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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the Quarter ended: June 30, 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 June 30,
2001 was 46,081,246.
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INTELIDATA TECHNOLOGIES CORPORATION
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
Page
PART I - FINANCIAL INFORMATION ----
Item 1. Unaudited Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets
June 30, 2001 and December 31, 2000 ............................. 3
Condensed Consolidated Statements of Operations
Three and Six Months Ended June 30, 2001 and 2000 ............... 4
Condensed Consolidated Statement of Changes in Stockholders' Equity
Six Months Ended June 30, 2001................................... 5
Condensed Consolidated Statements of Cash Flows
Six Months Ended June 30, 2001 and 2000.......................... 6
Notes to Condensed Consolidated Financial Statements ............ 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ....................................... 14
Item 3. Quantitative and Qualitative Disclosures About Market Risk....... 22
Item 4. Submission of Matters to a Vote of Security Holders.............. 22
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.......................... 23
SIGNATURE .......................................................... 24
PART I: FINANCIAL INFORMATION
- -----------------------------------
ITEM 1. FINANCIAL STATEMENTS
- -----------------------------------
INTELIDATA TECHNOLOGIES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 2001 AND DECEMBER 31, 2000
(in thousands, except share data; unaudited)
2001 2000
------------ -------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 11,582 $ 27,255
Restricted cash -- 440
Investments 5,252 10,217
Accounts receivable, net of allowance for doubtful accounts 5,279 1,486
Other receivables 1,258 83
Prepaid expenses and other current assets 634 320
------------ ------------
Total current assets 24,005 39,801
NONCURRENT ASSETS
Property and equipment, net 4,732 3,282
Goodwill, net 33,819 --
Other assets 195 195
------------ ------------
TOTAL ASSETS $ 62,751 $ 43,278
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 5,302 $ 4,288
Accrued expenses and other liabilities 4,255 3,651
Deferred revenues 3,636 1,014
Short-term capital lease obligations 19 --
Other liabilities 143 --
Net liabilities of discontinued operations 323 455
------------ ------------
TOTAL CURRENT LIABILITIES 13,678 9,408
Net liabilities of discontinued operations 300 300
Other liabilities 69 --
------------ ------------
TOTAL LIABILITIES 14,047 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 46,787,590 shares in 2001 and 39,320,609 shares in 2000;
outstanding 46,081,246 shares in 2001 and 38,629,897 shares in 2000 47 39
Additional paid-in capital 296,380 261,552
Treasury stock, at cost: 706,344 shares in 2001 and 690,712 shares in 2000 (2,163) (2,123)
Deferred compensation (2,855) (1,375)
Accumulated other comprehensive (loss) income (116) 494
Accumulated deficit (242,589) (225,017)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 48,704 33,570
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 62,751 $ 43,278
============ ============
See accompanying notes to condensed consolidated financial statements.
INTELIDATA TECHNOLOGIES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 30, 2001 AND 2000
(in thousands, except per share data; unaudited)
Three months ended Six months ended
June 30, June 30,
----------------------------- -------------------------------
2001 2000 2001 2000
----------- ----------- ----------- -----------
Revenues
Software $ 239 $ 165 $ 408 $ 601
Consulting and services 4,116 819 7,098 1,913
Royalties and other -- 215 -- 469
----------- ----------- ----------- -----------
Total revenues 4,355 1,199 7,506 2,983
----------- ----------- ----------- -----------
Cost of revenues
Software -- -- 5 --
Consulting and services 2,117 933 4,014 1,507
----------- ----------- ----------- -----------
Total cost of revenues 2,117 933 4,019 1,507
----------- ----------- ----------- -----------
Gross profit 2,238 266 3,487 1,476
Operating expenses
General and administrative 2,669 1,449 5,492 2,850
Selling and marketing 2,632 1,816 5,151 3,140
Research and development 4,255 3,450 8,785 5,627
Amortization of goodwill 1,352 -- 2,528 --
----------- ----------- ----------- -----------
Total operating expenses 10,908 6,715 21,956 11,617
----------- ----------- ----------- -----------
Operating loss (8,670) (6,449) (18,469) (10,141)
Realized gains on sales of investments -- 1,387 1,130 43,991
