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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 SEPTEMBER 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)
DELAWARE 65-0944514
State or other Jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
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 November 7, 2000, there were 21,775,843 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 SEPTEMBER 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
September 30, 2000 (unaudited) 3
Condensed Consolidated Statements of Operations for the three months
and nine months ended September 30, 1999 and 2000 (unaudited) 4
Condensed Consolidated Statements of Cash Flows for the nine months
ended September 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 20
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 21
Signatures
</TABLE>
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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)
(Unaudited)
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December 31, September 30,
1999 2000
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ASSETS
Current assets:
Cash and cash equivalents $ 52,852 31,737
Restricted cash 124 929
Securities available for sale 9,385 --
Accounts receivable, less allowance for doubtful accounts of $707 at
December 31, 1999 and $1,741 at September 30, 2000 3,673 13,948
Costs in excess of billings 3,650 4,782
Other current assets 941 1,985
--------- ---------
Total current assets 70,625 53,381
Property and equipment, net 4,845 8,978
Goodwill and other intangibles, net of accumulated amortization of
$607 at December 31, 1999 and $11,872 at September 30, 2000 57,685 48,112
Other assets 726 848
--------- ---------
Total assets $ 133,881 111,319
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accrued payroll and other accrued expenses $ 12,240 10,119
Accounts payable 1,099 2,266
Billings in excess of costs 769 1,197
Deferred revenue 301 2,553
Other current liabilities 15 579
--------- ---------
Total current liabilities 14,424 16,714
--------- ---------
Stockholders' equity:
Common stock $.01 par value. Authorized 70,000,000 shares; issued and
outstanding 21,408,246 shares at December 31, 1999 and 21,773,186
shares at September 30, 2000 214 218
Stockholders' notes receivable (202) (86)
Deferred stock compensation (3,031) (2,535)
Additional paid-in capital 160,446 161,531
Accumulated deficit (37,970) (64,523)
--------- ---------
Total stockholders' equity 119,457 94,605
--------- ---------
Total liabilities and stockholders' equity $ 133,881 111,319
========= =========
</TABLE>
See accompanying notes to unaudited 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 Nine Months Ended
------------------------------ -----------------------------
September 30, September 30, September 30, September 30,
1999 2000 1999 2000
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Revenue:
License fees $ 4,087 9,456 7,836 22,247
Professional services and other 1,996 4,569 5,362 12,220
-------- -------- -------- --------
Total revenue 6,083 14,025 13,198 34,467
-------- -------- -------- --------
Cost of revenue:
License fees 5 201 8 586
Professional services and other 1,759 3,910 5,415 10,204
-------- -------- -------- --------
Total cost of revenue 1,764 4,111 5,423 10,790
-------- -------- -------- --------
Gross profit 4,319 9,914 7,775 23,677
Operating expenses:
Sales and marketing 1,086 4,061 2,368 9,896
Research and development 2,698 7,564 6,187 19,316
General and administrative 2,355 3,701 5,649 11,073
Amortization of goodwill and other intangibles -- 4,130 -- 11,867
-------- -------- -------- --------
Total operating expenses 6,139 19,456 14,204 52,152
-------- -------- -------- --------
Operating loss (1,820) (9,542) (6,429) (28,475)
Total interest income and nonoperating income, net 179 488 279 1,914
-------- -------- -------- --------
Net loss $ (1,641) (9,054) (6,150) (26,561)
Accretion of preferred stock (43) -- (122) --
-------- -------- -------- --------
Net loss applicable to common stockholders $ (1,684) (9,054) (6,272) (26,561)
======== ======== ======== ========
Net loss per share - basic and diluted $ (0.46) (0.42) (1.85) (1.23)
======== ======== ======== ========
Weighted average shares outstanding - basic and diluted 3,659 21,755 3,381 21,635
======== ======== ======== ========
Pro forma data:
Pro forma net loss $ (1,641) $ (6,150)
======== ========
Pro forma net loss per share - basic and diluted $ (0.11) $ (0.47)
======== ========
Pro forma weighted average shares outstanding -
basic and diluted 14,278 13,013
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</TABLE>
See accompanying notes to condensed consolidated financial statements.
