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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
þ ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2004
OR
o TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from
to
Commission file number 0-29291
Corillian Corporation
(Exact name of registrant as specified in its charter)
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Oregon
(State or other Jurisdiction of
Incorporation or Organization) |
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91-1795219
(I.R.S. Employer
Identification Number) |
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3400 NW John Olsen Place Hillsboro, Oregon
(Address of principal executive offices)
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97124
(Zip Code) |
(503) 629-3300
(Telephone number)
Securities registered pursuant to Section 12(b) of the
Act:
None
Securities registered pursuant to Section 12(g) of the
Act:
Common Stock, no par value
(Title of class)
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 the filing requirements for the past
90 days. Yes þ No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not
contained herein, and will not be contained, to the best of the
registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this
Form 10-K or in any amendment to this
Form 10-K. o
Indicate by check mark whether the Registrant is an accelerated
filer (as defined in Exchange Act
Rule 12b-2). Yes þ No o
The aggregate market value of voting stock held by
non-affiliates of the Registrant was approximately $180,834,434
as of June 30, 2004, based upon the closing price on the
NASDAQ National Market reported for such date. Shares of Common
Stock held by each executive officer and director and by each
person who beneficially owns more than 5% of the outstanding
Common Stock and was deemed to be an affiliate have been
excluded. This determination of executive officer or affiliate
status is not necessarily a conclusive determination for other
purposes. 38,900,538 shares of Common Stock were issued and
outstanding as of February 28, 2005.
DOCUMENTS INCORPORATED BY REFERENCE
The information required by Part III of this Report, to the
extent not set forth herein, is incorporated herein by reference
from the Registrants definitive proxy statement relating
to the annual meeting of shareholders to be held on May 9,
2005, which definitive proxy statement shall be filed with the
Securities and Exchange Commission (the SEC) within
120 days after the end of the fiscal year to which this
Report relates.
FORM 10-K
TABLE OF CONTENTS
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PART I
Special Note Regarding Forward-Looking Statements
This Annual Report on Form 10-K and the documents
incorporated herein by reference contain forward-looking
statements within the meaning of the Private Securities
Litigation Reform Act of 1995. All statements other than
statements of historical fact made in this Annual Report on
Form 10-K are forward-looking including but not limited to,
statements regarding industry prospects; future results of
operations or position; Corillians expectations and
beliefs regarding future revenue growth; the future capabilities
and functionality of Corillians products and services;
Corillians strategies and intentions regarding
acquisitions; the outcome of any litigation to which Corillian
is a party; Corillians accounting and tax policies;
Corillians future strategies regarding investments,
product offerings, research and development, market share, and
strategic relationships and collaboration; Corillians
dividend policies; Corillians future capital requirements;
and Corillians intentions and expectations regarding
credit facilities. These statements relate to future events or
Corillians future financial performance. In some cases,
you can identify forward-looking statements by terminology
including intend, could,
may, will, should,
expect, plan, anticipate,
believe, estimate, predict,
potential, future, or
continue, the negative of these terms or other
comparable terminology. These statements are only predictions.
Actual events or results may differ materially from those
expressed or implied in such forward-looking statements. In
evaluating these statements, you should specifically consider
various factors, including the risks described in greater detail
in Item 1, Part 1, Business Risk
Factors, Corillians registration statements and
reports filed with the Securities and Exchange Commission, and
contained in Corillians press releases from time to
time.
Corillian does not guarantee future results, levels of
activity, performance or achievements. Corillian does not intend
to update any of the forward-looking statements after the date
of this document to conform them to actual results or to changes
in its expectations.
Overview
Corillian is a leading provider of solutions that enable banks,
credit unions and other financial service providers to rapidly
deploy Internet-based financial services. Corillians
solutions allow consumers to conduct financial transactions,
view personal and market financial information, pay bills and
access other financial services on the Internet. Corillian
Voyager is a software platform combined with a set of
applications for Internet banking, electronic bill presentment
and payment, identity management, targeted marketing, data
aggregation, alerts and online customer relationship management.
Corillians solutions integrate into existing database
applications and systems and enable its customers to monitor
transactions across all systems in real time. Corillians
solutions are also designed to support multiple lines of
business, including small business banking, corporate banking
and credit card management, and to scale to support millions of
users. Current Corillian customers include J.P. Morgan
Chase, The Huntington National Bank, Wachovia Bank and SunTrust
Bank.
Corillian was incorporated in Oregon in 1997.
You can access information about Corillian on our website on the
Investor Relations page. The address is
www.corillian.com/investors/. The contents of this
website are not intended to be incorporated by reference into
this report or any other report we file with the SEC. We make
available, free of charge, copies of our Annual Report on
Form 10-K, Quarterly Reports on Form 10-Q, Current
Reports on Form 8-K, and amendments to reports filed
pursuant to Sections 13(a) and 15(d) of the Securities
Exchange Act of 1934, as amended (the Exchange Act) as soon as
reasonably practicable after filing such material electronically
or otherwise furnishing it to the SEC. To request a copy, send a
written request to Corillian Corporation, Attention: Investor
Relations, 3400 NW John Olsen Place, Hillsboro, Oregon 97124,
and include the address to which the document should be mailed.
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Industry Background
The Internet has become an integral part of the daily lives of
millions of consumers because of the functionality and
convenience it offers. In addition to more traditional uses such
as email, the Internet is being increasingly used to conduct
financial transactions and deliver financial services. Internet
users are increasingly demanding Internet-based financial
services, such as access to financial information over the
Internet, real-time access to stock quotes and investment
portfolio information, and Internet bill payment services. The
benefits that consumers derive from Internet-based financial
services include:
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twenty-four hour, real-time, secure access to information and
financial services from any Internet device; |
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convenient and inexpensive bill presentment and payment tools; |
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improved personal finance management; and |
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the presentation of comprehensive consolidated financial data. |
The growth in Internet usage and the popularity of personal
finance content have changed the competitive landscape of the
financial service industry by requiring financial institutions
to compete based on the features they offer in the Internet
channel as well as other delivery channels while focusing on
lowering the expenses of their technology infrastructure. Within
this environment, Corillian believes many financial institutions
are recognizing they will require more cost-effective
Internet-based financial solutions with greater functionality to
help them differentiate their service and product offerings and
expand their market share. In addition, financial institutions
will need these solutions to easily integrate with disparate
systems and applications and provide technological efficiencies.
Significant challenges are involved in deploying Internet
finance solutions. Most notably, multiple diverse computing
environments, including existing systems, packaged applications,
Internet application servers and other emerging technologies,
must be integrated and must be able to communicate with each
other to provide customers with real-time data and to allow them
to conduct financial transactions. In addition, external
systems, such as those of credit card companies and bill payment
providers, must be integrated with internal systems in a secure
and reliable manner. These technical challenges are magnified by
the speed with which these services must be brought to market.
Most financial institutions do not have the technical skills or
resources to rapidly design and deploy these services. In
addition, although some financial institutions have the
technical skills and resources to develop and deploy Internet
finance solutions, they are subject to significant
time-to-market competitive pressures. For most of these
financial service providers, internally developing and deploying
Internet finance solutions can be expensive and take in excess
of one year. As a result, many of these financial service
providers are realizing that if they want to deploy an
Internet-based financial product or service and integrate
disparate applications more quickly and efficiently, they need a
comprehensive, outsourced packaged software and service solution.
The Corillian Solution
Corillian is a leading provider of solutions that enable
financial service providers to deploy Internet-based financial
services and to integrate disparate applications across their
multiple delivery channels and lines of business.
Corillians solutions include comprehensive suites of
software that may be combined with its professional services to
form a complete outsourced solution for offering Internet-based
financial services.
Corillian Voyager consists of a software platform and a menu of
applications built upon that platform, all of which Corillian
can provide on a hosted basis or which can run on its
customers premises. Corillian Voyager integrates with
Corillians customers existing databases and systems
and enables them to monitor transactions across all systems in
real time. Corillian has developed software applications for
Internet banking, electronic bill presentment and payment,
identity management, alerts, targeted marketing, data
aggregation and online customer relationship management.
Corillian can provide its customers with wireless delivery
capabilities for all of these applications.
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Corillian believes its products and services provide the
following benefits to its customers:
Accelerated Time to Market. Using the Corillian Voyager
platform, financial institutions can deploy Internet-based
financial services to their customers within as little as 60 to
90 days, depending on the complexity of the project and the
degree of customization involved with the project. In addition,
Corillian provides comprehensive systems integration and
implementation services and customer support to complement the
flexible architecture of Corillians solutions.
Highly Scalable and Extensible Platform. Corillians
software platform has been designed to be highly scalable to
meet the evolving needs of its customers. Independent laboratory
test results indicate that Corillian Voyager can support
Internet banking programs for more than ten million users. In
addition, Corillian Voyager has been designed using universal
standards, including eXtensible Markup Language for
communication and Open Financial Exchange for financial
transactions. This architecture enables Corillians
customers to deploy new Internet-based financial services by
adding applications to Corillians platform at any time and
by integrating future applications with any Internet connected
point-of-presence.
Flexibility and Control. Corillian offers its customers
the ability to take total control of the development and
management of Corillian Voyager or to rely on Corillian for
these services. Customers can use their own internal personnel
for implementation, a combination of Corillian personnel and
internal personnel, just Corillian personnel or third parties.
In addition, customers have the option of hosting the Corillian
Voyager platform on their own premises or having the solutions
hosted in our managed facility. Corillians customers may
request that Corillian host their solution because they lack
sufficient resources or the appropriate systems to host the
solution on their premises. In addition, Corillians
customers can reduce their information technology costs by
outsourcing application hosting services with Corillian.
Corillian offers customers the opportunity to transfer operation
of their solution to their own premises at any time. This
flexibility provides Corillians customers with the option
to gain operational control of a deployment over time as their
needs and desires change.
Advanced Technology and Continued Innovation. Corillian
believes its solutions provide a comprehensive solution with a
broad range of applications across multiple lines of business
that can be delivered on the desktop or by wireless access.
Corillian offers certified Internet financial applications using
the Open Financial Exchange data standard, and Corillian has
helped to define industry standards through organizations like
the Web Services Interoperability Organization.
Reduced Cost of Internet Operations. Corillians
products lower the costs associated with its customers
Internet banking operations primarily by reducing the cost of
internal development and hardware requirements. Corillians
software solutions provide all of the functionality for
Internet-based financial services in a single comprehensive
package. This eliminates the cost of purchasing, integrating and
installing separate solution components from multiple vendors.
Strategy
Corillians objective is to extend its leadership in
Internet finance solutions. To that end, Corillian seeks to
establish Corillian Voyager as the platform of choice for
Internet finance. To achieve this objective, Corillian intends
to pursue the following strategies:
Increase Market Share. To date, Corillian has focused its
sales and marketing efforts to target the largest financial
service providers. Corillian intends to continue targeting
large, industry-leading financial service providers by
increasing its sales and marketing efforts. Corillian has also
successfully developed other markets, including small to
mid-size financial institutions, and Corillian intends to
continue its efforts towards expanding its penetration of these
markets.
Expand Breadth of Product and Service Offerings.
Corillians current financial applications include features
for Internet banking, electronic bill presentment and payment,
identity management, interfacing with personal finance managers
through the Open Financial Exchange data standard, consumer
banking, small business banking, credit and management, alerts
and data aggregation. Corillian recently expanded its product
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offerings to include cash management and fraud detection, and
Corillian intends to expand its product offerings to include new
applications, particularly in the area of identity management
and fraud prevention.
Leverage and Expand Strategic Relationships. Corillian
intends to leverage its relationships with leading systems
integrators and value-added resellers to extend its reach and
provide our customers with more comprehensive, customized
solutions. Corillian intends to continue to expand and build
additional relationships with value-added resellers. In
addition, Corillian believes that forging relationships with key
technology vendors is critical to delivering a comprehensive
solution to financial service providers. Corillians
strategic partners include Microsoft and NCR Corporation.
Corillian intends to develop additional relationships to expand
the scope of its functionality, and for co-marketing and
distribution purposes.
Collaborate with Technology Leaders. Corillians
products and services adhere to existing industry standards and
have been designed to meet the openness and scalability required
of Internet solutions. Corillian will continue to collaborate
with companies to develop new technologies and to encourage the
adoption and implementation of universal standards that can
foster and simplify the exchange of financial information
through the Internet. Corillian intends to continue investing in
research and development to meet the needs of its customers as
they evolve their Internet offerings.
Products and Services
Corillians solutions enable financial institutions,
Internet portals and other Internet financial service providers
to offer their customers a variety of financial services over
the Internet, including Internet banking, electronic bill
presentment and payment, web content management and data
aggregation. Corillian also offers a variety of services to
support its customers throughout the process of implementing and
maintaining Corillians solutions.
Corillian Voyager is a highly secure and reliable software
platform upon which Corillian has built a menu of applications
to support multiple lines of business within banking. Corillian
Voyager has been designed to be highly scalable to meet the
evolving needs of Corillians customers. Independent
laboratory test results indicate that Corillian Voyager can
support Internet banking programs for more than ten million
users. In addition, Corillian Voyager has been designed using
universal standards, including eXtensible Markup Language for
communication and Open Financial Exchange for financial
transactions. This architecture enables Corillians
customers to deploy new Internet-based financial services by
adding applications to Corillians platform at any time and
by integrating future applications to any Internet connected
point-of-presence.
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Line of Business Applications |
Consumer Banking. Corillian Consumer Banking enables
financial institutions to offer their retail customers secure,
real-time access to transactional banking services through the
Internet. These services can be delivered to the desktop or
accessed by wireless devices. Internet users can receive their
consolidated account information and transaction history and
conduct financial transactions, such as transfers and loan
payments, over the Internet 24 hours a day, seven days a
week. The financial institutions can choose standard
browser-based user interfaces or more customized Internet
templates and online screens.
Small Business Banking. Corillian Small Business Banking
enables financial institutions to offer their small business
customers secure, real-time access to account details and money
movement functions through an Internet browser or accounting
packages such as QuickBooks. Businesses can control access to
business banking features, accounts and transaction levels to
provide financial and audit controls for their staff, and can
reconcile accounts instantly.
Corporate Banking. Corillian Corporate Banking provides
financial institutions a way to deliver a complete set of online
money movement services to corporations. Corillian Corporate
Banking integrates seamlessly and in real-time with financial
institution back-office systems. As a result, corporations can
make
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treasury management decisions based on reliable, up-to-date
information, and act on them instantly. Corporate banking
customers can transfer funds, view and create information
reports, receive alerts on account activity, view positive pay
exceptions, access lockbox accounts, manage cash concentration
and delegate authority to conduct transactions and view
information across complex organizations.
Credit Card Management. Corillian Credit Card Management
enables financial institutions to offer their credit card
customers secure, real-time access to transactional credit card
services through the Internet. These services can be delivered
to the desktop or accessed by wireless devices. Credit card
users can receive consolidated account information and
transaction history, view statements, pay bills and conduct
other financial transactions over the Internet 24 hours a
day, seven days a week. The financial institutions can choose
standard browser-based user interfaces or more customized
Internet templates and online screens.
Wealth Management. Corillian Wealth Management provides
access to investment accounts within and across financial
institutions, and enables planning and financial management
based on that information. Wealth Management customers can view
their accounts, initiate trades, conduct research, set up watch
lists, make payments, and view stock tickers, market data and
electronic trade confirmations. Further, Corillian Wealth
Management enables advisors, or other authorized
representatives, to perform transactions on behalf of their
customers.
Corillian Payments. Corillian Payments enables financial
service providers to offer their customers electronic bill
payment services and to deliver bills to customers through a
standard Internet page, through supported personal finance
management software, such as Quicken or Microsoft Money, or as a
digital image of a scanned paper bill. A financial service
provider can choose to deliver its own bills, the bills of
direct billing businesses, or the bills of third-party bill
presentment providers, such as CheckFree, Princeton eCom or
Metavante. By consolidating all bill presentment and payment
options, Corillian Payments enables Internet users to pay bills
in the same program where they do most of their financial
transactions. This application also enables financial
institutions to extend their product and service features for
their customers and to present bills on behalf of their business
customers.
Corillian Alerts. Corillian Alerts enables financial
institutions to provide their customers with alerts on various
types of activities. Balance alerts allow customers to define
account balance thresholds (both high and low) that, if
exceeded, will send an alert. Customers can also define
notification rules based on transaction type, statement
availability, and receipt of a secure message. Enhanced alerting
and delivery options allow customers to receive notification for
extended transaction types, such as bill payment, Positive Pay,
ACH, Wire, and transactions awaiting approval via wireless
devices, fax, messenger, and via text-to-speech, with user
specified priorities.
Corillian eStatements. Corillian eStatements enables
financial institutions to provide their customers with online
statements. The customers are notified when statements are
ready, can view their statement whenever and from wherever they
would like, and need not contend with a paper-based statement.
Corillian OFX. Corillian OFX enables financial
institutions to offer their customers the ability to integrate
their financial information with personal financial management
software, such as Quicken, QuickBooks and Microsoft Money, or
Internet portals such as Yahoo! Finance and MSN MoneyCentral.
Each Corillian solution was designed using the Open Financial
Exchange data standard. This data specification streamlines the
process that financial service companies must employ to connect
with financial data centers and to interface with personal
financial management software.
Corillian Register. Corillian Register enables a
financial institution to provide its customers with a
customer-driven online check registry. As a result, a financial
institutions customer can see all of his or her financial
information from different accounts in one place in a
comprehensive and feature-rich manner and can categorize items
according to his or her defined preferences.
ACH and Wire Transfers. ACH and wire transfers allow
corporate customers to move funds between accounts at any
financial institution, collect receivables from customers, or
electronically pay suppliers,
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employees, and others. Receivers and templates improve the ease
and efficiency of executing transfers. Customers can also make
electronic state and federal tax payments using convenient
templates that are kept up-to-date automatically.
Enterprise Entitlements. Corillian Enterprise Access
Management provides financial institutions and their customers
robust organizational modeling, user management, business rules,
approval workflow, audit logging and on-behalf-of capabilities,
in a simple, yet extremely powerful, authorization system.
Corillian Enterprise Access Management is accessible via Web
services for financial institutions seeking a way to centrally
manage user access across the enterprise.
Corillian Security Solutions. Corillian has several
solutions that help clients reduce the risk of system compromise
and increase the confidence of their online customers. These
offerings are focused on assisting the client in deploying and
maintaining a secure online platform. Security Solutions include:
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Corillian Fraud Detection System. Early Warning system
for Internet-based attacks against web sites; |
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Web site Investigation & Forensics. Tools and
techniques for separating normal from abusive or fraudulent web
site activity; |
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Secure Coding Workshop. Workshop covering
state-of-the-art secure coding techniques for web sites; |
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Delivery System Security Review. Delivery system review
to help ensure resistance to security threats; and |
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Code-level Security Review. Code-level review by Sr.
Security Engineers for potential security issues
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Corillian offers a menu of professional services designed to
fulfill its customers needs throughout the process of
product design, implementation and operation. Corillians
services include:
Implementation Services. Corillians implementation
services begin during the pre-sales process. Corillians
implementation experts perform an analysis of a potential
customers product requirements and determine how these
products can best be integrated with the customers
existing host infrastructure. Corillian then develops a site
survey and a project plan recommendation. Once Corillian is
chosen to install its applications, Corillians
professional service team works with the customer to ensure that
every solution is integrated with the customers existing
financial transaction system for delivery over the Internet. If
necessary, Corillian writes custom interfaces to handle
transaction requests, validate those requests and convert them
to a standard format for Internet-based presentation or to the
Open Financial Exchange format for delivery to personalized
financial management software. Corillian also customizes its
Internet templates to provide its customers with a user
interface that complements its brand recognition, design
elements, color schemes and corporate logos. The implementation
process is generally completed in 60 to 270 days, depending
on the complexity of the project. The fees for Corillians
implementation services vary from project to project, depending
on the size of the customer and the products and services
selected by the customer.
Hosting Services. Corillian offers hosting services to
its customers that prefer to have Corillian handle all of their
Internet-based financial systems. Under this service option, the
customers Corillian Voyager servers reside at
Corillians managed facility, and Corillians staff
monitors and maintains the servers. Corillians services
include weekly log auditing, installation and configuration of
servers, and staff to help its customers manage system
performance and daily operations. Corillian charges a monthly
hosting fee that varies based on the needs of the customer, the
scope of its online services and the solutions deployed.
Consulting Services. By consulting with Corillians
staff, Corillians customers can select and design an
electronic commerce strategy. In addition to consulting with
Corillians customers on the range of products and services
available to them, Corillian helps its customers with product
and Internet site design. For
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customers that lack in-house network security professionals,
Corillian helps develop the appropriate network and security
protection features to ensure a secure system.
Support Services. Corillian offers several levels of
technical and maintenance support for its customers. These
levels are designed to meet Corillians customers
needs and those of their customers. Corillians support
fees vary based on which level of support the customer selects.
In addition to technical support, Corillian provides annual
maintenance support for each customer. These maintenance
services entitle the customer to updates and modifications of
Corillians solutions.
Training Services. Corillian makes available to its
customers a variety of training services and supporting
materials to help them use Corillians applications. All
courses are led by Corillians staff and can be conducted
at the customers location or Corillians headquarters.
Customers
Corillian targets large financial institutions, financial
portals and other financial service providers that are seeking
scalable, reliable and advanced solutions that enable them to
offer Internet-based financial services. Corillian has provided
its solutions primarily to two major industry groups
large financial institutions (primarily banks) and large credit
unions. In 2004, two customers each represented more than 10% of
Corillians consolidated revenues, and in total,
represented approximately 29% of Corillians consolidated
revenues.
Systems and Technology
Corillian Voyager is a scalable platform that uses a
three-tiered architecture, connecting end-users to the existing
host systems of financial institutions. Corillian Voyager routes
and validates requests, formats transaction responses, and
stores and forwards bill payment instructions.
The three layers of the Corillian Voyager architecture each have
a specific functional focus. The Web Server layer is responsible
for presentation interaction with the customer, handling
hyper-text mark-up language to the browser or the Open Financial
Exchange data standard to the connected financial software or
wireless device. The Transaction Processor layer controls the
business logic for the users request, directs the request
to the appropriate host target, and assembles the results. The
Host Server layer interprets and formats the transaction for the
existing host system, then analyzes and returns the data fields
from the response. Optional applications provide incremental
services, such as batch processing of bill payment transactions
or collection of electronic bills.
