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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
Bottomline Technologies (de), Inc.
(Exact name of Registrant as Specified in Its Charter)
Delaware 02-0433294
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
155 Fleet Street, Portsmouth, New Hampshire 03801
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(Address of principal executive offices)
Registrant's telephone number, including area code: (603) 436-0700
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 |_|
The number of shares outstanding of the registrant's common stock as of October
5, 1999 was 10,709,584.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Bottomline Technologies (de), Inc.
Condensed Balance Sheets
(in thousands)
<TABLE>
<CAPTION>
September 30, 1999 June 30, 1999
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(unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 39,792 $ 39,699
Accounts receivable 8,111 11,631
Other current assets 1,486 1,358
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Total current assets 49,389 52,688
Property and equipment, net 2,521 2,392
Other assets, principally intangible assets 2,431 66
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Total assets $ 54,341 $ 55,146
===========================================
Liabilities and stockholders' equity
Current liabilities:
Accounts payable and accrued expenses $ 4,558 $ 4,854
Deferred revenue and deposits 3,620 3,467
Other current liabilities 341 657
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Total current liabilities 8,519 8,978
Deferred income taxes payable 253 253
Stockholders' equity
Common stock 11 10
Additional paid-in-capital 40,641 39,429
Retained earnings 4,917 6,476
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Total stockholders' equity 45,569 45,915
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Total liabilities and stockholders' equity $ 54,341 $ 55,146
===========================================
</TABLE>
See accompanying notes to unaudited condensed financial statements.
1
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Bottomline Technologies (de), Inc.
Condensed Statements of Operations
(in thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended September 30,
1999 1998
------------------------------------------
<S> <C> <C>
Revenues:
Software licenses $ 1,804 $ 3,477
Service and maintenance 4,260 2,254
Equipment and supplies 2,483 2,374
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Total revenues 8,547 8,105
Cost of revenues:
Software licenses 46 123
Service and maintenance 2,143 1,106
Equipment and supplies 1,862 1,682
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Total cost of revenues 4,051 2,911
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Gross profit 4,496 5,194
Operating expenses:
Sales and marketing 2,809 2,242
Product development and engineering 1,205 928
General and administrative 2,116 1,277
Acquired in-process research and development 1,300 --
Amortization of intangible assets 126 --
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Total operating expenses 7,556 4,447
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Income (loss) from operations (3,060) 747
Interest income, net 481 15
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Income (loss) before provision (benefit) for income taxes (2,579) 762
Provision (benefit) for income taxes (1,032) 305
------------------------------------------
Net income (loss) $ (1,547) $ 457
==========================================
Earnings (loss) per share available to common stockholders:
Basic $ (0.15) $ 0.07
==========================================
Diluted $ (0.15) $ 0.06
==========================================
Shares used in computing earnings (loss) per share available
to common stockholders:
Basic 10,569 6,361
==========================================
Diluted 10,569 7,456
==========================================
</TABLE>
See accompanying notes to unaudited condensed financial statements.
2
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Bottomline Technologies (de), Inc.
Condensed Statements of Cash Flows
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended September 30,
1999 1998
-------------------------------------------
<S> <C> <C>
Cash provided by (used in) operating activities $ (434) $ 588
Investing activities
Purchases of property and equipment, net (676) (434)
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Net cash used in investing activities (676) (434)
Financing activities
Repayments on notes payable -- (25)
Proceeds from exercise of stock options 1,203 --
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Net cash provided by (used in) financing activities 1,203 (25)
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Increase in cash and cash equivalents 93 129
Cash and cash equivalents at beginning of period 39,699 1,362
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Cash and cash equivalents at end of period $ 39,792 $ 1,491
===========================================
</TABLE>
See accompanying notes to unaudited condensed financial statements.
3
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Bottomline Technologies (de), Inc.
Notes to Unaudited Condensed Financial Statements
(in thousands, except per share data)
Note 1 - Basis of Presentation
The accompanying unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions 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 accruals and adjustments) considered necessary for a fair presentation
of the interim financial information have been included. Operating results for
the three months ended September 30, 1999 are not necessarily indicative of the
results that may be expected for the year ended June 30, 2000. For further
information, refer to the financial statements and footnotes thereto included in
the company's Annual Report on Form 10-K as filed with the Securities and
Exchange Commission.
