EXHIBIT 99.1
RISK FACTORS
Certain risk factors may affect our business, financial condition, results
of operation and cash flows, or may cause our actual results to vary from the
forward-looking statements contained in this Quarterly Report on Form 10-Q. You
should carefully consider the following factors regarding information included
in this Quarterly Report. The risks and uncertainties described below are not
the only ones Corillian faces. Additional risks and uncertainties not presently
known to Corillian or that Corillian currently deems immaterial also may impair
its business operations. If any of the following risks actually occur,
Corillian's business, financial condition and operating results could be
materially adversely affected.
CORILLIAN HAS A HISTORY OF LOSSES AND MAY INCUR LOSSES IN FUTURE PERIODS IF IT
IS NOT ABLE TO, AMONG OTHER THINGS, INCREASE ITS SALES TO NEW AND EXISTING
CUSTOMERS
Until fiscal year 2003, Corillian incurred substantial net losses in every
quarter since it began operations. Corillian generated net income of
approximately $2.7 million, $10.5 million and $5.1 million during the years
ended December 31, 2005, 2004 and 2003, respectively; however Corillian incurred
net losses in the third and fourth quarters of fiscal 2005, and the first two
quarters of 2006. As of June 30, 2006, Corillian had an accumulated deficit of
approximately $97.2 million. If Corillian does not sign contracts with new
customers or provide additional software and services to existing customers, it
will incur significant operating losses in future years. Corillian may decide
that it is necessary to further reduce its personnel or other expenses to
maintain its operations, and such reductions may impair Corillian's ability to
sell its products and services.
CORILLIAN'S QUARTERLY RESULTS FLUCTUATE SIGNIFICANTLY AND MAY FALL SHORT OF
ANTICIPATED LEVELS, WHICH MAY CAUSE THE PRICE OF ITS COMMON STOCK TO DECLINE
Corillian's quarterly operating results have varied in the past, and it
expects they will continue to vary from quarter to quarter in the future. In
future quarters, Corillian's operating results may be below the expectations of
public market analysts and investors, which could cause the price of its common
stock to decline. Corillian may also announce that expected financial or
operating results for a particular period will be less than it anticipated,
which could cause the price of Corillian's common stock to decline. In addition,
Corillian has difficulty predicting the volume and timing of orders and
recognizes a substantial portion of its revenues on a percentage-of-completion
basis. Any delays in closing orders or implementation of products or services
can cause Corillian's operating results to fall substantially short of
anticipated levels for any quarter. As a result of these and other factors,
Corillian believes period-to-period comparisons of its historical results of
operations are not necessarily meaningful and are not a good predictor of its
future performance.
A SMALL NUMBER OF CUSTOMERS ACCOUNT FOR A SUBSTANTIAL PORTION OF CORILLIAN'S
REVENUES IN EACH PERIOD; CORILLIAN'S RESULTS OF OPERATIONS AND FINANCIAL
CONDITION COULD SUFFER IF IT LOSES CUSTOMERS OR FAILS TO ADD ADDITIONAL
CUSTOMERS TO ITS CUSTOMER BASE
Corillian derives a significant portion of its revenues from a limited
number of customers in each period. Accordingly, if Corillian fails to close a
sale with a major potential customer, if a contract is delayed or deferred, or
if an existing contract expires or is cancelled and Corillian fails to replace
the contract with new business, its revenues would be adversely affected. For
the three and six months ended June 30, 2006, one customer individually
accounted for 12% and 13% of consolidated revenues, respectively. For the three
months ended June 30, 2005, two customer individually accounted for more than
10% of consolidated revenues that represented 28% of total revenues. For the six
months ended June 30, 2005, one customer accounted for 17% of consolidated
revenues. Corillian expects that a limited number of customers will continue to
account for a substantial portion of its revenues in each quarter in the
foreseeable future. If a customer terminates a Voyager contract with Corillian
early, Corillian would lose ongoing revenue streams from annual maintenance
fees, hosting fees, professional service fees and potential additional license
and service fees for additional increments of end users and for other Voyager
applications.