Corillians systems are designed to provide real-time data
acquisition, processing and presentation for applications used
to offer Internet-based financial services. Specific components
and features of the technology Corillian uses to provide these
benefits include:
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Scalable Framework. Each of the layers of Corillian
Voyager is a software component that can be replicated within
the Corillian Voyager configuration for redundancy and
scalability. By adding an incremental component, work is
distributed among servers across a network. |
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Flexible Interfaces. Corillians solutions are
designed to integrate with virtually any existing host system,
providing a means for financial service providers to easily
bring existing applications to the Internet. Corillians
host server technology allows multiple simultaneous access to
different existing and third-party systems. In addition, browser
interfaces are customizable in form and function, allowing the
financial service provider to display unique branding,
advertising, and extended functionality. |
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Advanced Architecture. The open architecture of Corillian
Voyager enables flexible integration and rapid deployment of
Corillian line of business applications, as well as
Corillian-certified applications |
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from Corillian partners. Powered by Microsoft® Windows
Server 2003 and Microsoft.NET, Corillian Voyager is built to
incorporate emerging Internet finance technology. This
architectural standard allows Corillians applications to
interoperate with other application servers, such as teller and
call center platforms and automated teller machine delivery
systems. |
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Open Financial Exchange Data Standard. Corillians
solutions employ the Open Financial Exchange data standard,
which was developed by Microsoft, CheckFree and Intuit to
provide a unified specification for the electronic exchange of
financial data among financial institutions, businesses and
consumers over the Internet. This data specification
standardizes the connection to financial data centers and to
personal financial management software. By using the Open
Financial Exchange data standard, all financial information
retrieved from a financial institution can be quickly downloaded
to consumer software programs, such as Microsoft Money and
Quicken. |
Strategic Alliances and Partnerships
Corillian has marketing, technology, and resale alliances with a
number of companies in the technology and financial services
industries and will continue to pursue new alliances with
additional companies within these industries. These alliances
are intended to help Corillian address new vertical markets and
market segments and to enable Corillian to provide its customers
with access to additional resources and technology to enhance
and customize Corillians solutions. Some of
Corillians more significant strategic partners include:
Founded in 1999, CashEdge® provides infrastructure that
global financial institutions rely on to extend their online
channels and enhance customer profitability. CashEdge delivers
secure Online Money Movement and Advanced
Account Aggregation platforms that power specialized retail
banking and advisor applications. They have flexible deployment
models that provide for a customized, rapid implementation of
both hosted and onsite solutions. Corillian resells CashEdge
solutions as part of an integrated account aggregation and
online money movement solution to financial institutions.
CheckFree designs, develops and markets services that enable
consumers to make electronic payments and collections, automate
paper-based recurring financial transactions and conduct secure
transactions on the Internet. CheckFree is Corillians
primary partner for remittance processing and was a developer
with Intuit and Microsoft of the Open Financial Exchange data
standard. Corillian has developed a number of Voyager interfaces
to CheckFree systems and resells a bill payment service provided
by CheckFree called CheckFree Web.
Microsoft is the publisher of the Windows 2000 Server network,
the Microsoft Money personal financial management program and
Microsofts new Money Explorer and MSN Money Professional
products and services, and the provider of the MoneyCentral
financial portal. In 2001, Corillian and Microsoft signed a
multi-year alliance agreement to deliver a joint enterprise
eFinance solution to financial institutions worldwide. The
agreement spans technology development, marketing, sales and
support of solutions based on the Corillian Voyager platform,
Microsoft Windows 2000 and 2003 Server network operating
systems, and .NET, Microsofts platform for XML web
services.
In February 2001, Corillian entered into an agreement with NCR
Corporation that provides for NCRs use of the Corillian
Voyager platform as its core consumer banking component for mid-
to large-sized financial institutions. NCR is a leader in
providing Relationship
Technologytm
solutions to customers worldwide in the retail, financial,
communications, manufacturing, travel and transportation, and
insurance markets. NCR customizes the Corillian Voyager software
to allow financial institutions greater flexibility in delivering
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Internet financial services to their customers. NCRs
Internet banking service is run in a managed server model from
its secure and high availability data centers in Columbia,
Maryland and Dallas, Texas.
In November 2003, Corillian and NCR extended their distribution
agreement to provide NCR the right to license the Corillian
Voyager platform as a part of a shared-server Internet banking
solution to service small-sized financial institutions. Under
the terms of the agreement, NCR will market the Voyager-enabled
solution to its existing shared-server customer base, as well as
new prospects in the United States. The shared-server solution
will be hosted by NCR from its secure and high availability data
center in Columbia, Maryland.
In February 2004, Corillian and NCR amended their distribution
agreement to provide NCR the right to market its Voyager-enabled
solutions to financial institutions in markets around the world.
Since 1984, Princeton eCom has continuously delivered Integrated
Payment Solutions, driving growth in the electronic bill payment
industry. It offers an end-to-end, hosted solution in Electronic
Bill Presentment and Payment (EBPP) and bill pay for online
banking and financial services. Currently, over 1,400 financial
institutions and 130 billers use Princeton eComs hosted
solution for bill presentment and electronic payment. Corillian
securely integrates with the Princeton eCom bill payment and
bill presentment-processing engine, providing Corillian
financial services customers a complete Electronic Bill Payment
and Presentment solution.
In July 2000, Corillian entered into an agreement with Yodlee to
develop and market a product that integrates the Corillian
Voyager platform with Yodlees data aggregation service.
Under the terms of the agreement, Corillian and Yodlee will
jointly market and sell a new, integrated banking and
aggregation solution to global financial institutions. The
bundled offering utilizes our expertise with the OFX data
standard and Yodlees industry-leading data aggregation
platform. The service can either be deployed on a hosted basis
by Yodlee or through the Corillian Voyager platform.
Sales and Marketing
Corillian sells its software and services primarily through its
direct sales organization. As of December 31, 2004,
Corillians sales force consisted of 16 personnel,
including a direct sales force of five personnel operating
domestically and one salesperson operating internationally.
Corillians direct sales efforts have historically been
focused on domestic financial service providers, such as banks
and credit unions. Corillian complements its direct sales
efforts through joint sales and marketing arrangements with
Internet-based technology vendors, such as NCR.
Corillians sales process features a multi-tiered approach
that requires the involvement of its field sales personnel, its
technical professionals and members of Corillians senior
management. Corillians sales process simultaneously
targets senior business executives, personnel responsible for
Internet-based initiatives and systems engineers. Corillian
employs this multi-leveled approach to accelerate the purchasing
cycle.
Corillians products are complex, and sales and
implementations can be delayed due to its customers
procedures for approving large capital expenditures and
deploying new technologies within their networks. As a result,
Corillians sales cycle can vary significantly and
typically ranges from three to nine months.
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Research and Development
During 2004, Corillians research and development expenses
totaled $6.7 million. As of December 31, 2004,
Corillians research and development staff consisted of 59
personnel, including 42 engineers. Their development efforts are
focused on:
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Enhancements to Existing Products and Services. Corillian
continues to update and modify its solutions to enhance quality,
performance and scalability, to extend functionality to address
Corillians customers changing needs, and to take
advantage of improved technology within Corillians
industry. |
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Developing New Products and Services. Corillian is
working to expand its product and service offerings. Corillian
intends to expand its product offerings to include new consumer
banking functions, as well as applications for wealth management
and corporate cash management. |
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Participating in Technology Testing and Collaboration.
Corillian has participated in the development of industry data
standards and will continue to collaborate with companies to
develop new technologies and to encourage the adoption and
implementation of open standards that can foster and simplify
the exchange of financial information through the Internet. |
Competition
The market for providing solutions to the Internet financial
services industry is highly competitive, and Corillian expects
that competition will intensify in the future. Corillian
competes with a variety of companies in various segments of the
Internet-based financial services industry, and Corillians
competitors vary in size and in the scope and breadth of the
products and services they offer. In the area of Internet
consumer banking, Corillian primarily competes with other
companies that provide outsourced Internet finance solutions to
large financial institutions, including S1 and Financial Fusion.
Within this market segment, Corillian also competes with
companies that offer software platforms designed for internal
development of Internet-based financial services software, such
as IBMs WebSphere, and the internal information technology
personnel of financial institutions that want to develop their
own solutions. In addition, vendors such as Digital Insight,
FundsXpress, and Online Resources and Communications, who
primarily target community financial institutions, occasionally
compete with Corillian for large financial institutions and
compete with Corillian regularly for smaller financial
institutions. Several of the vendors offering data processing
services to financial institutions, including EDS, Fiserv, Jack
Henry and M&I Data Services, offer their own Internet
banking solutions. Local competition for Internet consumer
banking services is provided by many smaller Internet service
outsourcing companies located throughout the United States.
Corillians primary competition for providing the business
banking services that financial institutions offer their
commercial customers are vendors of cash management systems for
large corporations such as ADP, Digital Insight and
Politzer & Haney.
Corillian believes that its ability to compete successfully
depends upon a number of factors, including:
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Corillians market presence with financial service
providers; |
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the reliability, scalability, security, speed and performance of
Corillians solutions and services; |
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the comprehensiveness, ease of use and service level of
Corillians products and services; |
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Corillians ability to continue to interface with financial
service providers and their technology; |
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Corillians pricing policies and the pricing policies of
its competitors and suppliers; |
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the timing of introductions of new products and services by
Corillian and its competitors; and |
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Corillians ability to meet its customers
expectations. |
Corillian expects competition to continue to increase as new
companies enter its market and existing competitors expand their
product lines and services. In addition, many companies that
provide outsourced Internet finance solutions are consolidating,
creating larger competitors with greater resources and more
products than Corillian.
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Intellectual Property
Although Corillian believes its success is more dependent upon
its technical expertise than its proprietary rights,
Corillians future success and ability to compete is
dependent in part upon its proprietary technology. Corillian has
received trademark registrations for the name Corillian and its
logo. None of Corillians technology is patented, but we
have established an internal patent team of engineers and
in-house counsel to monitor and evaluate as part of the new
product development cycle Corillians technologies and
business methods for patentability. Corillian has several patent
applications pending in the United States Patent and Trademark
Office.
Corillian relies on a combination of contractual rights and
copyright, trademark and trade secret laws to establish and
protect its proprietary technology. Corillian requires all of
its employees to sign an assignment of patents and inventions
agreement and generally enter into confidentiality agreements
with Corillians employees, consultants, resellers,
customers and potential customers. Corillian also limits access
to and distribution of its source code, and further limits the
disclosure and use of other proprietary information. Corillian
cannot assure that the steps taken in this regard will be
adequate to prevent misappropriation of its technology or that
its competitors will not independently develop technologies that
are substantially equivalent or superior to Corillians
technology. Corillian also cannot assure that Corillian will not
infringe upon the intellectual property rights of third parties.
Despite Corillians efforts to protect its proprietary
rights, unauthorized parties may attempt to copy or otherwise
obtain or use Corillians products or technology. In
addition, the laws of some foreign countries do not protect
Corillians proprietary rights to the same extent as do the
laws of the United States. The costs of defending
Corillians proprietary rights or claims that Corillian
infringes on third-party proprietary rights may be high.
Government Regulation
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 Corillians
solutions. Corillian believes its business does not currently
subject Corillian to any of these rules or regulations that
would adversely affect its business. However, these rules and
regulations are new and may be interpreted to apply to
Corillians 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 Corillians 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. Corillians customers must ensure their
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 its
business evolves. Federal, state or foreign authorities could
adopt laws, rules or regulations affecting Corillians
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 or Corillians customers,
could lead to increased operating costs and could also reduce
the convenience and functionality of Corillians 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 Corillians business, financial
condition and operating results.
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Backlog
As of December 31, 2004, Corillian had a backlog of
unfilled orders of $32.4 million, as compared to a backlog
of $37.2 million as of December 31, 2003. Corillian
expects that a majority of its backlog as of December 31,
2004 will be filled during fiscal 2005. Backlog represents
contractual customer commitments, including fees for licenses,
professional services, maintenance, hosting and subscriptions.
Backlog is not necessarily indicative of revenues to be
recognized in a specified future period. There are many factors
that would impact Corillians filling of backlog, such as
Corillians progress in completing projects for its
customers and Corillians customers meeting
anticipated schedules for customer-dependent deliverables.
Corillian provides no assurances that any portion of its backlog
will be filled during any fiscal year or at all or that its
backlog will be recognized as revenues in any given period.
Employees
As of December 31, 2004, Corillian had a total of 224
employees, including 103 in operations, 10 in marketing, 16 in
sales, 59 in research and development, and 36 in general and
administration. None of Corillians work force is
unionized. Corillian has not experienced any work stoppages and
considers its relations with its employees to be good.
Certain Financial Information
Financial information relating to foreign and domestic sales and
assets for the three years ended December 31, 2004, 2003
and 2002, is set forth in Note 8(a), Segment
Information; Geographic Information of the Notes to
Consolidated Financial Statements attached hereto.
Risk Factors
You should carefully consider the following factors regarding
information included in this Annual 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, Corillians business, financial condition
and operating results could be materially adversely affected.
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While Corillian Generated Net Income in the Last Seven
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 $10.5 million during
the year ended December 31, 2004 and approximately
$5.1 million during the year ended December 31, 2003;
however, as of December 31, 2004, Corillian had an
accumulated deficit of approximately $97.4 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 Corillians ability to sell its
products and services.
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Corillians Quarterly Results Fluctuate Significantly
and May Fall Short of Anticipated Levels, Which May Cause the
Price of Its Common Stock to Decline |
Corillians 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, Corillians
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
Corillians 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
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services can cause Corillians 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.
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If Corillian, or Its Implementation Partners, Do Not
Effectively Implement Corillians Solutions, Corillian May
Not Achieve Anticipated Revenues or Gross Margins |
Corillians solutions are complex and must integrate with
complex data processing systems. Implementing Corillians
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
Corillians 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.
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Corillians 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 Corillians 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, Corillians 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.
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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 Corillians 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.
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A Small Number of Customers Account for a Substantial
Portion of Corillians Revenues in Each Period;
Corillians 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
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business, its revenues would be adversely affected. During the
year ended December 31, 2004, two customers individually
accounted for more than 10% of consolidated revenues, and, in
total, these two customers accounted for approximately 29% of
consolidated revenues. During the year ended December 31,
2003, two customers individually accounted for more than 10% of
consolidated revenues, and, in total, these two customers
accounted for approximately 28% of consolidated revenues. During
the year ended December 31, 2002 one customer individually
accounted for more than 10% of consolidated revenues, and, in
total, this customer accounted for approximately 11% 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.
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Corillian 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.
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Corillian May Need to Raise Additional Financing to
Fund Its Operations and May Not be Able to Raise Funds on
Beneficial Terms or at All |
Because it has a history of losses and has limited cash
resources, Corillian may need to raise financing in the future
to fund its operations. If Corillian is required to raise
financing, it may be required to sell equity or debt securities
at severely discounted prices and with terms that are superior
to the rights of its common shareholders, or Corillian may not
be able to raise financing at all. If Corillian sells equity or
debt securities, the price of its common stock could decrease
significantly, and the interests of its common shareholders
could be diluted substantially.
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Corillians 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 Corillians 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
Corillians products and services to its customers. In
addition, Corillians 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 Corillians systems in the future could
cause it to refund fees to some of its customers to compensate
for decreased levels of service.
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Competition in the Market for Internet-Based Financial
Services is Intense and Could Reduce Corillians 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.
Corillians primary competitors for software platforms
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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 IBMs WebSphere. Within this
segment of Corillians industry, many companies are
consolidating, creating larger competitors with greater
resources and a broader range of products.
In addition, Corillians 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 Corillians solutions.
Many of Corillians competitors and potential competitors
have a number of significant advantages over Corillian,
including:
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a longer operating history; |
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more extensive name recognition and marketing power; |
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preferred vendor status with Corillians existing and
potential customers; and |
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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. |
Corillians competitors may also bundle their products in a
manner that may discourage users from purchasing
Corillians 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.
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Consolidation in the Financial Services Industry Could
Reduce the Number of Corillians Customers and Potential
Customers |
As a result of the mergers and acquisitions occurring in the
banking industry today, some of Corillians 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 Corillians existing customers
that licenses Corillians products under a contract with
more favorable terms and that can be applied to the acquired
customers business operations. This may result in a
reduction in Corillians anticipated revenues from the
acquired customer. Recently, two of Corillians largest
customers, J.P. Morgan Chase and Bank One, merged, and one
of Corillians customers, Charter One Bank, was acquired by
Citizens Bank.
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Corillian May Incur Substantial Losses from Non-Operating
Activities, Such as Its Minority Investments in Other Companies,
or Lose the Entire Amount Corillian Has Invested in Other
Companies |
In the second fiscal quarter of 2000, Corillian made a
$3.0 million minority investment in e-Banc, LLC, a Delaware
limited liability company. On February 12, 2004, e-Banc
changed its name to Synoran LLC. Corillian
contributed an additional $1.0 million in cash to Synoran
during the first quarter of 2003. Corillian does not anticipate
making any further cash contributions to Synoran. Under
applicable accounting rules, Corillians proportionate
share of any losses incurred by Synoran will be reflected on its
statement of operations as a loss from non-operating activities.
During the years ended December 31, 2004, 2003 and 2002,
Corillian incurred approximately $813,000, $1.1 million and
$916,000, respectively, in losses from non-operating activities
as a result of its investment in Synoran. Corillian may lose all
or a portion of its remaining investment in Synoran, which was
$128,000 as of December 31, 2004.
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Corillian may in the future make similar investments in other
companies. These investments could result in additional losses
for Corillian.
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If Corillian Loses Key Personnel, Corillian Could
Experience Reduced Sales, Delayed Product Development and
Diversion of Management Resources |
Corillians 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.
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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 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:
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longer accounts receivable collection cycles; |
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expenses associated with localizing products for foreign markets; |
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difficulties in managing operations and partners across
disparate geographic areas; |
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difficulties in hiring qualified local personnel, finding
qualified partners and complying with disparate labor laws; |
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foreign currency exchange rate fluctuations; |
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difficulties associated with enforcing agreements and collecting
receivables through foreign legal systems; and |
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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.
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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. Corillian may
not be able to successfully integrate these companies, products
or technologies. In connection with these acquisitions or
investments, Corillian could:
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issue stock that would dilute its current shareholders
percentage ownership; |
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incur debt and assume liabilities; and |
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incur amortization expenses related to intangible assets or
incur large impairment charges. |
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Future acquisitions also could pose numerous additional risks to
Corillians operations, including:
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problems combining the purchased operations, technologies or
products; |
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problems integrating the business models of acquisition targets
with Corillians; |
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unanticipated costs; |
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diversion of managements attention from Corillians
core business; |
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adverse effects on existing business relationships with
suppliers and customers; |
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entering markets in which Corillian has no or limited prior
experience; and |
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potential loss of key employees, particularly those of the
purchased organization. |
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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-partys intellectual property rights. Any
intellectual property infringement claims against Corillian,
with or without merit, could be costly and time-consuming to
defend, divert Corillians managements 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 Corillians products
were found to infringe a third partys 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
Corillians current or potential future products infringe
their intellectual property.
|
|
|
Network or Internet Security Problems Could Damage
Corillians 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 Corillians products and
deter consumers of financial services from using
Corillians 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. Corillians 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 Corillians Internet security
measures inadequate.
Someone who is able to circumvent security measures could
misappropriate proprietary information or cause interruptions in
Corillians 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 Corillians services, any of which could harm
Corillians business.
|
|
|
New Technologies Could Render Corillians Products
Obsolete |
If Corillian is unable to develop products that respond to
changing technology, Corillians 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.
18
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
Corillians products and could render its products obsolete
and unmarketable. Corillians 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 Corillians industry, Corillian may need to
rewrite portions of its products in another computer language or
for another operating system to remain competitive.
|
|
|
Defects in Corillians Solutions and System Errors in
Its Customers Data Processing Systems After Installing
Corillians Solutions Could Result in Loss of Revenues,
Delay in Market Acceptance and Injury to Corillians
Reputation |
Complex software products like Corillians 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 Corillians new products
or services, its enhanced products or services, or products or
services Corillian resells for strategic partners, such as
Yodlees 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 Corillians reputation or increased warranty
costs.
|
|
|
Corillians Products and Services Must Interact With
Other Vendors Products, Which May Not Function
Properly |
Corillians products are often used in transaction
processing systems that include other vendors products,
and, as a result, Corillians products must integrate
successfully with these existing systems. System errors, whether
caused by Corillians 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 Corillians 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 Corillians 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 Corillians 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 |
Corillians 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 Corillians 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 Corillians efforts to protect its intellectual
property, a third party could copy or otherwise obtain
Corillians software or other proprietary information
without authorization, or could develop software competitive to
Corillians. Corillians competitors may independently
develop similar technology, duplicate its products or design
around Corillians intellectual property rights. In
addition, the laws of some foreign countries do not protect
Corillians 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.
19
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 Corillians intellectual property rights is
expensive, could cause the diversion of Corillians
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
Corillians 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 Corillians
solutions. Corillian believes its business does not currently
subject it to any of these rules or regulations that would
adversely affect Corillians business. However, these rules
and regulations are new and may be interpreted to apply to
Corillians 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 Corillians 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. Corillians 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 Corillians 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 Corillians customers businesses, could
lead to increased operating costs and could also reduce the
convenience and functionality of Corillians 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 Corillians business, financial
condition and operating results.
Corillians corporate headquarters are located in
Hillsboro, Oregon. Corillian originally leased approximately
122,000 square feet at its World Campus, and the lease for
this space expired in October 2007. In August 2004, Corillian
amended the lease on its World Campus. The amendment reduced the
space leased effective January 1, 2005 to approximately
100,000 square feet. The amendment also extended the lease
through September 2010.
Corillian also leased approximately 21,000 square feet in
another office building in Beaverton, Oregon, of which
approximately 12,000 square feet was sub-leased. The lease
for this space expired in February 2005. Corillian did not renew
this lease. From time to time, Corillian leases office space in
foreign countries on a daily or weekly basis. Corillian does not
own or lease any other properties or facilities.
20
|
|
Item 3. |
Legal Proceedings |
Corillian is not currently engaged in any legal proceedings.
|
|
Item 4. |
Submission of Matters to a Vote of Security Holders |
Not applicable.
PART II
|
|
Item 5. |
Market for the Registrants Common Equity, Related
Shareholder Matters and Issuer Purchases of Equity
Securities |
Corillians Common Stock is traded on the NASDAQ National
Market under the ticker symbol CORI. Public trading of the
Common Stock commenced on April 12, 2000. Prior to that,
there was no public market for the Common Stock. The following
table sets forth, for the periods indicated, the high and low
sale price per share of the Common Stock as reported by the
NASDAQ National Market:
|
|
|
|
|
|
|
|
|
|
|
High | |
|
Low | |
|
|
| |
|
| |
Year ended December 31, 2003
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$ |
1.00 |
|
|
$ |
0.61 |
|
Second Quarter
|
|
$ |
2.10 |
|
|
$ |
0.64 |
|
Third Quarter
|
|
$ |
4.20 |
|
|
$ |
1.70 |
|
Fourth Quarter
|
|
$ |
7.45 |
|
|
$ |
3.52 |
|
Year ended December 31, 2004
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$ |
8.15 |
|
|
$ |
4.30 |
|
Second Quarter
|
|
$ |
5.69 |
|
|
$ |
3.72 |
|
Third Quarter
|
|
$ |
6.25 |
|
|
$ |
4.04 |
|
Fourth Quarter
|
|
$ |
6.05 |
|
|
$ |
4.38 |
|
As of February 28, 2005, Corillians common stock was
held by 120 shareholders of record. Brokers and other
institutions hold many of such shares on behalf of shareholders.
Corillian has never declared or paid any cash dividends on its
Common Stock. Corillian currently intends to retain its
earnings, if any, for use in its business and does not
anticipate paying any cash dividends in the foreseeable future.