Note 2 - Product Acquisition
In July 1999, the company acquired certain software and related proprietary
intellectual property from The Northern Trust Company for $3,700,000 in cash.
This software product, called NetTransact, allows for the electronic presentment
of bills and related dispute resolution in a business-to-business environment.
In connection with this product acquisition, the Company recorded a $1,300,000
charge for acquired in-process research and development and a $2,500,000
intangible asset which is being amortized over a five year period.
4
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Note 3 - Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per
share:
Three Months Ended
September 30,
-------------------------------
1999 1998
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Numerator:
Net income (loss) $ (1,547) $ 457
Accretion to redemption value on
redeemable common stock -- (28)
-------------------------------
Numerator for basic and diluted
earnings (loss) per share available
to common stockholders $ (1,547) $ 429
===============================
Denominator:
Denominator for basic earnings
(loss) per share available to
common stockholders -
weighted-average shares
outstanding 10,569 6,361
Effect of employee stock options,
warrants and redeemable
common stock -- 1,095
-------------------------------
Denominator for diluted earnings
(loss) per share available to
common stockholders 10,569 7,456
===============================
Earnings (loss) per share available to
common stockholders:
Basic $ (0.15) $ 0.07
===============================
Diluted $ (0.15) $ 0.06
===============================
The effect of stock options is excluded from the calculation of diluted earnings
per share for the three months ended September 30, 1999 as their effect would be
anti-dilutive.
5
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion contains forward-looking statements that involve risks
and uncertainties, including those relating to the company's ability to develop
new and enhanced payment management software and services and on the market
acceptance of the company's payment management software and services. Actual
results may differ materially from the results predicted and reported results
should not be considered as an indication of future performance. See "Certain
Factors That May Affect Future Results" for additional information about
potential factors that could affect the company's business and financial
results.
Three Months Ended September 30, 1999 Compared to Three Months Ended September
30,1998
Revenues
Total revenues increased by $442,000 to $8.5 million in the three months
ended September 30, 1999 from $8.1 million in the three months ended September
30, 1998, an increase of 5%.
Software Licenses. Software license fees decreased by $1.7 million to $1.8
million in the three months ended September 30, 1999 from $3.5 million in the
three months ended September 30, 1998, a decrease of 48%. Software license fees
represented 21% of total revenues in the three months ended September 30, 1999
compared to 43% of total revenues for the three months ended September 30, 1998.
The decrease in software license fees was due to a slow down in customer
decisions to install new software prior to Year 2000.
Service and Maintenance. Service and maintenance fees increased by $2.0
million to $4.3 million in the three months ended September 30, 1999 from $2.3
million in the three months ended September 30, 1998, an increase of 89%.
Service and maintenance fees represented 50% of total revenues in the three
months ended September 30, 1999 compared to 28% of total revenues in the three
months ended September 30, 1998. The increase in service and maintenance fees
was due primarily to several large service contracts during the quarter.
Equipment and Supplies. Equipment and supplies sales increased by $109,000 to
$2.5 million in the three months ended September 30, 1999 from $2.4 million in
the three months ended September 30, 1998, an increase of 5%. Equipment and
supplies sales represented 29% of total revenues in each of the three months
ended September 30, 1999 and 1998.
Cost of Revenues
Software Licenses. Software license costs decreased by $77,000 to $46,000 in
the three months ended September 30, 1999 from $123,000 in the three months
ended September 30, 1998, a decrease of 63%. Software license costs represented
3% of software license fees in the three months ended September 30, 1999
compared to 4% of software license fees in the three months ended September 30,
1998.
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Service and Maintenance. Service and maintenance costs increased by $1.0
million to $2.1 million in the three months ended September 30, 1999 from $1.1
million in the three months ended September 30, 1998, an increase of 94%.
Service and maintenance costs were 50% of service and maintenance revenues in
the three months ended September 30, 1999 compared to 49% of service and
maintenance revenues in the three months ended September 30, 1998.
Equipment and Supplies. Equipment and supplies costs increased by $180,000 to
$1.9 million in the three months ended September 30, 1999 from $1.7 million in
the three months ended September 30, 1998, an increase of 11%. Equipment and
supplies costs were 75% of equipment and supplies sales in the three months
ended September 30, 1999 compared to 71% of equipment and supplies sales in the
three months ended September 30, 1998.
