10-K 1 d10k.txt FORM 10-K ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------------- FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2000 OR [ ] 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 00021539 Alysis Technologies, Inc. (Exact name of registrant as specified in its charter) Delaware 94-3161772 (State or other jurisdiction (I.R.S. Employer incorporation or organization) Identification Number) 1900 Powell Street, Suite 110 Emeryville, California 94608-1804 (address of principal executive offices) (zip code) Registrant's telephone number, including area code: (510) 450-7000 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01 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 such filing requirements for the past 90 days. Yes [X] No [_]. 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 registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [_] The aggregate market value of voting stock held by non-affiliates of the registrant as of March 27, 2001 was approximately $18,461,044 based upon the last sales price reported for such date on the OTC Bulletin Board. For purposes of this disclosure, shares of Common Stock held by persons who hold more than five percent (5%) of the outstanding shares of Common Stock and shares held by officers and directors of the Registrant, have been excluded in that such persons may be deemed to be affiliates. This determination is not necessarily conclusive. At March 23, 2001, registrant had outstanding 13,589,003 shares of Common Stock. Table of Contents
Page ---- PART I.................................................................................................... 3 ITEM 1. BUSINESS................................................................................... 3 ITEM 2. PROPERTIES................................................................................. 15 ITEM 3. LEGAL PROCEEDINGS.......................................................................... 15 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS........................................ 15 PART II................................................................................................... 16 ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS....................... 16 ITEM 6. SELECTED FINANCIAL DATA.................................................................... 17 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...... 18 ITEM 7A. MARKET RISK DISCLOSURES.................................................................... 24 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................................................ 24 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE....... 24 PART III.................................................................................................. 25 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT......................................... 25 ITEM 11. EXECUTIVE COMPENSATION..................................................................... 27 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT............................. 30 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............................................. 31 PART IV................................................................................................... 33 ITEM 14. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES................................................. 33 SIGNATURES................................................................................................ 51
Page 2 ALYSIS TECHNOLOGIES, INC. PART I This "Business" section and other parts of this Annual Report on Form 10-K contain forward-looking statements (identified with an asterisk "*") that involve risk and uncertainties. Our actual results may differ materially from the results discussed in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in this "Business" section and in "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Risk Factors". We assume no obligation to update such forward-looking statements or to update the reasons actual results could differ materially from those anticipated in such forward-looking statements. ITEM 1. BUSINESS Alysis Technologies, Inc. is a provider of component-based e-billing software that snaps-in to any major e-commerce implementation. Our modular WorkOut(R) products enable companies to solve complex business problems via streamlining billing, segmentation and analysis, payment, and workflow. Committed to component-based, open standards, WorkOut is built with XML and Enterprise Java Beans ("EJB") and offers a scalable end-to-end solution. Our WorkOut e-billing products are running live on three continents. With offices in San Francisco, New York, and London, we market our software worldwide via direct sales, partner channels, and key relationships with global leaders such as IBM and Pitney Bowes docSense. We provide electronic bill presentment and payment ("EBPP") software to utilities and telecommunications companies, service bureaus and other companies requiring large-scale distribution of business bills. WorkOut lets businesses digitally-enable the billing process, creating improvements in efficiency and service. Benefits are derived from cost savings and increases in customer profitability, retention and acquisition.* We believe we are well positioned to help companies move their billing systems to the Internet and to compete more effectively. WorkOut enables firms to manage, store and distribute large bills and related documents over the Internet. WorkOut licensees include Detroit Edison and the British Post Office. By the end of 2000, we had sold WorkOut to Wisconsin Electric, Dubai Electricity and Water Authority, Incomnet Communications and InfoIMAGE, Inc. as well as Pitney Bowes. Our CheckVision product line provided a second source of revenue during the first half of the year. We sold this product line in August in order to focus all our resources on the emerging e-billing market. We deploy all of our products through services that include installation, customization, training and maintenance. Industry Background For more than a decade, companies made inward-looking investments in Enterprise Resource Planning ("ERP") systems in an effort to streamline internal processes. What has prevented companies from optimizing their ERP investments has been the inability to bring customers, suppliers and business partners together. The Internet has eliminated the single greatest barrier to doing this: connectivity. The next great wave of business automation is occurring as companies move to interconnect their internal systems with their customers and trading partners, transforming traditional business concepts such as price lists, shipping information, billing and payment. Generating invoices, billing customers, and processing payments are a major line of business applications for companies that provide complex services to a wide array of business customers. We believe the movement of the billing process from paper to the Internet offers economic and competitive potential for companies. In this competitive market, EBPP is a strategic tool. Used effectively, it can provide direct cost savings, aid in customer retention and acquisition opportunities. Many billers are adopting online billing for their large business customers out of competitive necessity. Page 3 The environment needed for a successful EBPP operating model is dependent on, among other things, the value proposition to the biller,as well as its customer; an initial investment in training and lead time. In the business-to-business arena, there are multiple benefits, which include but are not limited to: . Shortening the review and payment authorization cycle allowing billers to receive funds sooner and more efficiently. . Maximizing customer service time by allowing for self-service and online resolution of a variety of billing issues. . Providing advanced reporting and workflow tools that help the customer. The new system requires an initial investment in training and set-up time. This investment by the business customer not only increases customer satisfaction with the overall billing process but also increases switching costs. By providing EBPP services to clients, companies can improve their level of customer service and streamline the billing process, which makes the their customers' operations more efficient while reducing costs. The better service and increased back office integration made possible by EBPP service increases a customer's switching costs and should thus improve customer retention rates. The EBPP marketplace offers inroads to multiple software spaces and applications. The integration of EBPP is now being positioned as part of broader e-commerce initiatives. Large implementations revolving around supply chain management, procurement, and electronic marketplaces all require billing components. Many existing applications do not include EBPP functionality. Businesses are shifting their focus to customer equity from brand equity. As a result of this shift, such terms as "share of wallet", "share of customers" and "customer lifetime value" have become part of corporate vocabularies. These concepts are especially relevant to large companies servicing large business customers over decades. The amount of available data is growing, and the need to integrate customer data is more pressing. While large amounts of data exist throughout an organization, historically this data is sorted independently in disconnected "silos". The users of the data are in a knowledge vacuum, unaware that other data sets exist or that information they have could be valuable elsewhere in the organization. Without integrating the data, the total picture of the customer remains hidden. E-billing can provide a business with direct customer access and the opportunity to gain more customer data for use in building customer loyalty. According to Gartner Group, a leading IT research and consulting firm, the business-to-business e-billing market has a different, and more complex, set of drivers for adoption and workflow requirements. The benefits will lead to very high rates of adoption and payer usage in the future. Furthermore, Gartner states: . Eighteen percent (18%) of high-review (more than $.05 billion) business-to-business billers present invoices on the Internet. This figure will grow to forty percent (40%) in 2001. . Reduced billing costs is the key adoption driver for business-to- business e-billing, but improved payment process and customer bill review advantages are gaining in importance. . Business-to-business billers expect their volume of electronic payments to increase significantly from fourteen percent (14%) in 1999 to nearly sixty percent (60%) in 2009.* The Alysis Strategy Our goal is to become the dominant platform provider of electronic billing software. This will enable us to control a critical portion of the electronic billing "value chain", which is how digital bills will be delivered in this emerging industry.* By controlling the value chain, we believe we will gain a sustainable competitive advantage.* Our key strategic objectives are: Page 4 1. Gain industry commitment. We will focus our efforts on reaching "critical mass" by building relationships with licensees and partners that will build their e-billing solutions on the WorkOut platform. 2. Leverage and expand existing client relationships. We will continue to sell our products, enhancements and services to our existing clients and, where appropriate, forge alliances with existing customers similar to our reseller relationship with Pitney Bowes. 3. Cultivate strategic alliances and strengthen distribution. Our Channel Sales and a Business Development team will continue to expand our strategic alliances, partnerships and distribution channel. Relationships are being researched and pursued for Original Equipment Manufacturers ("OEM"), Value Added Reseller ("VAR") and joint marketing programs worldwide. The addition of IBM and BEA Systems has complemented our existing alliance with Pitney Bowes. 4. Further identify and penetrate new markets. Our current focus is primarily on the utility and telecommunication sectors. We however are, researching and pursuing global market share in the electronic invoicing and electronic marketplace industries. 5. Hire and retain individuals with extensive skill sets in existing and emerging technologies. Attracting and retaining the necessary talent to succeed is a top priority. We have performed well in this area and will continue to pursue talent through multiple channels. Employee retention efforts will continue to focus on providing competitive compensation packages and an environment where employees are challenged and able to grow their skills in emerging technologies. Alysis Product Suite We design, develop and market software for EBPP. Our flagship product, WorkOut, provides an end-to-end solution for migrating customer documents, including bills and statements to the Internet. WorkOut may be sold as (1) a presentment solution for Internet-enabling customer documents or (2) an end-to-end EBPP solution. WorkOut has existed since 1998 as an EBPP solution. Adopted by service bureaus such as Pitney Bowes, WorkOut supports both the consolidator model and the biller-direct model for delivering EBPP services. Large billers enjoy many of the same benefits that garnered support among service bureaus. In particular, the solution, written in Java, implements a distributed architecture using the EJB architecture. As such, the product should scale well into very large systems. Services We offer personalization, installation, training, and maintenance services to our WorkOut customers. WorkOut can be installed at our customers' sites, and each interfaces with our customers' operating environments, which usually include legacy applications. Our maintenance support offering includes, for an annual fee, several levels of technical support service: a choice of hours of coverage for telephone support, remote diagnostics or on-site support. In addition, standard training is included in the installation services. Page 5 Customers Our customers include: DTE Edison Incomnet Communications Corp. Wisconsin Electric and Gas The Post Office (United Kingdom) Dubai Electricity and Water Authority e-BILL Pty Ltd Merrill Lynch InfoIMAGE, Inc. Pitney Bowes Be'eri Printers Sales, Marketing and Distribution Sales. We currently sell our products in North America, Europe, the Middle East and Australia through our direct sales force and VARs. We employ experienced product salespersons and technical sales support to facilitate the needs of our prospects and customers. Our sales staff is headquartered in New York, NY, and covers North America from various regional offices. We generate sales leads from our strategic alliances, directly from our corporate Web site, prospecting and through participation in industry trade shows and conferences. Marketing. Our marketing activities have focused on re-branding the WorkOut product from a general business-to-consumer application to business-to- business e-billing software aimed primarily at the utility and telecommunications sectors. Customer interest is generated through our corporate Web site, thorough public relation activities including various market publications, white papers, industry analysts, and attendance at conferences and trade shows worldwide. We have developed an integrated marketing campaign consisting of public relations, vertically focused Webcasts, trade-show participation and analyst relations for 2001. Competition The e-billing market has been marked by increased merger and acquisition activity. Additionally, many of the players in this space have changed their strategies from a horizontal to a vertical product strategy. Anemic adoption rates in the business-to-consumer market encouraged many vendors to focus on business-to-business e-billing where the value proposition is higher. We share the business-to-business e-billing market with several competitors who possess varying degrees of product and feature sophistication. Companies such as Bottomline Technologies, BCE Emergis and Avolent represent our primary competitors. Technology Our WorkOut product suite has the following technology and capabilities: XML Database. WorkOut features sophisticated and intuitive document description specification designed to simplify the transformation of documents into XML databases. EJB. WorkOut is developed entirely in Java, so customers can utilize EJB technology to extend their EBPP offering. EJB allows multiple software and e-commerce initiatives to share the same infrastructure as other software applications, greatly reducing the cost of creating one integrated e-business platform for an enterprise. Runs on High-End Computing Platforms. WorkOut can run on virtually any computing platform, such as Microsoft Windows NT, 64-bit UNIX systems and potentially OS/390 mainframes. Page 6 Virtually Unlimited Storage Retention. By using WorkOut's scalable and partitioned document database, organizations can make a virtually unlimited number of documents available for on-line presentment for extended time periods. WorkOut documents can be migrated to near-line storage media, such as optical disks or tape. Double-Byte Architecture. WorkOut supports all double-byte international character sets, such as Chinese and Japanese, in addition to all single-byte Western alphabets, such as English, French and German. Dispute Management. WorkOut streamlines one of the most time consuming areas of business-to-business customer service by allowing payers to dispute individual like items or entire bills via a web browser. Invoices are recalculated instantly so the customer can provide prompt payment. Notes can be added to the disputed line items and forwarded immediately to customer service representatives for prompt resolution via electronic methods. Workflow. WorkOut has features that enable customers and billers to assign roles and permissions to individuals within their organization, as well as define the business rules for processing adjustments, payments and bill routing. Customized Reporting. With WorkOut's reporting functions, billers can let their payers define customized views of large and small bills by using the flexible report writing features. Standard report formats are provided or templates can be created and rerun as needed. Templates can vary from summary data to specific details such as service or product usage per department, or even per time of day. ERP Integration. WorkOut provides tools that allow billers and their customers to use wizards to create customized cost allocations and remittance downloads tailored to any ERP system. Rapid Site Development Tools. Dynamic Web pages can be created visually with drag-and-drop functionality. We have integrated our visual tools into the popular Web site creation application Macromedia