Unrealized gain (loss) on Sybase warrants 209 -- (714) --
Other income (expenses), net 166 168 481 320
----------- ----------- ----------- -----------
Income (loss) before income taxes (8,295) (4,894) (17,572) 34,170
Provision (benefit) for income taxes -- (100) -- 690
----------- ----------- ----------- -----------
Income (loss) from continuing operations (8,295) (4,794) (17,572) 33,480
Income (loss) from discontinued operations
of Caller ID leasing, net of income taxes -- (51) -- 366
----------- ----------- ----------- -----------
Net income (loss) $ (8,295) $ (4,845) $(17,572) $ 33,846
=========== =========== =========== ===========
Basic earnings per common share
Income (loss) from continuing operations $ (0.18) $ (0.13) $ (0.39) $ 0.88
Income (loss) from discontinued operations 0.00 0.00 0.00 0.01
----------- ----------- ----------- -----------
Net income (loss) $ (0.18) $ (0.13) $ (0.39) $ 0.89
=========== =========== =========== ===========
Diluted earnings per common share
Income (loss) from continuing operations $ (0.18) $ (0.13) $ (0.39) $ 0.82
Income (loss) from discontinued operations 0.00 0.00 0.00 0.01
----------- ----------- ----------- -----------
Net income (loss) $ (0.18) $ (0.13) $ (0.39) $ 0.83
=========== =========== =========== ===========
Basic weighted-average common shares outstanding 45,249 38,173 44,758 38,082
=========== =========== =========== ===========
Diluted weighted-average common shares outstanding 45,249 38,173 44,758 40,926
=========== =========== =========== ===========
See accompanying notes to condensed consolidated financial statements.
INTELIDATA TECHNOLOGIES CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 2001
(in thousands; unaudited)
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 195 - 363 - - - - 363
Employee stock purchase plan 11 - 23 - - - - 23
Exerrcise of stock warrant 3 - 11 - - - - 11
Issuance of restricted stock 390 1 1,710 - (1,711) - - -
Cancellation of restricted stock (32) - (213) - 213 - - -
Home Account Incentive Plan - - 984 - (984) - - -
Purchase of treasury stock - - - (40) - - - (40)
Amortization of deferred
compensation - - - - 1,002 - - 1,002
Recognized gain on investments - - - - - (180) - $ (180) (180)
Unrealized loss on investments,
net of taxes - - - - - (430) - (430) (430)
Net loss - - - - - - (17,572) (17,572) (17,572)
--------
Comprehensive loss $(18,182)
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Balance at June 30, 2001
46,788 $ 47 $ 296,380 $(2,163) $(2,855) $ (116) $(242,589) $ 48,704
=============================================================================== =========
See accompanying notes to condensed consolidated financial statements.
INTELIDATA TECHNOLOGIES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2001 AND 2000
(in thousands; unaudited)
<table>
2001 2000
----------- --------
Cash flows from operating activities
Net (loss) income from continuing operations $ (17,572) $ 33,480
Adjustments to reconcile net (loss) income to net cash used in
operating activities:
Realized gains on sales of investments, net (1,130) (43,991)
Unrealized loss on Sybase warrants 714 --
Amortization of goodwill 2,528 --
Depreciation and amortization 800 693
Deferred compensation expense 1,002 184
Deferred income taxes -- 690
Changes in certain assets and liabilities:
Accounts receivable (2,994) 110
Other receivables (1,175) --
Prepaid expenses and other current assets (96) (64)
Accounts payable (737) 1,588
Accrued expenses (1,251) 710
Deferred revenues 1,343 (616)
----------- --------
Net cash used in operating activities (18,568) (7,216)
----------- --------
Cash (used in) provided by operating activities of
discontinued operations (132) 1,131
----------- --------
Cash flows from investing activities
Proceeds from the sales of investments 4,883 16,252
Release of cash from escrow 311 --
Purchases of property and equipment (507) (2,000)
Payment of acquisition costs for Home Account (1,749) --
Cash paid for Home Account common stock (268) --
----------- --------
Net cash provided by investing activities 2,670 14,252
----------- --------
Cash flows from financing activities
Proceeds from issuance of common stock 397 748
Capital contribution -- 857
Purchase of treasury stock (40) --
----------- --------
Net cash provided by financing activities 357 1,605
----------- ---------
(Decrease) increase in cash and cash equivalents (15,673) 9,772
Cash and cash equivalents, beginning of period 27,255 8,496
----------- --------
Cash and cash equivalents, end of period $ 11,582 $ 18,268
=========== ========
</table>
See accompanying notes to condensed consolidated financial statements.
