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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________
COMMISSION FILE NUMBER: 0-27491
DALEEN TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 65-0944514
(State or other Jurisdiction of incorporation or (I.R.S. Employer Identification No.)
organization)
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1750 CLINT MOORE ROAD 33487
BOCA RATON, FLORIDA (Zip Code)
(Address of principal executive offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (561) 999-8000
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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 [ ]
As of August 8, 2000, there were 21,751,036 shares of registrant's common stock,
$0.01 par value, outstanding.
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DALEEN TECHNOLOGIES, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 2000
TABLE OF CONTENTS
PART I
FINANCIAL INFORMATION
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PAGE
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Item 1. Condensed Consolidated Financial Statements.
Condensed Consolidated Balance Sheets as of December 31, 1999 and June
30, 2000 (unaudited) 3
Condensed Consolidated Statements of Operations for the three months and
six months ended June 30, 1999 and 2000 (unaudited) 4
Condensed Consolidated Statements of Cash Flows for the six months ended
June 30, 1999 and 2000 (unaudited) 5
Notes to Condensed Consolidated Financial Statements (unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations. 8
Item 3. Quantitative and Qualitative Disclosures About Market Risk. 14
PART II
OTHER INFORMATION
Item 4. Submission of Matters To a Vote of Security Holders 15
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
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PART I
FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements.
DALEEN TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
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DECEMBER 31, JUNE 30,
1999 2000
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Assets (UNAUDITED)
Current assets:
Cash and cash equivalents $ 52,852 35,434
Restricted cash 124 927
Securities available for sale 9,385 3,376
Accounts receivable, less allowance for doubtful accounts
of $707 at December 31, 1999 and $1,572 at June 30, 2000
(unaudited) 3,673 10,375
Costs in excess of billings 3,650 3,932
Other current assets 941 912
--------- ---------
Total current assets 70,625 54,956
Property and equipment, net 4,845 7,868
Goodwill and other intangibles, net of accumulated amortization of
$607 at December 31, 1999
and $8,034 at June 30, 2000 (unaudited) 57,685 51,295
Other assets 726 719
--------- ---------
Total assets $ 133,881 114,838
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accrued payroll and other accrued expenses $ 12,240 6,201
Accounts payable 1,099 2,144
Billings in excess of costs 769 956
Deferred revenue 301 1,547
Other current liabilities 15 753
--------- ---------
Total current liabilities 14,424 11,601
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Stockholders' equity:
Common stock $.01 par value. Authorized 70,000,000 shares;
issued and outstanding 21,408,246 shares at December 31,
1999 and 21,737,541 shares at June 30, 2000 (unaudited) 214 217
Stockholders' notes receivable (202) (84)
Deferred stock compensation (3,031) (2,342)
Additional paid-in capital 160,446 160,914
Accumulated deficit (37,970) (55,468)
--------- ---------
Total stockholders' equity 119,457 103,237
--------- ---------
Total liabilities and stockholders' equity $ 133,881 114,838
========= =========
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SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
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DALEEN TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
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THREE MONTHS ENDED SIX MONTHS ENDED
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JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1999 2000 1999 2000
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Revenue:
License fees $ 2,799 7,091 3,748 12,793
Professional services and other 2,537 4,382 3,367 7,651
-------- -------- -------- --------
Total revenue 5,336 11,473 7,115 20,444
-------- -------- -------- --------
Cost of revenue:
License fees 1 193 3 351
Professional services and other 2,389 3,548 3,655 6,333
-------- -------- -------- --------
Total cost of revenue 2,390 3,741 3,658 6,684
-------- -------- -------- --------
Gross profit 2,946 7,732 3,457 13,760
Operating expenses:
Sales and marketing 797 2,518 1,282 5,836
Research and development 1,911 6,746 3,488 11,749
General and administrative 1,829 3,527 3,294 7,372
Amortization of goodwill and other intangibles -- 3,918 -- 7,737
-------- -------- -------- --------
Total operating expenses 4,537 16,709 8,064 32,694
-------- -------- -------- --------
Operating loss (1,591) (8,977) (4,607) (18,934)
Total interest income and nonoperating income, net 41 625 99 1,427
-------- -------- -------- --------
Net loss $ (1,550) (8,352) (4,508) (17,507)
Accretion of preferred stock (39) -- (79) --
-------- -------- -------- --------
Net loss applicable to common stockholders $ (1,589) (8,352) (4,587) (17,507)
======== ======== ======== ========
Net loss per share - basic and diluted $ (0.49) (0.38) (1.41) (0.81)
======== ======== ======== ========
Weighted average shares outstanding - basic and diluted 3,245 21,700 3,242 21,574
======== ======== ======== ========
Pro forma data:
Pro forma net loss ($ 1,550) ($ 4,508)
======== ========
Pro forma net loss per share - basic and diluted $ (0.13) ($ 0.36)
