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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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: September 30, 2002 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 September
30, 2002 was approximately 48,989,000.
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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
September 30, 2002 and December 31, 2001 .......................... 3
Condensed Consolidated Statements of Operations
Three and Nine Months Ended September 30, 2002 and 2001 ........... 4
Condensed Consolidated Statement of Changes in Stockholders' Equity
Nine Months Ended September 30, 2002............................... 5
Condensed Consolidated Statements of Cash Flows
Nine Months Ended September 31, 2002 and 2001...................... 6
Notes to Condensed Consolidated Financial Statements .............. 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ......................................... 13
Item 3. Quantitative and Qualitative Disclosures About Market Risk......... 19
Item 4. Evaluation of Disclosure Controls and Procedures................... 19
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K................................... 20
SIGNATURES ............................................................ 20
CERTIFICATIONS ............................................................ 21
PART I: FINANCIAL INFORMATION
- -----------------------------------
ITEM 1. FINANCIAL STATEMENTS
- ----------------------------------
INTELIDATA TECHNOLOGIES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2002 AND DECEMBER 31, 2001
(in thousands, except share data; unaudited)
2002 2001
------------ ------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 5,821 $ 12,026
Investments 259 2,917
Accounts receivable, net 4,284 4,992
Other receivables 198 563
Prepaid expenses and other current assets 327 559
------------ ------------
Total current assets 10,889 21,057
NONCURRENT ASSETS
Property and equipment, net 2,951 3,720
Goodwill, net 26,238 22,549
Intangibles, net 5,960 10,189
Other assets 175 195
------------ ------------
TOTAL ASSETS $ 46,213 $ 57,710
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 2,785 $ 3,346
Accrued expenses 3,692 5,357
Deferred revenues 2,236 3,164
Other liabilities 243 324
Net liabilities of discontinued operations 91 204
------------ ------------
TOTAL CURRENT LIABILITIES 9,047 12,395
Net liabilities of discontinued operations 200 300
Other liabilities 366 540
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TOTAL LIABILITIES 9,613 13,235
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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 100,000,000 shares;
issued 49,795,000 shares in 2002 and 49,724,000 shares in 2001;
outstanding 48,989,000 shares in 2002 and 48,917,000 shares in 2001 50 50
Additional paid-in capital 302,857 303,141
Treasury stock, at cost: 806,000 shares in 2002 and 2001 (2,473) (2,473)
Deferred compensation (391) (1,395)
Accumulated other comprehensive income 9 210
Accumulated deficit (263,452) (255,058)
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TOTAL STOCKHOLDERS' EQUITY 36,600 44,475
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 46,213 $ 57,710
============ ============
See accompanying notes to condensed consolidated financial statements.
INTELIDATA TECHNOLOGIES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(in thousands, except per share data; unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------- -------------------------------
2002 2001 2002 2001
----------- ----------- ----------- -----------
Revenues
Software $ 183 $ 1,195 $ 704 $ 1,603
Consulting and services 5,827 4,112 15,475 11,210
----------- ----------- ----------- -----------
Total revenues 6,010 5,307 16,179 12,813
----------- ----------- ----------- -----------
Cost of revenues
Software -- -- -- 5
Consulting and services 2,376 2,421 6,414 6,435
----------- ----------- ----------- -----------
Total cost of revenues 2,376 2,421 6,414 6,440
----------- ----------- ----------- -----------
Gross profit 3,634 2,886 9,765 6,373
Operating expenses
General and administrative 2,375 3,058 7,305 8,550
Sales and marketing 793 2,167 2,547 7,318
Research and development 1,933 3,850 7,106 12,635
Amortization of goodwill and intangibles 180 1,291 540 3,819
----------- ----------- ----------- -----------
Total operating expenses 5,281 10,366 17,498 32,322
----------- ----------- ----------- -----------
Operating loss (1,647) (7,480) (7,733) (25,949)
Realized gain (loss) on sales of investments -- -- (748) 1,130
Unrealized loss on Sybase warrants -- (1,554) -- (2,268)
Other income (expenses), net 32 79 87 560
----------- ----------- ----------- -----------
Loss before income taxes (1,615) (8,955) (8,394) (26,527)
Benefit for income taxes -- (160) -- (160)
----------- ----------- ----------- -----------
Loss from continuing operations (1,615) (8,795) (8,394) (26,367)
Discontinued operations, net of income taxes -- -- -- --
----------- ----------- ----------- -----------
Net loss $ (1,615) $ (8,795) $ (8,394) $ (26,367)
=========== =========== =========== ===========
Basic loss per common share
Loss from continuing operations $ (0.03) $ (0.19) $ (0.17) $ (0.59)
Income (loss) from discontinued operations 0.00 0.00 0.00 0.00
----------- ----------- ----------- -----------
Net loss $ (0.03) $ (0.19) $ (0.17) $ (0.59)
=========== =========== =========== ===========
Diluted loss per common share
Loss from continuing operations $ (0.03) $ (0.19) $ (0.17) $ (0.59)
Income (loss) from discontinued operations 0.00 0.00 0.00 0.00
----------- ----------- ----------- -----------
Net loss $ (0.03) $ (0.19) $ (0.17) $ (0.59)
=========== =========== =========== ===========
Basic weighted-average common shares outstanding 49,359 45,521 48,901 45,007
=========== =========== =========== ===========
Diluted weighted-average common shares outstanding 49,359 45,521 48,901 45,007
=========== =========== =========== ===========
See accompanying notes to condensed consolidated financial statements.