Operating Expenses
Sales and Marketing. Sales and marketing expenses consist primarily of
salaries and other related costs for sales and marketing personnel, sales
commissions, travel, public relations and marketing materials and trade shows.
Sales and marketing expenses increased by $567,000 to $2.8 million in the three
months ended September 30, 1999 from $2.2 million in the three months ended
September 30, 1998, an increase of 25%. Sales and marketing expenses were 33% of
total revenues in the three months ended September 30, 1999 compared to 28% of
total revenues in the three months ended September 30, 1998. The increase was
due primarily to increases in staffing and personnel related costs.
Product Development and Engineering. Product development and engineering
expenses consist primarily of personnel costs to support product development.
Product development and engineering expenses increased by $277,000 to $1.2
million in the three months ended September 30, 1999 from $928,000 in the three
months ended September 30, 1998, an increase of 30%. Product development and
engineering expenses were 14% of total revenues in the three months ended
September 30, 1999 compared to 11% of total revenues in the three months ended
September 30, 1998. The dollar increase was due primarily to increases in
staffing and personnel related costs associated with our investment in the
NetTransact product.
General and Administrative. General and administrative expenses consist
primarily of salaries and other related costs for operations and finance
employees and legal and accounting services. General and administrative expenses
increased by $839,000 to $2.1 million in the three months ended September 30,
1999 from $1.3 million in the three months ended September 30, 1998. General and
administrative expenses were 25% of total revenues in the three months ended
September 30, 1999 compared to 16% of total revenues in the three months ended
September 30, 1998. The dollar increase was due primarily to costs incurred for
a transaction which was not consummated and increases in staffing and personnel
related costs.
7
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Acquired in-process research and development and amortization of intangible
assets. In-process research and development of $1.3 million represents a one
time charge related to the NetTransact product acquisition for acquired
in-process research and development. In connection with the product acquisition,
a $2.5 million intangible asset was recorded and is being amortized over an
estimated useful life of 5 years yielding amortization expense of $126,000 for
the three months ended September 30, 1999.
Interest Income, Net. Interest income, net consists of interest income and
interest expense. Interest income, net increased by $466,000 to $481,000 in the
three months ended September 30, 1999 from $15,000 in the three months ended
September 30, 1998. The increase was due to interest earned on the proceeds of
our initial public offering.
Provision (benefit) for Income Taxes. The benefit for income taxes was $1.0
million in the three months ended September 30, 1999 compared with a provision
of $305,000 in the three months ended September 30, 1998. The effective tax rate
in the three months ended September 30, 1999 and 1998 was 40%. The effective tax
rate in each of the three month periods ended September 30, 1999 and 1998
differed from the federal statutory rate due principally to the effect of state
income taxes.
Liquidity and Capital Resources
We have financed our operations primarily from cash provided by operating
activities and the sale of common stock. We had net working capital of $40.9
million at September 30, 1999, including cash and cash equivalents totaling
$39.8 million.
Net cash used in operating activities was $674,000 in the three months ended
September 30, 1999. Net cash used in operating activities during the three
months ended September 30, 1999 was primarily the result of the net loss, an
increase in deferred revenues and decreases in accounts payable and accrued
expenses and accounts receivable.
Net cash used in investing activities was $436,000 in the three months ended
September 30, 1999. Cash was used during this period to acquire computer
equipment and software for internal use. We currently have no significant
capital spending or purchase commitments, but expect to continue to engage in
capital spending in the ordinary course of business.
Net cash provided by financing activities was $1.2 million in the three
months ended September 30, 1999. Net cash provided by financing activities was
the result of the net proceeds from the exercise of employee stock options.
In December 1998, we renewed our revolving credit agreement with a bank which
provides for borrowings of up to $5.0 million. Borrowings under our revolving
credit agreement bear interest at the bank's prime rate, are due on demand and
are secured by substantially all of the company's assets. As of September 30,
1999, we had no outstanding balances under our revolving credit agreement. The
agreement expires on December 30, 1999.
We believe that the cash and cash equivalents on hand will be sufficient to
meet our working capital requirements for the foreseeable future.
8
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Subsequent Event
On October 25, 1999, we acquired substantially all of the assets and assumed
certain liabilities of privately held Integrated Cash Management Services, Inc.