======== ========
Pro forma weighted average shares outstanding-
basic and diluted 12,373 12,373
======== ========
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SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
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DALEEN TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
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SIX MONTHS ENDED
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JUNE 30, JUNE 30,
1999 2000
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Cash flows from operating activities:
Net loss $ (4,508) (17,507)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 691 8,721
Amortization of deferred stock compensation -- 689
Bad debt expense 167 927
Interest income on stockholder loans -- (15)
Changes in assets and liabilities:
Restricted cash (120) (803)
Accounts receivable (1,197) (7,601)
Costs in excess of billings (795) (427)
Other current assets (390) 11
Other assets (89) 410
Accounts payable (2) 1,058
Accrued payroll and other accrued expenses 1,129 (6,026)
Billings in excess of costs 1,063 189
Deferred revenue -- 1,547
Other current liabilities 108 443
-------- --------
Net cash used in operating activities (3,943) (18,384)
-------- --------
Cash flows provided by financing activities:
Proceeds from sale of preferred stock-Series E, net 13,428 --
Proceeds from exercise of stock options and bridge warrants 160 472
-------- --------
Net cash provided by financing activities 13,588 472
-------- --------
Cash flows provided by investing activities:
Purchase of securities available for sale (18,974) (20,431)
Sales and maturities of securities available for sale 24,727 26,440
Payments related to the acquisition of Inlogic -- (1,037)
Capital expenditures (1,133) (4,373)
Issuance of stockholders' notes receivable -- (192)
Repayment of stockholders' notes receivable -- 138
-------- --------
Net cash provided by investing activities 4,620 545
-------- --------
Effect of exchange rates on cash and cash equivalents -- (51)
Net increase (decrease) in cash and cash equivalents 14,265 (17,418)
Cash and cash equivalents at beginning of period 723 52,852
-------- --------
Cash and cash equivalents at end of period $ 14,988 35,434
======== ========
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SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
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DALEEN TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
(UNAUDITED)
(1) BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements for Daleen
Technologies, Inc. and subsidiaries ("Daleen" or the "Company") have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes necessary for a fair presentation of financial position, results of
operations and cash flows in conformity with generally accepted accounting
principles. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation of the results
for the periods presented have been included. The condensed balance sheet at
December 31, 1999 has been derived from the Company's audited consolidated
financial statements at that date. These condensed consolidated financial
statements should be read in conjunction with the audited consolidated financial
statements and notes thereto for the year ended December 31, 1999, included in
the Company's 1999 Annual Report on Form 10-K filed with the Securities and
Exchange Commission ("SEC") on March 31, 2000.
The results of operations for the six months ended June 30, 2000 are not
necessarily indicative of results that may be expected for any other interim
period or for the full fiscal year.
(2) PRINCIPLES OF CONSOLIDATION
The accompanying financial statements include the accounts of the Company
(including its subsidiaries). All significant intercompany balances and
transactions have been eliminated in consolidation.
(3) BASIC AND DILUTED NET LOSS PER SHARE
Basic and diluted net loss per share was computed by dividing net loss
applicable to common stockholders by the weighted average number of shares of
common stock outstanding for each period presented. Common stock equivalents
were not considered since their effect would be antidilutive. Common stock
equivalents amounted to 1,635,533 shares and 1,863,121 shares for the three
months and six months ended June 30, 2000, respectively. Basic and diluted
proforma net loss per share includes the effects of the conversion of preferred
stock to common stock as a result of the Company's initial public offering.
(4) REVENUE RECOGNITION
The Company recognizes revenue under Statement of Position 97-2, SOFTWARE
REVENUE RECOGNITION ("SOP 97-2") for all software transactions entered into that
do not require significant production, modification or customization. SOP 97-2
generally requires revenue earned on software arrangements involving multiple
elements to be allocated to each element based on vendor specific objective
evidence ("VSOE") of the relative fair values of the elements. VSOE is
determined by the price charged when the element is sold separately. The revenue
allocated is recognized when persuasive evidence of an arrangement exists, the
software has been delivered, the fee is fixed and determinable and
collectibility is probable. An arrangement fee is generally
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not presumed to be fixed or determinable if payment of a significant portion of
the licensing fee is not due until after expiration of the license or more than
12 months after delivery. Revenue related to arrangements containing extended
payment terms where the fees are not considered fixed and determinable is
deferred until payments are due.
