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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, 1999 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, 1999 was 33,329,579
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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, 1999 and December 31, 1998 ....................3
Condensed Consolidated Statements of Operations
Three Months and Nine Months Ended September 30,
1999 and 1998 ...............................................4
Condensed Consolidated Statement of Changes in
Stockholders' Equity
Nine Months Ended September 30, 1999.........................5
Condensed Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1999 and 1998................6
Notes to Condensed Consolidated Financial Statements ........7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ..................................10
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................20
SIGNATURES ............................................................21
PART I: FINANCIAL INFORMATION
- ------------------------------
ITEM 1: FINANCIAL STATEMENTS
- -----------------------------
INTELIDATA TECHNOLOGIES CORPORATION
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
(in thousands, except share data)
1999 1998
------------ ------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 10,399 $ 8,050
Accounts receivable, net of allowances of $585
in 1999 and $592 in 1998 3,222 2,113
Prepaid expenses and other current assets 5 143
------------ ------------
Total current assets 13,626 10,306
NONCURRENT ASSETS
Property and equipment, net 214 348
Other assets 175 257
------------ ------------
TOTAL ASSETS $ 14,015 $ 10,911
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 1,626 $ 1,344
Accrued expenses and other liabilities 1,503 910
Deferred revenues 1,836 3,056
Net liabilities of discontinued operations 1,812 5,270
------------ ------------
Total current liabilities 6,777 10,580
NONCURRENT LIABILITIES
Deferred revenues - -
------------ ------------
TOTAL LIABILITIES 6,777 10,580
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, $0.001 par value; authorized 5,000,000 shares;
600 shares issued and 520 outstanding as of September 30, 1999 -- --
Common stock, $0.001 par value; authorized 60,000,000 shares;
issued 34,011,079 shares in 1999 and 32,293,005, shares in 1998;
outstanding 33,329,579 shares in 1999 and 31,611,505 in 1998 34 32
Additional paid-in capital 257,348 247,359
Treasury stock, at cost (2,064) (2,064)
Deferred compensation (217) (152)
Accumulated deficit (247,863) (244,844)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 7,238 331
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 14,015 $ 10,911
============ ============
See accompanying notes to condensed consolidated financial statements.
INTELIDATA TECHNOLOGIES CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(in thousands, except per share data; unaudited)
Three months ended Nine months ended
September 30, September 30,
--------------------------- ---------------------------
1999 1998 1999 1998
----------- ---------- ---------- -----------
REVENUES
Software $ 735 $ 416 $ 1,265 $ 416
Consulting and services 495 415 1,461 626
Leasing and other 1,692 1,894 5,123 6,305
----------- ---------- ---------- -----------
Total revenues 2,922 2,725 7,849 7,347
----------- ---------- ---------- -----------
COST OF REVENUES
Software 112 - 165 -
Consulting and services 256 162 557 196
Leasing and other 208 400 906 1,629
----------- ---------- ---------- -----------
Total cost of revenues 576 562 1,628 1,825
----------- ---------- ---------- -----------
GROSS PROFIT 2,346 2,163 6,221 5,522
OPERATING EXPENSES
General and administrative 1,178 1,586 4,971 4,861
Selling and marketing 464 714 1,676 2,001
Research and development 1,306 656 2,909 2,013
----------- ---------- ---------- -----------
Total operating expenses 2,948 2,956 9,556 8,875
----------- ---------- ---------- -----------
OPERATING LOSS (602) (793) (3,335) (3,353)
OTHER INCOME 109 32 227 718
----------- ---------- ---------- -----------
LOSS BEFORE INCOME TAXES (493) (761) (3,108) (2,635)
INCOME TAXES -- -- -- --
----------- ---------- ---------- -----------
LOSS FROM CONTINUING OPERATIONS (493) (761) (3,108) (2,635)
DISCONTINUED OPERATIONS
Gain (loss) from operation of telecommunications and
interactive service divisions (net of income taxes) 315 (1,325) 1,624 (18,049)
Loss on disposal of telecommunications and
interactive service divisions - (1,500) - (10,493)
----------- ---------- ---------- -----------
Income (loss) from discontinued operations 315 (2,825) 1,624 (28,542)
----------- ---------- ---------- -----------
NET LOSS $ (178) $ (3,586) $ (1,484) $ (31,177)
=========== ========== ========== ===========
Preferred stock dividends and amortization of discounts
arising from allocation of proceeds to warrants and
beneficial conversion feature $ (1,535) $ - $ (1,535) $ -
=========== ========== ========== ===========
Net Loss Attributable to Common Stockholders $ (1,713) $ (3,586) $ (3,019) $ (31,177)
Basic and diluted loss from continuing
operations per common share $ (0.06) $ (0.02) $ (0.14) $ (0.08)
=========== ========== ========== ===========
Basic and diluted income (loss) from discontinued
operations per common share $ 0.01 $ (0.09) $ 0.05 $ (0.91)
=========== ========== ========== ===========
Basic and diluted loss per common share $ (0.05) $ (0.11) $ (0.09) $ (0.99)
=========== ========== ========== ===========
Basic and diluted weighted average outstanding shares 33,056 31,644 32,459 31,397
=========== ========== ========== ===========
See accompanying notes to condensed consolidated financial statements.