(ICM) for $8.5 million in cash. ICM is a leading software development company
specializing in web access to complex back-office applications for financial
institutions and their customers.
Year 2000 Considerations
Computer systems and software must accept four digit entries to
distinguish 21st century dates from 20th century dates. As a result, many
software and computer systems have needed to be upgraded in order to be year
2000 compliant.
The vendors of each of our major internal software systems, such as
accounting and database management, have certified that their software is year
2000 compliant. In addition, we have assessed our currently supported products,
including tools, equipment and software provided by others, for possible
problems in processing, reporting, displaying, functioning with and otherwise
handling date data containing the year 2000 and beyond and believe that such
products are year 2000 compliant. We have completed testing our internal
systems, including hardware and software used to support the internal systems
and networks, and have received compliance statements from our outside service
providers that are responsible for telecommunications and other services used
for internal and external operations. Facility management systems have been
verified for compliance. We do not plan to assess specifically year 2000
compliance of external forces such as utility or transportation systems or year
2000 compliance failures that might generally affect industry and commerce.
We have conducted extensive tests to validate the year 2000 compliance of
our products installed after February 1997 and we believe that these products
were year 2000 compliant at the time of installation. However, products
installed prior to that time that operated in the DOS operating system
environment are not year 2000 compliant. In 1997, we notified customers that had
purchased DOS based products that their products were not year 2000 compliant
and that we would no longer be supporting those products. We have no plan to
address year 2000 readiness for these older products. Based on the notification
we provided and the contractual provisions limiting liability contained in our
standard terms and conditions which governed the sale of our DOS based products,
we do not believe there are significant risks to our business relating to year
2000 compliance of these products.
Contingency plans have been formalized that will provide alternate methods
of providing the services and tools should unexpected problems develop with
tested applications and systems. This includes, but is not limited to,
additional standby compliant hardware and systems. This is in addition to
standard redundant systems and services and spares kits.
During the past two years, we have purchased approximately $2.0 million in
information systems, hardware and software, some of which purchases were
accelerated in connection with year 2000 compliance. We do not expect any future
material expenses to be incurred in connection with year 2000 compliance.
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CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
The following important factors, among others, could cause actual results to
differ materially from those indicated by forward-looking statements made in
this Quarterly Report on Form 10-Q and presented elsewhere by management from
time to time.
Substantially all of our revenues to date have come from our payment management
offerings and our performance will depend on continued market acceptance of
these offerings
Substantially all of our revenues to date have come from the license and
maintenance of our payment management offerings and sales of related products
and services. Any reduction in demand for our payment management solutions, or
lack of meaningful growth in the market for electronic and payment management
solutions could have a material adverse effect on our business, operating
results and financial condition. Our PayBase software products are designed to
provide a single platform to control, manage and issue all payments, whether
paper-based or electronic, across an enterprise. Our future performance will
depend to a large degree upon the market acceptance of PayBase as a payment
management solution. Our prospects will also depend upon enterprises seeking to
enhance their payment functions to integrate electronic payment capabilities. In
addition, our future results will depend on the continued market acceptance of
desktop software for use in a departmental setting, including our LaserCheck
solution, as well as our ability to introduce enhancements to meet the market's
evolving needs for secure, payment management solutions.
The year 2000 issue may cause our current and potential customers to delay
implementing our products and services
We believe that the adoption of our products and services by existing and
potential customers and subscribers has been, and may continue to be, adversely
affected by the year 2000 issue. Once companies have tested and upgraded their
current software systems for year 2000 compliance, they may be reluctant to
introduce new software systems into the tested environment and may delay or
cancel decisions to adopt our products and services. If this occurs, it could
have a material adverse effect on our business, financial condition and results
of operations. Companies that have not completed all testing and upgrades of
their current software systems may not have the resources to allow them to go
forward and may deter or cancel decisions to purchase our products. In addition,
companies may delay purchases in the beginning of the year 2000 as they assess
any issues caused by the year 2000 and respond thereto.