IF CORILLIAN, OR ITS IMPLEMENTATION PARTNERS, DO NOT EFFECTIVELY IMPLEMENT
CORILLIAN'S SOLUTIONS, CORILLIAN MAY NOT ACHIEVE ANTICIPATED REVENUES OR GROSS
MARGINS
Corillian's solutions are complex and must integrate with other complex
data processing systems. Implementing Corillian's solutions is a lengthy
process, generally taking between 60 and 270 days to complete. In addition,
Corillian generally recognizes revenues on a percentage-of-completion basis, so
its revenues are often dependent on its ability to complete implementations
within the time periods that Corillian establishes for its projects. Corillian
relies on a combination of internal and outsourced teams for its
implementations. If these teams encounter significant delays in implementing
Corillian's solutions for a customer or fail to implement Corillian's solutions
effectively or at all, Corillian may be unable to recognize any revenues from
the contract or may be required to recognize negative revenues from the contract
if its revised project estimates indicate that Corillian recognized excess
revenues in prior periods. In addition, Corillian may incur monetary damages or
penalties if it is not successful in completing projects on schedule.
From time to time, Corillian agrees to penalty provisions in its contracts
that require Corillian to make payments to its customers if Corillian fails to
meet specified milestones or that permit its customers to terminate their
contracts with Corillian if Corillian fails to meet specified milestones. If
Corillian fails to perform in accordance with established project schedules,
Corillian may be forced to make substantial payments as penalties or refunds and
may lose its contractual relationship with the applicable customers.
IF CORILLIAN'S GOODWILL OR AMORTIZABLE INTANGIBLE ASSETS BECOME IMPAIRED
CORILLIAN MAY BE REQUIRED TO RECORD A SIGNIFICANT CHARGE TO EARNINGS
Under generally accepted accounting principles, Corillian reviews its
amortizable intangible assets for impairment when events or changes in
circumstances indicate the carrying value may not be recoverable. Goodwill is
required to be tested for impairment at least annually. Factors that may be
considered a change in circumstances indicating that the carrying value of our
goodwill or amortizable intangible assets may not be recoverable include a
decline in stock price and market capitalization, future cash flows, and slower
growth rates in our industry. Corillian may be required to record a significant
charge to earnings in its financial statements during the period in which any
impairment of its goodwill or amortizable intangible assets is determined
resulting in an impact on its results of operations.
THE LENGTHY SALES CYCLES OF CORILLIAN'S PRODUCTS MAY CAUSE REVENUES AND
OPERATING RESULTS TO BE UNPREDICTABLE AND TO VARY SIGNIFICANTLY FROM PERIOD TO
PERIOD
The sale and implementation of Corillian's products and services are often
subject to delays because of its customers' internal budgets and procedures for
approving large capital expenditures and deploying new technologies within their
networks. As a result, the time between the date of initial contact with a
potential customer and the execution of a contract with the customer typically
ranges from three to nine months. In addition, prospective customers'
decision-making processes require Corillian to provide a significant amount of
information to them regarding the use and benefits of its products. Corillian
may expend substantial funds and management resources during a sales cycle and
fail to complete the sale.
SUBSCRIPTION-BASED LICENSING OF CORILLIAN PRODUCTS AND SERVICES MAY HAVE AN
ADVERSE EFFECT ON NEAR-TERM REVENUE
Almost all of Corillian's revenue is currently derived from one-time
license fees and related annual maintenance fees, hosting fees, and professional
service fees. Corillian also derives a small percentage of its revenue from
licensing its products and services on a subscription basis. In contrast to
one-time license fees, Corillian must recognize fees for subscription licenses
over the length of the subscription period. Corillian intends to increase its
focus on subscription-based licenses in the future, which may have an adverse
effect on revenue in the near term.
