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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: JUNE 30, 1998 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)
13100 Worldgate Drive, Suite 600, Herndon, VA 20170
(Address of Principal Executive Offices)
(703) 834-8500
(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,
1998 was 31,659,616.
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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, 1998 and December 31, 1997..........................3
Condensed Consolidated Statements of Operations
Three Months and Six Months Ended June 30, 1998 and 1997.....4
Condensed Consolidated Statement of Changes in
Stockholders' Equity
Six Months Ended June 30, 1998...............................5
Condensed Consolidated Statements of Cash Flows
Six Months Ended June 30, 1998 and 1997......................6
Notes to Condensed Consolidated Financial Statements ........7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations..........................9
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................16
SIGNATURES....................................................................17
PART I: FINANCIAL INFORMATION
- ------------------------------
ITEM 1: FINANCIAL STATEMENTS
- -----------------------------
INTELIDATA TECHNOLOGIES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 1998 AND DECEMBER 31, 1997
(in thousands, except share data)
1998 1997
(unaudited)
------------ ------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 8,404 $ 2,055
Short-term investments -- 9,304
Accounts receivable, net of allowances of $296
in 1998 and $461 in 1997 1,274 1,309
Inventories 29 7
Net assets of discontinued operations 7,071 31,519
Prepaid expenses and other current assets 144 158
------------ ------------
Total current assets 16,922 44,352
NONCURRENT ASSETS
Property and equipment, net 513 2,022
Other assets 187 328
------------ ------------
TOTAL ASSETS $ 17,622 $ 46,702
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 467 $ 756
Accrued expenses and other liabilities 4,005 4,231
Deferred revenues 2,691 3,396
------------ ------------
Total current liabilities 7,163 8,383
NONCURRENT LIABILITIES
Deferred revenues 625 1,250
------------ ------------
TOTAL LIABILITIES 7,788 9,633
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 32,341,116 shares in 1998 and 31,862,449 shares in 1997;
outstanding 31,659,616 shares in 1998 and 31,180,949 in 1997 32 32
Additional paid-in capital 246,844 245,699
Treasury stock, at cost (2,064) (2,064)
Deferred compensation (382) (18)
Accumulated other comprehensive income -- 425
Accumulated deficit (234,596) (207,005)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 9,834 37,069
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 17,622 $ 46,702
============ ============
See accompanying notes to condensed consolidated financial statements.
INTELIDATA TECHNOLOGIES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(in thousands, except per share data; unaudited)
Three months ended Six months ended
June 30, June 30,
---------------------------- ----------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
REVENUES
Software $ -- $ 289 $ -- $ 501
Consulting and services 63 295 211 659
Leasing and other 2,088 2,682 4,411 6,072
----------- ----------- ----------- -----------
Total revenues 2,151 3,266 4,622 7,232
----------- ----------- ----------- -----------
COST OF REVENUES
Software -- 118 -- 223
Consulting and services 25 250 34 590
Leasing and other 524 1,559 1,229 3,355
----------- ----------- ----------- -----------
Total cost of revenues 549 1,927 1,263 4,168
----------- ----------- ----------- -----------
GROSS PROFIT 1,602 1,339 3,359 3,064
OPERATING EXPENSES
General and administrative 1,840 1,509 3,275 3,494
Selling and marketing 645 586 1,287 652
Research and development 716 1,173 1,357 2,282
----------- ----------- ----------- -----------
Total operating expenses 3,201 3,268 5,919 6,428
----------- ----------- ----------- -----------
OPERATING LOSS (1,599) (1,929) (2,560) (3,364)
----------- ----------- ----------- -----------
OTHER INCOME 550 418 686 856
----------- ----------- ----------- -----------
LOSS BEFORE INCOME TAXES (1,049) (1,511) (1,874) (2,508)
INCOME TAXES -- -- -- --
----------- ----------- ----------- -----------
LOSS FROM CONTINUING OPERATIONS (1,049) (1,511) (1,874) (2,508)
DISCONTINUED OPERATIONS
Loss from operation of telecommunications and
interactive service divisions (net of income taxes) (13,487) (1,326) (16,724) (164)
Loss on disposal of telecommunications and
interactive service divisions (8,233) -- (8,993) --
----------- ----------- ----------- -----------
Total discontinued operations (21,720) (1,326) (25,717) (164)
----------- ----------- ----------- -----------
NET LOSS $ (22,769) $ (2,837) $ (27,591) $ (2,672)
=========== =========== =========== ===========
Basic and diluted loss from continuing operations
per common share $ (0.03) $ (0.05) $ (0.06) $ (0.08)
=========== =========== =========== ===========
Basic and diluted loss per common share $ (0.73) $ (0.09) $ (0.88) $ (0.08)
=========== =========== =========== ===========
Basic and diluted weighted average outstanding shares 31,374 31,819 31,273 31,818
=========== =========== =========== ===========
See accompanying notes to condensed consolidated financial statements.
