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 March 31, 1999
Bottomline Technologies (de) Inc.
(Exact name of Registrant as Specified in Its Charter)
Delaware 02-0433294
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(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 May 10,
1999 was 10,446,561
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Bottomline Technologies (de), Inc.
Condensed Balance Sheets
(in thousands)
(unaudited)
MARCH 31,1999 JUNE 30, 1998
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ASSETS
Current assets:
Cash and cash equivalents $ 41,064 $ 1,362
Accounts receivable 10,044 6,997
Other current assets 1,399 987
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Total current assets 52,507 9,346
Property and equipment 2,303 1,865
Other assets 44 90
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Total assets $54,854 $ 11,301
==========================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 5,503 $ 3,207
Deferred revenue and deposits 3,728 2,121
Other current liabilities 928 134
------------------------------------------
Total current liabilities 10,159 5,462
Deferred income taxes payable 118 118
Redeemable common stock, at redemption value - 1,353
Stockholders' equity
Common stock 10 6
Additional paid-in-capital 39,353 1,867
Retained earnings 5,214 2,495
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Total stockholders' equity 44,577 4,368
------------------------------------------
Total liabilities and stockholders' equity $ 54,854 $ 11,301
==========================================
See accompanying notes to condensed financial statements.
Bottomline Technologies (de), Inc.
Condensed Statements of Operations
(in thousands, except per share amounts)
(unaudited)
THREE MONTHS ENDED
MARCH 31, 1999 MARCH 31,1998
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Revenues:
Software licenses $ 4,157 $ 2,506
Service and maintenance 3,551 2,280
Equipment and supplies 2,719 2,675
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Total revenues 10,427 7,461
Cost of revenues:
Software licenses 70 44
Service and maintenance 1,514 1,060
Equipment and supplies 1,944 1,828
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Total cost of revenues 3,528 2,932
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Gross profit 6,899 4,529
Operating expenses:
Sales and marketing 2,910 1,879
Product development and engineering 1,016 811
General and administrative 1,107 1,152
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Total operating expenses 5,033 3,842
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Income from operations 1,866 687
Interest income (expense), net 221 (10)
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Income before provision for income taxes 2,087 677
Provision for income taxes 835 287
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Net income $ 1,252 $ 390
========================================
Earnings per share available to common stockholders:
Basic $ 0.14 $ 0.06
========================================
Diluted $ 0.13 $ 0.05
========================================
Shares used in computing earnings per share available
to common stockholders:
Basic 8,553 6,312
========================================
Diluted 9,859 7,308
========================================
See accompanying notes to condensed financial statements.
Bottomline Technologies (de), Inc.
Condensed Statements of Operations
(in thousands, except per share amounts)
(unaudited)
NINE MONTHS ENDED
MARCH 31, 1999 MARCH 31,1998
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Revenues:
Software licenses $ 11,625 $ 6,941
Service and maintenance 8,878 6,751
Equipment and supplies 8,060 7,317
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Total revenues 28,563 21,009
Cost of revenues:
Software licenses 224 162
Service and maintenance 3,970 3,089
Equipment and supplies 5,759 5,004
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Total cost of revenues 9,953 8,255
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Gross profit 18,610 12,754
Operating expenses:
Sales and marketing 7,790 5,469
Product development and engineering 2,921 2,303
General and administrative 3,508 3,158
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Total operating expenses 14,219 10,930
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Income from operations 4,391 1,824
Interest income (expense), net 260 (60)
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Income before provision for income taxes 4,651 1,764
Provision for income taxes 1,861 747
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Net income $ 2,790 $ 1,017
========================================
Earnings per share available to common stockholders:
Basic $ 0.38 $ 0.15
========================================
Diluted $ 0.33 $ 0.13
========================================
Shares used in computing earnings per share available
to common stockholders:
Basic 7,166 6,309
========================================
Diluted 8,323 7,303
========================================
See accompanying notes to condensed financial statements.
Bottomline Technologies (de), Inc.