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DALEEN TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
(IN THOUSANDS)
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Nine Months Ended
------------------------------
September 30, September 30,
1999 2000
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Cash flows from operating activities:
Net loss $ (6,150) (26,561)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 1,103 13,438
Amortization of deferred stock compensation -- 495
Bad debt expense 334 1,055
Interest income on stockholder loans -- (23)
Changes in assets and liabilities:
Restricted cash (123) (805)
Accounts receivable (3,745) (11,356)
Costs in excess of billings (1,356) (1,292)
Other current assets (55) (1,074)
Other assets (1,481) 418
Accrued payroll and other accrued expenses 2,626 (2,096)
Accounts payable 221 1,216
Billings in excess of costs 2,307 434
Deferred revenue -- 2,554
Other current liabilities 48 280
-------- ------
Net cash used in operating activities (6,271) (23,317)
-------- ------
Cash flows provided by financing activities:
Proceeds from sale of preferred stock-Series E, net 13,404 --
Proceeds from exercise of stock options and bridge warrants 306 1,089
-------- ------
Net cash provided by financing activities 13,710 1,089
-------- ------
Cash flows provided by investing activities:
Purchase of securities available for sale (38,113) (58,464)
Issuance of stockholders notes receivable (549) (324)
Repayment of stockholders notes receivable -- 138
Sales and maturities of securities available for sale 40,783 67,848
Payments related to the acquisition of Daleen Canada -- (1,691)
Capital expenditures (1,617) (6,346)
-------- ------
Net cash provided by investing activities 504 1,161
-------- ------
Effect of exchange rates on cash and cash equivalents -- (48)
Net increase (decrease) in cash and cash equivalents 7,943 (21,067)
Cash and cash equivalents at beginning of period 723 52,852
-------- ------
Cash and cash equivalents at end of period $ 8,666 31,737
======== ======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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DALEEN TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 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 Annual Report on Form 10-K for the year ended December 31, 1999,
filed with the Securities and Exchange Commission ("SEC") on March 31, 2000.
The results of operations for the nine months ended September 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.
In addition to other subsidiaries of the Company, the Company formed two
additional subsidiaries in the third quarter.
In July 2000, the Company formed PartnerCommunity, Inc. PartnerCommunity, Inc.
is an Internet-based partner chain management network for providers of data
content and communications services that enables members to identify, form and
manage partnerships to deliver innovative communications services offerings with
high speed, ease and flexibility. The network is in its early stages of
development.
In September 2000, the Company also formed a wholly owned subsidiary, Daleen
Technologies Europe B.V., a corporation formed under the laws of Amsterdam to
carry out the Company's European operations.
(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 1,562,394 shares and 1,768,374 shares for
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the three months and nine months ended September 30, 2000, respectively. Basic
and diluted pro forma 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 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 Statement of Position 98-9, MODIFICATION OF
SOP 97-2, SOFTWARE REVENUE RECOGNITION, WITH RESPECT TO CERTAIN TRANSACTIONS
("SOP 98-9"). Statement of Position 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.
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(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) REVOLVING LINE OF CREDIT
In August 2000, the Company entered into an agreement with a financial
institution to provide for an unsecured revolving line of credit up to $10
million maturing on February 28, 2002. The proceeds are 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. There have been no
borrowings under this line of credit since it has become available.
(7) STOCK OPTIONS
In June 2000, the Company granted stock options to a marketing executive under
its Stock Incentive Plan at an exercise price 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
$586,000 over their one-year vesting period, which began in July 2000.
Approximately $147,000 of the expense was recorded in sales and marketing
expense for the three-month period ended September 30, 2000.
(8) 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. 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
principle retroactive to January 1, 2000. The Company believes that its existing
revenue recognition policies are compliant with SAB 101.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and hedging Activities. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments embedded in other contracts and
for hedging activities. SFAS No. 133, as amended, is effective for all quarters
beginning after June 15, 2000. SFAS No. 133 did not have a material affect on
the Company's consolidated financial position or our consolidated statements of
income.
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 on Form 10-K for the year ended December 31, 1999.
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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. The business of Inlogic is
now conducted through our wholly-owned subsidiary, 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 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 of the stock options.
In July 2000, we formed a subsidiary, PartnerCommunity, Inc. PartnerCommunity,
Inc. is an internet-based partner chain management network for providers of data
content and communications services that enables members to identify, form and
manage partnerships to deliver innovative communications services offerings with
higher speed, ease and flexibility. The network is in its early stages of
development.
In September 2000, we also formed a wholly owned subsidiary, Daleen Technologies
Europe B.V., a corporation formed under the laws of Amsterdam to carry out our
European operations.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1999
TOTAL REVENUE. Total revenue, which includes license fees and professional
services and other revenue, increased $7.9 million, or 131%, to $14.0 million in
the three months ended September 30, 2000, from $6.1 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 and increased revenue primarily due to maintenance and
support agreements.