21
|
|
Item 6. |
Selected Financial Data |
The following selected financial data and other operating
information are derived from Corillians audited
consolidated financial statements. The tables shown below
represent portions of Corillians consolidated financial
statements and are not complete. This selected financial data
should be read in conjunction with Managements
Discussion and Analysis of Financial Condition and Results of
Operations and Corillians audited consolidated
financial statements and related notes included elsewhere in
this report. Historical results are not necessarily indicative
of the results of operations in future periods.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
2000 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands, except for per share amounts) | |
Consolidated Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$ |
50,794 |
|
|
$ |
46,132 |
|
|
$ |
39,141 |
|
|
$ |
53,848 |
|
|
$ |
30,853 |
|
Gross profit
|
|
|
32,345 |
|
|
|
25,631 |
|
|
|
18,719 |
|
|
|
23,491 |
|
|
|
8,354 |
|
Income (loss) from operations
|
|
|
11,185 |
(1) |
|
|
6,396 |
|
|
|
(15,910 |
)(2) |
|
|
(48,998 |
)(3) |
|
|
(35,169 |
) |
Net income (loss)
|
|
|
10,480 |
|
|
|
5,126 |
|
|
|
(17,257 |
) |
|
|
(49,301 |
) |
|
|
(33,255 |
) |
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
0.28 |
|
|
$ |
0.14 |
|
|
$ |
(0.49 |
) |
|
$ |
(1.42 |
) |
|
$ |
(1.33 |
) |
|
Diluted
|
|
$ |
0.26 |
|
|
$ |
0.14 |
|
|
$ |
(0.49 |
) |
|
$ |
(1.42 |
) |
|
$ |
(1.33 |
) |
Weighted average shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
37,727 |
|
|
|
36,431 |
|
|
|
35,477 |
|
|
|
34,645 |
|
|
|
25,106 |
|
|
Diluted
|
|
|
40,474 |
|
|
|
37,813 |
|
|
|
35,477 |
|
|
|
34,645 |
|
|
|
25,106 |
|
|
|
(1) |
Corillian recorded an impairment charge of $491 during the year
ended December 31, 2004. See Note 9 to the
consolidated financial statements for further discussion. |
|
(2) |
Corillian recorded restructuring and litigation settlement
charges of $682 and $2,580, respectively, during the year ended
December 31, 2002. See Notes 7 and 9 to the
consolidated financial statements for further discussion. |
|
(3) |
Corillian recorded restructuring and impairment charges of
$18,097 during the year ended December 31, 2001. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
2000 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands, except for per share amounts) | |
Consolidated Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
29,200 |
|
|
$ |
16,943 |
|
|
$ |
13,221 |
|
|
$ |
15,203 |
|
|
$ |
20,850 |
|
Restricted cash
|
|
|
|
|
|
|
|
|
|
|
1,003 |
|
|
|
|
|
|
|
|
|
Short-term investments
|
|
|
10,150 |
|
|
|
9,901 |
|
|
|
4,410 |
|
|
|
2,500 |
|
|
|
28,300 |
|
Working capital
|
|
|
29,417 |
|
|
|
14,417 |
|
|
|
5,924 |
|
|
|
17,759 |
|
|
|
41,299 |
|
Total assets
|
|
|
55,269 |
|
|
|
42,818 |
|
|
|
37,479 |
|
|
|
50,243 |
|
|
|
101,158 |
|
Debt and capital leases, long-term
portion
|
|
|
629 |
|
|
|
1,075 |
|
|
|
1,600 |
|
|
|
3,730 |
|
|
|
5,265 |
|
Total shareholders equity
|
|
|
32,602 |
|
|
|
19,554 |
|
|
|
13,121 |
|
|
|
28,104 |
|
|
|
72,593 |
|
Cash dividends declared
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
|
|
Item 7. |
Managements Discussion and Analysis of Financial
Condition and Results of Operations |
Forward-Looking Statements
The following discussion contains forward-looking statements
that involve risks and uncertainties. Our actual results could
differ materially from those anticipated in the forward-looking
statements as a result of certain factors, including the risks
described in greater detail in Item 1, Part 1,
Business Risk Factors, and elsewhere in
this Form 10-K. See Part I
Item 1 Special Note Regarding
Forward Looking Statements.
Corillian does not guarantee future results, levels of activity,
performance or achievements. Corillian does not intend to update
any of the forward-looking statements after the date of this
document to conform them to actual results or to changes in its
expectations.
Overview
Corillian is a leading provider of solutions that enable banks,
brokers, financial portals and other financial service providers
to rapidly deploy Internet-based financial services.
Corillians solutions allow consumers to conduct financial
transactions, view personal and market financial information,
pay bills and access other financial services on the Internet.
Corillian Voyager is a software platform combined with a set of
applications for Internet banking, electronic bill presentment
and payment, targeted marketing, data aggregation, alerts and
online customer relationship management. Corillians
solutions integrate into existing database applications and
systems and enable its customers to monitor transactions across
all systems in real time. Corillians solutions are also
designed to support multiple lines of business, including small
business banking and credit card management, and to scale to
support millions of users. Current Corillian customers include
J.P. Morgan Chase, The Huntington National Bank, Wachovia
Bank and SunTrust Bank.
Substantially all of Corillians revenues are derived from
licensing Corillians software and performing professional
services for its customers, both through direct sales channels
and indirect sales partners. These professional services include
implementation, custom software engineering, consulting,
maintenance, training and hosting. In most cases, Corillian
recognizes revenues for licenses, implementation, training and
custom engineering services using the percentage-of-completion
method. Revenues relating to maintenance and hosting services
are recognized ratably over the term of the associated contract.
Revenues derived from consulting services are recognized as the
services are performed. Corillian generally licenses Corillian
Voyager on an end user basis, with its initial license fee based
on a fixed number of end users. As a customer increases its
installed base of end users beyond the initial fixed number of
end users, Corillians software license requires the
customer to pay Corillian an additional license fee to cover
additional increments of end users. Revenues from additional
seat sales are generally recognized in the period in which the
licenses are sold.
The market for new sales of Internet banking solutions continued
to be challenging in 2003 and 2004 due to various factors,
including conservative information technology spending and
budget priorities of financial institutions. Despite these
conditions, Corillian was able to sign a significant contract in
the second quarter of 2004 with Wachovia Bank. However, most of
Corillians license revenues in 2003 and 2004 came from
sales to existing customers. During these periods, Corillian
significantly improved its operating performance by increasing
sales to existing customers and reducing and controlling
operating expenses. Moving forward, Corillian will focus on
developing additional applications to complement its market
position within retail Internet banking and selling more
products and services to new and existing customers.
Revenues for 2004 were $50.8 million, as compared to
revenues of $46.1 million and $39.1 million in 2003
and 2002, respectively. The increase in revenues of
$4.7 million, or 10%, in 2004 as compared to 2003, was due
primarily to an increase in consolidated maintenance revenues of
approximately $2.6 million in 2004, as compared to 2003,
which resulted from an increase in Corillians installed
customer base from 2003 to 2004. The increase in revenues was
also due to an increase in hosting revenues of $1.5 million
in 2004, as compared to 2003, primarily related to one
significant new hosting customer in 2004. The increase in
revenues of $7.0 million, or 18%, in 2003 as compared to
2002 was primarily due to an increase in software license and
professional services revenues of approximately
$4.6 million during 2003, as compared to 2002, including
23
$1.8 million in sales of additional licenses to existing
customers. The increase in revenues was also due to an increase
in maintenance revenues of approximately $1.9 million in
2003, as compared to 2002, which resulted from an increase in
Corillians installed customer base from 2002 to 2003.
During 2004, two customers individually accounted for more than
10% of consolidated revenues, and, in total, these two customers
accounted for approximately 29% of consolidated revenues. During
2003, two customers accounted in the aggregate for approximately
28% of consolidated revenues. During 2002, one customer
accounted for approximately 11% of consolidated revenues.
Gross profit as a percentage of revenues improved to 63.7% in
2004, as compared to 55.6% and 47.8% in 2003 and 2002,
respectively. The increase in gross profit as a percentage of
revenues of 8.1% during 2004, as compared to gross profit as a
percentage of revenues during 2003, was mainly due to a change
in sales mix. License, maintenance and hosting revenues, in
dollars and as a percentage of revenues, increased during 2004,
while professional service revenues, in dollars and as a
percentage of revenues, decreased. There are relatively few
costs attributed to license revenues, and there were
insignificant incremental costs attributed to the increased
maintenance and hosting revenues. This increase was partially
offset by use of Corillians research and development
personnel during 2004 to provide services for one of
Corillians customers, which resulted in Corillian
classifying approximately $1.3 million in research and
development expenses related to these personnel as cost of
revenues. The related contract was completed during 2004, so
Corillian does not anticipate similar accounting treatment
during 2005.
The increase in gross profit as a percentage of revenues of 7.8%
during 2003, as compared to 2002, was mainly due to the increase
in sales of additional licenses to existing customers and the
$1.0 million of gross profit recognized during 2003 from
projects on which Corillian used the zero profit
methodology for revenue recognition. This increase was partially
offset by use of Corillians research and development
personnel during 2003 to provide services for one of
Corillians customers, which resulted in Corillian
classifying approximately $1.1 million in research and
development expenses related to these personnel as cost of
revenues.
Corillian reported net income of $10.5 million for 2004, as
compared to net income of $5.1 million and net loss of
$17.3 million in 2003 and 2002, respectively. The increase
in Corillians net income in 2004, as compared to 2003 and
2002, resulted from the increase in revenues and improved gross
margins discussed above and corporate cost containment
initiatives implemented throughout 2002 and 2003.
Corillians overall financial position strengthened
significantly during 2004. Corillian generated
$12.4 million in net cash from operations during 2004 and
had $39.4 million in cash, cash equivalents and short-term
investments as of December 31, 2004, as compared to
$26.8 million in cash, restricted cash, cash equivalents
and short-term investments as of December 31, 2003. Working
capital improved from $14.4 million as of December 31,
2003 to $29.4 million as of December 31, 2004. In
February 2005, Corillian paid off the outstanding balance of
debt held with a financial institution.
Since incorporation, Corillian has incurred substantial costs to
develop and market its technology and to provide professional
services. As a result, Corillian has accumulated a deficit of
approximately $97.4 million as of December 31, 2004.
Corillians limited operating history makes it difficult to
forecast future operating results. As a result of the rapid
evolution of Corillians business and limited operating
history, Corillian believes period-to-period comparisons of its
results of operations, including its revenues and cost of
revenues and operating expenses as a percentage of revenues are
not necessarily indicative of its future performance.
Corillian is in negotiations regarding the potential acquisition
of a company that provides products and services related to
Corillians business. The purchase price for the
acquisition is currently contemplated to be approximately
$20 million, but the final amount has not been established
as of the date of this report. Corillian currently anticipates
that it would issue Corillian stock for most of the purchase
price and that it would pay cash for the remainder of the
purchase price. Neither Corillian nor the potential seller is
under any current obligation to proceed with the transaction.
The transaction remains subject to, among other things,
completion of due diligence, negotiation of appropriate
agreements and obtaining corporate and third-party approvals.
24
Critical Accounting Policies and Estimates
Managements discussion and analysis of financial condition
and results of operations is based upon Corillians audited
consolidated financial statements, which have been prepared in
accordance with U.S. generally accepted accounting
principles. The preparation of consolidated financial statements
requires Corillian to make estimates and judgments that affect
the reported amounts of assets, liabilities, revenues and
expenses, and related disclosure of contingent assets and
liabilities. On an on-going basis, Corillian evaluates its
estimates, including those related to revenue recognition, bad
debts, investments, income taxes, restructuring, and
contingencies and litigation. Corillian bases its estimates on
historical experience and on various other assumptions that are
believed to be reasonable under the circumstances, the results
of which form the basis for making judgments about the carrying
values of assets and liabilities that are not readily apparent
from other sources. Actual results may differ from these
estimates under different assumptions or conditions.
Certain of Corillians accounting policies require higher
degrees of judgment than others in their application. These
include revenue recognition and accruals for contracts in loss
positions. Corillians policy and related procedures for
software revenue recognition are summarized below.
Revenue Recognition. Corillian recognizes revenues from
software licensing agreements in accordance with the provisions
of Statement of Position (SOP) No. 97-2, Software
Revenue Recognition, as amended by SOP No. 98-9,
Modification of SOP No. 97-2, Software Revenue
Recognition, with Respect to Certain Transactions.
Corillians software arrangements generally include
software licenses, implementation and custom software
engineering services, post-contractual customer support,
training services and hosting services. Corillians
software licenses are, in general, functionally dependent on
implementation, training and certain custom software engineering
services; therefore, software licenses and implementation and
training services, together with custom software engineering
services that are essential to the functionality of the
software, are combined and recognized using the
percentage-of-completion method of contract accounting in
accordance with SOP No. 81-1, Accounting for Performance
of Construction-Type and Certain Production-Type Contracts.
Corillian has determined that post-contractual customer support
and hosting services can be separated from software licenses,
implementation, training and custom software engineering
services because (a) post-contractual customer support and
hosting services are not essential to the functionality of any
other element in the arrangement, and (b) sufficient
vendor-specific objective evidence exists to permit the
allocation of revenue to these service elements. The hosting
element can be accounted for separately from the license
element, as the customer can take possession of the software
without significant penalty, in accordance with Emerging Issues
Task Force (EITF) 00-3, Application of AICPA Statement
of Position 97-2 to Arrangements that Include the Right to Use
Software Stored on Another Entitys Hardware.
The percentage-of-completion is measured by the percentage of
contract hours incurred to date compared to the estimated total
contract hours for each contract. Corillian has the ability to
make reasonably dependable estimates relating to the extent of
progress towards completion, contract revenues and contract
costs. Any estimation process, including that used in preparing
contract accounting models, involves inherent risk. Profit
estimates are subject to revision as the contract progresses
towards completion. Revisions in profit estimates are charged to
income in the period that the facts giving rise to the revision
become known. Corillian reduces the inherent risk relating to
revenue and cost estimates in percentage-of-completion models
through various approval and monitoring processes and policies.
Risks relating to service delivery, usage, productivity and
other factors are considered in the estimation process.
Cumulative revenues recognized may be less or greater than
cumulative billings at any point in time during a
contracts term. The resulting difference is recognized as
deferred revenue or revenue in excess of billings, respectively.
Provisions for estimated losses on uncompleted contracts are
made in the period in which such losses are determined.
Vendor-specific objective evidence has been established on
post-contractual customer support and hosting services using the
renewal rate. Corillian allocates revenue to certain elements in
multiple element arrangements using the residual method. The
difference between the total software arrangement fee and the
amount deferred for post-contractual customer support and
hosting services is allocated to software license,
implementation, training and custom software engineering
services and recognized using contract accounting.
25
Revenues for post-contractual customer support are recognized
ratably over the term of the support services period, generally
a period of one year. Services provided to customers under
customer support and maintenance agreements generally include
technical support and unspecified product upgrades deliverable
on a when and if available basis. Revenues from hosting services
for transactions processed by Corillian are recognized ratably
over the hosting term.
Pursuant to SOP No. 81-1, on projects where ultimate
recoverability is questionable due to inherent hazards,
Corillian limits revenue recognition in the period to the amount
of project costs incurred in the same period, and postpones
recognition of profits until results can be estimated more
precisely. Under this zero profit methodology, equal
amounts of revenues and costs, measured on the basis of
performance during the period, are presented in Corillians
consolidated statements of operations.
Corillian generally licenses Corillian Voyager on an end-user
basis, with its initial license fee based on a fixed number of
end users. As a customer increases its installed base of end
users beyond the initial fixed number of end users,
Corillians software license agreements require customers
to pay Corillian an additional license fee to cover additional
increments of end users. Revenues from additional license seat
sales, less any amounts related to maintenance included in the
arrangement, are generally recognized in the period in which the
licenses are sold.
In arrangements where Corillian does not have an obligation to
install its products, but may become involved in the
installation of these products, Corillian recognizes
non-refundable license fees over the estimated implementation
period for the customer or resellers project. If Corillian
determines that the customer or reseller can successfully
install Corillians products in a production environment
without Corillians involvement, Corillian will recognize
non-refundable license fees in the period in which
collectibility of the license fees is probable, assuming all
other SOP No. 97-2 revenue recognition criteria are met.
In certain arrangements, Corillian may defer all revenues and
related costs of revenues until delivery is complete and
customer acceptance is obtained. These arrangements have certain
elements of risk such as an obligation to deliver new products
when technological feasibility has not been obtained at the
onset of the arrangement or an obligation to deliver software
customized to a customer specifications. In arrangements where
Corillian is providing customized functionality on a best
efforts basis, Corillian generally recognizes revenues as
services are performed. Arrangements where customers fund
expedited development of software products are accounted for as
funded research and development. In arrangements where Corillian
retains and reserves title and all ownership rights to the
software products, Corillian recognizes these funds as a
reduction of research and development expense.
Income Taxes. Corillian has established a valuation
allowance for certain deferred tax assets, including those for
net operating loss and tax credit carryforwards. Such a
valuation allowance is recorded when it is more likely than not
that the deferred tax assets will not be realized. This
determination was based on an evaluation of positive and
negative factors including our net loss position for the
three-year period ended December 31, 2004, future
projections and limitations on the use of net operating losses.
The valuation allowance at December 31, 2004 and 2003 was
$27.8 million and $30.6 million, respectively.
Corillian will continue to evaluate the need for a valuation
allowance in future reporting periods.
26
Results of Operations
The following table sets forth for the periods indicated the
percentage of revenues represented by certain lines in
Corillians audited consolidated statements of operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended | |
|
|
December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
Revenues
|
|
|
100 |
% |
|
|
100 |
% |
|
|
100.0 |
% |
Cost of revenues
|
|
|
36.3 |
|
|
|
44.4 |
|
|
|
52.2 |
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
63.7 |
|
|
|
55.6 |
|
|
|
47.8 |
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
14.3 |
|
|
|
13.9 |
|
|
|
29.9 |
|
|
Research and development
|
|
|
13.2 |
|
|
|
12.9 |
|
|
|
19.8 |
|
|
General and administrative
|
|
|
13.2 |
|
|
|
14.8 |
|
|
|
28.2 |
|
|
Amortization of deferred stock-based compensation
|
|
|
|
|
|
|
0.1 |
|
|
|
2.3 |
|
Litigation settlement charges
|
|
|
|
|
|
|
|
|
|
|
6.6 |
|
Restructuring and impairment charges
|
|
|
1.0 |
|
|
|
|
|
|
|
1.7 |
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
41.7 |
|
|
|
41.7 |
|
|
|
88.5 |
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
22.0 |
|
|
|
13.9 |
|
|
|
(40.7 |
) |
|
|
|
|
|
|
|
|
|
|
Other income (expenses), net
|
|
|
(1.1 |
) |
|
|
(2.5 |
) |
|
|
(3.4 |
) |
|
|
|
|
|
|
|
|
|
|
Net income (loss) before income taxes
|
|
|
20.9 |
% |
|
|
11.4 |
% |
|
|
(44.1 |
)% |
Income taxes
|
|
|
0.3 |
|
|
|
0.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
20.6 |
% |
|
|
11.1 |
% |
|
|
(44.1 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Comparison of Years Ended December 31, 2004, 2003,
and 2002 |
Revenues
Revenues increased from $46.1 million for 2003 to
$50.8 million for 2004. This increase in revenues of
$4.7 million, or 10%, was primarily due to an increase in
maintenance revenues of approximately $2.6 million, as
Corillians customer base increased from 2003 to 2004. The
increase in revenues was also due to an increase in hosting
revenues of $1.5 million in 2004, as compared to 2003,
primarily related to one significant hosted customers
service starting in 2004.
Corillians international operations contributed
approximately $988,000 to Corillians consolidated revenues
in 2004, as compared to $659,000 in 2003. Corillian does not
expect its international operations to generate significant
revenues during fiscal 2005. Corillian is pursuing ways in which
to increase revenues derived from its international operations
through resellers. Until Corillians resellers are
successful at distributing and implementing Corillians
products internationally, Corillian does not anticipate that
revenues from international operations will comprise a
significant percentage of its consolidated revenues.
Revenues increased from $39.1 million for 2002 to
$46.1 million for 2003. This increase in revenues of
$7.0 million, or 18%, was primarily due to an increase in
consolidated software license and professional service revenues
of approximately $4.6 million during 2003, as compared with
2002. This increase was also partially due to an increase of
$1.8 million in sales of additional licenses to existing
customers during 2003, as compared with 2002. The majority of
the revenues from these additional license sales were recognized
in the period in which the licenses were sold. The increase in
revenues during 2003 was also due to an increase in maintenance
revenues of approximately $1.9 million, as compared with
2002, as Corillians installed customer base increased from
2002 to 2003.
Due to certain triggering events included in a customers
contract, beginning with the three-month period ended
September 30, 2002, Corillian applied the zero
profit methodology discussed above to three existing
projects for one customer. Both revenue and expense recognized
from these projects accounted for under the
27
zero profit methodology during 2003 and 2002, was
approximately $714,000 and $271,000, respectively. As all three
of this customers projects were completed and accepted
during 2003, Corillian recognized an additional
$1.0 million of revenues related to these projects, which
had been previously deferred until completion of the projects,
during 2003. Since all cost of revenues associated with these
projects had been previously recognized using the zero
profit methodology, recognition of this deferred revenue
resulted in the corresponding recognition of $1.0 million
in gross profit during 2003. No further revenues were deferred
on these projects as of December 31, 2003.
Corillians international operations contributed
approximately $659,000 to Corillians consolidated revenues
in 2003, as compared with $826,000 to Corillians
consolidated revenues in 2002. Corillian Services, Inc.
contributed $475,000 to Corillians consolidated revenues
for 2003, as compared with approximately $2.2 million to
Corillians consolidated revenues for 2002. Corillian
Services, Inc. was eliminated as a separate entity at the end of
2003, therefore, Corillian does not anticipate generating
revenues in the future from Corillian Services, Inc.
As of December 31, 2004, Corillian had a backlog of
unfilled orders of $32.4 million, as compared to a backlog
of $37.2 million as of December 31, 2003. Backlog
decreased during 2004, as revenues recognized were greater than
bookings during this period.
Backlog represents contractual customer commitments, including
fees for licenses, professional services, maintenance, hosting
and subscriptions. Backlog is not necessarily indicative of
revenues to be recognized in any given future period. There are
many factors that could impact Corillians filling of
backlog, such as Corillians progress in completing
projects for its customers and Corillians customers
meeting anticipated schedules for customer-dependent
deliverables. Corillian provides no assurances that any portion
of its backlog will be filled during any fiscal year or at all
or that its backlog will be recognized as revenues in any given
period.
Cost of Revenues
Cost of revenues consists primarily of salaries and related
expenses for professional service personnel and outsourced
professional service providers who are responsible for the
implementation and customization of Corillians software
and for maintenance and support personnel who are responsible
for post-contractual customer support.
Cost of revenues decreased from $20.5 million in 2003, to
$18.4 million in 2004. Gross profit increased as a
percentage of revenues from 55.6% in 2003 to 63.7% in 2004. The
increase in gross profit as a percentage of revenues during
2004, as compared to 2003, was mainly due to a higher percentage
of license, maintenance and hosting revenues. License,
maintenance and hosting revenues, in dollars and as a percentage
of revenues, increased during 2004, while professional service
revenues, in dollars and as a percentage of revenues decreased.
