Prospectus Summary
You should read the following summary together with the more detailed information regarding our company and the common stock we are offering and the financial statements and related notes to those statements that appear elsewhere in this prospectus.
Unless otherwise indicated, all information in this prospectus:
. gives effect to the conversion of all outstanding shares of preferred stock into shares of common stock effective upon the closing of this offering;
. assumes that the underwriters will not exercise their over-allotment option;
. assumes an initial offering price of $ per share, the midpoint of our initial public offering price range;
. reflects a -for- stock split which will be effected prior to this offering;
. reflects the filing of our second amended and restated certificate of incorporation, to be made upon the closing of this offering; and . reflects the adoption of our second amended and restated by-laws, to be effective upon the closing of this offering.
Network Engines, Inc.
We develop, market and provide integrated, scalable and powerful server appliances that deliver Internet application functionality. Server appliances are a new category of computer network infrastructure devices that deliver specific functionality through a combination of pre-packaged hardware and software. Unlike general-purpose servers, our server appliances are high- powered, compact products with extensive, integrated remote management capabilities and a choice of operating systems, applications and computing power. Our customers may select the number and type of each server that they need, utilize them separately or combine them into clusters, locate them geographically as needed, and manage them from a single location without the support of on-site technicians. Our server appliances are designed to meet the complex needs and requirements of e-commerce and Internet-based organizations, including "dot com" companies, web hosting providers, application service providers and Internet service providers.
We offer a broad range of server appliance products, consisting of the WebEngine family, CommerceEngine and AdminEngine. Our product line enables our customers to create Internet content delivery systems with a wide range of power at a reduced total cost of ownership. Our server appliances are easy to install and configure and are designed to meet our customers' needs by combining specific application functionality within small physical packaging. In order to meet the preferences of a wide range of customers, we offer server appliances with either Windows or Linux operating systems and with a range of applications. Our server appliances can be used as individual fully-functioning devices, or can be connected in clusters of up to 256 appliances, either of the same or different types, to increase the application processing power and functionality of the appliance cluster. In addition, our server appliance products contain integrated hardware and software features that allow a single point of management for the entire cluster and "lights out" management, which is the ability to manage the appliance remotely without any on-site technicians.
The openness and accessibility of the Internet enable large and small organizations to enter this competitive environment by creating Internet sites and establishing their own network infrastructures. New and emerging organizations hoping to grow, and well-financed organizations hoping to increase market share, typically seek to reduce "time-to-revenue," the length of time between developing their online ideas and the availability of their web sites to their potential customers. The increase in Internet traffic and demand for greater bandwidth has resulted in more utilization of remote server facilities, such as co-location facilities, to house servers for Internet- related businesses.
Traditionally, organizations have built their Internet solutions with general-purpose servers, requiring extensive time and technical resources which increase overall cost of ownership. To extend the power and features of a general-purpose server, organizations must integrate numerous discrete hardware and software elements, such as operating systems, applications, security systems, load balancers and management tools. This approach is not well-suited for use in remote server facilities because it typically creates large, complex systems that require substantial facility space. In addition, few vendors, if any, provide remote lights out management capabilities, which increases the need for dedicated attention of on-site information technology professionals. When organizations use general-purpose servers to handle Internet traffic, they typically face a higher total cost of ownership since equipment, facility costs and operating expenses are high and time-to-revenue is increased.
The server appliance was developed to address the shortcomings of general- purpose servers. International Data Corporation estimates that the worldwide market for server appliances will grow to $8.0 billion in 2003 from approximately $50.0 million in 1998, a compounded annual growth rate of 176%. As market acceptance of server appliances grows, we expect that users will increasingly demand products that meet specific functional requirements and reduce total cost of ownership factors, including time-to-revenue, packaging density, installation and management functionality.
