ASSETS
Current assets:
Cash and cash equivalents................................. $ 5,411
Accounts receivable, net of allowance of $203 in 2001..... 664
Prepaid expenses and other................................ 154
--------
Total current assets.................................... 6,229
--------
Equipment, net (note 3)..................................... 866
Purchased computer software, net (note 2)................... 691
Other assets................................................ 146
--------
Total assets............................................ $ 7,932
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 326
Other accrued expenses.................................... 964
Deferred revenue.......................................... 585
--------
Total current liabilities............................... 1,875
--------
Stockholders' equity (note 5):
Preferred Stock, $.01 par value; 2,500,000 shares --
authorized, none issued and outstanding.................
Common stock, $.01 par value; 22,500,000 shares 124
authorized; 12,427,696 shares issued and outstanding in
2001....................................................
Additional paid-in capital................................ 36,064
Accumulated deficit....................................... (30,131)
--------
Total stockholders' equity.............................. 6,057
--------
Total liabilities and stockholders' equity.............. $ 7,932
========
See accompanying notes to consolidated financial statements.
24
PLANETCAD INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED
DECEMBER 31,
-------------------
2001 2000
-------- --------
Revenue:
License fees.............................................. $ 522 $ 1,513
Services.................................................. 1,279 587
-------- --------
Total revenue....................................... 1,801 2,100
-------- --------
Cost of sales:
License fees and royalties................................ 512 818
Services.................................................. 959 220
-------- --------
Total cost of sales................................. 1,471 1,038
-------- --------
Gross profit................................................ 330 1,062
-------- --------
Operating expenses:
Sales and marketing....................................... 3,121 3,102
Research and development.................................. 4,403 6,291
General and administrative................................ 4,226 2,697
Restructuring costs....................................... 1,023 --
Acquired in-process research and development (note 2)..... -- 332
-------- --------
Total operating expenses............................ 12,773 12,422
Interest income (expense), net............................ 72 (46)
-------- --------
Loss from continuing operations....................... (12,371) (11,406)
Discontinued operations:
Loss from discontinued operations, net of income tax
expense of $0 and $28, respectively..................... -- (4,818)
Gain on sale of component software division, net of income
tax expense of $0 and $70, respectively................. 1,021 17,379
-------- --------
Net earnings (loss)......................................... $(11,350) $ 1,155
======== ========
Earnings (loss) per common share:
Basic and diluted earnings (loss) per common share:
Continuing operations............................... $ (0.99) $ (1.00)
Discontinued operation.............................. 0.08 1.10
-------- --------
Net earnings (loss)......................................... $ (0.91) $ 0.10
======== ========
Basic and diluted weighted average number of common shares
outstanding............................................... 12,416 11,439
======== ========
See accompanying notes to consolidated financial statements.
25
PLANETCAD INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(AMOUNTS IN THOUSANDS, EXCEPT SHARES)
ACCUMULATED
COMMON STOCK ADDITIONAL OTHER TOTAL
--------------------- PAID- ACCUMULATED COMPREHENSIVE STOCKHOLDERS'
SHARES AMOUNT IN-CAPITAL DEFICIT INCOME (LOSS) EQUITY
---------- -------- ---------- ----------- ------------- -------------
Balances at January 1, 2000....... 9,508,179 $ 95 $25,828 $(19,936) $(109) $ 5,878
Common stock issued under employee
stock purchase plan............. 71,219 -- 165 -- -- 165
Exercise of common stock options
for cash........................ 67,284 1 203 -- -- 204
Common stock and warrants issued
in connection with Prescient
acquisition..................... 300,000 3 1,054 -- -- 1,057
Common stock options issued for
services........................ -- -- 2 -- -- 2
Common stock and warrant issued in
connection with private
placement, net.................. 2,455,556 25 8,736 -- -- 8,761
Net earnings...................... -- -- -- 1,155 -- 1,155
Foreign currency translation
adjustment...................... -- -- -- -- (30) (30)
Realized foreign currency loss on
sale of subsidiary.............. -- -- -- -- 139 139
---------- ---- ------- -------- ----- ---------
Balances at December 31, 2000..... 12,402,238 $124 $35,988 $(18,781) $ -- $ 17,331
========== ==== ======= ======== ===== =========
Common stock issued under employee
stock purchase plan............. 25,458 -- 11 -- -- 11
Warrants issued in connection with
CastaLink technology
acquisition..................... -- -- 65 -- -- 65
Net loss.......................... -- -- -- (11,350) -- (11,350)
---------- ---- ------- -------- ----- ---------
Balances at December 31, 2001..... 12,427,696 $124 $36,064 $(30,131) $ -- $ 6,057
========== ==== ======= ======== ===== =========
See accompanying notes to consolidated financial statements.
26
PLANETCAD INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
YEAR ENDED
DECEMBER 31,
-------------------
2001 2000
-------- --------
Cash flows from operating activities:
Net earnings (loss)....................................... $(11,350) $ 1,155
Adjustments to reconcile net earnings (loss) to net cash
used by operating activities:
Gain on sale of component software division............. (1,021) (17,379)
Realized loss on foreign currency translation........... -- (139)
Depreciation and amortization........................... 1,025 1,073
Acquired in-process research and development............ -- 332
Stock options issued for services....................... -- 2
Provision for, and write-off of, uncollectible accounts
receivable............................................ 591 --
Changes in operating assets and liabilities excluding
the effects of business combinations and sale of
component software division:
Accounts receivable................................... 458 2,555
Prepaid expenses and other............................ 372 (92)
Accounts payable...................................... (2,148) 1,218
Accrued expenses...................................... (1,301) 611
Deferred revenue...................................... (52) (1,727)
-------- --------
Net cash used by operating activities............... (13,426) (12,391)
-------- --------
Cash flows from investing activities:
Additions to equipment.................................... (194) (1,696)
Additions to purchased computer software.................. (311) (499)
Proceeds from sale of component software division......... 1,021 18,433
Cash paid in business combinations........................ (100)
-------- --------
Net cash provided by investing activities........... 516 16,138
-------- --------
Cash flows from financing activities:
Proceeds from issuance of notes payable................... -- 4,000
Principal payments on debt................................ -- --
Proceeds from issuance of common stock, net............... 11 9,130
-------- --------
Net cash provided by financing activities........... 11 13,130
-------- --------
Foreign currency translation adjustment affecting cash...... -- 109
-------- --------
Net increase (decrease) in cash and cash
equivalents....................................... (12,899) 16,986
Cash and cash equivalents at beginning of year.............. 18,310 1,324
-------- --------
Cash and cash equivalents at end of year.................... $ 5,411 $ 18,310
======== ========
Supplemental cash flow information:
Cash paid for interest.................................... $ -- $ 35
======== ========
Supplemental disclosure of non-cash investing and financing
activities:
Common stock and warrants issued in business
combination............................................. $ 65 $ 1,057
======== ========
Extinguishment of notes payable in conjunction with the
sale of component software division..................... $ -- $ 4,000
======== ========
See accompanying notes to consolidated financial statements.
27
PLANETCAD INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) ORGANIZATION AND BASIS OF FINANCIAL STATEMENT PRESENTATION
PlanetCAD Inc. ("PlanetCAD" or the "Company") was incorporated under the
laws of the State of Delaware on July 7, 1986 to design, develop, and market
three-dimensional modeling software. In November 2000, the Company's
shareholders approved plans to sell the assets of its component software
division to Dassault Systemes Corp. or its assignee ("Dassault") in a cash
transaction for $25.0 million, subject to certain price adjustments, and amended
Article I of the Company's restated certificate of incorporation to change its
name from Spatial Technology Inc. to PlanetCAD Inc. The Company consummated the
sale to Dassault and effected the name change on November 14, 2000. The net
assets and results of operations of the component software division have been
reclassified as discontinued operations and, accordingly, prior periods have
been restated.
The accompanying consolidated financial statements include the accounts of
the Company and its subsidiary. All significant intercompany accounts and
transactions have been eliminated in consolidation.
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ significantly from those estimates.
(b) EARNINGS (LOSS) PER SHARE
Loss per share is presented in accordance with the provisions of Statement
of Financial Accounting Standards No. 128, Earnings Per Share (SFAS No. 128).
Under SFAS No. 128, basic earnings (loss) per share (EPS) excludes dilution for
potential common stock issuances and is computed by dividing earnings or loss
available to common stockholders by the weighted average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution that
would occur if securities or other contracts to issue common stock were
exercised or converted into common stock. Basic and diluted EPS are the same in
2001 and 2000, as all potential common stock instruments, consisting of common
stock options and warrants, are anti-dilutive due to the net losses from
continuing operations for each year.
28
The following is a reconciliation of the numerators and denominators of the
basic and diluted EPS computations (in thousands, except per share data):
YEAR ENDED
DECEMBER 31,
-------------------
2001 2000
-------- --------
Numerator:
Net loss from continuing operations....................... $(12,371) $(11,406)
======== ========
Net income from discontinued operations................... 1,021 12,561
======== ========
Net earnings (loss)..................................... (11,350) 1,155
======== ========
Denominator:
Historical common shares outstanding for basic and diluted
loss per share at beginning of the year................. 11,439 9,345
Weighted average number of common equivalent shares issued
during the year......................................... 977 2,094
-------- --------
Denominator for basic and diluted loss per share--weighted
average shares.......................................... 12,416 11,439
======== ========
Basic and diluted earnings (loss) per share:
Continuing operations................................... $ (0.99) (1.00)
Discontinued operations................................. 0.08 1.10
-------- --------
Net earnings (loss)....................................... (0.91) 0.10
======== ========
For all periods presented, 0 and 576,835 options and warrants for the years
ended December 31, 2001 and 2000 respectively were excluded from the diluted
loss per share calculation because their effect would be anti-dilutive.
(c) CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investment instruments purchased
with an original maturity of three months or less to be cash equivalents.
(d) OTHER COMPREHENSIVE INCOME OR LOSS
Assets and liabilities of the Company's international subsidiary were
translated into U.S. dollars using current exchange rates in effect at the
balance sheet date, and revenue and expense accounts were translated using a
weighted average exchange rate during the year. Net exchange gains and losses
resulting from such translations are included as a separate component of
stockholders' equity as other comprehensive income or loss. Gains and losses
from foreign currency transactions, when applicable, are included in other
income (expense). The unrealized loss was realized in conjunction with the sale
of the component software division in 2000.