There are relatively few costs attributed to license revenues,
and there were insignificant incremental costs attributed to the
increased maintenance and hosting revenues. The decrease in cost
of revenue was partially offset by $1.3 million of
expenses, related to research and development personnel
providing services for one of Corillians customers being
classified as cost of revenues during 2004. Corillian does not
anticipate similar use of research and development personnel to
provide services to our customers in 2005, as this project was
substantially completed during 2004.
Cost of revenues remained essentially flat from approximately
$20.4 million in 2002, to $20.5 million in 2003. Gross
profit increased as a percentage of revenues from 47.8% in 2002,
to 55.6% in 2003. The increase in gross profit as a percentage
of revenues during 2003, as compared to 2002, was mainly due to
the increase of $1.8 million in sales of additional
licenses to existing customers and the $1.0 million of
gross profit recognized during 2003 from projects on which
Corillian had used the zero profit methodology for
revenue recognition. The increase in gross profit as a
percentage of revenues was also partially attributable to
improved margins on hosting services and post-contractual
customer support. This increase was partially offset by use of
Corillians research and development personnel during 2003
to provide services for one of Corillians customers, which
resulted in Corillian classifying approximately
$1.1 million in research and development expenses related
to these personnel as cost of revenues.
28
Operating Expenses
Sales and Marketing Expenses. Sales and marketing
expenses consist of salaries, commissions, and related expenses
for personnel involved in marketing, sales and support
functions, as well as costs associated with trade shows and
other promotional activities.
Sales and marketing expense increased from $6.4 million for
2003 to $7.3 million for 2004. This increase of $900,000,
or 14%, was mainly due to the number of personnel in marketing
increasing from 7 at the end of 2003 to 10 at the end of 2004.
Sales and marketing expenses also increased due to commissions
and consulting expenses increasing approximately $440,000 and
$250,000, respectively, during 2004. Corillian expects sales and
marketing expenses to increase during 2005 due to additional
investment surrounding additional product lines as well as
increased commissions.
Sales and marketing expenses decreased from $11.7 million
for 2002 to $6.4 million for 2003. This decrease of
$5.3 million, or 45%, was mainly a result of
Corillians restructuring actions to improve operational
efficiency during the second quarter of 2002. Primarily as a
result of these restructuring actions and other corporate cost
containment initiatives, direct international sales and
marketing expenses decreased by approximately $3.0 million
and domestic sales and marketing expenses decreased by
approximately $2.0 million in 2003, as compared to 2002.
Research and Development Expenses. Research and
development expenses consist primarily of salaries and related
expenses for engineering personnel and costs of materials and
equipment associated with the design, development and testing of
Corillians products.
Research and development expenses increased from
$6.0 million in 2003 to $6.7 million in 2004. This
increase of $700,000, or 12%, was mainly due to the number of
personnel in research and development increasing from 46 at the
end of 2003 to 59 at the end of 2004. This increase was
partially offset by $1.3 million in research and
development expenses, related to personnel providing services
for one of Corillians customers, being classified as cost
of revenues in 2004. Corillian does not anticipate incurring
research and development expenses for specific customers that
will be classified as cost of sales during 2005 as this project
was substantially completed during 2004. As such, Corillian
expects research and development expenses to increase during
2005.
Research and development expenses decreased from
$7.7 million for 2002 to $6.0 million in 2003. This
decrease of $1.7 million, or 22%, was mainly due to certain
Corillian research and development personnel providing services
for Corillians customers during 2003, which resulted in
the classification of approximately $1.1 million in
research and development personnel expenses being classified as
cost of revenues in 2003. This decrease was also due to
Corillians restructuring actions during the second quarter
of 2002 and other corporate cost containment initiatives. The
decrease would have been larger if not for the impact of
approximately $290,000 of funded research and development
recorded as a reduction of research and development expense
during the three-month period ended March 31, 2002.
Research and development expenses, to a certain extent, could
fluctuate in future periods due to the additional funding of
Corillians research and development activities by
customers accounted for under the provisions of the Financial
Accounting Standards Boards (FASB) Statement of
Financial Accounting Standards No. 68, Research and
Development Arrangements (Statement No. 68), as well as
internal funding for the development of new products and
enhancements to existing products and the use of
Corillians research and development personnel to provide
services for Corillians customers.
General and Administrative Expenses. General and
administrative expenses consist of salaries and related expenses
for executive, finance, human resources, legal, information
systems management and administration personnel, as well as
professional fees, bad debt expense and other general corporate
expenses.
General and administrative expenses decreased from
$6.8 million in 2003, to $6.7 million in 2004. The
decrease of $100,000, or 1%, was due to a decrease in severance
payments paid to departing officers. This decrease was partially
offset by increased consulting fees related to Sarbanes-Oxley
compliance costs and
29
salaries as the number of personnel in general and
administrative increased from 30 at the end of 2003 to 36 at the
end of 2004. Corillian expects general and administrative
expenses to remain flat in 2005.
General and administrative expenses decreased from
$11.0 million for 2002 to $6.8 million for 2003. The
decrease of $4.2 million, or 38%, was caused by a decrease
of approximately $2.1 million in international general and
administrative expense, which was mainly due to charges totaling
approximately $1.0 million recognized during 2002 to
establish an allowance for doubtful accounts for certain
receivables. The remainder of the decrease in international
general and administrative expense was primarily attributable to
the winding down of Corillians international operations
towards the end of 2002 and beginning of 2003.
The remaining decrease in general and administrative expense
during 2003, as compared to 2002, was partially due to a
$562,000 restructuring charge, which was recorded in general and
administrative expense during the three-month period ended
June 30, 2002. During the three-month period ended
June 30, 2003, Corillian entered into a settlement
agreement with its insurance company regarding this contract
dispute. Under this agreement, Corillians insurance
company agreed to pay Corillian $250,000 in cash, which was
received in July 2003. Corillian recorded this settlement as a
reduction in general and administrative expense for the
three-month period ended June 30, 2003. The remaining
decrease was also due to reduced legal expenses, as
Corillians dispute with KeyBank was settled in October
2002, as well as general cost savings realized throughout the
period as a result of corporate cost containment initiatives.
On November 14, 2003, Steve Sipowicz stepped down as
Corillians Chief Financial Officer and Secretary.
Mr. Sipowicz served as Corillians financial advisor
for a six-month period following his departure.
Mr. Sipowicz received $100,000 as severance and
$2,000 per month during the period he served as financial
advisor. Corillian recorded a charge of $100,000 related to
Mr. Sipowiczs severance agreement as general and
administrative expense during the third quarter of 2003.
Amortization of Deferred Stock-based Compensation.
Deferred stock-based compensation represents the difference
between the exercise price of stock options granted to employees
and the fair value of Corillians common stock at the time
of the grants. In addition, this amount includes the fair value
of stock options granted to non-employees. This amount was being
amortized over the respective vesting periods of these options
on an accelerated basis. For 2004, 2003 and 2002, amortization
of deferred stock-based compensation was $0, $35,000 and
$885,000, respectively. All deferred stock-based compensation
was amortized as of March 31, 2003.
Litigation Settlement Charges. In October 2002, Corillian
and KeyBank settled a dispute surrounding KeyBanks
allegations that one of Corillians employees used
KeyBanks trade secrets in performing work for Corillian.
As part of this settlement, both parties dismissed their
respective claims. Also, as part of this settlement, Corillian
agreed to pay KeyBank approximately $1.8 million in cash
and issue to KeyBank 500,000 shares of common stock, valued
at approximately $750,000. During the fourth quarters of 2004,
2003 and 2002, Corillian made cash payments to Key Bank of
$175,000, $250,000 and $1.4 million, respectively.
Corillian issued the shares of common stock during the fourth
quarter of 2002. Corillian recorded a charge of approximately
$2.6 million during the third quarter of 2002 related to
this settlement.
Restructuring and Impairment Charges. In the third
quarter of 2004, Corillian amended the lease on its corporate
headquarters, reducing the space leased from approximately
122,000 square feet to 100,000 square feet effective
January 1, 2005. Corillian recorded an impairment charge of
$491,000 to write-off the remaining book value of long-lived
assets in the space Corillian abandoned and ceased to use during
the third quarter of 2004.
During the second quarter of 2002, Corillian initiated
restructuring actions to improve operational efficiency and
reduce operating expenses. Charges related to these
restructuring actions were accrued in the period in which
executive management committed to execute such actions. These
actions resulted in a net reduction of worldwide headcount of
49. Restructuring charges recorded in connection with these
actions totaled approximately $682,000, which consisted solely
of severance-related payments, health care costs and
severance-related tax payments. Of these cash restructuring
charges, approximately $398,000 was paid during
30
the second quarter of 2002 and the remainder of approximately
$284,000 was paid during the third quarter of 2002.
Other Income (Expense), Net
Other income (expense), net, consists primarily of interest
earned on cash and cash equivalents and short-term investments,
interest expense, Corillians share of losses in equity
investments, and other miscellaneous items. Other income
(expense), net, decreased from an expense of $1.1 million
in 2003 to an expense of $545,000 in 2004. This decrease was
mainly due to a $320,000 decrease in Corillians
proportionate share of Synorans net loss during 2004, as
compared to 2003, as well as an increase in interest income of
approximately $188,000 and a decrease in interest expense of
approximately $104,000, during 2004, as compared to 2003. During
2005, we anticipate other income will increase due to increased
interest rates. Further, other expenses should decrease, as we
paid off our line of credit in February 2005 and the loss
related to Synoran will decrease as the remaining investment is
approximately $128,000.
Other income (expense), net, decreased from an expense of
$1.3 million in 2002 to an expense of $1.1 million in
2003. This decrease was mainly due to a decrease in interest
expense of approximately $298,000 during 2003, as compared to
2002, as well as an increase in interest income of approximately
$40,000 during 2003, as compared to 2002. This decrease was
partially offset by a $217,000 increase in Corillians
proportionate share of Synorans net loss during 2003, as
compared to 2002.
Income Taxes
Corillian was profitable during 2004 and 2003. Although net
operating loss carryforwards were used to offset taxable income
for regular tax purposes, Corillian was subject to alternative
minimum tax because only 90 percent of taxable income may
be offset by net operating loss carryforwards for alternative
minimum tax purposes. As a result, Corillian recorded an income
tax charge of $160,000 and $124,000 during 2004 and 2003,
respectively, primarily related to alternative minimum taxes. No
provision for federal, state or foreign income taxes was
recorded for 2002 because Corillian had incurred net operating
losses in this year.
As of December 31, 2004, Corillian had federal and state
net operating loss carryforwards of approximately
$53.5 million and foreign net operating loss carryforwards
of approximately $12.8 million to offset against future
taxable income and research and experimentation credits of
approximately $2.9 million. These carryforwards expire
between 2005 and 2024. Corillian had net deferred tax assets,
including Corillians net operating loss carryforwards and
tax credits, of $27.8 million as of December 31, 2004.
A full valuation allowance has been recorded against the net
deferred tax asset balance due to uncertainties regarding the
realizability of the asset balance.
Liquidity and Capital Resources
As of December 31, 2004, Corillian had $39.4 million
in cash, cash equivalents and short-term investments, as
compared to $26.8 million as of December 31, 2003.
Cash equivalents consisted mainly of demand deposits, money
market mutual funds and commercial paper with original
maturities less than 90 days. Short-term investments
consisted mainly of taxable government agency bonds with
original maturities between 90 and 180 days, taxable
municipal bonds and auction rate securities, with original
maturities greater than one year. Although original maturities
are greater than one year, Corillian classifies auction rate
securities as short-term investments as they are bought and sold
at par every 28 to 35 days and therefore are available for
use in normal operations.
In November 2000, Corillian obtained a $5.0 million
equipment line of credit with a financial institution. In June
2003, Corillian refinanced this line of credit to obtain lower
interest rates on its remaining debt with this financial
institution. As of December 31, 2004, approximately
$911,000 was outstanding under this line of credit and no
further amounts were available for borrowing. In February 2005,
Corillian paid off the remaining balance outstanding under this
line of credit.
31
In March 2005, Corillian entered into a new one-year revolving
line of credit facility with another financial institution that
allows Corillian to borrow up to $4.0 million to assist
with working capital needs as necessary. Under this line of
credit, Corillian must comply with affirmative covenants that
require it to maintain a specified tangible net worth value,
quick ratio, liabilities to tangible net worth ratio and certain
levels of net income.
Net cash provided by operating activities was $12.4 million
and $11.3 million for the years ended December 31,
2004 and 2003, respectively. Net income, adjusted to add back
the effect of non-cash items such as depreciation and equity
losses on the Synoran investment, increased by $4.0 million
in the year ended December 31, 2004 over the year ended
December 31, 2003. Various other items affected
Corillians cash provided by operating activities,
offsetting this increase. In the years ended December 31,
2004 and 2003, Corillians accounts receivable balance
increased by $2.1 million, due to the timing of billings
and receipt of payments on large license sales. In the years
ended December 31, 2004 and 2003, Corillians deferred
revenue balance increased by $1.1 million and
$1.6 million, respectively, due to the timing of billings
on large license sales in relation to the periods the revenue
was recognized. During 2003, Corillian also satisfied certain
contractual requirements that allowed for the release of
$1.6 million of escrow funds that Corillian had previously
recorded in other receivables and released restrictions on
another $1.0 million of cash that Corillian had previously
recorded as restricted cash. Both of these items were a part of
Corillians cash provided by operations in the year ended
December 31, 2003.
Net cash provided by operating activities was $11.3 million
and $2.7 million for the years ended December 31, 2003
and 2002, respectively. Net income, adjusted to add back the
effect of non-cash items such as depreciation and equity losses
on the Synoran investment, increased by $17.7 million in
the year ended December 31, 2003 over the year ended
December 31, 2002. Various other items affected
Corillians cash provided by operating activities,
offsetting this increase. In the year ended December 31,
2003, Corillians accounts receivable balance increased by
$2.1 million, whereas in the year ended December 31,
2002, Corillians accounts receivable balance decreased
$5.4 million, due to the timing of billings and receipt of
payments on large license sales. In the years ended
December 31, 2003 and 2002, Corillians deferred
revenue balance increased by $1.6 million and
$5.1 million, due to the timing of billings on large
license sales in relation to the periods the revenue was
recognized. During 2002, as a part of certain contractual
requirements, Corillian also placed $1.6 million into an
escrow account included in other receivables and placed
restrictions on another $1.0 million of cash. During 2003,
Corillian also satisfied the contractual requirements that
allowed for the release of $1.6 million of escrow funds
that Corillian had previously recorded in other receivables and
released restrictions on another $1.0 million of cash that
Corillian had previously recorded as restricted cash. Both of
these items were a part of Corillians cash provided by
operations in the years ended December 31, 2002 and 2003,
respectively.
Net cash used in investing activities was $968,000,
$7.6 million and $2.7 million for 2004, 2003 and 2002,
respectively. During 2004, net cash used in investing activities
consisted of $728,000 of property and equipment purchases and
net purchases of short-term investments of $249,000. During
2003, net cash used in investing activities consisted of net
purchases in short-term investments of $5.5 million,
$1.1 million of property and equipment purchases and a
$1.0 million cash investment in Synoran. During 2002, net
cash used in investing activities consisted of net purchases of
short-term investments of $1.9 million and $780,000 of
property and equipment purchases.
Net cash provided by (used in) financing activities was
$795,000, $32,000 and ($2.1 million) for 2004, 2003 and
2002, respectively. Net cash provided by financing activities in
2004 consisted primarily of $2.5 million in proceeds from
the issuance of common stock pursuant to Corillians
employee stock plans, offset, in part, by net principal payments
on line of credit borrowings and capital lease obligations of
$1.7 million and $17,000, respectively. During 2003, net
cash provided by financing activities consisted of
$1.3 million in proceeds received from the issuance of
common stock pursuant to Corillians employee stock plans
and $1.0 million in proceeds from line of credit
borrowings, which were almost entirely offset by
$1.9 million and $381,000 in net repayments on long-term
borrowings and capital lease obligations, respectively. Net cash
used in financing activities in 2002 consisted primarily of net
principal payments on line of credit borrowings and capital
lease obligations of $2.2 million and $467,000,
respectively. This usage was
32
partially offset by $576,000 in proceeds received from the
issuance of common stock pursuant to Corillians employee
stock plans.
Working capital increased to $29.4 million as of
December 31, 2004, as compared to $14.4 million as of
December 31, 2003 and $5.9 million as of
December 31, 2002. These increases were primarily resulted
from positive cash flows from operating activities.
In May 2000, Corillian entered into a lease for its new
corporate headquarters, which is located in Hillsboro, Oregon
and consisted of approximately 122,000 square feet. The
lease had a term of seven years. In August 2004, Corillian
amended the lease, to reduce the space leased effective as of
January 1, 2005 to approximately 100,000 square feet.
The amendment also extended the lease expiration date to
September 2010. Under the terms of the amended lease, monthly
rent ranges from approximately $186,000 to approximately
199,000. Pursuant to Statement No. 146, Accounting for
Costs Associated with Exit or Disposal Activities, and
Statement No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, Corillian recognized an
impairment charge of $491,000 in September 2004 to write off the
remaining book value of long-lived assets in the space Corillian
has abandoned and ceased to use.
Corillian also leased approximately 21,000 square feet in
another office building in Beaverton, Oregon, of which
approximately 12,000 square feet were sub-leased. The lease
for this space expired in February 2005. Under the terms of this
lease, Corillians monthly rent was approximately $29,000
and Corillian received approximately $6,000 per month from
the sub-leasing of a portion of this office building. Corillian
did not renew this lease.
Corillian had no material financial obligations as of
December 31, 2004, other than obligations under its line of
credit facilities and operating and capital leases. Future
capital requirements will depend on many factors, including the
timing of research and development efforts and the expansion of
Corillians operations, both domestically and
internationally. Corillian believes its current cash, cash
equivalents and short-term investments will be sufficient to
meet its working capital requirements for at least the next
12 months. Thereafter, Corillian may find it necessary to
obtain additional equity or debt financing. If additional
financing is required, Corillian may not be able to raise it on
acceptable terms or at all. Additional financing could result in
dilution to its current shareholders percentage ownership.
If Corillian is unable to obtain additional financing, Corillian
may be required to reduce the scope of its planned research and
development and sales and marketing efforts, as well as the
further development of its infrastructure.
Corillian is contractually obligated to make the following
payments as of December 31, 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than | |
|
1-3 | |
|
3-5 | |
|
More than | |
|
|
Total | |
|
1 Year | |
|
Years | |
|
Years | |
|
5 Years | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Lines of credit(1)
|
|
$ |
1,003 |
|
|
$ |
329 |
|
|
$ |
547 |
|
|
$ |
127 |
|
|
$ |
|
|
Capital lease obligations
|
|
|
15 |
|
|
|
11 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
Operating lease commitment
|
|
|
13,356 |
|
|
|
2,333 |
|
|
|
4,706 |
|
|
|
4,560 |
|
|
|
1,757 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations
|
|
$ |
14,374 |
|
|
$ |
2,673 |
|
|
$ |
5,257 |
|
|
$ |
4,687 |
|
|
$ |
1,757 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Line of credit was paid off in February 2005. |
|
|
Item 7A. |
Quantitative and Qualitative Disclosures About Market
Risk |
Foreign Exchange Rate Sensitivity
Corillian develops products in the United States and markets its
products and services in the United States, and to a lesser
extent in Europe, Asia and Australia. As a result, its financial
results could be affected by factors such as changes in foreign
currency exchange rates or weak economic conditions in foreign
markets. Because nearly all of its revenue is currently
denominated in United States dollars, a strengthening of the
United States dollar could make Corillians products less
competitive in foreign markets.
33
Corillian does not use derivative financial instruments for
speculative purposes. Corillian does not engage in exchange rate
hedging or hold or issue foreign exchange contracts for trading
purposes. Corillian does have foreign-based operations where
transactions are denominated in foreign currencies and are
subject to market risk with respect to fluctuations in the
relative value of currencies. Currently, Corillian has limited
operations in Europe, Asia and Australia and conducts
transactions in various local currencies in these locales. To
date, the impact of fluctuations in the relative fair value of
other currencies has not been material.
Interest Rate Sensitivity
As of December 31, 2004, Corillian had $39.4 million
and $26.8 million, respectively, in cash, cash equivalents
and short-term investments. Cash equivalents consist mainly of
demand deposit accounts, money market mutual funds and
commercial paper with original maturities less than
90 days. Short-term investments consist of taxable
government agency bonds with original maturities ranging between
90 and 180 days and taxable municipal bonds, auction rate
securities, with original maturities greater than one year.
Government agency bonds are classified as held-to-maturity. All
auction rate securities are classified as available-for-sale and
reported on the balance sheet at par value, which equals market
value, as these securities are bought and sold every 28 to
35 days. Corillian is not subject to interest rate risks on
its available-for-sale investments as these investments are all
bought and sold at par value. Corillians short-term
held-to-maturity investments are subject to interest rate risk
and will decrease in value if market interest rates increase.
Corillian manages this risk by maintaining an investment
portfolio with high credit quality. Changes in the overall level
of interest rates affect our interest income that is generated
from our short-term investments. If interest rates increase or
decrease equally during 2005, by a total of one percent,
Corillians interest income would increase or decrease by
approximately $150,000, respectively. In 2005, Corillian may
invest in short-term investments with original maturities
greater than 180 days. These investments would be subject
to higher levels of interest rate risks.
|
|
Item 8. |
Financial Statements and Supplementary Data |
(a) The following documents are filed as part of this
report:
|
|
|
1. Annual Financial Statements |
|
|
The following consolidated financial statements of the Company
are filed as part of this Annual Report on Form 10-K as
follows: |
INDEX TO FINANCIAL STATEMENTS
|
|
|
|
|
|
|
Page | |
|
|
| |
|
|
|
F-1 |
|
|
|
|
F-2 |
|
|
|
|
F-3 |
|
|
|
|
F-4 |
|
|
|
|
F-5 |
|
|
|
|
F-6 |
|
|
|
|
2. Financial Statement Schedules |
|
|
Financial statement schedules have been omitted because the
information required to be set forth therein is not applicable
or is included in the notes to the Consolidated Financial
Statements. |
|
|
3. Selected Quarterly Results of Operations |
|
|
The Selected Quarterly Results of Operations required by this
Item 8 are included in Note 12 to the Consolidated
Financial Statements. |
34
|
|
Item 9. |
Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure |
Not applicable.
|
|
Item 9A. |
Controls and Procedures |
(a) Evaluation of disclosure controls and procedures.
The term disclosure controls and procedures (defined
in SEC Rule 13a-15(e)) refers to the controls and other
procedures of a company that are designed to ensure that the
information required to be disclosed by a company in the reports
that it files under the Exchange Act is recorded, processed,
summarized and reported within required time periods.
Corillians management, with the participation of the Chief
Executive Officer and Chief Financial Officer, has evaluated the
effectiveness of the design and operation of the Companys
disclosure controls and procedures as of the end of the period
covered by this annual report (the Evaluation Date). Based on
that evaluation, Corillians management, with the
participation of the Chief Executive Officer and Chief Financial
Officer have concluded that, as of the Evaluation Date, such
controls and procedures were effective.
(b) Managements report on internal control over
financial reporting.