In March 1999, the Company adopted SOP 98-9, MODIFICATION OF SOP 97-2, SOFTWARE
REVENUE RECOGNITION, WITH RESPECT TO CERTAIN TRANSACTIONS ("SOP 98-9"). SOP 98-9
amends SOP 97-2 to require recognition of revenue using the "residual method"
when (1) there is VSOE of the fair values of all undelivered elements in a
multiple-element arrangement that is not accounted for using long-term contract
accounting, (2) VSOE of fair value does not exist for one or more of the
delivered elements in the arrangement, and (3) all revenue recognition criteria
in SOP 97-2 other than the requirement for VSOE of the fair value of each
delivered element of the arrangement are satisfied. Under the residual method,
the arrangement fee is recognized as follows: (1) the total fair value of the
undelivered elements, as indicated by VSOE, is deferred and subsequently
recognized in accordance with the relevant sections of SOP 97-2 and (2) the
difference between the total arrangement fee and the amount deferred for the
undelivered elements is recognized as revenue related to the delivered elements.
The Company recognizes revenue from long-term contracts involving significant
production, modification or customization of software under SOP 81-1 using the
percentage of completion method, based on the ratio of total labor hours
incurred to date to total estimated labor hours. Changes in job performance, job
conditions, estimated profitability and final contract settlement may result in
revisions to costs and income and are recognized in the period in which the
revisions are determined. Contract costs include all direct material and labor
costs and those indirect costs related to contract performance, such as indirect
labor and supplies. Provisions for estimated losses on uncompleted contracts are
made in the period in which such losses are determined. Amounts billed in excess
of revenue recognized to date are classified as "Billings in excess of costs,"
whereas revenue recognized in excess of amounts billed are classified as "Costs
in excess of billings" in the accompanying condensed consolidated balance
sheets.
Revenue related to professional services under a time and materials arrangement
is recognized as services are performed.
Revenue related to customer maintenance agreements is deferred and recognized
ratably on a straight-line basis over the maintenance period of the agreement.
(5) STOCK INCENTIVE PLAN
In June 2000, the Company's stockholders voted to approve a proposal to adopt
the Daleen Technologies, Inc. Amended and Restated 1999 Stock Incentive Plan
(the "Stock Incentive Plan") to, among other things as identified in the
Company's May 1, 2000 Proxy Statement, increase the number of shares available
for issuance from 2,148,881 shares to 5,648,881 shares.
(6) SUBSEQUENT EVENTS
REVOLVING LINE OF CREDIT
In July 2000, the Company signed a commitment letter with a financial
institution to provide for an unsecured revolving line of credit up to $10
million maturing on February 28, 2002. The proceeds of the line of credit will
be available for future working capital needs. The line of credit provides for
the monthly payment of interest at the 30-day LIBOR rate plus 125 basis points.
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STOCK OPTIONS
In June 2000, the Company granted certain stock options under its Stock
Incentive Plan at an exercise price that was less than the fair market value of
the underlying common stock of the Company at date of grant. These grants will
result in the recognition of compensation expense amounting to approximately
$680,000 over their one-year vesting period which began in July 2000.
(7) NEW ACCOUNTING PRONOUNCEMENTS
In December 1999, the SEC issued Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements" (SAB 101) and amended it in March and June
2000. The Company is required to adopt the provisions of SAB 101 in the fourth
quarter of 2000. The Company is currently reviewing the provisions of SAB 101
and has not fully assessed the impact of its adoption. While SAB 101 does not
supercede the software industry specific revenue recognition guidance, the SEC
Staff has recently informally indicated its views related to SAB 101 that may
change current interpretations of software revenue recognition requirements.
Such SEC interpretations could result in many software companies recording a
cumulative effect of a change in accounting principles retroactive to January 1,
2000. The Company does not expect SAB 101 to have a material effect on our
financial position or results of operations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following should be read in conjunction with Daleen Technologies, Inc. and
subsidiaries ("Daleen" or the "Company") unaudited condensed consolidated
financial statements and the related notes thereto included elsewhere in this
Form 10-Q. In addition, reference should be made to our audited consolidated
financial statements and notes thereto, and related Management's Discussion and
Analysis of Financial Condition and Results of Operations included with our
Annual Report filed on Form 10-K for the year ended December 31, 1999.
