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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 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 No. 00021539
ALYSIS TECHNOLOGIES, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 94-3161772
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(State or other jurisdiction of (IRS Employer Identification
incorporation or organization) Number)
</TABLE>
1900 Powell Street, Suite 500
Emeryville, California 94608
(Address of principal executive offices)
(510) 450-7000
(Registrant's telephone number, including area code)
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.
[ X ] Yes [ ] No
The number of outstanding shares of the Registrant's Common Stock, $0.01 par
value, was 13,219,920 as of May 10, 2000.
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ALYSIS TECHNOLOGIES, INC.
REPORT ON FORM 10-Q
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
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<CAPTION>
Item 1. Financial Statements (unaudited)
<S> <C> <C>
Condensed Balance Sheets at March 31, 2000 and December 31, 1999......... 2
Condensed Statements of Operations for the three months ended March 31,
2000 and 1999............................................................ 3
Condensed Statements of Cash Flows for the three months ended March 31,
2000 and 1999............................................................ 4
Notes to Condensed Financial Statements.................................. 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................................ 7
</TABLE>
<TABLE>
<CAPTION>
PART II. OTHER INFORMATION
<S> <C> <C>
Item 6. Exhibits and Reports on Form 8-K.......................................... 17
Signatures................................................................ 18
</TABLE>
1
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PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Item 1. FINANCIAL STATEMENTS
<S> <C>
</TABLE>
ALYSIS TECHNOLOGIES, INC.
CONDENSED BALANCE SHEETS
(in thousands, except share and per share data)
(unaudited)
<TABLE>
<S> <C> <C>
March 31, December 31,
2000 1999
----------- ------------
Assets
Current assets:
Cash and cash equivalents..................................................... $ 5,503 $ 9,159
Receivables, including unbilled receivables of $689 at March 31, 2000 and
$548 at December 31, 1999, less allowance for doubtful accounts of $396 at
March 31, 2000 and $126 at December 31, 1999............................... 1,688 1,807
Other current assets......................................................... 276 494
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Total current assets....................................................... 7,467 11,460
Property and equipment, net..................................................... 887 770
Other assets.................................................................... 52 34
Intangible assets............................................................... 2,124 2,337
----------- ------------
$ 10,530 $ 14,601
=========== ============
Liabilities and stockholders' equity
Current liabilities:
Accounts payable............................................................. $ 474 $ 547
Accrued compensation and related liabilities................................. 1,533 2,483
Deferred revenues............................................................ 2,432 1,973
Other accrued liabilities.................................................... 592 584
----------- ------------
Total current liabilities................................................. 5,031 5,587
Stockholders' equity:
Preferred shares, Series B, $.001 par value:
Authorized shares - 5,000,000
Issued and outstanding shares - 400 at March 31, 2000 and December 31,
1999................................................................... 3,814 3,814
Common stock, $0.01 par value:
Authorized shares -- 35,000,000
Issued shares -10,924,545, outstanding shares - 10,900,545 at March 31, 2000 109 106
Issued shares -10,643,792, outstanding shares - 10,619,792 at December 31,
1999...................................................................
Class B common stock, $0.01 par value:
Authorized shares -- 5,000,000
Issued and outstanding shares -- 2,417,112 at March 31, 2000 and December
31, 1999.............................................................. 25 25
Additional paid-in capital................................................... 30,489 30,067
Treasury stock at cost (24,000 shares)....................................... (39) (39)
Accumulated deficit.......................................................... (28,618) (24,632)
Deferred compensation........................................................ (281) (327)
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Total stockholders' equity............................................ 5,499 9,014
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$ 10,530 $ 14,601
=========== ============
</TABLE>
Note: The December 31, 1999 balance sheet amounts are derived from the December
31, 1999 audited financial statements.
See accompanying notes
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ALYSIS TECHNOLOGIES, INC.
CONDENSED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
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<CAPTION>
Three Months Ended
March 31,
----------------------------------------
<S> <C> <C>
2000 1999
---------------- ---------------
Revenues:
License..................................... $ 936 $ 390
Service..................................... 792 1,665
Maintenance................................. 1,044 1,389
---------------- ---------------
Total revenues............................ 2,772 3,444
Cost of revenues:
License..................................... 20 17
Service..................................... 634 1,285
Maintenance................................. 504 697
---------------- ---------------
Total cost of revenues.................... 1,158 1,999
Operating expenses:
Sales and marketing......................... 1,593 1,329
General and administrative.................. 2,987 1,818
Product development......................... 1,045 204
---------------- -----------------
Total operating expenses.................. 5,625 3,351
---------------- -----------------
Operating income (loss)...................... (4,011) (1,906)
Other income:
Interest income............................. 94 72
---------------- -----------------
Net loss..................................... (3,917) (1,834)
Preferred stock dividends.................... 69 -
---------------- -----------------
Net loss applicable to common stockholders... $(3,986) $(1,834)
================ =================
Basic and diluted net loss per share
applicable to common stockholders........... $(0.30) $(0.15)
================ =================
Shares used in computing basic and diluted
net loss per share applicable to common
stockholders................................ 13,152 11,845
================ =================
</TABLE>
See accompanying notes
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ALYSIS TECHNOLOGIES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31
-----------------------
<S> <C> <C>
2000 1999
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Operating activities
Net loss............................................................................... $(3,917) $(1,834)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization........................................................ 306 94
Amortization of deferred compensation................................................ 46 9
Changes in operating assets and liabilities:
Receivables....................................................................... 119 (996)
Other current assets.............................................................. 218 114
Other assets...................................................................... (18) -
Accounts payable.................................................................. (73) (149)
Accrued compensation and related liabilities...................................... (950) 248
Deferred revenues................................................................. 459 (70)
Other accrued liabilities......................................................... (61) (107)
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Net cash used in operating activities.................................................. (3,871) (2,691)
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Investing activities
Purchases of property and equipment.................................................... (210) (10)
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Net cash used in investing activities.................................................. (210) (10)
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Financing activities
Net proceeds from exercise of stock options............................................ 323 -
Net proceeds from employee stock purchase plan......................................... 102 99
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Net cash provided by financing activities.............................................. 425 99
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Net increase (decrease) in cash and cash equivalents................................... (3,656) (2,602)
Cash and cash equivalents at beginning of period....................................... 9,159 7,582
---------- ----------
Cash and cash equivalents at end of period............................................. $ 5,503 $ 4,980
========== ==========
</TABLE>
See accompanying notes
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ALYSIS TECHNOLOGIES, INC.