INTELIDATA TECHNOLOGIES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2001 AND 2000
(Unaudited)
(1) Basis of Presentation
The condensed consolidated balance sheet of InteliData
Technologies Corporation ("InteliData" or the "Company") as of June
30, 2001, and the related condensed consolidated statements of
operations, changes in stockholders' equity, and cash flows for the
six month periods ended June 30, 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) Summary of Significant Accounting Policies
(a) Revenue Recognition - The Company supplies Internet banking
and electronic bill presentment and payment software to financial
institutions. The Company's integrated solutions that bundle software
products with customization, installation and training services are
recognized using the percentage of completion method of accounting.
Starting late in 2000, the Company entered into contracts for its
bill payment technology software. This software does not require
significant customization. However, as of December 31, 2000, the
software had yet to be delivered and, as a result, no revenue was
recognized under such contracts. Upon delivery, the Company expects to
recognize revenue ratably over the contract period as vendor specific
objective evidence (VSOE) of fair value for post contract customer
support (PCS) does not exist.
The Company enters into multiple element arrangements. Elements
typically include software, consulting, implementation and PCS. PCS
contracts generally require the Company to provide technical support
and unspecified when-and-if available software updates and upgrades to
customers. Revenue for these multiple element arrangements is
recognized when there is persuasive evidence of an arrangement and
delivery to the customer has occurred, the fee is fixed and
determinable, and collectibility is considered
<page>
probable. Advance payments are recorded as deferred revenue until the
products are shipped, services are delivered and all obligations are
met. Currently, the Company does not have VSOE of fair value for any
of the elements within its multiple element arrangements. Therefore,
all revenue under such arrangements is being recognized ratably over
the term of the PCS contract. Revenue from transactional services,
which includes hosting and service bureaus, is recognized as
transactions are processed.
(b) 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 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 $714,000 for the six months ended
June 30, 2001. Pro forma net income for the six months ended June 30,
2000 was $34,765,000 due to an unrealized gain on investment of
$919,000. Pro forma earnings per share were $0.91 and $0.85 on a basic
and diluted basis, respectively
(c) Recent Accounting Pronouncements - In July 2001 the
Financial Accounting Standards Board issued Statement of Financial
Accounting Standards (SFAS) No. 141 "Business Combinations" and SFAS
No. 142 "Goodwill and Other Intangible Assets." SFAS No. 141 requires
business combinations initiated after June 30, 2001 to be accounted
for using the purchase method of accounting, and broadens the criteria
for recording intangible assets separate from goodwill. Recorded
goodwill and intangibles will be evaluated against this new criteria
and may result in certain intangibles being subsumed into goodwill, or
alternatively, amounts initially recorded as goodwill may be
separately identified and recognized apart from goodwill. SFAS No. 142
requires the use of a non-amortization approach to account for
purchased goodwill and certain intangibles. Under a non-amortization
approach, goodwill and certain intangibles will not be amortized into
results of operations, but instead would be reviewed for impairment
and written down and charged to results of operations only in the
periods in which the
<page>
recorded value of goodwill and certain intangibles is more than its
fair value. The provisions of each statement which apply to goodwill
and intangible assets acquired prior to June 30, 2001 will be adopted
by the Company on January 1, 2002. We expect the adoption of these
accounting standards will have the impact of reducing our amortization
of goodwill commencing January 1, 2002 and reviews for impairment
may result in future periodic write-downs.
(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 was 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 of $31,957,000 in the
accompanying statement of changes in stockholders' equity. 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
<page>
Company is also completing the review and determination of the fair
values of the other 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 (3,931)
Liabilities associated with Home Account Incentive Plan (2,946)
Acquisition integration liabilities (1,074)
Goodwill (7-year, straight-line amortization) 36,347
-----------
$ 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 $1,074,000 included in the purchase price allocation are
approximately $252,000 for lease costs (net of sublease proceeds) for
the the now vacated Home Account headquarters in Emeryville,
California, and $822,000 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
June 30, 2001, 87 positions have been terminated and approximately
$822,000 had been 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
<page>
forth below reflects certain adjustments, including among others,
adjustments to reflect the amortization of the goodwill associated
with the acquisition. However, pro forma results 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.