Condensed Statements of Cash Flows
(in thousands)
(unaudited)
NINE MONTHS ENDED MARCH 31
1999 1998
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Cash provided by operating activities $ 4,754 $ 1,844
INVESTING ACTIVITIES
Purchases of property and equipment, net (1,043) (643)
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Net cash used in investing activities (1,043) (643)
FINANCING ACTIVITIES
Repayments on revolving credit arrangement (1,045)
Repayments on notes payable (75) (211)
Proceeds from sale of common stock, net 35,916
Proceeds from exercise of stock options and stock warrants 150 27
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Net cash provided by (used in) financing activities 35,991 (1,229)
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Increase (decrease) in cash and cash equivalents 39,702 (28)
Cash and cash equivalents at beginning of period 1,362 827
----------------------------------------
Cash and cash equivalents at end of period $ 41,064 $ 799
========================================
See accompanying notes to condensed financial statements.
Bottomline Technologies (de), Inc.
Notes to Condensed Financial Statements
(in thousands, except per share data)
(unaudited)
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
have been included. Operating results for the three and nine months ended March
31, 1999 are not necessarily indicative of the results that may be expected for
the year ended June 30, 1999. For further information, refer to the financial
statements and footnotes thereto included in the company's registration
statement on Form S-1.
NOTE 2 - NEW ACCOUNTING STANDARDS
In October 1997, the Accounting Standards Executive Committee of the American
Institute (ACSEC) of Certified Public Accountants issued Statement of Position
(SOP) 97-2 "Software Revenue Recognition", which the company adopted on July 1,
1998. This statement supersedes SOP 91-1, Software Revenue Recognition, and
provides guidance on applying generally accepted accounting principles in
recognizing revenue on software transactions entered into in fiscal years
beginning after December 15, 1997. SOP 97-2 has not materially impacted the
company's operating results.
Note 3 - Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per
share:
THREE MONTHS ENDED MARCH 31, NINE MONTHS ENDED MARCH 31,
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1999 1998 1999 1998
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Numerator:
Net income $1,252 $ 390 $2,790 $1,017
Accretion to redemption value on
redeemable common stock (14) (28) (70) (80)
--------------------------------------------------------------------
Numerator for basic and diluted
earnings per share available to
common stockholders $1,238 $ 362 $2,720 $ 937
====================================================================
Denominator:
Denominator for basic earnings per
share available to common
stockholders - weighted-average
shares outstanding 8,553 6,312 7,166 6,309
Effect of employee stock options,
warrants and redeemable common
stock 1,306 996 1,157 994
--------------------------------------------------------------------
Denominator for diluted earnings
per share available to common
stockholders 9,859 7,308 8,323 7,303
====================================================================
Earnings per share available to
common stockholders:
Basic $ 0.14 $ 0.06 $ 0.38 $ 0.15
====================================================================
Diluted $ 0.13 $ 0.05 $ 0.33 $ 0.13
====================================================================
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 MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 1998
REVENUES
Total revenues increased by $2.9 million to $10.4 million in the three
months ended March 31, 1999 from $7.5 million in the three months ended March
31, 1998, an increase of 40%.
Software Licenses. Software license fees increased by $1.7 million to $4.2
million in the three months ended March 31, 1999 from $2.5 million in the three
months ended March 31, 1998, an increase of 66%. Software license fees
represented 40% of total revenues in the three months ended March 31, 1999
compared to 34% of total revenues for the three months ended March 31, 1998.
The increase in software license fees was due primarily to the growing market
acceptance of PayBase/32/.
Service and Maintenance. Service and maintenance fees increased by $1.3
million to $3.6 million in the three months ended March 31, 1999 from $2.3
million in the three months ended March 31, 1998, an increase of 56%. Service
and maintenance fees represented 34% of total revenues in the three months ended
March 31, 1999 compared to 30% of total revenues in the three months ended March
31, 1998. The increase in service and maintenance fees was due primarily to an
increase in the number of sales of software licenses, which resulted in
increased orders for services and sales of software maintenance and technical
support.
Equipment and Supplies. Equipment and supplies sales remained constant at
$2.7 million in each of the three months ended March 31, 1999 and March 31,
1998. Equipment and supplies sales represented 26% of total revenues in the
three months ended March 31, 1999 compared to 36% of total revenues in the three
months ended March 31, 1998.
COST OF REVENUES
Software Licenses. Software license costs consist of expenses incurred by
the company to manufacture, package and distribute its software products and
related documentation and costs of licensing third-party software incorporated
into its products. Software license costs increased by $26,000 to $70,000 in the
three months ended March 31, 1999 from $44,000 in the three months ended March
31, 1998, an increase of 59%. Software license costs remained constant at 2% of
software revenues in each of the three months ended March 31, 1999 and March 31,
1998.
