<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
Bottomline Technologies (de), Inc.
(Exact name of Registrant as Specified in Its Charter)
Commission file number: 0-25259
Delaware 02-0433294
------------------------------ ---------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
155 Fleet Street, Portsmouth, New Hampshire 03801
----------------------------------------
(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
31, 2000 was 12,877,218.
<PAGE>
INDEX
Page No.
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PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Unaudited Condensed Consolidated Balance Sheets as
of September 30, 2000 and June 30, 2000 1
Unaudited Condensed Consolidated Statements of
Operations for the three months ended
September 30, 2000 and 1999 2
Unaudited Condensed Consolidated Statements of
Cash Flows for the three months ended
September 30, 2000 and 1999 3
Unaudited Notes to Condensed Consolidated
Financial Statements 4
ITEM 2. Management's Discussion and Analysis 8
ITEM 3. Quantitative and Qualitative Disclosure
about Market Risk 19
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 19
ITEM 2. Changes In Securities and Use of Proceeds 19
ITEM 3. Defaults Upon Senior Securities 20
ITEM 4. Submission of Matters to a Vote of Security Holders 20
ITEM 5. Other Information 20
ITEM 6. Exhibits and Reports on Form 8-K 20
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Bottomline Technologies (de), Inc.
Unaudited Condensed Consolidated Balance Sheets
(in thousands)
<TABLE>
<CAPTION>
September 30, 2000 June 30, 2000
-------------------- --------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 6,149 $27,292
Short-term investments 6,208 11,222
Accounts receivable, net of allowance for doubtful accounts of
$1,487 at September 30, 2000 and $1,097 at June 30, 2000 24,701 14,571
Other current assets 6,178 1,760
----------- ----------
Total current assets 43,236 54,845
Property and equipment, net 7,994 5,172
Goodwill and other intangible assets 102,109 8,416
Other assets 2,540 2,847
----------- ---------
Total assets $155,879 $71,280
=========== =========
Liabilities and Stockholders' equity
Current liabilities:
Accounts payable $ 4,205 $ 2,004
Accrued expenses 10,142 4,930
Deferred revenue and deposits 12,901 6,034
Other current liabilities 717 901
Short term debt 20,356 -
----------- ---------
Total current liabilities 48,321 13,869
Deferred income taxes payable 886 283
Stockholders' equity:
Common stock 13 11
Additional paid-in-capital 122,347 64,914
Deferred stock compensation (1,307) -
Accumulated other comprehensive income (loss) 349 (8)
Retained deficit (14,730) (7,789)
----------- ---------
Total stockholders' equity 106,672 57,128
----------- ---------
Total liabilities and stockholders' equity $155,879 $71,280
=========== =========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
1
<PAGE>
Bottomline Technologies (de), Inc.
Unaudited Condensed Consolidated Statements of Operations
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
2000 1999
------- -------
<S> <C> <C>
Revenues:
Software licenses $ 5,696 $ 1,804
Service and maintenance 6,845 4,260
Equipment and supplies 3,416 2,483
------- -------
Total revenues 15,957 8,547
Cost of revenues:
Software licenses 221 46
Service and maintenance 3,507 2,143
Equipment and supplies 2,597 1,862
------- -------
Total cost of revenues 6,325 4,051
------- -------
Gross profit 9,632 4,496
Operating expenses:
Sales and marketing:
Sales and marketing 6,069 2,809
Product development and engineering:
Product development and engineering 2,884 1,205
Acquired in-process research and development - 1,300
Stock compensation expense 37 -
General and administrative:
General and administrative 2,605 2,116
Amortization of intangible assets 3,320 126
------- -------
Total operating expenses 14,915 7,556
------- -------
Loss from operations (5,283) (3,060)
Interest income, net 264 481
------- -------
Loss before provision for income taxes (5,019) (2,579)
Provision (benefit) for income taxes 1,922 (1,032)
------- -------
Net loss $(6,941) $ (1,547)
======= =======
Loss per share:
Basic $ (0.59) $ (0.15)
======= =======
Diluted $ (0.59) $ (0.15)
======= =======
Shares used in computing loss per share:
Basic 11,820 10,569
======= ========
Diluted 11,820 10,569
======= ========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
2
<PAGE>
Bottomline Technologies (de), Inc.