INTELIDATA TECHNOLOGIES CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 2002
(in thousands; unaudited)
Accumulated
Additional Other
Common Stock Paid-in Treasury Deferred Comprehensive
-------------------------
Shares Amount Capital Stock Compensation Income
----------- ------------- ------------- ----------- --------------- ----------------
Balance at January 1, 2002 49,724 $ 50 $ 303,141 $ (2,473) $ (1,395) $ 210
Issuances of common stock:
Exercises of stock options 11 - 15 - - -
Employee stock purchase plan 19 - 23 - - -
Issuances of restricted stock 139 - 247 - (247) -
Cancellations of restricted stock (98) - (375) - 375 -
Home Account 2000 incentive plan - - (194) - 194 -
Realized gain on investments sold,
net of income taxes - - - - - (210)
Unrealized gain on investments,
net of income taxes - - - - - 9
Amortization of deferred compensation - - - - 682 -
Net loss - - - - - -
Comprehensive loss
----------- ------------- ------------- ----------- --------------- ----------------
Balance at September 30, 2002 49,795 $ 50 $ 302,857 $ (2,473) $ (391) $ 9
=========== ============= ============= =========== =============== ================
Accumulated Comprehensive
Deficit Loss Total
-------------- --------------- ------------
Balance at January 1, 2002 $ (255,058) $ 44,475
Issuances of common stock:
Exercises of stock options - 15
Employee stock purchase plan - 23
Issuances of restricted stock - -
Cancellations of restricted stock - -
Home Account 2000 incentive plan - -
Realized gain on investments sold,
net of income taxes - (210) (210)
Unrealized gain on investments,
net of income taxes - 9 9
Amortization of deferred compensation - 682
Net loss (8,394) (8,394) (8,394)
---------------
Comprehensive loss $ (8,595)
==========
-------------- ------------
Balance at September 30, 2002 $ (263,452) $ 36,600
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See accompanying notes to condensed consolidated financial statements.
INTELIDATA TECHNOLOGIES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(in thousands; unaudited)
2002 2001
----------- ----------
Cash flows from operating activities
Loss from continuing operations $ (8,394) $ (26,367)
Adjustments to reconcile loss from continuing operations
to net cash used in operating activities of continuing operations:
Realized loss (gain) on sales of investments 748 (1,130)
Unrealized loss on Sybase warrants -- 2,268
Amortization of goodwill and intangibles 540 3,819
Depreciation and amortization 1,148 1,266
Deferred compensation expense 682 1,540
Loss on disposal of property and equipment 2 --
Changes in certain assets and liabilities:
Accounts receivable 708 (3,200)
Other receivables 365 (1,325)
Prepaid expenses and other current assets 252 (6)
Accounts payable (511) (463)
Accrued expenses (1,929) (805)
Deferred revenues (928) 1,233
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Net cash used in operating activities of
continuing operations (7,317) (23,170)
----------- ----------
Loss from discontinued operations -- --
Change in net liabilities of discontinued operations (213) (184)
----------- ----------
Net cash used in operating activities of
discontinued operations (213) (184)
----------- ----------
Net cash used in operating activities (7,530) (23,354)
----------- ----------
Cash flows from investing activities
Net proceeds from warrant exercise and sales of investments 1,718 4,883
Release of cash from escrow -- 311
Purchases of property and equipment (381) (712)
Sale of property and equipment -- 121
Payments for acquisition costs for Home Account (50) (1,749)
Cash paid for Home Account common stock -- (268)
----------- ----------
Net cash provided by investing activities 1,287 2,586
----------- ----------
Cash flows from financing activities
Proceeds from issuance of common stock 38 403
Payments to acquire treasury stock -- (350)
----------- ----------
Net cash provided by financing activities 38 53
----------- ----------
Decrease in cash and cash equivalents (6,205) (20,715)
Cash and cash equivalents, beginning of period 12,026 27,255
----------- ----------
Cash and cash equivalents, end of period $ 5,821 $ 6,540
=========== ==========
See accompanying notes to condensed consolidated financial statements.
INTELIDATA TECHNOLOGIES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(Unaudited)
(1) Basis of Presentation
The condensed consolidated balance sheet of InteliData Technologies
Corporation ("InteliData" or the "Company") as of September 30, 2002, the
related condensed consolidated statements of operations and cash flows for the
nine-month periods ended September 30, 2002 and 2001, and the related condensed
consolidated statement of changes in stockholders' equity for the nine-month
period ended September 30, 2002 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. The condensed consolidated balance sheet as of December
31, 2001 was derived from the Company's audited December 31, 2001 balance sheet.
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, 2001.
(2) Summary of Significant Accounting Policies
(a) Revenue Recognition - The Company supplies Internet banking and
electronic bill presentment and payment software to financial nstitutions. The
Company's revenues associated with integrated solutions that bundle software
products with customization, installation and training services are recognized
using the percentage of completion method of accounting based on cost incurred
as compared to estimated costs at completion.
The Company enters into contracts for its bill payment technology
software. This software does not require significant customization. Upon
delivery, the Company either recognizes revenue ratably over the contract period
for contracts where vendor specific objective evidence ("VSOE") of fair value
for post contract customer support ("PCS") does not exist or recognizes revenue
in full where VSOE of fair value for PCS does 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,
readily 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 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 some 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.