Notes to Condensed Financial Statements
(Unaudited)
1. Our Company and Basis of Presentation
Alysis Technologies, Inc. (previously known as IA Corporation I) was
incorporated on July 20, 1992. We develop, market, implement and support large-
scale application software solutions to financial services organizations
primarily in North America. Certain reclassifications have been made to the
prior year's financial statements in order to conform to the current year
presentation in the financial statements.
The accompanying unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and pursuant to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments, consisting of normal recurring
accrual adjustments, considered necessary for a fair presentation have been
included. Operating results for the three months ended March 31, 2000 are not
necessarily indicative of the results that may be expected for any future
period.
These financial statements and notes should be read in conjunction with Alysis
Technologies, Inc.'s audited financial statements and notes thereto for the year
ended December 31, 1999 included in the Company's 1999 Annual Report on Form
10-K.
2. Basic and Diluted Net Loss Per Share
Our net loss per share applicable to common shareholders has been calculated
in accordance with Statement of Financial Accounting Standards (SFAS) No. 128,
Earnings Per Share. Basic net loss per share applicable to common stockholders
has been computed using the weighted average number of common shares outstanding
during the period. Diluted net loss per share applicable to common stockholders
has been computed using the weighted average number of common shares outstanding
plus the dilutive effect of outstanding stock options using the "treasury stock"
method. The following table shows the computation of basic and diluted net loss
per share applicable to common stockholders.
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
<S> <C> <C>
3/31/00 3/31/99
------------------ -----------------
(in thousands, except
per share data)
Net loss applicable to common stockholders.......... $ (3,986) $ (1,834)
Weighted average common shares outstanding.......... 13,152 11,845
Effect of dilutive securities (a)................... (a)----- (a)------
------------------ -----------------
Shares used in computing diluted net loss per
share............................................... 13,152 11,845
================== =================
Basic net loss per share applicable to common
stockholders........................................ $ (0.30) $ (0.15)
Diluted net loss per share applicable to common
stockholders........................................ $ (0.30) $ (0.15)
================== =================
</TABLE>
(a) The effect of outstanding stock options and other common stock
equivalents is excluded from the calculation of diluted net loss per
share, as their inclusion would be anti-dilutive.
3. Revenue Recognition
Our total revenues are derived from software licenses, maintenance and
support contracts and implementation and training services. Software license and
service revenue from contracts requiring significant customization services are
recognized on the percentage-of-completion method based on the ratio of incurred
costs to total estimated costs. The implementation of these application
frameworks can take several months or more depending on the complexity of the
customer's environment and the resources directed by the customers to the
implementation projects. Estimated losses, if any, on contracts are reported in
the period in which such losses become known.
Revenues from contracts for software licenses that don't require significant
customization are recognized upon delivery and installation of the software if
there is persuasive evidence of an arrangement, collection is probable, the fee
is fixed or determinable and there is sufficient vendor-specific objective
evidence to support allocating the total
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fee to all elements of multiple-element arrangements. Software maintenance
revenues are recognized ratably over the term of the support contract, which is
generally one year. Other service revenue is recognized as services are
performed.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 "Revenue Recognition in Financial Statements", ("SAB
101"). SAB 101 provides guidance on the recognition, presentation, and
disclosure of revenue in financial statements. All registrants are expected to
apply the accounting and disclosures described in SAB 101. The Company is
currently evaluating SAB 101 and has not completed its assessment of the impact
of adoption. A change in its revenue recognition policy, if any proves
necessary, resulting from SAB 101 will be reported as a change in accounting
principle in the quarter ended June 30, 2000.
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The following "Management Discussion and Analysis of Financial Condition and
Results of Operations" should be read in conjunction with the Company's
Consolidated Financial Statements and Notes thereto included elsewhere in this
report and Annual Report on Form 10-K. Additionally, this "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
contains forward-looking statements (identified with an asterisk "*") that
involve risk and uncertainties. The Company's actual results may differ
materially from the results discussed in the forward-looking statements. Factors
that might cause such a difference include, but are not limited to, those
discussed in this "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and in "Risk Factors." The Company assumes no
obligation to update such forward-looking statements or to update the reasons
actual results could differ materially from those anticipated in such forward-
looking statements.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Alysis develops and delivers electronic billing and statement presentment
software that document intensive industries need to remain competitive in the
electronic commerce arena. We were incorporated in July 1992, when management,
in partnership with EM Warburg Pincus and Co. LLC, purchased certain assets and
liabilities of Litton Industries' Integrated Automated Division, a leading
system integrator with a primary focus on the aerospace industry and secondary
focus on the financial services and transportation industries. At that time, a
decision was made to de-emphasize the aerospace market and develop an enterprise
transaction management platform and corresponding software application
frameworks targeted to the financial services industry.