CORILLIAN MAY NOT ACHIEVE ANTICIPATED REVENUES IF CORILLIAN DOES NOT
SUCCESSFULLY INTRODUCE NEW PRODUCTS OR DEVELOP UPGRADES OR ENHANCEMENTS TO ITS
EXISTING PRODUCTS
To date, Corillian has derived substantially all of its revenues from
licenses and professional and support services related to the Corillian Voyager
product and its related applications. Corillian expects to add new products by
acquisition, partnering or internal development and to develop enhancements to
its existing products. New or enhanced products may not be released on schedule
and may not achieve market acceptance. New products or upgrades to existing
products may contain defects when released, which could damage Corillian's
relationship with its customers or partners and further limit market acceptance
of its products and services. If Corillian is unable to ship or implement new or
enhanced products and services when planned, or fail to achieve timely market
acceptance of its new or enhanced products and services, Corillian may lose
sales and fail to achieve anticipated revenues.
ACQUISITIONS MAY BE COSTLY AND DIFFICULT TO INTEGRATE, DIVERT MANAGEMENT
RESOURCES OR DILUTE SHAREHOLDER VALUE
Corillian has considered and made strategic acquisitions in the past and
in the future may acquire or make investments in complementary companies,
products or technologies. In 2005, Corillian acquired InteliData Technologies
Corporation and qbt Systems Inc. Corillian may not be able to successfully
integrate these companies or their products or technologies. Specifically,
InteliData has reported internal control deficiencies without a clear plan to
correct those deficiencies, and qbt has not been subject to the internal control
standards of a public company. The failure to successfully integrate InteliData
and qbt and implement appropriate internal controls and procedures could have a
material adverse effect on the results of operations and financial condition of
the combined companies. Furthermore, in connection with acquisitions or
investments, Corillian could:
- issue stock that would dilute its current shareholders' percentage
ownership;
- incur debt and assume liabilities; and
- incur amortization expenses related to intangible assets or incur
large impairment charges.
Future acquisitions also could pose numerous additional risks to Corillian's
operations, including:
- problems combining the purchased operations, technologies or
products;
- problems integrating the business models of acquisition targets with
Corillian's;
- unanticipated costs;
- diversion of management's attention from Corillian's core business;
- adverse effects on existing business relationships with suppliers
and customers;
- entering markets in which Corillian has no or limited prior
experience; and
- potential loss of key employees, particularly those of the purchased
organization.
CORILLIAN'S PARTNERS MAY BE UNABLE TO FULFILL THEIR SERVICE OBLIGATIONS AND
CAUSE CORILLIAN TO INCUR PENALTIES OR OTHER EXPENSES WITH ITS CUSTOMERS
Corillian resells products and services from other companies, such as
CheckFree, CashEdge, CenterPost and InfoImage. If these vendors are unable to
fulfill their contractual obligations as a result of insolvency, a disaster or
similar event or are unable to provide the services in a commercially reasonable
manner, Corillian may be required to incur additional expenses to provide the
services to its customers or to pay penalties to its customers for the
suspension or termination of the services.
CORILLIAN'S FACILITY AND OPERATIONS MAY BE DISABLED BY A DISASTER OR SIMILAR
EVENT, WHICH COULD DAMAGE ITS REPUTATION AND REQUIRE CORILLIAN TO INCUR
FINANCIAL LOSS
Corillian's primary communications and network equipment related to its
operations are currently located in Hillsboro, Oregon. Corillian does not
currently have an alternate facility that can serve as a center of business
operations. Corillian cannot assure that its data center and facility will
operate after a
disaster. In addition, Corillian may experience problems during the period
following a disaster in reestablishing its systems and infrastructure. Although
Corillian has a disaster recovery plan in place, Corillian does not currently
have the technology or facilities to instantly recover full Internet services if
its facility is not functioning. A disaster, such as a fire, an earthquake, a
terrorist attack or a flood, at its facility could result in failures or
interruptions in providing Corillian's products and services to its customers.
In addition, Corillian's systems are vulnerable to operational failures, losses
in power, telecommunications failure and similar events. Corillian has
contracted to provide a certain level of service to its customers and,
consequently, a failure or interruption of Corillian's systems in the future
could cause it to refund fees to some of its customers to compensate for
decreased levels of service.