INTELIDATA TECHNOLOGIES CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 1998
(in thousands; unaudited)
Accumulated
Common stock Additional Other
--------------- paid-in Treasury Comprehensive Deferred Accumulated
Shares Amount capital Stock Income Compensation Deficit Total
------ ------ ---------- -------- ------------- ------------ ----------- ----------
Balance at December 31, 1997 31,181 $ 32 $ 245,699 $(2,064) $ 425 $ (18) $ (207,005) $ 37,069
Cancellation of common stock (10) -- -- -- -- -- -- --
Issuance of restricted common stock 153 -- 459 -- -- (459) -- --
Cancellation of accrued stock options -- -- 363 -- -- -- -- 363
Exercise of stock options 300 -- 294 -- -- -- -- 294
Employee stock purchase plan 35 -- 29 -- -- -- -- 29
Recognized gain on investments -- -- -- -- (425) -- -- (425)
Compensation expense -- -- -- -- -- 95 -- 95
Net loss -- -- -- -- -- -- (27,591) (27,591)
------ ------ ---------- -------- ------------- ------------ ----------- ----------
Balance at June 30, 1998 31,659 $ 32 $ 246,844 $(2,064) $ -- $ (382) $ (234,596) $ 9,834
====== ====== ========== ======== ============= ============ =========== ==========
See accompanying notes to condensed consolidated financial statements.
INTELIDATA TECHNOLOGIES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(in thousands; unaudited)
1998 1997
-------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES OF CONTINUING OPERATIONS
Loss from continuing operations $ (1,874) $ (2,508)
Adjustments to reconcile loss from continuing operations
to net cash used in operating activities for continuing operations:
Depreciation and amortization 413 2,131
Restructuring credit -- (1,167)
Deferred compensation and other noncash items (105) (18)
Changes in certain assets and liabilities:
Accounts receivable 235 6
Inventories (22) --
Prepaid expenses and other current assets 14 (230)
Other assets 141 (299)
Accounts payable (289) (318)
Accrued expenses and other liabilities (226) 797
Deferred revenues (1,330) (291)
-------------- --------------
Net cash used in operating activities for continuing operations (3,043) (1,897)
-------------- --------------
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES OF
DISCONTINUED OPERATIONS 1,301 (10,725)
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from the sale of short-term investments 9,304 1,006
Purchases of property and equipment-continuing operations (7) (55)
Purchases of property and equipment-discontinued operations -- (231)
-------------- --------------
Net cash provided by investing activities 9,297 720
-------------- --------------
CASH FLOWS USED IN FINANCING ACTIVITIES
Payment of short-term borrowings-discontinued operations (1,500) (2,000)
Proceeds from the issuance of common stock 294 100
-------------- --------------
Net cash used in financing activities (1,206) (1,900)
-------------- --------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 6,349 (13,802)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD FOR
CONTINUING AND DISCONTINUED OPERATIONS 2,055 26,644
-------------- --------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD FOR CONTINUING
AND DISCONTINUED OPERATIONS $ 8,404 $ 12,842
============== ==============
See accompanying notes to condensed consolidated financial statements.