Dreamweaver(TM). Data Extraction. The WorkOut Visual Trainer (patent pending) is a graphical tool that enables organizations to visually define input data streams, such as IBM AFP documents. This makes it possible for WorkOut licensees to extract billings and statements from their existing and legacy data sources. In addition to supporting major print stream formats, they can also load structured text files, Electronic Data Interchange ("EDI") invoices and XML data into WorkOut. Electronic Mail Notification. WorkOut can automatically send email messages to customers in order to inform them that their statements are available for on-line viewing. These email messages can be plain text or richly formatted HTML. They can also contain summary and/or detailed statement information with hot links back to a Web page containing the full statement details. Email messages are created by using the same HTML publishing mechanism template utilized to create online Web pages. Enrollment Processing. WorkOut provides functionality that enables users to enroll for online presentment and subscribe to one or more statement documents. As such, WorkOut maintains a rich customer profile for handling user preferences and other critical pieces of information. Enrollment information can also be loaded directly into WorkOut from an external source. Security. WorkOut provides tracking of user permissions and authorizations for accessing documents and paying on-line bills. WorkOut can support virtually any level of security required, including simple user identification and password security. For a high level of security, users can restrict access to WorkOut documents by using secure hardware tokens. Intellectual Property and Licensing Our success depends upon our proprietary technology. We rely on a combination of copyright, patent, trademark and trade secret laws, confidentiality procedures, and licensing arrangements to establish and vigorously enforce our proprietary rights. We have a patent for a System for Data Extraction from a Print Data Stream and a patent pending in the U.S. and internationally for Data Parsing System for Use in Electronic Commerce. In addition, we have three Page 7 other patents. While our current products are not dependent on these three patents, such patents may be utilized in future products. As part of our confidentiality procedures, we generally enter into non-disclosure agreements with our employees, consultants, distributors and corporate partners, and limit access to and distribution of our products, supporting documentation and other proprietary information. Despite these precautions, it may be possible for a third party to copy or otherwise obtain and use our products or technology without authorization, or to develop similar technology independently. In addition, effective protection of intellectual property rights is unavailable or limited in certain foreign countries where we have in the past and may in the future license our products. There can be no assurance that the protection of our proprietary rights will be adequate or that our competitors will not independently develop similar technology, duplicate our products or design around any intellectual property rights upon which our business is now or may in the future be dependent. To the best of our knowledge, our products do not infringe on the proprietary rights of third parties. There can be no assurance, however, that any third parties will not challenge our patents or claim infringement by us with respect to current or future products. We expect that product developers will increasingly be subject to such claims as the number of products and competitors in our industry segment grows and the functionality of products in the industry segment overlaps. Any such claims, with or without merit, could result in costly litigation that could absorb significant management time, which could have a material adverse affect on our business, operating results and financial condition.* Such claims might require us to enter into royalty or license agreements. Such royalty or license agreements, if required, may not be available on terms acceptable to us or at all, which could have a material adverse affect on our business, operating results and financial condition.* Our products incorporate certain software that we license from third parties, including software that is integrated with internally developed software and used in our products to perform key functions. There can be no assurance that such suppliers will remain in business, that they will continue to support their products, or that their products will otherwise continue to be available to us on commercially reasonable terms. We believe that substantially all of the software we license is available from vendors other than our current vendors, or could be developed internally by us, and could therefore be replaced with equivalent software. However, it is possible that the loss or inability to maintain any of these software licenses could result in delays or reductions in product shipments until equivalent software can be developed, identified, licensed, and integrated, which would adversely affect our business, operating results, and financial condition.* We typically license our software products in object code to customers under nonexclusive, nontransferable license agreements. As is customary in the software industry, we do not sell or transfer title of our software products to customers. In addition, on occasion, we escrow the applicable source code as part of our maintenance program, pursuant to which our source code would be released to the customer upon the occurrence of certain events, such as the commencement of bankruptcy or insolvency proceedings by or against us, or certain material breaches of the agreement. In the event of any release of the source code from escrow, the customer's license is generally limited to use of the source code to maintain, support and enhance our application software solutions for the customer's own use. Licenses for our application software solutions are usually perpetual. Under our standard form license agreement, the annual software maintenance fee is based on a percentage of the applicable product license fee. Our published product license price list includes discounts for multiple sites and/or multiple copies of client viewer software, and where applicable, upgrade fees for increases in the volume of processed transactions. Employees As of December 31, 2000, we employed 65 persons, including 19 in sales and marketing; 33 in product development, delivery, and support; and 13 in general and administrative positions. An organized association represents none of our employees. We have experienced no work stoppages and believe that our relationship with our employees is good. Competition for qualified personnel in the software segment in which we compete is intense. We believe that our future success will depend in part on our continued ability to attract, hire, and retain qualified personnel.* Page 8 Recent Events On March 20, 2001 we entered into an Agreement Plan of Merger ("Merger Agreement") with Pitney Bowes Inc. and Maui Acquisition Corp., a wholly-owned subsidiary of Pitney Bowes, Inc., whereby Maui Acquisition Corp. will commence a tender offer for all out outstanding Common Stock and Class B Common Stock, at a purchase price of $1.39 per share or approximately $24 million in cash, upon the terms and conditions set forth in the Merger Agreement. We anticipate that the transaction will be completed by April 30, 2001. A copy of the Merger Agreement and related documents are attached to our current report on Form 8-K filed with the Securities and Exchange Commission (the "Commission") on March 22, 2001 and are incorporated by reference herein. Page 9 This "Risk Factors" section contains forward-looking statements (identified with an asterisk "*") that involve risk and uncertainties. Our actual results may differ materially from the results discussed in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in this "Risk Factors" section and in "Business" and "Management's Discussion and Analysis of Financial Condition and Results of Operations". We assume no obligation to update such forward-looking statements or to update the reasons actual results could differ materially from those anticipated in such forward-looking statements. Risk Factors We Must Consummate the Merger with Pitney Bowes or Raise Additional Capital in Order to Continue Operations. This Capital May Not Be Available on Acceptable Terms, if at All. We do not believe that our existing cash and cash equivalents, together with expected cash flows from operations, will be sufficient to fund our operations through April 30, 2001.* Accordingly, if our anticipated merger with Pitney Bowes Inc. is not consummated, we will be required to raise additional capital through debt or equity financings or other arrangements to fund our operations, including the continued building of infrastructure and pipeline with respect to WorkOut. Although we have entered into a loan agreement with E. M. Warburg, Pincus & Co., LLC, an affiliate of our principal stockholder, to provide up to $1 million of short-term financing for working capital, there can be no assurance that additional financings will be available on acceptable terms, if at all, and that such terms will not be dilutive to our existing stockholders. Our inability to secure necessary funding could seriously affect our ability to continue operations.* We Can Make No Assurances that We Will Be Profitable in Any Future Period. We have incurred significant net losses since our inception. As of December 31, 2000, we had an accumulated deficit of approximately $33.6 million. Although we achieved a net operating profit in the three months ended September 30, 1999 and the three months ended March 31, 1997, September 30, 1997, and December 31, 1997, we cannot assure you that we will have operating profits in any future period.* Our Quarterly Operating Results Will Fluctuate because of Many Factors. Our quarterly operating results have varied in the past, and we expect our quarterly operating results to vary significantly in the future.* Our revenues and operating results are difficult to forecast and could be significantly affected by many factors, some of which are outside our control, including, among others: . Demand for our products and services; . The variable size and timing of individual license transactions; . The timing of our future revenue which we will recognize under SOP 81-1, SOP 97-2, SOP 98-4, SOP 98-9, and SAB 101; . Increased competition; . The timing of new product releases by us and our competitors; . The global adoption rate of electronic commerce; . Market acceptance of our software; . The ability to expand our sales and marketing operations, including hiring additional sales personnel; . Software defects or other quality problems with our software; . Changes in pricing policies by us and our competitors; . The mix of our license and service revenue; . Budgeting cycles of our customers; . Success in maintaining and enhancing existing relationships and developing new relationships with strategic partners; . The introduction of indirect sales into our revenue mix which has resulted in and could continue to result in lower gross margins; . The ability to control costs; Page 10 . Technological changes in our markets; . Changes in our strategy; . Personnel changes; and . Continued downturn in the economy as well as other general economic factors. We are in the process of strengthening our position in the Electronic Statement Presentment ("ESP") and EBPP application markets. During this process we are increasing our operating expenses to expand our sales and marketing operations, fund greater levels of research and development and develop new partnerships. If our revenues do not increase along with these expenses, our business, operating results and financial condition could be seriously harmed and net losses in a given quarter could be even larger than expected.* To successfully execute this strategy, we must raise additional working capital. In addition, because our expense levels are relatively fixed in the near term and based in part on expectations of our future revenues, any decline in our revenues to a level that is below our expectations would have a disproportionately adverse impact on our operating results.* The Business-To-Business Electronic Presentment Industry Is Very Competitive, and We Face Intense Competition from Many Participants in this Industry. The markets for electronic commerce software ESP and EBPP are becoming progressively competitive. There can be no assurance that new competitors will not emerge and/or that current competitors will not match our technology in the near to medium term.* There are a number of companies from various industries vying for market share in the ESP and EBPP markets. Some companies have more established alliances, marketing and sales departments and greater financial resources. While we intend to maintain our current advantages and seek out new ways to minimize our weaknesses through acquisition or other means, there can be no assurances that this will be achieved.* We Derive a Significant Portion of Our Revenue from Our WorkOut Product Suite and for Us to Be Successful We Will Need to Expand Our Client Base and Penetrate Beyond the Utility and Telecommunication Sectors. Currently, a substantial majority of our total revenue results from sales of our WorkOut Product Suite and related services. Our future operating results will depend in part on our ability to expand our client base and penetrate beyond the utility and telecommunication sectors. While we may devote substantial resources to penetrate these and other markets, we cannot make any assurances that the revenues we generate from this effort, if any, will exceed the cost of such efforts.* To successfully expand our product offerings into other business sectors, we must continue to enhance our ESP and EBPP products and to expand our sales and marketing departments. We cannot ensure that we will be able to create or modify our software products effectively, that they will achieve market acceptance or that we will be able to expand our sales and marketing departments.* If we are unable to penetrate new industries, our business, operating results and financial condition could continue to be significantly harmed.* Our Business Could Be Affected by Software Defects and Product Liability Claims. Software products as complex as ours may contain errors that may be detected at any point in a product's life cycle. We have in the past discovered software errors in certain of our software products and have experienced delays in shipment of products during the period required to correct these errors. We can make no assurances that, despite testing by us as well as by current and potential customers, errors will not be found, resulting in:* . Loss of, or delay in, market acceptance; . Diversion of development resources; . Injury to our reputation; or . Increased service and warranty costs, any of which could significantly harm our business, operating results and financial condition. Our license agreements with our customers typically contain provisions designed to limit our exposure to potential product liability claims. Our software application solutions are generally used to manage data that is critical to an organization, and as a result, our sale and support of our application frameworks may entail the risk of significant product liability claims. A liability claim brought against us could significantly harm our business, operating results and financial condition.* Page 11 Our Success Depends on Our Ability to Expand Our Distribution Channels and Successfully Manage the Risks Associated with Such Expansion. To date, we have sold our ESP and EBPP software products primarily through our direct sales force. We will need to successfully recruit, retain and train sufficient direct sales personnel and establish other distribution channels and partnerships to achieve significant revenue growth in the future.* We continue to seek ways to augment our direct sales force by establishing indirect distribution channels, including relationships with OEMs, VARs, bill consolidators, application service providers and service bureaus. Our distribution channels and alliances have to-date produced substantially less revenue than we originally expected. We can make no assurances that we will successfully increase our revenue through channels and alliances, that we will successfully expand our direct sales force, or that any such expansion will result in any substantial increase in our revenues. Our failure to expand our direct sales force or other distribution channels could continue to significantly harm our business, operating results and financial condition.* We Expect Our Positioning in the ESP and EBPP Application Market Will Continue to Strain Our Management, Operational and Technical Resources. We are in the process of better positioning ourselves in the ESP and EBPP market. This process has placed significant demands on our management, operational and technical resources. We expect this process to continue to challenge our sales, marketing, technical and support personnel and senior management. Our future performance will depend in part on our ability to adapt our operational systems to respond to changes in our business. Our positioning efforts entails a number of risks, including continued potential declines in revenue and the need to develop the appropriate sales and marketing capabilities and software development estimation, production, delivery and distribution infrastructure. We can make no assurances that we will be successful in creating the necessary capabilities and infrastructure at all. Our failure to successfully position ourselves in the ESP and EBPP market has had and could continue to significantly harm our business, operating results and financial condition.* Our Senior Management and Other Key Personnel Are Critical to Our Business and Those Managers and Personnel May Not Remain with Us in the Future. We must retain the continued service of our senior management as well as sales and product development personnel if we are to provide improved future performance. We do not have and do not intend to obtain key person life insurance on our personnel. The loss of one or more of our key personnel could significantly harm our business, operating results and financial condition.* We are also actively seeking key technical personnel. We believe that our future success will depend in large part upon our ability to attract and retain highly skilled management, marketing, sales and product development personnel.