COMPETITION IN THE MARKET FOR INTERNET-BASED FINANCIAL SERVICES IS INTENSE AND
COULD REDUCE CORILLIAN'S SALES AND PREVENT CORILLIAN FROM ACHIEVING
PROFITABILITY
The market for Internet-based financial services is intensely competitive
and rapidly changing. Corillian expects competition to persist and intensify,
which could result in price reductions, reduced gross margins and loss of market
share for its products and services. Corillian competes with a number of
companies in various segments of the Internet-based financial services industry,
and its competitors vary in size and in the scope and breadth of the products
and services they offer. Corillian's primary competitors for software platforms
designed to enable financial institutions to offer Internet-based financial
services, both domestically and internationally, include S1, Digital Insight,
Financial Fusion, Online Resources and Communications and Metavante. Corillian
also competes with companies that offer software platforms designed for internal
development of Internet-based financial services software, such as IBM's
WebSphere. Within this segment of Corillian's industry, many companies are
consolidating, creating larger competitors with greater resources and a broader
range of products.
Corillian also competes with businesses delivering financial services
through Internet portals, banks marketing their own Internet-based financial
services, and non-bank financial service providers, such as brokerages and
insurance companies, seeking to expand the breadth of their Internet product and
services offerings. In addition, Corillian's customers may develop competing
products. For example, a customer may choose to develop its own software
platform for Internet-based financial services. Several of the vendors offering
data processing services to financial institutions, including EDS, Fiserv, Jack
Henry and Metavante, also offer Internet banking solutions that compete with
Corillian's solutions.
Many of Corillian's competitors and potential competitors have a number of
significant advantages over Corillian, including:
- a longer operating history;
- more extensive name recognition and marketing power;
- preferred vendor status with Corillian's existing and potential
customers; and
- significantly greater financial, technical, marketing and other
resources, giving them the ability to respond more quickly to new or
changing opportunities, technologies and customer requirements.
Corillian's competitors may also bundle their products in a manner that
may discourage users from purchasing Corillian's products. Existing and
potential competitors may establish cooperative relationships with each other or
with third parties, or adopt aggressive pricing policies to gain market share.
CONSOLIDATION IN THE FINANCIAL SERVICES INDUSTRY COULD REDUCE THE NUMBER OF
CORILLIAN'S CUSTOMERS AND POTENTIAL CUSTOMERS
As a result of the mergers and acquisitions occurring in the banking
industry today, some of Corillian's existing customers could terminate their
contracts with Corillian and potential customers could break off negotiations
with Corillian. An existing or potential customer may be acquired by or merged
with another financial institution that uses competing Internet-based financial
products and services or does not desire to continue the relationship with
Corillian for some other reason, which could result in the new entity
terminating the relationship with Corillian.
In addition, an existing or potential customer may be acquired by or
merged with one of Corillian's existing customers that licenses Corillian's
products under a contract with more favorable terms and that can be applied to
the acquired customer's business operations. This may result in a reduction in
Corillian's anticipated revenues from the acquired customer. In 2004, two of
Corillian's largest customers, J.P. Morgan Chase and Bank One, merged, and one
of Corillian's customers, Charter One Bank, was acquired by Citizens Bank.
IF CORILLIAN LOSES KEY PERSONNEL, CORILLIAN COULD EXPERIENCE REDUCED SALES,
DELAYED PRODUCT DEVELOPMENT AND DIVERSION OF MANAGEMENT RESOURCES
Corillian's success depends largely on the continued contributions of its
key management, technical, sales and marketing and professional services
personnel, many of whom would be difficult to replace. If one or more of its key
employees were to resign, the loss of personnel could result in loss of sales,
delays in new product development and diversion of management resources.
Corillian does not have employment agreements with its senior managers or other
key personnel.