INTELIDATA TECHNOLOGIES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)
(1) BASIS OF PRESENTATION
The condensed consolidated balance sheet of InteliData
Technologies Corporation ("InteliData" or "Company") as of June 30,
1998, and the related condensed consolidated statements of operations
for the three and six month periods ended June 30, 1998 and 1997 and
condensed consolidated cash flows for the six month periods ended June
30, 1998 and 1997 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
have been reclassified to conform to the current year presentation.
During the second quarter of 1998, the Company adopted a plan to
dispose of the telecommunications division through a sale or
liquidation. As a result, certain financial information previously
issued has been restated to give effect to the classification of this
business as discontinued operations.
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, 1997.
(2) DISCONTINUED OPERATIONS
During the second quarter of 1998, the Company adopted a plan
to dispose of its various telecommunications divisions through a sale
or liquidation. The Company's Caller ID adjunct inventory was sold in
May 1998. Negotiations for the sale of some or all of the remaining
telecommunications assets are being conducted with various parties. At
June 30, 1998, the net assets of discontinued operations, consisting
primarily of inventories, trade receivables, equipment, warehouse
facilities, and liabilities expected to be assumed by others, have been
reclassified as current assets at the estimated net realizable value.
Revenues from discontinued operations were $8,307,000 and
$13,597,000 for the three months ended June 30, 1998 and 1997,
respectively. Revenues from discontinued operations were $23,163,000
and $31,195,000 for the six months ended June 30, 1998 and 1997,
respectively. Included within the loss on disposal was a loss for
discontinued operations aggregating $2,416,000 for the period from the
measurement date, June 1, 1998, to June 30, 1998. Also included in the
loss on disposal is a pretax provision of
$2,279,000 for estimated operating losses during the phase-out period,
which is expected to be from June 1, 1998 through October 31, 1998.
Loss from discontinued operations is net of income tax benefits
associated with the operations of the telecommunications divisions of
$2,729,000. Noncash activities in the loss from discontinued
operations for the six month period ending June 30, 1998 include
$12,458,000 for the write-down of inventories; and $751,000 for
depreciation and amortization. Noncash activities in the loss on
disposal of discontinued operations include $3,538,000 for the
write-down of property, plant and equipment. Noncash activities
associated with discontinued operations for the six month period
ended June 30, 1997 include $2,131,000 for depreciation and
amortization.
(3) STOCKHOLDERS' EQUITY
On February 24, 1998, the Company's Board of Directors
approved the issuance of up to 200,000 restricted shares of the
Company's common stock under the Company's 1996 Incentive Plan to
employees of the home banking division. Effective April 1, 1998,
153,000 of such shares were issued to employees. Under the terms of the
stock award, the shares may not be sold or transferred for a period of
eighteen months from the date of grant and the shares are forfeitable
should the employee's employment with the Company terminate prior to
the end of the holding period.
On June 9, 1998, the Company offered employees participating
in the Company's Stock Option Plans the opportunity to cancel the
exercisable and unexercisable portions of their stock options as of
June 9, 1998 and replace them with an equal number of options at an
exercise price of $1.00, which was the closing market price on such
date. The Company did not offer this opportunity to the President and
Chief Executive Officer, but offered this opportunity to employees as
an incentive to encourage employee retention. Approximately 944,235
stock options with exercise prices ranging from $1.25 to $23.75 were
replaced. The replacement options vest as follows: the number of
previously granted options exercisable on June 9, 1998 will become
exercisable on December 9, 1998; and the number of previously granted
options unexercisable as of June 9, 1998 will become exercisable over
three years from June 9, 1998 in equal annual increments.