LICENSE FEES. Our license fees are derived from licensing our software products
and ongoing royalties received from third party users of our products and
technology. License fees increased $5.4 million, or 131%, in the three months
ended September 30, 2000, to $9.5 million compared to $4.1 million for the same
period in 1999. This increase was due to an increase in customer license
contracts and increased market acceptance of our products. During the three
months
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ended September 30, 2000, we signed twelve new contracts. In addition, we
started receiving royalties from third party users of our products and
technology. License fees constituted 67.4% of total revenue in the three months
ended September 30, 2000, compared to 67.2% in the same period in 1999.
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 $2.6
million, or 129%, in the three months ended September 30, 2000 to $4.6 million,
compared to $2.0 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 revenue related to maintenance and support as our customer
base grows.
Professional services and other revenue as a percentage of total revenue
remained consistent for each period at 32.6% of total revenue in the three
months ended September 30, 2000, compared to 32.8% for the same period in 1999.
TOTAL COST OF REVENUE. Total cost of revenue increased $2.3 million, or 133%, to
$4.1 million in the three months ended September 30, 2000, from $1.8 million in
the same period in 1999. Total cost of revenue includes both cost of license
fees and cost of professional services and other. These components include 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 related corporate overhead costs to provide professional
services to customers. These costs increased as we hired additional personnel to
support the new and existing implementations that we performed for our products.
Overall, total cost of revenue as a percentage of total revenue remained
consistent for each period at 29.3% in the three months ended September 30,
2000, compared to 29.0% in the same period in 1999.
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, third party software license royalty payments and related
documentation and third party referral fees associated with customer contracts.
Cost of license fees increased to $201,000, or 3,920%, in the three months ended
September 30, 2000, from $5,000 in the same period in 1999 due to the increased
number of software contracts, hiring of personnel focused primarily on product
fulfillment, third party software royalty payments 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 $2.2 million, or 122%, to $3.9 million
in the three months ended September 30, 2000, from $1.8 million in the same
period in 1999. These costs increased as we hired additional personnel to
support new and existing implementations and to be able to deploy more resources
in order to respond to specific customer requests and issues.
Cost of professional services and other decreased to 85.6% of professional
services and other revenue in 2000, compared to 88.1% in 1999. The percentage
decrease is primarily the result of improved efficiencies during
implementations.
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SALES AND MARKETING. Sales and marketing expenses consist primarily of salaries,
commissions and bonuses earned by sales, marketing and partner management
personnel, travel and entertainment, tradeshow and marketing program costs,
promotional and related corporate overhead costs. These expenses increased $3.0
million, or 273.9%, to $4.1 million in the three months ended September 30,
2000, from $1.1 million for the same period in 1999. The overall increase was
due to the increase in the number of personnel in the sales, marketing and
partner management organizations 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 17.9% in 1999 to 29.0%
in 2000. We expect this expense to continue to increase in order to build a
sales and marketing infrastructure to support continued increased revenue in
future periods.
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, subcontractors
and related corporate overhead costs. Our research and development expenses
increased $4.9 million, or 180%, to $7.6 million in the three months ended
September 30, 2000, from $2.7 million for the same period in 1999. The overall
increase was primarily the result of development efforts associated with
additional products and upgrades, additional software developers, increased
product testing and benchmarking, additional managers and quality assurance
personnel. In addition, we used subcontractors in many instances in order to
accelerate development of new releases of our products that provide additional
functionality. As a percentage of revenue, these expenses increased from 44.4%
in 1999 to 53.9% in 2000. We expect this trend to continue for the rest of year
2000, and as we release new versions in late 2000 and in first quarter of 2001
that these expenses should decrease as a percentage of revenue.
GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
primarily of salaries, benefits and related costs for our 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 $1.3 million, or 57.2%,
to $3.7 million in the three months ended September 30, 2000, from $2.4 million
in the same period in 1999. This increase was primarily the result of hiring and
retaining additional finance, administrative, information systems and human
resources personnel. In addition, the increase is a result of recording stock
compensation expense over the vesting period related to options issued in
connection with our acquisition of Daleen Canada along with certain other stock
option grants issued by Daleen. In each case, the exercise prices of the options
were below the fair market value of our common stock on the date of grant. As a
percentage of revenue, general and administrative expenses decreased to 26.4% in
the three months ended September 30, 2000, from 38.7% 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 $309,000, or
173%, to $488,000 in the three months ended September 30, 2000, from $179,000
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.
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NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1999
TOTAL REVENUE. Total revenue, which includes license fees and professional
services and other revenue, increased $21.3 million, or 161%, to $34.5 million
in the nine months ended September 30, 2000, from $13.2 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 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
and ongoing royalties received from third-parties. License fees increased $14.4
million, or 184%, in the nine months ended September 30, 2000 to $22.2 million
compared to $7.8 million for the same period in 1999. This increase was due to
an increase in customer license contracts, increased market acceptance of our
products and additional product sales associated with our acquisition of Daleen
Canada. During the nine months ended September 30, 2000, we signed 32 new
contracts. In addition, during the second quarter we entered into a distribution
license arrangement that provides exclusive rights to a third party strategic
alliance partner to sell certain of our Canadian business-to-business gateway
products. Under this arrangement, Daleen received a license fee in the second
quarter and royalties in the third quarter related to sales by the partner.
