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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q/A
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the Quarter ended: March 31, 2001 Commission File Number 000-21685
INTELIDATA TECHNOLOGIES CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 54-1820617
(State of incorporation) (I.R.S. Employer Identification Number)
11600 Sunrise Valley Drive, Suite 100, Reston, VA 20191
(Address of Principal Executive Offices)
(703) 259-3000
(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------- -------
The number of shares of the registrant's Common Stock outstanding on March 31,
2001 was 45,622,153.
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EXPLANATORY NOTE
This amendment is being filed to reflect the restatement of the Company's
unaudited condensed consolidated financial statements, as discussed in Note 5
thereto, and other information related to such restated financial statements.
Except for Items 1 and 2 of Part I, no other information included in the
original report on Form 10-Q is amended by this Form 10-Q/A.
On January 11, 2001, the Company acquired Home Account Holdings, Inc.
("Home Account") and its operating subsidiary, Home Account Network, Inc.,
pursuant to an agreement and plan of merger whereby a wholly-owned subsidiary of
the Company merged with and into Home Account, with Home Account surviving the
merger as the Company's wholly-owned subsidiary.
In connection with the acquisition of Home Account the Company established
$2,477,00 in liabilities associated with the involuntary termination of
employees of the acquired company that were reflected as assumed liabilities in
the initial allocation of the purchase price. Subsequent to the issuance of its
condensed consolidated financial statements for the three months ended March 31,
2001, the Company determined that $1,606,000 of the liabilities should not have
been recognized at the acquisition date under generally accepted accounting
principles but should be recognized as expenses when incurred. The result of
this adjustment was an additional $1,075,000 of operating expense for the period
ended March 31, 2001 and a reduction in the net goodwill balance of $1,608,000
as of March 31, 2001. The Company's cash flows were not affected. This amended
filing reflects an increase of $0.03 in the net loss for the period.
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INTELIDATA TECHNOLOGIES CORPORATION
QUARTERLY REPORT ON FORM 10-Q/A
TABLE OF CONTENTS
Page
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PART I - FINANCIAL INFORMATION
Item 1. Unaudited Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets
March 31, 2001 (as restated) and December 31, 2000 ............... 4
Condensed Consolidated Statements of Operations
Three Months Ended March 31, 2001 (as restated) and 2000 ......... 5
Condensed Consolidated Statement of Changes in Stockholders' Equity
Three Months Ended March 31, 2001 (as restated) .................. 6
Condensed Consolidated Statements of Cash Flows
Three Months Ended March 31, 2001 (as restated) and 2000 ......... 7
Notes to Condensed Consolidated Financial Statements ............. 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ........................................ 14
Item 3. Quantitative and Qualitative Disclosures About Market Risk........ 19
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K ................................. 19
SIGNATURE ........................................................... 20
PART I: FINANCIAL INFORMATION
- -----------------------------------
ITEM 1. FINANCIAL STATEMENTS
- -----------------------------------
INTELIDATA TECHNOLOGIES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, 2001 (AS RESTATED) AND DECEMBER 31, 2000
(in thousands, except share data; unaudited)
2001
As Restated 2000
----------- ----
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 18,105 $ 27,255
Restricted cash -- 440
Investments 4,917 10,217
Accounts receivable, net of allowance for doubtful accounts 4,306 1,486
Other receivables 1,244 83
Prepaid expenses and other current assets 750 320
--------- --------
Total current assets 29,322 39,801
NONCURRENT ASSETS
Property and equipment, net 4,908 3,282
Goodwill, net 35,822 --
Other assets 195 195
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TOTAL ASSETS $ 70,247 $ 43,278
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 4,808 $ 4,288
Accrued expenses and other liabilities 3,755 3,651
Deferred revenues 3,720 1,014
Short-term capital lease obligations 19 --
Other liabilities 1,279 --
Net liabilities of discontinued operations 714 755
TOTAL CURRENT LIABILITIES 14,295 9,708
--------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, $0.001 par value; authorized 5,000,000 shares;
no shares issued and outstanding -- --
Common stock, $0.001 par value; authorized 60,000,000 shares;
issued 46,328,497 shares in 2001 and 39,320,609 shares in 2000;
outstanding 45,622,153 shares in 2001 and 38,629,897 shares in 2000 46 39
Additional paid-in capital 294,445 261,552
Treasury stock, at cost: 706,344 shares in 2001 and 690,712 shares in 2000 (2,163) (2,123)
Deferred compensation (1,843) (1,375)
Accumulated other comprehensive (loss) income (239) 494
Accumulated deficit (234,294) (225,017)
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TOTAL STOCKHOLDERS' EQUITY 55,952 33,570
--------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 70,247 $ 43,278
========= ========
See accompanying notes to condensed consolidated financial statements.