Six Six
Months Ended Months Ended
June 30, June 30,
2001 2000
---- ----
(in thousands, except per share data)
Revenue $ 7,506 $ 4,997
Net (loss) income (21,093) 25,552
Basic net (loss) income per share (0.47) 0.57
Diluted net (loss) income per share (0.47) 0.53
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 June 30, 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
<page>
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 portion is estimated to be $984,000
based on $5.90 (the closing price of the Company's common stock at
June 30, 2001). For the six months ended June 30, 2001, the Company
recorded compensation expense of approximately $458,000.
(5) Discontinued Operations
As of June 30, 2001, the net liabilities of discontinued
operations of $623,000 relate to the telecommunications divisions.
Approximately $500,000 of the net liabilities of discontinued
operations relates to the potential environmental clean up associated
with InteliData's former New Milford, Connecticut property. In January
2000, InteliData sold the New Milford, Connecticut building, its only
remaining asset in discontinued operations of the telecommunications
division. In the context of this sale, InteliData agreed to undertake
limited remediation of the site in accordance with applicable state
law. The subject site is not a federal or state Superfund site and
InteliData has not been named a "potentially responsible party" at the
site. The remediation plan agreed to with the purchaser allows
InteliData to use engineering and institutional controls (e.g., deed
restrictions) to minimize the extent and costs of the remediation.
Further, at the time of the sale of the facility, InteliData
established a $200,000 escrow account for certain
investigation/remediation costs. As of June 30, 2001, this escrow
account balance remained at $200,000. Moreover, InteliData has
obtained environmental insurance to pay for remediation costs up to
$6,600,000 in excess of a retained exposure limit of $600,000.
InteliData estimates its liability related to this matter to be
approximately $500,000 and has recorded a liability for that amount.
We have engaged a legal firm and an environmental specialist firm
to represent InteliData regarding this matter. The timing of the
ultimate resolution of this matter is estimated to be from three to
five years under the Company's proposed compliance plan, which
involves a natural attenuation and periodic compliance monitoring
approach.
The remaining net liabilities of discontinued operations
balance of approximately $123,000 relates to warranties, royalty costs
and potential settlements with telecom customers and others.
(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):
<page>
<table>
Three months ended Six months ended
June 30, June 30,
-------------------- ------------------
2001 2000 2001 2000
Basic EPS
Income (loss) from continuing operations $ (8,295) $ (4,794) $ (17,572) $ 33,480
Weighted-average common shares outstanding 45,249 38,173 44,758 38,082
-------- -------- --------- --------
Basic earnings (loss) per share from continuing operations $ (0.18) $ (0.13) $ (0.39) $ 0.88
======== ======== ========= ========
Diluted EPS
Income (loss) from continuing operations $ (8,295) $ (4,794) $ (17,572) $ 33,480
-------- -------- --------- --------
Weighted-average common shares outstanding 45,249 38,173 44,758 38,082
Effect of dilutive securities:
Stock options and awards - - - 2,762
Stock warrants - - - 82
-------- -------- --------- --------
Weighted-average dilutive common shares outstanding 45,249 38,173 44,758 40,926
-------- -------- --------- --------
Diluted earnings (loss) per common share from
continuing operations $ (0.18) $ (0.13) $ (0.39) $ 0.82
======== ======== ========= ========
</table>
* * * * * *
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
- ------------------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
Results of Operations
The following represents the results of operations for InteliData
Technologies Corporation for the three and six months ended June 30, 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 June 30, 2001 and 2000
Revenues
The Company's second quarter revenues were $4,355,000 in 2001 compared to
$1,199,000 in 2000, an increase of $3,156,000. 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 second quarter of
2001, software revenues contributed $239,000 and consulting and services
contributed $4,116,000.
During the second quarter of 2000, software revenues contributed $165,000,
consulting and services contributed $819,000 and other revenues contributed
$215,000, all from royalties. The stream of revenues from royalties ceased in
September 2000.
Cost of Revenues
The Company's second quarter cost of revenues were $2,117,000 in 2001
compared to $933,000 in 2000, an increase of $1,184,000. The increase is
attributed primarily to increased revenues and changes in product mix. During
the second quarter of 2001, consulting and services costs totaled $2,117,000.
During the second quarter of 2000, consulting and services costs totaled
$933,000.
Overall gross profit margins increased to 51% for the second quarter of
2001 from 22% for the second quarter of 2000. The increase in gross profit
margins was attributed to an increase in recurring revenue, including the
addition of Home Account customers.