Management of Corillian Corporation is responsible for
establishing and maintaining adequate internal control over
financial reporting as defined in Rules 13a-15(f) and
15d-15(f) under the Securities and Exchange Act of 1934.
Corillian Corporations internal control system was
designed to provide reasonable assurance to the companys
management and board of directors regarding the reliability and
fair presentation of financial reporting and the preparation of
financial statements for external purposes in accordance with
U.S. generally accepted accounting principles.
Internal control over financial reporting includes controls
themselves, monitoring and internal auditing practices and
actions taken to correct deficiencies as identified.
All internal control systems, no matter how well designed, have
inherent limitations. Because of these inherent limitations,
even those systems determined to be effective can provide only
reasonable assurance that misstatements with respect to
financial reporting and financial statement preparation will be
detected. Also, projections of any evaluation of effectiveness
to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may
deteriorate.
Corillian Corporations management assessed the
effectiveness of the companys internal control over
financial reporting as of December 31, 2004. Management
based its assessment on criteria for effective internal control
over financial reporting described in Internal
Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway
Commission. Managements assessment included an evaluation
of the design of Corillian Corporations internal control
over financial reporting and testing of the operational
effectiveness of its internal control over financial reporting.
Management reviewed the results of its assessment with the board
of directors.
Based on this assessment, management has determined that, as of
December 31, 2004, Corillian Corporation maintained
effective internal control over financial reporting.
KPMG LLP, independent registered public accounting firm has
audited managements assessment of the effectiveness of our
internal control over financial reporting as of
December 31, 2004 as stated in their report included in
(d) below.
(c) Changes in internal controls.
There was no change to Corillians internal control over
financial reporting that has materially affected, or is
reasonably likely to materially affect, Corillians
internal control over financial reporting.
(d) Report of independent registered public accounting firm.
35
The Board of Directors and Shareholders
Corillian Corporation:
We have audited managements assessment, included in the
accompanying Management Report on Internal Control Over
Financial Reporting, that Corillian Corporation maintained
effective internal control over financial reporting as of
December 31, 2004, based on criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). Corillian Corporations management is
responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness
of internal control over financial reporting. Our responsibility
is to express an opinion on managements assessment and an
opinion on the effectiveness of the Companys internal
control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, evaluating
managements assessment, testing and evaluating the design
and operating effectiveness of internal control, and performing
such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable
basis for our opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of the financial
statements in accordance with generally accepted accounting
principles, and that receipts of expenditures of the company are
being made only in accordance with authorizations of management
and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, managements assessment that Corillian
Corporation maintained effective internal control over financial
reporting as of December 31, 2004, is fairly stated, in all
material respects, based on criteria established in Internal
Control Integrated Framework issued by COSO.
Also, in our opinion, Corillian Corporation maintained, in all
material respects, effective internal control over financial
reporting as of December 31, 2004, based on criteria
established in Internal Control Integrated
Framework issued by COSO.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of Corillian Corporation and
subsidiaries as of December 31, 2004 and 2003, and the
related consolidated statements of operations,
shareholders equity and cash flows for each of the years
in the three-year period ended December 31, 2004, and our
report dated March 14, 2005 expressed an unqualified
opinion on those consolidated financial statements.
/s/ KPMG LLP
Portland, Oregon
March 14, 2005
36
|
|
Item 9B. |
Other Information |
Not applicable.
PART III
|
|
Item 10. |
Directors and Executive Officers of the Registrant |
Information called for by Part III, Item 10, is
included in the Companys Proxy Statement relating to the
Companys annual meeting of shareholders to be held on
May 9, 2005, and is incorporated herein by reference. Such
Proxy Statement will be filed within 120 days of
December 31, 2004, the Companys fiscal year end.
Corillian has adopted a code of ethics for its Chief Executive
Officer and senior financial officers. Corillian has made the
code of ethics available in the Investor Relations section of
its website at www.corillian.com. If Corillian waives, or
implicitly waives, any material provision of the code, or
substantially amends the code, Corillian will disclose that fact
on its website.
|
|
Item 11. |
Executive Compensation |
Information called for by Part III, Item 11, is
included in the Companys Proxy Statement relating to the
Companys annual meeting of shareholders to be held on
May 9, 2005, and is incorporated herein by reference. Such
Proxy Statement will be filed within 120 days of
December 31, 2004, the Companys fiscal year end.
|
|
Item 12. |
Security Ownership of Certain Beneficial Owners and
Management |
Information called for by Part III, Item 12, is
included in the Companys Proxy Statement relating to the
Companys annual meeting of shareholders to be held on
May 9, 2005, and is incorporated herein by reference. Such
Proxy Statement will be filed within 120 days of
December 31, 2004, the Companys fiscal year end.
|
|
|
Equity Compensation Plan Information |
The following table provides information as of December 31,
2004 about Corillians common stock that may be issued to
employees, consultants or directors under Corillians
currently existing equity compensation plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities Authorized for Issuance | |
|
|
Under Equity Compensation Plans | |
|
|
| |
|
|
Number of Shares to | |
|
|
|
Number of Shares | |
|
|
be Issued Upon | |
|
Weighted-Average | |
|
Remaining Available for | |
|
|
Exercise of | |
|
Exercise Price of | |
|
Issuance Under Equity | |
|
|
Outstanding Options | |
|
Outstanding Options | |
|
Compensation Plans | |
|
|
| |
|
| |
|
| |
Equity compensation plans approved by shareholders
|
|
|
4,410,225 |
(1) |
|
$ |
4.00 |
|
|
|
2,240,607 |
(2)(3) |
Equity compensation plans not approved by shareholders
|
|
|
984,500 |
|
|
|
4.05 |
|
|
|
15,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,394,725 |
|
|
$ |
4.01 |
|
|
|
2,256,107 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Excludes 780 shares of Corillians common stock that
are issuable upon the exercise of outstanding options that were
assumed in connection with Corillians acquisition of
Hatcher Associates Inc. (now Corillian Services, Inc.), with a
weighted average exercise price of $6.73. |
|
(2) |
Includes 2,180,423 shares remaining available for purchase
under Corillians 2000 Stock Incentive Compensation Plan.
The 2000 Stock Incentive Compensation Plan includes an evergreen
formula pursuant to which the number of shares authorized for
grant will be increased annually by the lesser of
(1) 400,000 shares, and (2) an amount equal to
one percent of the average outstanding shares of the common
stock of the Company as of the end of the immediately preceding
fiscal year on a fully-diluted basis; plus any shares subject to
outstanding awards under Corillians 1997 Stock Option Plan
as of the |
37
|
|
|
effective date of the 2000 Stock Incentive Compensation Plan
that cease to be subject to such awards other than by reason of
exercise or payment of such awards. Excludes 400,000 additional
shares of common stock that became available for purchase under
the 2000 Stock Incentive Compensation Plan on January 1,
2005 pursuant to the evergreen formula. |
|
(3) |
Includes 60,184 shares remaining available for issuance
under Corillians 2000 Employee Stock Purchase Plan. The
2000 Employee Stock Purchase Plan includes an evergreen formula
pursuant to which the number of shares authorized for grant will
be increased annually by the lesser of
(1) 333,333 shares, (2) an amount equal to two
percent of the average number of shares of common stock
outstanding on a fully diluted basis as of the end of our
immediately preceding fiscal year, and (3) a lesser amount
determined by our Board of Directors. Excludes 333,333
additional shares of common stock that became available for
issuance under the 2000 Employee Stock Purchase Plan on
January 1, 2005 pursuant to the evergreen formula. |
2003 Nonqualified Stock Incentive Compensation Plan. In
May 2003, Corillians Board of Directors adopted the 2003
Nonqualified Stock Incentive Compensation Plan and authorized
the issuance of 1,000,000 shares of common stock under the
plan. This plan was adopted as a retention plan for
Corillians employees. Because the Company did not obtain
shareholder approval for this plan, the Company may not grant
stock options under this plan to any existing directors or
officers. A significant number of stock options outstanding
under Corillians previously approved stock option plans
had exercise prices that were significantly higher than
Corillians stock price in May 2003, and Corillian did not
anticipate that those stock options would be exercised in the
near future or at all, absent extraordinary stock price
appreciation. The Board carefully evaluated the alternatives
available for providing incentives for and retaining employees
and decided to make additional option grants rather than
conducting a company-wide option cancellation program or
re-pricing. As a result of this decision, the Board decided that
it was necessary to adopt this plan. The Board acted to keep the
long-term interests of Corillians workforce tightly
aligned with the long-term interests of shareholders and to
counter any financial incentive competitors might offer to
Corillian employees. Corillian does not intend to adopt or
materially modify any stock compensation plans in the future
without shareholder approval.
Corillians 2003 Nonqualified Stock Incentive Compensation
Plan enhances long-term shareholder value by offering
opportunities to its employees, consultants, agents, advisors
and independent contractors to participate in Corillians
growth and success, to encourage them to remain in its service
and to own its stock. Corillians 2003 Nonqualified Stock
Incentive Compensation Plan permits both option and stock
grants. Corillian has reserved 1,000,000 shares of common
stock for its 2003 Nonqualified Stock Incentive Compensation
Plan. The plan administrator will make proportional adjustments
to the aggregate number of shares issuable under the 2003
Nonqualified Stock Incentive Compensation Plan and to
outstanding awards in the event of stock splits or other capital
adjustments.
The compensation committee serves as the plan administrator of
the 2003 Nonqualified Stock Incentive Compensation Plan. The
plan administrator selects individuals to receive options and
specifies the terms and conditions of each option granted,
including the exercise price, the vesting provisions and the
option term.
Unless otherwise provided by the plan administrator, options
granted under the 2003 Nonqualified Stock Incentive Compensation
Plan vest over a four-year period, and generally will expire on
the earliest of ten years from the date of grant; one year after
the optionees retirement, death or disability; notice to
the optionee of termination of employment or service for cause;
and three months after other terminations of employment or
service.
The plan administrator is authorized under the 2003 Nonqualified
Stock Incentive Compensation Plan to issue shares of common
stock to eligible participants with terms, conditions and
restrictions established by the plan administrator in its sole
discretion. Restrictions may be based on continuous service or
the achievement of performance goals. Holders of restricted
stock are shareholders of Corillian and have, subject to
established restrictions, all the rights of shareholders with
respect to such shares.
In the event of a corporate transaction, such as a merger or
sale, each outstanding option to purchase shares under the 2003
Nonqualified Stock Incentive Compensation Plan may be assumed or
an equivalent
38
option substituted by the buyer. If the successor corporation
does not assume or provide an equivalent substitute for the
option, the option terminates, but the optionee has the right to
exercise the vested and unvested portion of the option
immediately before the corporate transaction. Some option
agreements may call for accelerated vesting in the event of a
corporate transaction even if the successor corporation assumes
the option or provides an equivalent substitute for the option
if the employee is terminated by the successor corporation
within one year after the transaction or if the employee
terminates his or her employment with the successor corporation
within one year after the transaction for specified reasons,
such as a reduction in compensation or title. In addition, the
plan administrator has discretion to accelerate the vesting of
options in the event of a corporate transaction.
Unless terminated sooner by the Board of Directors, the 2003
Nonqualified Stock Incentive Compensation Plan will terminate
ten years from the date of its approval by the board of
directors.
|
|
Item 13. |
Certain Relationships and Related Transactions |
Information called for by Part III, Item 13, is
included in the Companys Proxy Statement relating to the
Companys annual meeting of shareholders to be held on
May 9, 2005, and is incorporated herein by reference. Such
Proxy Statement will be filed within 120 days of
December 31, 2004, the Companys fiscal year end.
|
|
Item 14. |
Principal Accountant Fees and Services |
Information called for by Part III, Item 14, is
included in the Companys Proxy Statement relating to the
Companys annual meeting of shareholders to be held on
May 9, 2005, and is incorporated herein by reference. Such
Proxy Statement will be filed within 120 days of
December 31, 2004, the Companys fiscal year end.
39
PART IV
|
|
Item 15. |
Exhibits and Financial Statement Schedules |
(a) Documents filed as part of this Report:
|
|
|
(1) Financial Statements |
|
|
All consolidated financial statements of the Company as set
forth under Item 8 of this Report. |
|
|
(2) Financial Statement Schedules |
|
|
Financial statement schedules have been omitted because the
information required to be set forth therein is not applicable
or is included in the notes to the Consolidated Financial
Statements. |
|
|
(3) Exhibits |
|
|
The exhibits listed on the accompanying index to exhibits
immediately following the financial statement schedule are filed
as part of, or incorporated by reference into, this
Form 10-K. |
|
|
|
|
|
Exhibit |
|
|
No. |
|
Description |
|
|
|
|
3 |
.1 |
|
Articles of Incorporation (incorporated by reference to
Exhibit 3.2 of Corillians Form S-1, as amended,
File No. 333-95513) |
|
3 |
.2 |
|
Bylaws (incorporated by reference to Exhibit 3.4 of
Corillians Form S-1, as amended, File
No. 333-95513) |
|
|
4 |
.1 |
|
Form of Common Stock certificate (incorporated by reference to
Exhibit 4.1 of Corillians Form S-1, as amended,
File No. 333-95513) |
|
|
10 |
.1* |
|
Corillians Amended and Restated 2000 Stock Incentive
Compensation Plan (incorporated by reference to
Exhibit 99.2 of Corillians Form S-8 filed on
November 1, 2001, File No. 333-72652) |
|
|
10 |
.2* |
|
Corillians 2000 Employee Stock Purchase Plan (incorporated
by reference to Exhibit 99.1 of Corillians
Form S-8 filed on November 1, 2001, File
No. 333-72652) |
|
|
10 |
.3* |
|
Corillians Amended and Restated 1997 Stock Option Plan
(incorporated by reference to Exhibit 10.3 of
Corillians report on Form 10-Q for the quarter ended
September 30, 2000) |
|
|
10 |
.4 |
|
Lease between Carramerica Realty Corporation and Corillian,
dated May 22, 2000 (incorporated by reference to
Exhibit 10.1 of Corillians report on Form 10-Q for
the quarter ended March 31, 2000) |
|
|
10 |
.5 |
|
Loan Agreement between Corillian Corporation and Silicon Valley
Bank, dated November 9, 2000 (incorporated by reference to
Exhibit 10.5 of Corillians report on Form 10-K for
the year ended December 31, 2000) |
|
|
10 |
.6* |
|
Form of Stock Option Agreement with certain employees
(incorporated by reference to Exhibit 10.9 of
Corillians report on Form 10-Q for the quarter ended
September 30, 2000) |
|
|
10 |
.7 |
|
Loan Modification Agreement between Corillian Corporation and
Silicon Valley Bank, dated November 30, 2001 (incorporated
by reference to Exhibit 10.9 of Corillians report on
Form 10-K for the year ended December 31, 2001) |
|
|
10 |
.8* |
|
Form of Indemnification Agreement between Corillian and its
directors and executive officers (incorporated by reference to
Exhibit 10.13 of Corillians report on Form 10-Q for
the quarter ended March 31, 2001) |
|
|
10 |
.9* |
|
Form of Severance Agreement with Executive Officers and Certain
Other Key Employees (incorporated by reference to
Exhibit 10.1 of Corillians report on Form 10-Q for
the quarter ended June 30, 2002) |
|
|
10 |
.10 |
|
Loan Modification Agreement between Corillian Corporation and
Silicon Valley Bank, dated November 13, 2002 (incorporated
by reference to Exhibit 10.5 of Corillians report on
Form 10-Q for the quarter ended September 30, 2002) |
|
|
10 |
.11* |
|
Corillian Corporation 2003 Nonqualified Stock Incentive
Compensation Plan (incorporated by reference to
Exhibit 10.1 of Corillians report on Form 10-Q for
the quarter ended June 30, 2003) |
40
|
|
|
|
|
Exhibit | |
|
|
No. | |
|
Description |
| |
|
|
|
|
10 |
.12* |
|
Form of Stock Option Agreement under Corillian Corporation 2003
Nonqualified Stock Incentive Compensation Plan (incorporated by
reference to Exhibit 10.2 of Corillians report on
Form 10-Q for the quarter ended June 30, 2003) |
|
|
10 |
.13* |
|
Form of Stock Option Agreement with certain employees under
Corillian Corporation 2003 Nonqualified Stock Incentive
Compensation Plan (incorporated by reference to
Exhibit 10.3 of Corillians report on Form 10-Q for
the quarter ended June 30, 2003) |
|
|
10 |
.14 |
|
Loan Modification Agreement between Corillian Corporation and
Silicon Valley Bank, dated June 16, 2003 (incorporated by
reference to Exhibit 10.4 of Corillians report on
Form 10-Q for the quarter ended June 30, 2003) |
|
|
10 |
.15* |
|
Form of Amendment to Stock Option Letter Agreements for Certain
Employees under the 2000 Stock Incentive Compensation Plan
(incorporated by reference to Exhibit 10.1 of
Corillians report on Form 10-Q for the quarter ended
September 30, 2003) |
|
|
10 |
.16* |
|
Form of Severance Agreement for Certain Employees (incorporated
by reference to Exhibit 10.2 of Corillians report on
Form 10-Q for the quarter ended September 30, 2003) |
|
|
10 |
.17 |
|
First Amendment to Lease Agreement between CarrAmerica Realty
Operating Partnership, L.P. and Corillian Corporation, dated
August 23, 2004 (incorporated by reference to
Exhibit 99.1 of Corillians report on Form 8-K dated
August 23, 2004) |
|
|
10 |
.18* |
|
Separation Agreement and General Release between Corillian
Corporation and an Executive Officer, dated February, 17,
2005 (incorporated by reference to Exhibit 10.1 of
Corillians report on Form 8-K dated February 17, 2005) |
|
|
21 |
.1 |
|
Subsidiaries of the Company |
|
|
23 |
.1 |
|
Consent of KPMG LLP, Independent Registered Public Accounting
Firm |
|
|
31 |
.1 |
|
Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002 |
|
|
31 |
.2 |
|
Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002 |
|
|
32 |
.1 |
|
Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 |
|
|
* |
Management contract or compensatory plan |
41
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) of the
Securities Exchange Act of 1934, as amended, the Registrant has
duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized on March 15,
2005.
|
|
|
|
|
Chief Financial Officer |
|
(Principal Financial Officer) |
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below on March 15, 2005
by the following persons on behalf of the Registrant and in the
capacities indicated.
|
|
|
|
|
Signature |
|
Capacities |
|
|
|
|
/s/ ALEX P. HART
Alex
P. Hart |
|
Chief Executive Officer and Director
Principal Executive Officer |
|
/s/ PAUL K. WILDE
Paul
K. Wilde |
|
Chief Financial Officer
Principal Financial and Accounting Officer |
|
/s/ ROBERT G. BARRETT
Robert
G. Barrett |
|
Director |
|
/s/ ERIC DUNN
Eric
Dunn |
|
Director |
|
/s/ RAVI MOHAN
Ravi
Mohan |
|
Director |
|
James
R. Stojak |
|
Director |
|
/s/ JAY N. WHIPPLE III
Jay
N. Whipple III |
|
Director |
42
|
|
|
|
|
Exhibit |
|
|
No. |
|
Description |
|
|
|
|
3 |
.1 |
|
Articles of Incorporation (incorporated by reference to
Exhibit 3.2 of Corillians Form S-1, as amended,
File No. 333-95513) |
|
3 |
.2 |
|
Bylaws (incorporated by reference to Exhibit 3.4 of
Corillians Form S-1, as amended, File
No. 333-95513) |
|
|
4 |
.1 |
|
Form of Common Stock certificate (incorporated by reference to
Exhibit 4.1 of Corillians Form S-1, as amended,
File No. 333-95513) |
|
|
10 |
.1* |
|
Corillians Amended and Restated 2000 Stock Incentive
Compensation Plan (incorporated by reference to
Exhibit 99.2 of Corillians Form S-8 filed on
November 1, 2001, File No. 333-72652) |
|
|
10 |
.2* |
|
Corillians 2000 Employee Stock Purchase Plan (incorporated
by reference to Exhibit 99.1 of Corillians
Form S-8 filed on November 1, 2001, File
No. 333-72652) |
|
|
10 |
.3* |
|
Corillians Amended and Restated 1997 Stock Option Plan
(incorporated by reference to Exhibit 10.3 of
Corillians report on Form 10-Q for the quarter ended
September 30, 2000) |
|
|
10 |
.4 |
|
Lease between Carramerica Realty Corporation and Corillian,
dated May 22, 2000 (incorporated by reference to
Exhibit 10.1 of Corillians report on Form 10-Q for
the quarter ended March 31, 2000) |
|
|
10 |
.5 |
|
Loan Agreement between Corillian Corporation and Silicon Valley
Bank, dated November 9, 2000 (incorporated by reference to
Exhibit 10.5 of Corillians report on Form 10-K for
the year ended December 31, 2000) |
|
|
10 |
.6* |
|
Form of Stock Option Agreement with certain employees
(incorporated by reference to Exhibit 10.9 of
Corillians report on Form 10-Q for the quarter ended
September 30, 2000) |
|
|
10 |
.7 |
|
Loan Modification Agreement between Corillian Corporation and
Silicon Valley Bank, dated November 30, 2001 (incorporated
by reference to Exhibit 10.9 of Corillians report on
Form 10-K for the year ended December 31, 2001) |
|
|
10 |
.8* |
|
Form of Indemnification Agreement between Corillian and its
directors and executive officers (incorporated by reference to
Exhibit 10.13 of Corillians report on Form 10-Q for
the quarter ended March 31, 2001) |
|
|
10 |
.9* |
|
Form of Severance Agreement with Executive Officers and Certain
Other Key Employees (incorporated by reference to
Exhibit 10.1 of Corillians report on Form 10-Q for
the quarter ended June 30, 2002) |
|
|
10 |
.10 |
|
Loan Modification Agreement between Corillian Corporation and
Silicon Valley Bank, dated November 13, 2002 (incorporated
by reference to Exhibit 10.5 of Corillians report on
Form 10-Q for the quarter ended September 30, 2002) |
|
|
10 |
.11* |
|
Corillian Corporation 2003 Nonqualified Stock Incentive
Compensation Plan (incorporated by reference to
Exhibit 10.1 of Corillians report on Form 10-Q for
the quarter ended June 30, 2003) |
|
|
10 |
.12* |
|
Form of Stock Option Agreement under Corillian Corporation 2003
Nonqualified Stock Incentive Compensation Plan (incorporated by
reference to Exhibit 10.2 of Corillians report on
Form 10-Q for the quarter ended June 30, 2003) |
|
|
10 |
.13* |
|
Form of Stock Option Agreement with certain employees under
Corillian Corporation 2003 Nonqualified Stock Incentive
Compensation Plan (incorporated by reference to
Exhibit 10.3 of Corillians report on Form 10-Q for
the quarter ended June 30, 2003) |
|
|
10 |
.14 |
|
Loan Modification Agreement between Corillian Corporation and
Silicon Valley Bank, dated June 16, 2003 (incorporated by
reference to Exhibit 10.4 of Corillians report on
Form 10-Q for the quarter ended June 30, 2003) |
|
|
10 |
.15* |
|
Form of Amendment to Stock Option Letter Agreements for Certain
Employees under the 2000 Stock Incentive Compensation Plan
(incorporated by reference to Exhibit 10.1 of
Corillians report on Form 10-Q for the quarter ended
September 30, 2003) |
|
|
10 |
.16* |
|
Form of Severance Agreement for Certain Employees (incorporated
by reference to Exhibit 10.2 of Corillians report on
Form 10-Q for the quarter ended September 30, 2003) |
|
|
10 |
.17 |
|
First Amendment to Lease Agreement between CarrAmerica Realty
Operating Partnership, L.P. and Corillian Corporation, dated
August 23, 2004 (incorporated by reference to
Exhibit 99.1 of Corillians report on Form 8-K dated
August 23, 2004) |
43
|
|
|
|
|
Exhibit | |
|
|
No. | |
|
Description |
| |
|
|
|
|
10 |
.18* |
|
Separation Agreement and General Release between Corillian
Corporation and an Executive Officer, dated February, 17,
2005 (incorporated by reference to Exhibit 10.1 of
Corillians report on Form 8-K dated February 17, 2005) |
|
|
21 |
.1 |
|
Subsidiaries of the Company |
|
|
23 |
.1 |
|
Consent of KPMG LLP, Independent Registered Public Accounting
Firm |
|
|
31 |
.1 |
|
Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002 |
|
|
31 |
.2 |
|
Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002 |
|
|
32 |
.1 |
|
Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 |
*Management contract or compensatory plan
44
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders
Corillian Corporation:
We have audited the accompanying consolidated balance sheets of
Corillian Corporation and subsidiaries as of December 31,
2004 and 2003, and the related consolidated statements of
operations, shareholders equity, and cash flows for each
of the years in the three-year period ended December 31,
2004. These consolidated financial statements are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Corillian Corporation and subsidiaries as of
December 31, 2004 and 2003, and the results of their
operations and their cash flows for each of the years in the
three-year period ended December 31, 2004 in conformity
with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
effectiveness of Corillian Corporations internal control
over financial reporting as of December 31, 2004, based on
criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO), and our report
dated March 14, 2005 expressed an unqualified opinion on
managements assessment of, and the effective operation of,
internal control over financial reporting.