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, 1998 and 1997. 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, 1998 AND 1997
Revenues
The Company's second quarter revenues were $2,151,000 in 1998 compared
to $3,266,000 in 1997, a decrease of 34% or $1,115,000. The Company did not sell
any software during the second quarter of 1998 compared to $289,000 in software
revenues in the same period in 1997. Consulting and services revenues aggregated
$63,000 in the second quarter of 1998 for services associated with feasibility
studies for potential clients. During the same period in 1997, the Company
aggregated $295,000 in customer support revenues, which were remarketed by Visa
InterActive to Visa member banks. Leasing and other revenues aggregated
$2,088,000 in the second quarter of 1998 compared to $2,682,000 in the second
quarter of 1997. During the second quarter of 1998, revenues from leasing and
other operations consisted of $1,385,000 from customers within its lease base,
$78,000 in revenues from maintenance contracts related to the sale of software,
and $625,000 from deferred royalty revenues related to an agreement whereby the
Company was prepaid for certain royalties in the fourth quarter of 1997. During
the same period in 1997, the Company recognized $2,203,000 from customers within
its lease base and $479,000 from monthly service fees for bill pay operations.
The number of active records in the Company's installed lease base historically
decreases at a rate of 27% per year. The Company expects this trend to continue.
Cost of Revenues
The Company's second quarter cost of revenues were $549,000 in 1998
compared to $1,927,000 in 1997, a decrease of 72% or $1,378,000. The Company did
not sell any software during the second quarter of 1998 compared to $118,000 in
costs associated with software sales in the same period in 1997. Consulting and
services cost of revenues aggregated $25,000 in the second quarter of 1998 for
services associated with feasibility studies for potential clients. During the
same period in 1997, the Company aggregated $250,000 in cost of revenues for
customer support revenues, which were remarketed by Visa InterActive to Visa
member banks. Cost of revenues associated with leasing and other operations
aggregated $524,000 in the second quarter of 1998 compared to $1,559,000 in the
second quarter of 1997. During the second quarter of 1998, the Company
recognized cost of revenues aggregating $524,000 for its lease base. During
1997, the Company recognized cost of revenues aggregating $1,220,000 from
customers within its lease base and $339,000 from monthly service fees for bill
pay operations. The
decrease in cost of revenues for the Company's lease base from the second
quarter of 1997 to the second quarter of 1998 was attributed to the lease base
becoming fully depreciated in the first quarter of 1998 and a decrease in the
number of active lease customers.
Overall gross profit margins increased to 74% for the second quarter of
1998 from 41% for the second quarter of 1997. The large increase in gross profit
margins was attributed primarily to a shift in the source of revenues for the
Company and the full depreciation of the Company's lease base. The Company
anticipates that gross profit margins may fluctuate in the future due to changes
in product mix, competitive pricing pressure, the introduction of new products
and changes in the volume and terms of leasing activity.
General and Administrative
General and administrative expenses were $1,840,000 for the second
quarter of 1998 as compared to $1,509,000 in the second quarter of 1997. The
increase of $331,000 was attributed to a reversal of estimated restructuring
charges related to the home banking division during the second quarter of 1997.
Exclusive of this adjustment, general and administrative expenses decreased
$836,000 from the same period in the prior year. This decrease is primarily
attributed to a reduction in headcount and other comprehensive cost reduction
measures implemented by the Company as well as the reduction of goodwill
amortization expense resulting from a valuation adjustment in the third quarter
of 1997. 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 $645,000 for the second
quarter of 1998 from $586,000 for the same period last year. The Company is
continually expanding its marketing efforts in promoting and developing its
products. The increase of 10% or $59,000 from the same period last year is
attributed primarily to increased direct selling costs related to the
introduction of new products to financial institutions.
Research and Development
Research and development costs were $716,000 in the second quarter of
1998 compared to $1,173,000 for the same period in 1997. The decrease of
$457,000 was largely attributable to cost saving measures relating to personnel
costs and more focused research and development efforts.