INTELIDATA TECHNOLOGIES CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 1999
(in thousands; unaudited)
Common stock Additional
------------------ Paid-in Treasury Deferred Accumulated Comprehensive
Shares Amount Capital Stock Compensation Deficit Loss Total
--------- -------- ----------- ---------- ------------- ------------ ---------- ---------
Balance at December 31, 1998 31,612 $ 32 $ 247,359 $ (2,064) $ (152) $ (244,844) $ - $ 331
Issuance of common stock: - - - - - - - -
Exercise of stock options 1,140 1 2,250 - - - - 2,251
Employee Stock Purchase 23 - 27 - - - 27
Conversion of Preferred Stock 270 - 1 1
Issuance of Restricted Stock 319 1 457 - (214) - - 244
Issuance of Stock Warrants - 141 - (141) - - -
Cancellation of Restricted Stock (35) - (47) - 47 - - -
Preferred Convertible Investment 5,670 5,670
Preferred Stock Dividends (45) (45)
Amortization of discount arising 1,490 (1,490) -
from allocation of proceeds of
preferred stock issuance
Compensation Expense - - - - 243
Net Loss (1,484) (1,484) (1,484)
--------- -------- ----------- ---------- ------------- ------------ -------- --------
Balance at September 30, 1999 33,329 34 257,348 (2,064) (217) (247,863) (1,484) 7,238
========= ======== =========== ========== ============= ============ ======== ========
See accompanying notes to condensed consolidated financial statements.
INTELIDATA TECHNOLOGIES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(in thousands; unaudited)
1999 1998
----------- -----------
Cash flows from operating activities of continuing operations
Loss from continuing operations $ (3,108) $ (2,635)
Adjustments to reconcile loss from continuing operations
to net cash used in operating activities of continuing operations:
Depreciation and amortization 190 488
Deferred compensation and other noncash items 243 148
Changes in certain assets and liabilities:
Accounts receivable (1,109) (23)
Inventories - (22)
Prepaid expenses and other current assets 138 52
Other assets 82 69
Accounts payable 282 126
Accrued expenses and other liabilities 593 (1,332)
Deferred revenues (1,220) (1,572)
----------- ------------
Net cash used in operating activities of continuing operations (3,909) (4,701)
----------- ------------
Net gain from discontinued operations 1,624 (28,542)
Change in net liabilities of discontinued operations (3,106) 29,693
----------- ------------
Net cash (used in) provided by discontinued operations (1,482) 1,151
----------- ------------
Net cash used in operating activities (5,391) (3,550)
Cash flows from investing activities
Proceeds from the sale of short-term investments - 9,304
Purchases of property and equipment (56) (7)
----------- ------------
Net cash (used in) provided by investing activities (56) 9,297
----------- ------------
Cash flows used in financing activities
Payment of short-term borrowings-discontinued operations - (1,500)
Proceeds from the Issuance of Preferred Stock 5,670
Proceeds from the issuance of common stock 2,126 323
----------- -----------
Net cash provided by (used in) financing activities 7,796 (1,177)
----------- -----------
Increase in cash and cash equivalents 2,349 4,570
Cash and cash equivalents at beginning of period 8,050 2,055
----------- ------------
Cash and cash equivalents at end of period $ 10,399 $ 6,625
=========== ============
See accompanying notes to condensed consolidated financial statements.