INTELIDATA TECHNOLOGIES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2001 (AS RESTATED) AND 2000
(in thousands, except per share data; unaudited)
2001
As Restated 2000
Revenues
Software $ 169 $ 436
Consulting and services 2,982 1,094
Royalties and other -- 254
Total revenues 3,151 1,784
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Cost of revenues
Software 5 --
Consulting and services 1,897 574
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Total cost of revenues 1,902 574
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Gross profit 1,249 1,210
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Operating expenses
General and administrative 2,823 1,401
Selling and marketing 2,519 1,324
Research and development 4,530 2,177
Amortization of goodwill 1,176 --
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Total operating expenses 11,048 4,902
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Operating loss (9,799) (3,692)
Realized gain on sales of investments, net 1,130 42,604
Unrealized loss on Sybase warrants (923) --
Other income (expense), net 315 152
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Income (loss) before income taxes (9,277) 39,064
Provision for income taxes -- 790
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Income (loss) from continuing operations (9,277) 38,274
Income from discontinued operations of
Caller ID leasing, net of income taxes -- 417
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Net income (loss) $(9,277) $38,691
======= =======
Basic earnings per common share
Income (loss) from continuing operations $ (0.21) $ 1.00
Income from discontinued operations 0.00 0.01
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Net income (loss) $ (0.21) $ 1.01
Diluted earnings per common share
Income (loss) from continuing operations $ (0.21) $ 0.93
Income from discontinued operations 0.00 0.01
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Net income (loss) $ (0.21) $ 0.94
======= =======
Basic weighted-average common shares
outstanding 44,580 38,147
======= =======
Diluted weighted-average common shares
outstanding 44,580 40,955
======= =======
See accompanying notes to condensed consolidated financial statements.
INTELIDATA TECHNOLOGIES CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 2001 (AS RESTATED)
(in thousands; unaudited)
Accumulated
Other Compre-
Common stock Additional Deferred Compre- Accumu hensive
-------------------- Paid-in Treasury Compen- hensive lated Income
Shares Amount Capital Stock sation Income (Loss) Deficit (Loss) Total
-------- ---------- ----------- -------- ----------- -------------- ---------- --------- ---------
Balance at January 1, 2001 39,321 $ 39 $ 261,552 $(2,123) $(1,375) $ 494 $(225,017) $ 33,570
Issuance of common stock:
Acquisition of Home Account 6,900 7 31,950 - - - - 31,957
Exercise of stock options 44 - 110 - - - - 110
Issuance of restricted stock 83 - 344 - (344) - - -
Cancellation of restricted stock (19) - (140) - 140 - - -
Home Account Incentive Plan - - 629 - (629) - - -
Purchase of treasury stock - - - (40) - - - (40)
Amortization of deferred
compensation - - - - 365 - - 365
Recognized gain on investments - - - - - (180) - $ (180) (180)
Unrealized loss on investments,
net of taxes - - - - - (553) - (553) (553)
Net loss (as restated) - - - - - - (9,277) (9,277) (9,277)
--------
Comprehensive loss (as restated) $(10,010)
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Balance at March 31, 2001
(as restated) 46,329 $ 46 $ 294,445 $(2,163) $(1,843) $ (239) $(234,294) $ 55,952
-------- ---------- ----------- -------- ----------- -------------- ---------- ---------
See accompanying notes to condensed consolidated financial statements
INTELIDATA TECHNOLOGIES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2001 (AS RESTATED) AND 2000
(in thousands; unaudited)
2001
As Restated 2000
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Cash flows from operating activities
Net (loss) income $ (9,277) $ 38,691
Adjustments to reconcile net (loss) income to net cash used in
operating activities:
Realized gain on sales of investments, net (1,130) (42,604)
Unrealized loss on Sybase warrants 923 --
Amortization of goodwill 1,176 --
Depreciation and amortization 341 59
Deferred compensation expense 365 76
Deferred income taxes -- 790
Changes in certain assets and liabilities:
Accounts receivable (2,021) (453)
Other receivables (1,161) --
Prepaid expenses and other current assets (212) (279)
Accounts payable (1,185) (184)
Accrued expenses (1,393) 183
Deferred revenues 1,427 (616)
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Net cash used in operating activities (12,147) (4,337)
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Cash (used in) provided by operating activities of
discontinued operations (41) 880
Cash flows from investing activities
Proceeds from the sales of investments 4,883 5,427
Release of cash escrow 311 --
Purchases of property and equipment (224) (406)
Payment of acquisition costs (1,749) --
Cash paid for Home Account common stock (253) --
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Net cash provided by investing activities 2,968 5,021
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Cash flows from financing activities
Proceeds from issuance of common stock 110 635
Purchase of treasury stock (40) --
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Net cash provided by financing activities 70 635
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(Decrease) increase in cash and cash equivalents (9,150) 2,199
Cash and cash equivalents, beginning of period 27,255 8,496
----------- ----------
Cash and cash equivalents, end of period $ 18,105 $ 10,695
=========== ==========
See accompanying notes to condensed consolidated financial statements.