OVERVIEW
We are a leading provider of eBusiness software solutions for integrated
communications providers. Our products enable our customers to provide
comprehensive, Web-enabled billing, provisioning, and customer and partner
management for a wide array of communications services that include local, long
distance, and wireless voice, Internet access and other data services, and
application hosting. Our products are designed to enable providers of multiple
communications services, such as voice, data, Internet access, video and
application hosting to perform account and service provisioning, subscriber care
and management, rating, billing and payment processing. In addition to our
products, we offer professional consulting services, training, maintenance,
support and third party software fulfillment all related to the products we
develop.
In December 1999, we acquired all of the issued and outstanding capital shares
of Inlogic Software, Inc., a Nova Scotia corporation, and thereafter renamed the
surviving entity as Daleen Canada Corporation ("Daleen Canada"). Daleen Canada
develops and promotes eBusiness software solutions for customer and partner
relationship management, including Web-enabled customer self-care and electronic
bill presentment and payment (EBPP), as well as business-to-business gateway
solutions that support streamlined workflows and automated processes. The
acquisition
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resulted in recording goodwill and other intangibles as well as deferred stock
compensation related to stock options issued to Daleen Canada employees. The
intangible assets are being amortized over a four-year period and the deferred
stock compensation is being amortized over the vesting period.
Certain matters discussed in this Quarterly Report on Form 10-Q and any
documents incorporated herein by reference may be considered "forward-looking
statements" within the meaning of the Securities Act of 1933 and the Securities
Exchange Act of 1934, as amended by the Private Securities Litigation Reform Act
of 1995. Those statements include statements regarding the intent, belief or
current expectations of Daleen Technologies, Inc. and its subsidiaries and
members of its management as well as the assumptions on which such statements
are based. Any such forward-looking statements are not guarantees of future
performance and involve risks and uncertainties, and actual results may differ
materially from those contemplated by such forward-looking statements. Important
factors currently known to management that could cause actual results to differ
materially from those in forward-looking statements include integration of
recently acquired businesses and adverse developments with respect to the
Company's operations. These and additional important factors to be considered
are set forth in our Annual Report on Form 10-K for the year ended December 31,
1999, under "Item 1. Business Certain Risk Factors and Investment
Considerations," "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations" and in the other sections of the Annual
Report on Form 10-K. We undertake no obligation to update or revise
forward-looking statements to reflect changed assumptions, the occurrence of
unanticipated events or changes to future operating results.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THREE MONTHS ENDED JUNE
30, 1999
TOTAL REVENUE. Total revenue, which includes license fees revenue and
professional services and other revenue, increased $6.1 million, or 115%, to
$11.5 million in the three months ended June 30, 2000 from $5.3 million for the
same period in 1999. Revenue increases from both license fees and professional
services and other were due to increased sales and customer contracts for our
products and services, increased market acceptance of our products, additional
ongoing product implementations, increased recurring revenue primarily due to
maintenance and support agreements, and product sales associated with our
acquisition of Daleen Canada.
LICENSE FEES. Our license fees are derived from licensing our software products.
License fees increased $4.3 million, or 153%, in the three months ended June 30,
2000 to $7.1 million compared to $2.8 million for the same period in 1999.
License fees constituted 61.8% of total revenue in the three months ended June
30, 2000, compared to 52.5% in the same period in 1999. This increase was due to
an increase in new sales and customer license contracts, increased market
acceptance of our products and additional product sales associated with our
acquisition of Daleen Canada. In addition, during the quarter we entered into a
distribution license arrangement that provides exclusive rights to a third party
strategic alliance partner for selling certain of our Canadian
business-to-business gateway products. Under this arrangement, the Company
received an up-front license fee and anticipates receiving additional royalties
on future sales by the partner.
PROFESSIONAL SERVICES AND OTHER. Our professional services and other consists of
revenue from professional consulting services, training, maintenance and
support, and third party software fulfillment all related to the products we
develop. Consulting services are offered on a price established "bundled" basis
and on a time and materials basis. Third party software fulfillment is
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offered on a "cost plus" basis. Professional services and other revenue
increased $1.8 million, or 73%, in the three months ended June 30, 2000 to $4.4
million, compared to $2.5 million in the same period in 1999. The increase was
due to increased sales and customer contracts, additional ongoing product
implementations and product sales associated with our acquisition of Daleen
Canada, and increased recurring revenue related to maintenance and support as
our customer base grows.