License fees constituted 64.5% of total revenue in the nine months ended
September 30, 2000, compared to 59.4% in the same period in 1999.
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 $6.9
million, or 128%, in the nine months ended September 30, 2000 to $12.2 million,
compared to $5.4 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 revenue related to maintenance and support as our customer
base grows.
Professional services and other revenue constituted 35.5% of total revenue in
the nine months ended September 30, 2000, compared to 40.6% 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 as systems integrators for our products, and more rapid setup and
installation of our products.
TOTAL COST OF REVENUE. Total cost of revenue increased $5.4 million, or 99.0%,
to $10.8 million in the nine months ended September 30, 2000, from $5.4 million
in the same period in 1999. Total cost of revenue includes both cost of license
fees and cost of professional services and other. These components include 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 related corporate overhead costs to perform professional
services to customers. These costs increased as we hired additional personnel to
support the new and existing implementations that we performed for our products.
Overall, total cost of revenue as a percentage of total revenue decreased to
31.3% in the nine months ended September 30, 2000, from 41.1% 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 we introduce more functionality to our products.
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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, third party software license royalty payments and related
documentation and third party referral fees associated with customer contracts.
Cost of license fees increased to $586,000, or 7,225%, in the nine months ended
September 30, 2000, from $8,000 in the same period in 1999 due to the increased
number of software contracts, hiring of personnel focused primarily on product
fulfillment, third party software royalty payments 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 $4.8 million, or 88.4%, to $10.2
million in the nine months ended September 30, 2000, from $5.4 million in the
same period in 1999. These costs increased as we hired additional personnel to
support new and existing implementations.
Cost of professional services and other decreased to 83.5% of professional
services and other revenue in 2000, compared to 101% in 1999.
SALES AND MARKETING. Sales and marketing expenses consist primarily of salaries,
commissions and bonuses earned by sales, marketing and partner management
personnel, travel and entertainment, tradeshow and marketing program costs,
promotional and related corporate overhead costs. These expenses increased $7.5
million, or 318%, to $9.9 million in the nine months ended September 30, 2000,
from $2.4 million for the same period in 1999. The overall increase was due to
the increase in the number of personnel in the sales, marketing and partner
management organizations 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 17.9% in 1999 to 28.7% 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, subcontractor
costs and related corporate overhead costs. Our research and development
expenses increased $13.1 million, or 212%, to $19.3 million in the nine months
ended September 30, 2000, from $6.2 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. In addition we increased the use of subcontractors
in order to excel development of new releases of our products that provide
additional functionality. As a percentage of revenue, these expenses increased
from 46.9% in 1999 to 56.0% in 2000. We expect this percentage to decrease in
year 2001 as we release new versions of our products.
GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
primarily of salaries, benefits and related costs for our 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 $5.4 million, or 96.0%,
to $11.1 million in the nine months ended September 30, 2000, from $5.6 million
in the same period in 1999. This increase was primarily the result of hiring and
retaining additional finance, information systems and human resources personnel
and retaining the additional resources obtained from the acquisition of Daleen
Canada. In addition, the increase is a result of recording
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stock compensation expense over the vesting period related to options issued in
connection with our acquisition of Daleen Canada along with certain other stock
option grants issued by Daleen. In each case, the exercise prices of the options
were below the fair market value of our common stock on the date of grant. As a
percentage of revenue, general and administrative expenses decreased to 32.1% in
the nine months ended September 30, 2000 from 42.8% 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 $1.6 million, or
586.0%, to $1.9 million in the nine months ended September 30, 2000 from
$279,000 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 September 30, 2000, our total cash and cash equivalents was $31.7 million. We
generated these funds primarily through our initial public offering of common
stock in October 1999. Beyond our capital expenditures, the funds raised have
been applied to support our various needs. Our needs have increased
significantly due to our new office space in Boca Raton, Florida, Atlanta,
Georgia and Toronto, Ontario, expanded client base, investments in research and
development and sales and marketing resulting in headcount increases, entrance
into international markets, the acquisition of Daleen Canada and the formation
of our subsidiary PartnerCommunity, Inc.
Net cash used in operating activities was $23.3 million for the nine months
ended September 30, 2000, compared to $6.3 million for the nine months ended
September 30, 1999. The principal use of cash for both periods was to fund our
losses from operations that increased in the first nine months ended September
30, 2000 as we have expanded our workforce and facilities.