/s/ KPMG LLP
Portland, Oregon
March 14, 2005
F-1
CORILLIAN CORPORATION
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
|
(In thousands) | |
ASSETS |
Current assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
29,200 |
|
|
$ |
16,943 |
|
|
Short-term investments
|
|
|
10,150 |
|
|
|
9,901 |
|
|
Accounts receivable, net
|
|
|
8,218 |
|
|
|
6,103 |
|
|
Other receivables
|
|
|
206 |
|
|
|
226 |
|
|
Revenue in excess of billings
|
|
|
1,363 |
|
|
|
1,258 |
|
|
Prepaid expenses and deposits
|
|
|
1,696 |
|
|
|
1,319 |
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
50,833 |
|
|
|
35,750 |
|
Property and equipment, net
|
|
|
3,800 |
|
|
|
5,765 |
|
Investment in joint venture
|
|
|
128 |
|
|
|
941 |
|
Other assets
|
|
|
508 |
|
|
|
362 |
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
55,269 |
|
|
$ |
42,818 |
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY |
Current liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$ |
979 |
|
|
$ |
1,224 |
|
|
Accrued liabilities
|
|
|
2,468 |
|
|
|
2,052 |
|
|
Deferred revenue
|
|
|
16,630 |
|
|
|
15,560 |
|
|
Current portion of capital lease obligations
|
|
|
10 |
|
|
|
19 |
|
|
Current portion of long-term debt
|
|
|
286 |
|
|
|
1,510 |
|
|
Other current liabilities
|
|
|
1,043 |
|
|
|
968 |
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
21,416 |
|
|
|
21,333 |
|
Capital lease obligations, less current portion
|
|
|
4 |
|
|
|
12 |
|
Long-term debt, less current portion
|
|
|
625 |
|
|
|
1,063 |
|
Other long-term liabilities
|
|
|
622 |
|
|
|
856 |
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
22,667 |
|
|
|
23,264 |
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Shareholders equity:
|
|
|
|
|
|
|
|
|
|
Common stock, no par value; 150,000 shares authorized;
38,408 and 36,891 shares issued and outstanding at
December 31, 2004 and 2003, respectively
|
|
|
129,969 |
|
|
|
127,414 |
|
|
Accumulated other comprehensive income
|
|
|
61 |
|
|
|
48 |
|
|
Accumulated deficit
|
|
|
(97,428 |
) |
|
|
(107,908 |
) |
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
32,602 |
|
|
|
19,554 |
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$ |
55,269 |
|
|
$ |
42,818 |
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-2
CORILLIAN CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
|
|
(In thousands, except per share data) | |
Revenues
|
|
$ |
50,794 |
|
|
$ |
46,132 |
|
|
$ |
39,141 |
|
Cost of revenues, excluding $0, $7 and $148 in 2004, 2003 and
2002, respectively, of amortization of deferred stock-based
compensation
|
|
|
18,449 |
|
|
|
20,501 |
|
|
|
20,422 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
32,345 |
|
|
|
25,631 |
|
|
|
18,719 |
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing, excluding $0, $14 and $401 in 2004, 2003
and 2002, respectively, of amortization of deferred stock-based
compensation
|
|
|
7,291 |
|
|
|
6,422 |
|
|
|
11,720 |
|
|
Research and development, excluding $0, $5 and $83 in 2004, 2003
and 2002, respectively, of amortization of deferred stock-based
compensation
|
|
|
6,690 |
|
|
|
5,968 |
|
|
|
7,733 |
|
|
General and administrative, excluding $0, $9 and $253 in 2004,
2003 and 2002, respectively, of amortization of deferred
stock-based compensation
|
|
|
6,688 |
|
|
|
6,810 |
|
|
|
11,029 |
|
|
Amortization of deferred stock-based compensation
|
|
|
|
|
|
|
35 |
|
|
|
885 |
|
|
Litigation settlement charges
|
|
|
|
|
|
|
|
|
|
|
2,580 |
|
|
Restructuring and impairment charges
|
|
|
491 |
|
|
|
|
|
|
|
682 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
21,160 |
|
|
|
19,235 |
|
|
|
34,629 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
11,185 |
|
|
|
6,396 |
|
|
|
(15,910 |
) |
|
|
|
|
|
|
|
|
|
|
Other income (expense), net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
412 |
|
|
|
224 |
|
|
|
184 |
|
|
Interest expense
|
|
|
(140 |
) |
|
|
(244 |
) |
|
|
(542 |
) |
|
Loss on joint venture
|
|
|
(813 |
) |
|
|
(1,133 |
) |
|
|
(916 |
) |
|
Other (expense) income, net
|
|
|
(4 |
) |
|
|
7 |
|
|
|
(73 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Total other expense, net
|
|
|
(545 |
) |
|
|
(1,146 |
) |
|
|
(1,347 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) before income taxes
|
|
|
10,640 |
|
|
|
5,250 |
|
|
|
(17,257 |
) |
Income taxes
|
|
|
160 |
|
|
|
124 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
10,480 |
|
|
$ |
5,126 |
|
|
$ |
(17,257 |
) |
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per share
|
|
$ |
0.28 |
|
|
$ |
0.14 |
|
|
$ |
(0.49 |
) |
Diluted net income (loss) per share
|
|
$ |
0.26 |
|
|
$ |
0.14 |
|
|
$ |
(0.49 |
) |
Shares used in computing basic net income (loss) per share
|
|
|
37,727 |
|
|
|
36,431 |
|
|
|
35,477 |
|
Shares used in computing diluted net income (loss) per share
|
|
|
40,474 |
|
|
|
37,813 |
|
|
|
35,477 |
|
See accompanying notes to consolidated financial statements.
F-3
CORILLIAN CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated | |
|
|
|
|
|
|
Common Stock | |
|
Deferred | |
|
Other | |
|
|
|
Total | |
|
|
| |
|
Stock-Based | |
|
Comprehensive | |
|
Accumulated | |
|
Shareholders | |
|
|
Shares | |
|
Amount | |
|
Compensation | |
|
Income (Loss) | |
|
Deficit | |
|
Equity | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Balance, December 31, 2001
|
|
|
35,038 |
|
|
$ |
125,069 |
|
|
$ |
(1,169 |
) |
|
$ |
(19 |
) |
|
$ |
(95,777 |
) |
|
$ |
28,104 |
|
Issuance of common shares in settlement of litigation
|
|
|
500 |
|
|
|
745 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
745 |
|
Issuance of common shares in exchange for services
|
|
|
30 |
|
|
|
45 |
|
|
|
(45 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of common stock options
|
|
|
360 |
|
|
|
226 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
226 |
|
Issuance of common shares under employee stock purchase plan
|
|
|
219 |
|
|
|
350 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
350 |
|
Deferred stock-based compensation
|
|
|
|
|
|
|
(294 |
) |
|
|
294 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of deferred stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
885 |
|
|
|
|
|
|
|
|
|
|
|
885 |
|
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
68 |
|
|
|
|
|
|
|
68 |
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17,257 |
) |
|
|
(17,257 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2002
|
|
|
36,147 |
|
|
$ |
126,141 |
|
|
$ |
(35 |
) |
|
$ |
49 |
|
|
$ |
(113,034 |
) |
|
$ |
13,121 |
|
Exercise of common stock options
|
|
|
490 |
|
|
|
1,115 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,115 |
|
Issuance of common shares under employee stock purchase plan
|
|
|
254 |
|
|
|
158 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
158 |
|
Amortization of deferred stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
35 |
|
|
|
|
|
|
|
|
|
|
|
35 |
|
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1 |
) |
|
|
|
|
|
|
(1 |
) |
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,126 |
|
|
|
5,126 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2003
|
|
|
36,891 |
|
|
$ |
127,414 |
|
|
$ |
|
|
|
$ |
48 |
|
|
$ |
(107,908 |
) |
|
$ |
19,554 |
|
Exercise of common stock options
|
|
|
1,009 |
|
|
|
1,969 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,969 |
|
Issuance of common shares under employee stock purchase plan
|
|
|
508 |
|
|
|
505 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
505 |
|
Income tax benefit of equity transactions
|
|
|
|
|
|
|
81 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
81 |
|
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13 |
|
|
|
|
|
|
|
13 |
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,480 |
|
|
|
10,480 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2004
|
|
|
38,408 |
|
|
$ |
129,969 |
|
|
$ |
|
|
|
$ |
61 |
|
|
$ |
(97,428 |
) |
|
$ |
32,602 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-4
CORILLIAN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
10,480 |
|
|
$ |
5,126 |
|
|
$ |
(17,257 |
) |
|
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
2,200 |
|
|
|
3,715 |
|
|
|
5,431 |
|
|
|
Amortization of deferred stock-based compensation
|
|
|
|
|
|
|
35 |
|
|
|
885 |
|
|
|
Impairment of long-lived assets
|
|
|
491 |
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock in settlement of litigation
|
|
|
|
|
|
|
|
|
|
|
745 |
|
|
|
Equity in losses of joint venture
|
|
|
813 |
|
|
|
1,133 |
|
|
|
916 |
|
|
|
(Recovery of) provision for bad debts
|
|
|
(199 |
) |
|
|
(173 |
) |
|
|
1,317 |
|
|
|
(Gain) loss on sale of assets
|
|
|
(7 |
) |
|
|
8 |
|
|
|
114 |
|
|
|
Income tax benefit of equity transactions
|
|
|
81 |
|
|
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted cash
|
|
|
|
|
|
|
1,003 |
|
|
|
(1,003 |
) |
|
|
|
Accounts receivable
|
|
|
(1,925 |
) |
|
|
(1,931 |
) |
|
|
4,122 |
|
|
|
|
Other receivables
|
|
|
20 |
|
|
|
1,562 |
|
|
|
(1,488 |
) |
|
|
|
Revenue in excess of billings
|
|
|
(105 |
) |
|
|
284 |
|
|
|
4,868 |
|
|
|
|
Prepaid expenses, deposits and other assets
|
|
|
(523 |
) |
|
|
380 |
|
|
|
(644 |
) |
|
|
|
Accounts payable and accrued liabilities
|
|
|
190 |
|
|
|
(596 |
) |
|
|
(1,272 |
) |
|
|
|
Deferred revenue
|
|
|
1,070 |
|
|
|
1,579 |
|
|
|
5,100 |
|
|
|
|
Other liabilities
|
|
|
(159 |
) |
|
|
(840 |
) |
|
|
868 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
12,427 |
|
|
|
11,285 |
|
|
|
2,702 |
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(728 |
) |
|
|
(1,112 |
) |
|
|
(780 |
) |
|
Proceeds from sale of property and equipment
|
|
|
9 |
|
|
|
|
|
|
|
|
|
|
Purchase of available-for-sale investments
|
|
|
(19,000 |
) |
|
|
(15,450 |
) |
|
|
(8,500 |
) |
|
Proceeds from the sales of available-for-sale investments
|
|
|
18,150 |
|
|
|
9,650 |
|
|
|
6,400 |
|
|
Purchase of held-to-maturity investments
|
|
|
(1,200 |
) |
|
|
(601 |
) |
|
|
(2,010 |
) |
|
Proceeds from the maturities of held-to-maturity investments
|
|
|
1,801 |
|
|
|
910 |
|
|
|
2,200 |
|
|
Investment in joint venture
|
|
|
|
|
|
|
(1,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(968 |
) |
|
|
(7,603 |
) |
|
|
(2,690 |
) |
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from the issuance of common stock
|
|
|
2,474 |
|
|
|
1,273 |
|
|
|
576 |
|
|
Proceeds from line of credit borrowings
|
|
|
|
|
|
|
1,000 |
|
|
|
|
|
|
Payments on line of credit borrowings
|
|
|
(1,662 |
) |
|
|
(1,860 |
) |
|
|
(2,163 |
) |
|
Principal payments on capital lease obligations
|
|
|
(17 |
) |
|
|
(381 |
) |
|
|
(467 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
795 |
|
|
|
32 |
|
|
|
(2,054 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate fluctuations on cash and cash equivalents
|
|
|
3 |
|
|
|
8 |
|
|
|
60 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
12,257 |
|
|
|
3,722 |
|
|
|
(1,982 |
) |
Cash and cash equivalents at beginning of year
|
|
|
16,943 |
|
|
|
13,221 |
|
|
|
15,203 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$ |
29,200 |
|
|
$ |
16,943 |
|
|
$ |
13,221 |
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$ |
140 |
|
|
$ |
244 |
|
|
$ |
542 |
|
|
|
Taxes
|
|
|
97 |
|
|
|
131 |
|
|
|
187 |
|
Supplemental disclosures of non-cash investing and financing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment acquired through capital leases
|
|
|
|
|
|
|
|
|
|
|
146 |
|
See accompanying notes to consolidated financial statements.
F-5
CORILLIAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
(1) |
Description of Company |
Corillian Corporation was incorporated in Oregon in 1997.
Corillian is a provider of solutions that enable banks, brokers,
financial portals and other financial service providers to
rapidly deploy Internet-based financial services.
Corillians solutions allow consumers to conduct financial
transactions, view personal and market financial information,
pay bills and access other financial services on the Internet.
Corillian Voyager is a software platform combined with a set of
applications for Internet banking, electronic bill presentment
and payment, targeted marketing, data aggregation and online
customer relationship management. Corillian also offers a
variety of services to support its customers throughout the
process of implementing and maintaining its solutions.
|
|
(2) |
Summary of Significant Accounting Policies |
The preparation of consolidated financial statements in
accordance with U.S. generally accepted accounting
principles requires Corillian to make estimates and judgments
that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosure of contingent
assets and liabilities. Corillian bases its estimates on
historical experience and on various other assumptions that are
believed to be reasonable under the circumstances, the results
of which form the basis for making judgments about the carrying
values of assets and liabilities that are not readily apparent
from other sources. Estimates related to software revenue
recognition, accrual for contracts in a loss position and the
valuation allowance for deferred tax assets require higher
degrees of judgment than others in their application. Actual
results may differ from these estimates under different
assumptions or conditions.
|
|
(b) |
Principles of Consolidation |
The consolidated financial statements include the financial
statements of Corillian Corporation and its wholly-owned
subsidiaries, Corillian Services, Inc., Corillian International,
Ltd. and Corillian South Asia Sdn Bhd. All intercompany balances
and transactions have been eliminated in consolidation. As of
December 31, 2003, Corillian dissolved Corillian Services,
Inc. and incorporated its remaining business and personnel into
Corillian Corporation.
Corillian recognizes revenues from software licensing agreements
in accordance with the provisions of Statement of Position
(SOP) No. 97-2, Software Revenue Recognition,
as amended by SOP No. 98-9, Modification of SOP
No. 97-2, Software Revenue Recognition, with Respect to
Certain Transactions. Corillians software arrangements
generally include software licenses, implementation and custom
software engineering services, post-contractual customer
support, training services and hosting services.
Corillians software licenses are, in general, functionally
dependent on implementation, training and certain custom
software engineering services; therefore, software licenses and
implementation and training services, together with custom
software engineering services that are essential to the
functionality of the software, are combined and recognized using
the percentage-of-completion method of contract accounting in
accordance with SOP No. 81-1, Accounting for Performance
of Construction-Type and Certain Production-Type Contracts.
Corillian has determined that post-contractual customer support
and hosting services can be separated from software licenses,
implementation, training and custom software engineering
services because (a) post-contractual customer support and
hosting services are not essential to the functionality of any
other element in the arrangement, and (b) sufficient
vendor-specific objective evidence exists to permit the
allocation of revenue to these service elements. The hosting
element can be accounted for separately from the license
element, as the customer can take possession of the software
without significant penalty, in accordance with
F-6
CORILLIAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Emerging Issues Task Force (EITF) 00-3, Application of
AICPA Statement of Position 97-2 to Arrangements that Include
the Right to Use Software Stored on Another Entitys
Hardware.
The percentage-of-completion is measured by the percentage of
contract hours incurred to date compared to the estimated total
contract hours for each contract. Corillian has the ability to
make reasonably dependable estimates relating to the extent of
progress towards completion, contract revenues and contract
costs. Any estimation process, including that used in preparing
contract accounting models, involves inherent risk. Profit
estimates are subject to revision as the contract progresses
towards completion. Revisions in profit estimates are charged to
income in the period that the facts giving rise to the revision
become known. Corillian reduces the inherent risk relating to
revenue and cost estimates in percentage-of-completion models
through various approval and monitoring processes and policies.
Risks relating to service delivery, usage, productivity and
other factors are considered in the estimation process.
Cumulative revenues recognized may be less or greater than
cumulative billings at any point in time during a
contracts term. The resulting difference is recognized as
deferred revenue or revenue in excess of billings, respectively.
Provisions for estimated losses on uncompleted contracts are
made in the period in which such losses are determined.
Vendor-specific objective evidence has been established on
post-contractual customer support and hosting services using the
renewal rate. Corillian allocates revenue to certain elements in
multiple element arrangements using the residual method. The
difference between the total software arrangement fee and the
amount deferred for post-contractual customer support and
hosting services is allocated to software license,
implementation, training and custom software engineering
services and recognized using contract accounting.
Revenues for post-contractual customer support are recognized
ratably over the term of the support services period, generally
a period of one year. Services provided to customers under
customer support and maintenance agreements generally include
technical support and unspecified product upgrades deliverable
on a when and if available basis. Revenues from hosting services
for transactions processed by Corillian are recognized ratably
over the hosting term.
Pursuant to SOP No. 81-1, on projects where ultimate
recoverability is questionable due to inherent hazards,
Corillian limits revenue recognition in the period to the amount
of project costs incurred in the same period, and postpones
recognition of profits until results can be estimated more
precisely. Under this zero profit methodology, equal
amounts of revenues and costs, measured on the basis of
performance during the period, are presented in Corillians
consolidated statements of operations.
Due to certain triggering events included in a customers
contract, beginning with the three-month period ended
September 30, 2002, Corillian applied the zero
profit methodology discussed above to three existing
projects for one customer. Both revenues and expenses recognized
from these projects accounted for under the zero
profit methodology during the years ended
December 31, 2003 and 2002, was approximately $714,000 and
$271,000, respectively. As all three of this customers
projects were completed and accepted during 2003, Corillian
recognized an additional $1.0 million of revenue related to
these projects, which had been previously deferred until
completion of the projects, during the year ended
December 31, 2003. Since all costs of revenues associated
with these projects had been previously recognized using the
zero profit methodology, recognition of this
deferred revenue resulted in the corresponding recognition of
$1.0 million in gross profit during the year ended
December 31, 2003. No further revenues were deferred on
these projects as of December 31, 2003.
Corillian generally licenses Corillian Voyager on an end-user
basis, with its initial license fee based on a fixed number of
end users. As a customer increases its installed base of end
users beyond the initial fixed number of end users,
Corillians software license agreements require customers
to pay Corillian an additional license fee to cover additional
increments of end users. Revenues from additional license seat
sales, less any amounts related to maintenance included in the
arrangement, are generally recognized in the period in which the
licenses are sold.
F-7
CORILLIAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In arrangements where Corillian does not have an obligation to
install its products, but may become involved in the
installation of these products, Corillian recognizes
non-refundable license fees over the estimated implementation
period for the customer or resellers project. If Corillian
determines that the customer or reseller can successfully
install Corillians products in a production environment
without Corillians involvement, Corillian will recognize
non-refundable license fees in the period in which
collectibility of the license fees is probable, assuming all
other SOP No. 97-2 revenue recognition criteria are met.
In certain arrangements, Corillian may defer all revenues and
related costs of revenues until delivery is complete and
customer acceptance is obtained. These arrangements have certain
elements of risk such as an obligation to deliver new products
when technological feasibility has not been obtained at the
onset of the arrangement or an obligation to deliver software
customized to a customer specifications. In arrangements where
Corillian is providing customized functionality on a best
efforts basis, Corillian generally recognizes revenues as
services are performed. Arrangements where customers fund
expedited development of software products are accounted for as
funded research and development. In arrangements where Corillian
retains and reserves title and all ownership rights to the
software products, Corillian recognizes these funds as a
reduction of research and development expense.
Cash equivalents consist of demand deposit accounts, money
market mutual funds and commercial paper with original
maturities of 90 days or less, which are carried at market
value, which approximates cost. Cash equivalents totaled
$24.9 million and $14.2 million as of
December 31, 2004 and 2003, respectively.
During the third quarter of 2002, Corillian agreed to deposit
$1.0 million in cash in a corporate bank account with a
customer. This balance was classified as restricted cash as of
December 31, 2002, because Corillian was required to
maintain the funds on deposit and could not use the funds
without violating the agreement. During the second quarter of
2003, Corillian and the customer amended the terms of the
contract to remove the requirement that Corillian maintain the
funds on deposit with the customer. As a result, these funds
became classified as unrestricted during the second quarter of
2003.
|
|
(f) |
Short-Term Investments |
Corillians short-term investments consist of taxable
government agency bonds with original maturities between 90 and
180 days and taxable municipal bonds, auction rate
securities, with original maturities of greater than one year.
Taxable government agency bonds are classified as
held-to-maturity, as the Company has the intent and ability to
hold these securities to maturity. All held-to-maturity
investments are recorded at amortized cost. The decline in the
market value of any held-to-maturity investment below cost that
is deemed to be other-than-temporary results in a reduction in
carrying amount to fair value. The impairment charge is charged
to earnings and a new costs basis for the security is
established. To determine whether impairment is
other-than-temporary, Corillian considers whether it has the
ability and intent to hold the investment until a market price
recovery and considers whether evidence indicating the cost of
the investment is recoverable outweighs evidence to the
contrary. There have been no impairments of held-to-maturity
securities identified or recorded by Corillian.