(e) REVENUE RECOGNITION
The Company recognizes revenue in accordance with the provisions of
Statement of Position 97-2, "Software Revenue Recognition" ("SOP 97-2"), which
requires that revenue for licensing, selling, leasing, or otherwise marketing
computer software be recognized when evidence of an arrangement exists, delivery
of the product has occurred, collectibility of the related receivable is assured
and the vendor's fee is fixed or determinable. In addition, revenue is
recognized for the multiple elements of software arrangements based upon vendor
specific objective evidence of fair value for each element. Accordingly, revenue
from products or services is recognized upon shipment of products or performance
of services. In December 1998, the American Institute of Certified Public
Accountants ("AICPA") issued SOP No. 98-9, "Modification of SOP No. 97-2,
Software Revenue Recognition, with
29
Respect to Certain Transactions." SOP No. 98-9 clarifies certain provisions of
SOP No. 97-2. Effective January 1, 1999, the Company adopted the provision of
SOP No. 98-9, and the impact on the Company's results of operations, financial
position or cash flows was not material.
The Company's determination of the fair value of each element in multiple
element arrangements is based upon vendor-specific objective evidence ("VSOE").
The Company limits its assessment of VSOE to the price charged when the same
element is sold separately. The Company has analyzed all the elements included
in its multiple element arrangements and determined that it has sufficient VSOE
to allocate revenue to maintenance and support services and professional service
of its license arrangements. The Company sells its professional service
separately, and has established VSOE on this basis. VSOE for maintenance and
support services is based on the customer's annual renewal rates for the
elements. Accordingly, assuming all other revenue recognition criteria are met,
revenue from license is recognized on delivery using the residual method in
accordance with SOP 98-9, and revenue from maintenance and support serviced is
recognized ratably over the respective term. Training and consulting revenue is
recognized upon completion of the training or performance of services,
respectively. The Company's software products are fully functional upon delivery
and implementation and do not require any significant modification or
alteration. The Company does not provide extended payment terms to our
customers. The license fee arrangements do not provide for a right of return.
(f) COST OF REVENUE
Cost of revenue consists of operations, which include compensation for
operations personnel, cost of third-party software and direct costs incurred
when providing services. Operations employees are personnel charged in providing
training, maintenance, support and consulting services.
(g) EQUIPMENT AND PURCHASED COMPUTER SOFTWARE
Equipment is recorded at cost and depreciated using the straight-line method
over the estimated useful lives of the respective assets, which range from three
to seven years. Purchased computer software represents software enhancements
acquired from third parties, and is amortized over its estimated useful life of
three to seven years, beginning when the software is incorporated into the
Company's products.
(h) STOCK-BASED COMPENSATION
The Company accounts for its stock-based compensation plans using the
intrinsic value based method prescribed by Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees," and related interpretations
("APB 25"). The Company has provided pro forma disclosures of net earnings
(loss) and earnings (loss) per share as if the fair value based method of
accounting for these plans, as required by Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation ("SFAS 123")," had
been applied.
(i) IMPAIRMENT OF LONG-LIVED ASSETS
The Company accounts for long lived assets under the provisions of Statement
of Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" ("SFAS 121")
which requires that long-lived assets and certain identifiable intangibles,
including goodwill, held and used by an entity be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying value of
an asset may not be recoverable. An impairment loss is recognized when estimated
undiscounted future cash flows expected to be generated by the asset are less
than its carrying value. Measurement of the impairment loss is based on the fair
value of the asset, which is generally determined using valuation techniques
such as discounted present value of expected future cash flows.
30
(j) RESEARCH AND DEVELOPMENT COSTS
Costs to establish the technological feasibility of computer software
products are expensed as incurred. Generally, products are ready for sale upon
establishment of technological feasibility. Accordingly, no software development
costs have been capitalized by the Company in 2001 and 2000. Research and
development costs are expensed as incurred.
(k) INCOME TAXES
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109 "Accounting for Income Taxes" ("SFAS
109"). SFAS 109 requires the use of the asset and liability method of accounting
for income taxes. Under the asset and liability method, deferred income taxes
are recognized for the tax consequences of temporary differences by applying
enacted statutory rates applicable to differences between the financial
statement carrying amounts and the tax bases of existing assets and liabilities.
(l) DISCONTINUED OPERATIONS
The sale of the component software division resulted in a gain of $1.0
million, net of tax in 2000, and $17.4 million, net of tax in 2000. The results
of operations of the component software division through the date of the sale
are shown as income loss from discontinued operations in the consolidated
statements of operations.
Summary operating results of the discontinued operations were as follows:
YEAR ENDED
DECEMBER 31,
2000
-------------
Revenue..................................................... $10,078
Cost of revenue............................................. 4,071
-------
Gross profit................................................ 6,007
Operating expenses.......................................... 10,753
-------
Operating income (loss) from discontinued operations...... (4,746)
Other income (expense), net................................. (44)
-------
Loss from discontinued operations before income taxes..... (4,790)
Income tax expense.......................................... (28)
-------
Loss from discontinued operations......................... $(4,818)
=======
(m) ADVERTISING COSTS
Advertising costs are charged to expense when incurred and amounted to
$98,000 and $105,000 in 2001 and 2000 respectively.
(2) ACQUISITIONS AND IN-PROCESS RESEARCH AND DEVELOPMENT
In July 2000, the Company acquired certain assets and liabilities of
Prescient Technologies, Inc. for total consideration of approximately $1.3
million, including $100,000 cash and 300,000 shares of the Company's common
stock. The acquisition was accounted for using the purchase method and,
accordingly, results of operations of Prescient have been included in the
Company's financial statements from the date of acquisition. The purchase price
was allocated to the assets and liabilities acquired based on their estimated
fair values, including $298,000 of accounts receivable, $209,000 of furniture
31
and equipment, $174,000 of other assets, and the assumption of $493,000 of
liabilities. In addition, the Company allocated $773,000 of the purchase price
to software costs and other intangible assets and $332,000 to in-process
research and development projects. The software costs and other intangible
assets will be amortized over 3 years. The Company charged the in-process
research and development to operations as of the date of acquisition as such
technology had not reached technological feasibility and had no probable
alternative future use by the Company.
The summary table below, prepared on an unaudited pro forma basis, combines
the Company's consolidated results of operations with Prescient's results of
operations as if the acquisition took place on January 1, 2000 (in thousands,
except per share data).
YEAR ENDED
DECEMBER 31,
2000
-------------
Revenue..................................................... $ 3,124
Net loss.................................................... $(1,092)
Loss per share--basic and diluted........................... $ (.02)
(3) EQUIPMENT
Equipment consists of the following (in thousands):
DECEMBER 31,
-------------------
2001 2000
-------- --------
Computer equipment.......................................... $1,407 $1,272
Furniture and office equipment.............................. 65 135
Leasehold improvements...................................... 207 216
------ ------
1,679 1,623
Less accumulated depreciation and amortization.............. (813) (190)
------ ------
$ 866 $1,433
====== ======
(4) NOTES PAYABLE
In September 2000, Dassault made a loan to the Company for $2 million of the
purchase price for the sale of the component software division in advance of the
closing of the transaction, which amount, including accrued and unpaid interest,
was repaid by the Company as an offset against the purchase price at the
closing. In November 2000, Dassault advanced an additional $2 million to the
Company, which was also repaid at the closing.
(5) STOCKHOLDERS' EQUITY
PREFERRED STOCK
In June 1996, the board of directors of the Company authorized, at their
discretion, the issuance of up to 2,500,000 shares of preferred stock in one or
more series and to fix the rights, preferences, and privileges of such series.
As of December 31, 2001, no shares of preferred stock were outstanding. On March
11, 2002, in connection with the adoption of the stockholder rights plan
described below, the Company designated 100,000 shares of preferred stock as
Series A Junior Participating Preferred Stock, no shares of which are
outstanding.
32
STOCKHOLDER RIGHTS PLAN
On March 8, 2002, the Company adopted a stockholder rights plan to protect
the Company and its stockholders from unsolicited attempts or inequitable offers
to acquire the Company's stock. The rights plan has no immediate dilutive effect
and does not diminish the Company's ability to accept an offer to purchase the
Company that is approved by the board of directors. The stockholder rights plan
was implemented through a dividend of one preferred share purchase right on each
outstanding share of the Company's common stock outstanding on March 21, 2002.
Each right will entitle stockholders to buy one one-thousandth of a share of
Series A Junior Participating Preferred Stock at an exercise price of $5.00. The
rights will become exercisable (with certain limited exceptions provided in the
rights agreement) following the 10th business day after: (a) a person or group
announces that it has acquired beneficial ownership of 15% or more of the
Company's outstanding common stock or (b) a person or group announces the
commencement of a tender offer the consummation of which would result in the
beneficial ownership by the person or group of 15% or more of the Company's
outstanding common stock. The buyer would not be entitled to exercise rights
under the rights plan. The effect of the rights plan is to discourage
acquisitions of more than 15% of the Company's common stock without negotiations
with the Company's board of directors. The Company can redeem the rights for
$.0001 per right at certain times as provided in the rights agreement. The
rights expire on March 8, 2012.
STOCK OPTIONS
In November 2000, the stockholders of the Company approved the 2000 Stock
Incentive Plan (the "2000 Plan"). Up to 2,000,000 shares of common stock may be
issued pursuant to the 2000 Plan. Under the 2000 Plan, the Company may issue
incentive stock options, which are granted with exercise prices equal to the
fair value of the common stock on the date of grant. Vesting and option terms,
which may not exceed ten (10) years from the date of grant, are determined by
the board of directors at the time of grant. As of December 31, 2001, options to
purchase 1,263,835 shares of common stock under the 2000 Plan were outstanding
at a weighted average exercise price of $0.745.
In July 1998, the board of directors of the Company approved the 1998
Non-officer Stock Option Plan (the "1998 Plan"). Up to 505,000 shares of common
stock may be issued pursuant to the 1998 Plan. Under the 1998 Plan, the Company
may issue nonqualified stock options, which are granted with exercise prices
equal to the fair value of the common stock on the date of grant. Vesting and
option terms, which may not exceed ten (10) years from the date of grant, are
determined by the board of directors at the time of grant. As of December 31,
2001, options to purchase 262,250 shares of common stock under the 1998 Plan
were outstanding at a weighted average exercise price of $3.034.