Professional services and other revenue constituted 38.2% of total revenue in
the three months ended June 30, 2000, compared to 47.5% for the same period in
1999. The decrease as a percentage of total revenue is due to sales in 2000
consisting of a higher component of license fee revenue in accordance with our
software business model as well as our use of market packages to facilitate
system implementation, more utilization by customers of our business alliance
partners (BAPs) as systems integrators for our products, and more rapid setup
and installation of our products.
TOTAL COST OF REVENUE. Total cost of revenue increased $1.4 million, or 57%, to
$3.7 million in the three months ended June 30, 2000 from $2.4 million in the
same period in 1999. Total cost of revenue includes the cost of direct labor,
benefits, third party fees paid for product referrals, overhead and materials
associated with the fulfillment and delivery of the license products, and
professional services to customers. These costs increased as we deployed more
resources to support the greater number of implementations that we performed for
our products. Overall, total cost of revenue as a percentage of total revenue
decreased to 32.6% in the three months ended June 30, 2000, from 44.8% in the
same period in 1999. The percentage decrease is primarily the result of an
increase of license fee revenue as a percentage of total revenue and
corresponding higher margins associated with license fee revenue and improved
efficiencies during implementations as more of our products have become
functional.
COST OF LICENSE FEES. Cost of license fees includes direct cost of labor,
benefits and packaging material for fulfillment and shipment of our software
products and related documentation and third party referral fees associated with
customer contracts. Cost of license fees increased to $193,000, or 19,200%, in
the three months ended June 30, 2000, from $1,000 in the same period in 1999 due
to the increased number of software contracts and third party referral fees.
COST OF PROFESSIONAL SERVICES AND OTHER. Cost of professional services and other
includes direct cost of labor, benefits, third party software and related
corporate overhead costs to provide professional services to customers. Cost of
professional services and other increased $1.2 million, or 49%, to $3.5 million
in the three months ended June 30, 2000, from $2.4 million in the same period in
1999. These costs increased as we deployed more resources to support the greater
number of implementations. Cost of professional services and other decreased to
81.0% of professional services and other revenue in 2000, compared to 94.2% in
1999. The percentage decrease is primarily the result of improved efficiencies
during implementations. The percentage remains high due to the Company still
developing service packages associated with eCare and other Daleen Canada
products.
SALES AND MARKETING. Sales and marketing expenses consist primarily of salaries,
commissions and bonuses earned by sales and marketing personnel, travel and
entertainment, tradeshow and marketing program costs, promotional and related
corporate overhead costs. These expenses increased $1.7 million, or 215.9%, to
$2.5 million in the three months ended June 30, 2000, from $797,000 for the same
period in 1999. The overall increase was due to the increase in the number of
personnel in sales and marketing from 1999 to 2000 and commissions associated
with increased revenue, and increased involvement in marketing and trade
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shows. As a percentage of revenue, these expenses increased from 14.9% in 1999
to 21.9% in 2000.
RESEARCH AND DEVELOPMENT. Research and development expenses consist primarily of
salaries and benefits for software developers, product testing and benchmarking,
management, quality assurance personnel, software/hardware tools and related
corporate overhead costs. Our research and development expenses increased $4.8
million, or 253.0%, to $6.7 million in the three months ended June 30, 2000,
from $1.9 million for the same period in 1999. The overall increase was
primarily the result of development efforts associated with additional products,
including those of Daleen Canada, additional software developers, increased
product testing and benchmarking, additional managers and quality assurance
personnel. As a percentage of revenue, these expenses increased from 35.8% in
1999 to 58.7% in 2000.
GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
primarily of salaries, benefits and related costs for our executive, finance,
administrative, human resources and information systems personnel. It also
consists of non-cash stock compensation expense and related corporate overhead
costs. Our general and administrative expenses increased $1.7 million, or 93%,
to $3.5 million in the three months ended June 30, 2000, from $1.8 million in
the same period in 1999. This increase was primarily the result of additional
management, finance, information systems and human resources personnel,
including recruiting costs, and additional resources from the acquisition of
Daleen Canada. In addition, the increase is a result of recording stock
compensation expense over the vesting period related to options issued in 1999
as well as options issued in connection with our acquisition of Daleen Canada,
in each case with exercise prices at below fair market value. As a percentage of
revenue, general and administrative expenses decreased to 30.7% in the three
months ended June 30, 2000 from 34.3% in the same period in 1999.