INTELIDATA TECHNOLOGIES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(Unaudited)
(1) Basis of Presentation
The condensed consolidated balance sheet of InteliData
Technologies Corporation ("InteliData" or "Company") as of September
30, 1999, and the related condensed consolidated statements of
operations for the three and nine month periods ended September 30,
1999 and 1998, the condensed consolidated statements of cash flows for
the nine month periods ended September 30, 1999 and 1998, and the
condensed consolidated statement of changes in stockholders' equity for
the nine months ended September 30, 1999 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 for previous 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, 1998.
(2) Segment Reporting
The Company's continuing operations are reported in two
operating segments: Internet Banking and Leasing. The basis for
determining the Company's operating segments is the manner in which
financial information is used by the Company in managing its
operations. Management organizes and operates the business according to
units which provide unique products and services. Operating (loss)
income in these two segments represents total revenues less operating
expenses, and excludes other income and expense and income taxes.
Segment financial information is as follows (in thousands):
----------------------------------- ----------------------- ------------------- ---------------------
Internet Banking Leasing Consolidated
----------------------------------- ----------------------- ------------------- ---------------------
1999 Third Quarter
Revenues $ 1,988 $ 934 $ 2,922
Operating (loss) income (1,328) 726 (602)
1998 Third Quarter
Revenues $ 1,567 $ 1,158 $ 2,725
Operating (loss) income (1,551) 758 (793)
----------------------------------- ----------------------- ------------------- ---------------------
----------------------------------- ----------------------- ------------------- ---------------------
Internet Banking Leasing Consolidated
----------------------------------- ----------------------- ------------------- ---------------------
1999 Nine Months
Revenues $ 4,833 $ 3,016 $ 7,849
Operating (loss) income (5,445) 2,110 (3,335)
1998 Nine Months
Revenues $ 3,106 $ 4,241 $ 7,347
Operating (loss) income (5,965) 2,612 (3,353)
----------------------------------- ----------------------- ------------------- ---------------------
(3) Series B Convertible Preferred Stock
In accordance with generally accepted accounting principles,
portions of the proceeds from the sale of the Company's Series B Preferred Stock
were allocated to certain warrants and to the Preferred stock's conversion
feature. On the Company's statement of operations, "Preferred stock dividends
and amortization of discounts arising from allocation of proceeds to warrants
and beneficial conversion feature" in the amount of $1,535,000 is added to the
net loss to arrive at "Net Loss attributable to common stockholders." InteliData
expects dividends and amortization in the amount of approximately $600,000 to
impact the Company's earnings per share calculations for the fourth quarter. No
such dividends and amortization are expected in 2000, because as announced by
the Company on November 10, 1999, all of the Series B Preferred Stock has been
converted into common stock.
(4) Subsequent Events
On October 28, 1999, the Company received notification from
its billing agent regarding proposed changes to the billing process for
the US West Caller ID Lease Base. The pending changes, which could
require the Company's lease billings to be removed from the U.S. West
customer bills, could have a substantial effect on the rate of decline
of the lease base, the cost of billing, and the Company's ability to
pursue collections. Any changes in billing procedures could negatively
affect the Company's revenue, cost of sales, gross margin, and cash
flow in future periods.
As of November 9, 1999 all of the Company's Series B
Convertible Preferred Stock had been converted into common stock. The
total amount of common stock issued pursuant to such conversions,
including accrued dividends, was 4,792,843 shares.
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 nine months ended September 30, 1999
and 1998. 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 SEPTEMBER 30, 1999 AND 1998
Revenues
The Company's third quarter revenues were $2,922,000 in 1999 compared
to $2,725,000 in 1998, an increase of 7% or $197,000. This is attributed
primarily to the increase in software sales and professional services revenues,
offset by the expected decrease in the billable Caller ID leases. During the
third quarter, software revenues contributed $735,000, consulting and services
revenues contributed $495,000, and other revenues contributed $1,692,000.