IF CORILLIAN DOES NOT DEVELOP INTERNATIONAL OPERATIONS AS EXPECTED OR FAILS TO
ADDRESS INTERNATIONAL MARKET RISKS, CORILLIAN MAY NOT ACHIEVE ANTICIPATED SALES
GROWTH
To increase its revenues, Corillian pursued direct international sales
opportunities and opened an international office. However, international demand
for its products and services did not grow significantly during 2001 or 2002, so
Corillian significantly reduced its direct investments internationally and is
seeking instead to expand international sales through resellers and selective
direct sales efforts. International expansion of its business may be more
difficult or take longer than Corillian anticipates, and Corillian may not be
able to successfully market, sell, deliver and support its products
internationally. In order to accomplish any of the foregoing, Corillian will
need to form additional relationships with partners worldwide. These activities
require significant investments of time and capital from Corillian. If Corillian
is unable to develop international sales on a timely basis or at all, it may not
achieve anticipated sales growth, gross margins or operating results. If
Corillian is successful in developing international sales, it will be subject to
a number of risks associated with international operations, including:
- longer accounts receivable collection cycles;
- expenses associated with localizing products for foreign markets;
- difficulties in managing operations and partners across disparate
geographic areas;
- difficulties in hiring qualified local personnel, finding qualified
partners and complying with disparate labor laws;
- foreign currency exchange rate fluctuations;
- difficulties associated with enforcing agreements and collecting
receivables through foreign legal systems; and
- unexpected changes in regulatory requirements that impose multiple
conflicting tax laws and regulations.
If Corillian fails to address these risks, its results of operations and
financial condition may be adversely affected.
IF CORILLIAN BECOMES SUBJECT TO INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS, THESE
CLAIMS COULD BE COSTLY AND TIME CONSUMING TO DEFEND, DIVERT MANAGEMENT ATTENTION
OR CAUSE PRODUCT DELAYS
Corillian has in the past been, and may in the future be, sued for
allegedly infringing or misappropriating a third party's intellectual property
rights. One of our customers recently requested that we defend and indemnify it
for a claim by a third party asserting that the customer's internet banking
website infringes the third party's patent. Any intellectual property
infringement claims against Corillian, or for which Corillian may be required to
indemnify its customers, with or without merit, could be costly and
time-consuming to defend, divert Corillian's management's attention, or cause
product delays. Corillian expects that software product developers and providers
of Internet-based financial services will
increasingly be subject to infringement claims as the number of products and
competitors in its industry grows and the functionality of products overlaps. If
Corillian's products were found to infringe a third party's proprietary rights,
Corillian could be required to enter into royalty or licensing agreements in
order to be able to sell its products. Royalty and licensing agreements, if
required, may not be available on terms acceptable to Corillian or at all.
There has been substantial litigation in the software and Internet
industries regarding intellectual property rights. It is possible that, in the
future, third parties may claim that Corillian's current or potential future
products infringe their intellectual property.
NETWORK OR INTERNET SECURITY PROBLEMS COULD DAMAGE CORILLIAN'S REPUTATION AND
BUSINESS
Corillian has in the past and might in the future experience security
incidents involving actual or attempted access to its customers' systems by
unknown third parties. As a result of these types of incidents, Corillian may
incur contractual or other legal liabilities. Security risks may also deter
financial service providers from purchasing Corillian's products and deter
consumers of financial services from using Corillian's products or services.
Corillian relies on standard Internet security systems, all of which are
licensed from third parties, to provide the security and authentication
necessary to effect secure transmission of data over the Internet. Corillian's
networks may be vulnerable to unauthorized access, computer viruses and other
disruptive problems. In addition, advances in computer capabilities, new
discoveries in the field of cryptography or other events or developments may
render Corillian's Internet security measures inadequate.
Someone who is able to circumvent Corillian's security measures could
misappropriate proprietary information or cause interruptions in Corillian's
Internet operations. Corillian may need to expend significant capital or other
resources protecting against the threat of security breaches or alleviating
problems caused by breaches. Eliminating computer viruses and alleviating other
security problems may result in interruptions, delays or cessation of service to
users accessing Internet sites that deliver Corillian's services, any of which
could harm Corillian's business.