INTELIDATA TECHNOLOGIES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2001 (AS RESTATED) AND 2000
(Unaudited)
(1) Basis of Presentation
The condensed consolidated balance sheet of InteliData
Technologies Corporation ("InteliData" or the "Company") as of March
31, 2001, and the related condensed consolidated statements of
operations, changes in stockholders' equity, and cash flows for the
three month periods ended March 31, 2001 and 2000 presented in this
Form 10-Q are unaudited. In the opinion of management, all adjustments
necessary for a fair presentation of such financial statements have
been included. Such adjustments consist only of normal recurring
items. Interim results are not necessarily indicative of results for a
full year. Certain amounts in the prior periods have been reclassified
to conform to the current period presentation.
The condensed consolidated financial statements and notes are
presented as required by Form 10-Q, and do not contain certain
information included in the Company's annual audited financial
statements and notes. These financial statements should be read in
conjunction with the annual audited financial statements of the
Company and the notes thereto, together with management's discussion
and analysis of financial condition and results of operations,
contained in the Form 10-K for the fiscal year ended December 31,
2000.
(2) Adoption of New Accounting Pronouncement
Prior to January 1, 2001, the Company considered its investment
in warrants to purchase common stock of Sybase, Inc. ("Sybase") to be
available-for-sale under the provisions of Statement of Financial
Accounting Standards No. 115, Accounting for Certain Investments in
Debt and Equity Securities. Effective January 1, 2001, the Company
adopted Statement of Financial Accounting Standards No. 133,
Accounting for Derivative Instruments and Hedging Activities ("SFAS
133"), which establishes accounting and reporting standards for
derivative instruments and for hedging activities by requiring that
all derivatives be recognized in the balance sheet and measured at
fair value.
SFAS 133 requires that all derivative financial instruments, such
as forward currency exchange contracts, interest rate swaps and the
Company's warrants to purchase Sybase stock, be recognized in the
financial statements and measured at fair value regardless of the
purpose or intent for holding them. Changes in the fair value of
derivative financial instruments are either recognized periodically in
income or shareholders' equity (as a component of comprehensive
income), depending on whether the derivative is being used to hedge
changes in fair value or cash flows. The Company's adoption of this
pronouncement, effective January 1, 2001, did not result in an
adjustment
<page>
for the cumulative effect of an accounting change, because the
carrying value reflected fair value under the previous accounting
guidance. In accordance with SFAS 133, the Company recorded an
unrealized loss on investment of $923,000 for the three months ended
March 31, 2001. Pro forma income for the three months ended March 31,
2000 was $39,012,000 due to an unrealized gain on investment of
$321,000. Pro forma earnings per share were $1.02 and $0.95 on a basic
and diluted basis, respectively
(3) Acquisition of Home Account
On January 11, 2001, the Company acquired Home Account Holdings,
Inc. ("Home Account") and its operating subsidiary, Home Account
Network, Inc., pursuant to an agreement and plan of merger whereby a
wholly-owned subsidiary of the Company merged with and into Home
Account, with Home Account surviving the merger as the Company's
wholly-owned subsidiary. Home Account is an application services and
software provider to financial institutions for the delivery of
financial products and services over the Internet. Home Account
provides a suite of UNIX-based Electronic banking and Electronic Bill
Presentment and Payment (EBPP) products and services in an Application
Services Provider (ASP) environment.
Pursuant to the merger agreement, the Company purchased Home
Account for approximately $320,000 in cash and 6,900,000 shares of
Company common stock and the merger is accounted for as a purchase.