In August 1998, with the hiring of a new Chief Executive Officer, we decided
to aggressively pursue a new product strategy of Internet presentment of legacy
data primarily based on a successful installation of an intranet based statement
delivery system at Merrill Lynch. This installation, which was completed in
early 1998, was the precursor to the CyberStatement application framework. In
order to further penetrate the e-presentment marketplace, Alysis acquired At
Work, a New York based provider of Electronic Bill Presentment and Payment
("EBPP") software and early pioneer in XML technology. As a result, our
CyberStatement product was replaced by At Work's WorkOut product, and renamed
WorkOut. In 2000, management believes we will derive an increasing amount of
revenue from the WorkOut product, however, there can be no assurance that we
will be successful in our efforts.*
Through March 31, 2000, revenues primarily consisted of large application
development contracts and were derived from three application frameworks,
CheckVision, RemitVision, and WorkOut. Our total revenues declined 19.5% from
$3.4 million for the three months ended March 31, 1999 to $2.8 million for the
three months ended March 31, 2000. Also, for the three months ended March 31,
2000, we recorded a net loss of $3.9 million as compared to a net loss of $1.8
million for the three months ended March 31, 1999. These results are due to our
building of infrastructure and pipeline necessary to position WorkOut in the e-
presentment marketplace. Also, management has re-deployed the majority of its
product development and engineering resources to focus solely on the WorkOut
product. However, we continue to support agreements with existing customers of
our CheckVision product line. It is also management's intention to pursue
strategic options in 2000 regarding the remaining CheckVision application
framework product line.
WorkOut enables financial services firms to efficiently manage, store and
distribute legacy reports and print-formatted documents such as customer
statements over the Internet. It is a solution to parse and render print streams
from billing systems, and to implement electronic data interchange and other
structured data feeds. CheckVision provides high-volume check image capture,
storage, and distribution functions necessary to meet the stringent processing
deadlines of check operations.
Our total revenues are derived from software licenses, maintenance and
support contracts and implementation and training services. Software license and
service revenue from contracts requiring significant customization services are
recognized on the percentage-of-completion method based on the ratio of incurred
costs to total
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estimated costs. The implementation of these application frameworks can take
several months or more depending on the complexity of the customer's environment
and the resources directed by the customers to the implementation projects.
Estimated losses on contracts are reported in the period in which such losses
become known or expected.
Revenues from contracts for software licenses that don't require significant
customization are recognized upon delivery of the software if there is
persuasive evidence of an arrangement, collection is probable, the fee is fixed
or determinable and there is sufficient vendor-specific objective evidence to
support allocating the total fee to all elements of multiple-element
arrangements. Software maintenance revenues are recognized ratably over the term
of the support contract, which is generally one year. Other service revenue is
recognized as services are performed.
The Company adopted Statement of Position 97-2, "Software Revenue
Recognition" ("SOP 97-2") and Statement of Position 98-4, "Deferral of the
Effective Date of a Provision of SOP 97-2, Software Revenue Recognition" ("SOP
98-4") as of January 1, 1998. SOP 97-2 and SOP 98-4 provide guidance for
recognizing revenue on software transactions and supercede Statement of Position
91-1, "Software Revenue Recognition" ("SOP 91-1"). The adoption of SOP 97-2 and
SOP 98-4 did not have a material impact on the Company's financial results.
In December 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position 98-9, "Modification of SOP 97-2, Software
Revenue Recognition with Respect to Certain Transactions" ("SOP 98-9"). SOP 98-9
amends SOP 98-4 to extend the deferral of the application of certain passages of
SOP 97-2 provided by SOP 98-4 through fiscal years beginning on or before March
15, 1999. All other provisions of SOP 98-9 are effective for transactions
entered into in fiscal years beginning after March 15, 1999. The Company does
not expect a material impact from the final adoption of SOP 98-9 on its future
revenues and results of operations.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No.101 "Revenue Recognition in Financial Statements," ("SAB
101"). SAB 101 provides guidance on the recognition, presentation, and
disclosure of revenue in financial statements. All registrants are expected to
apply the accounting and disclosures described in SAB 101. The Company is
currently evaluating SAB 101 and has not completed its assessment of the impact
of adoption. A change in its revenue recognition policy, if any proves
necessary, resulting from SAB 101 will be reported as a change in accounting
principle in the quarter ended June 30, 2000.