* Competition for such personnel is intense, and we can make no assurances that we can retain our key employees or that we will successfully attract, assimilate and retain such personnel in the future. Our failure to attract, assimilate and retain key personnel could significantly harm our business, operating results and financial condition.* Our Efforts to Protect Our Intellectual Property May Not Protect Us Against Misuse and Others May Claim that Our Products Infringe. Our success depends in significant part upon our proprietary technology. We rely on a combination of copyright, patent, trademark and trade secret laws, confidentiality procedures, and licensing arrangements to establish and protect our proprietary rights. We have a patent for a System for Data Extraction from a Print Data Stream and U.S. and international patents pending for Data Parsing System for Use in Electronic Commerce. In addition, we have three other patents. While our current products are not dependent on these three patents, we may utilize these patents in future software products. We enforce our patent rights. While there can be no assurances of success, we continually evaluate methods by which to enforce and capitalize on our patent rights. Such actions may cause us to incur substantial costs that could impact our financial results.* As part of our confidentiality procedures, we generally enter into non-disclosure agreements with our employees, consultants, distributors and business partners, and limit access to and distribution of our products, supporting documentation and other proprietary information. Despite these precautions, a third party may be able to copy or otherwise obtain and use our software products or technology without our authorization, or to develop similar technology independently. In addition, effective protection of intellectual property rights is unavailable or limited in certain foreign countries, where customers have in the past licensed and may in the future license our products. We cannot assure you that protection of our proprietary rights will be adequate or Page 12 that our competitors will not independently develop similar technology, duplicate our software products or design around any intellectual property rights upon which our business is now or may in the future be dependent. Our products incorporate certain software that we license from third parties, including software that is integrated with internally developed software and used in our products. We cannot assure you that: . Such firms will remain in business; . They will continue to support their software products; or . Their software products will otherwise continue to be available to us on commercially reasonable terms. We believe that substantially all of the software we license is available from vendors other than our current vendors. We also believe that we could develop such software internally.* However, it is possible that the loss or inability to maintain any of these software licenses could result in delays or reductions in product shipments until we could develop, identify, license and integrate equivalent software.* Such delays could significantly harm our business, operating results and financial condition.* We are not aware that any of our products infringe on the proprietary rights of third parties. We cannot make any assurances, however, that third parties will not challenge our patents or claim infringement by us with respect to our current or future products. We expect that software product developers will increasingly be subject to such claims as the number of software products and competitors in our industry segment grows and the functionality of software products in the industry segment overlaps.* Any such claims, with or without merit, could result in costly litigation that could absorb significant management time, which could have a material adverse affect on our business, operating results and financial condition.* Such claims might require us to enter into royalty or license agreements. Such royalty or license agreements, if required, may not be available on terms acceptable to us or at all, which could significantly harm our business, operating results and financial condition.* We Depend on the Introduction of New Versions of Our WorkOut Products and on Enhancing the Functionality and Services We Offer. If we are unable to develop new software products or enhancements to our existing products on a timely and cost-effective basis, or if new products or enhancements do not achieve market acceptance, our business would be seriously harmed.* The life cycles of our products are difficult to predict because the market for our products is new and emerging, and is characterized by rapid technological change, changing customer needs and evolving industry standards. The introduction of products employing new technologies and emerging industry standards could render our existing products or services obsolete and unmarketable.* To be successful, our products and services must keep pace with technological developments and emerging industry standards, address the ever-changing and increasingly sophisticated needs of our customers and achieve market acceptance. In developing new products and services, we may:* . Fail to develop and market products that respond to technological changes or evolving industry standards in a timely or cost-effective manner; . Encounter products, capabilities or technologies developed by others that render our products and services obsolete or noncompetitive or that shorten the life cycles of our existing products and services; . Experience difficulties that could delay or prevent the successful development, introduction and marketing of these new products and services; or . Fail to develop new products and services that adequately meet the requirements of the marketplace or achieve market acceptance. If We Fail to Release Our Products in a Timely Manner, or if Our Products Do Not Achieve Market Acceptance, Our Business Would Be Seriously Harmed. We may fail to introduce or deliver new potential offerings on a timely basis or at all. If new releases or potential new products are delayed or do not achieve market acceptance, we could experience a delay or loss of revenues and customer dissatisfaction.* Customers may delay purchases of WorkOut in anticipation of future releases. If customers defer material orders of Page 13 WorkOut in anticipation of new releases or new product introductions, our business would be seriously harmed.* In Order to Manage Our Growth and Expansion, We Will Need to Improve and Implement New Systems, Procedures and Controls. We have recently experienced a period of expansion in our East Coast locations and this has placed a significant strain upon our management systems and resources. If we are unable to manage our growth and expansion, our business will be seriously harmed.* We also plan to expand the geographic scope of our customer base and operations, both domestically and internationally. This expansion has resulted and will continue to result in substantial demands on our management resources. Our ability to compete effectively and to manage future expansion of our operations, if any, will require us to continue to improve our financial and management controls, reporting systems and procedures on a timely basis, and expand, train and manage our employee work force.* As We Expand Our International Sales and Marketing Activities, Our Business Will be Susceptible to Numerous Risks Associated With International Operations. To be successful, we believe we must expand our international operations and hire additional international personnel.* Therefore, we expect to commit significant resources to expand our international sales and marketing activities.* If successful, we will be subject to a number of risks associated with international business activities. These risks generally include: . Currency exchange rate fluctuations; . Seasonal fluctuations in purchasing patterns; . Unexpected changes in regulatory requirements; . Tariffs, export controls and other trade barriers; . Longer accounts receivable payment cycles and difficulties in collecting accounts receivable; . Difficulties in managing and staffing international operations; . Potentially adverse tax consequences, including restrictions on the repatriation of earnings; . The burdens of complying with a wide variety of foreign laws; . The risks related to the recent global economic turbulence and adverse economic circumstances in Asia; and . Political instability. We Depend on Increasing Use of the Internet and on the Growth of Electronic Commerce. If the Use of the Internet and Electronic Commerce Do Not Grow as Anticipated, Especially in the International Arena, Our Business Will Be Seriously Harmed. Our ESP and EBPP products depend on the increased acceptance and use of the Internet as a medium of commerce. Rapid growth in the use of the Internet is a recent phenomenon. As a result, acceptance and use may not continue to develop at historical rates and a sufficiently broad base of business customers may not adopt or continue to use the Internet as a medium of commerce. Demand and market acceptance for recently introduced services and products over the Internet are subject to a high level of uncertainty, and there exist few proven services and products. Our business would be seriously harmed if:* . Use of the Internet and other online services does not continue to increase or increases more slowly than expected; . The technology underlying the Internet and other online services does not effectively support any expansion that may occur; . The Internet and other online services do not create a viable commercial marketplace, inhibiting the development of electronic commerce and reducing the need for our products and services; or . There is increased governmental regulation. Security Risks and Concerns May Deter the Use of the Internet for Conducting Electronic Commerce. A significant barrier to electronic commerce and communications is the secure transmission of confidential information over public networks. Advances in computer capabilities, new discoveries in the field of cryptography or other events or developments could result in compromises or breaches of our security systems Page 14 or those of other Web sites to protect proprietary information. If any well- publicized compromises of security were to occur, it could have the effect of substantially reducing the use of the Web for commerce and communications. Anyone who circumvents our security measures could misappropriate proprietary information or cause interruptions in our services or operations. The Internet is a public network, and data is sent over this network from many sources. In the past, computer viruses, software programs that disable or impair computers, have been distributed and have rapidly spread over the Internet. Computer viruses could be introduced into our systems or those of our customers or suppliers, which could disrupt WorkOut or make it inaccessible to customers or suppliers. We may be required to expend significant capital and other resources to protect against the threat of security breaches or to alleviate problems caused by breaches. To the extent that our activities may involve the storage and transmission of proprietary information, such as credit card numbers, security breaches could expose us to a risk of loss or litigation and possible liability.* Our security measures may be inadequate to prevent security breaches, and our business would be harmed if we do not prevent them.* ITEM 2. PROPERTIES We occupy approximately 10,000 square feet of office space in Emeryville, California, pursuant to a lease, which expires in April 2004. We lease 5,000 square feet of storage facilities in Oakland, California. We occupy approximately 20,000 square feet of office space in Holyoke, Massachusetts, pursuant to a lease, which expires in October 2002. We occupy approximately 1,000 square feet of office space in New York, New York, on a month-to-month lease. We occupy approximately 250 square feet of office space in London, England on a month-to-month lease. We believe that our current facilities are adequate to meet our needs through the next 12 months. ITEM 3. LEGAL PROCEEDINGS From time to time, in the normal course of business, various claims may be made against us. At this time, in the opinion of management, there are no pending claims the outcome of which is expected to result in a material adverse effect on our financial position. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders in the quarter ended December 31, 2000. Page 15 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS Our common stock trades on the OTC Bulletin Board under the symbol ALYS. The market price for our stock, from January 1, 1999 through December 31, 2000, is as follows: HIGH LOW ---- --- 2000 First Quarter............... $ 14.938 $ 4.750 Second Quarter.............. 8.875 2.938 Third Quarter............... 4.125 2.125 Fourth Quarter.............. 2.750 0.313 1999 First Quarter............... $ 1.688 $ 0.625 Second Quarter.............. 4.500 0.938 Third Quarter............... 2.125 1.063 Fourth Quarter.............. 10.000 0.750 As of December 31, 2000, we had approximately 54 holders of record of our common stock. The market price for our common stock may be affected by a number of factors, some of which are outside our control, including the announcement of new software products or product enhancements by us or our competitors, quarterly variations in our operating results or the operating results of our competitors or companies in related industries, changes in earnings estimates or recommendations by securities analysts, developments in our industry, general market conditions and other factors, including factors unrelated to our operating performance or our competitors. In addition, stock prices for many companies in the technology and emerging growth sectors have experienced particularly volatile fluctuations that have often been unrelated to the operating performance of such companies. Such factors and fluctuations, as well as general economic, political and market conditions, such as recessions, may materially adversely affect the market price of our common stock. We have never paid cash dividends on our common stock and do not expect to pay any such dividends in the foreseeable future. The holders of Series B Preferred Stock are entitled to cumulative annual dividends of seven percent (7%) of the purchase price, which are payable semi-annually in cash or, at our option, with shares of our Class B Common Stock. The Class B Common Stock is convertible into Common Stock. As of December 31, 2000, we have accrued $393,000 of unpaid dividends. Page 16 ITEM 6. SELECTED FINANCIAL DATA
Years Ended December 31, ---------------------------------------------------------- 2000 1999 1998 1997 1996 ---------- -------- -------- -------- -------- (in thousands, except per share data) Consolidated Statements of Operations Data: Revenues: License $ 2,928 $ 7,623 $ 3,141 $ 7,911 $ 7,345 Service 2,458 7,290 5,661 11,347 12,347 Maintenance 3,274 4,899 4,369 3,223 2,588 Hardware - - - - 3,412 -------- -------- -------- -------- -------- Total revenues 8,660 19,812 13,171 22,481 25,692 -------- -------- -------- -------- -------- Cost of revenues: License 874 287 231 362 426 Service 1,130 3,948 5,171 4,862 3,631 Maintenance 1,409 2,129 2,500 837 721 Hardware - - - - 2,716 -------- -------- -------- -------- -------- Total cost of revenues 3,413 6,364 7,902 6,061 7,494 -------- -------- -------- -------- -------- Operating Expenses: Sales and marketing 5,555 4,476 5,234 4,757 5,133 General and administrative 8,607 7,758 7,850 7,101 6,629 Product development 3,755 1,874 4,861 4,480 4,226 -------- -------- -------- -------- -------- Total operating expenses 17,917 14,108 17,945 16,338 15,988 -------- -------- -------- -------- -------- Operating income (loss) (12,670) (660) (12,676) 82 2,210 Other Income (expense): Interest expense - - - (4) (55) Interest income and other, net 183 349 395 506 153 Gain on sale of product line 3,777 - - - - -------- -------- -------- -------- -------- Income (loss) before income taxes (8,710) (311) (12,281) 584 2,308 Income taxes - - - 23 - -------- -------- -------- -------- -------- Net income (loss) $ (8,710) $ (311) $(12,281) $ 561 $ 2,308 Preferred stock dividends $ 276 $ 117 $ - $ - $ - -------- -------- -------- -------- -------- Net income (loss) applicable to common stockholders $ (8,986) $ (428) $(12,281) $ 561 $ 2,308 ======== ======== ======== ======== ======== Basic net income (loss) per share applicable to common stockholders $ (0.67) $ (0.03) $ (1.06) $ 0.05 $ 0.25 ======== ======== ======== ======== ======== Diluted net income (loss) per share applicable to common stockholders $ (0.67) $ (0.03) $ (1.06) $ 0.05 $ 0.23 ======== ======== ======== ======== ======== Shares used in computing basic net income (loss) per share applicable to common stockholders 13,385 12,326 11,596 11,164 9,098 ======== ======== ======== ======== ======== Shares used in computing diluted net income (loss) per share applicable to common stockholders 13,385 12,326 11,596 12,017 10,256 ======== ======== ======== ======== ========
As of December 31, ---------------------------------------------------------- 2000 1999 1998 1997 1996 ---------- -------- -------- -------- -------- Consolidated Balance Sheet Data: Working (negative working) capital $ (469) $ 5,864 $ 3,124 $ 15,008 $ 14,117 Total assets 4,210 14,601 10,010 19,288 19,177 Convertible preferred stock 3,814 3,814 - - - Stockholders' equity 1,660 9,014 3,823 15,623 14,576