Service and Maintenance. Service and maintenance costs include salary
expense and other related costs for the company's customer service, maintenance
and telephone support staffs, as well as third-party contractor expenses.
Service and maintenance costs increased by $400,000 to $1.5 million in the three
months ended March 31, 1999 from $1.1 million in the three months ended March
31, 1998, an increase of 43%. Service and maintenance costs were 43% of service
and maintenance revenues in the three months ended March 31, 1999 compared to
46% of service and maintenance revenues in the three months ended March 31,
1998. The dollar increase in service and maintenance costs was due primarily to
increased staffing and personnel related costs.
Equipment and Supplies. Equipment and supplies costs increased by $100,000
to $1.9 million in the three months ended March 31, 1999 from $1.8 million in
the three months ended March 31, 1998, an increase of 6%. Equipment and supplies
costs were 71% of equipment and supplies sales in the three months ended March
31, 1999 compared to 68% of equipment and supplies sales in the three months
ended March 31, 1998. The increase in equipment and supplies costs was due
primarily to competitive pressure on the pricing of supplies.
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 $1.0 million to $2.9 million in the
three months ended March 31, 1999 from $1.9 million in the three months ended
March 31, 1998, an increase of 55%. Sales and marketing expenses were 28% of
total revenues in the three months ended March 31, 1999 compared to 25% of total
revenues in the three months ended March 31, 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 $200,000 to $1.0
million in the three months ended March 31, 1999 from $800,000 in the three
months ended March 31, 1998, an increase of 25%. Product development and
engineering expenses were 10% of total revenues in the three months ended March
31, 1999 compared to 11% of total revenues in the three months ended March 31,
1998. The dollar increase was due primarily to increases in staffing and
personnel related costs.
General and Administrative. General and administrative expenses consist
primarily of salaries and other related costs for operations and finance
employees, legal and accounting services and certain facilities-related
expenses. General and administrative expenses remained constant at approximately
$1.1 million in the three months ended March 31, 1999 and March 31, 1998.
General and administrative expenses were 11% of total revenues in the three
months ended March 31, 1999 compared to 15% of total revenues in the three
months ended March 31, 1998. The percentage decrease is a result of the fact
that general and administrative expenses remained constant during a period of
revenue growth.
Interest Income (Expense), Net. Interest income (expense), net consists of
interest income and interest expense. Interest income (expense), net increased
by $231,000 to $221,000 of interest income in the three months ended March 31,
1999 from $10,000 of interest expense in the three months ended March 31, 1998.
The increase was due to interest earned on the proceeds of the company's initial
public offering.
Provision for Income Taxes. The provision for income taxes increased by
$548,000 to $835,000 in the three months ended March 31, 1999 from $287,000 in
the three months ended March 31, 1998. The effective tax rate in the three
months ended March 31, 1999 was 40% compared to 42% in the three months ended
March 31, 1998. The effective tax rate in each of the three month periods ended
March 31, 1999 and March 31, 1998 differed from the federal statutory rate due
principally to the effect of state income taxes.
NINE MONTHS ENDED MARCH 31, 1999 COMPARED TO NINE MONTHS ENDED MARCH 31, 1998
REVENUES
Total revenues increased by $7.6 million to $28.6 million in the nine
months ended March 31, 1999 from $21.0 million in the nine months ended March
31, 1998, an increase of 36%. The increase was primarily attributable to the
growing market acceptance of PayBase/32/.
Software Licenses. Software license fees increased by $4.7 million to $11.6
million in the nine months ended March 31, 1999 from $6.9 million in the nine
months ended March 31, 1998, an increase of 68%. Software license fees
represented 41% of total revenues in the nine months ended March 31, 1999
compared to 33% of total revenues in the nine months ended March 31, 1998. The
increase in software license fees during the nine months ended March 31, 1999
was due primarily to the growing market acceptance of PayBase/32/.
Service and Maintenance. Service and maintenance fees increased by $2.1
million to $8.9 million in the nine months ended March 31, 1999 from $6.8
million in the nine months ended March 31, 1998, an increase of 32%. Service and
maintenance fees represented 31% of total revenues in the nine months ended
March 31, 1999 compared to 32% of total revenues in the nine months ended March
31, 1998. The increase in service and maintenance fees was due primarily to an
increase in the number of customers and sales of software licenses, which
resulted in increased orders for services and sales of software maintenance and
technical support.