Software and consulting revenue were the result of progress on bank
installations at Compass Bank, National City Bank, Old Kent, and First Hawaiian.
During the quarter, the Company realized $70,000 in revenues from maintenance
contracts related to the sale of software.
During the same period in 1998, there was $416,000 in revenue from
software, consulting and services contributed $415,000 and other revenues
contributed $1,894,000. During the third quarter of 1999, revenues from leasing
and other operations consisted of $934,000 from customers within its lease base
and $757,000 from royalties relating to its original sale of the Visa Bill-Pay
system. During the same period in 1998, the Company recognized $1,158,000 from
customers within its lease base, $625,000 from royalties for the VISA bill pay
operations, and $111,000 in revenues from maintenance contracts related to the
sale of software.
Cost of Revenues
The Company's third quarter cost of revenues was $576,000 in 1999
compared to $562,000 in 1998, an increase of 2% or $14,000. The increase is
attributed primarily to the increase in cost of revenues for software and
consulting services over the same period in 1998, offset by the expected
decreasing cost of revenues from Caller ID leasing activities. During the third
quarter of 1999, software cost of revenues contributed $112,000, consulting and
services contributed $256,000 and other cost of revenues contributed $208,000.
Other cost of revenues consisted of expenses associated with leasing activities.
During the third quarter of 1998, there were no software cost of
revenues, consulting and services contributed $162,000 and other cost of
revenues contributed $400,000. Other cost of revenues consisted of expenses
associated with leasing activities.
Overall gross profit margins increased slightly to 80% for the third
quarter of 1999 from 79% for the third quarter of 1998. The slight increase in
gross profit margin is result of a different mix of product sales in 1999. The
Company anticipates that gross profit margins may fluctuate in the future due to
changes in product mix and distribution, outsourcing activities associated with
a service bureau business model, competitive pricing pressure, the introduction
of new products and changes in the volume, terms, and billing costs of leasing
activity.
General and Administrative
General and administrative expenses were $1,178,000 for the third
quarter of 1999 as compared to $1,586,000 in the third quarter of 1998. The
decrease of $408,000 was primarily related to a reduction in head count in the
G&A areas. Other reductions from the same period of 1998 were related to a
decrease in depreciation expense allocated to the general and administrative
departments and the reduction of bad debt expense.
Selling and Marketing
Selling and marketing expenses decreased to $464,000 for the third
quarter of 1999 from $714,000 for the same period last year. The reduction is
attributed primarily to decreases in the number of marketing and sales
employees, the level of newspaper and other print advertising, and the reduction
of other outside consulting expenses.
Research and Development
Research and development costs were $1,306,000 in the third quarter of
1999, as compared to $656,000 in the same period in 1998. This is largely
attributable to the increase in implementation and development staff hired
during the past several months as the product line has expanded into a hosting
and service bureau business. Other increases during the period included
additional depreciation associated with hardware and related items allocated to
the Research and Development departments. The Company primarily invests research
and development expenses in writing and developing the Interpose Transaction
Engine for the Open Financial Exchange ("OFX") standard, and has begun the
initial development work associated with the Company's service bureau and
hosting businesses.
Other Income
Other income, primarily investment income, was $109,000 for the third
quarter of 1999 compared to $32,000 for the same period in the prior year. The
increase of $77,000 was directly attributable to the higher level of invested
cash maintained by the Company after the private placement of preferred stock
during the third quarter of this year.
Discontinued Operations
Discontinued operations for the Company consist of business activities
of the telecommunications and interactive services divisions. During 1998, the
Company recorded liabilities to account for the operations and activities of
discontinued operations. During the third quarter of 1999, the Company realized
a gain of $315,000 from the operations of the discontinued business,
attributable to specific events that occurred during the third quarter that
caused assumptions on future expenses to be revised. Items included favorable
settlements with former telecommunication customers, the success of aggressive
collection efforts related to accounts receivable from customers of the
discontinued business, and decreased expenses related to warranty, customer
service, and royalties. For the third quarter of 1998, the total loss of the
discontinued businesses accounted for $2,825,000. The loss from operations of
discontinued operations (net of income taxes) was $1,325,000 and the loss from
disposal of the discontinued operations was $1,500,000.