At March 31, 2000, we had an accumulated deficit of approximately $28.6
million, including a net loss of $3.9 million for the three months ended March
31, 2000. We expect to incur operating losses in the foreseeable future as we
continue to invest in further development of the WorkOut product and to recruit
and train personnel for engineering, sales, marketing and professional services
for the WorkOut product.*
RESULTS OF OPERATIONS
Comparison of Three Months Ended March 31, 2000 and 1999
Revenues
License. License revenue for the three months ended March 31, 2000 has been
primarily derived from the sale of licenses of our CheckVision, our loan
application framework software application solutions, and WorkOut. License
revenue increased 140% to $936,000 from $390,000 for the three months ended
March 31, 2000 and 1999, respectively. This increase in license revenue
primarily resulted from increased licenses and royalties recorded in connection
with the amendment of the Global Strategic Alliance Agreement signed in June
1999, increased recognition of revenue from significant CheckVision customers,
and to a lesser extent licenses recorded for our newest product, WorkOut.
Management believes that an increasing amount of future license revenue will be
derived from the WorkOut product.*
Service. Service revenue is comprised primarily of fees from software
application development contracts, and to a lesser extent, fees from
installation services and training for our CheckVision and WorkOut software
application solutions. Service revenue decreased 52% to $792,000 from $1.7
million for the three months ended March 31, 2000 and 1999, respectively. The
decrease is primarily due to the company not actively pursuing new CheckVision
customers as we have redirected our resources to support our newest product,
WorkOut. Management believes that
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an increasing amount of future service revenue will be derived from installation
services performed for the WorkOut product.*
Maintenance. Maintenance revenue is generated by software support contracts
to customers who have entered into license agreements for the use of our
software application solutions. Maintenance support includes telephone support,
minor software upgrades and, in some cases, third party support. Maintenance
revenue decreased 25% to $1.0 million from $1.4 million for the three months
ended March 31, 2000 and 1999, respectively. Maintenance revenue decreased for
the three months ended March 31, 2000 from the three months ended March 31, 1999
due to the shrinking base of installed CheckVision application framework
customers resulting in a corresponding decrease in demand for maintenance
related services.
Cost of Revenues
License. Cost of license revenue increased to $20,000 from $17,000 for the
three months ended March 31, 2000 and 1999, respectively, representing 2.1% and
4.4% of license revenues for the three months ended March 31, 2000 and 1999,
respectively. The cost of license revenue as a percentage of license revenue
decreased because there are no associated costs of license with the license and
royalty revenues realized on the amendment of the Global Strategic Alliance
Agreement. The cost of license revenue as a percentage of license revenue may
increase in the future if we negotiate royalty agreements with partners and
customers that fund or partially fund the ongoing development of our new WorkOut
product.*
Service. Cost of service revenue is primarily comprised of employee-related
costs and fees for third-party consultants incurred in providing customization,
installation, and training and development services. Cost of service revenue
decreased 51% to $634,000 for the three months ended March 31, 2000 as compared
to $1.3 million for the three months ended March 31, 1999, representing 80% and
77% of service revenues for the three months ended March 31, 2000 and 1999,
respectively. Cost of service revenue decreased in absolute dollars due
primarily to a reduction in engineers, improved execution of performance on
contracts, and a decline in the number of contracts to serve as we have
redirected our resources to support WorkOut.
Maintenance. Cost of maintenance revenue is primarily comprised of employee-
related costs incurred in providing customer support and also includes the costs
of services provided by third parties for hardware-related maintenance for
certain of the installed base of customers. Cost of maintenance revenue
decreased 28% to $504,000 for the three months ended March 31, 2000, from
$697,000 for the three months ended March 31, 1999, representing 48% and 50% of
maintenance revenue for the three months ended March 31, 2000 and 1999,
respectively. The decrease in maintenance costs is primarily due to reduced
headcount and improved productivity in delivering maintenance.
Operating expenses
Sales and marketing. Sales and marketing expenses consist primarily of
salaries, commissions and bonuses earned by sales personnel, field offices,
travel and related expenses, promotional and advertisement expenses. Sales and
marketing expenses increased 20% to $1.6 million from $1.3 million for the three
months ended March 31, 2000 and 1999, respectively, representing 57% and 39% of
total revenue for the three months ended March 31, 2000 and 1999, respectively.
Sales and marketing expenses increased primarily due to a increase in the sales
and marketing personnel to support the new WorkOut product.
General and administrative. General and administrative expenses were $3.0
million and $1.8 million for the three months ended March 31, 2000 and 1999,
respectively, representing 108% and 53% of total revenue for the three months
ended March 31, 2000 and 1999, respectively. General and administrative expenses
increased in absolute dollars primarily due to increased retention bonuses, an
increase in allowance for doubtful accounts for certain contracts associated
with high collectibility risks, and amortization of purchased technology
acquired during the acquisition of At Work Corporation on September 15, 1999.
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Product development. Product development expenses consist primarily of
salaries and other personnel-related expenses. Product development expenses
increased 412% to $1.0 million for the three months ended March 31, 2000, from
$204,000 for the three months ended March 31, 1999, representing 38% and 6% of
total revenues for the three months ended March 31, 2000 and 1999, respectively.
The increase in product development expenses for the three months ended March
31, 2000 is primarily due to the increase in costs incurred for the ongoing
development of our WorkOut product. In 2000, management expects to incur
increased costs in the ongoing development of our WorkOut product.
Interest Income. Interest income represents interest earned by the Company
on its cash and cash equivalents. Interest income increased to $94,000 from
$72,000 for the three months ended March 31, 2000 and 1999 respectively, due to
higher average invested cash balances in the three months ended March 31, 2000.