Emerging Issues Task Force Abstract Issue No. 00-3, Application of AICPA
Statement of Position 97-2 to Arrangements that Include the Right to Use
Software Stored on Another Entity's Hardware ("EITF 00-3"), provides guidance in
determining whether or not the provisions of Statement of Position No. 97-2,
Software Revenue Recognition ("SOP 97-2"), should be applied to hosting
arrangements. The Company has some contracts where the customers operate its
software in an application services provider environment. The customer may not
take possession of the software without incurring significant transition and
infrastructure costs, as well as potential payments of fees to the Company for
the termination of such arrangements. In cases where the customer has not
licensed software from the Company, the customer must also purchase a license
prior to having the right to use the software in its own operating environment,
in addition to the aforementioned fees. In these situations, the Company applies
the guidance under EITF 00-3 and the Staff Accounting Bulletin No. 101, Revenue
Recognition in Financial Statements, and recognizes the revenue associated with
the license and/or implementation fees ratably over the initial term of the
contract.
Additionally, based on the EITF 00-3 guidance, the Company concluded
that SOP 97-2 should not be applied to certain of its contracts and their
related revenue for license and professional services are recognized under the
percentage of completion method. In addition to our developing and delivering
the solution, the Company is entitled to transaction fees based on the number of
users and transactions. These transaction fees are earned based on the monthly
user counts and as transactions are processed.
(b) New Accounting Pronouncements - In June 2002, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standard No. 146,
Accounting for Costs Associated with Exit or Disposal Activities (including
Certain Costs Incurred in a Restructuring) ("SFAS 146"), which supersedes
Emerging Issues Task Force Issue No. 94-3, Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity ("EITF 94-3").
SFAS 146 requires recognition of a liability for costs associated with an exit
or disposal activity when the liability is incurred, rather than when the entity
commits to an exit plan under EITF 94-3. The provisions of SFAS 146 are
effective for exit or disposal activities that are initiated after September 30,
2002. The Company does not believe that the implementation of these provisions
will have a material impact on its financial position or results of operations.
(c) 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 derivatives be recognized in the
balance sheet and measured at fair value. Effective January 1, 2001, the
Company's investment in the Sybase warrants was accounted for in accordance with
SFAS 133.
SFAS 133 requires that 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 stockholders' 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 the fair
value under the previous accounting guidance. In accordance with SFAS 133, the
Company recorded an unrealized gain (loss) on investment of $0 and $(2,268,000),
for the nine months ended September 30, 2002 and 2001, respectively.
The Company held 640,000 warrant units with an exercise price of $2.60
per warrant unit. Upon exercise of each warrant unit, the Company was entitled
to receive $1.153448 in cash and 0.34794 share of Sybase common stock. During
June 2002, the Company exercised all of its 640,000 warrants units to purchase
Sybase common stock and sold the resulting 223,000 shares of Sybase common
stock. The Company received net proceeds of approximately $1,718,000 and
recognized a realized loss from sales of investments of approximately $748,000.
In June 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 141, Business Combinations ("SFAS 141"),
and SFAS No. 142, Goodwill and Other Intangible Assets ("SFAS 142"). SFAS 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. SFAS 142 requires the use of an
amortization and non-amortization approach to account for purchased goodwill and
certain intangibles. Under a non-amortization approach, goodwill and certain
intangibles are not to 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 recorded value of goodwill and
certain intangibles is more than
<page>
its fair value. The amortization and non-amortization provisions of SFAS 142 are
to be applied to all goodwill and intangible assets acquired after June 30,
2001. The provisions of each statement that apply to goodwill and intangible
assets acquired prior to June 30, 2001 was adopted by the Company on January 1,
2002.
As of January 1, 2002, in accordance with SFAS 142, the Company ceased
recognizing amortization expense on goodwill and the assembled workforce
intangible asset, and the assembled workforce intangible asset was combined with
goodwill for financial accounting and reporting. Accordingly, the goodwill and
intangible asset consist of the following components (in thousands):
As of September 30, 2002: Goodwill Intangible Total
-------- ---------- --------
Gross carrying amount $ 29,793 $ 7,200 $ 36,993
Accumulated amortization (3,555) (1,240) (4,795)
----------- ----------- ---------
Net $ 26,238 $ 5,960 $ 32,198
========== ========== ========
As of December 31, 2001: Goodwill Intangible Total
-------- ---------- --------
Gross carrying amount $ 25,593 $ 11,400 $ 36,993
Accumulated amortization (3,044) (1,211) (4,255)
----------- ---------- --------
Net $ 22,549 $ 10,189 $ 32,738
========== ========== ========
The estimated aggregate amortization expense related to the
contracts/relationships intangible asset for each of the next five years is
as follows (in thousands):
Year ending December 31: Expense
-------
2002 $ 720
2003 720
2004 720
2005 720
2006 720
In accordance with SFAS 142, the Company had six months from adoption
(up until June 30, 2002) to complete the initial test for impairment as of
January 1, 2002, the adoption date of SFAS 142. In accordance with the
transition provisions of SFAS No. 142, the Company conducted the first step of
the impairment tests as described above. The Company assessed the fair value of
its only reporting unit by considering its projected cash flows, comparable
company valuations, and recent purchase prices paid for entities within our
industry. Given consideration of these factors, the Company concluded that the
fair value of the reporting unit exceeded the carrying amount of its net assets.
The Company is required to perform reviews for impairment in future periods, at
least annually, that may result in future periodic write-downs. Tests for
impairment between annual tests may be required if events occur or circumstances
change that would more likely than not reduce the fair value of the net carrying
amount. As of September 30, 2002, the Company is not aware of such events or
circumstances that could indicate potential impairment.