The purchase price was the result of an arm's-length negotiation
between the Company and Home Account, based on the Company's
evaluation of the fair market value of Home Account's business,
including its revenues. The value of the shares issued as part of the
purchase consideration of approximately $29,011,000 was measured based
on the average of the market price of the issued common stock a few
days before and after January 11, 2001 - the date that the merger
transaction was agreed to and announced. This amount coupled with the
liability associated with the Home Account Incentive Plan of
$2,946,000 (see below) resulted in an increase in stockholders' equity
of $31,957,000. The total estimated purchase price of approximately
$31,186,000 consisted of the following (in thousands):
Consideration and acquisition costs:
Value of shares issued $ 29,011
Home Account expense reimbursement 250
Cash consideration 320
Acquisition costs 1,605
-----------
$ 31,186
===========
The assets acquired and liabilities assumed were recorded at
estimated fair values as determined by the Company's management based
on information currently available and on current assumptions as to
future operations. The Company will obtain valuation services for
independent appraisals of the fair values of the acquired property,
plant and equipment, and identified intangible assets, and their
remaining useful lives. The Company is also completing the review and
determination of the fair values of the other
<page>
assets acquired and liabilities assumed. Accordingly, the allocation
of the purchase price is subject to revision, which is not expected to
be material, based on the final determination of appraised and other
fair values. A summary of the assets acquired and liabilities assumed
in the acquisition follows (in thousands):
Preliminary allocation of purchase price
Current assets $ 1,047
Property, plant and equipment 1,743
Liabilities assumed and other (3,870)
Liabilities associated with Home Account Incentive Plan (2,946)
Acquisition integration liabilities (1,786)
Goodwill (7-year, straight-line amortization) 36,998
------------
$ 31,186
============
As a result of the acquisition of Home Account, InteliData
incurred acquisition expenses for costs to exit certain activities at
Home Account locations and to involuntarily terminate employees of the
acquired company. Generally accepted accounting principles require
that these acquisition integration expenses, which are not associated
with the generation of future revenues, have no future economic
benefit and which meet certain other criteria, be reflected as assumed
liabilities in the allocation of the purchase price to the net assets
acquired. The components of the acquisition integration liabilities
balance of $1,786,000 included in the purchase price allocation are
approximately $1,006,000 for lease costs for the Home Account
headquarters in Emeryville, California, and $780,000 related to
workforce reduction.
The workforce reductions focused on three key areas: 1)
streamlining development efforts, 2) eliminating of redundant
administrative overhead and support activities, and 3) restructuring
and repositioning of the sales/marketing and research and development
organizations to eliminate redundancies in these activities. As of
March 31, 2001, 72 positions have been terminated and approximately
$524,000 was paid.
Certain aspects of the integration plan will be refined as
additional studies are completed, including the evaluation of capacity
of existing and acquired facilities to accommodate new manufacturing
and administrative processes and the appropriate positioning of the
sales/marketing and research development organizations to best serve
customer needs. Adjustments to the estimated acquisition integration
liabilities based on these refinements, if any, will be generally
included in the allocation of the purchase price.
The following pro forma quarterly financial information presents
the combined results of operations of InteliData Technologies
Corporation and Home Account Holdings, Inc. and gives effect to the
acquisition of Home Account as if it occurred on January 1, 2000. The
pro forma condensed combined financial information set forth below
reflects certain adjustments, including among others, adjustments to
reflect the amortization of the goodwill associated with the
acquisition. However, pro forma results
<page>
do not include any anticipated cost savings. The pro forma condensed
combined financial information set forth below neither purports to
represent what the consolidated results of operations or financial
condition of InteliData would actually have been if the Home Account
acquisition had in fact occurred on such date nor projects the future
consolidated results of operations or financial condition of
InteliData.
Three Months Three Months
Ended Ended
March 31, March 31,
2001 2000
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(in thousands, except per share data)
Revenue $ 3,151 $ 3,795
Net (loss) income (12,737) 31,825
Basic net (loss) income per share (0.29) 0.71
Diluted net (loss) income per share (0.29) 0.67
Pro forma basic net income (loss) per share is computed using the
weighted-average number of shares of common stock outstanding after
the issuance of InteliData's common stock to acquire the outstanding
shares of Home Account. Pro forma diluted net income (loss) per share
also gives effect to any dilutive options. Options and warrants are
excluded from the computation during loss periods, as their effect is
anti-dilutive.