AMORTIZATION OF GOODWILL AND OTHER INTANGIBLES. Goodwill and other intangibles
are the result of the acquisition of Daleen Canada and are being amortized over
a four-year period.
NON-OPERATING INCOME. Non-operating income is comprised primarily of interest
income, net of interest expense. Non-operating income increased $584,000, or
1,424.3%, to $625,000 in the three months ended June 30, 2000 from $41,000 for
the same period in 1999. This was primarily attributable to the investment
earnings from the proceeds of our initial public offering of common stock
received in October 1999.
SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO SIX MONTHS ENDED JUNE 30,
1999
TOTAL REVENUE. Total revenue, which includes license fees revenue and
professional services and other revenue, increased $13.3 million, or 187%, to
$20.4 million in the six months ended June 30, 2000 from $7.1 million for the
same period in 1999. Revenue increases from both license fees and professional
services and other were due to increased sales and customer contracts for our
products and services, increased market acceptance of our products, additional
ongoing product implementations, increased recurring revenue primarily due to
maintenance and support agreements, and product sales associated with our
acquisition of Daleen Canada.
LICENSE FEES. Our license fees are derived from licensing our software products.
License fees increased $9.0 million, or 241%, in the six months ended June 30,
2000 to $12.8 million compared to $3.7 million for the same period in 1999.
License fees constituted 62.6% of total revenue in the six months ended June 30,
2000, compared to 52.7% in the same period in 1999. This increase was due to an
increase in new sales and customer license contracts, increased market
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acceptance of our products and additional product sales associated with our
acquisition of Daleen Canada. In addition, during the quarter we entered into a
distribution license arrangement that provides exclusive rights to a third party
strategic alliance partner for selling certain of our Canadian
business-to-business gateway products. Under this arrangement, the Company
received an up-front license fee and anticipates receiving additional royalties
on future sales by the partner.
PROFESSIONAL SERVICES AND OTHER. Our professional services and other consists of
revenue from professional consulting services, training, maintenance and
support, and third party software fulfillment all related to the products we
develop. Consulting services are offered on a price established "bundled" basis
and on a time and materials basis. Third party software fulfillment is offered
on a "cost plus" basis. Professional services and other revenue increased $4.3
million, or 127%, in the six months ended June 30, 2000 to $7.7 million,
compared to $3.4 million in the same period in 1999. The increase was due to
increased sales and customer contracts, additional ongoing product
implementations and product sales associated with our acquisition of Daleen
Canada, and increased recurring revenue related to maintenance and support as
our customer base grows.
Professional services and other revenue constituted 37.4% of total revenue in
the six months ended June 30, 2000, compared to 47.3% for the same period in
1999. The decrease as a percentage of total revenue is due to sales in 2000
consisting of a higher component of license fee revenue in accordance with our
software business model as well as our use of market packages to facilitate
system implementation, more utilization by customers of our business alliance
partners (BAPs) as systems integrators for our products, and more rapid setup
and installation of our products.
TOTAL COST OF REVENUE. Total cost of revenue increased $3.0 million, or 83%, to
$6.7 million in the six months ended June 30, 2000 from $3.7 million in the same
period in 1999. Total cost of revenue includes the cost of direct labor,
benefits, third party fees paid for product referrals, overhead and materials
associated with the fulfillment and delivery of the license products, and
professional services to customers. These costs increased as we deployed more
resources to support the greater number of implementations that we performed for
our products. Overall, total cost of revenue as a percentage of total revenue
decreased to 32.7% in the six months ended June 30, 2000, from 51.4% in the same
period in 1999. The percentage decrease is primarily the result of an increase
of license fee revenue as a percentage of total revenue and corresponding higher
margins associated with license fee revenue and improved efficiencies during
implementations as more of our products have become functional.
COST OF LICENSE FEES. Cost of license fees includes direct cost of labor,
benefits and packaging material for fulfillment and shipment of our software
products and related documentation and third party referral fees associated with
customer contracts. Cost of license fees increased to $351,000, or 11,600%, in
the six months ended June 30, 2000, from $3,000 in the same period in 1999 due
to the increased number of software contracts and third party referral fees.
COST OF PROFESSIONAL SERVICES AND OTHER. Cost of professional services and other
includes direct cost of labor, benefits, third party software and related
corporate overhead costs to provide professional services to customers. Cost of
professional services and other increased $2.7 million, or 73.3%, to $6.3
million in the six months ended June 30, 2000, from $3.7 million in the same
period in 1999. These costs increased as we deployed more resources to support
the greater number of implementations. Cost of professional services and other
decreased to 82.8% of professional
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services and other revenue in 2000, compared to 108.6% in 1999. The percentage
remains high due to the Company still developing service packages associated
with eCare and other Daleen Canada products.