The adoption of this accounting standard reduced the amortization
expense associated with goodwill and certain intangibles by $3,279,000 from
$3,819,000 for the nine months ended September 30, 2001 to $540,000 for the same
period in 2002. The following sets forth a reconciliation of loss from
continuing operations and earnings per share information for the three months
and nine months ended September 30, 2002 and 2001, as adjusted for the
non-amortization provisions of SFAS 142 (in thousands, except per share data):
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------- ----------------------------
2002 2001 2002 2001
----------- ----------- ----------- -----------
Reported loss from continuing operations $ (1,615) $ (8,795) $ (8,394) $ (26,397)
Add: Goodwill amortization, net of taxes -- 1,111 -- 3,299
----------- ----------- ----------- -----------
Adjusted loss from continuing operations (1,615) (7,684) (8,394) (23,098)
Reported income (loss) discontinued operations -- -- -- --
----------- ----------- ----------- -----------
Adjusted net loss $ (1,615) $ (7,684) $ (8,394) $ (23,098)
=========== =========== =========== ===========
Basic and diluted loss per common share
Adjusted loss from continuing operations $ (0.03) $ (0.17) $ (0.17) $ (0.51)
Income (loss) from discontinued operations 0.00 0.00 0.00 0.00
----------- ----------- ----------- -----------
Adjusted net loss $ (0.03) $ (0.17) $(0.17) $ (0.51)
=========== =========== =========== ===========
Basic and diluted weighted-average
common shares outstanding 49,359 45,521 48,901 45,007
=========== =========== =========== ===========
In August 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets ("SFAS 144"), which is effective
January 1, 2002. This statement replaces SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, and
some provisions of Accounting Principles Board Opinion No. 30, Reporting the
Effects of Disposal of a Segment of a Business and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions. SFAS 144 requires that one
accounting model be used for long-lived assets to be disposed of by sale,
whether previously held and used or newly acquired. It also broadens the
presentation of discontinued operations to include more disposal transactions.
The Company's adoption of this pronouncement on January 1, 2002 did not have a
material affect on the Company's financial position, results of operations, or
cash flows.
(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. This acquisition was accounted
for as a purchase. Following the Company's acquisition of Home Account, the
Company 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 2000
Incentive Plan of $2,946,000, resulted in an increase of $31,957,000 in
stockholders' equity in fiscal year 2001. The total purchase price of
approximately $31,186,000 consisted of the following (in thousands):
Consideration and acquisition costs:
Value of shares issued $ 29,011
Cash consideration 320
Acquisition costs 1,855
-----------
$ 31,186
===========
<page>
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 has obtained independent professional services for the purchase price
allocation to the fair values of the acquired property, plant and equipment, and
identified intangible assets, and their remaining useful lives and has completed
its review and determination of the fair values of the other assets acquired and
liabilities assumed. A summary of the assets acquired and liabilities assumed in
the acquisition follows (in thousands):
Allocation of purchase price:
Current assets $ 1,562
Property, plant and equipment 1,743
Intangibles 11,400
Liabilities assumed and other (4,344)
Liabilities associated with Home Account Incentive Plan (2,946)
Acquisition integration liabilities (1,822)
Goodwill 25,593
-------------
$ 31,186
==============
Intangible assets consist of $4,200,000 for assembled workforce (which
has an estimated useful life of eight years prior to the adoption of SFAS 142)
and $7,200,000 for contracts/relationships (which has an estimated useful life
of ten years). Assembled workforce was determined based on the number of Home
Account employees, function, compensation, fringe benefits, recruiting costs,
training, and other factors. Contracts/relationships was determined based on the
history of low attrition, the high cost of switching, market prices, forecasted
revenues, evaluation of competitors, and other factors. Such allocations and
designations were completed in accordance with Accounting Principles Board
Opinion No. 16, Business Combination. Effective January 1, 2002, the Company
adopted SFAS 142 and the appropriate transitional accounting is discussed in
Note 2.
As a result of the acquisition of Home Account, the Company 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 $1,822,000 included in the purchase price allocation are
approximately $1,000,000 for lease costs for the now vacated Home Account
headquarters in Emeryville, California, and $822,000 related to workforce
reduction. As of September 30, 2002, the Company had a remaining liability of
$609,000 associated with such lease costs, of which $243,000 is current and
$366,000 is noncurrent.
The workforce reductions focused on three key areas: 1) streamlining
development efforts, 2) eliminating 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 December 31, 2001, 87 positions had been
terminated and approximately $822,000 had been paid. No additional changes
occurred during the period ended September 30, 2002 and the Company does not
expect future adjustments related to this purchase price allocation.
Due to the fact that the acquisition was completed on January 11, 2001,
no pro forma quarterly financial information is presented to give effect to the
acquisition of Home Account as if it occurred on January 1, 2001. The Company
believes that the results of operations for the eleven-day period are not
material.