Unaudited Condensed Consolidated Statements of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
2000 1999
------ ------
<S> <C> <C>
Cash provided by (used in) operating activities $ (3,030) $ 3,379
Investing activities:
Purchases of property and equipment, net (828) (676)
Proceeds from sale of short-term investments, net of purchases 5,030 -
Increase in equity investments (1,400) -
Acquisition of businesses and assets, net of cash acquired (11,415) (3,813)
------- -------
Net cash used in investing activities (8,613) (4,489)
Financing activities:
Proceeds from exercise of stock options and employee stock purchase
plan 784 1,203
Payment of certain liabilities assumed upon acquisition (10,272) -
-------- -------
Net cash provided by (used in) financing activities (9,488) 1,203
Effect of exchange rate changes on cash (12) -
-------- -------
Increase (decrease) in cash and cash equivalents (21,143) 93
Cash and cash equivalents at beginning of period 27,292 39,699
-------- -------
Cash and cash equivalents at end of period $ 6,149 $39,792
======== =======
Schedule of non-cash investing and financing activities
Issuance of common stock, common stock options and common
stock warrants in connection with acquisitions $ 56,651 -
Issuance of promissory notes in connection with acquisitions $ 20,356 -
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
3
<PAGE>
Bottomline Technologies (de), Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2000
Note 1 - Basis of Presentation
The accompanying condensed consolidated unaudited financial statements have
been prepared in accordance with accounting principles generally accepted in the
United States 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 accounting principles generally
accepted in the United States 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, 2000 are not necessarily indicative of the results
that may be expected for the year ending June 30, 2001. For further
information, refer to the financial statements and footnotes included in the
company's Annual Report on Form 10-K as filed with the Securities and Exchange
Commission (SEC).
Note 2 - Business Combinations
On August 28, 2000, the Company acquired the stock of two companies,
Checkpoint Holdings, Ltd. (Checkpoint) and Flashpoint, Inc. (Flashpoint).
Checkpoint, a private company incorporated in England and Wales, is a
provider of electronic commerce and electronic payment software for the United
Kingdom. The acquisition was completed pursuant to a Share Purchase Agreement
dated August 28, 2000 between the Company and Checkpoint stockholders. The
consideration for the acquisition was approximately $60.1 million, consisting of
$4.7 million in cash, $19.8 million in loan notes, 1,013,333 shares of the
Company's common stock, warrants to purchase a total of 100,000 shares of common
stock at an exercise price of $50.00 per share and transaction costs. In
connection with the acquisition, 336,667 shares of the Company's common stock
were issued to satisfy pre-existing loan note obligations of Checkpoint in the
amount of $10.5 million. As a result of the acquisition, intangible assets of
approximately $79.8 million were recorded as identified in the table below.
4
<PAGE>
Flashpoint, a Massachusetts corporation, is a developer of Web-based
software. The acquisition was completed pursuant to a Stock Purchase Agreement
dated August 28, 2000 by and among the Company, Flashpoint, and the sole
stockholder of Flashpoint. The consideration for the acquisition was
approximately $16.8 million, consisting of $4.5 million in cash, 242,199 shares
of common stock, the assumption of all outstanding stock options of Flashpoint
and transaction costs. As a result of the acquisition, intangible assets of
approximately $16.9 million were recorded as identified in the table below.
Checkpoint Flashpoint Total
-------------- -------------- ----------
(in thousands)
Customer list $15,867 $ - $15,867
Assembled workforce 4,442 1,509 5,951
Developed software 3,761 - 3,761
Trade name 1,543 - 1,543
Contract backlog - 435 435
Goodwill 54,206 14,929 69,135
-------- ------- -------
Total $79,819 $16,873 $96,692
======== ======= =======
The intangible assets will be amortized over their estimated useful lives,
as follows: customer list, assembled workforce, developed software, trade name
and goodwill - three years; contract backlog - ten months.
The acquisitions were accounted for using the purchase method of accounting
in accordance with Accounting Principles Board Opinion No. 16, "Business
Combinations" ("APB 16"). Under APB 16, purchase price allocations are made to
the assets acquired and the liabilities assumed based on their respective fair
values. The value of the Company's common stock was recorded at the average of
the last reported sales price on The Nasdaq National Market during the last
three consecutive trading days ending on and including August 28, 2000. The
value of the warrants and stock options were recorded at their fair value based
on the Black-Scholes valuation method.
The purchase price allocations are based on preliminary assessments.
Adjustments will be made to the purchase price allocations if changes to the
preliminary assessments occur prior to June 30, 2001.
During fiscal 2000, the Company acquired substantially all of the assets
and assumed certain liabilities of Integrated Cash Management Services, Inc.
(ICM) for an aggregate purchase price of $9.3 million in cash and transaction
costs. Also during fiscal 2000, the Company acquired all of the outstanding
stock of OLC Software, Inc. (OLC) for an aggregate purchase price of $1.5
million in cash and transaction costs.
The following unaudited pro forma financial information presents the
combined results of operations of the Company, ICM, Checkpoint and Flashpoint as
if the acquisitions had occurred as of the beginning of the quarters ended
September 30, 2000 and September 30, 1999, after giving effect to certain
adjustments, including amortization of goodwill and other intangible assets.
Since OLC had very limited operations prior to the acquisition, no OLC amounts
are included in the pro forma information below. The pro forma information does
not necessarily reflect the results of operations that would have occurred had
the Company, ICM, Checkpoint, and Flashpoint been a single entity during such
period.