Equipment and Supplies. Equipment and supplies sales increased by $800,000
to $8.1 million in the nine months ended March 31, 1999 from $7.3 million in the
nine months ended March 31, 1998, an increase of 10%. Equipment and supplies
sales represented 28% of total revenues in the nine months ended March 31, 1999
compared to 35% of total revenues in the nine months ended March 31, 1998.
COST OF REVENUES
Software Licenses. Software license costs increased by $62,000 to $224,000
in the nine months ended March 31, 1999 from $162,000 in the nine months ended
March 31, 1998, an increase of 38%. Software license costs remained consistent
at 2% of software revenues in each of the nine months ended March 31,1999 and
nine months ended March 31,1998.
Service and Maintenance. Service and maintenance costs increased by
$900,000 to $4.0 million in the nine months ended March 31, 1999 from $3.1
million in the nine months ended March 31, 1998, an increase of 29%. Service and
maintenance costs were 45% of service and maintenance revenues in the nine
months ended March 31, 1999 compared to 46% of service and maintenance revenues
in the nine months ended March 31, 1998. The dollar increase in service and
maintenance costs was due primarily to increased staffing and personnel related
costs.
Equipment and Supplies. Equipment and supplies costs increased by $800,000
to $5.8 million in the nine months ended March 31, 1999 from $5.0 million in the
nine months ended March 31, 1998, an increase of 15%. Equipment and supplies
costs were 71% of equipment and supplies sales in the nine months ended March
31, 1999 compared to 68% in the nine months ended March 31, 1998. The increase
in equipment and supplies costs was due primarily to competitive pressure on the
pricing of supplies.
OPERATING EXPENSES
Sales and Marketing. Sales and marketing expenses increased by $2.3 million
to $7.8 million in the nine months ended March 31, 1999 from $5.5 million in the
nine months ended March 31, 1998, an increase of 43%. Sales and marketing
expenses were 27% of total revenues in the nine months ended March 31, 1999
compared to 26% of total revenues in the nine months ended March 31, 1998. The
increase was due primarily to increases in staffing and personnel related costs.
Product Development and Engineering. Product development and engineering
expenses increased by $600,000 to $2.9 million in the nine months ended March
31, 1999 from $2.3 million in the nine months ended March 31, 1998, an increase
of 27%. Product development and engineering expenses were 10% of total revenues
in the nine months ended March 31, 1999 compared to 11% of total revenues in the
nine months ended March 31, 1998. The dollar increase was due primarily to
increases in staffing and personnel related costs.
General and Administrative. General and administrative expenses increased
by $300,000 to $3.5 million in the nine months ended March 31, 1999 from $3.2
million in the nine months ended March 31, 1998, an increase of 11%. General and
administrative expenses were 12% of total revenues in the nine months ended
March 31, 1999 compared to 15% of total revenues in the nine months ended March
31, 1998. The dollar increase was due primarily to increased personnel costs.
Interest Income (Expense), Net. Interest income (expense), net increased by
$320,000 to $260,000 of interest income in the nine months ended March 31, 1999
from $60,000 in interest expense in the nine months ended March 31, 1998. The
increase was due to interest earned on the proceeds of the company's initial
public offering.
Provision for Income Taxes. The provision for income taxes increased by
$1.1 million to $1.9 million in the nine months ended March 31, 1999 from
$800,000 in the nine months ended March 31, 1998. The effective tax rate in the
nine months ended March 31, 1999 was 40% compared to 42% in the nine months
ended March 31, 1998. The effective tax rate in each of the nine month periods
ended March 31, 1999 and March 31, 1998 differed from the federal statutory rate
due principally to the effect of state income taxes.
LIQUIDITY AND CAPITAL RESOURCES
The company has financed its operations primarily from cash provided by
operating activities, the sale of common stock and bank credit facilities for
leasehold improvements and working capital. The company had net working capital
of $42.3 million at March 31, 1999, including cash and cash equivalents totaling
$41.1 million.
Net cash provided by operating activities was $4.8 million in the nine
months ended March 31, 1999. Net cash provided by operating activities during
the nine months ended March 31, 1999 was primarily the result of net income and
increases in deferred revenues, accounts payable and accrued expenses, partially
offset by increases in accounts receivable and prepaid expenses.
Net cash used in investing activities was $1.0 million in the nine months
ended March 31, 1999. Cash was used during this period to acquire computer
equipment and software for internal use. The company currently has no
significant capital spending or purchase commitments, but expects to continue to
engage in capital spending in the ordinary course of business.