Other Income
Other income, primarily investment income, was $550,000 for the second
quarter of 1998 compared to $418,000 for the same period in the prior year. The
increase of $132,000 was attributed to the recognition of realized gains in the
Company's investment portfolio.
Discontinued Operations
During the second quarter of 1998, the Company adopted a plan to
dispose of its various telecommunications divisions through a sale or
liquidation. The Company's Caller ID adjunct inventory was sold in May 1998.
Negotiations for the sale of some or all of the remaining telecommunications
assets are being conducted with various parties. At June 30, 1998, the net
assets of discontinued operations, consisting primarily of inventories, trade
receivables, equipment, warehouse facilities and liabilities expected to be
assumed by others, have been reclassified as current assets at the estimated net
realizable value.
Revenues from discontinued operations were $8,307,000 and $13,597,000
for the three months ended June 30, 1998 and 1997, respectively. The loss from
the operation of the telecommunications and interactive services divisions, net
of income taxes, was $13,487,000 during the second quarter of 1998 compared to
$1,326,000 for the same period in the prior year. The loss on disposal of the
telecommunications and interactive services divisions was $8,233,000 for the
second quarter of 1998. Included within the loss on disposal was a loss for
discontinued operations aggregating $2,416,000 for the period from the
measurement date, June 1, 1998, to June 30, 1998. Also included in the loss on
disposal is a pretax provision of $2,279,000 for estimated operating losses
during the phase-out period, which is expected to be from June 1, 1998 through
October 31, 1998.
Weighted Average Outstanding Shares and Basic and Diluted Loss Per Common Share
The basic and diluted weighted average shares decreased to 31,374,000
for the second quarter of 1998 compared to 31,819,000 for the second quarter of
1997. The decrease resulted primarily from the purchase of treasury shares
during 1997 and the cancellation of certain shares of common stock in the first
quarter of 1998; partially offset by an increase in shares issued due to the
exercise of stock options and stock grants to key employees. As a result of the
foregoing, basic and diluted loss per common share from continuing operations
was $(0.03) for the second quarter of 1998 compared to $(0.05) for the second
quarter of 1997; basic and diluted loss per common share was $(0.73) for the
second quarter of 1998 compared to $(0.09) for the second quarter of 1997.
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
Revenues
The Company's revenues for the first six months of 1998 were $4,622,000
compared to $7,232,000 in 1997, a decrease of 36% or $2,610,000. The Company did
not sell any software during the first six months of 1998 compared to $501,000
in software revenues in the same period in 1997. Consulting and services
revenues aggregated $211,000 in the first six months of 1998 for services
associated with feasibility studies for potential clients. During the same
period in 1997, the Company aggregated $659,000 in customer support revenues,
which were remarketed by Visa InterActive to Visa member banks. Leasing and
other revenues aggregated $4,411,000 in the first six months of 1998 compared to
$6,072,000 in the first six months of
1997. During the first six months of 1998, revenues from leasing and other
operations consisted of $3,083,000 from customers within its lease base, $78,000
in revenues from maintenance contracts related to the sale of software, and
$1,250,000 from deferred royalty revenues related to an agreement whereby the
Company was prepaid certain royalties in the fourth quarter of 1997. During the
same period in 1997, the Company recognized $5,021,000 from customers within its
lease base and $1,051,000 from monthly service fees for bill pay operations. The
number of active records in the Company's installed lease base historically
decreases at a rate of 27% per year. The Company expects this trend to continue.
Cost of Revenues
The Company's cost of revenues for the first six months of 1998 were
$1,263,000 compared to $4,168,000 in 1997, a decrease of 70% or $2,905,000. The
Company did not sell any software during the first six months of 1998 compared
to $223,000 in costs associated with software sales in the same period in 1997.