5
<PAGE>
Pro Forma
Three Months Ended
September 30,
2000 1999
-------- -------
(Unaudited)
(In Thousands,
except per share amounts)
Revenues $ 20,354 $ 18,277
Net loss $(16,115) $(15,388)
Net loss per share $ (1.28) $ (1.12)
Note 3 - Short Term Debt
In connection with the acquisition of Checkpoint, the Company issued
promissory notes with an aggregate value of $20.4 million. The promissory notes,
including accrued interest thereon, mature on August 28, 2001. Prior to the
maturity date, the Company may repay the promissory notes, including accrued
interest, in cash. On the maturity date, at the Company's sole discretion, the
promissory notes, including accrued interest, may be repaid in either cash, the
Company's common stock or a combination of cash and common stock. The promissory
notes accrue interest at a rate of 10% for the period beginning on August 28,
2000 and ending on February 28, 2001 and 14% for the period beginning on
February 28, 2001 and ending on August 28, 2001. Since the Company has not yet
determined if the promissory notes will be retired through the payment of cash
or the issuance of common stock, the promissory notes have been included in
current liabilities as the maturity date is within one year.
Note 4 -Loss Per Share
The following table sets forth the computation of basic and diluted loss
per share:
<TABLE>
<CAPTION>
Three Months Ended
September 30,
2000 1999
-------------------
(In Thousands,
except per share amounts)
<S> <C> <C>
Numerator:
Numerator for basic and diluted loss per share - net loss $(6,941) $(1,547)
=====================
Denominator:
Denominator for basic and diluted loss per share -
weighted-average shares outstanding 11,820 10,569
====================
Loss per share:
$ (0.59) $ (0.15)
Basic ====================
$ (0.59) $ (0.15)
Diluted ====================
</TABLE>
The effect of outstanding stock options and warrants are excluded from the
calculation of diluted loss per share for the three months ended September 30,
2000 and September 30, 1999, as their effect would be anti-dilutive.
6
<PAGE>
Note 5 - Comprehensive Loss
Comprehensive loss represents net loss plus the results of certain
stockholders' equity changes not reflected in the Condensed Consolidated
Unaudited Statements of Operations. The components of comprehensive loss, net
of tax, are as follows:
Three Months Ended
September 30,
2000 1999
-----------------------
(unaudited)
(in thousands)
Net loss $(6,941) $(1,547)
Other comprehensive income (loss):
Foreign currency translation adjustments 341 -
Unrealized gain (loss) on investments 8 (10)
------- -------
Comprehensive loss $(6,592) $(1,557)
======= =======
Note 6 - Operations by Industry Segments and Geographic Area
The Company is a global designer and developer of financial software
solutions which are sold to businesses and financial institutions. As permitted
by the provisions of Statement of Financial Accounting Standards (SFAS) No. 131,
"Disclosure About Segments of an Enterprise and Related Information", the
Company has one reportable segment for financial statement purposes.
Prior to the acquisition of Checkpoint on August 28, 2000, the Company did
not have operations outside the United States. Net sales, based on the point of
sales, not the location of the customer are as follows:
Three Months Ended
September 30,
2000 1999
----------------------
(unaudited)
(In Thousands)
Sales to unaffiliated customers:
United States $12,706 $8,547
United Kingdom 3,251 -
------- -------
Total sales to unaffiliated customers $15,957 $8,547
======= =======
At September 30, 2000, long-lived assets of $32.2 million and $80.4 million
were located in the United States and United Kingdom, respectively. At September
30, 1999, all long-lived assets were located in the United States.
Note 7 - Income Taxes
In the three months ended September 30, 2000, the Company incurred a
substantial operating loss due in large part to the amortization of recently
acquired intangible assets. Since amortization expense will continue to be
incurred over the next three years and the Company has utilized a significant
portion of the income tax loss carryback benefit, the Company determined that a
significant portion of the existing deferred tax assets are less likely, rather
than more likely, to be realized. Accordingly, the Company's deferred tax asset
at September 30, 2000 was $880,000, net of a reserve balance of $12.4 million.
7
<PAGE>
Note 8 - Recent Accounting Pronouncements
In December 1999, the SEC published Staff Accounting Bulletin No. 101 ("SAB
101"), "Revenue Recognition in Financial Statements" which provides guidance on
the recognition, presentation, and disclosure of revenue in financial
statements. Due to a variety of implementation questions that have arisen, the
SEC has deferred the implementation of SAB 101 until no later than the fourth
quarter for fiscal years beginning after December 15, 1999. We will adopt SAB
101 no later than the fourth quarter of the fiscal year ending June 30, 2001.
We are still assessing the impact of adopting SAB 101 and do not expect to make
a definitive assessment until later in the fiscal year.
On July 1, 2000, the Company adopted SFAS No. 133, as amended by SFAS Nos.