SALES AND MARKETING. Sales and marketing expenses consist primarily of salaries,
commissions and bonuses earned by sales and marketing personnel, travel and
entertainment, tradeshow and marketing program costs, promotional and related
corporate overhead costs. These expenses increased $4.6 million, or 355%, to
$5.8 million in the six months ended June 30, 2000, from $1.3 million, for the
same period in 1999. The overall increase was due to the increase in the number
of personnel in sales and marketing from 1999 to 2000 and commissions associated
with increased revenue, and increased involvement in marketing and trade shows.
As a percentage of revenue, these expenses increased from 18.0% in 1999 to 28.5%
in 2000.
RESEARCH AND DEVELOPMENT. Research and development expenses consist primarily of
salaries and benefits for software developers, product testing and benchmarking,
management, quality assurance personnel, software/hardware tools and related
corporate overhead costs. Our research and development expenses increased $8.3
million, or 237%, to $11.8 million in the six months ended June 30, 2000, from
$3.5 million for the same period in 1999. The overall increase was primarily the
result of development efforts associated with additional products, including
those of Daleen Canada, additional software developers, increased product
testing and benchmarking, additional managers and quality assurance personnel.
As a percentage of revenue, these expenses increased from 49.0% in 1999 to 57.5%
in 2000.
GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
primarily of salaries, benefits and related costs for our executive, finance,
administrative, human resources and information systems personnel. It also
consists of non-cash stock compensation expense and related corporate overhead
costs. Our general and administrative expenses increased $4.1 million, or
123.8%, to $7.4 million in the six months ended June 30, 2000, from $3.3 million
in the same period in 1999. This increase was primarily the result of additional
management, finance, information systems and human resources personnel,
including recruiting costs, and additional resources from the acquisition of
Daleen Canada. In addition, the increase is a result of recording stock
compensation expense over the vesting period related to options issued in 1999
as well as options issued in connection with our acquisition of Daleen Canada in
each case with exercise prices at below fair market value. As a percentage of
revenue, general and administrative expenses decreased to 36.1% in the six
months ended June 30, 2000 from 46.3% in the same period in 1999.
AMORTIZATION OF GOODWILL AND OTHER INTANGIBLES. Goodwill and other intangibles
are the result of the acquisition of Daleen Canada and are being amortized over
a four-year period.
NON-OPERATING INCOME. Non-operating income is comprised primarily of interest
income, net of interest expense. Non-operating income increased $1.3 million, or
1,341%, to $1.4 million in the six months ended June 30, 2000 from $99,000 for
the same period in 1999. This was primarily attributable to the investment
earnings from the proceeds of our initial public offering received in October
1999.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2000, our total cash was $38.8 million and consisted of cash and
cash equivalents totaling $35.4 million and securities available for sale of
$3.4 million. We generated these funds primarily through our initial public
offering of common stock in October 1999. Beyond our
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<PAGE> 14
capital expenditures, the funds raised have been applied to support our working
capital needs. Our working capital needs have increased significantly due to our
expanded client base, the acquisition of Daleen Canada and research and
development.
Net cash used in operating activities was $18.4 million for the six months ended
June 30, 2000, compared to $3.9 million for the six months ended June 30, 1999.
The principal use of cash for both periods was to fund our losses from
operations that increased in the first six months ended June 30, 2000 as we have
expanded our workforce and facilities.
Net cash provided by financing activities was $0.5 million for the six months
ended June 30, 2000 compared to $13.6 million for the six months ended June 30,
1999. The decrease was related to the proceeds we received in 1999 related to
the Series E preferred stock offering.
Net cash provided by investing activities was $0.5 million for the six months
ended June 30, 2000 compared to $4.6 million for the six months ended June 30,
1999. The cash was principally used for capital expenditures in the ordinary
course of business and payment of expenses related to our acquisition of Daleen
Canada. The Company did not need as much cash for capital expenditures for the
six months ended June 30, 1999.
The Company believes that the net proceeds from our initial public offering of
common stock in October 1999, together with our current cash and cash
equivalents, securities available for sale, collection of accounts receivable
and $10 million unsecured revolving line of credit, will be sufficient to meet
our anticipated cash needs for working capital and capital expenditures for at
least the next 18 months. We may require additional funds to support our working
capital requirements or for other purposes and we may seek to raise additional
funds through public or private equity financing or from other sources. There
can be no assurance that additional financing will be available at all or that,
if available, the financing will be obtainable on terms favorable to us or that
any additional financing would not be dilutive.