Weighted Average Outstanding Shares and Basic and Diluted Loss Per Common Share
The basic and diluted weighted average shares increased to 33,056,000
for the third quarter of 1999 compared to 31,644,000 for the third quarter of
1998. The increase resulted primarily from the exercise of stock options, the
granting of certain stock awards during the third quarter of 1999, and the
issuance and conversion of preferred shares to common stock during the third
quarter of 1999.
The Company's net loss attributable to common stockholders was impacted
by a charge of $1,535,000 related to the Series B Preferred Stock dividends and
the amortization of discounts arising from allocation of proceeds to warrants
and the beneficial conversion feature.
As a result of the foregoing, basic and diluted loss per common share
from continuing operations was $(0.06) for the third quarter of 1999 compared to
a loss of $(0.02) for the third quarter of 1998. Basic and diluted income from
discontinued operations per common share was $0.01 during the third quarter of
1999, as compared to a loss of $(0.09) for the same period in 1998. Basic and
diluted loss per common share was $(0.05) for the third quarter of 1999 compared
to a loss of $(0.11) for the third quarter of 1998.
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
Revenues
The Company's revenues for the first nine months of 1999 were
$7,849,000 compared to $7,347,000 in 1998, an increase of 7% or $502,000. The
Company recognized $1,265,000 in software revenue during the first nine months
of 1999. During the same period in 1998, the Company recognized $416,000 of
software revenue. Consulting and services revenues aggregated $1,461,000 in the
first nine months of 1999 while during the same period in 1998, the Company
recognized $626,000 in consulting and services. Leasing and other revenues were
$5,123,000 in the first nine months of 1999 compared to $6,305,000 in the first
nine months of
1998. During the first nine months of 1999, revenues from leasing and other
operations consisted of $3,016,000 from customers within its lease base, and
$2,107,000 from royalty revenues related to the VISA Bill-Pay system. During the
same period in 1998, the Company recognized $4,241,000 from customers within its
lease base, $189,000 in revenues from maintenance contracts related to the sale
of software, and $1,875,000 from royalties related to the VISA Bill-Pay system.
The number of active customers in the Company's installed lease base
historically has decreased at a rate of approximately 27% per year. The rate of
decline could be negatively affected by any changes in the billing procedures
for the lease base. Cost of Revenues
The Company's cost of revenues for the first nine months of 1999 was
$1,628,000 compared to $1,825,000 in 1998, a decrease of 12% or $197,000. The
Company had no cost of revenues related to the sale of software during the first
nine months of 1998 while in the same period in 1999, the Company incurred
$165,000 in costs associated with software sales. Consulting and services cost
of revenues aggregated $557,000 in the first nine months of 1999, while during
the same period in 1998, the Company incurred $196,000 in cost of revenues for
consulting and services. Cost of revenues associated with leasing aggregated
$906,000 in the first nine months of 1999 compared to $1,629,000 in the same
period of 1998. The decrease in cost of revenues for the Company's lease base
from the first nine months of 1998 to the first nine months of 1999 was
attributed primarily to the lease base becoming fully depreciated in 1998 and an
expected decrease in the number of active lease customers.
Overall gross profit margin increased to 79% for the first nine months
of 1999 from 75% for the same period in 1998. The increase in gross profit
margin was attributed primarily to a shift in the source of revenues for the
Company and the effects of the Company's lease base becoming fully depreciated.
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, terms, and billing costs of leasing
activity.
General and Administrative
General and administrative expenses were $4,971,000 for the first nine
months of 1999 as compared to $4,861,000 in the first nine months of 1998. The
increase of $110,000 was attributed to expanding the Company's development
facilities in Toledo, Ohio, expenses associated with the move of the Company's
headquarters to Reston, Virginia, non-cash charges associated with certain stock
grants, and expenses associated with the due diligence performed in connection
with the potential merger and joint marketing arrangement with Home Financial
Network, Inc.. 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. The Company expects to increase the level of contract activity,
thereby reducing general and administrative expense as a percentage of total
expenses.
Selling and Marketing
Selling and marketing expenses decreased to $1,676,000 for the first
nine months of 1999 from $2,001,000 for the same period last year. The decrease
is primarily attributable to the lower headcount and personnel expense in the
sales and marketing areas, and lower expenses associated with advertising and
trade shows.