137 and 138, "Accounting for Derivative Instruments and Hedging Activities",
which requires that all derivative instruments be recorded on the balance sheet
at their fair value. SFAS 133, as amended, did not have a material impact on our
results of operations or financial position.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This quarterly report contains forward-looking statements that involve
risks and uncertainties. The statements contained in this report that are not
purely historical are forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. Without limiting the foregoing, the words "may," will," "should,"
"could," "expects," "plans," "intends," "anticipates," "believes," "estimates,"
"predicts," "potential," "continue" and similar expressions are intended to
identify forward-looking statements. All forward-looking statements included in
this quarterly report are based on information available to us up to and
including the date of this document, and we assume no obligation to update any
such forward-looking statements. Our actual results could differ materially from
those anticipated in these forward-looking statements as a result of certain
factors, including those set forth below under "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Certain Factors
that May Affect Future Results" and elsewhere in this quarterly report. You
should also carefully review the risks outlined in other documents that we file
from time to time with the Securities and Exchange Commission.
Three Months Ended September 30, 2000 Compared To Three Months Ended September
30, 1999
On August 28, 2000, we acquired the stock of two companies, Checkpoint
Holdings, Ltd. (Checkpoint) and Flashpoint, Inc. (Flashpoint). Both transactions
have been accounted for as purchases and their financial results have been
included in our results from the date of acquisition.
Checkpoint, a private company incorporated in England and Wales, is a
provider of electronic commerce and electronic payment software for the United
Kingdom. The acquisition was completed pursuant to a Share Purchase Agreement
dated August 28, 2000 between the Company and Checkpoint stockholders. The
consideration for the acquisition was approximately $60.1 million, consisting of
$4.7 million in cash, $19.8 million in loan notes, 1,013,333 shares of the
Company's common stock, warrants to purchase a total of 100,000 shares of common
stock at an exercise price of $50.00 per share and transaction costs. In
connection with the acquisition, 336,667 shares of our common stock were issued
to satisfy pre-existing loan note obligations of Checkpoint in the amount of
$10.5 million. As a result of the acquisition, intangible assets of
approximately $79.8 million, consisting of developed software, trade name,
customer list, assembled workforce, and goodwill were recorded and will be
amortized over a period of three years.
Flashpoint, a Massachusetts corporation, is a developer of Web-based
software. The acquisition was completed pursuant to a Stock Purchase Agreement
dated August 28, 2000 by and among the Company, Flashpoint, and the sole
stockholder of Flashpoint. The consideration for the acquisition was
approximately $16.8 million, consisting of $4.5 million in cash, 242,199 shares
of the Company's common stock, the assumption of all outstanding stock options
of Flashpoint and transaction costs. As a result of the acquisition, intangible
assets of approximately $16.9 million, consisting of contract backlog, assembled
workforce, and goodwill were recorded and will be amortized over a period
ranging from ten months to three years.
8
<PAGE>
Revenues
Total revenues increased by $7.5 million to $16.0 million in the three months
ended September 30, 2000 from $8.5 million in the three months ended September
30, 1999, an increase of 87%. The increase was primarily attributable to strong
demand for our NetTransact, BankQuest and PayBase product offerings combined
with revenue contribution from Checkpoint. Revenues, based on the point of
sales, not on the location of the customer, were $12.7 million and $3.3 million
in the United States and United Kingdom, respectively, for the three months
ended September 30, 2000. All revenues for the three months ended September 30,
1999 were attributable to the United States.
Software Licenses. Software license fees increased by $3.9 million to $5.7
million in the three months ended September 30, 2000 from $1.8 million in the
three months ended September 30, 1999, an increase of 216%. Software license
fees represented 36% of total revenues in the three months ended September 30,
2000 compared to 21% of total revenues for the three months ended September 30,
1999. The increase in software license fees was due primarily to the strong
demand for our NetTransact, BankQuest and PayBase product offerings, which
represented 68% of the increase, combined with revenue contribution from
Checkpoint. Based on current product plans, we anticipate software license fees
to continue to increase as a percentage of total revenues during the remainder
of the fiscal year.
Service and Maintenance. Service and maintenance fees increased by $2.5
million to $6.8 million in the three months ended September 30, 2000 from $4.3
million in the three months ended September 30, 1999, an increase of 61%.
Service and maintenance fees represented 43% of total revenues in the three
months ended September 30, 2000 compared to 50% of total revenues in the three
months ended September 30, 1999. The increase in service and maintenance fees
was due primarily to several large BankQuest service contracts, representing 69%
of the increase, combined with revenue contribution from Checkpoint. Based on
current product plans, we anticipate that service and maintenance fees will
continue to decrease as a percentage of total revenues during the remainder of
the fiscal year.
Equipment and Supplies. Equipment and supplies sales increased by
approximately $900,000 to $3.4 million in the three months ended September 30,
2000 from $2.5 million in the three months ended September 30, 1999, an increase
of 38%. Equipment and supplies sales represented 21% of total revenues in the
three months ended September 30, 2000 compared to 29% of total revenues in the
three months ended September 30, 1999. The increase in equipment and supplies
sales is the result of revenue contribution from Checkpoint. The decrease in
equipment and supplies sales as a percentage of revenues is the result of higher
software license fees and our de-emphasis of this lower margin source of
revenues.