In June 1996, the Board of directors of the Company approved the 1996 Equity
Incentive Plan (the "1996 Plan"). Up to 1,350,000 shares of common stock may be
issued pursuant to the 1996 Plan. Under the 1996 Plan the Company may issue
incentive stock options and nonqualified stock options. Incentive stock options
are granted with exercise prices equal to or greater than the fair value of the
common stock on the date of grant, vest over a four-year employment period, and
are exercisable over a maximum ten-year employment period. The Company also
grants nonqualified stock options under the 1996 Plan that vest over a four-year
period or earlier upon the attainment of specific performance objectives, and
are exercisable over a maximum ten-year period or upon attainment of such
objectives. As of December 31, 2001, options to purchase 664,276 shares of
common stock under the 1996 Plan were outstanding at a weighted average exercise
price of $2.360.
In June 1996, the Board of directors approved the 1996 Non-Employee
Directors' Stock Option Plan (the "Directors' Plan"). Up to 250,000 shares of
common stock may be issued pursuant to the Directors' Plan. Stock options
granted under the Directors' Plan are granted with exercise prices equal to or
greater than the fair value of the common stock on the date of grant, vest over
a four-year period and are exercisable over a ten-year period from date of
grant. As of December 31, 2001, options to
33
purchase 220,270 shares of common stock under the Directors' Plan were
outstanding at a weighted average exercise price of $3.192.
In August 1996, the Company's Board of directors approved the termination,
effective upon the Company's initial public offering, of the Amended and
Restated 1987 Stock Option Plan (the "1987 Plan"). Under the 1987 Plan the
Company issued incentive stock options and nonqualified stock options. Incentive
stock options were granted with exercise prices equal to or greater than the
fair value of the common stock on the date of grant, vest over a four-year
employment period, and are exercisable over either a five-year or ten-year
employment period. The Company also granted nonqualified stock options under the
1987 Plan that vest over a four-year period or upon the attainment of specific
performance objectives, and are exercisable over a five-year period or upon
attainment of such objectives. As a result of such termination, no additional
options may be issued under the 1987 Plan. The options to purchase 16,601 shares
of common stock at a weighted average exercise price of $4.880 outstanding as of
December 31, 2001, will remain exercisable until they expire or terminate
pursuant to their terms.
A summary of the status of the Company's fixed option plans as of December
31, 2001 and 2000 and changes during the years then ended is presented below:
YEAR ENDED DECEMBER 31,
--------------------------------------------
2001 2000
--------------------- --------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICES SHARES PRICES
---------- -------- --------- --------
Outstanding at beginning of year..................... 2,385,698 $2.76 1,773,925 $3.20
Granted.............................................. 1,414,594 0.59 1,447,621 3.14
Exercised............................................ -- -- (57,909) 3.21
Forfeited............................................ (1,373,060) 2.43 (777,939) 4.56
---------- ---------
Outstanding at end of year........................... 2,427,232 1.69 2,385,698 2.76
========== =========
Weighted-average fair value of options granted during
the year at exercise prices equal to fair value at
grant date......................................... $ 1.69 $ 2.76
========== =========
The following table summarizes information about fixed stock options
outstanding as of December 31, 2001:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------------- --------------------------------
NUMBER WEIGHTED- NUMBER
OUTSTANDING AVERAGE EXERCISABLE
AT REMAINING AT WEIGHTED-AVERAGE
DECEMBER 31, CONTRACTUAL WEIGHTED-AVERAGE DECEMBER 31, EXERCISE
RANGE OF EXERCISE PRICES 2001 LIFE EXERCISE PRICE 2001 PRICE
------------------------ ------------- ----------- ---------------- ------------- ----------------
$0.17 - 1.00................ 908,418 8.85 $0.57 182,918 $0.78
$1.06 - 1.75................ 667,416 7.65 $1.37 361,041 $1.57
$1.88 - 9.50................ 896,398 7.05 $3.19 601,814 $3.19
--------- ---------
2,427,232 7.87 $1.74 1,145,773 $2.30
========= =========
34
The fair value of options granted during 2001 and 2000 was estimated on the
date of grant using the Black-Scholes option pricing model with the following
weighted average assumptions used for grants in 2001 and 2000:
2001 2000
-------- --------
Risk free interest rate.................................... 4.55% 6.63%
Expected life.............................................. 4 years 4 years
Volatility................................................. 173% 122%
Pro forma financial information assuming the use of SFAS 123 in accounting
for stock based compensation is as follows:
YEAR ENDED
DECEMBER 31,
-------------------
2001 2000
-------- --------
Net earnings (loss):
As reported............................................. $(11,350) $1,155
Adjusted pro forma...................................... (11,739) 128
Basic and diluted earnings (loss) per share:
As reported............................................. $ (0.91) $ 0.10
Adjusted pro forma...................................... (0.95) 0.01
In July 2000, the Company entered into a consulting agreement with a former
non-employee director. Under this agreement, the Company agreed to issue options
to purchase shares of common stock in addition to the non-discretionary grant of
options to purchase 15,000 shares of common stock that he received upon his
election to our board of directors. Of the additional grant, 25,000 options were
to vest in equal annual increments over four years, and the remaining 40,000
options were to vest on the fifth anniversary of the date of the option grant.
The options expired, however, one year after service for the Company terminated.
In August 2001, the Company issued options to a non-employee director. In
addition to the non-discretionary grant of options to purchase 15,000 shares of
common stock related to his election to the board of directors, the Company
granted 75,000 options that will vest on the seventh anniversary of the date of
the option grant.
In November 2000 and in connection with the Dassault transaction, the
Company provided early vesting of options held by employees of the component
software division who were hired by Dassault if they continued to work for
Dassault through November 14, 2001. The modification of the previously granted
stock option awards resulted in a new measurement date but no additional
compensation expense since the exercise price of the options exceeded the fair
value of the Company's common stock on the modification date.
In December 2000, the Company entered into separation agreements with three
former employees. The terms of these agreements included an aggregate of
$120,000 in severance payments as well as $250,000 in a bonus payment and
$250,000 in exchange for a non-competition agreement. In addition, the Company
issued 101,000 non-qualified, fully vested, stock options pursuant to these
agreements, priced as of their separation dates, with contractual terms ranging
from five to ten years. The fair value of the options was insignificant at the
date of issuance.
EMPLOYEE STOCK PURCHASE PLAN
In June 1996, the board of directors approved the Employee Stock Purchase
Plan. Up to 300,000 shares of common stock may be issued pursuant to the plan.
Employees may elect to withhold up to 15% of their compensation for the purchase
of the Company's common stock. The amounts withheld
35
are used to purchase the Company's common stock at a price equal to 85% of the
fair value of shares at the beginning or end of each purchase period. During
2001 and 2000 the Company issued 25,458 and 71,219 shares at average prices of
$0.47 and $2.32, respectively.
WARRANTS
A summary of outstanding common stock purchase warrants as of December 31,
2001 is as follows:
EXERCISE EXPIRATION
SHARES PRICE DATE
------ -------- ----------
210,000(a)................................................ $ 6.50 2002
22,500(a)................................................. 8.22 2003
250,000(b)................................................ 12.50 2004
125,000(c)................................................ 1.00 2004
1,200,000(a).............................................. 6.50 2005
------------------------
(a) These warrants were issued in connection with common stock transactions and
are immediately exercisable.
(b) These warrants were issued in connection with the Sven acquisition, and were
valued using the Black-Scholes option pricing model with the following
assumptions: no dividends, volatility of 68%, risk free interest rate of
6.60% and an expected life of two years.
(c) These warrants were issued in connection with a software technology
purchase, and were valued using the Black-Scholes option pricing model with
the following assumptions: no dividends, volatility of 180%, risk free
interest rate of 4.55% and a life of three years. These warrants are
immediately exercisable.
(6) TAXES
Income tax expense differs from the amount computed by applying the
statutory federal income tax rate to earnings (loss) from continuing operations
before income taxes as follows (in thousands):
YEAR ENDED
DECEMBER 31,
-------------------
2001 2000
-------- --------
Expected income tax expense (benefit)..................... $(3,964) $(3,992)
Non deductible expenses, net.............................. 13 20
Change in deferred tax valuation allowance................ 4,329 4,458
Taxes on foreign sales.................................... -- --
State taxes, net of federal benefit....................... (368) (409)
Research and development tax credit....................... -- --
Adjustment of previously provided taxes................... -- --
Other, net................................................ (10) (77)
------- -------
Actual income tax expense................................. -- $ --
======= =======
36
The tax effects of significant temporary differences that result in deferred
tax assets and liabilities are as follows (in thousands):
DECEMBER 31,
2001
-------------
Accounts receivable, primarily due to differences in
accounting for bad debts.................................. $ 80
Property and equipment, primarily due to differences in
depreciation.............................................. 337
Deferred revenue, due to differences in revenue recognition
for financial statement and income tax purposes........... --
Accrued expenses, primarily due to difference in the period
of recognition for financial statement and income tax
purposes.................................................. 134
Purchased software, primarily due to differences in carrying
values for financial statement and income tax purposes.... (83)
Acquired in-process research and development, amortized for
income tax purposes....................................... 256
Research and development and other tax credit
carryforwards............................................. 1,973
Net operating loss carryforwards............................ 9,943
--------
Total deferred tax assets............................... 12,640
Less valuation allowance.................................... (12,640)
--------
Net deferred tax assets................................. $ --
========
At December 31, 2001, the Company had net operating loss carryforwards for
regular income tax purposes of approximately $24.6 million, which if not
utilized expire in the years 2003 through 2021. The net operating loss
carryforwards at December 31, 2001 are subject to limitation under Section 382
of the Internal Revenue Code. The Company has provided a valuation allowance for
the entire deferred tax balance due to uncertainty of the realization of the
asset.
The Company also has research and experimentation credit carryforwards for
income tax purposes available totaling approximately $1.6 million, which if not
utilized expire in the years 2003 through 2021. These credit carryforwards may
also be subject to limitation under Section 382 of the Internal Revenue Code.
(7) COMMITMENTS AND CONTINGENCIES
The Company leases its office facilities and various office equipment under
noncancelable operating leases. Future minimum rental payments on these leases
are as follows (in thousands):
2002........................................................ $ 459
2003........................................................ 472
2004........................................................ 489
2005........................................................ 477
Thereafter.................................................. 427
------
Total..................................................... $2,324
======
Rent expense was approximately $1.1 million and $613,000 in 2001 and 2000,
respectively.