(4) Home Account Incentive Plan
In 2000, Home Account approved the 2000 Incentive Plan to
encourage the retention of certain officers of Home Account through a
change of control transaction, and after such a transaction to the
extent, up to one year, as desired by the acquirer. Upon acquisition
of Home Account by an acquirer, the 2000 Incentive Plan provided for
the granting to plan participants of an aggregate of 15% of the net
amount of the merger consideration allocable to Home Account's
preferred stockholders after payment of the debt preference and other
expenses associated with a transaction. Two-thirds of the 2000
Incentive Plan allocation would vest on the transaction closing date
and represent a pre-acquisition expense to Home Account. In connection
with the merger transaction, the Company agreed to advance the
participants funds to pay for their tax withholding obligations
associated with the two-thirds portion. As of March 31, 2001, this
receivable balance was $1,116,000 and is included in the "Other
receivable" balance. The shares allocable to the participants are held
in an escrow account. Upon the registration of the merger
consideration shares, the Company will be paid the receivable balance
from the proceeds of the sale of stock.
The remaining one-third of the participants allocation would vest
one year from the transaction closing date and will be charged to
expense over the vesting period. All forfeited shares revert to the
preferred stockholders of Home Account. In connection with the 2000
Incentive Plan allocation, the deferred compensation for the one-third
<page>
portion is estimated to be $629,000. For the three months ended March
31, 2001, the Company recorded compensation expense of approximately
$136,000.
(5) Restatement
As described in Note 3, the Company acquired Home Account on
January 11, 2001. In connection with the acquisition of Home Account
the Company established $2,447,000 in liabilities associated with the
involuntary termination of employees of the acquired company that were
reflected as assumed liabilities in the initial allocation of the
purchase price. Subsequent to the issuance of its condensed
consolidated financial statements for the three months ended March 31,
2001, the Company determined that $1,606,000 of the liabilities should
not have been recognized at the acquisition date under generally
accepted accounting principles but should be recognized as expenses
when incurred. As a result, the accompanying condensed consolidated
financial statements have been restated from the amounts previously
reported. The restatement resulted in an additional $1,075,000 of
operating expense for the period ended March 31 2001 and a reduction
in the net goodwill balance of $1,608,000 as of March 31, 2001. The
Company's cash flows were not affected. The restement also resulted in
an increase of $0.03 in the net loss for the period. A summary of the
significant effects of the restatement is as follows (in thousands,
except per share data):
As Previously As
Reported Restated
------------- ---------
As of March 31, 2001:
Goodwill, net $ 37,430 $ 35,822
Total assets 71,855 70,247
Other liabilities 1,812 1,279
Total current liabilities 14,828 14,295
Stockholders' equity 57,027 55,952
For the three months ended March 31, 2001:
Operating loss $ 8,724 $ 9,799
Net loss 8,202 9,277
Basic and diluted loss per common share (0.18) (0.21)
(6) Earnings per Share
Basic earnings per share are calculated using the weighted
average number of shares of common stock outstanding during each
period. Diluted earnings per share reflect the dilutive effect of
stock options and other stock awards granted to employees under
stock-based compensation plans, as well as stock warrants. Basic and
diluted earnings per share are calculated as follows (in thousands,
except per share data):
Three months ended
March 31,
-------------------
2001 2000
-------- ------
Basic EPS
Income (loss) from continuing operations $(9,277) $ 38,274
Weighted-average common shares outstanding 44,580 38,147
------- --------
Basic earnings (loss) per share from
continuing operations $ (0.21) $ 1.00
======= ========
Diluted EPS
Income (loss) from continuing operations $(9,277) $ 38,274
Weighted-average common shares outstanding 44,580 38,147
Effect of dilutive securities:
Stock options and awards - 2,741
Stock warrants - 67
------- --------
Weighted-average dilutived common
shares outstanding 44,580 40,955
------- --------
Diluted earnings (loss) per common share
from continuing operations $ (0.21) $ 0.93
======= ========
* * * * * *
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
- ------- -------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
Subsequent to the issuance of its condensed consolidated financial
statements for the three months ended March 31, 2001, the Company revised the
initial allocation of the purchase price related to the acquisition of Home
Account. As a result, the condensed consolidated financial statements for the
three months ended March 31, 2001 have been restated from the amounts previously
reported. The significant effects of the restatement are presented in Note 5 to
the condensed consolidated financial statements and have been reflected herein.
Results of Operations
The following represents the results of operations for InteliData
Technologies Corporation for the three months ended March 31, 2001 and 2000.
Such information should be read in conjunction with the interim financial
statements and the notes thereto in Part I, Item 1 of this Quarterly Report.