Page 17 The following "Management's Discussion and Analysis of Financial Condition and Results of Operations" should be read in conjunction with our Consolidated Financial Statements and Notes thereto included elsewhere in this Annual Report on Form 10-K. Additionally, this "Management's Discussion and Analysis of Financial Condition and Results of Operations" contains forward-looking statements (identified with an asterisk "*") that involve risk and uncertainties. Actual results may differ materially from the results discussed in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in the "Management's Discussion and Analysis of Financial Condition and Results of Operations", "Business", and "Risk Factors" and the risks discussed in our other SEC filings including our Form 10-Qs from the quarters ended March 31, 2000, June 30, 2000, and September 30, 2000. We assume no obligation to update such forward-looking statements or to update the reasons actual results could differ materially from those anticipated such forward-looking statements. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview We develop and deliver electronic billing and statement presentment software that document intensive industries need to remain competitive in the electronic commerce arena. We were incorporated in July 1992, when management, in partnership with EM Warburg Pincus and Co., LLC., purchased certain assets and liabilities of Litton Industries' Integrated Automated Division, a leading system integrator with a primary focus on the aerospace industry and secondary focus on the financial services and transportation industries. At that time, a decision was made to de-emphasize the aerospace market and develop an enterprise transaction management platform and corresponding software application frameworks targeted to the financial services industry. In August 1998, with the hiring of a new Chief Executive Officer, we decided to aggressively pursue a new product strategy of Internet presentment of legacy data primarily based on a successful installation of an intranet based statement delivery system at Merrill Lynch. This installation, which was completed in early 1998, was the precursor to the CyberStatement(TM) application framework. In order to further penetrate the e-presentment marketplace, we acquired At Work Corp. ("At Work"), a New York based provider of EBPP software and early pioneer in XML technology. As a result, our CyberStatement product was replaced by At Work's WorkOut product. In August 2000, we completed the sale of our CheckVision business and certain other assets and liabilities to Computer Sciences Corporation ("CSC"). We received a cash purchase price of $3.99 million from CSC in consideration for the asset sale. The proceeds of the asset sale to CSC were used to strengthen the WorkOut product's position in the e-presentment marketplace. In 2001, management believes we will derive an increasing amount of revenue from the WorkOut product, however, there can be no assurance that we will be successful in our efforts.* Through December 31, 2000, revenues primarily consisted of application development contracts and were derived from three application frameworks, CheckVision, RemitVision(R) and WorkOut. In 1999, our total revenues increased 50% to $19.8 million as compared to 1998's total revenues of $13.2 million. In 2000, our total revenues declined 56% to $8.7 million. Also, for the year ended December 31, 2000, we recorded a net loss of $9.0 million as compared to a net loss of $428,000 for the year ended December 31, 1999. The 2000 results are due to the building of infrastructure and pipeline necessary for us to position WorkOut in the e-presentment marketplace. The 2000 results also include a $3.8 million gain recognized on the sale of our CheckVision Business. WorkOut enables financial services firms to manage, store and distribute legacy reports and print-formatted documents such as customer statements over the Internet. It is a solution to parse and render print streams from billing systems, and to implement electronic data interchange and other structured data feeds. Our total revenues are derived from software licenses, maintenance and support contracts and implementation and training services. Software license and service revenues from contracts requiring significant customization services are recognized on the percentage-of-completion method based on the ratio of incurred costs to total estimated costs. A WorkOut implementation can take several months or more depending on the complexity of the customer's environment and the resources directed by the customers to the implementation Page 18 projects. Estimated losses on contracts are reported in the period in which such losses become known or expected. Revenues from contracts for software licenses not requiring significant customization are recognized upon delivery of the software if there is persuasive evidence of an arrangement, collection is probable, the fee is fixed or determinable and there is sufficient vendor-specific objective evidence to support allocating the total fee to all elements of multiple-element arrangements. Software maintenance revenues are recognized ratably over the term of the support contract, which is generally one year. Other service revenue is recognized as services are performed. We comply with the provisions of Statement of Position 97-2, "Software Revenue Recognition" ("SOP 97-2"), Statement of Position 98-4, "Deferral of the Effective Date of a Provision of SOP 97-2, Software Revenue Recognition" ("SOP 98-4") Statement of Position 98-9, "Modification of SOP 97-2, Software Revenue Recognition with Respect to Certain Transactions" ("SOP 98-9")and related Technical Practice Aids. The adoption of SOP 98-9 did not have a material impact on our financial results. In December 1999, the Commission issued Staff Accounting Bulletin No.101 "Revenue Recognition in Financial Statements," ("SAB 101"). SAB 101 provides guidance on the recognition, presentation, and disclosure of revenue in financial statements. The effect of adopting SAB 101 did not have a material effect on our financial statements. As of December 31, 2000, we had an accumulated deficit of approximately $33.6 million. We expect to incur operating losses in the foreseeable future as we continue to invest in further development of the WorkOut product and to recruit and train personnel for engineering, sales, marketing and professional services for the WorkOut product.* Page 19 Results of Operations The following table sets forth for the periods indicated consolidated statements of operations data expressed as a percentage of total revenues:
Year ended December 31, --------------------------------------------------- 2000 1999 1998 --------------- -------------- ------------- Revenues: License 33.8% 38.5% 23.8% Service 28.4 36.8 43.0 Maintenance 37.8 24.7 33.2 -------------- -------------- ------------ Total revenues 100.0 100.0 100.0 Cost of revenues: License 10.1 1.5 1.8 Service 13.0 19.9 39.3 Maintenance 16.3 10.7 19.0 -------------- -------------- ------------ Total cost of revenues 39.4 32.1 60.1 -------------- -------------- ------------ Gross margin 60.6 67.9 39.9 -------------- -------------- ------------ Operating expenses: Sales and marketing 64.1 22.6 39.7 General and administrative 99.4 39.2 59.5 Product development 43.4 9.5 36.9 -------------- -------------- ------------ Total operating expenses 206.9 71.3 136.1 -------------- -------------- ------------ Operating loss (146.3) (3.4) (96.2) Interest income and other 2.1 1.8 3.0 Gain on sale of product line 43.6 - - -------------- -------------- ------------ Net loss (100.6) (1.6) (93.2) Preferred stock dividends 3.2 0.6 0.0 -------------- -------------- ------------ Net loss applicable to common stockholders (103.8)% (2.2)% (93.2)% ============== ============== ============
Comparison of 2000 and 1999 Revenues License. License revenue for the year ended December 31, 2000, has been primarily derived from the increasing sale of WorkOut licenses combined with the decreasing sale of CheckVision and RemitVision licenses. License revenue decreased 62% to $2.9 million from $7.6 million for the years ended December 31, 2000 and 1999, respectively. This decrease in license revenue primarily resulted from significantly decreased licenses and royalties recorded in connection with the amendment of the Global Strategic Alliance Agreement signed in June 1999, and the decrease of revenue from CheckVision customers. This decrease reflects the sale of the CheckVision business on August 24, 2000, and the redirection of our resources to support WorkOut. Management believes that an increasing amount of future license revenue will be derived from the WorkOut product.* Page 20 Service. Service revenue is comprised primarily of fees from software application development contracts, and of fees from installation services and training for our WorkOut software solution. Service revenue decreased 66% to $2.5 million from $7.3 million for the years ended December 31, 2000 and 1999, respectively. This decrease reflects our sale of the CheckVision business and the redirection of our resources to support WorkOut. Management believes that an increasing amount of future service revenue will be derived from installation services performed for the WorkOut product. * Maintenance. Maintenance revenue is generated by software support contracts to customers who have entered into license agreements for the use of our software application solutions. Maintenance support includes telephone support, minor software upgrades and, in some cases, third party support. Maintenance revenue decreased 33% to $3.3 million from $4.9 million for the years ended December 31, 2000 and 1999, respectively. Maintenance revenue decreased due to a smaller number of maintenance customers, as many maintenance contracts were included in the sale of the CheckVision business. Cost of Revenues License. Cost of license revenue increased to $874,000 from $287,000 for the years ended December 31, 2000 and 1999, respectively, representing 30% and 4.0% of license revenues for the years ended December 31, 2000 and 1999, respectively. Costs increased in absolute dollars because of the amortization of acquired technology offset by the fact that there are no costs of licenses with the license revenues realized on the amendment of the Global Strategic Alliance Agreement, nor were there any costs of licenses with WorkOut. The cost of license revenue as a percentage of license revenue may increase in the future if we negotiate royalty agreements with partners and customers that fund or partially fund the ongoing development of our new WorkOut product.* Service. Cost of service revenue is primarily comprised of employee-related costs and fees for third-party consultants incurred in providing personalization, installation, and training and development services. Cost of service revenue decreased 71% to $1.1 million for the year ended December 31, 2000 as compared to $3.9 million for the year ended December 31, 1999, representing 46% and 54% of service revenues for the years ended December 31, 2000 and 1999, respectively. Cost of service revenue decreased in absolute dollars due primarily to a reduction in engineers and a decline in the number of contracts to serve as we have directed our resources to support WorkOut. Maintenance. Cost of maintenance revenue is primarily comprised of employee-related costs incurred in providing customer support and also includes the costs of services provided by third parties for hardware-related maintenance for certain of the installed base of customers. Cost of maintenance revenue decreased 34% to $1.4 million for the year ended December 31, 2000, from $2.1 million for the year ended December 31, 1999, representing 43% of maintenance revenue in each of the years ended December 31, 1999 and December 31, 2000. Cost of maintenance revenue decreased in absolute dollars due primarily to a reduction in engineers. Operating Expenses Sales and Marketing. Sales and marketing expenses consist primarily of salaries, commissions and bonuses earned by sales personnel, field offices, travel and related expenses, promotional and advertisement expenses. Sales and marketing expenses increased 24% to $5.6 million from $4.5 million for the years ended December 31, 2000 and 1999, respectively, representing 64% and 23% of total revenue for the years ended December 31, 2000 and 1999, respectively. Sales and marketing expenses increased primarily due to an increase in the sales and marketing personnel and increased sales efforts related to the WorkOut product. General and Administrative. General and administrative expenses were $8.6 million and $7.8 million for the years ended December 31, 2000 and 1999, respectively. General and administrative expenses increased in absolute dollars primarily due to increased retention bonuses and an increase in the allowance for doubtful accounts for certain contracts associated with high collectibility risks. Product Development. Product development expenses increased 100% to $3.8 million for the year ended December 31, 2000, from $1.9 million for the years ended December 31, 1999, representing 43% and 9% of total revenues for the years ended December 31, 2000 and 1999, respectively. The increase in product Page 21 development expenses for the year ended December 31, 2000 is primarily due to the increase in costs incurred for the ongoing development of our WorkOut product combined with the decrease of costs incurred in 1999 due to the ending of product development initiatives for our older products. In 2001, management expects to incur increased costs in the ongoing development of our WorkOut product.* Interest Income and Other. Interest income represents interest earned by us on our cash and cash equivalents. Interest income and other decreased to $183,000 from $349,000 for the years ended December 31, 2000 and 1999 respectively, due to lower average invested cash balances for the year ended December 31, 2000. Gain on sale. On August 24, 2000, we completed the sale of our CheckVision business to Computer Science Corporation, resulting in a gain on sale of $3.8 million for the year ended December 31, 2000. Comparison of 1999 and 1998 Revenues License. License revenue for the year ended December 31, 1999 was primarily derived from the sale of licenses of our CheckVision, RemitVision and our loan application framework software solutions. License revenue for the year ended December 31, 1999 was $7.6 million, an increase of 143% over revenue of $3.1 million for the year ended December 31, 1998. This increase in license revenue primarily resulted from one-time licenses of approximately $4.8 million recorded in connection with the amendment of the Global Strategic Alliance Agreement signed in June 1999. Service. Service revenue is comprised primarily of fees from software application development contracts and to a lesser extent, fees from installation services and training for our CheckVision and RemitVision software application frameworks. Service revenue increased 29% to $7.3 million for the year ended December 31, 1999 from $5.7 million for the year ended December 31, 1998. The increase was primarily due to the increased sales of Check Vision application software. Also, in 1998 customer delays deferred revenue recognition. Maintenance. Maintenance revenue is generated by software support contracts to customers who have entered into license agreements for the use of our software application frameworks. Maintenance revenue support includes telephone support, minor software upgrades, and in some cases, third party support. Maintenance revenue was $4.9 million for the year ended December 31, 1999, an increase of 12% over revenue of $4.4 million for the year ended December 31, 1998. Maintenance revenue increased in 1999 primarily due to the growing base of installed CheckVision application framework customers resulting in a corresponding demand for maintenance related services. Cost of Revenues License. Cost of license revenue increased to $287,000 from $231,000 for the years ended December 31, 1999 and 1998, respectively, representing 4.0% and 7.4% of license revenues for the years ended December 31, 1999 and 1998, respectively. Costs increased in absolute dollars because of the amortization of acquired technology. Service. Cost of service revenue is primarily comprised of employee-related costs and fees for third-party consultants incurred in providing customization, installation, and training and development services. Cost of service revenue decreased 24% to $3.9 million for the year ended December 31, 1999 as compared to $5.2 million for the year ended December 31, 1998, representing 54% and 91% of service revenues for the years ended December 31, 1999 and 1998, respectively. Cost of service revenue decreased in absolute dollars and as a percentage of revenue due primarily to a reduction in engineers and improved execution of performance on contracts resulting in quicker customer acceptance of contract completion. Maintenance. Cost of maintenance revenue is primarily comprised of employee-related costs incurred in providing customer support and also includes the costs of services provided by third parties for hardware-related maintenance for certain of the installed base of customers. Cost of maintenance revenue decreased 15% to $2.1 million for the year ended December 31, 1999 from $2.5 million for the year ended December 31, 1998, representing 43% and 57% of maintenance revenue for the years ended December 31, 1999 and 1998, respectively. The decrease in maintenance costs was primarily due to reduced headcount and improved productivity in delivering maintenance services as our products mature. Page 22 Operating Expenses Sales and Marketing. Sales and marketing expenses consist primarily of salaries, commissions and bonuses earned by sales personnel, field offices, travel and related expenses, promotional and advertisement expenses. Sales and marketing expenses decreased 15% to $4.5 million from $5.2 million for the years ended December 31, 1999 and 1998, respectively, representing 23% and 40% of total revenue for the years ended December 31, 1999 and 1998, respectively. Sales and marketing expenses decreased primarily due to a decrease in the sales and marketing personnel. General and Administrative. General and administrative expenses were $7.8 million and $7.9 million for the years ended December 31, 1999 and 1998, respectively, representing 40% and 60% of total revenue for the years ended December 31, 1999 and 1998, respectively. The decrease in general and administrative expenses as a percentage of total revenue for the year ended December 31, 1999 was primarily due to the increase in revenues. Product Development. Product development expenses consist primarily of salaries and other personnel-related expenses. Product development expenses decreased 61% to $1.9 million for the year ended December 31, 1999 from $4.9 million for the year ended December 31, 1998, representing 10% and 37% of total revenues for the years ended December 31, 1999 and 1998, respectively. The decrease in product development expenses for the year ended December 31, 1999 was primarily due to the decrease in costs associated with development initiatives to enhance our CheckVision and RemitVision software application frameworks, that was only slightly offset by the increase in costs incurred on development of our new WorkOut product. Interest Income. Interest income represents interest earned by us on our cash and cash equivalents. Interest income remained fairly consistent at $349,000 and $395,000 for the years ended December 31, 1999 and 1998, respectively. Liquidity and Capital Resources Operating activities for the years ended December 31, 2000, 1999, and 1998 required the use of cash of $12.8 million, $901,000, and $1.4 million, respectively. The increase in the use of cash from 1999 to 2000 was primarily due to the reduction of revenues resulting from the sale of CheckVision and the increase in building of infrastructure and pipeline necessary for us to position WorkOut in the e-presentment marketplace. The decrease in the use of cash from 1998 to 1999 was primarily due to a decrease in the net loss applicable to common stockholders partially offset by a decrease in deferred revenues and an increase in accounts receivable. In 2000, our investing activities consisted primarily of the sale of our CheckVision business. In 1999, our investing activities consisted primarily of the purchase of At Work. Short-term investment purchases and sales did not occur during 2000 and 1999. In 1998, total short-term investments purchases totaled $10.8 million and total maturities totaled $12.8 million. Capital expenditures were $410,000, $428,000, and $472,000, for the years ended December 31, 2000, 1999 and 1998, respectively. Capital expenditures consisted primarily of purchases of computer equipment and office furniture to support our product development needs. We currently have no significant capital spending requirements or purchase commitments other than non-cancelable operating leases for our facilities. Cash provided by financing activities was $678,000, $4.5 million and $348,000 for the years ended December 31, 2000, 1999, and 1998, respectively. The cash generated during the year ended December 31, 2000, was the result of net proceeds from the exercise of stock options and employee stock purchases under our employee stock purchase plan. The cash generated during 1999 was primarily the result of net proceeds from the Series B Preferred Stock financing. On January 4, 2001, we secured interim financing from E. M. Warburg Pincus & Co., LLC. The financing is a line of credit of $1 million on which we can draw as necessary. As of March 26, 2001, we had borrowed $400,000 from the line of credit. As of December 31, 2000, we had $357,000 in cash and cash equivalents and $469,000 in negative working capital. We do not believe that our existing cash and cash equivalents, together with expected cash flows from operations, will be sufficient to fund our operations through April 30, 2001.