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Our future results will depend upon market acceptance of our new bill
presentment product
Our objective is to be the leading provider of software solutions that
enable businesses and financial institutions to create an automated e-business
infrastructure to enable, implement and manage movements of cash resources. An
integral part of that strategy is the successful implementation of our
NetTransact bill presentment software. We acquired NetTransact from The Northern
Trust Company, a financial institution, in July 1999. NetTransact is currently
installed at three pilot sites and we anticipate commercial introduction of the
product during the current fiscal year. However, if the product has any
unanticipated performance problems or bugs, its introduction could be delayed.
If NetTransact is delayed, or does not enjoy wide commercial success when it is
introduced to the general marketplace, our long-term business strategy would be
adversely affected.
Our fixed costs may lead to fluctuations in operating results if our revenues
are below expectations
A significant percentage of our expenses, particularly personnel costs and
rent, are relatively fixed, and based in part on expectations of future
revenues. We may be unable to reduce spending in a timely manner to compensate
for any significant fluctuations in revenues. Accordingly, shortfalls in
revenues may cause significant variations in operating results in any quarter.
Factors that could cause these fluctuations include the following:
. The potential delay in sales of our products and services if companies
elect not to introduce new software applications into existing systems
which have been tested for year 2000 compliance;
. the timing of orders and longer sales cycles, particularly due to
increased average selling prices of our payment solutions;
. the timing and market acceptance of new products or product
enhancements by either us or our competitors;
. the timing of product implementations, which are highly dependent on
customers' resources and discretion;
. the incurrence of costs relating to the integration of software
products and operations in connection with acquisitions of technologies
or businesses;
. delivery interruptions relating to equipment and supplies purchased
from third-party vendors, which could delay system sales; and
. economic conditions which may affect our customers' and potential
customers' budgets for technological expenditures.
Because of these factors, we believe that period to period comparisons of
our results of operations are not necessarily meaningful. In addition, it is
possible that in some future quarters our results of operations will be below
the expectations of public market analysts and investors, and in that case the
price of our common stock could be materially adversely affected.
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Our first and third quarter revenues can be less than the preceding quarter's
revenues
During our third fiscal quarter ended March 31, revenues have typically
declined as customers focus internal resources on statutory and regulatory
reporting requirements. Our fourth fiscal quarter ended June 30, generally has
the highest revenues as customers complete projects before summer, when activity
in many corporate financial departments tends to slow. As a result, we have
historically experienced first quarter revenues that are lower than those of the
immediately preceding quarter.
Our success depends on our ability to develop new and enhanced bill presentment
payment management software and services
The bill presentment and payment management software market is subject to
rapid technological change and our success is dependent on our ability to
develop new and enhanced bill presentment and payment management software,
services and related products. Trends which could have a critical impact on us
include:
. rapidly changing technology that could require us to make our products
compatible with new database or network systems;
. evolving industry standards and mandates, such as those mandated by the
National Automated Clearing House Association and by the Debt
Collection Improvement Act of 1996; and
. developments and changes relating to the Internet that we must address
as we introduce Internet-capable products.
If we are unable to develop and introduce new products, or enhancements to
existing products, in a timely and successful manner, our business, operating
results and financial condition could be materially adversely affected.
We are subject to risks associated with the Internet
Our future success will in large part depend upon the willingness of
businesses and financial institutions to adopt the Internet as a medium of
e-commerce. There are critical issues involved in the commercial use of the
Internet which are not yet fully resolved, including concerns regarding the
Internet's:
. security;
. reliability;
. ease of access; and
. quality of services.
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The adoption of the use of the Internet by enterprises which have
historically relied on traditional means of commerce and communication will
require them to accept a new medium for conducting business and exchanging
information. These entities will probably accept this new medium only if the
Internet provides substantially greater efficiency and enhances their
competitiveness. To the extent that any of these issues inhibit or limit the
continued adoption of the Internet for e-commerce, our business prospects could
be adversely affected.
Our business can be adversely affected by problems with third-party hardware
In fiscal 1997, we experienced a significant problem with a third-party
printer that we were then reselling which had a material adverse effect on our
operating results. We revised and enhanced our quality assurance control
programs and now utilize multiple printers and printer vendors. However, any
repetition of these or similar problems with third party hardware could have a
material adverse effect on our business, operating results and financial
condition.
Increased competition may result in price reductions and decreased demand for
our products and services
The market for payment management and electronic bill presentment software
is intensely competitive and characterized by rapid technological change.