Research and Development
Research and development costs were $2,909,000 in the first nine months
of 1999 compared to $2,013,000 for the same period in 1998. The increase of
$896,000 was largely attributable to increases in employee expenses during the
first nine months of the year, as well as outside consulting services, expansion
of the Company's development facility in Ohio and noncapitalized equipment
purchases. The Company primarily invests research and development expenses in
writing and developing the Interpose Transaction Engine for the Open Financial
Exchange ("OFX") standard, and has begun the initial development work associated
with the Company's service bureau and hosting business.
Other Income
Other income, primarily investment income, was $227,000 for the first
six months of 1999 compared to $718,000 for the same period in the prior year.
The decrease of $491,000 was attributed to decreased cash, cash equivalents and
short-term investment balances in the first half of 1999 compared to the first
half of 1998 and the realization of a large gain in the Company's investment
portfolio during 1998. The decrease in cash, cash equivalents and short-term
investment balances were related to the funding of the Company's working capital
and operating losses, partially offset by the effects of favorable customer
settlements and improved collections in discontinued operations.
Discontinued Operations
Discontinued operations for the Company consist of business activities
of the telecommunications and interactive services divisions. During 1998, the
Company recorded liabilities to account for the operations and activities of
discontinued operations. During the first nine months of 1999, the Company
realized a gain of $1,624,000 from the operations of the discontinued business,
primarily from favorable settlements with former telecommunication customers and
retailers, the success of aggressive collection efforts related to accounts
receivable from customers of the discontinued business, and reduced expenses
related to warranty, customer service, and royalty payments. For the first nine
months of 1998, the loss from discontinued operations (net of income taxes) was
$18,049,000 and the loss from disposal of the discontinued operations was
$10,493,000. Total losses for discontinued operations during the first nine
months of 1998 were $28,542,000.
Weighted Average Outstanding Shares and Basic and Diluted Loss Per Common Share
The basic and diluted weighted average shares increased to 32,459,000
for the first nine months of 1999 compared to 31,397,000 for the first nine
months of 1998. The increase in shares is primarily attributable to the exercise
of stock options and stock grants to key employees and the conversion of certain
preferred shares to common stock during the third quarter of 1999.
The Company's net loss attributable to common stockholders was impacted
by a charge of $1,535,000 related to the Series B Preferred Stock dividends and
the amortization of discounts arising from allocation of proceeds to warrants
and the beneficial conversion feature.
As a result of the foregoing, basic and diluted loss per common share
from continuing operations was $(0.14) for the first nine months of 1999
compared to $(0.08) for the first nine months of 1998; basic and diluted income
per common share from discontinued operations was $0.05 for the first nine
months of 1999 compared to a loss of $(0.91) for the first nine months of 1998;
basic and diluted loss per common share was $(0.09) for the first nine months of
1999 compared to $(0.99) for the first nine months of 1998.
LIQUIDITY AND CAPITAL RESOURCES
During the first nine months of 1999, the Company's cash, cash
equivalents and short-term investments increased by $2,349,000. At September 30,
1999, the Company had $10,399,000 in cash and cash equivalents. At September 30,
1999, the Company had working capital of $6,849,000 with no long-term debt. The
Company's total assets exceeded total liabilities by $7,238,000.
During the first nine months of 1999, cash used in activities of
continuing operations was $3,909,000 compared to $4,701,000 in the same period
in 1998. Cash used in operating activities of continuing operations during the
first nine months of 1999 reflects operating losses arising from certain fixed
costs, increase in Accounts Receivable, offset in part by net cash generated
from increases in accounts payable, prepaid expenses, accrued expenses, and
decreases in deferred revenues. Cash used in activities of continuing operations
during the first nine months of 1998 include certain fixed costs, operating
expenses, payment of certain liabilities and recognition of income related to
deferred revenues.
Cash used in discontinued operations during the first nine months of
1999 was $1,482,000 resulting primarily from payments related to severance
agreements and settlements with customers, partially offset by cash collections
from telecommunications customers.