* Accordingly, before April 30, 2001, we must consummate the merger with Pitney Bowes, or we must raise Page 23 additional capital to fund operations, including the continued building of infrastructure and pipeline with respect to our WorkOut product.* We are actively pursuing financing alternatives. However, additional financing may not be available, or, if available, may not be available on acceptable terms or terms that will not be dilutive to our existing stockholders. Our inability to consummate the merger or secure necessary funding could seriously affect our ability to continue operations.* ITEM 7A. MARKET RISK DISCLOSURES Our investments consist primarily of short-term money market investments that earn interest at a fixed rate. All of our cash equivalents at December 31, 2000 have maturity dates of less than 90 days. We do not believe our exposure to interest rate risk to be material given the short-term nature of our investment portfolio. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Our consolidated financial statements together with related notes, report of Ernst & Young LLP, Independent Auditors, and supplementary financial information are listed at Item 14. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. Page 24 PART III Certain information required by Part III is omitted from this report on Form 10-K in light of the fact that we will file a Definitive Proxy Statement for our annual meeting of stockholders pursuant to Regulation 14A of the Securities and Exchange Act of 1934, as amended (the "Proxy Statement"), not later than 120 days after the end of the fiscal year covered by this report. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The following table set forth-certain information as of March 1, 2001, with respect to each person who is one of our executive officers or directors:
NAME AGE POSITION --------------------------------- ----------- ----------------------------------------------------------------- Kevin D. Moran 45 President, Chief Executive Officer and Chairman of the Board David R. Bankhead 51 Vice President, Chief Financial Officer, Secretary and Treasurer Jim Flynn 40 Executive Vice President and Chief Operating Officer Geraldine McGrath 51 Vice President, General Counsel and Assistant Secretary Louis Provenzano 41 Senior Vice President, Worldwide Sales John J. Cook, Jr. 57 Director Stewart Gross (2) 41 Director Randy Katz (1) (2) 45 Director Henry Kressel (1) 67 Director Timothy F. McCarthy 49 Director John Oltman (1) (2) 55 Director
--------------------------------- (1) Compensation Committee member. (2) Audit Committee member. Mr. Moran has served as our President and Chief Executive Officer since August 3, 1998 and as the Chairman of the Board since January 25, 1999. From 1997 to 1998, Mr. Moran served as senior vice president of Charles Schwab & Co. Prior to 1997, Mr. Moran held numerous positions over a ten-year career at Fidelity Investments. These positions included President of National Financial Brokerage Services and Senior Vice President of Fidelity Investments Institutional Retirement Services. Mr. Moran earned his MBA from Northeastern University and a BA from College of Holy Cross in Worcester, MA. Mr. Moran is a Certified Public Accountant. Mr. Bankhead has served as our Vice President and Chief Financial Officer since February 28, 2000. Mr. Bankhead formerly served as Senior Vice President and Chief Financial Officer of Hogan Systems, Inc., a provider of software and services to large banks and financial institutions worldwide. Most recently, Mr. Bankhead was President, Chief Executive Officer and Chief Financial Officer of Xybernet, Inc., which he joined in 1996 after Hogan's acquisition by The Continuum Company. His experience also includes nine years in various positions at Cybertek Corporation including controller, Chief Financial Officer and Chief Operating Officer. Mr. Bankhead is a Certified Public Accountant and earned a BA from California State University, Northridge. Mr. Flynn has served as our Chief Operating Officer since December 1, 2000. Mr. Flynn served as CEO of At Work Corp., which was merged into the Company in September 1999. From 1994 until 1996 Mr. Flynn was the Vice President of Greenbar Software. From 1990 until 1994, Mr. Flynn served as Vice President Business Development for International Financial Systems Ltd. From 1983 until 1990 Mr. Flynn held various positions at AT&T, including positions in systems development, engineering and sales. Mr. Flynn holds a BA Page 25 from Manhattan College and an MBA from New York University. He is a Certified Document Imaging Architect and a Microsoft Certified Professional. Ms. McGrath has served as our General Counsel since our inception in 1992. From 1987 until 1992, Ms. McGrath served as Litton Industries' Integrated Automation Division Counsel and Assistant Secretary. From 1986 until 1987, Ms. McGrath served as General Counsel and Assistant Secretary for Integrated Automation, Inc., a predecessor of ours. Ms. McGrath holds a BA from San Francisco State University and a JD from San Francisco Law School and is a member of the American Arbitration Association's Arbitrator and Mediator panels. Mr. Provenzano has served as our Senior Vice President, Worldwide Sales since December 2, 1999. Mr. Provenzano came to us from Loan Pricing Corporation, a Reuters subsidiary, where he was Senior Vice President and Director of Sales and Marketing from November 1989 to June 1999. Before joining Loan Pricing Corporation, he was Director of Portfolio Management for First National Bank of Chicago's South American Division and International Banking Officer for The Northern Trust the Company. Mr. Provenzano earned a BA from Boston College and was nominated for Scholar of the College in May 1980. Mr. Cook has served as one of our directors since 2000. He serves as managing director of Seaward Management Corporation, Boston, Massachusetts. Mr. Cook has served as president of UAM Investment Services, Inc., and as chairman and chief executive officer of CS First Boston Investment Management, Inc. Mr. Cook's previous appointments included terms as president of Fidelity Investments Institutional Group and managing director of FMR Corporation, as president of Fidelity Management Trust Company. He also worked at Morgan Guaranty Trust Co. and J.P. Morgan Investment Management Company. Mr. Gross has served as one of our directors since 1997. Mr. Gross, a partner of Warburg, Pincus & Co., the general partner of Warburg, Pincus Investors, L.P., and a managing director of E.M. Warburg, Pincus & Co., LLC, has been with E.M. Warburg, Pincus & Co., LLC since 1987. Mr. Gross is a Director of BEA Systems, Inc., SkillSoft, Inc., and several private companies. Dr. Katz has served as one of our directors since 1997. Dr. Katz has been a professor at the University of California Berkeley for 17 years and is the past Chairman of the Electrical Engineering and Computer Science Department at UC Berkeley. Dr. Kressel has served as one of our directors since our inception in 1992. Dr. Kressel, a partner of Warburg, Pincus & Co., the general partner of Warburg, Pincus Investors, L.P., and a managing director of E.M. Warburg, Pincus & Co., LLC has been with E.M. Warburg, Pincus & Co., LLC since 1983. Dr. Kressel serves as a director of Nova Corporation, SynQuest, Inc., and EarthWeb, Inc. and several privately held companies. Mr. McCarthy has served as one of our directors since January 1999. Mr. McCarthy is the Chairman of the AdvisorTech Corporation, a brokerage systems company founded by Mr. McCarthy in 1998 and based in Tokyo, San Francisco, and Boston. From 1995 to 1998, Mr. McCarthy was President and Chief Operating Officer of Charles Schwab and Company, Inc. From 1994 to 1995, Mr. McCarthy was Chief Executive Officer of Jardine Fleming Unit Trust Ltd. in Hong Kong. Mr. Oltman has served as one of our directors since 1996. From 1991 to 1995, Mr. Oltman served as the Chairman of the Board and Chief Executive Officer of SHL Systemhouse Inc., a company that provides client/server consulting and integration services. From 1970 to 1991, Mr. Oltman served as Worldwide Managing Partner for Integration Services for Andersen Consulting and a member of Andersen Consulting's Worldwide Organization Board of Directors. Mr. Oltman serves as a director of Inacom Corp., and a privately held company. Each of our directors is elected at an annual meeting of stockholders to serve until the next succeeding annual meeting and until their successors are elected and shall have qualified. There are no family relationships between any director, executive officer or person nominated or chosen by us to become a director or executive officer. Section 16(a) Beneficial Ownership Reporting Compliance ------------------------------------------------------- Section 16(a) of the Exchange Act requires our executive officers and directors and persons who own more than 10% of a registered class of our equity securities to file reports of securities ownership on Form 3 and changes in such ownership on Form 4 or Form 5 with the Commission. Such officers, directors and 10% Page 26 stockholders are also required by the Commission rules to furnish us with copies of all Section 16(a) reports they file. Based solely on a review of the copies of such forms received by us, or written representations from certain reporting persons that Forms 5 have been filed for such persons as required, we believe that, during the year ended December 31, 2000, all reporting persons complied with Section16(a) filing requirements applicable to them, except for a Form 3 filed late by Louis Provenzano and a Form 5 filed late by Kevin Moran. ITEM 11. EXECUTIVE COMPENSATION The following table sets forth information concerning the compensation we paid during the year ended December 31, 2000 to our Chief Executive Officer and each of our four other most highly compensated executive officers (collectively, the "Named Executive Officers"). Summary Compensation Table
Long Term Compensation Awards ------ Annual Compensation Securities ------------------- Underlying Name and Principal Position Year Salary($) Bonus($) Other ($)(3) Options/SAR's(#) --------------------------- ---- --------- -------- ------------ ---------------- Kevin D. Moran(1) .......................... 2000 292,308 (4) 140,000 (2) - - President, Chief Executive Officer and 1999 266,455 350,000 887 300,000 Chairman of the Board 1998 107,019 125,000 - 530,000 James Flynn (5) ............................ 2000 180,000 14,850 500,000 100,000 Executive Vice President and Chief Operating Officer Louis Provenzano (6) ....................... 2000 175,000 - 175,000 - Senior Vice President Worldwide Sales Geraldine McGrath .......................... 2000 150,424 (4) - - - Vice President, General Counsel and 1999 143,408 52,000 438 25,000 Assistant Secretary 1998 135,527 5,000 - 15,000 David Bankhead (7) ......................... 2000 145,385 - - 120,000 Vice President, Chief Financial Officer, Secretary and Treasurer
---------- (1) Mr. Moran joined us in August 1998 as President and Chief Executive Officer. In January 1999, Mr. Moran was appointed Chairman of the Board. (2) A portion of this was earned in 2000 but paid in 2001. Amounts paid in 2001 were as follows: $35,000.00. (3) Includes taxable and other income including commissions. Mr. Flynn's other income represents a retention bonus. (4) Includes income from pay in lieu of vacation time as follows: Mr. Moran, $10,769; and Ms. McGrath, $5,815; (5) Mr. Flynn joined us in September 1999. (6) Mr. Provenzano joined us in December 1999. (7) Mr. Bankhead joined us in February 2000. Page 27 Option Grants During Fiscal 2000 The following table sets forth, as to the Named Executive Officers, information concerning stock options granted during the fiscal year ended December 31, 2000.
Individual Grants ---------------------------------------------------- % of Total Potential Realizable Value Number of Options at Assumed Annual Rates Securities Granted to of Stock Price Appreciation Underlying Employees Average for Option Term (5) Options in Fiscal Exercise Expiration ------------------------------ Name Granted(1) Year(4) Price Date 5% 10% -------- ------------ ---------- ---------- ------------ -------------- ---------------- Kevin D. Moran...................... - - - - - - David R. Bankhead (2) (6)........... 120,000 19.8% $7.69 2/28/10 $580,155 $1,470,227 James Flynn (3) (6)................ 100,000 16.5% $1.09 12/1/10 $68,788 $ 174,323 Geraldine McGrath .................. - - - - - - Louis Provenzano.................... - - - - - -
------------ (1) Options granted under the 1996 Stock Plan generally become exercisable at a rate of 25% of the shares subject to the option at the end of the first year and 1/48th of the shares subject to the option at the end of each month thereafter, as long as the individual is employed by us. (2) Mr. Bankhead was granted options with revised vesting. These stock options vest 50% at the end of six months and an additional 10,000 options vest per month until fully vested after twelve months. (3) Mr. Flynn was granted options with revised vesting. These options vest over a three-year period as follows: 30% of the shares subject to the option vest twelve months after the date of the grant (Vesting Commencement Date), 2.5% of the shares subject to the option vest each month thereafter until the second anniversary of the Vesting Commencement Date, and 3.33% of the shares subject to the option vest each month thereafter until the third anniversary of the Vesting Commencement Date. (4) We granted options to employees and directors to purchase 606,650 shares of Common Stock during 2000. (5) The 5% and 10% assumed annual compound rates of stock price appreciation are mandated by the rules of the Commission and do not represent our estimate or projection of future Common Stock prices. (6) Options granted to Mr. Bankhead are subject to accelerated vesting under change of control provisions contained in an employment agreement between Mr. Bankhead and us. Options granted to Mr. Flynn are subject to accelerated vesting under change of control provisions contained in the option agreement between Mr. Flynn and us. Page 28 Option Exercises During Fiscal 2000 The following table sets forth information concerning option holdings for the fiscal year ended December 31, 2000, with respect to each of the Named Executive Officers. No stock appreciation rights were granted during such year. Aggregated Option Exercises and Fiscal Year-end Option Values
Number of Securities Value of Unexercised Shares Underlying Unexercised In-the-Money Acquired Options at 12/31/00 Options at 12/31/00(1) on Value --------------------------- ----------------------------- Name Exercise Realized($) Exercisable Unexercisable Exercisable Unexercisable ---------- ---------- ------------ ----------- ------------- ----------- ------------- Kevin D. Moran................... 97,240 $541,242 384,009 348,751 - - David R. Bankhead................ - - 100,000 20,000 - - James Flynn...................... - - 15,625 134,375 - - Geraldine McGrath................ 8,400 $34,268 53,375 29,125 $4,844 - Louis Provenzano................. - - 18,750 56,250 - -
------------ (1) Based on the fair market value of our Common Stock Price on December 31, 2000, $0.5625 per share, as reported on the Over The Counter Bulletin Board less the exercise price payable for such shares. Director Compensation Along with certain stock options, Messrs. Katz, McCarthy, Oltman and Cook each receives $4,500 each quarter plus reimbursement for actual travel expenses. Compensation Committee Interlocks and Insider Participation The Compensation Committee of our Board of Directors, formed in January 1994, currently consists of Messrs. Katz, Kressel and Oltman. None of these individuals were at any time during fiscal 2000, or at any other time, one of our officers or employees. None of our executive officers serves as a member of the Board of Directors or compensation committee of any entity that has one or more executive officers serving as a member of our Board of Directors or Compensation Committee. Page 29 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth, as of March 15, 2001, certain information with respect to the beneficial ownership of our Common Stock by (i) each person known by us to own beneficially more than 5%)of the outstanding shares of Common Stock, (ii) each of our directors, (iii) each of the executive officers named in the table under "Executive Compensation--Summary Compensation Table" and (iv) all directors and executive officers as a group. Except as otherwise indicated in the footnotes to this table, the persons and entities named in the table have sole voting and investment power with respect to all shares beneficially owned, subject to community property laws, where applicable. Unless otherwise indicated, the address for each stockholder is: c/o Alysis Technologies, Inc., 1900 Powell Street, Suite 110, Emeryville, CA 94608-1840.