The Company executed a long-term development agreement with Three-Space
Limited, a United Kingdom corporation (TSL), in 1989 (the "1989 Development
Agreement") obligating the Company to pay approximately $30,000 per month for
specified research and marketing activities. In connection with the Prescient
acquisition, the Company terminated the 1989 Development Agreement and entered
into a Software Consulting Agreement with substantially the same financial
obligation to the Company. Approximately $200,000 in expenses were incurred
under the 1989 Development Agreement and the software consulting agreement
during 2000. In connection with the sale of the component software division, the
Software Consulting Agreement was assigned to Dassault.
37
The Company has entered into various licensing agreements, which require the
Company to pay royalties on each sale of the licensed software products. Royalty
expense under these agreements is included in cost of sales and totaled
approximately $369,000 and $265,000 in 2001 and 2000, respectively.
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's financial position, results of operations or cash flows.
(8) CONCENTRATIONS OF CREDIT RISK
The Company is exposed to potential concentrations of credit risk from its
accounts receivable with its various customers. The Company's accounts
receivable are from both large multinational corporate customers and smaller
companies in a variety of industries, with no concentration in a single
industry. However, the Company is subject to credit risk due to economic events
or circumstances in the various international and domestic markets in which the
Company operates. To reduce this risk, the Company evaluates the
creditworthiness of its customers prior to the shipment of software or
performance of services. During 2000, the Company had one customer that
accounted for 13% of its total revenue. The Company did not have any customer
that accounted for 10% of its total revenue for the year ended December 31,
2001.
(9) RELATED PARTY TRANSACTION
In June 2001, the Company acquired software and equipment from an entity,
which had a significant investor affiliated with a member of the Company's board
of directors, for total consideration of approximately $265,000, including
$200,000 cash and 125,000 warrants to purchase the Company's common stock. The
warrants, which have an exercise price of $1.00 and expire on June 1, 2004, were
valued using the Black-Scholes option pricing model assuming no dividends, risk
free interest rate of 4.55%, volatility of 180% and life of 3 years.
(10) RESTRUCTURING COSTS
During the third quarter of 2001, the Company implemented a restructuring
plan to reduce operating expenses and strengthen both its competitive and
financial positions by eliminating certain employee positions and reducing
office space and related overhead expenses. Overall expense reductions were
necessary both to lower existing cost structure and to reallocate resources to
pursue future operating strategies in response to declining revenue and other
performance measures during 2001. Restructuring charges primarily consisted of
$623,000 for severance and termination costs associated with the reduction in
force of 21 employees, all of which were paid during 2001. In connection with
the restructuring, the Company accrued an additional $400,000 in lease
abandonment costs, $245,000 of which was paid during 2001. The remaining
$155,000 represents costs due over the next four years, which were not offset by
sublease income. Each quarter, the Company expects to save $725,000 in salary
and benefits expense, $75,000 in facility related expenses and $150,000 in
consulting costs.
(11) SUBSEQUENT EVENTS
Beginning in December 2001, PCD Investments, LLC, which has acquired
approximately 15% of our outstanding common stock since October 2001 and is our
largest stockholder, has made various proposals to purchase our outstanding
shares of common stock, including a potential hostile tender offer. PCD
Investments subsequently announced that it did not plan to commence the tender
offer, but that it intended to nominate at the 2002 annual meeting six
individuals to serve as members of our board of directors.
38
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The names of the members of the board of directors and certain information
about them are set forth below. Each director was elected to serve until the
next annual meeting of the stockholders and his successor is elected and duly
qualified, or until his earlier resignation, death or removal.
NAME AGE POSITION HELD WITH PLANETCAD
---- -------- ------------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇......................... 45 President, Chief Executive Officer and
Director
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇(1)...................... 56 Chairman of the Board of Directors
▇▇▇▇▇▇ ▇. ▇▇▇▇▇(1)(2)..................... 50 Director
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇.......................... 44 Director
▇. ▇▇▇▇▇▇ ▇▇▇▇(1)(2)...................... 65 Director
------------------------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
There are no family relationships among any of the directors, executive
officers, or persons nominated or chosen by us to become our directors or
executive officers.
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ has served as our President and Chief Executive Officer
since January 2002 and as a director since February 2002. From May 2001 until
December 2001, ▇▇. ▇▇▇▇▇▇▇▇ served as Vice President and General Manager of our
supply chain solutions business unit. From June 2000 to April 2001,
▇▇. ▇▇▇▇▇▇▇▇ served as Chief Operating Officer of ▇▇▇▇▇▇▇▇▇.▇▇▇, a supply chain
solution software provider originally responsible for creating the technology
that we acquired in June 2001. Before joining Castalink, ▇▇. ▇▇▇▇▇▇▇▇ served in
various positions at Hewlett Packard over a period of 11 years, including as
Worldwide Supply Chain Manager for Hewlett Packard's Imaging and Printing
Systems unit. ▇▇. ▇▇▇▇▇▇▇▇ holds a B.S. in Industrial Engineering from
California State Polytechnic University.
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ has served as a director since March 2000. ▇▇. ▇▇▇▇▇▇▇
co-founded Capstone Management LLC, a venture capital firm, in July 1996, and is
an executive officer in Capstone's affiliated entities. His investment
experience includes Internet, software, health care service and other
technology-enabled service companies. ▇▇. ▇▇▇▇▇▇▇ began his venture capital
career in October 1983 with Technology Funding and opened Pathfinder Ventures
Inc.'s West Coast office in 1988. Prior to 1983 he was the head of Bank of
America's Sunnyvale Corporate Banking Group, managing a $250 million loan
portfolio with clients ranging from venture-backed start-ups to Apple Computer,
as well as several venture capital funds. ▇▇. ▇▇▇▇▇▇▇ holds a B.S. from the
University of Minnesota and an M.S. from the University of California, ▇▇▇▇▇.
▇▇▇▇▇▇ ▇. ▇▇▇▇▇ has served as a director since October 1994. ▇▇. ▇▇▇▇▇
joined Nazem & Company in July 1983 as Chief Financial Officer. ▇▇. ▇▇▇▇▇ has
served as a director of various public and privately held companies. ▇▇. ▇▇▇▇▇
holds a B.S. in Accounting from Rider University and is a Certified Public
Accountant.
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ has served as a director since October 2001. ▇▇. ▇▇▇▇▇▇▇ is
currently Senior Vice President, Enterprise Solutions at Yahoo!, a position he
has held since August 2001. From September 2000 until July 2001, ▇▇. ▇▇▇▇▇▇▇
served as a group president and general manager of global services at
CommerceOne. From November 1999 until September 2000, he served as a group
president at AppNet, Inc., which was acquired by CommerceOne. Prior to his
experience at AppNet, ▇▇. ▇▇▇▇▇▇▇ was a managing principal at the ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇.
39
▇. ▇▇▇▇▇▇ ▇▇▇▇ has served as a director since December 1996. ▇▇. ▇▇▇▇ is
currently serving a second term as President of the Topaz Group, a provider of
board consulting services, a position he has held since August 2001. Between
May 1997 and July 2001, ▇▇. ▇▇▇▇ was President, Chairman of the board of
directors and Chief Executive Officer of MobileForce Technologies, Inc., a
company which provides systems for managing vehicle fleets. Between April 1996
and May 1997, ▇▇. ▇▇▇▇ served as President of the Topaz Group. Before joining
the Topaz Group, ▇▇. ▇▇▇▇ served as Senior Vice President and President,
Enhanced Products Group of Frontier Corporation following its merger with ALC
Communications Corporation in December 1995. From January 1989 until December
1995, ▇▇. ▇▇▇▇ served as President and Chief Executive Officer of ConferTech
International. ▇▇. ▇▇▇▇ is currently a director of QualMark Corporation (Nasdaq
SmallCap: QMRK) and Universal Access Global Holdings, Inc. (Nasdaq: UAXS).
▇▇. ▇▇▇▇ holds a B.E.E. from Indiana Institute of Technology, an M.S.E.E. from
Purdue University and an M.B.A. from Pepperdine University.
The executive officers of PlanetCAD are as follows:
NAME AGE POSITION HELD WITH PLANETCAD
---- -------- ------------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇(1)...................... 45 President and Chief Executive Officer
▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇........................ 46 Chief Financial Officer, Vice President
and Secretary
------------------------
(1) The biography of ▇▇. ▇▇▇▇▇▇▇▇ is set forth above.
▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇ has served as our Chief Financial Officer, Vice President
and Secretary since May 2001. From November 1999 to April 2001, ▇▇. ▇▇▇▇▇▇▇▇▇▇▇
served as Chief Financial Officer of Vroom Technologies, Inc., a Denver,
Colorado-based provider of sales and marketing effectiveness solutions for the
telecommunications industry. In May 2001, subsequent to ▇▇. ▇▇▇▇▇▇▇▇▇▇▇'
departure, Vroom Technologies filed a petition for Chapter 11 bankruptcy in the
United States Bankruptcy Court for the District of Colorado (In re: Vroom
Technologies, Inc. Case No. 01-16685 ABC Chapter 7). From September 1997 to July
1999, ▇▇. ▇▇▇▇▇▇▇▇▇▇▇ served as Chief Financial Officer of Rodeer
Systems, Inc., a provider of outsourced medical transcription services to
hospitals and other healthcare providers. From March 1990 to August 1997,
▇▇. ▇▇▇▇▇▇▇▇▇▇▇ served in various financial related positions with Intergraph
Corporation, a worldwide provider of technical solutions, systems integration,
and services to various industries. ▇▇. ▇▇▇▇▇▇▇▇▇▇▇ holds a B.S. in Business
Administration from Colorado State University and a Masters in Business
Administration from Southern Methodist University.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires our directors and executive
officers, and persons who own more than 10% of a registered class of our equity
securities, to file with the Securities and Exchange Commission initial reports
of ownership and reports of changes in ownership of our common stock and other
equity securities. Executive officers, directors and holders of greater than ten
percent of our common stock are required by regulations of the Securities and
Exchange Commission to furnish us with copies of all Section 16(a) reports they
file.
To our knowledge, based solely upon a review of the copies of such reports
furnished to us and written representations that no other reports were required
to be filed during the fiscal year ended December 31, 2001, all of our executive
officers, directors and holders of greater than 10% of our common stock complied
with the applicable filing requirements of Section 16(a), except that Mr. ▇▇▇▇▇
▇▇▇, a former non-employee director, failed to file a Form 5.
40
ITEM 10. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth, for the fiscal years indicated, certain
compensation awarded or paid to, or earned by, the person who served as our
Chief Executive Officer during the fiscal year 2001, our only other executive
officer as of December 31, 2001, and one former executive officer who would have
been disclosed had he been an executive officer at the end of the fiscal year
2001.