Net cash provided by financing activities was $1.1 million for the nine months
ended September 30, 2000, compared to $13.7 million for the nine months ended
September 30, 1999. The decrease was related to the proceeds we received in 1999
related to our private placement of Series E preferred stock offering.
Net cash provided by investing activities was $1.2 million for the nine months
ended September 30, 2000, compared to $504,000 for the nine months ended
September 30, 1999. The cash was principally used for capital expenditures
associated with new equipment as a result of increased headcount and payment of
expenses related to our acquisition of Daleen Canada. We did not need as much
cash for capital expenditures for the nine months ended September 30, 1999.
We believe that the remaining net proceeds from our initial public offering of
common stock in October 1999, together with our current cash and cash
equivalents, 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,
strengthen our financial position, support our international and business
development expansion efforts or for other purposes. Additionally, we may seek
to raise additional funds through public or private sales of equity or debt
securities, including convertible debt securities, or a combination of such
securities, or from other sources. There can be no assurance that additional
financing will be
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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 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 the fourth quarter
of 2000. 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 principle
retroactive to January 1, 2000. We believe our revenue recognition policies are
compliant with SAB 101.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments embedded in other contracts and
for hedging activities. SFAS No. 133, as amended, is effective for all quarters
beginning after June 15, 2000. SFAS No. 133 did not have a material affect on
the Company's consolidated financial position or our consolidated statements of
income.
RISKS ASSOCIATED WITH DALEEN'S BUSINESS AND FUTURE OPERATING RESULTS
Our future operating results may vary substantially from period to period. The
price of our common stock will fluctuate in the future, and an investment in our
common stock is subject to a variety of risks, including but not limited to the
specific risks identified below. Inevitably, some investors in our securities
will experience gains while others will experience losses depending on the
prices at which they purchase and sell securities. Prospective and existing
investors are strongly urged to carefully consider the various cautionary
statements and risks in this report.
FORWARD LOOKING STATEMENTS
This report contains forward-looking statements within the meaning of the
Securities Exchange Act of 1933 and the Securities Exchange Act of 1934, as
amended by the Private Securities Litigation Reform Act of 1995. These
forward-looking statements are not historical facts but rather are based on
current expectations, estimates and projections about our business and industry,
our beliefs and assumptions. Words such as "anticipates", "expects", "intends",
"plans", "believes", "seeks", "estimates" and variations of these words and
similar expressions are intended to identify forward-looking statements. These
statements are not guarantees of future performance and are subject to risks,
uncertainties and other factors, some of which are beyond our control, are
difficult to predict and could cause actual results to differ materially from
those expressed or forecasted in the forward- looking statements. These risks
and uncertainties include those described in this section "Risks Associated With
Daleen's Business and Future Operating Results" and elsewhere in this report.
Forward-looking statements that were true at the time made may ultimately prove
to be incorrect or false. Readers are cautioned not to place undue reliance on
forward-looking statements, which reflect our management's view only as of the
date of this report. We undertake no obligation to update these statements or
publicly release the results of any revisions to the forward-looking statements
that we may make to reflect events or circumstances after the date of this
report or to reflect the occurrence of unanticipated events.
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WE HAVE NOT ACHIEVED PROFITABILITY AND MAY CONTINUE TO INCUR NET LOSSES FOR AT
LEAST THE NEXT SEVERAL QUARTERS.
We incurred net losses of approximately $15.3 million for the year ended
December 31, 1999. Additionally, we incurred net losses of $9.1 million and
$26.6 million in the three and nine months ended September 30, 2000. As of
September 30, 2000, we had an accumulated deficit of approximately $64.5
million. We have not yet realized any profit to date and do not expect to
achieve profitability until the fourth quarter of 2001. To achieve this
objective, we expect to generate significant additional revenue from licensing
of our products and related services and support revenues. There is no assurance
we will achieve this objective. In addition, even if we do achieve
profitability, we may not be able to sustain or increase profitability on a
quarterly or annual basis in the future.
OUR QUARTERLY OPERATING RESULTS MAY FLUCTUATE IN FUTURE PERIODS, AND WE MAY FAIL
TO MEET EXPECTATIONS Our revenue and operating results may vary significantly
from quarter to quarter due to a number of factors. This fluctuation may cause
our operating results to be below the expectations of public market analysts and
investors, and the price of our common stock may fall. Factors that could cause
quarterly fluctuations include:
o variations in demand for our products and services;
o our quarterly revenue and expense levels;
o our ability to develop and attain market acceptance of enhancements
to Billplex, eCare and our other products and any new products and
services;
o the pace of product implementation and the timing of customer
acceptance;
o changes in our pricing policies or the pricing policies of our
competitors; and
o the mix of sales channels through which our products and services
are sold.