Three months ended March 31, 2001 and 2000
Revenues
The Company's first quarter revenues were $3,151,000 in 2001 compared to
$1,784,000 in 2000, an increase of $1,367,000. The increase is attributed
primarily to an increase in software and related professional services revenues,
including the addition of the Home Account results, offset by the cessation of
royalties relating to the Visa Bill-Pay System. During the first quarter of
2001, software revenues contributed $169,000 and consulting and services
contributed $2,982,000.
During the first quarter of 2000, software revenues contributed $436,000,
consulting and services contributed $1,094,000 and other revenues contributed
$254,000. Other revenues consisted of $254,000 from royalties.
Cost of Revenues
The Company's first quarter cost of revenues were $1,902,000 in 2001
compared to $574,000 in 2000, an increase of $1,328,000. The increase is
attributed primarily to increased revenues and changes in product mix. During
the first quarter of 2001, consulting and services costs totaled $1,897,000 and
software cost of revenues totaled $5,000.
During the first quarter of 2000, consulting and services costs totaled
$574,000.
Overall gross profit margins decreased to 40% for the first quarter of 2001
from 68% for the first quarter of 2000. The decrease in gross profit margins was
attributed to changes in
<page>
product mix and distribution, competitive pricing pressure and the introduction
of new products as well as the decrease in royalty revenues.
General and Administrative
General and administrative expenses were $2,823,000 for the first quarter
of 2001 as compared to $1,401,000 for the first quarter of 2000. The increase of
$1,422,000 was primarily the result of additional corporate and administrative
expenses associated with the purchase of Home Account.
Selling and Marketing
Selling and marketing expenses increased to $2,519,000 for the first
quarter of 2001 from $1,324,000 for the same period last year. The increase of
$1,195,000 is attributed primarily to increases in the number of selling and
marketing employees, travel and professional services, advertising and trade
shows and the additional expenses associated with the sales and marketing staff
of Home Account. The Company's emphasis throughout 2001 will continue to be on
marketing efforts in promoting the Company's brand and products.
Research and Development
Research and development costs were $4,530,000 in the first quarter of 2001
as compared to $2,177,000 in the first quarter of 2000. The increase of
$2,353,000 was largely attributable to increases in employees, outside
consulting services and the additional expenses associated with the research and
development staff of Home Account. The Company incurs research and development
expenses primarily in writing and developing the Interpose Transaction Engine
for the Open Financial Exchange ("OFX") standard and building the Interactive
Financial Exchange ("IFX")-based network electronic bill payment switch.
Realized Gains on Investments
On January 20, 2000, Home Financial Network, Inc. (HFN), a company in which
InteliData held approximately a 25% ownership interest, merged with Sybase, Inc.
InteliData accounted for its investment in HFN using the equity method. As of
the merger date, such investment's carrying value was zero. In exchange for its
portion of ownership in HFN, InteliData received approximately $5,867,000 in
cash and approximately 1,770,000 shares of Sybase stock. The Company also held
warrants to purchase HFN common stock. As part of the merger agreement, such
warrants were converted into warrants to purchase Sybase common stock. The
Company received 640,000 "warrant units" with an exercise price of $2.60 per
warrant unit. Upon exercise of each warrant unit, the Company is entitled to
receive $1.153448 in cash and 0.34794 share of Sybase common stock. InteliData
recognized a gain of approximately $1,259,000 on this transaction during the
first quarter of 2001.
An escrow account was established to provide Sybase, Inc. indemnity
protection against possible claims that might arise against HFN. Approximately
133,000 shares of Sybase common
<page>
stock owned by InteliData was held in escrow, along with approximately $440,000
of cash. These amounts were payable to the Company on January 20, 2001, unless
subject to claims under the escrow provision. During the first quarter of 2001,
InteliData received the full balance of the 133,000 shares of Sybase common
stock and $311,000 of cash. Sybase made claims against the Company's portion of
the escrow totaling $129,000 and the company recorded a loss on escrow in the
first quarter of 2001 of $129,000.
Prior to January 1, 2001, the Company considered its investment in Sybase
common stock and warrants to purchase Sybase common stock to be
available-for-sale under the provisions of Statement of Financial Accounting
Standards No. 115, Accounting for Certain Investments in Debt and Equity
Securities ("SFAS 115"). Effective January 1, 2001, the Company adopted
Statement of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities ("SFAS 133"), which establishes accounting
and reporting standards for derivative instruments and for hedging activities by
requiring that all derivatives be recognized in the balance sheet and measured
at fair value.