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION(1) SECURITIES
----------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(#)(2) COMPENSATION($)
--------------------------- -------- --------- -------- ------------- ---------------
▇▇▇ ▇▇▇▇▇▇▇▇(3) ..................... 2001 $225,000 $ 476 -- $ 300(10)
President, Chief Executive Officer 2000 9,375(4) -- 400,000 --
and Secretary 1999 -- -- -- --
▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇(5) ............... 2001 103,077(6) -- 125,000 --
Chief Financial Officer, Vice 2000 -- -- -- --
President and Secretary 1999 -- -- -- --
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇(7) ................. 2001 192,226(8) -- 50,000 200,600(9)
Vice President, Engineering and 2000 178,187 62,500 -- 535(10)
Chief Technology Officer 1999 150,000 13,125 -- 240(10)
------------------------
(1) Columns of this table related to compensation in connection with restricted
stock and long-term incentive plans have been deliberately omitted because
we have not made any grants with respect to such plans.
(2) Options are stock options granted under our equity incentive plans.
(3) ▇▇. ▇▇▇▇▇▇▇▇'▇ employment as our President and Chief Executive Officer
terminated effective January 2002.
(4) Amount paid was based on an annual salary of $225,000.
(5) ▇▇. ▇▇▇▇▇▇▇▇▇▇▇ was appointed Chief Financial Officer, Vice President and
Secretary in May 2001.
(6) Amount paid was based on an annual salary of $160,000.
(7) ▇▇. ▇▇▇▇▇'▇ employment as our Vice President, Engineering and Chief
Technology Officer terminated effective October 1, 2001.
(8) Amount paid was based on an annual salary of $200,000 and includes the
value of accrued and unused vacation time ($11,538) and a loan payable to
us in the amount of $34,688 that PlanetCAD forgave under the terms of a
separation and release agreement entered into with ▇▇. ▇▇▇▇▇ in
October 2001.
(9) Includes a $200,000 severance payment and a $600 matching payment made by
us to his account under our 401(k) plan.
(10) Represents matching payments made by us to the individual's account under
our 401(k) plan.
41
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information regarding options granted
during the fiscal year ended December 31, 2001 to each of the executive officers
named in the summary compensation table.
NUMBER OF PERCENT OF
SHARES TOTAL OPTIONS
UNDERLYING GRANTED TO
OPTIONS EMPLOYEES IN EXERCISE PRICE EXPIRATION
NAME GRANTED 2001(%)(1) ($/SHARE)(2) DATE
---- ----------- ------------- -------------- -------------
▇▇▇ ▇▇▇▇▇▇▇▇................ -- -- -- --
▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇.......... 125,000(3) 9.2% 0.61 May 2011
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇............ 50,000(4) 3.7% 0.59 April 2011
------------------------
(1) Based on 1,357,511 options granted in fiscal year 2001.
(2) The exercise price per share of options granted was equal to the fair market
value of the common stock on the date of grant.
(3) Under the terms of the original grant to ▇▇. ▇▇▇▇▇▇▇▇▇▇▇, 31,250 of the
shares underlying her option will become exercisable in May 2002. The
remaining shares will vest and become exercisable at the rate of 1/48th of
the total grant per month for the three years following May 2002.
▇▇. ▇▇▇▇▇▇▇▇▇▇▇' change in control agreement contains additional terms
related to the exercisability of her option. Her change in control agreement
is described below under the heading "Employment Contracts and Termination
of Employment Agreements."
(4) Under the terms of the original grant to ▇▇. ▇▇▇▇▇, 12,500 of the shares
underlying his option would have become exercisable in April 2002. The
remaining shares would have vested and become exercisable in equal
installments at the end of each calendar quarter for the three years
following April 2002. ▇▇. ▇▇▇▇▇'▇ separation and release agreement contains
additional terms related to the exercisability of his option. His separation
and release agreement is summarized below under the heading "Employment
Contracts and Termination of Employment Agreements."
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table sets forth information with respect to (i) the exercise
of stock options by the executive officers named in the summary compensation
table above during the fiscal year ended December 31, 2001, (ii) the number of
securities underlying unexercised options held by such named executive officers
as of December 31, 2001, and (iii) the value of unexercised in-the-money options
(that is, options for which the fair market value of the common stock at
December 31, 2001 exceeded the exercise price) as of December 31, 2001.
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED
OPTIONS AT FISCAL
SHARES YEAR-END(1)(2)
ACQUIRED ON VALUE ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- -------------
▇▇▇ ▇▇▇▇▇▇▇▇...................... -- -- 100,000 300,000
▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇................ -- -- -- 125,000
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇.................. -- -- 230,833 --
------------------------
(1) None of the named executive officers held unexercised in-the-money options
at fiscal year end, whether exercisable or unexercisable, based on the $0.18
price of our common stock as reported on the American Stock Exchange as of
December 31, 2001, the last trading day of fiscal year 2001.
42
(2) For purposes of this table, valuation is based on vested options for each
named executive officer. Certain options granted to such individuals include
early exercise provisions, the value of which is not included in this table.
COMPENSATION OF DIRECTORS
Each of our directors is entitled to be reimbursed for reasonable
out-of-pocket expenses incurred in connection with attendance at each meeting of
the board. Additionally, each of our non-employee directors receives $1,000
compensation for each regular or special meeting of the board at which he is in
attendance and $500 compensation for each committee meeting of the board at
which he is in attendance. In months requiring multiple board meetings,
directors have accepted a $1,000 monthly stipend covering all board meetings
during a month in lieu of the $1,000 fee per meeting.
Each of our non-employee directors also receives stock option grants
pursuant to the 1996 Non-Employee Directors' Stock Option Plan. Only directors
who are not otherwise our employees or affiliates are eligible to receive such
options. Each non-employee director is automatically granted a non-discretionary
option to purchase 15,000 shares of our common stock on the date such
non-employee director is elected to the board. Additionally, on the date of each
annual meeting of our stockholders subsequent to election, each non-employee
director who has been a non-employee director continuously for the preceding
year is automatically granted an option to purchase 7,500 shares of our common
stock. Each other non-employee director is automatically granted an option to
purchase a number of shares of our common stock equal to 7,500 multiplied by a
fraction, the numerator of which is the number of days served as a non-employee
director and the denominator of which is 365. The exercise price of options
granted to non-employee directors is the fair market value of the common stock
on the date of grant. Options granted pursuant to the plan vest in four equal
annual installments beginning one year from the date of grant and are
immediately exercisable, subject to repurchase by us prior to the vesting of
such shares upon the optionee's cessation of service with us.
We entered into arrangement with ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, one of our non-employee
directors, upon his election to the board of directors. Under the arrangement,
we granted to ▇▇. ▇▇▇▇▇▇▇ an option to purchase 40,000 shares of our common
stock in addition to the non-discretionary option grant to purchase 15,000
shares of our common stock. The additional option to purchase 40,000 shares of
our common stock vests in full in October 2008. However, the vesting of the
additional option may be accelerated based on the achievement of certain
performance goals.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AGREEMENTS
We entered into a separation and release agreement with ▇▇. ▇▇▇▇▇ that was
made effective as of October 1, 2001. Under the terms of the agreement, we paid
▇▇. ▇▇▇▇▇ for all accrued and unused vacation through October 1, 2001 and a lump
sum payment of $200,000. In addition, we agreed to pay the premium cost of
continuing ▇▇. ▇▇▇▇▇'▇ medical, vision and dental benefits through
September 30, 2002, or until ▇▇. ▇▇▇▇▇ becomes eligible for coverage under
another plan. As part of the agreement, we amended the terms of ▇▇. ▇▇▇▇▇'▇
stock option grants to provide that all of ▇▇. ▇▇▇▇▇'▇ options would become
fully exercisable on October 8, 2001 and remain exercisable until October 1,
2006. We also forgave the principal and interest on a loan payable to us in the
amount of $34,688. The lump sum payment, continuation of insurance benefits,
option provisions and forgiveness of the loan were all conditioned on ▇▇. ▇▇▇▇▇
not exercising has right to revoke the agreement. ▇▇. ▇▇▇▇▇ agreed to provide
consulting services to us for a period of six months and not to compete with us
during that time. Finally, we entered into with ▇▇. ▇▇▇▇▇ a mutual release and
waiver of any current or future claims that one of us may have against the
other.
We entered into change in control agreements with ▇▇. ▇▇▇▇▇▇▇▇ and
▇▇. ▇▇▇▇▇▇▇▇▇▇▇ effective November 2001. The agreements expire by their terms in
November 2002, unless our board of directors exercises its right to extend the
terms for an additional year. The agreements provide that if
43
▇▇. ▇▇▇▇▇▇▇▇ and ▇▇. ▇▇▇▇▇▇▇▇▇▇▇' employment is continued during the one-year
period after a change in control or threatened change in control, their
employment must be continued on terms that are at least as favorable as the
terms of their employment prior to the change in control or threatened change in
control. If their employment is not continued for the entire one-year period
following a change in control or threatened change in control, ▇▇. ▇▇▇▇▇▇▇▇ and
▇▇. ▇▇▇▇▇▇▇▇▇▇▇ could become entitled to receive as severance payment all
accrued and unused vacation time, continuation of their medical, vision and
dental benefits for a period of six months, or until they become eligible for
coverage under another plan, lump-sum payments equal to four months of their
respective salary rate in effect at that time, accelerated vesting of their then
outstanding options and an extension to 30 months of the period during which
they can exercise certain of their options. ▇▇. ▇▇▇▇▇▇▇▇ and ▇▇. ▇▇▇▇▇▇▇▇▇▇▇
only become entitled to receive the severance if their employment is terminated
without cause or if they resign for good reason. In exchange for the foregoing
accommodations, ▇▇. ▇▇▇▇▇▇▇▇ and ▇▇. ▇▇▇▇▇▇▇▇▇▇▇ agreed not to compete with us
or otherwise interfere with our business for a period of one year following the
termination of their employment with us for any reason.
We also entered into a change in control agreement with ▇▇. ▇▇▇▇▇▇▇▇
effective November 2001. ▇▇. ▇▇▇▇▇▇▇▇'▇ change in control agreement was
superseded by a separation and release agreement that we entered into with
▇▇. ▇▇▇▇▇▇▇▇ when his employment with us terminated in January 2002.