(4) Home Account 2000 Incentive Plan
In 2000, Home Account approved the 2000 Incentive Plan to encourage the
retention of certain officers and managers 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
<page>
allocable to Home Account's preferred stockholders after payment of the debt
preference and other expenses associated with a transaction. Under the
InteliData and Home Account merger transaction, this incentive plan was payable
in the form of InteliData common stock and such payments were to be made by the
group of former Home Account preferred stockholders (who were collectively
considered as a "principal stockholder" for the purpose of this 2000 Incentive
Plan). Two-thirds of the 2000 Incentive Plan allocation vested on the
transaction closing date and represented 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. The original principal amount of this
receivable balance was approximately $1,116,000. The shares allocable to the
participants were placed in an escrow account and were released to the Home
Account Stockholders' Representative in accordance with the Merger Consideration
Escrow Agreement. As of December 31, 2001, the remaining outstanding receivable
balance, including interest, was approximately $466,000 and was reflected in the
"Other receivable" balance. On February 4, 2002, the remaining outstanding
balance plus additional interest accrued was paid in full.
The remaining one - third of the participants' allocation vested on
January 11, 2002 (one year from the transaction closing date). All forfeited
shares reverted to the former preferred stockholders of Home Account. In
connection with the 2000 Incentive Plan allocation, the deferred compensation
for the one-third portion became fixed and measurable on April 1, 2002 at
$155,000 based on $1.20 (the closing price of the Company's common stock at
April 1, 2002). The difference between this amount and the recognized expense in
the prior periods was recorded as a $183,000 reduction of expense during the
first quarter of 2002.
(5) Discontinued Operations
As of September 30, 2002, the net liabilities of discontinued operations
of $291,000 relate to the telecommunications divisions. This 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 September 30, 2002, 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 remaining liability related
to this matter and other costs to be approximately $291,000 and has recorded a
liability for this amount.
The Company has 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. Management does not believe that the
resolution of this matter will likely have a material adverse effect on the
Company's financial condition or results of operations.
* * * * * *
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
- ----------------------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
Results of Operations for the Three Months Ended September 30, 2002 and 2001
The following represents the results of operations for InteliData
Technologies Corporation for the three months ended September 30, 2002 and 2001.
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.
Revenues
The Company's third quarter revenues were $6,010,000 in 2002 compared to
$5,307,000 in 2001, an increase of $703,000. The increase was a result of an
increase in consulting and services revenues of $1,715,000 and a decrease in
software revenues of $1,012,000. During the third quarter of 2002, the Company
generated $183,000 from software sales and $5,827,000 from consulting and
services. During the third quarter of 2001, software revenues contributed
$1,195,000 and consulting and services contributed $4,112,000.
The increase in consulting and services revenues from the third quarter
of 2001 to the third quarter of 2002 was primarily due to increases in the
Company's recurring revenue from fees associated with its application services
provider ("ASP") operations. The decrease in software revenues from the third
quarter of 2001 to the third quarter of 2002 was primarily due to the timing of
system deliveries and fewer software license sales.
Cost of Revenues and Gross Profit
The Company's cost of revenues decreased $45,000 to $2,376,000 in the
third quarter of 2002 from $2,421,000 in the third quarter in 2001. The decrease
was due to the offsetting of approximately $33,000 of costs against a forward
loss accrual that was expensed in previous periods.
Overall gross profit margins increased to 60% for the third quarter of
2002 from 54% for the third quarter of 2001. The increase in gross profit
margins was attributable to an increase in recurring revenue coupled with the
decrease in cost of revenues as discussed above. The Company anticipates that
gross profit margins may fluctuate in the future due to changes in product mix
and distribution, outsourcing activities associated with an ASP business model,
competitive pricing pressure, the introduction of new products, and changes in
volume.
General and Administrative
General and administrative expenses decreased $683,000 to $2,375,000 in
the third quarter of 2002 from $3,058,000 in the third quarter of 2001. The
decrease was primarily attributable to the Company's reduction of corporate and
administrative expenses that resulted from continued evaluation of on-going cost
structures and the purchase of Home Account. The Company plans to continually
assess its operations to manage its expenses and infrastructures in light of
anticipated business levels.
Sales and Marketing
Sales and marketing expenses decreased $1,374,000 to $793,000 in the
third quarter of 2002 from $2,167,000 in the third quarter of 2001. This was
primarily attributable to decreases in the number of selling and marketing
employees, travel and outside professional consulting expenses. The Company
plans to continually assess its operations to manage its expenses and
infrastructures in light of anticipated business levels.
Research and Development
Research and development costs decreased $1,917,000 to $1,933,000 in the
third quarter of 2002 from $3,850,000 in the third quarter of 2001. The decrease
was primarily attributable to the Company's expense reduction efforts in
combining the operations of InteliData and Home Account and finding efficiencies
and synergies. The Company incurs research and development expenses primarily in
developing the next generation,
<page>
open standards-based InteliWorks(TM) Enterprise Payment Solution. The Company
plans to continually assess its operations to manage its expenses and
infrastructures in light of anticipated business levels.
Amortization of Goodwill and Intangibles
Statement of Financial Accounting Standards No. 142, Goodwill and Other
Intangible Assets ("SFAS 142"), requires the Company to not amortize goodwill
and certain intangibles into results of operations, but instead the Company
would review these assets for impairment. The assets would be written down and
impairment losses would be charged to results of operations only in the periods
in which the recorded values are determined to be more than their fair values.
The adoption of this accounting standard, as of January 1, 2002, reduced the
amortization expense associated with goodwill and certain intangibles by
$1,111,000, from $1,291,000 for the three months ended September 30, 2001 to
$180,000 for the same period in 2002. As of January 1, 2002, in accordance with
SFAS 142, the Company ceased recognizing amortization expense on goodwill and
the assembled workforce intangible asset, and the assembled workforce intangible
asset was combined with goodwill for financial accounting and reporting.