NEW ACCOUNTING PRONOUNCEMENTS
In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" (SAB
101) and amended it in March and June 2000. We are required to adopt the
provisions of SAB 101 in our fourth quarter of 2000. We are currently reviewing
the provisions of SAB 101 and have not fully assessed the impact of its
adoption. While SAB 101 does not supercede the software industry specific
revenue recognition guidance, the SEC Staff has recently informally indicated
its views related to SAB 101 that may change current interpretations of software
revenue recognition requirements. Such SEC interpretations could result in many
software companies recording a cumulative effect of a change in accounting
principles retroactive to January 1, 2000. We do not expect SAB 101 to have a
material effect on our financial position or results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Our financial instruments consist of cash that is invested in institutional
money market accounts and short-term securities invested in corporate fixed
income bonds. At June 30, 2000, the carrying value of our financial instruments
approximated their fair values based on current market prices and rates. We do
not use derivative financial instruments in our operations or investments and do
not have significant operations that are subject to fluctuations in commodities
prices or foreign currency exchange rates.
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<PAGE> 15
PART II
OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of Stockholders on June 6, 2000 (the "Annual
Meeting"). At the Annual Meeting, the stockholders voted to elect Paul G.
Cataford and William A. Roper, Jr. as Class I directors of the Company.
Mohammad Aamir, who was listed in the Proxy Statement as a nominee for director.
voluntarily withdrew his nomination and resigned as a director of the Company.
The Board of Directors chose not to fill this vacancy at this time. The
stockholders also voted to approve a proposal to adopt the Company's Amended and
Restated 1999 Stock Incentive Plan (the "Stock Incentive Plan").
The total number of shares of the Company's common stock, $.01 par value
("Common Stock"), issued, outstanding and entitled to vote at the Annual Meeting
was 21,629,749 shares, of which 12,862,765 shares of Common Stock were present
in person or by proxy. The following list indicates the number of votes received
by each of the nominees for the Company's Board of Directors:
FOR WITHHELD RESULT
--- -------- ------
Paul G. Cataford 12,790,901 71,864 Approved
William A. Roper, Jr 12,790,701 72,064 Approved
The Stock Incentive Plan proposal was approved by a majority of the stockholders
present and entitled to vote at the Annual Meeting. Specifically, of the
12,862,765 shares of Common Stock present in person or by proxy, a total of
9,308,955 voted in favor of this proposal, 855,808 shares of Common Stock voted
against, and 51,249 shares of Common Stock abstained from voting.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
10.1 Office Lease Agreement, dated May 5, 2000, between Daleen Technologies, Inc., Daleen
Canada Corporation and The Atrium on Bay Inc.
10.2 Second Amendment to Lease, dated May 31, 2000, between Daleen Technologies, Inc. and
Regent Holding Corporation.
10.3 Third Amendment to Lease, dated May 31, 2000, between Daleen Technologies, Inc. and
Regent Holding Corporation.
10.4 Amended and Restated 1999 Stock Incentive Plan (incorporated herein by reference
from Annex A to the Company's Proxy Statement on Schedule 14A filed with the SEC on
May 1, 2000.)
27.1 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the three months ended June
30, 2000.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DALEEN TECHNOLOGIES, INC.
Date: August 14, 2000 /s/ JAMES DALEEN
----------------------------------
James Daleen
Chairman of the Board of Directors
and Chief Executive Officer
(Principal Executive Officer)
Date: August 14, 2000 /s/ STEPHEN M. WAGMAN
----------------------------------
Stephen M. Wagman
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
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<PAGE> 17
DALEEN TECHNOLOGIES, INC.
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
10.1 Office Lease Agreement, dated May 5, 2000, between Daleen Technologies, Inc., Daleen
Canada Corporation and The Atrium on Bay Inc.
10.2 Second Amendment to Lease, dated May 31, 2000, between Daleen Technologies, Inc. and
Regent Holding Corporation.
10.3 Third Amendment to Lease, dated May 31, 2000, between Daleen Technologies, Inc. and
Regent Holding Corporation.
10.4 Amended and Restated 1999 Stock Incentive Plan (incorporated herein by reference
from Annex A to the Company's Proxy Statement on Schedule 14A filed with the SEC on
May 1, 2000.)
27.1 Financial Data Schedule
</TABLE>
17