▇▇. ▇▇▇▇▇▇▇▇'▇ change in control agreement provided that if ▇▇. ▇▇▇▇▇▇▇▇'▇
employment was continued during the one-year period after a change in control or
threatened change in control, his employment would be continued on terms that
were at least as favorable as the terms of his employment prior to the change in
control or threatened change in control. His agreement further provided that if
his employment was not continued for the entire one-year period following a
change in control or threatened change in control, ▇▇. ▇▇▇▇▇▇▇▇ could become
entitled to receive as severance payment all accrued and unused vacation time,
continuation of his medical, vision and dental benefits for a period of twelve
months, or until he became eligible for coverage under another plan, lump-sum
payments equal to six months of his respective salary rate in effect at that
time, accelerated vesting of his then outstanding options and an extension to 36
months of the period during which he could exercise certain of his options.
▇▇. ▇▇▇▇▇▇▇▇ only was entitled to receive the severance if his employment was
terminated without cause or if he resigned for good reason. In exchange for the
foregoing accommodations, ▇▇. ▇▇▇▇▇▇▇▇ agreed not to compete with us or
otherwise interfere with our business for a period of one year following the
termination of his employment with us for any reason.
We entered into a separation and release agreement with ▇▇. ▇▇▇▇▇▇▇▇ that
was made effective as of January 25, 2002. Under the terms of the agreement, we
paid ▇▇. ▇▇▇▇▇▇▇▇ for all accrued and unused vacation through January 25, 2002
and severance payments totaling $65,625. We paid one-half of the total severance
amount in a lump-sum payment and the other half in seven semimonthly
installments. In addition, we agreed to pay the premium cost of continuing
▇▇. ▇▇▇▇▇▇▇▇'▇ medical, vision and dental benefits through July 31, 2002. As
part of the agreement, we agreed that his option under his incentive option
agreement dated December 14, 2000 would remain exercisable until January 25,
2003. ▇▇. ▇▇▇▇▇▇▇▇ agreed not to compete with us for a period of six months from
the effective date of the agreement. Finally, we entered into with ▇▇. ▇▇▇▇▇▇▇▇
a mutual release and waiver of any current or future claims that one of us may
have against the other.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The following table sets forth certain information regarding the ownership
of our common stock as of July 31, 2002 by (i) each director, (ii) each of the
executive officers named in the summary
44
compensation table, (iii) all of such named executive officers and directors as
a group, and (iv) all those known by us to be beneficial owners of more than
five percent of our common stock.
BENEFICIAL OWNERSHIP(1)
NAME AND ADDRESS OF --------------------------------------
BENEFICIAL OWNER NUMBER OF SHARES PERCENT OF TOTAL(2)
------------------- ---------------- -------------------
PCD Investments, LLC(3) .................................... 1,863,809 12.54%
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Dassault Systemes Corp.(4) ................................. 1,353,369 8.89%
9 Quai Marcel Dassault
BP 310
2150 Suresnes Cedex, France
New York Life Insurance Company(5) ......................... 918,871 6.18%
▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇(6) ....................................... 1,511,961 9.78%
▇▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇ ▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Capstone Ventures SBIC, L.P.(7) ............................ 1,484,426 9.73%
▇▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇ ▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
The ▇▇▇▇▇ Partnership III, SBIC, L.P.(8) ................... 1,196,726 7.91%
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇(9)......................................... 451,968 2.98%
▇▇▇ ▇▇▇▇▇▇▇▇(10)............................................ 125,000 *
▇▇▇▇▇▇ ▇. ▇▇▇▇▇(11)......................................... 66,059 *
▇. ▇▇▇▇▇▇ ▇▇▇▇(12).......................................... 48,000 *
▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇(13)...................................... 41,667 *
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇(14)........................................ 15,000 *
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇(15)....................................... 31,250 *
All executive officers and directors as a group (eight
persons)(16).............................................. 2,290,905 14.24%
------------------------
* Less than one percent.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of our common stock
subject to options and warrants currently exercisable within 60 days of
July 31, 2002, are deemed outstanding for purposes of computing the
percentage of the person or entity holding such securities but are not
deemed outstanding for purposes of computing the percentage of any other
person or entity. Except as indicated by footnote, and subject to community
property laws where applicable, the persons named in the table above have
sole voting and investment power with respect to all shares of common stock
shown as beneficially owned by them.
(2) Percentage of ownership is based on 14,867,784 shares of common stock
outstanding as of July 31, 2002, which includes 2,404,926 shares of common
stock to be issued on the conversion of PlanetCAD's Series B Convertible
Preferred Stock.
45
(3) PCD Investments, LLC, ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ and ▇▇▇▇ ▇. ▇▇▇▇▇▇ have together
filed a Schedule 13D pursuant to which they report sole or shared voting
and investment power over an aggregate of 1,863,809 shares owned as of
July 17, 2002.
(4) Includes 348,538 shares underlying convertible preferred stock and 173,913
shares of common stock issuable upon exercise of outstanding warrants.
Dassault Systemes Corp. shares voting and dispositive power with Dassault
Systemes of America Corp. and Dassault Systemes S.A.
(5) New York Life Insurance Company has sole voting and dispositive power with
respect to its PlanetCAD common stock.
(6) Includes 27,535 shares subject to stock options that are exercisable within
60 days of July 31, 2002, 786,856 shares held of record by Capstone
Ventures SBIC, L.P. (including 609,944 shares underlying convertible
preferred stock) and 392,598 shares of common stock issuable upon exercise
of outstanding warrants held by Capstone. ▇▇. ▇▇▇▇▇▇▇ is the president of
the general partner of Capstone. ▇▇. ▇▇▇▇▇▇▇ shares voting and dispositive
power with respect to the shares held by ▇▇▇▇▇▇▇▇ with ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇.
(7) Includes 609,944 shares underlying convertible preferred stock and 392,598
shares of common stock issuable upon exercise of outstanding warrants.
(8) Includes 522,812 shares underlying convertible preferred stock and 260,870
shares of common stock issuable upon exercise of outstanding warrants.
▇▇▇▇▇ ▇.▇. ▇▇▇▇▇ and ▇▇▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ share voting and dispositive
power with respect to the shares held by the ▇▇▇▇▇ Partnership III, SBLC,
L.P.
(9) Includes 230,833 shares subject to stock options that are exercisable
within 60 days of July 31, 2002 and 33,332 shares of common stock held in
custodian accounts for the benefit of his children. ▇▇. ▇▇▇▇▇ disclaims
beneficial ownership of the 33,332 shares of common stock held in custodian
accounts for the benefit of his children.
(10) Includes 125,000 shares subject to stock options that are exercisable
within 60 days of July 31, 2002.
(11) Includes 52,500 shares subject to stock options that are exercisable within
60 days of July 31, 2002.
(12) Includes 48,000 shares subject to stock options that are exercisable within
60 days of July 31, 2002.
(13) Includes 41,667 shares subject to stock options that are exercisable within
60 days of July 31, 2002.
(14) Includes 15,000 shares subject to stock options that are exercisable within
60 days of July 31, 2002.
(15) Includes 31,250 shares subject to stock options that are exercisable with
60 days of July 31, 2002.
(16) Includes 609,944 shares underlying convertible preferred stock and an
aggregate of 964,383 shares subject to warrants and stock options that are
exercisable within 60 days of July 31, 2002.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The following is a brief description of the transactions entered into during
the last two years between us and the related parties identified below.
COMPENSATION OF OUR NEW PRESIDENT AND CEO
▇▇. ▇▇▇▇▇▇▇▇ was appointed as our President and Chief Executive Officer in
January 2002 and has served as a director since February 2002. For the fiscal
year 2002, we have agreed to pay ▇▇. ▇▇▇▇▇▇▇▇ a salary of $200,000. In February
2002, we granted ▇▇. ▇▇▇▇▇▇▇▇ an option to purchase 175,000 shares of our common
stock at $0.19 per share. Subject to the terms of his change in control
agreement described above, the option granted in 2002 will vest and become
exercisable as to 25% of the underlying shares of common stock in
February 2003. The remaining shares will vest and become exercisable in equal
installments at the end of each calendar quarter for the three years following
February 2003.
46
ISSUANCE OF WARRANTS TO 5% STOCKHOLDER AND DIRECTOR'S AFFILIATE
Under the terms of an asset purchase agreement dated June 1, 2001, we
purchased certain supply chain solution software and related assets from
Capstone Ventures and AI Research Corporation. As consideration for the
purchased assets, we paid Capstone Ventures and AI Research Corporation a total
of $200,000 and issued them warrants to purchase up to 125,000 shares of our
common stock for $1.00 per share. Of that consideration, we issued warrants to
purchase 88,250 shares of common stock to Capstone Ventures and paid them
$76,130. Capstone Ventures holds shares of our common stock equal to more than
5% of our total outstanding common stock, and ▇▇. ▇▇▇▇▇▇▇, our chairman of the
board, is the president of the general partner of Capstone Ventures. The
warrants expire on June 1, 2004. Capstone Ventures and AI Research acquired the
assets on March 12, 2001 when they foreclosed on secured promissory notes issued
by ▇▇▇▇▇▇▇▇▇ that were in default. In total, Capstone Ventures invested more
than $2,000,000 in Castalink through various debt and equity financings.
COMPONENT SOFTWARE DIVISION DISPOSITION
On November 14, 2000, we sold our component software division to a
subsidiary of Dassault Systemes Corp., which owns more than 5% of our common
stock, for approximately $24.5 million. The sale was effected pursuant to a
purchase agreement dated July 4, 2000, as amended September 2, 2000, among us,
Spatial Components, LLC, and Dassault, pursuant to which we formed Spatial
Components as a wholly owned subsidiary and capitalized it with all of the
assets and certain of the liabilities of our component software division. At the
closing of the sale, we transferred all of the membership interests in Spatial
Components to Spatial Corp., a wholly owned subsidiary of Dassault and the
assignee of Dassault under the purchase agreement. Upon the completion of the
transfer, Dassault, through its wholly owned subsidiary Spatial Corp., became
the sole owner of Spatial Components and, therefore, the component software
division.
INTELLECTUAL PROPERTY AGREEMENTS ENTERED INTO WITH DASSAULT
As part of the sale of our component software division, we obtained licenses
from Dassault for the right to use certain Dassault software and other
intellectual property, and, in exchange, we licensed to Dassault the right to
use software that we did not sell to Dassault. In order to define our
relationship with Dassault, we entered into the intellectual property agreements
described below. Each of the following intellectual property agreements
represents a direct relationship, or indirect relationship through a wholly
owned subsidiary of Dassault, between the parties identified. Under the terms of
a settlement agreement with Dassault dated on or about December 19, 2001, all of
the following agreements, except the IntraVision license agreement, were
terminated. The IntraVision agreement remains in effect under its original
terms.