We have assembled a research and development team of highly-skilled engineers with significant experience in high-density packaging, server design, embedded management, networking and software. This team will allow us to build upon our current technology platforms, expand the features and functionality of our suite of server appliances and develop additional products that maintain our technological advantages. In addition, we have formed strategic partnerships with leading technology vendors that will enhance our total product offerings. We sell our products through a direct sales organization and through a network of channels that includes systems integrators, distributors and licensed manufacturers.
Our objective is to become the leading global provider of scalable Internet server appliances. We intend to increase market acceptance of server appliances for Internet-based applications by providing and expanding a range of specific- purpose server appliances that can be easily scaled to increase application power and can be easily integrated into managed clusters.
Our principal executive offices are located at 61 Pleasant Street, Randolph, Massachusetts 02368-4137 and our telephone number is (781) 961-4400. Our World Wide Web site address is www.networkengines.com. The information on our web site is not incorporated by reference into this prospectus.
The Offering
Common stock offered................................ shares Common stock to be outstanding after this offering.. shares Use of proceeds..................................... For research and development, sales and marketing including international expansion, potential acquisitions of businesses, technologies or products and general corporate purposes. See "Use of Proceeds." Proposed Nasdaq National Market symbol.............. NENG The number of shares that will be outstanding after the offering is based on the number of shares outstanding as of March 31, 2000 and excludes:
. shares of common stock issuable upon exercise of stock options
outstanding as of March 31, 2000, with a weighted average exercise price
of $ per share, of which options to purchase shares were then
exercisable;
. shares of common stock reserved for issuance upon exercise of
warrants outstanding as of March 31, 2000 with a weighted average
exercise price of $ per share; and
. shares of common stock reserved for future grant under our stock plans.
See "Capitalization," "Management--Benefit Plans" and "Description of Capital Stock."
Summary Financial Data (in thousands, except per share data) The following summary financial data should be read in conjunction with our financial statements and related notes and with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and other financial data. The statement of operations data for the years ended September 30, 1998 and 1999 is derived from audited financial statements included elsewhere in this prospectus. The statement of operations data for the three months ended December 31, 1998, March 31, 1999, June 30, 1999, September 30, 1999 and December 31, 1999 and the balance sheet data as of December 31, 1999 are derived from our unaudited financial statements.
Unaudited pro forma basic and diluted net loss per share have been calculated assuming the conversion of all outstanding shares of our series A, series B, series C and series D preferred stock into shares of common stock, as if the shares had converted immediately upon issuance.
Three Months Ended
Year Ended -----------------------------------------------------------
September 30,
---------------- December 31, March 31, June 30, September 30, December 31,
1998 1999 1998 1999 1999 1999 1999
Statement of Operations Data: Net revenues............ $ 1,102 $ 6,031 $ 223 $ 893 $ 908 $ 4,007 $ 4,415 Gross profit (loss)..... (489) 1,298 (162) 10 (96) 1,546 1,802 Loss from operations.... (3,625) (5,247) (1,240) (1,325) (1,757) (925) (1,616) Net loss................ (4,199) (5,830) (2,170) (1,000) (1,753) (907) (1,586) Net loss attributable to common stockholders.... (4,199) (6,053) (2,170) (1,009) (1,763) (1,111) (2,396) Pro forma net loss per common share--basic and diluted................ $ (1.58) $ (0.31) Shares used in computing pro forma basic and diluted net loss per common share........... 3,697 5,144
The pro forma as adjusted balance sheet data as of December 31, 1999 gives effect to the conversion of all outstanding shares of preferred stock into shares of common stock and has been adjusted to give effect to the sale of shares of common stock offered hereby at the assumed initial public offering price of $ per share, less underwriting discounts and commissions and estimated offering expenses.
As of December 31, 1999 Pro Forma Actual As Adjusted
Balance Sheet Data: Cash, cash equivalents and restricted cash........ $ 25,255 $ Working capital................................... 25,327 Total assets...................................... 30,934 Long-term debt, less current portion.............. 129 Redeemable convertible preferred stock............ 38,527 Total stockholders' equity (deficit).............. (12,099)