Net cash provided by financing activities was $36.0 million in the nine
months ended March 31, 1999. The net increase was the result of the net proceeds
of $35.9 million from the sale of common stock.
In December 1998, the company renewed its revolving credit agreement with a
bank which provides for borrowings of up to $5.0 million. Borrowings under its
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 March
31, 1999, the company had no outstanding balances under its revolving credit
agreement. The agreement expires on December 31, 1999.
The company believes that the cash generated from operations and cash and
cash equivalents on hand, will be sufficient to meet its working capital
requirements for the foreseeable future.
YEAR 2000 CONSIDERATIONS
Computer systems and software and other date sensitive technology 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.
The vendors of each of the company's major internal software systems, such
as accounting and database management, have certified that their software is
year 2000 compliant. In addition, the company has assessed its 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 has
concluded that such products are year 2000 compliant. The company does not plan
to assess specifically its facility management systems or the external forces
such as utility or transportation systems for year 2000 compliance failures that
might generally affect industry and commerce.
The company has conducted extensive tests to validate the year 2000
compliance of its products installed after February 1997 and it believes 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, the company notified customers
that had purchased DOS based products that their products were not year 2000
compliant and that the company would no longer be supporting those products. The
company has no plans to address year 2000 readiness for these older products.
Based on the notification the company provided and the contractual provisions
limiting liability contained in its standard terms and conditions which governed
the sale of the company's DOS based products, the company does not believe there
are significant risks to its business relating to year 2000 compliance of these
products.
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 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.
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.
The payment management software market is subject to rapid technological
change and our success is dependent on the ability to develop new and enhanced
payment management software, services and related products. Trends which could
have a critical impact on the company 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.
The market for payment 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.
Our success depends upon the efforts and ability of our executive officers
and key technical employees who are skilled in electronic 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 senior executive officers or other
key employees could have a material adverse effect on our business, operating
results and financial condition.
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 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.
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 such 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 relied on
the certifications by our software vendors regarding the year 2000
readiness of our internal software systems and have not conducted
independent tests of these systems. It is possible 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.
. 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.
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 or enhancements could result in adverse customer
reactions and negative publicity regarding the company and our products and
could have a material adverse effect on our business, operating results and
financial condition.
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.
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.
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
None.
ITEM 2. CHANGES IN SECURITIES
Changes in Rights and Classes of Stock
None.
Sales of Unregistered Securities and Use of Proceeds
None.
Use of Proceeds of Initial Public Offering
On November 13, 1998, the company filed a Registration Statement on Form S-1
(Commission file number 333-67309, declared effective February 11, 1999)to
register shares of its common stock in an initial public offering. The offering
closed on February 18, 1999, resulting in the sale of all of the 3,400,000
shares offered (of which, 2,519,466 shares were sold by the Company and 880,534
shares were sold for the account of certain shareholders) at an offering price
of $13.00 per share (constituting aggregate gross proceeds of $32,753,058 for
the account of the Company and $11,446,942 for the account of the selling
stockholders), and on March 1, 1999 the underwriters exercised in full their
overallotment option to purchase an additional 510,000 shares at $13.00 per
share (constituting additional aggregate gross proceeds of $6,630,000), all of
which were sold by the company.
The managing underwriters of the offering were BancBoston Robertson Stephens, BT
Alex.Brown and CIBC Oppenheimer
Through March 31, 1999, the following expenses were incurred for the company's
account in connection with the offering:
Underwriting discount $ 2,756,814
Other expenses 1,681,604
-----------
Total expenses 4,438,418
-----------
Net offering proceeds $34,944,640
No net offering proceeds to the company were used during the period between the
effective date of the registration statement and March 31, 1999.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On February 8, 1999 the company's stockholders acting by written consent
approved the following matters in anticipation of the company registering its
securities under Section 12 of the Exchange Act: (1) the company's 1998 Director
Stock Option Plan, 1998 Employee Stock Purchase Plan and Amended and Restated
1997 Stock Incentive Plan; (2) the company's Amended and Restated Bylaws; and
(3) the company's Amended and Restated Certificate of Incorporation. The
written consent was given by holders of 3,750,000 shares of the company's common
stock.
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.
14
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: By: /s/ Robert A. Eberle
Robert A. Eberle
Executive Vice President,
Chief Financial Officer and Treasurer
(Principal Financial and Accounting
Officer and Duly Authorized Officer)