Liquidity and Capital Resources
Operating activities for the three months ended March 31, 2000 used $3.9
million of cash. For the three months ended March 31, 1999, operating activities
used $2.7 million of cash. The net cash used by the operating activities of the
Company for the three months ended March 31, 2000 was primarily the result of a
decrease in accrued compensation and related liabilities and the increase in net
loss applicable to common stockholders.
Our investing activities for the three months ended March 31, 2000 were
$210,000 and $10,000 for the three months ended March 31, 1999. Our investing
activities for the three months ended March 31, 2000, consisted of capital
expenditures for computer equipment and office furniture to support our product
development needs for WorkOut. We currently have no significant capital spending
requirements or purchase commitments other than a non-cancelable operating lease
for our facilities.
Cash provided by financing activities was $425,000 and $99,000 for the three
months ended March 31, 2000 and 1999, respectively. The cash generated during
the three months ended March 31, 2000, was the result of net proceeds from the
exercise of stock options and employee stock purchases under our employee stock
purchase plan.
At March 31, 2000, we had $5.5 million in cash and cash equivalents and $2.4
million in working capital. We believe that our existing cash and cash
equivalents, together with expected cash flows from operations combined with
external financing, will be sufficient to fund our operations for the next 12
months.* There can be no assurance that such financing will be available on
acceptable terms, if at all and that such terms will not be dilutive to our
existing stockholders. Our inability to secure necessary funding would have a
material adverse affect on our financial condition and results of operations.*
Impact of Year 2000
Our Business Could Be Affected by Year 2000 Issues. The Year 2000 Issue is
the result of computer programs being written using two digits rather than four
to define the applicable year. Computer programs that have time-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000.
During the transition to Year 2000, we experienced no material impact on
internal infrastructure, supplier relationships and/or products sold to
customers, nor did we incur any significant expenses related to the Year 2000
issue. We continue to monitor the impact of Year 2000 on our internal
infrastructure, supplier relationships and products sold to customers, and while
we do not anticipate any subsequent material impact on these areas of
operations, we cannot assure you that unknown future issues will not arise.
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This "Risk Factors" section contains forward-looking statements (identified
with an asterisk "*") that involve risk and uncertainties. The Company's actual
results may differ materially from the results discussed in the forward-looking
statements. Factors that might cause such a difference include, but are not
limited to, those discussed in this "Risk Factors" section and in "Business" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations". The Company assumes no obligation to update such forward-looking
statements or to update the reasons actual results could differ materially from
those anticipated in such forward-looking statements.
Risk Factors
We Can Make No Assurances that We Will Be Profitable in Any Future Period.
We have incurred significant net losses since our inception. At March 31, 2000,
we had an accumulated deficit of approximately $28.6 million. Although we
achieved a net operating profit in the three months ended September 30, 1999 and
the three months ended March 31, 1995, 1996 and 1997, June 30, 1996, September
30, 1996 and 1997, and December 31, 1996 and 1997, we cannot assure you that we
will have operating profits in any future period.
Our Quarterly Operating Results Will Fluctuate because of Many Factors. Our
quarterly operating results have varied in the past, and we expect our quarterly
operating results to vary significantly in the future.* Our revenues and
operating results are difficult to forecast and could be significantly affected
by many factors, some of which are outside our control, including, among others:
. Demand for the Company's products and services;
. The variable size and timing of individual license transactions;
. The timing of our future revenue which we will recognize under SOP 97-2
and SOP 98-4;
. Increased competition;
. The timing of new product releases by us and our competitors;
. Market acceptance of our software;
. The ability to expand our sales and marketing operations, including hiring
additional sales personnel;
. Software defects or other quality problems with our software;
. Changes in pricing policies by us and our competitors;
. The mix of our license and service revenue;
. Budgeting cycles of our customers;
. Success in maintaining and enhancing existing relationships and developing
new relationships with strategic partners;
. The introduction of indirect sales into our revenue mix which has resulted
in and could continue to result in lower gross margins;
. The ability to control costs;
. Technological changes in our markets;
. Changes in our strategy;
. Personnel changes; and
. General economic factors.
We are in the process of transitioning to the Electronic Statement
Presentment ("ESP") and EBPP application business. During this process we plan
to increase our operating expenses to expand our sales and marketing operations,
fund greater levels of research and development, develop new partnerships,
expand our two East Coast facilities, and expand into Europe and Asia. If our
revenues do not increase along with these expenses, our business, operating
results and financial condition could be seriously harmed and net losses in a
given quarter could be even larger than expected.*
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In addition, because our expense levels are relatively fixed in the near term
and based in part on expectations of our future revenues, any decline in our
revenues to a level that is below our expectations would have a
disproportionately adverse impact on our operating results.*
We May Have Difficulties in Retaining the Proper Resources to Address Our
Current Contract Obligations that Extend as Far as 2006. During our transition
out of CheckVision and our other mature software application frameworks, we may
incur transition expenses over the next few quarters such as retention bonuses,
severance payments and moving expenses.* In addition, the company expects to
incur a short-term decline in total revenues over the next few quarters.* Since
the majority of our sales of CheckVision and our other mature software
application frameworks are to customers in the financial services industry, this
transition could result in ill will towards the company and, as a result, hinder
our ability to penetrate the financial services industry with sales of our new
ESP and EBPP products.* This transition could also result in litigation. If we
are unable to retain the proper resources, or if we are hindered in our ability
to penetrate the financial services industry, or if we incur litigation
resulting from this transition, our business, operating results and financial
condition could be significantly harmed.*
The Business-To-Business Electronic Presentment Industry Is Very Competitive,
and We Face Intense Competition from Many Participants in this Industry. The
markets for electronic commerce software ESP and EBPP are becoming progressively
competitive. While Alysis believes that our product offering is unique and our
technology superior, there can be no assurance that new competitors will not
emerge and/or current competitors will match our technology in the near to
medium term.* There are a number of companies from various industries vying for
market share in the ESP and EBPP markets. Some companies have more established
alliances, marketing and sales departments and greater financial resources.