The timing of booked transactions is difficult to predict. In any given quarter,
most of our revenue has been attributable to a limited number of relatively
large contracts and we expect this to continue. Further, our customer contract
bookings tend to occur predominantly in the last two weeks of the quarter. As a
result, our quarterly results of operations are difficult to predict and the
deferral of even a small number of contract bookings or delays associated with
delivery of products in a particular quarter could significantly reduce our
revenue and increase our net loss, which would hurt our quarterly financial
performance. In addition, a substantial portion of our costs are relatively
fixed and based upon anticipated revenue. A failure to book an expected order in
a given quarter would not be offset by a corresponding reduction in costs and
could adversely affect our operating results.
IF OUR CUSTOMERS CANNOT SECURE ADEQUATE FINANCING, WE MAY NOT GET THEIR BUSINESS
OR WE MAY NOT BE ABLE TO RECOGNIZE REVENUE AS QUICKLY.
Many of our potential customers are new entrants into the communications market
and lack significant financial resources. These companies rely to a large degree
on access to the capital markets for growth. Their failure to raise capital
would hurt their financial viability and their demand for our products. In
addition, our customers' ability to generate revenues or otherwise obtain
capital could adversely impact on their ability to purchase additional products
or renew maintenance and
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support agreements with us. Also, we will at times provide financing
arrangements for customers and their ability to make payments to us may impact
when we can book revenue.
WE FACE SIGNIFICANT COMPETITION FROM COMPANIES THAT MAY HAVE GREATER RESOURCES
THAN WE DO.
Licensing eBusiness software solutions including customer management and billing
solutions for integrated communications providers, is a very competitive
business. We expect competition to increase in the future, both from existing
competitors as well as new entrants in our current markets. Our principal
competitors include other internet enabled billing and customer care system
providers, operation support system providers, systems integrators and service
bureaus, and the internal information technology departments of larger
communications companies, which may elect to develop functionalities similar to
those provided by our product in-house rather than buying them from us. Many of
our current and future competitors may have advantages over us, including:
o longer operating histories;
o larger customer bases;
o substantially greater financial, technical, research and development
and sales and marketing resources;
o a lead in expanding their business internationally;
o greater name recognition; and
o ability to more easily provide a comprehensive hardware and software
solution.
Our current and potential competitors have established, and may continue to
establish in the future, cooperative relationships among themselves or with
third parties that would increase their ability to compete with us. In addition,
competitors may be able to adapt more quickly than we can to new or emerging
technologies and changes in customer needs, or to devote more resources to
promoting and selling their products. If we fail to adapt to market demands and
to compete successfully with existing and new competitors, our business and
financial performance would suffer.
WE DEPEND IN SOME CASES ON STRATEGIC BUSINESS ALLIANCES TO SELL AND IMPLEMENT
OUR PRODUCTS, AND ANY FAILURE TO DEVELOP OR MAINTAIN THESE ALLIANCES COULD HURT
OUR FUTURE GROWTH.
Third parties such as operation support system providers, consulting firms and
systems integration firms help us with marketing and sales and implementation of
our products. To achieve our goals, we must maintain our relationships with
these firms, develop additional similar relationships and generate new business
opportunities through joint marketing and sales efforts. We may encounter
difficulties in forging and maintaining long-term relationships with these firms
for a variety of reasons. For example, we may acquire a company that changes the
dynamics of our relationship with our strategic alliance partners. These firms
may discontinue their relationships with us, fail to devote sufficient resources
to market our products or develop relationships with our competitors. In
addition, these firms may delay the product implementation or negatively affect
our customer relationships. Our agreements with these firms typically are in the
form of a non-exclusive referral fee or license and package discount arrangement
that may be terminated by either party without cause or penalty and with limited
notice.
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OUR LENGTHY SALES CYCLE MAKES IT DIFFICULT TO ANTICIPATE THE TIMING OF SALES,
AND REVENUE MAY VARY FROM PERIOD TO PERIOD.
The sales cycle associated with the purchase of our products is lengthy, and the
time between the initial proposal to a prospective customer and the signing of a
license agreement can be as long as six months and could be longer as we enter
into international markets. Our products involve a commitment of capital which
may be significant to the customer, with attendant delays frequently associated
with large capital expenditures and implementation procedures within an
organization. These delays may reduce our revenue in a particular period without
a corresponding reduction in our costs, which could hurt our results of
operations for that period.
IF WE FAIL TO EFFECTIVELY MANAGE THE GROWTH OF OUR OPERATIONS, OUR ABILITY TO
PURSUE OUR STRATEGY WOULD BE COMPROMISED AND OUR BUSINESS WOULD SUFFER.