Shares Beneficially Name and Address of Beneficial Owner Owned(1)(2) ------------------------------------ --------------------- Number Percent --------- --------- Warburg, Pincus Investors, L.P.(2).............................................. 4,647,212 41.6 466 Lexington Avenue New York, NY 10017 Henry Kressel(2)(3)............................................................. 4,647,212 41.6 466 Lexington Avenue New York, NY 10017 Stewart K. P. Gross(2)(3)....................................................... 4,647,212 41.6 466 Lexington Avenue New York, NY 10017 Johann Magnusson (4) ........................................................... 869,700 7.8 c/o Rocket Software 2 Apple Hill Drive Natick, MA 01760 Kevin D. Moran(5)............................................................... 534,567 4.8 James Flynn (6)................................................................. 259,806 2.3 c/o Alysis Technologies, Inc. 11 John Street, 25th Floor New York, New York 10038 Timothy F. McCarthy (7)......................................................... 187,708 1.7 c/o AdvisorTech Corporation 235 Pine Street, Suite 1500 San Francisco, California 94104-2732 John R. Oltman(8)............................................................... 114,854 1.0 c/o JRO Consulting P.O. Box 8069 Avon, Colorado 81620 David Bankhead (9).............................................................. 120,000 1.1 Geraldine McGrath(10)........................................................... 119,971 1.1 Louis Provenzano (11)........................................................... 117,062 1.0 c/o Alysis Technologies, Inc. 11 John Street, 25th Floor New York, New York 10038 Randy H. Katz (12) ............................................................. 41,125 * c/o Computer Science Div., EECS Dept; 637 Soda Hall Berkeley, California 94720-1776 John J. Cook, Jr. (13).......................................................... 43,250 * c/o Seaward Management Corporation 10 Post Office Sq., Suite 1050 Boston, Massachusetts 02109-4601 All Named Executive Officers and directors as a group (11 persons)(14).......... 6,185,555 55.4
--------------- * Less than one percent (1%) (1) Beneficial ownership is determined in accordance with the rules of the Commission. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, shares of Common Stock subject to options held by that person that are currently exercisable or exercisable within 60 days of March 15, 2001, are deemed outstanding. Except as indicated in the footnotes to this table and as provided pursuant to applicable community property laws, the stockholders named in the table have sole voting and investment power with respect to the shares set forth opposite each stockholder's name. Page 30 (2) Does not include 2,417,112 shares of non-voting Class B Common Stock owned by Warburg which represents all outstanding Class B Common Stock, nor 400 shares of non-voting Class B Preferred Stock owned by Warburg, which represents all outstanding Class B Preferred Stock. (3) The sole General Partner of Warburg, Pincus Investors, L.P. ("Warburg") is Warburg, Pincus & Co., a New York general partnership ("WP"). E.M. Warburg, Pincus & Co., LLC, a New York limited liability company ("E.M. Warburg"), manages Warburg. The partners of WP and the members of E.M. Warburg are substantially the same. Lionel I. Pincus is the Managing Partner of WP and the Managing Member of E.M. Warburg and may be deemed to control both entities. WP has a 20% interest in the profits of Warburg, and owns 1.13% of the limited partnership interests in Warburg. Messrs. Kressel and Gross, members of our Board of Directors, are Managing Directors and members of E.M. Warburg and General Partners of WP. As such, Messrs. Kressel and Gross may be deemed to have an indirect pecuniary interest (within the meaning of Rule 16a-1 under the Securities Exchange Act of 1934, as amended) in an indeterminate portion of the shares beneficially owned by Warburg, E.M. Warburg and WP. (4) 5% shareholder. (5) Includes 415,032 shares of Common Stock issuable pursuant to options exercisable within 60 days of March 15, 2001. (6) Includes 19,791 shares of Common Stock issuable pursuant to options exercisable within 60 days of March 15, 2001. (7) Includes 187,708 shares of Common Stock issuable pursuant to options exercisable within 60 days of March 15, 2001. (8) Includes 93,854 shares of Common Stock issuable pursuant to options exercisable within 60 days of March 15, 2001. Mr. Oltman's options are granted to JRO Consulting, Inc., a company of which he owns 100% of the capital stock and through which he provides services to us solely in his capacity as Director. (9) Includes 120,000 shares of Common Stock issuable pursuant to options exercisable within 60 days of March 15, 2001. (10) Includes 59,541 shares of Common Stock issuable pursuant to options exercisable within 60 days of March 15, 2001. (11) Includes 26,562 shares of Common Stock issuable pursuant to options exercisable within 60 days of March 15, 2001. (12) Includes 41,125 shares of Common Stock issuable pursuant to options exercisable within 60 days of March 15, 2001. (13) Includes 31,250 shares of Common Stock issuable pursuant to options exercisable within 60 days of March 15, 2001. (14) Includes 995,905 shares subject to options exercisable within 60 days of March 15, 2001. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Transactions with Management The following is a description of transactions during the last fiscal year to which we were a party, in which the amount involved in the transaction exceeds $60,000 and in which any of our directors, executive officers or holders of more than 5% of our capital stock have or will have a direct material interest other than compensation arrangements that are described elsewhere herein. In February 2000, we entered into an employment agreement with David R. Bankhead (the "Employment Agreement"). Pursuant to the Employment Agreement Mr. Bankhead is paid an annual base salary of $180,000 and is eligible for a discretionary bonus based on performance of up to 40% of his base annual salary, any such bonus is to be paid by January 31 for the preceding year's performance. Mr. Bankhead was also granted options to purchase 120,000 shares of our Common Stock. These stock options vest 50% at the end of six months and an additional 10,000 options vest per month until fully vested after twelve months. If a Change of Control (as defined in the Employment Agreement) occurs and if Mr. Bankhead is not offered the position of Chief Financial Officer of the Combined Entity (as defined in the Employment Agreement), the vesting of such stock options shall become accelerated such that 100% of such stock options shall become immediately exercisable even as to stock options which are otherwise unvested. If Mr. Bankhead's employment is terminated by us for other than cause during the first six months of his employment, the vesting of such stock options shall become accelerated such that 50% of such stock options shall become immediately exercisable even as to stock options which are otherwise unvested. If Mr. Bankhead's employment is terminated by us for other than cause during the second six months of his employment, the vesting of such stock options shall become accelerated such that 100% of such stock options shall become immediately exercisable even as to stock options which are otherwise unvested. Mr. Bankhead is eligible to receive additional stock options at the discretion of the Board of Directors. In December 2000, we entered into an employment agreement with James Flynn (the "Employment Agreement"). Pursuant to the Employment Agreement Mr. Flynn is paid an annual base salary of $225,000; commencing in the year 2001 and will be eligible for a discretionary bonus based on performance of up to 50% of his base salary. Mr. Flynn was also granted options to purchase 100,000 shares of our Common Stock. These options vest over a three-(3-) year period as follows: Thirty percent (30%) of the shares subject to the option Page 31 vest twelve (12) months after the date of the grant (Vesting Commencement Date), two and one-half percent (2.5%) of the shares subject to the option vest each month thereafter until the second anniversary of the Vesting Commencement Date, and three and one-third percent (3.33%) of the shares subject to the option vest each month thereafter until the third anniversary of the Vesting Commencement Date. If a Change of Control (as defined in the Employment Agreement) during the employment period occurs and if Mr. Flynn is not offered a position equivalent to or more senior than Chief Operating Officer ("COO") of the Combined Entity (as defined in the Employment Agreement), the option shall become immediately exercisable as to fifty percent (50%) of the shares subject to the option. Further, in the event of a Change of Control following the employment period, and provided that Mr. Flynn has not been offered a position equivalent to or more senior than COO of the Combined Entity, the option shall become immediately exercisable as to one hundred percent (100%) of the shares subject to the option. If, during the employment period, we terminate Mr. Flynn's employment other than for disability or cause, then, in lieu of any severance benefits to which Mr. Flynn may otherwise be entitled under our severance plans or programs, Mr. Flynn shall be entitled to payment of the greater of (i) his salary until the end of the employment period or (ii) his salary for one year. Page 32 PART IV ITEM 14. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) The following documents are filed as part of this report: (1) Financial Statements - see "Index to Consolidated Financial Statements" (2) Financial Statement Schedule: Schedule II - Valuation and Qualifying Accounts All schedules, except those listed above, have been omitted because they are not required, not applicable, or the required information is shown in the financial statements and related notes thereto. (3) Exhibits 3.1(a)* Certificate of Incorporation of the Registrant, as amended (formerly Exhibit 3.1) 3.2* Bylaws of the Registrant. 4.1* Stockholders' Agreement dated July 31, 1992; Amendment No. 1 to Stockholders' Agreement dated May 28, 1996. 5.1*** Opinion of Wilson Sonsini Goodrich & Rosati, P.C. as to legality of securities being registered. 10.1+* Agreement between Mellon Bank Corporation and the Registrant dated March 24, 1995. 10.2* 1992 Stock Plan. 10.3* 1996 Stock Plan. 10.4* 1996 Employee Stock Purchase Plan. 10.5* Loan and Security Agreement dated May 20, 1994 between Registrant and Bank of the West; First Amendment dated May 22, 1995; Second Amendment dated February 21, 1996; Form of Third Amendment. 10.6* Severance and Non-Compete Agreement dated July 31, 1992 between Chakravarthi V. Ravi and the Registrant. 10.7* Lease by and between Watergate Tower Associates and the Registrant dated June 30, 1993 10.8* Form of Indemnity Agreement. 10.9* Share Exchange Agreement dated May 29, 1996 between the Registrant, Warburg, Pincus Investors, L.P. and holders of the Registrant's Series A Preferred Stock. 10.10* Amendment No. 1 to the Share Exchange Agreement dated November 6, 1996 between the Registrant, Warburg, Pincus Investors, L.P. and holders of the Registrant's Series A Preferred Stock. 10.11** Employment Agreement between the Registrant and Kevin D. Moran, dated July 22, 1998. 10.12** Severance and Non-Compete Agreement between the Registrant and Dr. C.V. Ravi, dated July 22, 1998. 10.13*** 1998 Employee Stock Purchase Plan 10.14*** Stock Option Agreement between the Company and Kevin D. Moran 10.15*** Stock Option Agreement between the Company and Timothy F. McCarthy 10.16**** Asset Purchase Agreement between the Registrant and Computer Sciences Corporation dated August 16, 2000. 21.1* Subsidiaries of the Registrant 23.1 Consent of Ernst & Young LLP, Independent Auditors. 24.1 Power of Attorney (see page 44) ------------- + Confidential treatment has been granted for portions of these agreements. * Incorporated by reference to the exhibits filed with the Company's registration statement on Form SB-2 Page 33 (Registration Statement No. 333-4928-LA) ** Incorporated by reference to the exhibits filed with the Company's September 30, 1998 Form 10-Q *** Incorporated by reference to the exhibits filed with the Company's March 1, 1999 Form S-8 **** Incorporated by reference to the exhibits filed with the Company's September 8, 2000 Form S-8. (b) Reports on Form 8-K. No reports on Form 8-K were filed during the last quarter of the fiscal year ended December 31, 2000. Page 34 ALYSIS TECHNOLOGIES, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Ernst & Young LLP, Independent Auditors................................................. 36 Balance Sheets.................................................................................... 37 Statements of Operations.......................................................................... 38 Statements of Stockholders' Equity................................................................ 39 Statements of Cash Flows.......................................................................... 40 Notes to Financial Statements..................................................................... 41
Page 35 REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS The Board of Directors and Stockholders Alysis Technologies, Inc. We have audited the accompanying consolidated balance sheets of Alysis Technologies, Inc. as of December 31, 2000 and 1999, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2000. Our audits also included the financial statement schedule listed in the Index at Item 14(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the 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 financial statements referred to above present fairly, in all material respects, the consolidated financial position of Alysis Technologies, Inc. at December 31, 2000 and 1999, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2000 in conformity with generally accepted accounting principles in the United States. Also in our opinion, the related financial statement schedule when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. The accompanying consolidated financial statements have been prepared assuming that Alysis Technologies, Inc., will continue as a going concern. As more fully described in Note 1, the Company has incurred significant operating losses and has an accumulated deficit of approximately $33.2 million as of December 31, 2000. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty. /S/ ERNST & YOUNG LLP Walnut Creek, California January 25, 2001, except for Note 11 as to which the date is March 20, 2001 Page 36 ALYSIS TECHNOLOGIES, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share data)
December 31, -------------------- 2000 1999 -------- -------- Assets Current assets: Cash and cash equivalents.................................................................. $ 357 $ 9,159 Restricted cash............................................................................ 500 -- Accounts receivables, including unbilled of $312 at December 31, 2000 and $548 at December 31, 1999, less allowance for doubtful accounts of $252 at December 31, 2000 and $126 at December 31, 1999...................................................................... 1,010 1,798 Other current assets....................................................................... 214 494 -------- -------- Total current assets....................................................................... 2,081 11,451 Property and equipment, net...................................................................... 584 770 Other assets..................................................................................... 58 43 Acquired technology, net........................................................................... 1,487 2,337 -------- -------- $ 4,210 $ 14,601 ======== ======== Liabilities and stockholders' equity Current liabilities: Accounts payable........................................................................... $ 714 $ 547 Accrued compensation and related liabilities............................................... 581 2,483 Deferred revenues.......................................................................... 393 2,073 Other accrued liabilities.................................................................. 862 484 -------- -------- Total current liabilities 2,550 5,587 Commitments (Note 4) Stockholders' equity: Convertible preferred stock, Series B, $0.01 par value: 5,000,000 shares authorized; 400 shares issued and outstanding (aggregate liquidation preference of $4,393,000).......................................................................... 3,814 3,814 Common stock, $0.01 par value: 35,000,000 shares authorized; 11,113,101 shares issued and outstanding at December 31, 2000 and 10,619,792 shares issued and outstanding shares-at December 31, 1999................ 111 106 Class B common stock, $0.01 par value: 5,000,000 shares authorized; 2,417,112 shares issued and outstanding at December 31, 2000 and 1999................... 25 25 Additional paid-in capital................................................................. 30,984 29,911 Accumulated deficit........................................................................ (33,225) (24,515) Deferred compensation...................................................................... (50) (327) Other accumulated comprehensive income..................................................... 1 -- -------- -------- Total stockholders' equity 1,660 9,014 -------- -------- $ 4,210 $ 14,601 ======== ========
See Accompanying Notes Page 37 ALYSIS TECHNOLOGIES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except share and per share data)
Years ended December 31, -------------------------------- 2000 1999 1998 -------- -------- -------- Revenues: License $ 2,928 $ 7,623 $ 3,141 Service 2,458 7,290 5,661 Maintenance 3,274 4,899 4,369 -------- -------- -------- Total revenues 8,660 19,812 13,171 Cost of revenues: License 874 287 231 Service 1,130 3,948 5,171 Maintenance 1,409 2,129 2,500 -------- -------- -------- Total cost of revenues 3,413 6,364 7,902 Operating expenses: Sales and marketing 5,555 4,476 5,234 General and administrative 8,607 7,758 7,850 Product development 3,755 1,874 4,861 -------- -------- -------- Total operating expenses 17,917 14,108 17,945 -------- -------- -------- Operating loss (12,670) (660) (12,676) Other income: Interest income and other 183 349 395 Gain on sale of product line 3,777 -- -- -------- -------- -------- Net loss $ (8,710) $ (311) $(12,281) Preferred stock dividends 276 117 -- -------- -------- -------- Net loss applicable to common stockholders $ (8,986) $ (428) $(12,281) ======== ======== ======== Basic and diluted net loss per share applicable to common stockholders $ (0.67) $ (0.03) $ (1.06) ======== ======== ======== Shares used in computing basic and diluted net loss per share applicable to common stockholders 13,385 12,326 11,596 ======== ======== ========