Cost of Revenues
Software Licenses. Software license costs increased by $175,000 to $221,000 in
the three months ended September 30, 2000 from $46,000 in the three months ended
September 30, 1999, an increase of 380%. Software license costs were 4% of
software license fees in the three months ended September 30, 2000 compared to
3% of software license fees in the three months ended September 30, 1999. The
increase in software license costs is attributable to the 10% royalty on
NetTransact revenues payable to The Northern Trust Company. We anticipate
software license costs will continue to increase in future quarters as
corresponding NetTransact revenues increase.
9
<PAGE>
Service and Maintenance. Service and maintenance costs increased by $1.4
million to $3.5 million in the three months ended September 30, 2000 from $2.1
million in the three months ended September 30, 1999, an increase of 64%.
Service and maintenance costs were 51% of service and maintenance fees in the
three months ended September 30, 2000 compared to 50% of service and maintenance
fees in the three months ended September 30, 1999. Service and maintenance costs
increased primarily due to the corresponding increase in service and maintenance
fees. We anticipate that service and maintenance costs will increase as a
percentage of revenues over the remainder of the fiscal year due principally to
lower historical service and maintenance margins experienced by Checkpoint.
Equipment and Supplies. Equipment and supplies costs increased by
approximately $700,000 to $2.6 million in the three months ended September 30,
2000 from $1.9 million in the three months ended September 30, 1999, an increase
of 39%. Equipment and supplies costs were 76% of equipment and supplies sales in
the three months ended September 30, 2000 compared to 75% of equipment and
supplies sales in the three months ended September 30, 1999. Equipment and
supplies costs increased primarily due to the corresponding increase in
equipment and supplies sales.
Operating Expenses
Sales and Marketing:
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 $3.3 million to $6.1 million in the
three months ended September 30, 2000 from $2.8 million in the three months
ended September 30, 1999, an increase of 116%. Sales and marketing expenses were
38% of total revenues in the three months ended September 30, 2000 compared to
33% of total revenues in the three months ended September 30, 1999. The increase
was due primarily to additional sales and marketing expenses associated with our
ICM, Checkpoint and Flashpoint acquisitions, the NetTransact product and
increases in staffing and personnel related costs. We anticipate that sales and
marketing expense will decrease as a percentage of revenues during the remainder
of the fiscal year.
Product Development and Engineering:
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 $1.7 million to $2.9
million in the three months ended September 30, 2000 from $1.2 million in the
three months ended September 30, 1999, an increase of 139%. Product development
and engineering expenses were 18% of total revenues in the three months ended
September 30, 2000 compared to 14% of total revenues in the three months ended
September 30, 1999. The increase was due primarily to additional product
development and engineering expenses associated with our investment in the
NetTransact product and our acquisitions of ICM, Checkpoint and Flashpoint. For
the near future, we believe that product development and engineering costs, as a
percentage of revenues, will remain consistent with the percentage experienced
in the first quarter of fiscal 2001.
10
<PAGE>
Acquired in-process research and development. In-process research and
development of $1.3 million represents a non-cash charge related to the
NetTransact product acquisition for in-process research and development during
the three months ended September 30, 1999. The in-process research and
development project was valued using an Income Approach, which included the
application of a discounted future earnings methodology. Using this methodology,
the value of the in-process technology is comprised of the total present value
of the future earnings stream attributable to the technology throughout its
anticipated life. No alternative future uses were identified prior to reaching
technological feasibility. There was no comparable amount for the three months
ended September 30, 2000.
Stock compensation expense. In connection with our acquisition of
Flashpoint, we assumed all of the outstanding common stock options of
Flashpoint, which were exchanged for our common stock options, and recorded
deferred compensation of $1.3 million at the date of acquisition relating to the
intrinsic value of the unvested options. The deferred compensation is being
amortized to expense over the remaining vesting period of the options resulting
in $37,000 of stock compensation expense during the three months ended September
30, 2000. There was no comparable amount for the three months ended September
30, 1999.
General and Administrative:
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 approximately $500,000 to $2.6 million in the three months ended
September 30, 2000 from $2.1 million in the three months ended September 30,
1999, an increase of 23%. General and administrative expenses were 16% of total
revenues in the three months ended September 30, 2000 compared to 25% of total
revenues in the three months ended September 30, 1999. The dollar increase was
due primarily to additional general and administrative expenses as a result of
our acquisitions of ICM, Checkpoint and Flashpoint.
Amortization of Intangible Assets. Amortization of intangible assets
related to our acquisitions increased by $3.2 million to $3.3 million in the
three months ended September 30, 2000 from $126,000 in the three months ended
September 30, 1999. We expect to incur approximately $9.0 million of such
amortization expense during each of the remaining quarters of the fiscal year.