NEW TECHNOLOGIES COULD RENDER CORILLIAN'S PRODUCTS OBSOLETE
If Corillian is unable to develop products that respond to changing
technology, Corillian's business could be harmed. The market for Internet-based
financial services is characterized by rapid technological change, evolving
industry standards, changes in consumer demands and frequent new product and
service introductions.
Advances in Internet technology or in applications software directed at
financial services could lead to new competitive products that have better
performance or lower prices than Corillian's products and could render its
products obsolete and unmarketable. Corillian's Voyager solutions were designed
to run on servers using the Windows NT, Windows 2000 and Windows 2003 operating
systems. If a new software language or operating system becomes standard or is
widely adopted in Corillian's industry, Corillian may need to rewrite portions
of its products in another computer language or for another operating system to
remain competitive.
DEFECTS IN CORILLIAN'S SOLUTIONS AND SYSTEM ERRORS IN ITS CUSTOMERS' DATA
PROCESSING SYSTEMS AFTER INSTALLING CORILLIAN'S SOLUTIONS COULD RESULT IN LOSS
OF REVENUES, DELAY IN MARKET ACCEPTANCE AND INJURY TO CORILLIAN'S REPUTATION
Corillian's software products are complex and may contain
currently-undetected errors or defects that may be detected at any point in the
life of the product. Corillian has in the past discovered software errors in its
products. After implementation, errors may be found from time to time in
Corillian's new products or services, its enhanced products or services, or
products or services Corillian resells for strategic partners, such as Yodlee's
data aggregation service. These errors could cause Corillian to lose revenues or
cause a delay in market acceptance of its solutions or could result in liability
for damages, injury to Corillian's reputation or increased warranty costs.
CORILLIAN'S PRODUCTS AND SERVICES MUST INTERACT WITH OTHER VENDORS' PRODUCTS,
WHICH MAY RESULT IN SYSTEM ERRORS
Corillian's products are often used in transaction processing systems that
include other vendors' products, and, as a result, Corillian's products must
integrate successfully with these existing systems. System errors, whether
caused by Corillian's products or those of another vendor, could adversely
affect the market acceptance of its products, and any necessary modifications
could cause Corillian to incur significant expenses.
IF CORILLIAN BECOMES SUBJECT TO PRODUCT LIABILITY LITIGATION, IT COULD BE COSTLY
AND TIME CONSUMING TO DEFEND
Since Corillian's products are used to deliver services that are integral
to its customers' businesses, errors, defects or other performance problems
could result in financial or other damages to Corillian's customers. Product
liability litigation arising from these errors, defects or problems, even if it
were unsuccessful, would be time consuming and costly to defend. Existing or
future laws or unfavorable judicial decisions could negate any limitation of
liability provisions that are included in Corillian's license agreements.
IF CORILLIAN IS UNABLE TO PROTECT ITS INTELLECTUAL PROPERTY, CORILLIAN MAY LOSE
A VALUABLE COMPETITIVE ADVANTAGE OR BE FORCED TO INCUR COSTLY LITIGATION TO
PROTECT ITS RIGHTS
Corillian's future success and ability to compete depends in part upon its
proprietary technology, but its protective measures may prove inadequate.
Corillian relies on a combination of copyright, trademark, patent and trade
secret laws and contractual provisions to establish and protect its proprietary
rights. None of Corillian's technology is patented. Corillian has obtained
federal trademark registration for some of its marks and its logo. Corillian has
applied for, but has not yet obtained, patents on technology it has developed.
If Corillian does not receive approval for these patents, it may be unable to
use this technology without restriction or prevent others from using this
technology.
Despite Corillian's efforts to protect its intellectual property, a third
party could copy or otherwise obtain Corillian's software or other proprietary
information without authorization, or could develop software competitive to
Corillian's. Corillian's competitors may independently develop similar
technology, duplicate its products or design around Corillian's intellectual
property rights. In addition, the laws of some foreign countries do not protect
Corillian's proprietary rights to as great an extent as do the laws of the
United States, and Corillian expects the use of its products will become more
difficult to monitor if Corillian increases its international presence.