CROSS-LICENSE AGREEMENT
Under the Cross-License Agreement, Dassault granted us a perpetual,
non-exclusive license to use certain computer software programs sold to Dassault
with the component software division, including ACIS and IVSDK. In consideration
for Dassault's license, we agreed to pay Dassault a royalty equal to a specified
percentage of our net revenue resulting from any products or services we sold
that utilized or were based on the Dassault software. The royalty was subject to
a minimum annual payment. We agreed to pay a separate royalty to Dassault in
connection with the distribution of IVSDK and the ACIS Open Viewer Plug-Ins
application software.
We agreed to grant Dassault a perpetual, royalty-free, non-exclusive license
to use and modify internally certain of our data translation and data exchange
application software, including IGES and STEP Toolkits. Dassault also had the
right to distribute the software in run-time or object code format as component
products and/or stand-alone software products or in connection with providing
47
application service provider and other enterprise services to Dassault's
customers. Dassault agreed to develop CATIA/SAT translator software and grant us
a perpetual, royalty-free, non-exclusive license to use and modify the
translator software as an underlying application for our Internet services and
to distribute run-time versions of the translator software in connection with
our Internet services. Each party agreed to provide the other with maintenance
in connection with the licensed software.
CO-BRANDING AGREEMENT
Under the Co-Branding Agreement, we agreed with Dassault to jointly market
translation and healing application services, similar to those offered on our
Web sites under the product name "▇▇▇▇▇▇▇.▇▇▇," via one or more Dassault Web
sites. We granted Dassault a royalty-free, non-exclusive license to use our Web
service infrastructure software for the purpose of providing the Co-Branded
Service to its customers. We agreed to host the Co-Branded Service and made the
Co-Branded Service accessible from any Dassault Web site that Dassault
requested. In consideration of the infrastructure license and performance of our
obligations under the Co-Branding Agreement, we were entitled to a percentage of
the net revenues derived from the sale of the Co-Branded Service.
SERVER SOFTWARE LICENSE AGREEMENT
Under the Server Software License Agreement, we granted Dassault a
non-transferable, non-exclusive license to certain of our Web site
infrastructure applications software. Dassault had the right to use and modify
the Server Software internally to provide application services and related
Internet services to its customers. In addition, Dassault had the right to
distribute the Server Software in connection with those Dassault software
products and services into which it had incorporated the Server Software. In
consideration for the license of the Server Software, Dassault agreed to pay us
a royalty equal to a specified percentage of the net revenue resulting from the
sale of any products or services offered by Dassault incorporated or facilitated
by the Server Software. Dassault also agreed to pay us an initial license fee
for use of the Server Software, which offset a percentage of the royalty
payments due from Dassault. In consideration for the license fee and royalty
payments, we agreed to provide Dassault with maintenance and support services
for the Server Software for four years.
WEB SERVICES AGREEMENT
Under the Web Services Agreement, Dassault granted us the right to market
and distribute, via our ▇▇▇▇▇▇▇.▇▇▇ and ▇▇▇▇▇▇▇▇▇.▇▇▇ Web sites, certain Web
services using Dassault's application software. We agreed to assist Dassault in
adapting these applications for Internet use by providing a fixed amount of
technical support at no charge to Dassault and further support, if necessary, at
a discount from our standard consulting rate. We also agreed to develop the Web
pages and functions needed to market and distribute the agreed upon Dassault Web
services at our own expense. We agreed to spend a minimum percentage of the
revenue generated through the distribution of each Web service on advertising
programs related to that service for 30 months after the implementation of each
service and a minimum amount on advertising in the first year of each service.
As consideration for marketing and distributing the Web services, we received a
percentage of net revenues generated by sales of the Web services on our Web
sites.
JOINT SOFTWARE LICENSE AGREEMENT
Under the Joint Software License Agreement, we granted Dassault a perpetual,
royalty-free license to use, modify and distribute certain translator and
healing software jointly developed by us and certain third parties and to use
and distribute certain software licensed to us by certain third parties. The
license was exclusive to Dassault for use of the jointly developed software as
component products and non-exclusive for all other purposes. We agreed to
provide Dassault with maintenance and support services for the Joint Software
for five years from the date of the agreement at no cost to Dassault.
48
MASTER SOFTWARE RESELLER AGREEMENT
Under the Master Software Reseller Agreement, we granted Dassault a
non-exclusive, non-transferable license to market, promote, reproduce for
distribution, distribute and sublicense certain software products and to use a
reasonable number of copies of those products for demonstration and training
purposes only. We also agreed to provide Dassault with reasonable quantities of
standard product marketing materials and product related training.
INTRAVISION LICENSE AGREEMENT
Under the IntraVision License Agreement, Dassault granted us a worldwide,
exclusive license to use, maintain, support, access and reproduce the
IntraVision source code for the purposes of developing and offering to our
customers end-user products. The license does not permit us to create software
that is similar to or that competes with the IVSDK. In consideration of the
exclusive IntraVision distribution and source code development licenses granted
by Dassault, we agreed to pay to Dassault certain royalties relating to the net
revenue recognized by us as a result of the licenses.
ISSUANCE OF SHARES TO DASSAULT
On November 14, 2000, we issued 555,556 shares of common stock to Dassault
for a purchase price of $2 million, or approximately $3.60 per share, pursuant
to the terms of a share purchase agreement, dated as of November 14, 2000, by
and between us and Dassault.
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K
(a) EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
--------------------- ------------------------------------------------------------
3(i).1* Restated Certificate of Incorporation
3(i).2* Certificate of Amendment to Restated Certificate of
Incorporation
3(i).3** Certificate of Designation, Preferences and Rights of
Series A Junior Participating Preferred Stock
3(ii)* Bylaws of the Registrant, as amended
4.1 Reference is made to Exhibits 3(i).1, 3(i).2, 3(i).3 and
3(ii)
10.1***^ Form of Indemnification Agreement entered into between the
Registrant and its directors and officers, with related
schedule
10.2*** Investment Agreement dated August 12, 1986
10.3*** Investors' Rights Agreement dated February 4, 1993
10.4***^ 1996 Amended and Restated 1987 Stock Option Plan of the
Registrant, including form of Incentive Stock Option and
Nonstatutory Stock Option thereunder
10.5***^ 1996 Equity Incentive Plan of the Registrant, including form
of Incentive Stock Option and Nonstatutory Stock Option
thereunder
10.6***^ 1996 Non-Employee Directors' Stock Option Plan of the
Registrant, including form of Nonstatutory Stock Option
thereunder
10.7***^ Employee Stock Purchase Plan of the Registrant and related
offering document
49
EXHIBIT
NUMBER DESCRIPTION
--------------------- ------------------------------------------------------------
10.8*** Lease Agreement between the Registrant and Flatirons
Cottonwood, Inc. (formerly Cottonwood Development Partners)
dated June 29, 1990, as amended
10.9*** Warrant to Purchase 33,333 shares of Next Preferred Stock
issued by the Registrant to New York Life Insurance Company
dated November 1, 1994
10.10*** Warrant to Purchase 66,667 shares of Next Preferred Stock
issued by the Registrant to Nazem & Company II, L.P. dated
November 1, 1994
10.11*** Warrant to Purchase 66,667 shares of Next Preferred Stock
issued by the Registrant to Benefit Capital Management
Corporation dated November 1, 1994
10.12*** Warrant to Purchase 12,500 shares of Next Preferred Stock
issued by the Registrant to Benefit Capital Management
Corporation dated January 2, 1996
10.13+ Asset Purchase Agreement among the Registrant, Prescient
Technologies, Inc. and Stone and ▇▇▇▇▇▇▇ dated June 28, 2000
10.14++^ 2000 Stock Incentive Plan of the Registrant
10.15+++ Share Purchase Agreement between the Registrant and Dassault
Systemes Corp. dated November 14, 2000
10.16****# Cross License Agreement between the Registrant and Dassault
Systemes S.A. dated November 14, 2000
10.17****# Co-Branding Agreement between the Registrant and Dassault
Systemes S.A. dated November 14, 2000
10.18****# Server Software License Agreement between the Registrant and
Dassault Systemes S.A. dated November 14, 2000
10.19****# Web Services Agreement between the Registrant and Dassault
Systemes S.A. dated November 14, 2000
10.20****# Joint Software License Agreement between the Registrant and
Dassault Systemes S.A. dated November 14, 2000
10.21****# Master Software Reseller Agreement between the Registrant
and Dassault Systemes S.A. dated November 14, 2000
10.22**** IntraVision License Agreement between the Registrant and
Spatial Components, LLC dated November 14, 2000
10.23****# Catia V5 Galaxy Program Solution Provider Agreement between
the Registrant and Dassault Systemes S.A. dated
November 14, 2000
10.24++ Purchase Agreement among the Registrant, Dassault Systemes
Corp. and Spatial Components, LLC dated July 4, 2000
10.25++ Amendment No. 1 to Purchase Agreement among the Registrant,
Dassault Systemes Corp. and Spatial Components, LLC dated
September 2, 2000
10.26++++ Lease Agreement between Flatirons North, LLC and the
Registrant dated June 9, 2000
10.27++++ Agreement of Lease between OTR and the Registrant dated
July 28, 2000
50
EXHIBIT
NUMBER DESCRIPTION
--------------------- ------------------------------------------------------------
10.28++++^ Separation and Release Agreement between the Registrant and
▇. ▇▇▇▇▇ ▇▇▇▇▇▇ dated December 28, 2000
10.29~ Asset Purchase Agreement among the Registrant, Capstone
Ventures SBIC, L.P. and AI Research Corporation dated
June 1, 2001
10.30~~~^ Separation and Release Agreement between the Registrant and
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ effective as of October 1, 2001
10.31~~^ Change in Control Agreement between the Registrant and
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ dated November 2001
10.32~~^ Change in Control Agreement between the Registrant and
▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇ dated November 2001
10.33~~^# Change in Control Agreement between the Registrant and ▇▇▇
▇▇▇▇▇▇▇▇ dated November 2001
10.34~~~^ Separation and Release Agreement between the Registrant and
▇▇▇ ▇▇▇▇▇▇▇▇ effective as of January 25, 2002
10.35** Rights Agreement between the Registrant and ▇▇▇▇▇ Fargo Bank
Minnesota, N.A., as Rights Agent, dated as of March 11,
2002
21.1++++ List of Subsidiaries of the Registrant
23.1 Consent of KPMG LLP
------------------------
* Incorporated by reference to the Registrant's Registration
Statement on Form SB-2, File No. 333-50426, filed
November 21, 2000.