Interest Income, Net. Interest income, net consists of interest income less
interest expense. Interest income, net decreased by $217,000 to $264,000 in the
three months ended September 30, 2000 from $481,000 in the three months ended
September 30, 1999, a decrease of 45%. The decrease was due to interest expense
on promissory notes issued in connection with our acquisition of Checkpoint and
due to a reduced cash balance in the current period as a result of cash used in
our acquisitions. We expect interest expense to exceed interest income during
each of the remaining quarters of the fiscal year as a result of the promissory
notes issued in connection with our acquisition of Checkpoint.
11
<PAGE>
Provision (benefit) for Income Taxes. The provision for income taxes was $1.9
million in the three months ended September 30, 2000 compared with a benefit of
$1.0 million in the three months ended September 30, 1999. In the three months
ended September 30, 2000, we incurred a substantial operating loss due primarily
to the amortization of recently acquired intangible assets. Since amortization
expense will continue to be incurred over the next three years and we have
utilized a significant portion of our income tax loss carryback benefit, we
determined that the existing deferred tax assets are less likely, rather than
more likely, to be realized. Accordingly, we provided a valuation reserve
against such assets that resulted in the net income tax provision of $1.9
million. In the three months ended September 30, 1999, we had sufficient income
tax loss carryback available to benefit a portion of the operating loss.
Liquidity and Capital Resources
We have financed our operations primarily from cash provided by the sale of
our common stock and operating activities. We had negative working capital of
$5.1 million at September 30, 2000, which included cash, cash equivalents and
short-term investments totaling $12.4 million.
The negative working capital position at September 30, 2000 is the result of
$20.4 million of promissory notes issued in connection with the acquisition of
Checkpoint. The promissory notes, including accrued interest, mature on August
28, 2001. Prior to the maturity date, the Company may repay the promissory
notes, including accrued interest, in cash. On the maturity date, at the
Company's sole discretion, the promissory notes, including accrued interest, may
be repaid in either cash, common stock of the Company or a combination of cash
and common stock.
In August 2000, we entered into a ten-year lease for approximately 83,000
square feet of space for a new headquarters facility in Portsmouth, New
Hampshire. Total lease payments for this new facility will be approximately $15
million, which we anticipate will commence in September 2001.
Cash used in operating activities was $3.0 million in the three months ended
September 30, 2000 and cash provided by operating activities was $3.4 million in
the three months ended September 30, 1999. Net cash used in operating
activities, for the three months ended September 30, 2000, was primarily the
result of the net loss and an increase in accounts receivable offset by
increases in accounts payable, accrued expenses and deferred revenues.
Net cash used in investing activities was $8.6 million in the three months
ended September 30, 2000 and $4.5 million in the three months ended
September 30, 1999. Cash was used in the three months ended September 30, 2000
for the acquisition of businesses and to acquire property and equipment offset
by proceeds from the sale of short-term investments.
Net cash provided by financing activities was $784,000 in the three months
ended September 30, 2000 and $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 options pursuant to our stock incentive plans and
employee stock purchase plan.
We believe that the cash generated from operations, our cash, cash equivalents
and short-term investments on hand and our ability to repay the promissory notes
with common stock will be sufficient to meet our working capital requirements
for at least the next twelve months. We also may receive additional investments
from, and make investments in, customers or other companies.
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CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
Investing in our common stock involves a high degree of risk. You should
carefully consider the risks and uncertainties described below before purchasing
our common stock. The risks and uncertainties described below are not the only
ones facing our company. Additional risks and uncertainties may also impair our
business operations. If any of the following risks actually occur, our business,
financial condition or results of operations would likely suffer. In that case,
the trading price of our common stock could fall, and you may lose all or part
of the money you paid to buy our common stock.
A significant percentage of our revenues to date has come from our payment
management offerings and our performance will depend on continued market
acceptance of these offerings
A significant percentage of our revenues to date has 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 offerings could
have a material adverse effect on our business, operating results and financial
condition. Our future performance will depend to a large degree upon the market
acceptance of our payment management offerings 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 laser check printing solutions, as
well as our ability to introduce enhancements to meet the market's evolving
needs for secure, payment management solutions.
Our future financial results will depend upon continued market acceptance of our
NetTransact and BankQuest products
If the NetTransact and BankQuest products that we acquired do not continue
to achieve market acceptance, our future financial results will be adversely
affected. We acquired the NetTransact bill presentment software from The
Northern Trust Company, a financial institution, in July 1999. General
availability of the NetTransact product was announced in February 2000. We
acquired the web-based BankQuest cash management software in our acquisition of
Integrated Cash Management Services, Inc. in October 1999. BankQuest was
commercially introduced in April 2000 and is now generally available. If either
of these products has any unanticipated performance problems or bugs, or does
not enjoy wide commercial success, our long-term business strategy would be
adversely affected.