See Accompanying Notes Page 38 ALYSIS TECHNOLOGIES, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (in thousands, except share data)
Convertible Other Preferred Stock Common Stock Additional Accumulated --------------- ------------------ Paid-in Accumulated Deferred Comprehensive Stockholders' Shares Amount Shares Amount Capital Deficit Compensation Income Equity --------------- ------------------ -------- ------------ ------------ ------------- ------------ Balances, January 1, 1998 -- $ -- 11,283,572 $ 114 $27,563 $ (11,923) $ (131) $ -- $ 15,623 Issuance of common stock under stock option and stock purchase plans -- -- 469,869 4 344 -- -- -- 348 Deferred compensation resulting from grant of options -- -- -- -- 243 -- (243) -- -- Amortization of deferred compensation -- -- -- -- -- -- 133 -- 133 Net loss and comprehensive loss -- -- -- -- -- (12,281) -- -- (12,281) ---- ----- ---------- ----- ------- ----------- ----------- ----- ---------- Balances, December 31, 1998 -- -- 11,753,441 118 $28,150 (24,204) (241) -- 3,823 Issuance of common stock under stock option and stock purchase plans, net of repurchases -- -- 803,432 8 681 -- -- -- 689 Issuance of common stock in connection with busineSS combination -- -- 480,031 5 745 -- -- -- 750 Issuance of convertible preferred stock, net of issuance costs 400 3,814 -- -- -- -- -- -- 3,814 Dividends on convertible preferred stock -- -- -- -- (117) -- -- -- (117) Deferred compensation resulting from grant of options to consultants. -- -- -- -- 452 -- (452) -- -- Amortization of deferred compensation -- -- -- -- -- -- 366 -- 366 Net loss and comprehensive loss -- -- -- -- -- (311) -- -- (311) ---- ----- ---------- ----- ------- ----------- ----------- ----- ---------- Balances, December 31, 1999 400 3,814 13,036,904 131 29,911 (24,515) (327) -- 9,014 Issuance of common stock under stock option and stock purchase plans -- -- 493,309 5 673 -- -- -- 678 Reversal of deferred compensation to consultants. -- -- -- -- (265) -- 265 -- -- Amortization of deferred compensation -- -- -- -- -- -- 12 -- 12 Stock compensation charge incurred in connection with sale of product line (Note 9) -- -- -- -- 868 -- -- -- 868 Issuance of warrants -- -- -- -- 73 -- -- -- 73 Dividends on convertible preferred stock -- -- -- -- (276) -- -- -- (276) Foreign currency translation -- -- -- -- -- -- -- 1 1 Net loss -- -- -- -- -- (8,710) -- -- (8,710) ---------- Comprehensive net loss -- -- -- -- -- -- -- -- (8,709) ---- ------ ---------- ----- ------- ----------- ----------- ----- ========== Balances, December 31, 2000 400 $3,814 13,530,213 $ 136 $30,984 $ (33,225) $ (50) $ 1 $ 1,660 ==== ====== ========== ===== ======= =========== =========== ===== ==========
See Accompanying Notes Page 39 ALYSIS TECHNOLOGIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
Operating Activities Year Ended December 31, -------------------------------- 2000 1999 1998 -------- -------- -------- Net loss applicable to common stockholders $ (8,986) $ (428) $(12,281) Adjustments to reconcile net loss applicable to common stockholders to net cash used in operating activities: Depreciation and amortization 1,322 567 351 Amortization of deferred compensation 12 366 133 Amortization of deferred financing costs 24 -- -- Gain on sale of product line (3,777) -- -- Gain on sale of equipment (2) -- -- Changes in operating assets and liabilities, net of effects of business combinations and dispositions: Restricted cash (500) -- -- Accounts receivables (76) (756) 7,816 Other current assets 277 184 70 Other assets 34 (34) -- Accounts payable 167 418 (97) Accrued compensation and related liabilities (1,782) 674 409 Deferred revenues (95) (1,805) 832 Other accrued liabilities 549 (87) 1,378 -------- -------- -------- Net cash used in operating activities (12,833) (901) (1,389) Investing Activities Business combination, net of cash acquired -- (1,597) -- Purchase of property and equipment (410) (428) (472) Net proceeds from sales of property and equipment 23 -- 37 Net proceeds from the sale of product line 3,739 -- -- Purchases of short term investments -- -- (10,826) Maturities of short term investments -- -- 12,826 -------- -------- -------- Net cash provided by (used in) investing activities 3,352 (2,025) 1,565 Financing Activities Net proceeds from issuance of preferred stock -- 3,814 -- Net proceeds from issuance of common stock 678 728 348 Repurchases of common stock -- (39) -- -------- -------- -------- Net cash provided by financing activities 678 4,503 348 -------- -------- -------- Effect of exchange rate changes on cash and cash equivalents 1 -- -- Net (decrease) increase in cash and cash equivalents (8,802) 1,577 524 Cash and cash equivalents at beginning of year 9,159 7,582 7,058 -------- -------- -------- Cash and cash equivalents at end of year $ 357 $ 9,159 $ 7,582 ======== ======== ======== Supplemental disclosure of non-cash information: Cash paid for interest $ -- $ -- $ 5 ======== ======== ======== Supplemental noncash investing and financing information: Deferred stock compensation related to stock options $ (265) $ 452 $ 243 ======== ======== ======== Valuation of warrants issued in connection with credit agreement $ 73 $ -- $ -- ======== ======== ======== Common stock issued in business combination $ -- $ 750 $ -- ======== ======== ========
See Accompanying Notes Page 40 ALYSIS TECHNOLOGIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Organization and Summary of Significant Accounting Policies The Company Alysis Technologies, Inc. (previously known as IA Corporation) was incorporated on July 20, 1992. We provide EBPP software to utilities and telecommunications companies, service bureaus and other companies requiring large-scale distribution of business bills primarily in North America. Basis of Presentation The accompanying consolidated financial statements have been prepared assuming that we will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. We have sustained significant net losses that have resulted in an accumulated deficit of $33.2 million as of December 31, 2000, and periodic cash flow difficulties, all of which raise substantial doubt of our ability to continue as a going concern. We anticipate a net loss for the year ended December 31, 2001, and with a cash balance of $357,000 at December 31, 2000, and expected cash requirements for the coming year, there is substantial doubt as to our ability to continue operations. We are attempting to improve these conditions by way of a merger agreement with Pitney Bowes (See Note 11). In the event the merger is not consummated, we will pursue financing alternatives. However, additional financing may not be available, or, if available, may not be available on acceptable terms or terms that will not be dilutive to our existing stockholders. Consolidation The consolidated financial statements include our accounts and our wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated. Reclassifications Certain reclassifications have been made to the prior years' financial statements in order to conform to the current year presentation in the financial statements. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes. Actual results could differ materially from those estimates. Property and Equipment Property and equipment is stated on the basis of cost. Depreciation is computed using the straight-line method over estimated useful lives ranging from three to seven years. Acquired Technology Acuired technology represent purchased technology acquired in the acquisition of At Work on September 15, 1999. This acquired technology is being amortized over three years. Accumulated amortization was approximately $1,059,000 at December 31, 2000 and $210,000 at December 31, 1999. Page 41 Impairment of Long-Lived Assets In accordance with Statement of Financial Accounting Standards No. 121 Accounting for the Impairment of Long-Lived Assets to be Disposed Of, we review long-lived and intangible assets for impairment whenever events or circumstances indicate the carrying value of an asset may not be recoverable. Software Development Costs We account for software development costs in accordance with Statement of Financial Accounting Standards No. 86, Accounting for Costs of Computer Software to be Sold, Leased, or Otherwise Marketed, under which certain software development costs incurred subsequent to the establishment of technological feasibility are capitalized and amortized over the estimated lives of the related products. Technological feasibility is established upon completion of a working model. As of December 31, 2000, such capitalized software development costs have been insignificant and all software development costs have been charged to product development expenses in the accompanying consolidated statements of operations. Income Taxes The Company accounts for income taxes using the liability method pursuant to Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes. The liability method requires that the expected future consequences of temporary differences between the tax and reporting basis of assets and liabilities be recognized as deferred tax assets and liabilities. Revenue Recognition In October of 1997 the Accounting Standards Executive Committee issued Statement of Position (SOP) 97-2 "Software Revenue Recognition", which has been amended by SOP 98-4 and SOP 98-9. These statements set forth generally accepted accounting principles for recognizing revenue on software transactions. SOP 97-2, as amended by SOP 98-4, was effective for revenue recognized under software license and service arrangements beginning January 1, 1998. SOP 98-9 amends SOP 97-2 and requires recognition of revenue using the "residual method" when certain criteria are met. The implementation of these provisions of SOP 98-9 was effective for the Company's fiscal year ending December 31, 2000. The adoption of these provisions did not have a material impact on the Company's financial results. Our revenues are derived from software licenses, maintenance and support contracts and implementation and training services. Software license and service revenue from contracts requiring significant customization services are recognized on the percentage-of-completion method based on the ratio of incurred costs to total estimated costs. The implementation of these application frameworks can take several months or more depending on the complexity of the customer's environment and the resources directed by the customers to the implementation projects. Estimated losses, if any, on contracts are reported in the period in which such losses become known. Revenues from contracts for software licenses not requiring significant customization are recognized upon delivery and installation of the software if there is persuasive evidence of an arrangement, collection of the related receivable is probable and the fee is fixed or determinable. For those arrangements for which the Company has concluded that the service element is not essential to the other elements of the arrangement the Company determines whether the services are available from other vendors, do not involve a significant degree of risk or unique acceptance criteria, and whether the Company has sufficient experience in providing the service to be able to separately account for the service. When the service qualifies for separate accounting , the Company uses vendor specific objective evidence of fair value for the services and the maintenance to account for the arrangement using the residual method, regardless of any separate prices stated within the contract for each element. Vendor specific objective evidence of fair value of services is based upon hourly rates. As previously noted, the Company enters into contracts for services alone and such contracts are based upon time and material basis. Such hourly rates are used to assess the vendor specific objective evidence of fair value in multiple element arrangements. Software maintenance revenues are recognized ratably over the term of the support contract, which is generally one year. Other service revenue is recognized as services are performed. Credit Risk We currently sell our services primarily to large corporations in the financial services industry in North America. We extend credit based on an evaluation of the customer's financial condition and, generally, do not require collateral. We maintain reserves for potential credit losses, which we believe, are adequate to cover any potential loss. Actual credit losses may differ from our estimates and such differences could be material to the financial statements. Stock-Based Compensation We generally grant stock options for a fixed number of shares to employees with an exercise price equal to the fair value of the shares at the date of grant. We account for employee stock options in accordance with Accounting Principles Board No. 25, Accounting for Stock Issued to Employees (APB 25) and related Interpretations rather than under Financial Accounting Standards Board issued Statement No. 123, Accounting for Stock-Based Compensation (FAS 123). We have adopted the "disclosure only" alternative described in FAS 123. We account for equity instruments issued to non-employees in accordance with the provisions of FAS 123 and the Emerging Issues Task Force in Issue No. 96-18, Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services ("EITF 96-18"). Segment Reporting Page 42 We comply with Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information," which requires disclosure of certain information regarding operating segments, products and services, geographic areas of operation and major customers. We operate in one segment. Net Loss per Common Share Basic net loss per common share is calculated by dividing net loss applicable to common stockholders for the period by the weighted average number of our commons shares outstanding. Because we reported a net loss for each of the years ended December 31, 2000, 1999, and 1998, all common stock equivalents are anti-dilutive and accordingly have been excluded from the earnings per common share computation. Stock options and other stock equivalents to purchase 3,156,752, 3,066,150, and 3,175,596 shares of common stock were outstanding at December 31, 2000, 1999, and 1998, respectively but were not included in the computation of diluted earnings per common share because they were anti-dilutive. 2. Factoring Agreement On August 28, 2000, we entered into a factoring agreement with Pacific Business Funding. We receive a cash advance for 80% of the face amount of accounts receivables balances it factors. The cash advance bears interest of 1% per month. We remit the advance and interest due when the factored receivable is paid by the customer. As of December 31, 2000, we have not factored any accounts receivables. In connection with the accounts receivable factoring agreement, we issued to the lender warrants to purchase 30,477 shares of common stock at an exercise price of $3.609 per share. The value attributable to these warrants was calculated using the Black-Scholes valuation model with the following weighted- average assumptions: risk free interest rate of approximately 6.0%, fair value at date of grant of $2.59, contractual life of 5 years, 163% volatility, and no expected dividends. The deemed fair value associated with these warrants was calculated at $73,450 and is recorded as debt financing cost and an increase to additional paid in capital. This discount is being amortized over the life of the related factoring agreement as additional interest cost. 3. Property and Equipment Property and equipment consists of the following (in thousands): December 31, ------------------ 2000 1999 ------- ------- Computer equipment and software.......... $ 2,174 $ 2,541 Furniture and fixtures................... 371 389 Other.................................... 110 99 ------- ------- 2,655 3,029 Less accumulated depreciation............ (2,071) (2,259) ------- ------- 584 $ 770 ======= ======= Depreciation expense was $452,000, $353,000, and $351,000 for the years ended December 31, 2000, 1999, and 1998, respectively. 4. Commitments We lease office space and certain equipment under long-term non-cancelable operating leases. These operating leases expire in various years through 2004. Future minimum lease payments for the years ending December 31 are as follows (in thousands): 2001............................... $1,148 2002............................... 1,053 2003............................... 788 2004............................... 260 ------ Total.............................. $3,249 ====== Page 43 Rent expense under all operating leases was $1.4 million, $1.6 million, and $1.6 million, during the years ended December 31, 2000, 1999 and 1998, respectively. 5. Stockholders' Equity Preferred Stock On July 30, 1999 we issued 400 shares of Series B Preferred Stock to our largest stockholder, raising net proceeds of $3,814,000. Each share of Series B Preferred Stock is convertible at any time at the option of the holder into approximately 5,229 shares of Class B Common Stock. The conversion price of the Series B Preferred Stock is $1.9125 per share, which represents a 16% premium over the average closing price of our Common Stock during the ten days prior to subscription. The conversion price is not subject to any reset or "floating" adjustment, other than standard anti-dilution protection. The holders of Series B Preferred Stock will be entitled to cumulative annual dividends of 7% of the purchase price, which are payable semi-annually in cash or, at our option, with shares of our Class B Common Stock. The Class B Common Stock is convertible into Common Stock. Upon the occurrence of certain events, the Series B preferred Stock has liquidation preference equal to the initial purchase price plus accrued but unpaid dividends. The Series B Preferred Stock is also entitled to certain registration rights. Class B Common Stock At December 31, 2000, and 1999, 2,417,112 shares of Class B common stock were outstanding. The Class B common stock has the same rights, preferences, privileges, and restrictions as the common stock, except that the Class B common stock has very limited voting rights and does not vote for the election of directors. The shares of Class B common stock are also convertible at any time at the option of the holder into common stock, so long as such conversion does not result in the holder obtaining greater than 49% of our outstanding voting securities. Stock Repricing In August 1998, the Board of Directors approved a stock option repricing program pursuant to which our employees elected to exchange or amend their then outstanding employee stock options for new employee stock options having an exercise price of $1.75 per share (equal to the fair market value of our common stock on August 17, 1998), with exercisability generally prohibited until September 29, 1998, except in the event of death or disability. A total of 1,208,378 options with exercise prices ranging from $1.81 to $6.00 per share were exchanged or amended under the program. Stock Option Plans Under the provisions of our 1992 Stock Plan (the "1992 Plan"), the Board of Directors authorized up to 1,658,769 shares of common stock for the grant of incentive stock options ("ISOs"), nonqualified stock options ("NSOs"), or stock purchase rights. All options granted under the 1992 Plan expire seven years after the date of the grant. Generally, options become vested and exercisable 20% one year after the date of grant and then 5% at the end of each three-month period thereafter. At December 31, 2000, 3,100,000 shares of common stock are reserved for issuance under our 1996 Stock Plan (the "1996 Plan") which provides for the grant of ISO's, NSO's and stock purchase rights. All options under the 1996 Plan expire ten years after the date of the grant and generally become vested and exercisable 25% one year after date of grant and then 1/48 at the end of each month thereafter. Page 44 Stock option data under both of the above plans is as follows:
Number of Weighted Average Exercise Shares Price of Shares Under Plans -------------- ---------------------------- Options outstanding at January 1, 1998............. 1,716,125 1.55 Options granted.................................... 3,533,000 1.67 Options exercised.................................. (278,619) 0.12 Options canceled................................... (1,794,910) 2.31 -------------- ---------- Options outstanding at December 31, 1998........... 3,175,596 1.38 Options granted.................................... 1,538,450 2.20 Options exercised.................................. (671,521) 0.82 Options canceled................................... (976,375) 1.59 -------------- ---------- Options outstanding at December 31, 1999........... 3,066,150 1.85 Options granted.................................... 857,118 4.85 Options exercised.................................. (353,471) 1.35 Options canceled................................... (443,045) 2.59 -------------- ---------- Options outstanding at December 31, 2000........... 3,126,752 $ 2.62 ============== ==========
The weighted average fair value of options granted during the years ended December 31, 2000, 1999 and 1998 were $4.51, $2.18 and $0.47, respectively. At December 31, 2000, 771,802 options to purchase common stock were available for future option grants. The following table summarizes information about stock options outstanding and exercisable at December 31, 2000:
Options Outstanding Options Exercisable ------------------------------------------------- ----------------------------- Weighted Average Weighted Remaining Weighted Average Range of Exercise Number Contractual Average Number of Exercise Prices of Shares Life Exercise Price Shares Price -------------------- --------------- ---------------- --------------- -------------- ------------- $ 0.29 - $ 0.43 32,250 1.98 $ 0.31 27,182 $ 0.29 $ 0.50 - $ 0.56 167,681 7.99 $ 0.56 93,761 $ 0.56 $ 0.94 - $ 1.31 485,270 8.57 $ 1.19 174,028 $ 1.23 $ 1.43 - $ 2.00 1,561,526 7.65 $ 1.79 938,807 $ 1.79 $ 2.31 - $ 3.25 275,525 9.48 $ 3.03 64,166 $ 3.14 $ 4.00 - $ 6.00 346,500 9.16 $ 5.24 20,583 $ 5.01 $ 6.25 - $ 9.40 237,500 9.10 $ 7.67 118,125 $ 7.65 $ 12 20,500 9.17 $ 12.00 - - -------------- ---------------- --------------- -------------- ------------- 3,126,752 8.20 $ 2.62 1,436,652 $ 2.20 ============== ================ =============== ============== =============
For the years ended December 31, 1999, there were 794,794 options exercisable at a weighted-average price of $1.52 per share. For the year ended December 31, 1998, there were 728,866 options exercisable at a weighted average exercise price of $0.92 per share. Stock-Based Compensation During the years ended December 31, 2000, 1999 and 1998, the fair value of each option granted was estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions: Page 45
Stock Option Plans Employee Stock Purchase Plans ------------------------------------ -------------------------------------- Year Ended December 31, Year Ended December 31, ------------------------------------ -------------------------------------- 2000 1999 1998 2000 1999 1998 ---- ---- ---- ---- ---- ----- Risk-free interest rate........ 5.35% 6.00% 5.04% 5.35% 6.00% 5.04% Volatility..................... 1.64 1.70 1.21 1.64 1.70 1.21 Dividend Yield................. 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Expected Life in Years......... 4.50 4.81 4.97 0.50 0.50 0.50
Had compensation cost been determined based upon the fair value at the date of grant for awards under our two option plans, and the Employee Stock Purchase Plan, consistent with the methodology prescribed under FAS 123, our net loss and net loss per share for the years ended December 31, 2000, 1999 and 1998 respectively, would have been impacted as follows:
Years Ended December 31, ------------------------ 2000 1999 1998 ------------ ---------- ----------- Net loss applicable to common stockholders--as reported..... $ (8,986) $ (428) $ (12,281) Net loss applicable to common stockholders--pro forma....... $ (12,190) $ (4,164) $ (13,033) Basic and diluted net loss per share applicable to common stockholders--as reported..... $ (0.67) $ (0.03) $ (1.06) Basic and diluted net loss per share applicable to common stockholders--pro forma....... $ (0.91) $ (0.34) $ (1.12)
Employee Stock Purchase Plans Under the 1996 Employee Stock Purchase Plan (the "Plan"), 400,000 shares of common stock have been reserved for issuance. The Plan has 24-month offering periods, with each offering period divided into four consecutive six-month purchase periods. The Plan allows for eligible employees to purchase stock at 85% of the lower of the fair market value of our common stock as of the first day of the offering period or the fair market value of the stock at the end of each purchase period. On June 17, 1998, we adopted the 1998 Employee Stock Purchase Plan (the "1998 Plan"). The 1998 Plan has 12 month offering periods, with each offering period divided into two six-month purchase periods and includes an automatic share replenishment feature. The 1998 Plan has 250,000 shares of common stock which have been initially reserved for future issuance, plus annual increases, beginning in 1999, equal to the lesser of (i) 300,000 shares, (ii) 2% of the outstanding shares or (iii) a lesser amount determined by the Board of Directors, for issuance thereunder subject to stockholder approval. The 1998 Plan allows for eligible employees to purchase stock at 85% of the lower of the fair market value of our common stock as of the first day of the offering period or the fair market value of the stock at the end of each purchase period. At December 31, 2000, 301,562 shares were available for issuance. During the years ended December 31, 2000, 1999 and 1998, employees purchased 139,838, 155,911 and 191,260 shares under the plans, respectively. The weighted average fair value of the rights granted during the years ended December 31, 2000, 1999 and 1998 using the Black-Scholes model was $3.41, $3.11 and $0.60 per share, respectively. Consultant Options In 1999 and 1998, we issued options to purchase 434,294 shares of our common stock to five consultants for consulting services to be provided to us over periods ranging from 15 months to four years. We have estimated the fair value of these options in deferred compensation in the accompanying balance sheet at each reporting period using the Black Scholes method in accordance with FAS 123 and EITF 96-18. At December 31, 2000, one consultant continues to provide us with services in accordance with the original consulting agreement. During the year ended December 31, 2000, we reversed deferred compensation of $265,000 as a result of the decline in the Company's stock price. Included in amortization of deferred compensation for the year ended December 31, 2000 is the reversal of $28,000 of expense recognized in 1999. Page 46 Shares Reserved for Future Issuance At December 31, 2000, we reserved shares of common stock for future issuances as follows: Warrants 30,477 Convertible preferred stock 2,091,600 Stock options outstanding 3,126,752 Stock options and shares available for grant 771,802 Stock purchase plan 301,562 ----------- 6,322,193 =========== 6. Savings Plan We maintain a retirement savings plan under Section 401(k) of the Internal Revenue Code. Under the plan, employees may defer up to 18% of their pre-tax salaries, but not more than the statutory limits. We contribute fifty cents for each dollar contributed by a participant, with a maximum contribution of 2% of a participant's earnings. Our matching contribution to the savings plan was $112,000, $144,000 and $163,000 for the years ended December 31, 2000, 1999 and 1998, respectively. 7. Income Taxes At December 31, 2000, we had a net operating loss carryforward for federal income tax purposes of approximately $25,000,000 expiring in the years 2008 through 2020 and federal tax credits of approximately $594,000 expiring in years 2008 through 2019. We have a net operating loss carryforward for state income tax purposes of approximately $5,000,000 expiring in the years 2001 through 2005 and state tax credits of approximately $427,000 with an indefinite carryforward. Due to "change in ownership" provisions of the Internal Revenue Code, utilization of the net operating loss and tax credit carryforward may be subject to an annual limitation regarding their utilization against taxable income in future periods. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of our deferred tax assets and liabilities are as follows (in thousands): December 31, -------------------- 2000 1999 -------- -------- Deferred tax assets: Net operating losses ............. $ 9,087 $ 6,066 Tax credit carryovers ............ 958 1,036 Capital loss carryovers .......... 1,145 1,145 Accrued expenses and reserves .... 444 732 Other ............................ 329 36 -------- -------- Total deferred tax assets .... 12,223 9,015 Deferred tax liabilities: Purchased Technology ............. (625) (989) Other ............................ (163) (187) Total deferred tax liabilities (788) (1,176) -------- -------- Net deferred tax assets ............... 11,175 7,839 Valuation allowance ................... (11,175) (7,839) -------- -------- Net deferred tax assets ............... $ -- $ -- ======== ======== The valuation allowance increased by $3,336,000 and decreased by $288,000 during the years ended December 31, 2000 and 1999, respectively. Page 47 8. Significant Customers In 2000, one customer accounted for 11% of total revenues and two customers each accounted for 10% of total revenues. In 1999, one customer accounted for 33% of total revenues. In 1998, one customer accounted for 10% of total revenues. 9. Acquisition and Disposition 1999 Acquisition On September 15, 1999, we acquired all of the shares of the capital stock of At Work, a New York-based provider of advanced document distribution and electronic commerce applications that utilize Java and other Internet-based technologies. The aggregate consideration paid for the shares of At Work was (a) $1,696,000 in cash, (b) 480,031 shares of our Common Stock valued at $750,000, and (c) $1,000,000 in cash to be paid out as set forth in employment agreements and to be expensed as compensation. The acquisition was accounted for as a purchase, whereby, all assets purchased and liabilities assumed were recorded at their fair market value. The excess of the aggregate purchase price over the fair value of the net assets acquired was recorded as purchased technology and is being amortized over its estimated useful life of 3 years. The unaudited pro forma results of operations, which follow, assume that the acquisition of At Work had occurred on January 1, 1998 (in thousands, except per share data).
Year ended December 31, ------------------------ 1999 1998 ---------- ---------- Revenues .............................................................. $ 19,965 $ 13,455 Net loss applicable to common stockholders ............................ $ (1,523) $ (12,996) Basic net loss per share applicable to common stockholders ............ $ (0.12) $ (1.08) Diluted net loss per share applicable to common stockholders........... $ (0.12) $ (1.08)
The unaudited pro forma results do not purport to be indicative of the results of operations which actually would have resulted had the acquisition occurred on January 1, 1998 or of future results of operations of the consolidated entities. 2000 DISPOSITION On August 24, 2000, we completed the sale of our CheckVision business to Computer Science Corporation ("CSC"). The gain on sale is computed as follows (in thousands): Net cash proceeds .......................... $ 3,739 Sale of CheckVision assets and liabilities: Assets: Accounts receivable, net ............ (867) Property and equipment, net ......... (103) Liabilities: Accrued liabilities ................. 291 Deferred revenue .................... 1,586 ----- Net liabilities assumed by CSC ............. 907 Less: stock compensation to non-employees .. (869) ------- Gain on sale of CheckVision ................ $ 3,777 ======= Pursuant to the terms of the Purchase Agreement, $500,000 of the net cash proceeds was deposited in escrow for a period of twelve months to secure the payment by CSC of any amounts that may become due under the indemnification provisions of the Purchase Agreement. This amount is classified as restricted cash on the accompanying balance sheet at December 31, 2000. 10. Quarterly Results of Operations (Unaudited) The following is a summary of the quarterly results of operations for years ended December 31, 2000 and 1999.
2000 ------------------------------------------- Three Months Ended ------------------------------------------- Mar 31 Jun 30 Sep 30 Dec 31 --------- --------- -------- -------- (Thousands of dollars, except per share data) Revenues $ 2,772 $ 2,362 $ 2,113 $ 1,413 -------------------------------------------------------------------------------------------------
Page 48 ------------------------------------------------------------------------------------------------- Gross Profit 1,716 1,361 1,489 682 Net income (loss) applicable to common stockholders (3,986) (3,785) 876 (2,091) Basic income (loss) per share applicable to common (0.30) (0.28) 0.06 (0.67) stockholders Diluted income (loss) per share applicable to (0.30) (0.28) 0.05 (0.15) common stockholders
1999 --------------------------------------- Three Months Ended --------------------------------------- Mar 31 Jun 30 Sep 30 Dec 31 ------ ------ ------ ------ (Thousands of dollars, except per share data) Revenues $ 3,444 $ 4,831 $ 6,828 $ 4,709 Gross Profit 1,445 3,236 5,427 3,340 Net income (loss) applicable to common stockholders (1,834) (183) 2,091 (502) Basic income (loss) per share applicable to common (0.15) (0.02) 0.17 (0.04) stockholders Diluted income (loss) per share applicable to (0.15) (0.02) 0.15 (0.04) common stockholders
For the quarters ended March 31, June 30, and September 30, 2000, our gross profit decreased $212,000 for each of the three quarters as reported in the Company's Form 10-Q's. The decrease results from the reclassification of amortization of acquired technology from general and administrative expense to the cost of license revenues. 11. Subsequent Events LINE OF CREDIT AGREEMENT On January 4, 2001, we secured interim financing from Warburg Pincus LLC. The financing is a line of credit of $1 million on which we can draw as necessary. Borrowings under the line of credit bears an annual interest rate of 10% and becomes due and payable on the earlier of January 4, 2002, or upon the consummation of a qualifying transaction. A qualifying transaction is a sale by us of equity securities that results in proceeds to us of at least $5 million, or the sale of 50% or more of our voting stock, or a merger of us with another party after which our stockholders immediately prior to the merger own less than 50% of our voting stock, or the sale of 50% or more of our assets. MERGER AGREEMENT On March 20, 2001, Pitney Bowes, Inc. announced that it has entered into a merger agreement to acquire Alysis Technologies, Inc. for $24 million in cash. Pitney Bowes has commenced a tender offer at a value of $1.39 per share for our outstanding common stock and Class B common stock. The tender offer is subject to several conditions as more fully described in the Schedule TO filed with the Commission on March 29, 2001 and the merger agreement set forth in the Form 8-K filed with the Commission on March 22, 2001. The companies anticipate that the transaction will be completed by April 30, 2001. Page 49 SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS (in thousands)
Balance Balance at End of Beginning of Period Additions Deletions Period ------------------- ------------- ------------- -------- Year ended December 31, 2000 Deducted from asset accounts Allowance for doubtful accounts............. $ 126 $ 270 $ 144 $ 252 ------ ------ ------ ------ Totals ................................... $ 126 $ 270 $ 144 $ 252 ====== ====== ====== ====== Year ended December 31, 1999 Deducted from asset accounts Allowance for doubtful accounts............. $1,248 $ -- $1,122 $ 126 ------ ------ ------ ------ Totals .................................. $1,248 $ -- $1,122 $ 126 ====== ====== ====== ====== Year ended December 31, 1998 Deducted from asset accounts Allowance for doubtful accounts............. $ 46 $1,202 $ -- $1,248 ------ ------ ------ ------ Totals .................................. $ 46 $1,202 $ -- $1,248 ====== ====== ====== ======
Page 50 SIGNATURES In accordance with the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized in the City of Emeryville, State of California, on the day of March 30, 2001. ALYSIS TECHNOLOGIES, INC. By: /s/ Kevin D. Moran ----------------------- Kevin D. Moran President and Chief Executive Officer POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Kevin D. Moran, his attorney-in-fact, for him in any and all capacities, to sign any amendments to this Report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorney-in-fact, or his substitute, may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant in the capacities and on the date indicated.
Signatures Titles Date ---------------------------------------- ------------------------------------------ ---------------------- /s/ Kevin D. Moran President, Chief Executive Officer March 30, 2001 ---------------------------------------- Kevin D. Moran and Chairman of the Board (Principal Executive Officer) /s/ David R. Bankhead Vice President, Chief Financial March 30, 2001 ---------------------------------------- David R. Bankhead Officer (Principal Financial and Accounting Officer) Secretary and Treasurer /s/ John J. Cook, Jr. Director March 30, 2001 ---------------------------------------- John J. Cook, Jr. /s/ Stewart Gross Director March 30, 2001 ---------------------------------------- Stewart Gross /s/ Randy Katz Director March 30, 2001 ---------------------------------------- Randy Katz /s/ Henry Kressel Director March 30, 2001 ---------------------------------------- Henry Kressel /s/ Timothy F. McCarthy Director March 30, 2001 ---------------------------------------- Timothy F. McCarthy /s/ John Oltman Director March 30, 2001 ---------------------------------------- John Oltman
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