In accordance with SFAS 142, the Company had six months from adoption
(up until June 30, 2002) to complete the initial test for impairment as of
January 1, 2002, the adoption date of SFAS 142. In accordance with the
transition provisions of SFAS No. 142, the Company conducted the first step of
the impairment tests. The Company assessed the fair value of its only reporting
unit by considering its projected cash flows, comparable company valuations, and
recent purchase prices paid for entities within our industry. Given
consideration of these factors, the Company concluded that the fair value of the
reporting unit exceeded the carrying amount of its net assets. The Company is
required to perform reviews for impairment in future periods, at least annually,
that may result in future periodic write-downs. Tests for impairment between
annual tests may be required if events occur or circumstances change that would
more likely than not reduce the fair value of the net carrying amount. As of
September 30, 2002, the Company is not aware of such events or circumstances
that could indicate potential impairment.
Realized Gains on Sales of 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. ("Sybase"). 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 was entitled to receive $1.153448 in cash and 0.34794 share of
Sybase common stock.
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 derivatives be recognized in the balance sheet and measured at
fair value.
In accordance with SFAS 115, the balance sheets include $9,000 and
$210,000 of unrealized gain on investments (net of taxes), within stockholders'
equity as of September 30, 2002 and December 31, 2001, respectively. As of
September 30, 2002, the accumulated other comprehensive income balance
represents the changes in the fair market value. In accordance with SFAS 133,
the change in the fair market value of the Sybase warrants was recorded in the
statement of operations.
SFAS 133 requires that 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
<page>
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 the fair value under the previous accounting guidance. In accordance
with SFAS 133, the Company recorded an unrealized loss on investment of
$1,554,000 in the statements of operations for the three months ended September
30, 2001.
Other Income
Other income, primarily investment and interest income, decreased
$47,000 to $32,000 in the third quarter of 2002 from $79,000 in the third
quarter of 2001. The decrease is associated with decreased levels of cash and
cash equivalents in 2002 as compared to 2001, and the incurrence of other
expenses in 2002.
Weighted-Average Common Shares Outstanding and Basic and Diluted Loss Per Common
Share
The basic and diluted weighted - average common shares increased to
49,359,000 for the third quarter of 2002 compared to 45,521,000 for the third
quarter of 2001. The increase resulted primarily from the exercise of stock
options, stock purchases under the Employee Stock Purchase Plan, and the
issuance of 2,863,000 shares for the private placements of the Company's common
stock that closed in November and December of 2001.
Losses from continuing operations were $1,615,000 and $8,795,000 for the
three-month periods ended September 30, 2002 and 2001, respectively, while there
was no gain or loss from discontinued operations in either period. Net losses
were $1,615,000 and $8,795,000 for 2002 and 2001, respectively. As a result of
the foregoing, basic and diluted net loss per common share was ($0.03) for the
third quarter of 2002 compared to a basic and diluted net loss per common share
of ($0.19) for the third quarter of 2001.
Results of Operations for the Nine Months Ended September 30, 2002 and 2001
The following represents the results of operations for InteliData
Technologies Corporation for the nine months ended September 30, 2002 and 2001.
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.
Revenues
The Company's revenues for the first nine months in 2 002 were
$16,179,000 compared to $12,813,000 in 2001, an increase of $3,366,000. The
increase was a result of an increase in consulting and services revenues of
$4,265,000 and a decrease in software revenues of $899,000. During the first
nine months in 2002, the Company generated $704,000 from software sales and
$15,475,000 from consulting and services. During the first nine months of 2001,
software revenues contributed $1,603,000 and consulting and services contributed
$11,210,000.
The increase in consulting and services revenues from the first nine
months of 2001 to the first nine months of 2002 was primarily due to increases
in the Company's recurring revenue from fees associated with its application
services provider ("ASP") operations. The decrease in software revenues from the
first nine months of 2001 to the first nine months of 2002 was primarily due to
the timing of the system deliveries and fewer software license sales.
Cost of Revenues and Gross Profit
The Company's cost of revenues decreased $26,000 to $6,414,000 for the
first nine months of 2002 from $6,440,000 for the first nine months of 2001. The
decrease was due to the offsetting of approximately $198,000 of costs against a
forward loss accrual that was expensed in previous periods, offset by the
increased costs associated with increased revenues.
<page>
Overall gross profit margins increased to 60% for the first nine months
of 2002 from 50% for the first nine months of 2001. The increase in gross profit
margins was attributable to an increase in recurring revenue coupled with the
decrease in cost of revenues as discussed above. The Company anticipates that
gross profit margins may fluctuate in the future due to changes in product mix
and distribution, outsourcing activities associated with an ASP business model,
competitive pricing pressure, the introduction of new products, and changes in
volume.
General and Administrative
General and administrative expenses decreased $1,245,000 to $7,305,000
in the first nine months of 2002 from $8,550,000 in the first nine months of
2001. The decrease was primarily attributable to the Company's reduction of
redundant corporate and administrative expenses that resulted from continued
evaluation of on-going cost structures and the purchase of Home Account, which
included the elimination of the former Home Account headquarters. The Company
plans to continually assess its operations to manage its expenses and
infrastructures in light of anticipated business levels.
Sales and Marketing
Sales and marketing expenses decreased $4,771,000 to $2,547,000 in the
first nine months of 2002 from $7,318,000 in the first nine months of 2001. This
was primarily attributable to decreases in the number of selling and marketing
employees, travel and outside professional consulting expenses, associated with
efficiencies and synergies while eliminating redundancies that resulted from the
purchase of Home Account. The Company plans to continually assess its operations
to manage its expenses and infrastructures in light of anticipated business
levels.