Integration of acquisitions or strategic investments could disrupt our business
and our financial condition could be harmed
We have made acquisitions of companies, including our recent acquisitions of
Checkpoint and Flashpoint, and we may acquire or make investments in other
businesses, products or technologies in the future. Our acquisitions of
Checkpoint and Flashpoint, as well as any other acquisitions or strategic
investments, if any, may entail numerous risks that include the following:
. difficulties in assimilating acquired operations, technologies or
products;
. diversion of management's attention from our core business concerns;
. risks of entering markets in which we have no or limited prior
experience;
. substantial dilution of our current stockholders' ownership;
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. incurrence of substantial debt;
. incurrence of significant amortization expenses related to goodwill and
other intangible assets; and
. incurrence of significant immediate write-offs.
Any such difficulties encountered as a result of any mergers or
acquisition could materially affect our business, operating results and
financial condition.
We face risks associated with our international operations that could harm our
financial condition and results of operations
Our future growth rates and success are in part dependent on continued growth
and success in international markets. As is the case with most international
operations, the success and profitability of our international operations are
subject to numerous risks and uncertainties that include the following:
. difficulties and costs of staffing and managing foreign operations;
. certification requirements and differing regulatory and industry
standards;
. reduced protection for intellectual property rights in some countries;
. fluctuations in currency exchange rates; and
. import or export licensing requirements.
We must attract and retain highly skilled personnel with knowledge of electronic
payment and bill presentment technology 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 corporate headquarters 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 product development organizations. Based on our
experience, it takes an average of nine 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.
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Our fixed costs may lead to fluctuations in operating results if our revenues
are below expectations, and if our operating results are below external
expectations, the market price of our common stock may fall
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 fluctuations in operating results in any quarter.
Quarterly operating results that are below the expectations of public market
analysts could adversely affect the market price for our common stock. Factors
that could cause these fluctuations include the following:
. the timing of orders and longer sales cycles, particularly due to any
increase in average selling prices of our software 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.
The market price of our common stock has experienced, and may continue to be
subject to, extreme price and volume fluctuations
Stock markets, in general, and The Nasdaq Stock Market in particular, have
experienced extreme price and volume fluctuations. Broad market fluctuations of
this type may adversely affect the market price of our common stock.
The market price of our common stock has experienced, and may continue to be
subject to extreme fluctuations due to a variety of factors, including:
. public announcements concerning us, our competitors or our industry;
. fluctuations in operating results;
. introductions of new products or services by us or our competitors;
. adverse developments in patent or other proprietary rights;
. changes in analysts' earnings estimates;
. announcements of technological innovations by our competitors; and
. general and industry-specific business, economic and market conditions
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Our success depends on our ability to develop new and enhanced software,
services and related products
The bill presentment, payment and cash management software markets in which we
compete are subject to rapid technological change and our success is dependent
on our ability to develop new and enhanced software, services and related
products that meet our evolving market needs. 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, the Association for Payment
Clearing Services and the Debt Collection Improvement Act of 1996; and
. developments and changes relating to the Internet that we must address as
we introduce new 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.
Our success depends on the wide-spread adoption of the Internet and growth of
electronic business
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-
business. These entities will probably accept this new medium only if the
Internet provides substantially greater efficiency and enhances their
competitiveness. 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.
To the extent that any of these issues inhibit or limit the adoption of the
Internet as a medium of e-commerce, our business prospects could be adversely
affected. If electronic business does not continue to grow or grows more slowly
than expected, demand for our products and services may be reduced.
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If the Internet infrastructure is not adequately maintained, the demand for our
products and services may decrease
Our future success will depend, in part, on the maintenance of the Internet
infrastructure. To the extent that the Internet continues to experience
increased numbers of users, frequency of use or increased bandwidth requirements
of users, the Internet infrastructure may not continue to support the demands
placed on it and, as a result, the performance or reliability of the Internet
may be adversely affected. In addition, the Internet could lose its viability as
a form of media due to delays in the development or adoption of new standards
and protocols that can handle increased levels of activity. The infrastructure
and complementary products and services necessary to maintain the Internet as a
viable communications and commercial medium may not be developed or maintained.
Any failure in performance or reliability of the Internet could adversely affect
the demand for our products and services and, consequently, adversely affect our
operating results.
Increased government regulation and legal uncertainties may impair the growth of
the Internet and decrease demand for our products and services
The laws governing the Internet remain largely unsettled, even in areas where
there has been some legislative action. It may take years to determine whether
and how existing laws, including those governing intellectual property, privacy,
libel and taxation, apply to the Internet generally and to e-commerce in
particular. Legislation could limit the growth in the use of the Internet
generally and decrease the acceptance of the Internet as a communications and
commercial medium, which may decrease demand for our products and services and
thus have a material adverse effect on our business, operating results and
financial condition.
Our business can be adversely affected by problems with third-party hardware
that we resell
Any problems with third-party hardware that we resell could harm our customer
relationships, industry credibility and financial condition. In a prior fiscal
year, 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. 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 bill presentment, payment and cash management 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.
