EXHIBIT 99.1
RISK FACTORS
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.
WHILE CORILLIAN GENERATED NET INCOME IN EACH OF THE MOST RECENT EIGHT FISCAL
QUARTERS, 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 the second quarter of 2003, Corillian incurred substantial net
losses in every quarter since it began operations. Corillian generated net
income of approximately $654,000 during the three-month period ended March 31,
2005; however, as of March 31, 2005, Corillian had an accumulated deficit of
approximately $96.8 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 quarters. Corillian may decide
that it is necessary to further reduce its personnel or other expenses to
maintain its operations, and such reductions may reduce 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. During
the three-month period ended March 31, 2005, one customer individually accounted
for 15% of consolidated revenues. During the three-month period ended March 31,
2004, two customers individually accounted for 41% 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 AT FINANCIAL SERVICE PROVIDERS' FACILITIES, CORILLIAN MAY
NOT ACHIEVE ANTICIPATED REVENUES OR GROSS MARGINS
Corillian's solutions are complex and must integrate with 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 its solutions effectively or at all,
Corillian may not be able to recognize any revenues from the contract or 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.
CORILLIAN'S PRODUCTS' LENGTHY SALES CYCLES 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, Corillian's 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 make the sale.
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.
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
All of Corillian's communications and network equipment related to its
operations are currently located in Hillsboro, Oregon. Corillian does not
currently have an alternate data center or facility that can provide system
redundancy or emergency backup capabilities. 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 bank or brokerage 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. Recently two of
Corillian's largest customers, J.P. Morgan Chase and Bank One, merged and one of
Corillian's largest customers, Charter One, 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 to expand international sales through resellers, partners and selective
direct sales efforts. International expansion of its business may be more
difficult or take longer than Corillian anticipates, and it may not be able to
successfully market, sell, deliver and support its products internationally.
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.
ACQUISITIONS BY CORILLIAN 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. Corillian may not be able to
successfully integrate these companies, products or technologies. In connection
with these 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.
Recently Corillian entered into an agreement to acquire InteliData
Technologies Corporation. The merger involves the integration of two companies
that previously operated independently. Although the businesses of the two
companies are complementary, the integration of the departments, systems,
business units, operating procedures and information technologies of Corillian
and InteliData will present a significant challenge to management. We do not
assure you that Corillian will be able to integrate and manage these operations
effectively or maintain or improve the historical performances of Corillian and
InteliData. The failure to successfully integrate these systems and procedures
could have a material adverse effect on the results of operations and financial
condition of the combined company.
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. Any intellectual property infringement claims against Corillian, 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 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 CORILLIANS' DATA
PROCESSING SYSTEMS AFTER INSTALLING CORILLIAN'S SOLUTIONS COULD RESULT IN LOSS
OF REVENUES, DELAY IN MARKET ACCEPTANCE AND INJURY TO CORILLIAN'S REPUTATION
Complex software products like Corillian's may contain 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 NOT FUNCTION PROPERLY
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.