Growing competition may result in price reductions of our products and services,
reduced revenues and gross margins and loss of market share, any one of which
could have a material adverse effect on our business, operating results and
financial condition. Some competitors in our market have longer operating
histories, significantly greater financial, technical, marketing and other
resources, greater brand recognition and a larger installed customer base than
we do. In addition, current and potential competitors may make strategic
acquisitions or establish cooperative relationships to expand their product
offerings and to offer more comprehensive solutions. We also expect to face
additional competition as other established and emerging companies enter the
market for payment management solutions.
Rapid growth could strain our personnel, systems and controls
Our rapid growth has sometimes strained, and may in the future strain, our
managerial and other resources. Our ability to manage growth will depend in part
on our ability to continue to enhance our operating, financial and management
information systems. We cannot assure you that our personnel, systems and
controls will be adequate to support our growth. If we are unable to manage
growth effectively, the quality of our services, our ability to retain key
personnel and our business, operating results and financial condition could be
materially adversely affected.
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We depend on a few key employees who are skilled in e-commerce, payment
methodology and Internet and other technologies
Our success depends upon the efforts and ability of our executive officers
and key technical employees who are skilled in e-commerce, payment methodology
and regulation, and Internet, database and network technologies. We currently do
not maintain "key man" life insurance policies on any of our employees. While
some of our executive officers have employment agreements with us, the loss of
the services of any of our executive officers or other key employees could have
a material adverse effect on our business, operating results and financial
condition.
We must attract and retain highly skilled personnel with knowledge of electronic
payments and bill presentment and the banking industry
We are dependent upon the ability to attract, hire, train and retain
highly skilled technical, sales and marketing, and support personnel,
particularly with expertise in electronic payment and bill presentment
technology and knowledge of the banking industry. Competition for qualified
personnel is intense. In addition, our location in Portsmouth, New Hampshire may
limit our access to skilled personnel. Any failure to attract, hire or retain
qualified personnel could have a material adverse effect on our business,
operating results and financial condition. In addition, we plan to expand our
sales and marketing and customer support organizations. Based on our experience,
it takes an average of six months for a salesperson to become fully productive.
We cannot assure you that we will be successful in increasing the productivity
of our sales personnel, and the failure to do so could have a material adverse
effect on our business, operating results and financial condition.
Undetected year 2000 problems and claims regarding non-compliant discontinued
products could have an adverse effect on our business
Computer systems and software must accept four digit entries to
distinguish 21st century dates from 20th century dates. As a result, many
software and computer systems may need to be upgraded in order to be year 2000
compliant. Significant uncertainties exist in the software industry concerning
the potential effects associated with year 2000 compliance. We have assessed the
impact of year 2000 compliance on our products and systems. We cannot, however,
be certain that we have identified all of the potential risks to our business
that could result from matters related to the year 2000. We have identified the
following risks that you should be aware of:
. Year 2000 problems that affect our internal systems. We have obtained
certifications by our software vendors regarding the year 2000
readiness of our internal software systems and have conducted
independent tests of these systems. It is possible, however, that these
systems could contain undetected problems that could cause serious and
costly disruptions which would have a material adverse effect on our
business, operating results and financial condition.
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. Year 2000 problems that affect our discontinued products. We have
notified customers that had purchased DOS based products that their
products were not year 2000 compliant and that we would no longer be
supporting those products. Based on the notification we provided and
the contractual provisions limiting liability contained in our standard
terms and conditions which governed the sale of our DOS based products,
we do not believe there are significant risks to our business relating
to year 2000 compliance of these products. However, we cannot assure
you that customers who purchased these products will not assert claims
against us, which could result in costly litigation which diverts
management's attention and could have a material adverse effect on our
business, operating results and financial condition.
. Undetected year 2000 problems that could affect our currently supported
products. We believe that all of our products that have been installed
after February 1997 were year 2000 compliant at the time of
installation. However, although we have tested such products for year
2000 compliance, we cannot be certain that these tests have detected
all potential year 2000 problems. The failure of our currently
supported products to be fully year 2000 compliant could result in
claims by or liability to our customers, which could have a material
adverse effect on our business, operating results and financial
condition.