Our business could suffer if we fail to effectively manage our internal growth
and our acquisitions. We continue to increase the scope of our operations, have
grown our employee headcount substantially, and expect to continue to hire new
employees. Similarly, our revenue grew from $156,000 in 1997 to $5.2 million in
1998 and to $20.7 million in 1999. Our revenue grew from $13.2 million in the
nine months ended September 30, 1999 to $34.5 million in the nine months ended
September 30, 2000. Continued growth or new acquisitions could place a
significant strain on our management systems and resources. We will need to
continue to improve our financial and managerial controls and reporting systems
and procedures, and will need to expand, train and manage our workforce.
THE SKILLED EMPLOYEES THAT WE NEED MAY BE DIFFICULT AND EXPENSIVE TO HIRE AND
RETAIN IN TODAY'S TIGHT LABOR MARKET.
Our success depends in large part on our ability to attract, train, motivate and
retain highly-skilled information technology professionals, software programmers
and sales and marketing professionals. Qualified personnel in these fields are
in great demand and are likely to remain a limited resource. We may be unable to
attract or continue to retain the skilled employees we require. Any inability to
do so could prevent us from managing and competing for existing and future
projects or to compete for new customer contracts. In addition, an increase in
expenses required to attract and retain qualified personnel may reduce our
operating margins.
OUR STRATEGY TO EXPAND INTO INTERNATIONAL MARKETS MAY NOT SUCCEED AS A RESULT OF
LEGAL, BUSINESS AND ECONOMIC RISKS SPECIFIC TO INTERNATIONAL OPERATIONS.
Our strategy includes expansion into international markets through a combination
of strategic relationships and internal business expansion. In addition to risks
generally associated with international operations, our future international
operations might not succeed for a number of reasons, including:
o dependence on sales efforts of third party distributors;
o difficulties in staffing and managing foreign operations;
o difficulties in localizing products and supporting customers in
foreign countries;
o reduced protection for intellectual property rights in some
countries;
o greater difficulty in collecting accounts receivable; and
o legal uncertainties inherent in transnational operations such as
export and import regulations, taxation issues, tariffs and trade
barriers.
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IF WE DO NOT CONTINUALLY ENHANCE OUR PRODUCT OFFERING TO MEET THE CHANGING NEEDS
OF SERVICE PROVIDERS, WE WILL LOSE FUTURE BUSINESS TO OUR COMPETITORS.
We believe that our future success will depend to a significant extent upon our
ability to enhance our product offering and to introduce new products and
features to meet the requirements of our customers in a rapidly developing and
evolving market. We devote significant resources to refining and expanding our
software products, developing additional pre-configured market-based packages
and investigating complimentary products and technologies. As with the
acquisition of Daleen Canada, we are willing to make strategic acquisitions of
companies with complimentary products. We believe our products currently meet
customer requirements regarding scalability and throughput, and we are working
to improve our system performance. However, the requirements of our customers
may change and our present or future products may not satisfy the evolving needs
of the communications market. If we are unable to anticipate or respond
adequately to customer needs, or achieve sufficient throughput and scalability,
we will lose business and our financial performance will suffer.
IF WE CANNOT CONTINUE TO OBTAIN OR IMPLEMENT THE THIRD-PARTY SOFTWARE THAT WE
INCORPORATE INTO OUR PRODUCT OFFERING, WE MAY HAVE TO DELAY OUR PRODUCT
DEVELOPMENT OR REDESIGN EFFORTS.
Our product offering involves integration with products and systems developed by
third parties. If any of these third-party products should become unavailable
for any reason, fail under operation with our product offering or fail to be
supported by their vendors, it would be necessary for us to redesign our product
offering. We might encounter difficulties in accomplishing any necessary
redesign in a cost-effective or timely manner. We also could experience
difficulties integrating our product offering with other hardware and software.
Furthermore, if new releases of third-party products and systems occur before we
develop products compatible with these new releases, we could experience a
decline in demand for our product offering, which could cause our business and
financial performance to suffer.
LOSS OF OUR SENIOR MANAGEMENT PERSONNEL WOULD LIKELY HURT OUR BUSINESS.
Our future success depends to a significant extent on the continued services of
our senior management and other key personnel, particularly James Daleen, our
founder and chief executive officer. If we lost the services of Mr. Daleen or
other key employees it would likely hurt our business. We have employment and
non-compete agreements with some of our executive officers, including Mr.
Daleen. However, these agreements do not obligate them to continue working for
us.