While we intend to maintain our current advantages and seek out new ways to
minimize our weaknesses, through acquisition or other means, there can be no
assurances that this will be achieved.*
We Derive a Significant Portion of Our Revenue from the Financial Services
Industry and for Us to Be Successful We Will Need to Penetrate Additional
Industries Such as Telecommunications and Utilities. Currently, a substantial
majority of our total revenue results from services and licenses provided to
large banks and other financial institutions. Our future operating results will
depend in part on our ability to penetrate additional industries such as
telecommunications and utilities. While we may devote substantial resources to
penetrate these and other markets, we cannot assure you that the revenues we
generate from this effort, if any, will exceed the cost of such efforts.* To
successfully expand our product offerings to industries other than the financial
services industry, we must continue to enhance our ESP and EBPP products and to
expand our sales and marketing departments. We cannot assure you that we will be
able to create or modify our software products effectively, that they will
achieve market acceptance, or that we will be able to expand our sales and
marketing departments.* If we are unable to penetrate new industries, our future
financial condition will depend upon our ability to further penetrate the
financial services industry. The current focus of the banking industry on
mergers may impede our ability to further penetrate this industry.* If we are
unable to adapt our software and product solutions or our sales and marketing
efforts to meet the needs of new industries, or if we are not able to further
penetrate the financial services industry, our business, operating results and
financial condition could continue to be significantly harmed.*
Our Business Could Be Affected by Software Defects and Product Liability
Claims. Software products as complex as ours may contain errors that may be
detected at any point in a product's life cycle. We have in the past discovered
software errors in certain of our software application solutions and have
experienced delays in shipment of application frameworks during the period
required to correct these errors. We can make no assurances that, despite
testing by us as well as by current and potential customers, errors will not be
found, resulting in:*
. Loss of, or delay in, market acceptance;
. Diversion of development resources;
. Injury to our reputation; or
. Increased service and warranty costs, any of which could significantly
harm our business, operating results and financial condition.
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<PAGE>
Our license agreements with our customers typically contain provisions
designed to limit our exposure to potential product liability claims. Our
software application solutions are generally used to manage data that is
critical to an organization, and as a result, our sale and support of our
application frameworks may entail the risk of significant product liability
claims. A liability claim brought against us could significantly harm our
business, operating results and financial condition.*
Our Success Depends on Our Ability to Expand Our Distribution Channels and
Successfully Manage the Risks Associated with Such Expansion. To date, we have
sold our ESP, EBPP and software application solutions primarily through our
direct sales force. We will need to successfully recruit, retain and train
sufficient direct sales personnel and establish other distribution channels and
partnerships to achieve significant revenue growth in the future.* We continue
to seek ways to augment our direct sales force by establishing indirect
distribution channels, including relationships with OEMs, resellers, bill
consolidators, application service providers and service bureaus. Our
distribution channels and alliances have to-date produced substantially less
revenue than we originally expected. We can make no assurances that we will
successfully increase our revenue through channels and alliances. We can make no
assurances that we will successfully expand our direct sales force or that any
such expansion will result in any substantial increase in our revenues. Our
failure to expand our direct sales force or other distribution channels could
continue to significantly harm our business, operating results and financial
condition.*
We Expect Our Transition to the ESP and EBPP Application Market Will Continue
to Strain Our Management, Operational and Technical Resources. We are in the
process of transitioning from an application services focus to a product-centric
focus in the ESP and EBPP market. Our transition has placed significant demands
on our management, operational and technical resources. We expect this
transition to continue to challenge our sales, marketing, technical and support
personnel and senior management. Our future performance will depend in part on
our ability to adapt our operational systems to respond to changes in our
business. Our transition entails a number of risks, including continued
potential declines in revenue and the need to develop the appropriate sales and
marketing capabilities and software development estimation, production, delivery
and distribution infrastructure. We can make no assurances that we will be
successful in creating the necessary capabilities and infrastructure at all. Our
failure to manage the transition successfully has had and could continue to
significantly harm our business, operating results and financial condition.*
Our Senior Management and Other Key Personnel Are Critical to Our Business
and Those Managers and Personnel May Not Remain with Us in the Future. We must
retain the continued service of our senior management as well as sales and
product development personnel if we are to provide improved future performance.
We do not have and do not intend to obtain key person life insurance on our
personnel. The loss of one or more of our key personnel could significantly harm
our business, operating results and financial condition.* We are also actively
seeking key technical personnel. We believe that our future success will depend
in large part upon our ability to attract and retain highly skilled management,
marketing, sales and product development personnel.* Competition for such
personnel is intense, and we can make no assurances that we can retain our key
employees or that we will successfully attract, assimilate and retain such
personnel in the future. Our failure to attract, assimilate and retain key
personnel could significantly harm our business, operating results and financial
condition.*
Our Efforts to Protect Our Intellectual Property May Not Protect Us Against
Misuse and Others May Claim that Our Products Infringe. Our success depends in
significant part upon our proprietary technology. We rely on a combination of
copyright, patent, trademark and trade secret laws, confidentiality procedures,
and licensing arrangements to establish and protect our proprietary rights. We
have a recently issued patent for a System for Data Extraction from a Print Data
Stream and U.S. and international patents pending for Data Parsing System for
Use in Electronic Commerce. In addition, we have four other patents. While our
current products are not dependent on these four patents, we may utilize these
patents in future software products.