Consulting and services cost of revenues aggregated $34,000 in the first six
months of 1998 for services associated with feasibility studies for potential
clients. During the same period in 1997, the Company aggregated $590,000 in cost
of revenues for customer support revenues, which were remarketed by Visa
InterActive to Visa member banks. Cost of revenues associated with leasing and
other operations aggregated $1,229,000 in the first six months of 1998 compared
to $3,355,000 in the same period of 1997. During the first six months of 1998,
the Company recognized cost of revenues aggregating $1,229,000 for its lease
base. During the same period in 1997, the Company recognized cost of revenues
aggregating $2,666,000 from customers within its lease base and $689,000 from
monthly service fees for bill pay operations. The decrease in cost of revenues
for the Company's lease base from the first half of 1997 to the first half of
1998 was attributed primarily to the lease base becoming fully depreciated in
the first quarter of 1998 and a decrease in the number of active lease
customers.
Overall gross profit margins increased to 73% for the first six months
of 1998 from 42% for the same period in 1997. The large increase in gross profit
margins was attributed primarily to a shift in the source of revenues for the
Company and the full depreciation of the Company's lease base. The Company
anticipates that gross profit margins may fluctuate in the future due to changes
in product mix, competitive pricing pressure, the introduction of new products
and changes in the volume and terms of leasing activity.
General and Administrative
General and administrative expenses were $3,275,000 for the first six
months of 1998 as compared to $3,494,000 in the first six months of 1997. The
decrease of $219,000 was attributed to a reduction in headcount and other
comprehensive cost reduction measures implemented by the Company. 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 $1,287,000 for the first
six months of 1998 from $652,000 for the same period last year. The large
increase is primarily attributed to lower selling and marketing expenses in the
first quarter of 1997. Considering the change in the Company's strategic
direction in the second quarter of 1997, the Company began investing in selling
and marketing programs. The Company is continually expanding its marketing
efforts in promoting its products. The increase of 97% or $635,000 from the same
period last year is attributed primarily to the change in strategic direction in
the second quarter of 1997 and increased direct selling costs related to the
introduction of new products to financial institutions.
Research and Development
Research and development costs were $1,357,000 in the first six months
of 1998 compared to $2,282,000 for the same period in 1997. The decrease of
$925,000 was largely attributable to cost saving measures relating to personnel
costs and more focused research and development efforts.
Other Income
Other income, primarily investment income, was $686,000 for the first
six months of 1998 compared to $856,000 for the same period in the prior year.
The decrease of $170,000 was attributed to decreased cash, equivalents and
short-term investment balances for the first half of 1998 compared to the first
half of 1997. The decrease in cash, equivalents and short-term investment
balances were related to the funding of the Company's working capital and
operations.
Discontinued Operations
During the second quarter of 1998, the Company adopted a plan to
dispose of its various telecommunications divisions through a sale or
liquidation. The Company's Caller ID adjunct inventory was sold in May 1998.
Negotiations for the sale of some or all of the remaining telecommunications
assets are being conducted with various parties. At June 30, 1998, the net
assets of discontinued operations, consisting primarily of inventories, trade
receivables, equipment, warehouse facilities and liabilities expected to be
assumed by others have been reclassified as current assets at the estimated net
realizable value.
Revenues from discontinued operations were $23,163,000 and $31,195,000
for the six months ended June 30, 1998 and 1997, respectively. The loss from the
operation of the telecommunications and interactive services divisions, net of
income taxes, was $16,724,000 during the first six months of 1998 compared to
$164,000 for the same period in the prior year. The loss from disposal of the
telecommunications and interactive services divisions was $8,993,000 for the
first half of 1998. Included within the loss on disposal was a loss for
discontinued operations aggregating $2,416,000 for the period from the
measurement date, June 1, 1998, to June 30, 1998. Also included in the loss on
disposal is a pretax provision of
$2,279,000 for estimated operating losses during the phase-out period, which is
expected to be from June 1, 1998 through October 31, 1998.