** Incorporated by reference to the Registrant's Registration
Statement on Form 8-A filed on March 11, 2002.
*** Incorporated by reference to the Registrant's Registration
Statement on Form SB-2, File No. 333-05416-D, filed on
August 12, 1996.
**** Incorporated by reference to the Registrant's Amended
Current Report on Form 8-K/A dated November 16, 2001.
+ Incorporated by reference to the Registrant's Current Report
on Form 8-K dated October 18, 2000.
++ Incorporated by reference to the Registrant's Definitive
Proxy Statement on Schedule 14A dated October 17, 2000.
+++ Incorporated by reference to the Registrant's Current Report
on Form 8-K dated November 21, 2000.
++++ Incorporated by reference to the Registrant's
Annual Report
on Form 10-KSB filed on April 2, 2001.
~ Incorporated by reference to the Registrant's Quarterly
Report on Form 10-QSB filed on August 14, 2001.
~~ Incorporated by reference to the Registrant's
Annual Report
on Form 10-KSB filed on April 1, 2002.
51
~~~ Filed as exhibits to Amendment No. 2 of this Form 10-KSB on
July 17, 2002.
# Denotes terminated agreement.
^ Denotes management contract or compensatory plan or
arrangement.
(b) REPORTS ON FORM 8-K
On November 16, 2001, we filed an amended current report on Form 8-K/A
disclosing the full, unredacted text of certain agreements previously filed with
redacted text in connection with a request for confidential treatment.
On December 6, 2001, we filed a current report on Form 8-K regarding an
unsolicited offer by PCD Investments, LLC to purchase all of our outstanding
shares of common stock.
On January 24, 2002, we filed a current report on Form 8-K regarding the
resignation of our former President, Chief Executive Officer and Director, ▇▇▇
▇▇▇▇▇▇▇▇, and the appointment of our new President and Chief Executive Officer,
▇▇▇▇▇ ▇▇▇▇▇▇▇▇.
On March 11, 2002, we filed a current report on Form 8-K regarding the
adoption of our stockholder rights plan.
52
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Date: August 21, 2002 PLANETCAD INC.
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
-----------------------------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Title: DIRECTOR, PRESIDENT AND CHIEF EXECUTIVE
OFFICER
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
Date: August 21, 2002 By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
-----------------------------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Title: DIRECTOR, PRESIDENT AND CHIEF EXECUTIVE
OFFICER
(PRINCIPAL EXECUTIVE OFFICER)
Date: August 21, 2002 By: /s/ ▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
-----------------------------------------
Name: ▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
Title: CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL AND ACCOUNTING
OFFICER)
Date: August 21, 2002 By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-----------------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: CHAIRMAN OF THE BOARD OF DIRECTORS
Date: August 21, 2002 By: /s/ ▇. ▇▇▇▇▇▇ ▇▇▇▇
-----------------------------------------
Name: ▇. ▇▇▇▇▇▇ ▇▇▇▇
Title: DIRECTOR
Date: August 16, 2002 By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
-----------------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: DIRECTOR
Date: August 21, 2002 By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-----------------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: DIRECTOR
53
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION
-------------- ------------------------------------------------------------
3(i).1* Restated Certificate of Incorporation
3(i).2* Certificate of Amendment to Restated Certificate of
Incorporation
3(i).3** Certificate of Designation, Preferences and Rights of
Series A Junior Participating Preferred Stock
3(ii)* Bylaws of the Registrant, as amended
4.1 Reference is made to Exhibits 3(i).1, 3(i).2, 3(i).3 and
3(ii)
10.1***^ Form of Indemnification Agreement entered into between the
Registrant and its directors and officers, with related
schedule
10.2*** Investment Agreement dated August 12, 1986
10.3*** Investors' Rights Agreement dated February 4, 1993
10.4***^ 1996 Amended and Restated 1987 Stock Option Plan of the
Registrant, including form of Incentive Stock Option and
Nonstatutory Stock Option thereunder
10.5***^ 1996 Equity Incentive Plan of the Registrant, including form
of Incentive Stock Option and Nonstatutory Stock Option
thereunder
10.6***^ 1996 Non-Employee Directors' Stock Option Plan of the
Registrant, including form of Nonstatutory Stock Option
thereunder
10.7***^ Employee Stock Purchase Plan of the Registrant and related
offering document
10.8*** Lease Agreement between the Registrant and Flatirons
Cottonwood, Inc. (formerly Cottonwood Development Partners)
dated June 29, 1990, as amended
10.9*** Warrant to Purchase 33,333 shares of Next Preferred Stock
issued by the Registrant to New York Life Insurance Company
dated November 1, 1994
10.10*** Warrant to Purchase 66,667 shares of Next Preferred Stock
issued by the Registrant to Nazem & Company II, L.P. dated
November 1, 1994
10.11*** Warrant to Purchase 66,667 shares of Next Preferred Stock
issued by the Registrant to Benefit Capital Management
Corporation dated November 1, 1994
10.12*** Warrant to Purchase 12,500 shares of Next Preferred Stock
issued by the Registrant to Benefit Capital Management
Corporation dated January 2, 1996
10.13+ Asset Purchase Agreement among the Registrant, Prescient
Technologies, Inc. and Stone and ▇▇▇▇▇▇▇ dated June 28,
2000
10.14++^ 2000 Stock Incentive Plan of the Registrant
10.15+++ Share Purchase Agreement between the Registrant and Dassault
Systemes Corp. dated November 14, 2000
10.16****# Cross License Agreement between the Registrant and Dassault
Systemes S.A. dated November 14, 2000
10.17****# Co-Branding Agreement between the Registrant and Dassault
Systemes S.A. dated November 14, 2000
10.18****# Server Software License Agreement between the Registrant and
Dassault Systemes S.A. dated November 14, 2000
EXHIBIT NUMBER DESCRIPTION
-------------- ------------------------------------------------------------
10.19****# Web Services Agreement between the Registrant and Dassault
Systemes S.A. dated November 14, 2000
10.20****# Joint Software License Agreement between the Registrant and
Dassault Systemes S.A. dated November 14, 2000
10.21****# Master Software Reseller Agreement between the Registrant
and Dassault Systemes S.A. dated November 14, 2000
10.22**** IntraVision License Agreement between the Registrant and
Spatial Components, LLC dated November 14, 2000
10.23****# Catia V5 Galaxy Program Solution Provider Agreement between
the Registrant and Dassault Systemes S.A. dated
November 14, 2000
10.24++ Purchase Agreement among the Registrant, Dassault Systemes
Corp. and Spatial Components, LLC dated July 4, 2000
10.25++ Amendment No. 1 to Purchase Agreement among the Registrant,
Dassault Systemes Corp. and Spatial Components, LLC dated
September 2, 2000
10.26++++ Lease Agreement between Flatirons North, LLC and the
Registrant dated June 9, 2000
10.27++++ Agreement of Lease between OTR and the Registrant dated
July 28, 2000
10.28++++^ Separation and Release Agreement between the Registrant and
▇. ▇▇▇▇▇ ▇▇▇▇▇▇ dated December 28, 2000
10.29~ Asset Purchase Agreement among the Registrant, Capstone
Ventures SBIC, L.P. and AI Research Corporation dated
June 1, 2001
10.30~~~^ Separation and Release Agreement between the Registrant and
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ effective as of October 1, 2001
10.31~~^ Change in Control Agreement between the Registrant and ▇▇▇▇▇
▇. ▇▇▇▇▇▇▇▇ dated November 2001
10.32~~^ Change in Control Agreement between the Registrant and ▇▇▇
▇. ▇▇▇▇▇▇▇▇▇▇▇ dated November 2001
10.33~~^# Change in Control Agreement between the Registrant and ▇▇▇
▇▇▇▇▇▇▇▇ dated November 2001
10.34~~~^ Separation and Release Agreement between the Registrant and
▇▇▇ ▇▇▇▇▇▇▇▇ effective as of January 25, 2002
10.35** Rights Agreement between the Registrant and ▇▇▇▇▇ Fargo Bank
Minnesota, N.A., as Rights Agent, dated as of March 11, 2002
21.1++++ List of Subsidiaries of the Registrant
23.1 Consent of KPMG LLP
------------------------
* Incorporated by reference to the Registrant's Registration
Statement on Form SB-2, File No. 333-50426, filed
November 21, 2000.
** Incorporated by reference to the Registrant's Registration
Statement on Form 8-A filed on March 11, 2002.
*** Incorporated by reference to the Registrant's Registration
Statement on Form SB-2, File No. 333-05416-D, filed on
August 12, 1996.
**** Incorporated by reference to the Registrant's Amended
Current Report on Form 8-K/A dated November 16, 2001.
+ Incorporated by reference to the Registrant's Current Report
on Form 8-K dated October 18, 2000.
++ Incorporated by reference to the Registrant's Definitive
Proxy Statement on Schedule 14A dated October 17, 2000.
+++ Incorporated by reference to the Registrant's Current Report
on Form 8-K dated November 21, 2000.
++++ Incorporated by reference to the Registrant's
Annual Report
on Form 10-KSB filed on April 2, 2001.
~ Incorporated by reference to the Registrant's Quarterly
Report on Form 10-QSB filed on August 14, 2001.
~~ Incorporated by reference to the Registrant's Annual Report
on Form 10-KSB filed on April 1, 2002.
~~~ Filed as exhibits to Amendment No. 2 of this Form 10-KSB on
July 17, 2002.
# Denotes terminated agreement.
^ Denotes management contract or compensatory plan or
arrangement.
WRITTEN STATEMENT OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 906
OF THE ▇▇▇▇▇▇▇▇-▇▇▇▇▇ ACT OF 2002 (18 U.S.C. SECTION 1350)
The undersigned, the Chief Executive Officer and the Chief Financial Officer
of PlanetCAD Inc., a Delaware corporation (the "Company"), each hereby certifies
that, to his/her knowledge on the date hereof:
(a) the Form 10-KSB/A3 of the Company for the fiscal year ended
December 31, 2001 filed on the date hereof with the Securities and
Exchange Commission (the "Report") fully complies with the requirements
of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(b) the information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the
Company.
/s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
-----------------------------------------------
▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Chief Executive Officer
August 21, 2002
/s/ ▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
-----------------------------------------------
▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
Chief Financial Officer
August 21, 2002