We vigorously enforce our patent rights. While there can be no assurances of
success, we continually evaluate methods by which to enforce and capitalize on
our patent rights. Such actions may cause us to incur substantial costs which
could impact our financial results.*
13
<PAGE>
As part of our confidentiality procedures, we generally enter into non-
disclosure agreements with our employees, consultants, distributors and business
partners, and limit access to and distribution of our products, supporting
documentation and other proprietary information. Despite these precautions, a
third party may be able to copy or otherwise obtain and use our software
products or technology without our authorization, or to develop similar
technology independently. In addition, effective protection of intellectual
property rights is unavailable or limited in certain foreign countries, where
customers have in the past licensed and may in the future license our products.
We cannot assure you that protection of our proprietary rights will be adequate
or that our competitors will not independently develop similar technology,
duplicate our software products or design around any intellectual property
rights upon which our business is now or may in the future be dependent.
Our products incorporate certain software that we license from third parties,
including software that is integrated with internally developed software and
used in our products to perform key functions. We cannot assure you that:
. Such firms will remain in business;
. They will continue to support their software products; or
. Their software products will otherwise continue to be available to us on
commercially reasonable terms.
We believe that substantially all of the software we license is available
from vendors other than our current vendors. We also believe that we could
develop such software internally.* However, it is possible that the loss or
inability to maintain any of these software licenses could result in delays or
reductions in product shipments until we could develop, identify, license and
integrate equivalent software.* Such delays could significantly harm our
business, operating results and financial condition.*
We are not aware that any of our products infringe on the proprietary rights
of third parties. We cannot assure you, however, that third parties will not
challenge our patents or claim infringement by us with respect to our current or
future products. We expect that software product developers will increasingly be
subject to such claims as the number of software products and competitors in our
industry segment grows and the functionality of software products in the
industry segment overlaps.* Any such claims, with or without merit, could result
in costly litigation that could absorb significant management time, which could
have a material adverse affect on our business, operating results and financial
condition.* Such claims might require us to enter into royalty or license
agreements. Such royalty or license agreements, if required, may not be
available on terms acceptable to us or at all, which could significantly harm
our business, operating results and financial condition.*
We Depend on the Introduction of New Versions of the Company's WorkOut
products and on Enhancing the Functionality and Services Offered by the Company.
If we are unable to develop new software products or enhancements to our
existing products on a timely and cost-effective basis, or if new products or
enhancements do not achieve market acceptance, our business would be seriously
harmed.* The life cycles of our products are difficult to predict because the
market for our products is new and emerging, and is characterized by rapid
technological change, changing customer needs and evolving industry standards.
The introduction of products employing new technologies and emerging industry
standards could render our existing products or services obsolete and
unmarketable.*
To be successful, our products and services must keep pace with technological
developments and emerging industry standards, address the ever-changing and
increasingly sophisticated needs of our customers and achieve market acceptance.
In developing new products and services, we may:*
. Fail to develop and market products that respond to technological changes
or evolving industry standards in a timely or cost-effective manner;
. Encounter products, capabilities or technologies developed by others that
render our products and services obsolete or noncompetitive or that
shorten the life cycles of our existing products and services;
14
<PAGE>
. Experience difficulties that could delay or prevent the successful
development, introduction and marketing of these new products and
services; or
. Fail to develop new products and services that adequately meet the
requirements of the marketplace or achieve market acceptance.
If We Fail to Release Our Products in a Timely Manner, or if Our Products Do
Not Achieve Market Acceptance, Our Business Would Be Seriously Harmed. We may
fail to introduce or deliver new potential offerings on a timely basis or at
all. If new releases or potential new products are delayed or do not achieve
market acceptance, we could experience a delay or loss of revenues and customer
dissatisfaction.* Customers may delay purchases of WorkOut in anticipation of
future releases. If customers defer material orders of WorkOut in anticipation
of new releases or new product introductions, our business would be seriously
harmed.*
In Order to Manage Our Growth and Expansion, We Will Need to Improve and
Implement New Systems, Procedures and Controls. We have recently experienced a
period of rapid expansion in our East Coast locations and this has placed a
significant strain upon our management systems and resources. If we are unable
to manage our growth and expansion, our business will be seriously harmed.* In
addition, we have recently hired a large number of employees and plan to further
increase our total headcount. We also plan to expand the geographic scope of our
customer base and operations, both domestically and internationally. This
expansion has resulted and will continue to result in substantial demands on our
management resources. Our ability to compete effectively and to manage future
expansion of our operations, if any, will require us to continue to improve our
financial and management controls, reporting systems and procedures on a timely
basis, and expand, train and manage our employee work force.*
As We Expand Our International Sales and Marketing Activities, Our Business
Will be Susceptible to Numerous Risks Associated With International Operations.