In accordance with SFAS 115, the balance sheets include $239,000 and
$494,000 of unrealized gain on investments (net of taxes), within the
stockholders' equity as of March 31, 2001 and December 31, 2000, respectively.
As of December 31, 2000, the unrealized gain on investments balances represent
the increase in the fair market value of the Sybase holdings from the January
20, 2000 merger transaction date to the respective balance sheet dates. As of
March 31, 2001, the balances represent the changes in the fair market value of
the Sybase common stock. In accordance with SFAS 133, the change in the fair
market value of the Sybase warrants was recorded in the statement of operations
(see below).
During the first quarter of 2001, the Company recorded a gain of $1,259,000
from sales of Sybase common stock. No sales of Sybase common stock occurred for
the same period of 2000.
SFAS 133 requires that all derivative financial instruments, such as
forward currency exchange contracts, interest rate swaps and the Company's
warrants to purchase Sybase stock, be recognized in the financial statements and
measured at fair value regardless of the purpose or intent for holding them.
Changes in the fair value of derivative financial instruments are either
recognized periodically in income or shareholders' equity (as a component of
comprehensive income), depending on whether the derivative is being used to
hedge changes in fair value or cash flows. The Company's adoption of this
pronouncement, effective January 1, 2001, did not result in an adjustment for
the cumulative effect of an accounting change, because the carrying value
reflected fair value under the previous accounting guidance. In accordance with
SFAS 133, the Company recorded an unrealized loss on investment of $923,000 for
the three months ended March 31, 2001.
Other Income
Other income, primarily interest income, was $315,000 for the first quarter
of 2001 compared to $152,000 for the same period in the prior year. The increase
of $163,000 was due to
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the increased cash and cash equivalents balance for the first quarter of 2001
compared to the first quarter of 2000.
Discontinued Operations
During 2000, US West notified the Company that US West would no longer
permit InteliData to include the lease billing on the US West telephone bills.
As such, InteliData has discontinued billing its legacy customers for Caller ID
adjunct unit leases in the US West telephone service territory, because the cost
of individually billing and pursuing collections for the leases would have made
it impractical and uneconomical for the Company to continue the lease program.
Accordingly, the results of operations from leasing activities have been
reported as discontinued operations. During the first quarter of 2000, the
Company earned income from discontinued operations of the Caller ID leasing
business of $417,000, net of income taxes.
Weighted-Average Common Shares Outstanding and Basic and Diluted Income (Loss)
Per Common Share
The basic weighted-average shares increased to 44,580,000 for the first
quarter of 2001 compared to 38,147,000 for the first quarter of 2000. The
increase resulted primarily from the exercise of stock options and warrants,
stock purchases under the Employee Stock Purchase Plan, the granting of certain
stock awards during 2000, and the issuance of 6,900,000 shares for the
acquisition of Home Account.
Basic earnings (loss) per common share (EPS) was ($0.21) compared to $1.01
for the first quarters of 2001 and 2000, respectively.
The earnings (loss) per common share assuming dilution (diluted EPS) was
($0.21) for the first quarter of 2001 compared to $0.94 for the first quarter of
2000. Because of losses in the first quarter of 2001, no potential common shares
were dilutive in that period.
Liquidity and Capital Resources
During the first quarter of 2001, the Company's cash and cash equivalents
decreased by $9,150,000. Cash proceeds from the sale of the investment in HFN,
the sale of the building in discontinued operations, and the exercises of stock
options and warrants were offset by the financing of current operations and
working capital, as well as capital expenditures. At March 31, 2001, the Company
had cash and cash equivalents of $18,105,000 and working capital of $14,494,000
with no long-term debt.
During the first quarter of 2001, cash used in operating activities was
$12,147,000 compared to $4,337,000 in the same period in 2000. Cash flows from
operating activities during the first quarter of 2000 included uses of cash for
certain fixed operating expenses and increases in accounts receivable and
prepaid expenses.
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Discontinued operations provided net cash of $41,000 in the first quarter
of 2001 compared to using $880,000 in the first quarter of 2000. The Company
received net proceeds of $988,000 for the sale of the building during January
2000. Liabilities remaining in the discontinued operations include a reserve for
potential environmental clean-up at the New Milford location, costs for legal
shut-down of the former operating subsidiaries, potential warranty costs, and
further potential settlements with telecom customers and others.