Cash provided by investing activities in 1998 was primarily the result
of the sale of short-term investments offset in part by the purchase of certain
property and equipment, primarily to support an upgrade to the Company's
internal networks. In the first nine months of 1999, $56,000 was spent for
property additions.
Financing activities provided $7,796,000 in the first nine months of
1999 compared to the use of $1,177,000 during the same period in 1998. Financing
activities in the first nine months of 1999 consisted primarily of proceeds from
the sale of the Company's common stock through the issuance of $6,000,000 of
preferred stock during the third quarter of 1999 and the issuance of common
stock upon the exercise of options. Financing activities in the first nine
months of 1998 consist primarily of the payment of short-term borrowings,
partially offset by proceeds from the sale of the Company's common stock through
stock option exercises.
The Company's continuation as a going concern is dependent upon its
ability to generate sufficient cash flows to meet its obligations on a timely
basis, to obtain additional financing, and ultimately to attain profitability.
To that extent, on July 22, 1999, the Company closed a private placement of 600
shares of 4% Convertible Preferred Stock for an aggregate purchase price of
approximately $6.0 million, generating approximately $5.7 million of net
proceeds.
In addition, the Company's accuracy in predicting revenues and cash
flow is limited in that the sale of the Company's core product is reliant on the
banking industry's willingness to invest in a relatively new market, internet
banking. This market segment is slowly evolving and is subject to a number of
variables in 1999 and beyond that will determine the timing and quantity of new
sales that the Company is able to achieve. Such variables include: (1) the
effect of consolidations in the banking industry; (2) financial institutions'
progress on Year 2000 compliance; and (3) the banking customers' willingness to
invest freely in this emerging customer channel.
The Company had received notification from the Nasdaq Stock Market that
it intended to delist the Company's common stock from the Nasdaq Stock Market,
effective May 4, 1999, due to the Company's failure to meet Nasdaq's net
tangible asset requirement of $4 million. The Company took steps to remedy its
net tangible asset deficiency, and, as noted above, on July 22, 1999, InteliData
secured a private placement of approximately $6.0 million of Convertible
Preferred Stock in an effort to maintain its Nasdaq listing. On September 10,
1999, Nasdaq sent notice to the Company that its common stock would remain
listed on the National Market, if InteliData provided evidence in SEC filings of
$4,000,000 of net tangible assets as of July 31, 1999 and net tangible assets of
$7,000,000 as of September 30, 1999. These SEC filings were made and on November
5, 1999, the Company received notice from Nasdaq stating that all requirements
for the Company to continue its listing had been met and that the delisting
hearing file had been closed.
As of November 9, 1999 all of the Convertible Preferred Stock had been
converted into common stock. The total amount of common stock issued pursuant to
conversion, including accrued dividends, was 4,792,843 shares.
Year 2000
General
The inability of computers, software and other equipment utilizing
microprocessors to recognize and properly process data fields containing a 2
digit year is commonly referred to as the Year 2000 Compliance issue. As the
year 2000 approaches, such systems may be unable to accurately process certain
date-based information.
The Company believes it has identified all significant applications
that will require modification to ensure Year 2000 Compliance. Internal and
external resources are being used to make the required modifications and test
Year 2000 Compliance.
Project
- -------
The Company's Year 2000 Project ("Project") is proceeding on schedule.
In 1996, the Company began a significant re-engineering of its business
processes across the Company including improved access to business information
through common, integrated computing systems. As a result, the Company replaced
its business systems with systems from J.D. Edwards & Company, IBM Corporation
and Microsoft Corporation, which are designed to be Year 2000 Compliant. The
Company became fully operational on these systems in 1998.
The Company has a Project team, with certain sub teams. The Project
includes four major areas corporate business systems, local software systems,
third party suppliers of goods and services, and Interpose software systems. The
general phases of the Project are: (1) inventorying date-aware items; (2)
determining criticality and assigning priorities to identified items; (3)
assessing the Year 2000 compliance of items determined to be material to the
Company; (4) repairing, replacing or identifying workarounds for material items
that are determined not to be Year 2000 Compliant; (5) testing material items;
(6) identifying critical third parties; and (7) designing contingency plans.
At September 30, 1998, the inventory, priority assessment and
compliance assessment phases of each area of the Project were essentially
complete. Material items are those believed by the Company to have a risk
involving the welfare of our customers or which could substantially affect
revenues.