Research and Development
Research and development costs decreased $5,529,000 to $7,106,000 in
the first nine months of 2002 from $12,635,000 in the first nine months of 2001.
The decrease was primarily attributable to the Company's expense reduction
efforts in combining the operations of InteliData and Home Account and finding
efficiencies and synergies while eliminating redundancies. The Company incurs
research and development expenses primarily in developing the next generation,
open standards-based InteliWorks(TM) Enterprise Payment Solution. The Company
plans to continually assess its operations to manage its expenses and
infrastructures in light of anticipated business levels.
Amortization of Goodwill and Intangibles
Statement of Financial Accounting Standards No. 142, Goodwill and Other
Intangible Assets ("SFAS 142"), requires the Company to not amortize goodwill
and certain intangibles into results of operations, but instead the Company
would review these assets for impairment. The assets would be written down and
impairment losses would be charged to results of operations only in the periods
in which the recorded values are determined to be more than their fair values.
The adoption of this accounting standard, as of January 1, 2002, reduced the
amortization expense associated with goodwill and certain intangibles by
$3,279,000, from $3,819,000 for the nine months ended September 30, 2001 to
$540,000 for the same period in 2002. As of January 1, 2002, in accordance with
SFAS 142, the Company ceased recognizing amortization expense on goodwill and
the assembled workforce intangible asset, and the assembled workforce intangible
asset was combined with goodwill for financial accounting and reporting.
In accordance with SFAS 142, the Company had six months from adoption
(up until June 30, 2002) to complete the initial test for impairment as of
January 1, 2002, the adoption date of SFAS 142. In accordance with the
transition provisions of SFAS No. 142, the Company conducted the first step of
the impairment tests. The Company assessed the fair value of its only reporting
unit by considering its projected cash flows, comparable company valuations, and
recent purchase prices paid for entities within our industry. Given
consideration of these factors, the Company concluded that the fair value of the
reporting unit exceeded the carrying amount of its net assets. The Company is
required to perform reviews for impairment in future periods, at least annually,
that may result in future periodic write-downs. Tests for impairment between
annual tests may be required if events occur or circumstances change that would
more likely than not reduce the fair value of the net carrying amount. As of
September 30, 2002, the Company is not aware of such events or circumstances
that could indicate potential impairment.
<page>
Realized Gains on Sales of 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. ("Sybase"). 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 was entitled to receive $1.153448 in cash and 0.34794 share of
Sybase common stock. The Company recognized a realized gain of approximately
$1,259,000 on sales of Sybase common stock during the first nine months of 2001.
As part of this merger transaction, an escrow account was established
to provide Sybase indemnity protection against possible claims that might arise
against HFN. Approximately 133,000 shares of Sybase common stock owned by
InteliData were put in escrow, along with approximately $440,000 of cash. In
March 2001, the Company received the escrow payments less approximately $129,000
for miscellaneous claims under the escrow provision 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 derivatives be recognized in the balance sheet and measured at
fair value.
In accordance with SFAS 115, the balance sheets include $9,000 and
$210,000 of unrealized gain on investments (net of taxes), within stockholders'
equity as of September 30, 2002 and December 31, 2001, respectively. As of
September 30, 2002, the accumulated other comprehensive income 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.
SFAS 133 requires that 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 the fair
value under the previous accounting guidance. In accordance with SFAS 133, the
Company recorded an unrealized loss on investment of $2,268,000 in the
statements of operations for the nine months ended September 30, 2001.
Additionally, the Company recorded a $377,000 unrealized loss during the second
quarter of 2002 to bring the year-to-date unrealized loss to $0, in order to
reflect the exercise of the Sybase warrants.
During June 2002, the Company exercised all of its 640,000 warrants
units to purchase Sybase common stock and sold the resulting 223,000 shares of
Sybase common stock. The Company received net proceeds of approximately
$1,718,000 and recognized a realized loss from sales of investments of
approximately $748,000. For the nine months ended September 30, 2001, InteliData
recognized a net realized gain of approximately $1,130,000.
Other Income
Other income, primarily investment and interest income, decreased
$473,000 to $87,000 in the first nine months of 2002 from $560,000 in the first
nine months of 2001. The decrease is associated with decreased levels of cash
and cash equivalents in 2002 as compared to 2001, and the incurrence of other
expenses in 2002.
Weighted-Average Common Shares Outstanding and Basic and Diluted Loss Per Common
Share
The basic and diluted weighted - average common shares increased to
48,901,000 in the first nine months of 2002 compared to 45,007,000 in the first
nine months of 2001. The increase resulted primarily from the exercise of stock
options, stock purchases under the Employee Stock Purchase Plan, and the
issuance of 2,863,000 shares for the private placements of the Company's common
stock that closed in November and December of 2001.
Losses from continuing operations were $8,394,000 and $26,367,000 for
the nine-month periods ended September 30, 2002 and 2001, respectively, while
there was no gain or loss from discontinued operations in either period. Net
losses were $8,394,000 and $26,367,000 for 2002 and 2001, respectively. As a
result of the foregoing, basic and diluted net loss per common share was ($0.17)
in the first nine months of 2002 compared to a basic and diluted net loss per
common share of ($0.59) in the first nine months of 2001.