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Rapid growth could strain our personnel, systems and controls
In the past, rapid growth has strained our managerial and other resources.
Our ability to manage any future 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 any future growth. If we are not able to manage growth effectively,
should it occur, the quality of our services, our ability to retain key
personnel and our business, operating results and financial condition could be
materially adversely affected.
We depend on a few key employees who are skilled in e-commerce, payment and bill
presentment methodology and Internet and other technologies
Our success depends upon the efforts and abilities 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.
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. Any defects or errors in new products, such as NetTransact or
BankQuest, or enhancements could harm our customer relationships and result in
negative publicity regarding us and our products, which could have a material
adverse effect on our business, operating results and financial condition.
Our business could be subject to product liability claims
Because our software and hardware products are designed to provide critical
payment management, invoicing and cash management functions, we may be subject
to significant product liability claims. Our insurance may not be sufficient to
cover us against these claims or may not be available at all. A product
liability claim brought against us, even if not successful, could require us to
spend significant time and money in litigation. As a result, any such claim,
whether successful or not, could seriously damage our reputation and harm our
business, operating results and financial condition.
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. However, we cannot assure you that our patents, pending
applications that may be issued in the future, or other intellectual property
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 intellectual property rights 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.
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We could become subject to litigation regarding intellectual property rights,
which could seriously harm our business
In recent years, there has been significant litigation in the United States
involving patents and other intellectual property rights. We may be a party to
litigation in the future to protect our intellectual property or as a result of
an alleged infringement of the intellectual property of others. 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.
These claims could have a material adverse effect on our business, operating
results and financial condition.
We may incur significant costs from class action litigation due to the expected
volatility of our common stock
In the past, companies that have experienced volatility in the market price of
their stock have been the object of securities class action litigation. If we
were the object of securities class action litigation, we could incur
substantial costs and experience a diversion of our management's attention and
resources and such securities class action litigation could have a material
adverse effect on our business, financial condition and results of operations.
Item 3. Quantitative and Qualitative Disclosure about Market Risk
On August 28, 2000, we acquired the stock of Checkpoint, a private company
incorporated in England and Wales and a provider of electronic commerce and
electronic payments software for the United Kingdom. Checkpoint's functional
currency is the British pound. As a result, we are exposed to changes in
foreign exchange rates. When the U.S. dollar strengthens against the British
pound, the value of nonfunctional currency sales decreases. This exposure may
change over time and could have a material adverse impact on our financial
results. We currently do not enter into foreign currency hedge transactions.
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 significant 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
Set forth below is information regarding shares of common stock issued and
warrants granted by the Company during the fiscal quarter ended September 30,
2000. Also included is the consideration, if any, received by the Company for
such shares and warrants. All of the shares of common stock and warrants were
offered and issued in reliance upon the exemption from registration set forth in
section 4(2) under the Securities Act of 1933, as amended. No underwriters were
involved in such sales of securities.
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On August 28, 2000, the Company entered into a Share Purchase Agreement
with stockholders of Checkpoint. The Company issued 1,013,333 shares of common
stock and warrants for the purchase of 100,000 shares of common stock at an
exercise price of $50.00 per share to the sellers in exchange for all of the
outstanding capital stock of Checkpoint. The total purchase price, including the
issuance of such securities, was approximately $60.1 million. In connection with
the acquisition, 336,667 shares of the Company's common stock were issued to
satisfy pre-existing loan note obligations of Checkpoint in the amount of $10.5
million.
On August 28, 2000, the Company entered into a Stock Purchase Agreement
with Flashpoint, Inc. and the sole stockholder of Flashpoint. The Company issued
242,199 shares of common stock to the seller in exchange for all of the
outstanding capital stock of Flashpoint. The aggregate purchase price, including
the issuance of such securities, was approximately $16.8 million.
Use of Proceeds of Initial Public Offering
Proceeds of our initial public offering in the aggregate amount of $20.3
million were used during the fiscal quarter ended September 30, 2000 in
connection with our acquisitions of Checkpoint Holdings, Ltd. and Flashpoint,
Inc. On February 11, 1999, the Securities and Exchange Commission declared our
Registration Statement on Form S-1 (File no. 333-67309) effective.
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 fiscal quarter ended September
30, 2000.
Item 5. Other Information
None.
Item 6. Exhibits and Reports On Form 8-K
(a) Exhibits:
10.1 Form of Indemnification Letter
27 Financial Data Schedule
(b) Reports on Form 8-K:
On September 12, 2000, a Current Report on Form 8-K was filed pertaining to
our acquisitions of Checkpoint Holdings, Ltd. and Flashpoint, Inc.
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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 14, 2000 By: /s/ Robert A. Eberle
Robert A. Eberle
Executive Vice President,
Chief Financial Officer, Secretary and
Treasurer
(Principal Financial and Accounting Officer)
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