General and Administrative
General and administrative expenses were $2,669,000 for the second quarter
of 2001 as compared to $1,449,000 for the first quarter of 2000. The increase of
$1,220,000 was primarily the result of additional corporate and administrative
expenses associated with the purchase of Home Account.
<page>
Selling and Marketing
Selling and marketing expenses increased to $2,632,000 for the second
quarter of 2001 from $1,816,000 for the same period last year. The increase of
$816,000 is attributed primarily to increases in the number of selling and
marketing employees, travel and professional services, 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 $4,255,000 in the second quarter of
2001 as compared to $3,450,000 in the second quarter of 2000. The increase of
$805,000 was largely attributable to increases in 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. There were
no transactions in the second quarter of 2001.
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 ($116,000) and
$494,000 of unrealized (loss) gain on investments (net of taxes), within the
stockholders' equity as of June
<page>
30, 2001 and December 31, 2000, respectively. As of December 31, 2000, the
unrealized gain on investments balance 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 date. As of June 30, 2001, the balance
represents 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).
No sales of Sybase common stock occurred during the second quarter of 2001.
During the same period of 2000, the Company recorded a gain of $1,387,000 from
sales of Sybase common stock.
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 gain on investment of $209,000 for
the three months ended June 30, 2001.
Other Income
Other income, primarily interest income, was $166,000 for the second
quarter of 2001 compared to $168,000 for the same period in the prior year. The
decrease of $2,000 was due to the decreased cash and cash equivalents balance
for the second quarter of 2001 compared to the second 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 second quarter of 2000, the
Company had a loss from discontinued operations of the Caller ID leasing
business of $51,000, net of income taxes. The stream of revenues from this lease
base ceased in June 2000.
Weighted-Average Common Shares Outstanding and Basic and Diluted Income (Loss)
Per Common Share
The basic weighted-average shares increased to 45,249,000 for the second
quarter of 2001 compared to 38,173,000 for the second 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 and diluted loss per common share (EPS) was ($0.18) compared to a
basic and diluted loss of ($.13) for the second quarters of 2001 and 2000,
respectively.
Six months ended June 30, 2001 and 2000
Revenues
The Company's revenues for the first six months of 2001 were $7,506,000
compared to $2,983,000 in 2000, a increase of 152% or $4,523,000. The Company
recognized $408,000 in software revenue during the first six months of 2001.
During the same period in 2000, the Company recognized $601,000 in software
revenue. Consulting and services revenues aggregated $7,098,000 in the first six
months of 2001 while during the same period in 2000, the Company recognized
$1,913,000. Royalties and other revenues were $0 in the first six months of 2001
compared to $469,000 in the first six months of 2000. During the first six
months of 2000, the Company recognized $469,000 from royalties related to the
VISA Bill-Pay system. The stream of revenues from royalties ceased in September
2000.
Cost of Revenues
The Company's cost of revenues for the first six months of 2001 were
$4,019,000 compared to $1,507,000 in 2000, an increase of 167% or $2,512,000.
The Company incurred $5,000 in software related expenses during the first six
months of 2001, but did not incur any software related expenses during the same
period in 2000. Consulting and services cost of revenues aggregated $4,014,000
in the first six months of 2001, while during the same period in 2000, the
Company's costs aggregated $1,507,000.
Overall gross profit margins decreased to 47% for the first six months of
2001 from 50% for the same period in 2000. The decrease in gross profit margin
was primarily attributable to increased costs and the recording of forward
losses on strategic contracts. The Company anticipates that gross profit margins
may fluctuate in the future due to changes in product mix and distribution,
outsourcing activities associated with a service bureau business model,
competitive pricing pressure, and the introduction of new products and changes
in volume.
General and Administrative
General and administrative expenses were $5,492,000 for the first six
months of 2001, as compared to $2,850,000 for the first six months of 2000. The
increase of $2,642,000 was primarily the result of additional corporate and
administrative expenses associated with the purchase of Home Account. Throughout
the year, the Company expects to control general and administrative expenses and
plans to continually assess its operations in managing the continued development
of infrastructure to handle anticipated business levels.
Selling and Marketing
Selling and marketing expenses increased to $5,151,000 for the first six
months of 2001 from $3,140,000 for the same period last year. The increase of
$2,011,000 was attributed primarily to increases in the number of selling and
marketing employees, travel and professional services, 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 $8,785,000 in the first six months of
2001 compared to $5,627,000 for the same period in 2000. The increase of
$3,158,000 was largely attributable to increases in 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 Sales of Investments
As discussed above, on January 20, 2000, Home Financial Network, Inc.