Liquidity and Capital Resources
During the first nine months of 2002, the Company's cash and cash
equivalents decreased by $6,205,000. At September 30, 2002, the Company had
$5,821,000 in cash and cash equivalents, $259,000 in investments, $1,842,000 of
working capital with no long-term debt, and $36,600,000 in stockholders' equity.
The Company's principal needs for cash in the first nine months of 2002 were for
funding operating losses. The Company funded decreases in accounts payable and
accrued expenses of $511,000 and $1,929,000, respectively, for the nine months
ended September 30, 2002, which was partially offset by a decrease in accounts
receivable and other receivables of $708,000 and $365,000, respectively.
The Company's cash requirements for operating activities in the first
nine months of 2002 were financed primarily by cash and cash equivalents on
hand.
Net cash provided by investing activities in the first nine months of
2002 was $1,287,000. This was primarily related to the sales of investments of
$1,718,000 and was offset by the purchases of property and equipment of $381,000
and cash paid for acquisition costs related to the purchase of Home Account of
$50,000.
Financing activities provided net cash of $38,000 in the first nine
months of 2002 from the issuance of the Company's common stock for stock option
exercises.
Through the remainder of 2002 and continuing into 2003, the Company
expects its operating losses to continue declining based on increases in
revenues due to increases in the adoption rates and penetration rates of
Internet banking, Card Solutions(TM) and EBPP Solutions, and based on our
periodic rationalization of headcount and other expenses in light of our
available capital and anticipated business projections. Based on the Company's
current capital levels and its assumptions about future operating results, the
Company believes that it will have sufficient resources to fund existing
operating plans. However, if actual results differ materially from current
assumptions, the Company may not have sufficient capital resources and may have
to modify operating plans and/or seek additional capital resources. If the
Company engages in efforts to obtain additional capital, it can make no
assurances that these efforts will be successful or that the terms of such
funding would be beneficial to the common stockholders.
Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the Private
Securities Litigation Reform Act of 1995
The information contained in this report 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 Company's ability to continue
funding operating losses, the Company's ability to manage expenses in line with
anticipated business levels and to achieve profitability on a sustainable basis,
the Company's ability to complete product implementations in required time
frames and to increase its recurring revenues and profits through its ASP
business model, whether a market will emerge for the Company's InteliWorks(TM)
product line, 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 clients to increase usage of Internet banking by
their customers, an overall slow down in business due to the effects of general
economic conditions on the financial services industries and the resulting
delays caused by such economic conditions in implementing solutions such as
those offered by the Company, the lengthy cycle for sales of many of the
Company's more complex products, mergers and acquisitions, risk of integration
of the Company's technology, the ability of the Company's clients 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 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
and the possible migration of customers to competitor solutions or in-house
solutions, ability to reduce product costs, fluctuations in operating results,
delays in development of highly complex products, the impact of increased
government regulations in the Internet and financial services industry, the
impact of declines in the Company's stock price and its ability to maintain
minimum listing standards of the NASDAQ stock markets, 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, 2001. These risks could cause the Company's
actual results for 2002 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 September 30, 2002, the fair value of the Company's investment
portfolio was approximately $259,000, which consisted of fixed income
securities. Changes in the fair value of the fixed income securities will
continue to be recognized in shareholders' equity (as a component of
comprehensive income).
ITEM 4. EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
- --------------------------------------------------------
(a) Evaluation of Disclosure Controls and Procedures
------------------------------------------------
The Company's chief executive officer and chief financial officer, after
evaluating the effectiveness of the Company's "disclosure controls and
procedures" (as defined in the Securities Exchange Act of 1934 Rules 13a-14(c)
and 15-d-14(c)) as of a date ("Evaluation Date") within 90 days before the
filing of this quarterly report, have concluded that as of the Evaluation Date,
the Company's disclosure controls and procedures were adequate and designed to
ensure that material information relating to the Company and its consolidated
subsidiaries would be made known to them by others within those entities.
<page>
(b) Change in Internal Controls
---------------------------
There were no significant changes in our internal controls or to our
knowledge, in other factors that could significantly affect our disclosure
controls and procedures subsequent to the Evaluation Date.
PART II: OTHER INFORMATION
- --------------------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------
(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 August 12, 2002, relating to the certifications of Alfred
S. Dominick, Jr., the Company's chief executive officer, and John R. Polchin,
the Company's chief financial officer, required pursuant to 18 U.S.C. ss. 1350,
as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002.
SIGNATURES
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
/s/ John R. Polchin
-----------------------------------------
John R. Polchin
Vice President, Chief Financial Officer,
and Treasurer
CERTIFICATION PURSUANT TO
RULE 13A-14 OF THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Alfred S. Dominick, Jr., President, Chief Executive Officer and Director of
the Company, certify that:
1. I have reviewed this quarterly report on Form 10-Q of InteliData
Technologies Corporation (the "registrant");
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in the
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 7, 2002 By: /s/ Alfred S. Dominick, Jr.
---------------------------
Alfred S. Dominick, Jr.
President, Chief Executive Officer
and Director
CERTIFICATION PURSUANT TO
RULE 13A-14 OF THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, John R. Polchin, Vice-President, Chief Financial Officer and Treasurer of the
Company, certify that:
1. I have reviewed this quarterly report on Form 10-Q of InteliData
Technologies Corporation (the "registrant");
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in the
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 7, 2002 By: /s/ John R. Polchin
-------------------
John R. Polchin
Vice President, Chief Financial Officer
and Treasurer