Corillian classifies taxable municipal bonds with maturities
greater than one year as short-term available-for-sale
securities and reports them at cost which approximates market.
Corillian views its auction rate securities as short-term
investments, even though the original maturity dates are greater
than one year, as they are bought and sold at par every 28 to
35 days and therefore are available for use in normal
operations. Unrealized holding gains and losses have not been
material to date. Realized gains on available-for-sale
securities are included in interest and other income in
Corillians statement of operations. Realized losses and
F-8
CORILLIAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
declines in value judged to be other than temporary on
available-for-sale securities are included in earnings in the
period of occurrence. There have been no impairments of
available-for-sale securities identified or recorded by
Corillian. The specific identification method is used to
determine the cost of securities sold.
Premiums and discounts on held-to-maturity investments are
amortized or accreted over the life of the related security as
an adjustment to yield using a method that approximates the
effective-interest method. Dividend and interest income is
recognized when earned.
In accordance with the provisions of Statement No. 144,
Accounting for the Impairment or Disposal of Long-Lived
Assets, management reviews Corillians long-lived
assets and definite-lived intangible assets for impairment when
events or changes in circumstances indicate that the carrying
amount of the assets may not be recoverable. Recoverability of
long-lived assets is determined by comparing the forecasted
undiscounted net cash flows of the asset or asset group to the
carrying amount of the asset or asset group. If the operation is
determined to be unable to recover the carrying amount of its
assets, the assets or asset groups are written down to their
estimated fair value. Fair value is determined based on
discounted cash flows or appraised values, depending upon the
nature of the assets.
|
|
(h) |
Investment in Joint Venture |
Investments in businesses in which Corillian owns less than a
50% interest and can exert significant influence over are
accounted for using the equity method of investment accounting.
EITF 03-16, Accounting for Investments in Limited
Liability Companies, requires that investments in limited
partnerships be accounted for using the equity method when the
percentage of ownership is greater than 5%. Accordingly,
Corillian accounts for its investment using the equity method of
accounting. Under the equity method, Corillian records an
investment in the stock at cost, and adjusts the carrying amount
of the investment to recognize its share of the earnings or
losses of the business after the date of investment based on its
ownership percentage of the business as a whole.
On June 9, 2000, Corillian entered into an operating
agreement with Huntington Bancshares Incorporated, Compaq
Computer Corporation and SAIC Venture Capital Corporation, a
division of Science Applications International Corporation to
form e-Banc, LLC, a Delaware limited liability company. On
February 12, 2004, e-Banc changed its name to Synoran
LLC. The business of Synoran is to develop, produce and
market solutions that enable financial institutions to collect
and coordinate their data from all delivery channels including
tellers, ATMs, web banking sites, among others, on a real
time basis, using existing financial institution legacy systems
as well as new channel applications.
Pursuant to the agreement, Corillian contributed
$3.0 million in cash in 2000. Corillians ownership
percentage of Synoran as of December 31, 2004, was 12.3%.
Corillian has one representative on Synorans board of
managers. Corillian invested an additional $1.0 million in
cash in Synoran during 2003. During the years ended
December 31, 2004, 2003 and 2002, Corillian recorded
$813,000, $1.1 million and $916,000, respectively, of
losses related to its investment in Synoran. Corillian does not
have an obligation to further fund Synoran.
Trade accounts receivable are recorded at invoiced amount and do
not bear interest. Corillian performs ongoing credit evaluations
of its customers financial condition. Credit is extended
to customers as deemed necessary and generally does not require
collateral. Management believes that the risk of loss is
significantly reduced due to the quality and financial position
of its customers. Management provides an allowance for doubtful
accounts based on current customer information and historical
statistics. The allowance for doubtful
F-9
CORILLIAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
accounts is Corillians best estimate of the amount of
probable credit losses in its existing accounts receivable.
Account balances are charged off against the allowance after all
means of collection have been exhausted and the potential for
recovery is considered remote. Corillian does not have any
off-balance-sheet credit exposure related to its customers. At
December 31, 2004 and 2003, Corillians allowance for
doubtful accounts receivable was $101,000.
The following table summarizes the activity in the allowance for
doubtful accounts (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
Beginning allowance balance
|
|
$ |
101 |
|
|
$ |
399 |
|
|
$ |
|
|
(Recovery) provision
|
|
|
(199 |
) |
|
|
(173 |
) |
|
|
1,317 |
|
Charge-offs
|
|
|
199 |
|
|
|
(125 |
) |
|
|
(918 |
) |
|
|
|
|
|
|
|
|
|
|
Ending allowance balance
|
|
$ |
101 |
|
|
$ |
101 |
|
|
$ |
399 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(j) |
Property and Equipment |
Property and equipment are stated at cost and depreciated using
the straight-line method over the estimated useful life of the
assets, generally three to five years. Equipment recorded under
capital lease agreements are depreciated over the shorter of the
estimated useful life of the equipment or the lease term.
Leasehold improvements are depreciated over the shorter of the
remaining term of the related leases or the estimated economic
useful lives of the improvements. Repairs and maintenance are
expensed as incurred.
|
|
(k) |
Research and Development |
Research and development costs are expensed as incurred.
Corillian accounts for software development costs in accordance
with Statement No. 86, Accounting for the Costs of
Computer Software to be Sold, Leased or Otherwise Marketed.
Software development costs are capitalized beginning when a
products technological feasibility has been established by
completion of a working model of the product and ending when a
product is available for general release to customers.
Completion of a working model of Corillians products and
general release has substantially coincided. As a result,
Corillian has not capitalized any software development costs
during the three-year period ended December 31, 2004 and
charged all such costs to research and development expense as
incurred.
Internal use software development costs are accounted for in
accordance with SOP No. 98-1, Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use.
Costs incurred in the preliminary project stage are expensed as
incurred and costs incurred in the application development stage
are capitalized and amortized on a straight-line basis over the
estimated life of the asset. Capitalized internal use software
development costs have not been significant to date.
|
|
(m) |
Concentration of Business and Credit Risk |
Results of operations are substantially derived from United
States operations and substantially all assets reside in the
United States. Banks and other financial institutions accounted
for a majority of Corillians revenues during the
three-year period ended December 31, 2004. A majority of
Corillians revenues are generated from the financial
services industry. Accordingly, Corillians near and
long-term prospects depend on its ability to attract the
technology expenditures of these companies. The market for
Internet-based financial services is intensely competitive and
rapidly changing. Additionally, the sale and implementation of
Corillians products and services are often subject to
delays because of Corillians customers internal
budgets
F-10
CORILLIAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
and procedures for approving large capital expenditures and
deploying new technologies within their networks.
Corillians financial condition, results of operations and
liquidity could be materially affected if adverse conditions in
the industry developed, such as a reduction in technology
expenditures or a delay in the sales or implementation timeline.
An inability of Corillian to generate demand for its product,
whether as a result of competition, technological change,
economic, or other factors, could have a material adverse result
on Corillians financial condition, results of operations
or liquidity.
Corillian is exposed to concentration of credit risk principally
from accounts receivable and revenue in excess of billing. As of
December 31, 2004, four customers individually accounted
for more than 10% of consolidated accounts receivable. These
customers, in total, accounted for approximately 65% of
Corillians consolidated accounts receivable balance as of
December 31, 2004. As of December 31, 2003, three
customers accounted for more than 10% of consolidated accounts
receivable. These customers, in total, accounted for
approximately 54% of Corillians consolidated accounts
receivable balance as of December 31, 2003.
One customer individually accounted for more than 10% of
Corillians consolidated revenue in excess of billing
balance as of December 31, 2004. This customer accounted
for approximately 49% of Corillians consolidated revenue
in excess of billing balance as of December 31, 2004. Three
customers individually accounted for more than 10% of
Corillians consolidated revenue in excess of billing
balance as of December 31, 2003. These customers, in total,
accounted for approximately 64% of Corillians consolidated
revenue in excess of billing balance as of December 31,
2003.
Corillian is also subject to concentrations of credit risk from
its cash, cash equivalents and short-term investments. Corillian
limits its exposure to credit risk associated with cash, cash
equivalents and short-term investments by placing its cash, cash
equivalents and short-term investments with major financial
institutions and by investing in investment-grade securities.
|
|
(n) |
Risk of Technological Change |
A substantial portion of Corillians revenues are generated
from the development and rapid release to market of computer
software products and enhancements during the year. In the
extremely competitive industry environment in which Corillian
operates, such product generation, development and marketing
processes are uncertain and complex, requiring accurate
prediction of market trends and demand as well as successful
management of various risks inherent in such products.
Additionally, Corillians production strategy relies on
certain employees ability to deliver implemented products
in time to meet critical development and distribution schedules.
In light of these dependencies, it is reasonably possible that
failure to successfully manage a significant product
introduction or failure of certain employees to deliver
implemented products as needed could have severe impact on
Corillians growth, results of operations and liquidity.
|
|
(o) |
Stock-Based Compensation |
At December 31, 2004, Corillian had various stock-based
compensation plans, including stock option plans and an employee
stock purchase plan, which are described more fully in
Notes 5 and 6. Corillian applies the intrinsic-value-based
method of accounting prescribed by Accounting Principles Board
(APB) Opinion No. 25, Accounting for Stock Issued
to Employees, and related interpretations including FASB
Interpretation (FIN) No. 44, Accounting for Certain
Transactions involving Stock Compensation, an interpretation of
APB Opinion No. 25, to account for its fixed-plan stock
options. Under this method, compensation expense is generally
recorded on the date of grant if the current market price of the
underlying stock exceeded the exercise price. Statement
No. 123, Accounting for Stock-Based Compensation and
Statement No. 148, Accounting for Stock-Based
Compensation Transition and Disclosure, an amendment
of FASB Statement No. 123, established accounting and
disclosure requirements using a fair-value-based method of
accounting for stock-based employee compensation plans. As
permitted by existing accounting standards, Corillian has
elected to continue to apply the intrinsic-value-based method of
accounting described above, and has adopted
F-11
CORILLIAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
only the disclosure requirements of Statement No. 123, as
amended. Expense associated with stock-based compensation is
amortized on an accelerated basis over the vesting period of the
individual stock option awards consistent with the method
prescribed in FIN No. 28.
The following table illustrates the effect on net income (loss)
if the fair-value-based method had been applied to all
outstanding and unvested awards in each period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
|
|
(In thousands, except for | |
|
|
per share data) | |
Net income (loss), as reported
|
|
$ |
10,480 |
|
|
$ |
5,126 |
|
|
$ |
(17,257 |
) |
Add: Stock-based compensation expense determined using the
intrinsic value method
|
|
|
|
|
|
|
35 |
|
|
|
885 |
|
Deduct: Total stock-based employee compensation expense
determined under fair value based method for all awards
|
|
|
(2,103 |
) |
|
|
(3,314 |
) |
|
|
(6,328 |
) |
|
|
|
|
|
|
|
|
|
|
Pro forma net income (loss)
|
|
$ |
8,377 |
|
|
$ |
1,847 |
|
|
$ |
(22,700 |
) |
|
|
|
|
|
|
|
|
|
|
Basic as reported
|
|
$ |
0.28 |
|
|
$ |
0.14 |
|
|
$ |
(0.49 |
) |
Basic pro forma
|
|
$ |
0.22 |
|
|
$ |
0.05 |
|
|
$ |
(0.64 |
) |
Diluted as reported
|
|
$ |
0.26 |
|
|
$ |
0.14 |
|
|
$ |
(0.49 |
) |
Diluted pro forma
|
|
$ |
0.21 |
|
|
$ |
0.05 |
|
|
$ |
(0.64 |
) |
Information related to the assumptions used in the above
calculations is further described in Notes 5 and 6.
Corillian accounts for stock issued to non-employees in
accordance with the provisions of Statement No. 123 and
EITF 96-18, Accounting for Equity Instruments That Are Issued
to Other Than Employees for Acquiring, or in Conjunction with
Selling, Goods or Services.
|
|
(p) |
Net Income (Loss) Per Share |
Corillian computes net income (loss) per share in accordance
with Statement No. 128, Earnings Per Share. Under
the provisions of Statement No. 128, basic net income
(loss) per share is computed by dividing the net income (loss)
for the period by the weighted-average number of shares of
common stock outstanding during the period. Diluted net income
(loss) per share is computed by dividing net income (loss) for
the period by the weighted-average number of shares of common
stock and potential dilutive common shares outstanding during
the period.
The following is a reconciliation of basic and diluted
weighted-average shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Shares for basic net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares
|
|
|
37,727 |
|
|
|
36,431 |
|
|
|
35,477 |
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options and employee stock purchase plan
|
|
|
2,747 |
|
|
|
1,382 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares for diluted net income (loss) per share:
|
|
|
40,474 |
|
|
|
37,813 |
|
|
|
35,477 |
|
|
|
|
|
|
|
|
|
|
|
F-12
CORILLIAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Options with exercise prices less than the average fair market
value of the underlying common stock totaling 533,611 for the
year ended December 31, 2002, were excluded from the net
loss per share calculations due to Corillians net loss in
these periods.
The following shares issuable under stock options and a warrant
would not result in additional dilutive shares under the
treasury stock method as they would be anti dilutive:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Shares issuable under stock options
|
|
|
1,202 |
|
|
|
3,128 |
|
|
|
4,623 |
|
Shares issuable under a warrant
|
|
|
|
|
|
|
|
|
|
|
250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,202 |
|
|
|
3,128 |
|
|
|
4,873 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(q) |
Comprehensive Income (Loss) |
Corillian has adopted the provisions of Statement No. 130,
Reporting on Comprehensive Income. Comprehensive income
(loss) is defined as changes in shareholders equity
exclusive of transactions with owners. To date, only foreign
currency translation adjustments have been reported in
comprehensive income (loss) for Corillian. All other amounts
have not been material to Corillians financial position or
results of operations.
Corillian accounts for income taxes in accordance with Statement
No. 109, Accounting for Income Taxes. In accordance
with Statement No. 109, deferred tax assets and liabilities
are recognized for the future tax consequences of events that
have been included in the financial statements and tax returns.
Under this method, deferred tax assets and liabilities are
determined based on the difference between the financial
statement and tax basis of assets and liabilities using enacted
tax rates in effect for the year in which the differences are
expected to be recovered or settled. Valuation allowances are
established to reduce deferred tax assets to the amount expected
to be realized.
|
|
(s) |
Fair Value of Financial Instruments |
The carrying amounts reported in the balance sheet for cash and
cash equivalents, restricted cash, short-term investments,
accounts and notes receivable, revenue in excess of billings,
and accounts payable approximate fair values due to the
short-term nature of those instruments. The carrying amount of
long-term debt approximates fair value as the stated interest
rates approximate current market rates. Fair value estimates are
made at a specific point in time, based on relevant market
information about the financial instruments when available.
These estimates are subjective in nature and involve
uncertainties and matters of significant judgment and,
therefore, cannot be determined with precision.
Advertising costs are expensed as incurred. Advertising expense
was $3,000, $25,000 and $88,000 for the years ended
December 31, 2004, 2003 and 2002, respectively.
|
|
(u) |
Recent Accounting Pronouncements |
On December 16, 2004, the Financial Accounting Standards
Board (FASB) issued Statement No. 123R, Share-Based
Payment, which is a revision of Statement No. 123 and
supersedes APB Opinion No. 25.
F-13
CORILLIAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Statement No. 123R requires all share-based payments to
employees, including grants of employee stock options, to be
valued at fair value on the date of grant, and to be expensed
over the applicable vesting period. Pro forma disclosure of the
income statement effects of share-based payments is no longer an
alternative. Statement No. 123R is effective for all
stock-based awards granted on or after July 1, 2005. In
addition, companies must also recognize compensation expense
related to any awards that are not fully vested as of the
effective date. Compensation expense for the unvested awards
will be measured based on the fair value of the awards
previously calculated in developing the pro forma disclosures in
accordance with the provisions of Statement No. 123.
Corillian is currently evaluating the impact of adopting
SFAS 123R to its consolidated results of operations.
Certain reclassifications have been made to the consolidated
financial statements for 2004 and 2003 in order to conform to
the 2002 presentation. Such reclassifications had no effect on
previously reported net income, cash flows from operations or
shareholders equity.
In the current year, Corillian reclassified prior year balances,
related to auction rate securities, totaling $9.3 million
from cash and cash equivalents to short-term investments.
|
|
(3) |
Balance Sheet Components |
|
|
(a) |
Short-Term Investments |
Short-term investments consisted of the following at
December 31:
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
|
(In thousands) | |
Available-for-sale
|
|
$ |
10,150 |
|
|
$ |
9,300 |
|
Held-to-maturity
|
|
|
|
|
|
|
601 |
|
|
|
|
|
|
|
|
|
|
$ |
10,150 |
|
|
$ |
9,901 |
|
|
|
|
|
|
|
|
No individual securities have been in an unrealized loss
position for more than one year.
|
|
(b) |
Property and Equipment, Net |
Property and equipment, net, consisted of the following at
December 31:
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
|
(In thousands) | |
Computer equipment and software
|
|
$ |
11,959 |
|
|
$ |
13,568 |
|
Furniture, fixtures and other equipment
|
|
|
2,909 |
|
|
|
3,332 |
|
Leashold improvements
|
|
|
3,830 |
|
|
|
4,257 |
|
|
|
|
|
|
|
|
|
|
|
18,698 |
|
|
|
21,157 |
|
Less accumulated depreciation and amortization
|
|
|
(14,898 |
) |
|
|
(15,392 |
) |
|
|
|
|
|
|
|
|
|
$ |
3,800 |
|
|
$ |
5,765 |
|
|
|
|
|
|
|
|
Depreciation expense was $2.2 million, $3.7 million
and $5.4 million for the years ended December 31,
2004, 2003 and 2002, respectively. During 2004, Corillian
recognized a $491,000 impairment charge to write-off the
remaining book value of long-lived assets that it abandoned and
ceased to use. See Note 9.
F-14
CORILLIAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Accrued liabilities consisted of the following at
December 31:
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
|
(In thousands) | |
Payroll and related expenses
|
|
$ |
1,564 |
|
|
$ |
1,267 |
|
Other accrued liabilities
|
|
|
904 |
|
|
|
785 |
|
|
|
|
|
|
|
|
|
|
$ |
2,468 |
|
|
$ |
2,052 |
|
|
|
|
|
|
|
|
Domestic and foreign pre-tax income (loss) is as follows for the
year ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Domestic
|
|
$ |
9,942 |
|
|
$ |
5,034 |
|
|
$ |
(12,052 |
) |
Foreign
|
|
|
698 |
|
|
|
216 |
|
|
|
(5,205 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
10,640 |
|
|
$ |
5,250 |
|
|
$ |
(17,257 |
) |
|
|
|
|
|
|
|
|
|
|
For 2004 and 2003, Corillian provided current federal and state
tax expense of $160,000 and $124,000, respectively. No provision
for federal, state or foreign income taxes was recorded for
2002, as Corillian incurred a net operating loss.
The reconciliation of the statutory federal income tax rate to
Corillians effective income tax rate is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
Federal statutory rate
|
|
|
34 |
% |
|
|
34 |
% |
|
|
(34 |
)% |
Increases (decreases) resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses for which no benefit has been provided
|
|
|
|
|
|
|
|
|
|
|
34.0 |
|
|
Utilization of net operating losses
|
|
|
(31.9 |
) |
|
|
(31.0 |
) |
|
|
|
|
|
Other
|
|
|
(0.6 |
) |
|
|
(1.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.5 |
% |
|
|
2.0 |
% |
|
|
0.0 |
% |
|
|
|
|
|
|
|
|
|
|
F-15
CORILLIAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The tax effects of temporary differences and net operating loss
carryforwards which give rise to the significant portions of
deferred tax assets and liabilities are as follow as at
December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
|
(In thousands) | |
Deferred tax assets:
|
|
|
|
|
|
|
|
|
|
Research and experimentation credit carryforwards
|
|
$ |
2,914 |
|
|
$ |
2,552 |
|
|
Accrued expenses and allowances
|
|
|
414 |
|
|
|
510 |
|
|
Deferred compensation
|
|
|
130 |
|
|
|
599 |
|
|
Domestic net operating loss carryforwards
|
|
|
20,355 |
|
|
|
22,714 |
|
|
Foreign net operating loss carryforwards
|
|
|
2,583 |
|
|
|
2,721 |
|
|
Equity investments
|
|
|
|
|
|
|
247 |
|
|
Goodwill
|
|
|
293 |
|
|
|
321 |
|
|
Depreciable assets
|
|
|
1,128 |
|
|
|
923 |
|
|
Alternative minimum tax credit carryforwards
|
|
|
198 |
|
|
|
83 |
|
|
Other
|
|
|
|
|
|
|
36 |
|
|
|
|
|
|
|
|
|
|
Total gross deferred tax asset
|
|
|
28,015 |
|
|
|
30,706 |
|
Less valuation allowance
|
|
|
(27,799 |
) |
|
|
(30,590 |
) |
|
|
|
|
|
|
|
|
|
|
216 |
|
|
|
116 |
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
|
Prepaid expenses
|
|
|
167 |
|
|
|
|
|
|
Equity investments
|
|
|
49 |
|
|
|
116 |
|
|
|
|
|
|
|
|
|
|
Total gross deferred tax liabilities
|
|
|
216 |
|
|
|
116 |
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
Corillian has established a valuation allowance for certain
deferred tax assets, including those for net operating loss and
tax credit carryforwards. Such a valuation allowance is recorded
when it is more likely than not that the deferred tax assets
will not be realized. The portion of the valuation allowance for
deferred tax assets for which subsequently recognized tax
benefits will be applied directly to contributed capital is
approximately $1.9 million.
The net change in the total valuation allowance was a decrease
of $2.8 million and $1.1 million for the years ended
December 31, 2004 and 2003, respectively. The decrease in
the valuation allowance is primarily due to the utilization of
federal and state net operating losses during 2004 and 2003.
At December 31, 2004, Corillian has federal and state net
operating loss carryforwards of approximately $53.5 million
and foreign net operating loss carryforwards of
$12.8 million to offset against future income.
Additionally, Corillian had alternative minimum tax credits of
approximately $198,000 and research and experimentation credits
of $2.9 million. These carryforwards expire between 2005
and 2024.
Concurrent with Corillians initial public offering on
April 12, 2000, Corillian issued a warrant to
purchase 250,000 shares of common stock. This warrant
had an exercise price of $8.00 per share, which was equal
to the per share price of Corillians initial public
offering of common stock, and a term of three years. This
warrant was fully vested at the time of purchase and immediately
exercisable. The fair market value of
F-16
CORILLIAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
this warrant was approximately $1.4 million, which was
determined using the Black-Scholes option pricing model and paid
upon closing of Corillians initial public offering. This
warrant expired unexercised in April 2003.
|
|
(b) |
2000 Employee Stock Purchase Plan |
In March 2000, the Board of Directors approved the 2000 Employee
Stock Purchase Plan (the ESPP) that became effective upon
completion of Corillians initial public offering on
April 12, 2000. In 2004, 2003 and 2002 Corillian issued
507,628, 254,573 and 219,267 shares respectively, under the
ESPP. As of December 31, 2004, 60,184 shares were
available for issuance under the ESPP. The ESPP includes an
evergreen formula pursuant to which the number of shares
authorized for grant will be increased annually by the lesser of
(1) 333,333 shares, (2) an amount equal to two
percent of the average number of shares of common stock
outstanding on a fully diluted basis as of the end of our
immediately preceding fiscal year, and (3) a lesser amount
determined by our Board of Directors. In January 2005, an
additional 333,333 shares of common stock became available
for issuance under the ESPP pursuant to the evergreen formula.