Undetected bugs in our software could adversely affect the performance of our
software and demand for our products
Our software products could contain errors or "bugs" that we have not been
able to detect which could adversely affect their performance and reduce demand
for our products. Additionally, we regularly introduce new releases and
periodically introduce new versions of our software products. Any defects or
errors in new products, such as NetTransact, or enhancements could result in
adverse customer reactions and negative publicity regarding us and our products
and could have a material adverse effect on our business, operating results and
financial condition.
Our business could be subject to product liability claims
Our software and hardware products are designed to provide critical
payment management functions and to limit the risk of fraud or loss in effecting
such transactions. As a result, our products are critical to our customers and
there is the potential for significant product liability claims. Our license
agreements with customers typically place the responsibility for use of the
system on the customer and contain provisions intended to limit our exposure to
product liability claims. However, these limitation provisions may not preclude
all potential claims. We have not experienced any product liability claims to
date. However, a product liability claim brought against us, even if not
successful, would likely be time consuming and costly. A successful liability
claim could have a material adverse effect on our business, operating results
and financial condition.
15
<PAGE>
We intend to pursue strategic acquisitions and our business could be materially
adversely affected if we fail to adequately integrate acquired businesses
As part of our overall business strategy, we pursue strategic acquisitions
that would provide us with additional product or service offerings, additional
industry expertise, a broader client base or an expanded geographic presence.
Any acquisition could result in the use of significant amounts of cash,
potentially dilutive issuances of equity securities, or the incurrence of debt
or amortization expenses related to goodwill and other intangible assets, any of
which could materially adversely affect our business, operating results and
financial condition. In addition, acquisitions involve numerous risks,
including:
. difficulties in the assimilation of the operations, technologies,
products and personnel of the acquired company;
. the diversion of management's attention from other business concerns;
. risks of entering markets in which we have no or limited prior
experience; and
. the potential loss of key employees of the acquired company.
From time to time, we engage in discussions with third parties concerning
potential acquisitions of product lines, technologies and businesses.
Our business could be adversely affected if we are unable to protect our
proprietary technology
We rely upon a combination of patent, copyright and trademark laws and
non-disclosure and other intellectual property contractual arrangements to
protect our proprietary rights. We have one allowed United States patent
application relating to certain security aspects of our dual payment process.
However, we cannot assure you that our allowed patent, or any other patents that
may be issued in the future, will be of sufficient scope and strength to provide
meaningful protection of our technology or any commercial advantage to us, or
that the patents will not be challenged, invalidated or circumvented. We enter
into agreements with our employees and clients that seek to limit and protect
the distribution of proprietary information. We cannot assure you that the steps
we have taken to protect our property rights, however, will be adequate to deter
misappropriation of proprietary information, and we may not be able to detect
unauthorized use and take appropriate steps to enforce our intellectual property
rights.
16
<PAGE>
Others could claim that we infringe their intellectual property
Although we believe that our products and services do not infringe upon
the intellectual property rights of others and that we have all rights necessary
to utilize the intellectual property employed in our business, we are subject to
the risk of claims alleging infringement of third-party intellectual property
rights. These claims could require us to spend significant sums in litigation,
pay damages, delay product installments, develop non-infringing intellectual
property or acquire licenses to intellectual property that is the subject of the
infringement claim. Therefore, these claims could have a material adverse effect
on our business, operating results and financial condition.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
From time to time we may be named in claims arising in the ordinary course of
business. Currently, no legal proceedings or claims are pending.
Item 2. Changes In Securities And Use Of Proceeds
Changes in Rights and Classes of Stock
None.
Sales of Unregistered Securities and Use of Proceeds
None.
Use of Proceeds of Initial Public Offering
No net offering proceeds of our initial public offering were used during the
period between June 30, 1999 to September 30, 1999.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission Of Matters To A Vote Of Security Holders
No matter was submitted to a vote of our stockholders, through the solicitation
of proxies or otherwise, during the first quarter of fiscal year 2000.
Item 5. Other Information
None.
Item 6. Exhibits And Reports On Form 8-K
(a) Exhibits:
27 Financial Data Schedule
(b) Reports on Form 8-K:
None.
17
<PAGE>
SIGNATURE
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.
Bottomline Technologies (de), Inc.
Date: November 11, 1999 By: /s/ Robert A. Eberle
Robert A. Eberle
Executive Vice President,
Chief Financial Officer and Treasurer
(Principal Financial and Accounting
Officer)
18
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