Corporate business systems activities including, hardware and systems
software, networks and telecommunications, were completed by September 30, 1999.
Local software systems include process control and instrumentation
systems and building systems. Operational improvement projects already underway
address some of the Year 2000 concerns. Necessary replacements or upgrades with
minor exceptions were completed by September 30, 1999.
The third party suppliers phase includes the process of identifying and
prioritizing critical suppliers of goods and services, and communicating with
them about their plans and progress in addressing the Year 2000 concerns. The
Company completed the identification phase and evaluated the most critical third
parties. These evaluations were followed by the development of contingency plans
as necessary, including plans to use alternative third party vendors, if
necessary. This Project phase was completed by mid-1999, with monitoring planned
through the remainder of 1999.
The Company has contingency plans for some mission-critical
applications and is working on plans for others. For example, contingency plans
for the payroll system have been in place since the second quarter of 1998,
while detailed plans for other business processes will be completed by year-end.
A steering committee is closely monitoring the progress of business process
contingency plans involving, among other actions, manual workarounds and
additional staffing.
The Interpose software phase included actions to address the issue of
Year 2000 Compliance as it relates to the Company's customer software. The
Company believes that its current version of the Interpose software is Year 2000
Compliant. Actions taken to address previous releases of the software were, with
minor exceptions, programming changes to replace a non-compliant date conversion
routine with one that was already Year 2000 compliant. Any customer whose
product was not already compliant was notified of any source code changes and/or
release updates made to the product. The Company has issued letters to its
customers that assure that any changes pertinent to the correcting Year 2000
concerns were addressed by the third quarter of 1997 and that all future
releases of Interpose will be fully year 2000 compliant.
Costs
- -----
The estimated total cost associated with required modifications to
become Year 2000 compliant has not been and is not anticipated to be material to
the Company's financial position or results of operations in any given year. The
estimated total cost of the Project is or will be expensed and includes
allowances for some items for which a fix or workaround is still being
determined.
Risks
- -----
The failure to correct a material Year 2000 problem could result in an
interruption in, or failure of certain normal business activities or operations,
which could materially and adversely affect the Company's results of operations,
liquidity and financial condition. Due to the general uncertainty inherent in
the Year 2000 problem, resulting in part from the uncertainty of the Year 2000
readiness of third-party suppliers and customers, the Company is unable to
determine at this time whether the consequences of Year 2000 problems will have
a material impact on the Company's results of operations, liquidity or financial
condition. The Project is expected to reduce significantly the Company's level
of uncertainty about the Year 2000 problem and, in particular, about the Year
2000 compliance and readiness of its material third-party suppliers. The Company
believes that with the previously accomplished implementation of global business
systems and completion of the Project as scheduled, the possibility of material
interruptions of normal operations should be reduced significantly.
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, reliance on resellers, pace of consumer acceptance of home banking, bank
mergers and acquisitions, risk of integration of the Company's technology by
large software companies, the ability of financial institution customers to
implement applications in the anticipated time frames or with the anticipated
features, functionality or benefits, limited proprietary protection of the
Company's intellectual property, 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 growth, reliance on Caller ID leasing
revenues and billing operations, product obsolescence, the ability to reduce
product costs, fluctuations in operating results, ability to continue funding
operating losses, delays in development of highly complex products, InteliData
common stock owned by WorldCorp, the Company's ability to continue its listing
on the Nasdaq national market, 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, 1998. These risks could cause the Company's actual results for 1999
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.
PART II: OTHER INFORMATION
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------
(a) Exhibits
---------
None
(b) Reports on Form 8-K
---------------------
On July 26,1999 (as amended on July 28, 1999) the Company filed a Form
8-K with the Securities and Exchange Commission announcing that the Company had
closed a private placement of 600 shares of 4% Convertible Preferred stock for
an aggregate purchase price of approximately $6.0 million.
On September 28, 1999, the Company filed a Form 8-K with the Securities
and Exchange Commission with an attached August 31, 1999 unaudited balance sheet
solely at the request of the Nasdaq Listing Qualification Panel.
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 and Chief Executive Officer and
Acting Chief Financial Officer