Offering periods commence on February 1 and August 1 each
year and have a 24-month duration. Each offering period consists
of four consecutive purchase periods of six months
duration. Participants purchase common stock on the last day of
each purchase period. The purchase price is the lesser of 85% of
the fair market value of the common stock on the first day of an
offering period or 85% of the fair market value of the common
stock on the purchase date. If the fair market value of
Corillians common stock on any purchase date of an
offering period is less than the fair market value of
Corillians common stock on the first day of the offering
period, then every participant shall automatically (a) be
withdrawn from the offering period at the close of the purchase
date after the acquisition of the shares of Corillians
common stock for the purchase period and (b) be enrolled in
the offering period commencing on the first business date
subsequent to the purchase period.
The per share weighted-average fair value, as determined by
applying the valuation methodology prescribed in FASB Technical
Bulletin 97-1, Accounting under Statement 123 for
Certain Employee Stock Purchase Plans with a Look-Back Option,
to the ESPP in 2004, 2003 and 2002, was $1.15, $0.32 and
$0.72, respectively, using the following assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
Risk free interest rate
|
|
|
1.64-3.01% |
|
|
|
1.05-1.86% |
|
|
|
3.10% |
|
Expected volatility
|
|
|
21-29% |
|
|
|
22-44% |
|
|
|
100% |
|
Expected life in years
|
|
|
6-24 months |
|
|
|
6-24 months |
|
|
|
6-24 months |
|
Dividend yield
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6) |
1997, 2000 and 2003 Stock Option Plans |
In 1997, Corillians Board of Directors approved and
adopted a Stock Option Plan (the 1997 Plan). Options granted
pursuant to the 1997 Plan may be either incentive stock options
or non-qualified stock options, at the discretion of the Board
of Directors. In March 2000, the Board of Directors approved an
amendment that capped the 1997 Plan at 3,453,193 shares,
which was the number of shares subject to options at that time.
Shares under the 1997 Plan generally vest in yearly installments
over a period of three or four years following the date of
grant. Options under the 1997 Plan generally expire five years
from the date of grant, and generally expire three months after
termination of employment with Corillian.
In March 2000, the Board of Directors approved the 2000 Stock
Incentive Compensation Plan (the 2000 Plan). Options granted
pursuant to the 2000 Plan may be either incentive stock options
or non-qualified stock options, at the discretion of the Board
of Directors. Shares under the 2000 Plan generally vest over a
period of
F-17
CORILLIAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
four years following the date of grant. Options under the 2000
Plan generally expire ten years from the date of grant, and
generally expire three months after termination of employment
with Corillian. As of December 31, 2004,
2,180,423 shares remained available for issuance under the
2000 Plan. The 2000 Plan includes an evergreen formula pursuant
to which the number of shares authorized for grant will be
increased annually by the lesser of
(1) 400,000 shares, and (2) an amount equal to
one percent of the average outstanding shares of the common
stock of the Company as of the end of the immediately preceding
fiscal year on a fully-diluted basis; plus any shares subject to
outstanding awards under Corillians 1997 Plan as of the
effective date of the 2000 Plan that cease to be subject to such
awards other than by reason of exercise or payment of such
awards. In January 2005 an additional 400,000 shares of
common stock became available for grant under the 2000 Plan
pursuant to the evergreen formula.
In May 2003, Corillians Board of Directors adopted the
2003 Nonqualified Stock Incentive Compensation Plan (the 2003
Plan) and authorized the issuance of 1,000,000 shares of
common stock under the 2003 Plan. The 2003 Plan was not approved
by Corillians shareholders. Shares under the 2003 Plan
generally vest over a period of four years following the date of
grant. Options under the 2003 Plan generally expire ten years
from the date of grant or three months after termination of
employment with Corillian. As of December 31, 2004,
15,500 shares remained available for issuance under the
2003 Plan.
Stock option activity under the 1997, 2000 and 2003 Stock Option
Plans was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted | |
|
|
|
|
Average | |
|
|
Number of | |
|
Exercise | |
|
|
Shares | |
|
Price | |
|
|
| |
|
| |
Balance December 31, 2001
|
|
|
6,051,920 |
|
|
$ |
6.93 |
|
Granted
|
|
|
1,290,550 |
|
|
|
2.69 |
|
Exercised
|
|
|
(359,857 |
) |
|
|
(0.63 |
) |
Cancelled
|
|
|
(3,097,417 |
) |
|
|
(8.72 |
) |
|
|
|
|
|
|
|
Balance December 31, 2002
|
|
|
3,885,196 |
|
|
|
4.69 |
|
Granted
|
|
|
4,279,750 |
|
|
|
2.24 |
|
Exercised
|
|
|
(490,058 |
) |
|
|
(2.28 |
) |
Cancelled
|
|
|
(1,072,640 |
) |
|
|
(3.30 |
) |
|
|
|
|
|
|
|
Balance December 31, 2003
|
|
|
6,602,248 |
|
|
|
3.51 |
|
Granted
|
|
|
565,999 |
|
|
|
4.93 |
|
Exercised
|
|
|
(1,009,226 |
) |
|
|
1.95 |
|
Cancelled
|
|
|
(763,516 |
) |
|
|
3.11 |
|
|
|
|
|
|
|
|
Balance December 31, 2004
|
|
|
5,395,505 |
|
|
$ |
4.01 |
|
|
|
|
|
|
|
|
F-18
CORILLIAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table summarizes information regarding stock
options outstanding and exercisable as of December 31, 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding | |
|
Options Exercisable | |
|
|
| |
|
| |
|
|
|
|
Weighted | |
|
|
|
|
|
|
|
|
Average | |
|
Weighted | |
|
|
|
Weighted | |
|
|
|
|
Remaining | |
|
Average | |
|
Exercisable | |
|
Average | |
|
|
Number of | |
|
Contractual | |
|
Exercise | |
|
Number of | |
|
Exercise | |
Exercise Price |
|
Shares | |
|
Life | |
|
Price | |
|
Shares | |
|
Price | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
$ 0.56- 0.86
|
|
|
1,225,626 |
|
|
|
8.31 |
|
|
$ |
0.86 |
|
|
|
353,202 |
|
|
$ |
0.86 |
|
0.88- 2.71
|
|
|
569,626 |
|
|
|
7.93 |
|
|
|
1.63 |
|
|
|
253,000 |
|
|
|
1.72 |
|
2.75- 3.00
|
|
|
1,444,053 |
|
|
|
8.17 |
|
|
|
2.95 |
|
|
|
568,275 |
|
|
|
2.93 |
|
3.02- 4.47
|
|
|
540,573 |
|
|
|
6.17 |
|
|
|
3.70 |
|
|
|
432,524 |
|
|
|
3.67 |
|
4.52- 6.01
|
|
|
899,656 |
|
|
|
9.18 |
|
|
|
5.43 |
|
|
|
12,094 |
|
|
|
5.60 |
|
6.05-12.50
|
|
|
572,346 |
|
|
|
6.00 |
|
|
|
10.68 |
|
|
|
535,972 |
|
|
|
10.98 |
|
12.94-19.50
|
|
|
143,625 |
|
|
|
5.45 |
|
|
|
16.81 |
|
|
|
143,625 |
|
|
|
16.81 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.56-19.50
|
|
|
5,395,505 |
|
|
|
7.84 |
|
|
$ |
4.01 |
|
|
|
2,298,692 |
|
|
$ |
5.38 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the fourth quarter of 2002, Corillian cancelled 890,000
options of a member of its Board of Directors. The majority of
these options had exercises prices above market value during the
fourth quarter of 2002, as exercises prices ranged from $2.85 to
$19.25 per share. In exchange for the cancelled options,
Corillian issued 30,000 shares of restricted stock, which
vested over one year. Corillian recorded $45,000 of deferred
stock-based compensation associated with this grant of
restricted stock, which was amortized to expense over the
vesting period. The cancellation of options and reissuance of
restricted stock was made in order to reduce options outstanding
and provide appropriate compensation to the member of the Board
of Directors.
The per share weighted average grant date fair value, as
reflected in Note 1, as determined by applying the
Black-Scholes option pricing model to stock options granted
under the 1997, 2000 and 2003 Stock Option Plans, was $1.19,
$0.81 and $1.90 during the years ended December 31, 2004,
2003 and 2002, respectively, using the following
weighted-average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended | |
|
|
December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
Risk free interest rate
|
|
|
1.65 |
% |
|
|
1.48 |
% |
|
|
3.10 |
% |
Expected volatility
|
|
|
28 |
% |
|
|
39 |
% |
|
|
100 |
% |
Expected life in years
|
|
|
3.91 |
|
|
|
4.00 |
|
|
|
3.99 |
|
Dividend yield
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7) |
Commitments and Contingencies |
In October 2002, Corillian and KeyBank settled a dispute
surrounding KeyBanks allegations that one of
Corillians employees used KeyBanks trade secrets in
performing work for Corillian. As part of this settlement, both
parties dismissed their respective claims. Also, as part of this
settlement, Corillian agreed to pay KeyBank approximately
$1.8 million in cash and issue to KeyBank
500,000 shares of common stock, valued at approximately
$745,000. Corillian paid $175,000, $250,000 and
$1.4 million of the cash to KeyBank during the fourth
quarter of 2004, 2003, and 2002, respectively. Corillian issued
the shares of common stock during the fourth quarter of 2002.
Corillian recorded a charge of approximately $2.6 million
during the third quarter of 2002 related to this settlement.
F-19
CORILLIAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Corillian maintains a profit-sharing retirement plan for
eligible employees under the provisions of Internal Revenue Code
Section 401(k). Participants may defer up to 15% of their
annual compensation on a pre-tax basis, subject to maximum
limits on contributions set forth by the Internal Revenue
Service. Corillians contributions are equal to 50% of a
participants contribution, up to a maximum of 6% of each
participants annual compensation. Under this plan,
Corillian made contributions of approximately $348,000, $460,000
and $358,000 during the years ended December 31, 2004, 2003
and 2002, respectively.
Corillian is obligated under capital lease agreements for
computer and other equipment that expire over the next two
years. Gross amounts of property and equipment and related
accumulated depreciation recorded under capital leases are as
follows as of December 31:
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
|
(In thousands) | |
Computer and other equipment
|
|
$ |
34 |
|
|
$ |
1,416 |
|
Less accumulated depreciation
|
|
|
(34 |
) |
|
|
(1,213 |
) |
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
203 |
|
|
|
|
|
|
|
|
Corillian also has non-cancelable operating leases, which expire
over the next six years. Rental expense under operating leases
was $2.9 million, $3.1 million and $3.7 million
for the years ended December 31, 2004, 2003 and 2002,
respectively.
In September 2004, Corillian amended the lease for office space
at its corporate headquarters in Hillsboro, Oregon. This
amendment reduces the space leased effective January 1,
2005 to approximately 100,000 square feet, from
approximately 122,000 square feet previously leased. The
amendment also extended the lease expiration date to September
2010.
Future minimum lease payments on operating and capital leases
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital | |
|
Operating | |
|
|
Leases | |
|
Leases | |
|
|
| |
|
| |
|
|
(In thousands) | |
Year ending December 31:
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
11 |
|
|
|
2,333 |
|
|
2006
|
|
|
4 |
|
|
|
2,351 |
|
|
2007
|
|
|
0 |
|
|
|
2,355 |
|
|
2008
|
|
|
0 |
|
|
|
2,255 |
|
|
2009
|
|
|
0 |
|
|
|
2,305 |
|
Thereafter
|
|
|
0 |
|
|
|
1,757 |
|
|
|
|
|
|
|
|
|
|
Total minimum lease payments
|
|
|
15 |
|
|
|
13,356 |
|
|
|
|
|
|
|
|
Less amounts representing interest
|
|
|
(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Present value of minimum lease payments
|
|
|
14 |
|
|
|
|
|
Less current portion
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term portion of minimum lease payments
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
F-20
CORILLIAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In November 2000, Corillian obtained a $5.0 million
equipment line of credit with a financial institution. In June
2003, Corillian refinanced this line of credit to obtain lower
interest rates on its remaining debt with this financial
institution. As of December 31, 2004, approximately
$911,000 was outstanding under this line of credit and no
further amounts were available for borrowing. Under this line of
credit, Corillian must comply with affirmative covenants that
require it to maintain a specified tangible net worth value,
debt coverage ratio and adjusted quick ratio. Corillian believes
it was in compliance with these covenants as of
December 31, 2004.
Long-term debt was as follows as of December 31:
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
|
(In thousands) | |
Line of credit facility due January 2005 through June 2008 with
interest rates of 5.0 to 6.0% at December 31, 2004
|
|
|
911 |
|
|
|
2,573 |
|
|
|
|
|
|
|
|
|
|
|
911 |
|
|
|
2,573 |
|
Less current portion
|
|
|
(286 |
) |
|
|
(1,510 |
) |
|
|
|
|
|
|
|
|
|
|
625 |
|
|
|
1,063 |
|
|
|
|
|
|
|
|
Annual maturities of Corillians long-term debt obligations
are as follows as of December 31, 2004 (in thousands):
|
|
|
|
|
2005
|
|
$ |
286 |
|
2006
|
|
|
250 |
|
2007
|
|
|
250 |
|
2008
|
|
|
125 |
|
|
|
|
|
Total
|
|
$ |
911 |
|
|
|
|
|
In February 2005, Corillian paid off the remaining long-term
debt obligations noted above. See Note 11.
Corillians product license and services agreements include
a limited indemnification provision for claims from
third-parties relating to Corillians intellectual
property. Such indemnification provisions are accounted for in
accordance with Statement No. 5, Accounting for
Contingencies. The indemnification is limited to the amount
paid by the customer. To date, claims under such indemnification
provisions have not been significant.
Statement No. 131, Disclosures about Segments of an
Enterprise and Related Information, establishes standards
for reporting information related to operating segments in
annual financial statements and requires selected information
for those segments to be presented in interim financial reports
issued to shareholders. Statement No. 131 also establishes
standards for related disclosures about products and services
and geographic areas. Operating segments are defined as
components of an enterprise about which separate, discrete
financial information is available for evaluation by the chief
operating decision maker, or decision-making group, in making
decisions about how to allocate resources and assess
performance. Corillians chief operating decision maker, as
defined under Statement No. 131, is its chief executive
officer. Corillian operates in a single segment.
F-21
CORILLIAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
(a) |
Geographic Information |
Results of operations are substantially derived from United
States operations and substantially all assets reside in the
United States. Corillians results of operations for the
years ended December 31, 2004, 2003 and 2002, include
approximately $19,000, $155,000 and $6.0 million,
respectively, of direct operating expenses related to
Corillians international operations.
Corillians international operations generated a total of
approximately $988,000, $659,000 and $826,000 of its
consolidated revenues during the years ended December 31,
2004, 2003 and 2002, respectively. In 2002, Corillian closed its
office in London, England, and elected to pursue international
sales primarily through resellers and selective direct sales
efforts. Domestic and international revenues were 98% and 2% of
total revenues, respectively for the year ended
December 31, 2004, 99% and 1% of total revenues,
respectively for the year ended December 31, 2003, and 98%
and 2% for the year ended December 31, 2002, respectively.
Geographic information for the years ended December 31,
2004, 2003, and 2002 are presented below. Identifiable assets
located in foreign countries were not material at
December 31, 2004, 2003, and 2002.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Revenues from:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$ |
49,806 |
|
|
$ |
45,473 |
|
|
$ |
38,315 |
|
All foreign countries
|
|
|
988 |
|
|
|
659 |
|
|
|
826 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
50,794 |
|
|
$ |
46,132 |
|
|
$ |
39,141 |
|
|
|
|
|
|
|
|
|
|
|
Revenues from Corillians major customers, accounting for
more than 10% of consolidated revenues in a particular year, are
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Customer A
|
|
$ |
|
|
|
$ |
6,069 |
|
|
$ |
4,341 |
|
Customer B
|
|
|
9,739 |
|
|
|
6,743 |
|
|
|
|
|
Customer C
|
|
|
5,160 |
|
|
|
|
|
|
|
|
|
Corillians chief decision-maker monitors the revenue
streams of licenses and various services. There are many shared
expenses generated by the various revenue streams. Because
management believes that any allocation of the expenses to
multiple revenue streams would be impractical and arbitrary,
management has not historically made such allocations
internally. The chief decision-maker does, however, monitor
revenue streams at a more detailed level than those depicted in
the accompanying financial statements.
F-22
CORILLIAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Revenues derived from Corillians licenses and services are
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
|
|
(In thousands) | |
License and professional services
|
|
$ |
35,803 |
|
|
$ |
35,195 |
|
|
$ |
30,623 |
|
Post-contractual support
|
|
|
11,352 |
|
|
|
8,771 |
|
|
|
6,904 |
|
Hosting
|
|
|
3,639 |
|
|
|
2,166 |
|
|
|
1,614 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
50,794 |
|
|
$ |
46,132 |
|
|
$ |
39,141 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(9) |
Restructuring and Impairment Charges |
During the second quarter of 2002, Corillian initiated
restructuring actions to improve operational efficiency and
reduce operating expenses. Charges related to these
restructuring actions were accrued in the period in which
executive management committed to execute such actions and
termination benefits had been communicated to the affected
employees, in accordance with EITF 94-3, Liability
Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring). These actions resulted in a net reduction of
worldwide headcount by 49. Restructuring charges recorded in
connection with these actions totaled approximately $682,000,
which consisted solely of severance-related payments, health
care costs and severance-related tax payments. Of these
restructuring charges, approximately $398,000 was paid during
the second quarter of 2002, and the remainder of approximately
$284,000 was paid during the third quarter of 2002.
In the third quarter of 2004, in accordance with Statement
No. 146, Accounting for Costs Associated with Exit or
Disposal Activities, and Statement No. 144,
Accounting for the Impairment or Disposal of Long-Lived
Assets,Corillian recognized an impairment charge of $491,000
to write-off the remaining book value of long-lived assets in
the space Corillian has abandoned and ceased to use.
|
|
(10) |
Related Party Transactions |
In January 2001, Corillian extended a $300,000 short-term loan
to Alex P. Hart to assist him in purchasing a house in Portland,
Oregon while he was in the process of selling his house in
Bellevue, Washington and relocating to Portland to serve as
Corillians President. Mr. Hart is currently
Corillians Chief Executive Officer. The loan was
interest-free through February 2004 and is secured by all assets
of Mr. Hart. Beginning in March 2004 the loan began
accruing interest at four percent. As of December 31, 2004,
Mr. Hart has paid $216,000 of the principal amount of the
note, and $84,000 of the principal amount remains outstanding.
The outstanding principal balance is included in other
receivables on Corillians consolidated balance sheet at
December 31, 2004.
In connection with Ted Spooners departure as Chief
Executive Officer in October 2002, Corillian entered into an
agreement with Mr. Spooner that required Corillian to pay
Mr. Spooner a severance payment of approximately $600,000.
$300,000 of expense related this severance agreement was
recognized as general and administrative expense during the
first quarter of 2003. The remaining $300,000 of expense related
to this severance agreement was recognized as general and
administrative expense during the fourth quarter of 2002. In
April 2003, Corillian paid the severance payment to
Mr. Spooner. Effective May 7, 2003, Mr. Spooner
was neither a director nor employee of Corillian.
On November 14, 2003, Steve Sipowicz stepped down as
Corillians Chief Financial Officer and Secretary.
Mr. Sipowicz served as Corillians financial advisor
for a six-month period following his departure.
Mr. Sipowicz received $100,000 as severance and
$2,000 per month during the period he served as financial
advisor. Corillian recorded a charge of $100,000 related to
Mr. Sipowiczs severance agreement as general and
F-23
CORILLIAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
administrative expense during the third quarter of 2003. As of
May 14, 2004, Mr. Sipowicz was neither an employee nor
financial advisor of Corillian.
In February 2005, Corillian paid off the remaining balance
outstanding under the amended line of credit discussed in
Note 7 (d) above. In March 2005, Corillian entered
into a new one-year revolving line of credit facility with
another financial institution that allows Corillian to borrow up
to $4.0 million to assist with working capital needs. Under
this line of credit, Corillian must comply with affirmative
covenants that require it to maintain a specified tangible net
worth value, quick ratio, liabilities to tangible net worth
ratio and certain levels of net income.
|
|
(12) |
Quarterly Financial Information Unaudited |
A summary of quarterly financial information follows (in
thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended 2003 | |
|
|
| |
|
|
March 31 | |
|
June 30 | |
|
September 30 | |
|
December 31 | |
|
|
| |
|
| |
|
| |
|
| |
Total Revenues
|
|
$ |
10,848 |
|
|
$ |
11,482 |
|
|
$ |
11,586 |
|
|
$ |
12,216 |
|
Gross Profit
|
|
|
5,787 |
|
|
|
6,549 |
|
|
|
6,492 |
|
|
|
6,803 |
|
Income (loss) from operations
|
|
|
(7 |
) |
|
|
2,072 |
|
|
|
1,947 |
|
|
|
2,384 |
|
Net income (loss)
|
|
|
(441 |
) |
|
|
1,794 |
|
|
|
1,649 |
|
|
|
2,124 |
|
Basic net income (loss) per share
|
|
|
(0.01 |
) |
|
|
0.05 |
|
|
|
0.05 |
|
|
|
0.06 |
|
Diluted net income (loss) per share
|
|
|
(0.01 |
) |
|
|
0.05 |
|
|
|
0.04 |
|
|
|
0.05 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended 2004 | |
|
|
| |
|
|
March 31 | |
|
June 30 | |
|
September 30 | |
|
December 31 | |
|
|
| |
|
| |
|
| |
|
| |
Total Revenues
|
|
$ |
11,697 |
|
|
$ |
12,429 |
|
|
$ |
13,517 |
|
|
$ |
13,151 |
|
Gross Profit
|
|
|
6,687 |
|
|
|
7,644 |
|
|
|
9,018 |
|
|
|
8,996 |
|
Income from operations
|
|
|
2,045 |
|
|
|
2,561 |
|
|
|
3,214 |
(1) |
|
|
3,365 |
|
Net income
|
|
|
1,833 |
|
|
|
2,299 |
|
|
|
3,072 |
|
|
|
3,276 |
|
Basic net income per share
|
|
|
0.05 |
|
|
|
0.06 |
|
|
|
0.08 |
|
|
|
0.09 |
|
Diluted net income per share
|
|
|
0.05 |
|
|
|
0.06 |
|
|
|
0.08 |
|
|
|
0.08 |
|
The four quarters for net income (loss) per share may not add
for the year because of the different number of shares
outstanding during the year.
|
|
(1) |
Corillian recorded an impairment charge of approximately $491
during the quarter ended September 30, 2004. |
F-24