To be successful, we believe we must expand our international operations and
hire additional international personnel.* Therefore, we expect to commit
significant resources to expand our international sales and marketing
activities.* If successful, we will be subject to a number of risks associated
with international business activities. These risks generally include:
. Currency exchange rate fluctuations;
. Seasonal fluctuations in purchasing patterns;
. Unexpected changes in regulatory requirements;
. Tariffs, export controls and other trade barriers;
. Longer accounts receivable payment cycles and difficulties in collecting
accounts receivable;
. Difficulties in managing and staffing international operations;
. Potentially adverse tax consequences, including restrictions on the
repatriation of earnings;
. The burdens of complying with a wide variety of foreign laws;
. The risks related to the recent global economic turbulence and adverse
economic circumstances in Asia; and
. Political instability.
In the Future We May Need to Raise Additional Capital in Order to Remain
Competitive in the ESP and EBPP Industry. This Capital May Not Be Available on
Acceptable Terms, if at All. We believe that our existing cash and cash
equivalents, together with expected cash flows from operations combined with
external financing, will be sufficient to fund our operations for the next 12
months.* There can be no assurance that such financing will be available on
acceptable terms, if at all and that such terms will not be dilutive to our
existing stockholders. Our inability to secure necessary funding would have a
material adverse affect on our financial condition and results of operations.*
We Depend on Increasing Use of the Internet and on the Growth of Electronic
Commerce. If the Use of the Internet and Electronic Commerce Do Not Grow as
Anticipated, Especially in the International Arena, Our Business Will Be
Seriously Harmed. Alysis' ESP and EBPP products depend on the increased
acceptance and use of
15
<PAGE>
the Internet as a medium of commerce. Rapid growth in the use of the Internet is
a recent phenomenon. As a result, acceptance and use may not continue to develop
at historical rates and a sufficiently broad base of business customers may not
adopt or continue to use the Internet as a medium of commerce. Demand and market
acceptance for recently introduced services and products over the Internet are
subject to a high level of uncertainty, and there exist few proven services and
products.
Our business would be seriously harmed if:*
. Use of the Internet and other online services does not continue to
increase or increases more slowly than expected;
. The technology underlying the Internet and other online services does
not effectively support any expansion that may occur;
. The Internet and other online services do not create a viable commercial
marketplace, inhibiting the development of electronic commerce and
reducing the need for our products and services; or
. There is increased governmental regulation.
Security Risks and Concerns May Deter the Use of the Internet for Conducting
Electronic Commerce. A significant barrier to electronic commerce and
communications is the secure transmission of confidential information over
public networks. Advances in computer capabilities, new discoveries in the field
of cryptography or other events or developments could result in compromises or
breaches of our security systems or those of other Web sites to protect
proprietary information. If any well-publicized compromises of security were to
occur, it could have the effect of substantially reducing the use of the Web for
commerce and communications. Anyone who circumvents our security measures could
misappropriate proprietary information or cause interruptions in our services or
operations. The Internet is a public network, and data is sent over this network
from many sources. In the past, computer viruses, software programs that disable
or impair computers, have been distributed and have rapidly spread over the
Internet. Computer viruses could be introduced into our systems or those of our
customers or suppliers, which could disrupt WorkOut or make it inaccessible to
customers or suppliers. We may be required to expend significant capital and
other resources to protect against the threat of security breaches or to
alleviate problems caused by breaches. To the extent that our activities may
involve the storage and transmission of proprietary information, such as credit
card numbers, security breaches could expose us to a risk of loss or litigation
and possible liability.* Our security measures may be inadequate to prevent
security breaches, and our business would be harmed if we do not prevent them.*
16
<PAGE>
PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
a. Exhibits
--------
<S> <C>
The following exhibits are furnished along with this Form 10-Q Quarterly Report for the three months
ended March 31, 2000:
27.1 Financial Data Schedule (electronic filing only).
b. Reports on Form 8-K
-------------------
No reports on Form 8-K were filed during the three months ended March 31, 2000.
</TABLE>
17
<PAGE>
ALYSIS TECHNOLOGIES, INC.
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.
ALYSIS TECHNOLOGIES, INC.
Date: May 15, 2000 /s/ David r. bankhead
-------------------------------------
David R. Bankhead
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
18
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-2000 DEC-31-1999
<PERIOD-START> JAN-01-2000 JAN-01-1999
<PERIOD-END> MAR-31-2000 MAR-31-1999
<CASH> 5,503 9,159
<SECURITIES> 0 0
<RECEIVABLES> 2,084 1,933
<ALLOWANCES> (396) (126)
<INVENTORY> 0 0
<CURRENT-ASSETS> 7,467 11,460
<PP&E> 3,239 3,029
<DEPRECIATION> (2,352) (2,259)
<TOTAL-ASSETS> 10,530 14,601
<CURRENT-LIABILITIES> 5,031 5,587
<BONDS> 0 0
0 0
3,814 3,814
<COMMON> 134 131
<OTHER-SE> 1,552 5,069
<TOTAL-LIABILITY-AND-EQUITY> 10,530 14,601
<SALES> 2,772 3,444
<TOTAL-REVENUES> 2,772 3,444
<CGS> 1,158 1,999
<TOTAL-COSTS> 5,625 3,351
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (94) (72)
<INCOME-PRETAX> 0 0
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (3,917) (1,834)
<EPS-BASIC> (0.30) (0.15)
<EPS-DILUTED> (0.30) (0.15)
</TABLE>