Corillian may have to litigate to enforce its intellectual property
rights, to protect its trade secrets or know-how or to determine their scope,
validity or enforceability. Enforcing or defending Corillian's intellectual
property rights is expensive, could cause the diversion of Corillian's resources
and may not prove successful. If Corillian is unable to protect its intellectual
property, it may lose a valuable competitive advantage.
INCREASING GOVERNMENT REGULATION OF THE INTERNET AND THE FINANCIAL SERVICES
INDUSTRY COULD LIMIT THE MARKET FOR CORILLIAN'S PRODUCTS AND SERVICES, IMPOSE ON
CORILLIAN LIABILITY FOR TRANSMISSION OF PROTECTED DATA AND INCREASE ITS EXPENSES
Numerous federal agencies have recently adopted rules and regulations
protecting consumer privacy and establishing guidelines for financial
institutions to follow in selecting technology vendors for solutions such as
Corillian's solutions. Corillian believes its business does not currently
subject it to any of these rules or regulations that would adversely affect
Corillian's business. However, these rules and regulations are new and may be
interpreted to apply to Corillian's business in a manner that could make its
business more onerous or costly.
As the Internet continues to evolve, Corillian expects federal, state and
foreign governments to adopt more laws and regulations covering issues such as
user privacy, taxation of goods and services provided over the Internet,
pricing, content and quality of products and services. If enacted, these laws
and regulations could limit the market for Internet-based financial services.
If enacted or deemed applicable to Corillian, some laws, rules or
regulations applicable to financial service activities could render Corillian's
business or operations more costly and less viable. The financial services
industry is subject to extensive and complex federal and state regulation, and
financial institutions operate under high levels of governmental supervision.
Corillian's customers must ensure its services and related products work within
the extensive and evolving regulatory requirements applicable to them. Corillian
may become subject to direct regulation as the market for our business evolves.
Federal, state or foreign authorities could adopt laws, rules or regulations
affecting Corillian's business operations, such as requiring Corillian to comply
with data, record keeping and other processing requirements. Any of these laws,
rules or regulations, or new laws, rules and regulations affecting Corillian's
customers' businesses, could lead to increased operating costs and could also
reduce the convenience and functionality of Corillian's services, possibly
resulting in reduced market acceptance.
A number of proposals at the federal, state and local level and by the
governments of significant foreign countries would, if enacted, expand the scope
of regulation of Internet-based financial services and could impose taxes on the
sale of goods and services and other Internet activities. Any development that
substantially impairs the growth of the Internet or its acceptance as a medium
for transaction processing could have a material adverse effect on Corillian's
business, financial condition and operating results.
NEWLY ISSUED AND PROPOSED ACCOUNTING STANDARDS COULD INCREASE THE COMPANY'S
STOCK-BASED COMPENSATION EXPENSES AND COULD ADVERSELY AFFECT THE COMPANY'S
ABILITY TO COMPENSATE EMPLOYEES WITH EQUITY INSTRUMENTS
Effective January 1, 2006, the Company adopted Financial Accounting
Standards Board (FASB) Statement of Financial Accounting Standards (SFAS) No.
123 (revised 2004), Share-Based Payment (FAS 123(R)) which revised FAS 123,
Accounting for Stock-Based Compensation. FAS 123(R) supersedes Accounting
Principles Board Opinion (APBO) No. 25, Accounting for Stock issued to
Employees, and amends FAS 95, Statement of Cash Flows. FAS 123(R) requires
companies to measure the cost for all employee awards of equity instruments
based on the fair value of the award on the grant date and the estimated
probability of the award actually vesting. This cost is then recognized over the
period during which an employee is required to provide service in exchange for
the award or over the period in which performance based measures are achieved.
Pro forma disclosure of the effects of equity-based awards is no longer an
alternative. Compliance with FAS 123(R) has significantly increased the
Company's expenses for stock-based compensation and therefore could limit the
Company's ability to compensate its employees with equity instruments. If one or
more of its key employees were to resign as a result of this, the loss of
personnel could result in loss of sales, delays in new product development and
diversion of management resources.