(HFN), a company in which InteliData held approximately a 25% ownership
interest, merged with Sybase, Inc. 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 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.
For the six months ended June 30, 2001 and 2000, InteliData recognized a
gain of approximately $1,130,000 and $43,991,000, respectively on the merger
transaction and the subsequent disposition of a portion of the investment in
Sybase common stock.
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
<page>
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 $714,000 for the six months ended June 30, 2001.
Other Income
Other income, primarily investment and interest income, was $481,000 and
$320,000 for the six months ended June 30, 2001 and 2000, respectively. The
increase of $161,000 was due to the increased levels of cash and cash
equivalents in 2001 as compared to 2000. This increase was a result of the cash
proceeds from the Sybase and HFN merger transaction and the subsequent
disposition of some of the Sybase common stock.
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 six months of 2000, the
Company had a gain from discontinued operations of the Caller ID leasing
business of $366,000, net of income taxes. The stream of revenues from this
lease base ceased in June 2000.
Weighted-Average Common Shares Outstanding and Basic and Diluted Earnings (Loss)
Per Common Share
The basic and diluted weighted-average common shares outstanding for the
six months ended June 30, 2000 was 38,082,000 and 40,926,000, respectively,
compared to 44,758,000 for both for the same period in 2001. 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 and diluted income per common share from continuing operations
was $0.88 and $0.82, respectively, for the six-month period in 2000, compared to
a loss of ($0.39) for both in the same period in 2001. There has been no
discontinued operations activity in 2001. For the six-month period in 2000,
basic and diluted income per common share was $0.01 from discontinued
operations, resulting in a basic and diluted income per common share of $0.89
and $0.83 respectively.
<page>
Liquidity and Capital Resources
During the first six months of 2001, the Company's cash and cash
equivalents decreased by $15,673,000. 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 June 30,
2001, the Company had cash and cash equivalents of $11,582,000 and working
capital of $10,327,000 with no long-term debt.
During the first six months of 2001, cash used in operating activities was
$18,568,000 compared to $6,850,000 in the same period in 2000. Cash flows from
operating activities during the first six months of 2001 included uses of cash
for certain fixed operating expenses and increases in accounts receivable and
prepaid expenses.
Discontinued operations used a net cash of $132,000 in the first six months
of 2001 compared to providing $765,000 in the first six months 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 $2,670,000 in
the first six months of 2001 compared to $14,252,000 in the same period in 2000.
The decrease was primarily due to the cash paid for the acquisition of Home
Account and the related acquisition costs.
Financing activities provided $357,000 in the first six months of 2001
compared to $1,605,000 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
<page>
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 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
- -------------------------------------------------------------------
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 June 30, 2001, the fair value of the Company's investment portfolio
is approximately $5,252,000, which consisted of $2,183,000 of Sybase common
stock, $2,828,000 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 $218,000 and $283,000 in the fair value of the Company's holdings of Sybase
common stock and warrants, respectively.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
The Company's Annual Meeting of Stockholders was held on May 23, 2001.
Matters submitted at the meeting for vote by the Stockholders were the
following:
1) Election of Directors
The Stockholders elected three Class II members and one Class III
member of the Board of Directors with the following votes: in Class II
- Neal F. Finnegan with 35,555,804 votes for and 362,868 withheld,
John J. McDonnell, Jr. with 35,555,904 votes for and 362,768 votes
withheld, and Norman J. Tice with 35,556,004 votes for and 362,668
votes withheld; and in Class III - Charles A. White with 35,556,004
votes for and 362,668 votes withheld.
2) Amendment to 1996 Incentive Plan
The Stockholders approved an amendment to the Company's 1996 Incentive
Plan reserving an additional 1,000,000 shares of the Company's Common
Stock for issuance thereunder and increasing the maximum aggregate
number of shares that may be issued as stock awards by 500,000 shares
with the following votes: 32,130,792 for, 3,544,262 against, and
243,618 abstain.
PART II: OTHER INFORMATION
- --------------------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------
(a) Exhibits
--------
10.14 Employment and Non-Competition Agreement between InteliData
Technologies Corporation and Charles A. White dated
January 11, 2001.
(b) Reports on Form 8-K
-------------------
None.
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