The Company's net cash provided by investing activities was $2,968,000 in
the first quarter of 2001 compared to $5,021,000 in the same period in 2000. The
decrease of $2,052,000 was primarily due to the cash paid for the acquisition of
Home Account and the related acquisition costs.
Financing activities provided $70,000 in the first quarter of 2001 compared
to $635,000 in the same period in 2000. Financing activities in the first
quarter of 2001 consisted of proceeds from the sale of the Company's common
stock through stock option exercises offset by the purchase of treasury stock.
The activity in 2000 consisted of proceeds from the sale of the Company's common
stock through stock options exercises, stock warrant exercises and the Employee
Stock Purchase Plan.
Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the Private
Securities Litigation Reform Act of 1995
The above information includes forward-looking statements, the realization
of which may be impacted by the factors discussed below. The forward-looking
statements are made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995 (the "Act"). This report contains
forward looking statements that are subject to risks and uncertainties,
including, but not limited to, the ability of the Company to successfully
assimilate and retain the employees of Home Account and integrate the products
of Home Account with those of the Company, the risks of not realizing the cost
savings anticipated by eliminating personnel and facilities, the Company's
ability to retain customers and subscribers as a result of the acquisition of
Home Account, the risk of anticipated revenues following the acquisition of Home
Account not meeting the Company's expectations, the ability of the Company to
complete product implementations in required time frames and the Company's
ability to increase its recurring revenues and profits through its ASP business
model, the impact of competitive products, pricing pressure, product demand and
market acceptance risks, pace of consumer acceptance of home banking and
reliance on the Company's bank clients to increase usage of Internet banking by
their customers, mergers and acquisitions, risk of integration of the Company's
technology by large software companies, the ability of financial institution
customers to implement applications in the anticipated time frames or with the
anticipated features, functionality or benefits, reliance on key strategic
alliances and newly emerging technologies, the ability of the Company to
leverage its Spectrum relationship into new business opportunities in the EBPP
market, the on-going viability of the mainframe marketplace and demand for
traditional mainframe products, the ability to attract and retain key employees,
the availability of cash for long-term growth, product obsolescence, ability to
reduce product costs, fluctuations in operating results, ability to continue
funding operating losses, delays in development of highly complex products and
other risks
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detailed from time to time in InteliData filings with the Securities and
Exchange Commission, including the risk factors disclosed in the Company's Form
10-K for the fiscal year ended December 31, 2000. These risks could cause the
Company's actual results for 2001 and beyond to differ materially from those
expressed in any forward looking statements made by, or on behalf of,
InteliData. The foregoing list of factors should not be construed as exhaustive
or as any admission regarding the adequacy of disclosures made by the Company
prior to the date hereof or the effectiveness of said Act. InteliData is not
under any obligation (and expressly disclaims an obligation to) update or alter
its forward-looking statements, whether as a result of new information or
otherwise.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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The Company currently has no long-term debt and is not currently engaged in
any transactions that involve foreign currency. The Company does not engage in
hedging activities.
As of March 31, 2001, the fair value of the Company's investment portfolio
is approximately $4,917,000, which consisted of $2,057,000 of Sybase common
stock, $2,618,000 of warrants to purchase Sybase common stock, and $241,000 of
fixed income securities. Changes in the fair value of the Sybase common stock
and fixed income securities will continue to be recognized as shareholders'
equity (as a component of comprehensive income). SFAS 133, which the Company
adopted effective January 1, 2001, requires that changes in the fair value of
the warrants to purchase Sybase common stock to be recognized periodically in
income. A 10% decline in the stock price would result in approximate decreases
of $206,000 and $262,000 in the fair value of the Company's holdings of Sybase
common stock and warrants, respectively.
PART II: OTHER INFORMATION
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
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(a) Exhibits
--------
None.
(b) Reports on Form 8-K
-------------------
The Company filed a Current Report on Form 8-K with the Securities and
Exchange Commission on January 26, 2001, as amended on March 26, 2001, relating
to InteliData's acquisition of Home Account Holdings, Inc. ("Home Account") and
its operating subsidiary, Home Account Network, Inc., as well as the Company's
filing of the audited consolidated financial statements of Home Account and
unaudited pro forma consolidated financial information of InteliData.
SIGNATURE
Pursuant to the requirements of the Securities Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
INTELIDATA TECHNOLOGIES CORPORATION
By: /s/ Alfred S. Dominick, Jr.
----------------------------
Alfred S. Dominick, Jr.
President, Chief Executive Officer,
and Director