Weighted Average Outstanding Shares and Basic and Diluted Loss Per Common Share
The basic and diluted weighted average shares decreased to 31,273,000
for the first half of 1998 compared to 31,818,000 for the first half of 1997.
The decrease resulted primarily from the purchase of treasury shares during 1997
and the cancellation of certain shares of common stock in the first quarter of
1998; partially offset by an increase in shares issued due to the exercise of
stock options and stock grants to key employees. As a result of the foregoing,
basic and diluted loss per common share from continuing operations was $(0.06)
for the first half of 1998 compared to $(0.08) for the first half of 1997; basic
and diluted loss per common share was $(0.88) for the first half of 1998
compared to $(0.08) for the first half of 1997.
LIQUIDITY AND CAPITAL RESOURCES
During the first six months of 1998, the Company's cash, equivalents
and short-term investments decreased by $2,955,000 resulting from the payment of
outstanding liabilities at year-end, including short-term borrowings and the
financing of certain operations. At June 30, 1998, the Company had $8,404,000 in
cash and cash equivalents. At June 30, 1998, the Company had working capital of
$9,759,000 with no long-term debt. The Company's total assets exceeded total
liabilities by $9,834,000.
During the first six months of 1998, cash used in operating activities
from continuing operations was $3,043,000 compared to $1,897,000 in the same
period in 1997. Cash flows from operating activities of continuing operations
during the first six months of 1998 include certain fixed costs in operating
expenses, payment of certain liabilities and recognition of income related to
deferred revenues, offset in part by net cash generated from the Company's
accounts receivable of $235,000. Cash flows from operations during the first
half of 1998 were primarily related to an increase in inventories of $22,000 and
funding payments from accounts payable of $289,000, accrued expenses of
$226,000, and recognition of income from deferred revenues of $1,330,000; offset
in part by decreases in prepaid expenses and other assets aggregating $155,000.
Cash flows from operating activities of discontinued operations during the first
six months of 1998 were $1,301,000 compared to $10,725,000 used in the same
period in 1997. The change related primarily to the funding of accounts
receivable and inventory purchases in the prior year.
Investing activities provided $9,297,000 during the first six months of
1998 compared to providing $720,000 during the same period in 1997. Cash
provided by investing activities was primarily contributed by the sale of
short-term investments offset in part by the purchase of certain property and
equipment, primarily to support an upgrade for the Company's internal networks.
Financing activities used $1,206,000 in the first half of 1998 compared
to using $1,900,000 in the same period in 1997. Financing activities consist
primarily of the payment of short-term borrowings, offset in part by cash
received from the exercise of stock options.
The Company's primary needs for cash in the future are for investments
in product development, working capital, the financing of operations, strategic
ventures, potential acquisitions, potential stock repurchases, capital
expenditures and the upgrade of the Company's systems and operations. In order
to meet the Company's needs for cash throughout the year, the Company will
utilize cash on-hand, cash generated through the sale of certain assets
associated with discontinued operations, collateralized borrowings and may
utilize, to the extent available, funds generated from operations.
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 impact of competitive products, pricing
pressure, product demand and market acceptance risks, year 2000 compliance
issues, pace of consumer acceptance of home banking, bank mergers and
acquisitions, evolution of standards including Open Financial Exchange (OFX) and
the GOLD standard, risk of integration of the Company's technology by large
software companies, reliance on key strategic alliances and newly emerging
technologies, reliance on resellers, 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 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,
1997. These risks could cause the Company's actual results for 1998 and beyond
to differ materially from those expressed in any forward looking statements made
by, or on behalf of, the Company. 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.
PART II: OTHER INFORMATION
-----------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits
--------
10.23 Employment and Non-Competition Agreement dated June 9, 1998 between
InteliData Technologies Corporation and Joseph P. Payne.
(b) Reports on Form 8-K
-------------------
None
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/John C. Backus, Jr.
-------------------------------------
John C. Backus, Jr.
President and Chief Executive Officer