WE MAY BE UNABLE TO PROTECT OUR PROPRIETARY TECHNOLOGY, AND OUR COMPETITORS MAY
INFRINGE ON OUR TECHNOLOGY.
Any misappropriation of our technology or the development of competitive
technology could seriously harm our business. We regard a substantial portion of
our software product as proprietary and rely on a combination of patent,
copyright, trademark and trade secret laws, customer license agreements and
employee and third-party agreements to protect our proprietary rights. These
steps may not be adequate, and we do not know if they will prevent
misappropriation of our intellectual property, particularly in foreign countries
where the laws may not protect proprietary rights as fully as do the laws of the
United States. Other companies could independently develop similar or superior
technology without violating our proprietary rights. If
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we have to resort to legal proceedings to enforce our intellectual property
rights, the proceedings could be burdensome and expensive and could involve a
high degree of risk.
CLAIMS BY OTHERS THAT WE INFRINGE THEIR PROPRIETARY TECHNOLOGY COULD DIVERT OUR
RESOURCES, RESULT IN UNEXPECTED LICENSE FEES AND HARM OUR BUSINESS.
Third parties could claim that our current or future products or technology
infringe their proprietary rights. An infringement claim against us could be
costly even if the claim is invalid, and could distract our management from the
operation of our business. Furthermore, a judgment against us could require us
to pay substantial damages and could also include an injunction or other court
order that could prevent us from selling our product offering. If we faced a
claim relating to proprietary technology or information, we might seek to
license technology or information, or develop our own, but we might not be able
to do so. Our failure to obtain the necessary licenses or other rights or to
develop non-infringing technology could prevent us from selling our products and
could seriously harm our business.
PRODUCT DEFECTS OR SOFTWARE ERRORS COULD ADVERSELY AFFECT OUR BUSINESS DUE TO
COSTLY REDESIGNS, PRODUCTION DELAYS AND CUSTOMER DISSATISFACTION.
Design defects or software errors in our product may cause delays in product
introductions or damage customer satisfaction, either of which could seriously
harm our business. Our software products are highly complex and may, from time
to time, contain design defects or software errors that may be difficult to
detect and correct. We have a customer support organization that is responsible
for providing maintenance and support to our customers. Maintenance and support
includes identifying and correcting any reported product defects or software
errors and our margins may be affected if the amounts of resources needed to
address these issues are substantial. Although we have license agreements with
our customers that contain provisions designed to limit our exposure to
potential claims and liabilities arising from customer problems, these
provisions may not effectively protect us against all claims. In addition,
claims and liabilities arising from customer problems could significantly damage
our reputation and hurt our business.
POTENTIAL ACQUISITIONS OF COMPANIES OR TECHNOLOGIES COULD RESULT IN DISRUPTIONS
TO OUR BUSINESS, DIVERSION OF MANAGEMENT AND COULD REQUIRE THAT WE ENGAGE IN
FINANCING TRANSACTIONS THAT COULD HURT OUR FINANCIAL PERFORMANCE.
We may in the future make acquisitions of companies, products or technologies,
or enter into strategic relationship agreements that require substantial
up-front investments. We will be required to assimilate the acquired businesses
and may be unable to maintain uniform standards, controls, procedures and
policies effectively. We may have to incur debt or issue equity securities to
pay for any future acquisitions. The issuance of equity securities for any
acquisition could be substantially dilutive to our stockholders. In addition,
our profitability may suffer because of acquisition-related costs or
amortization costs for acquired goodwill and other intangible assets.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Our financial instruments consist of cash that is invested in institutional
money market accounts and less than 90 day securities invested in corporate
fixed income bonds. 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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PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
Exhibit
Number Description
------- -----------
10.1 Loan Agreement dated August 18, 2000 by and between Bank of
America, N.A., a national banking association and Daleen
Technologies, Inc.
10.2 Promissory Note dated August 18, 2000 by and between Bank
of America, N.A., a national banking association and
Daleen Technologies, Inc.
27.1 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the three months ended
September 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: November 13, 2000 /s/ James Daleen
---------------------------------------
JAMES DALEEN
Chairman of the Board of Directors
and Chief Executive Officer
(Principal Executive Officer)
Date: November 13, 2000 /s/ Stephen M. Wagman
---------------------------------------
STEPHEN M. WAGMAN
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
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DALEEN TECHNOLOGIES, INC.
INDEX TO EXHIBITS
Exhibit
Number Description
------- ------------
10.1 Loan Agreement dated August 18, 2000 by and between Bank
of America, N.A., a national banking association and
Daleen Technologies, Inc.
10.2 Promissory Note dated August 18, 2000 by and between Bank
of America, N.A., a national banking association and
Daleen Technologies, Inc.
27.1 Financial Data Schedule
