<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
- --- Act of 1934
For the quarter ended: March 31, 1999
or
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
- --- Act of 1934
For the transition period from _____ to _____.
Commission file number: 0-27680
INTELLIQUEST INFORMATION GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 74-2775377
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
1250 Capital of Texas Highway
Austin, Texas 78746
(512) 329-0808
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES)
_________________________
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
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS OUTSTANDING AT APRIL 30, 1999
Common Stock, $.0001 par value 7,857,810
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INTELLIQUEST INFORMATION GROUP, INC.
INDEX
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<CAPTION>
PAGE NO.
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Balance Sheet
March 31, 1999 (unaudited) and December 31, 1998 3
Condensed Consolidated Statement of Operations (unaudited)
Three Months Ended March 31, 1999 and 1998 4
Consolidated Statement of Comprehensive Income (unaudited)
Three Months Ended March 31, 1999 and 1998 5
Condensed Consolidated Statement of Cash Flows (unaudited)
Three Months Ended March 31, 1999 and 1998 6
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Changes in Securities 16
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
INTELLIQUEST INFORMATION GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
---- ----
(UNAUDITED)
ASSETS
<S> <C> <C>
Current assets:
Cash $ 2,904 $ 5,611
Short-term investments 27,905 28,010
Accounts receivable, net 10,490 10,978
Unbilled revenues 4,334 3,532
Projects in process 1,818 153
Prepaid expenses and other assets 2,771 2,336
----------- -----------
Total current assets 50,222 50,620
Furniture and equipment, net 2,935 2,850
License agreement, net 7,271 7,324
Other assets 1,697 1,793
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Total assets $ 62,125 $ 62,587
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----------- -----------
LIABILITIES AND COMMON STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,216 $ 3,996
Accrued liabilities 2,639 2,826
Deferred revenues 2,886 2,145
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Total current liabilities 8,741 8,967
Obligations under capital leases and deferred rent 52 79
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Total liabilities 8,793 9,046
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Common stockholders' equity:
Series A junior participating preferred stock - -
Common stock, $.0001 par value, 30,000,000 shares
authorized, 7,858,000 and 8,563,000 shares issued
and outstanding, respectively 720,000 and 720,000
shares in treasury, respectively 1 1
Capital in excess of par value 54,129 53,976
Other----------------------------- 30 121
Accumulated deficit (828) (557)
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Total common stockholders' equity 53,332 53,541
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Total liabilities and stockholders' equity $ 62,125 $ 62,587
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</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
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INTELLIQUEST INFORMATION GROUP, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED, MARCH 31,
1999 1998
---- ----
<S> <C> <C>
REVENUES:
Continuous services $8,500 $8,219
Other services 2,481 1,740
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Total revenues 10,981 9,959
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Operating expenses:
Costs of revenues 5,716 5,798
Sales, general and administrative 5,376 6,121
Product development 410 2,382
Depreciation and amortization 351 329
------ ------
Total operating expenses 11,853 14,630
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Operating loss (872) (4,671)
Interest income, net 267 408
------ ------
Loss before income tax benefit (605) (4,263)
Income tax benefit (334) (1,894)
------ ------
Net loss $ (271) $(2,369)
------ ------
------ ------
Basic loss per share $(.03) $(.28)
Diluted loss per share $(.03) $(.28)
Basic weighted average shares outstanding 7,858 8,484
Diluted weighted average shares outstanding 7,858 8,484
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
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INTELLIQUEST INFORMATION GROUP, INC.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED, MARCH 31,
1999 1998
---- ----
<S> <C> <C>
Net loss $ (271) $(2,369)
Other comprehensive income loss, net of tax:
Foreign currency translation adjustments (55) 4
Unrealized loss on securities (36) (13)
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Other comprehensive loss (91) (9)
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Comprehensive loss $ (362) $(2,378)
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------- -------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
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INTELLIQUEST INFORMATION GROUP, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED, MARCH 31,
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (271) $(2,369)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 348 436
Provision for doubtful accounts 28 58
Asset impairment and loss on disposal of assets 0 2,872
Deferred compensation 4 3
Net changes in assets and liabilities:
Accounts receivable and unbilled revenues (342) (1,416)
Prepaid expenses and other assets (435) (1,926)
Projects in process (1,665) (1,172)
Accounts payable and accrued expenses (967) 910
Deferred revenues 740 (239)
Other 96 (20)
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Net cash used in operating activities (2,464) (2,863)
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Cash flows from investing activities:
Purchases of short-term investments (9,105) (106,916)
Sales and maturities of short-term investments 9,144 108,903
Purchases of equipment and leasehold improvements (380) (425)
Purchase of Information Technology Forum assets, net of cash
acquired - (138)
Other 66 32
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Net cash provided by (used in) investing activities (275) 1,456
------- -------
Cash flows from financing activities:
Proceeds from issuance of stock, net 153 3
Other (121) (15)
------- -------
Net cash provided by (used in) financing activities 32 (12)
------- -------
Net decrease in cash and equivalents (2,707) (1,419)
Cash and equivalents at the beginning of the period 5,611 1,785
------- -------
Cash and equivalents at the end of the period $ 2,904 $ 366
------- -------
------- -------
Supplemental cash flow disclosures:
Interest paid $ - $ 1
Taxes paid - 4
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
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INTELLIQUEST INFORMATION GROUP, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(CONTINUED)
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended, March 31,
1999 1998
---- ----
<S> <C> <C>
Schedule of noncash investing activities:
Purchase of Information Technology Forum assets
Working capital other than cash $ - $ 43
Equipment and leasehold improvements - 17
Intangibles - 821
Capital lease assumed - (10)
Issuance of unregistered common stock - (733)
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Cash paid for Information Technology Forum assets, net
of cash acquired $ - $ 138
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</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
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INTELLIQUEST INFORMATION GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
1. GENERAL AND BASIS OF FINANCIAL STATEMENTS
The accompanying unaudited interim consolidated financial statements
include the accounts of IntelliQuest Information Group, Inc., a Delaware
corporation, and its consolidated subsidiaries (collectively, the "Company"
or "IntelliQuest"). The Company provides international quantitative
marketing information to technology companies, and operates under two
divisions. The marketing research division and IQ2.net, which focuses on a
suite of online and database marketing services which can greatly improve
the identification and segmentation of customers and prospects for more
effective customer acquisition and retention.
The accompanying unaudited interim consolidated financial statements have
been prepared in accordance with the rules and regulations of the
Securities and Exchange Commission regarding interim financial statements
and, accordingly, do not include all information and notes required under
generally accepted accounting principles for complete financial statements.
In the opinion of management, the accompanying unaudited interim
consolidated financial statements contain all adjustments of a normal
recurring nature as considered necessary for a fair presentation of the
financial position of the Company as of March 31, 1999 and the results of
the Company's operations and its cash flows for the three-month periods
ended March 31, 1999 and 1998. This report on Form 10-Q should be read in
conjunction with the Company's audited consolidated financial statements
and related notes included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1998.
2. LICENSE AGREEMENT
On December 22, 1997, the Company paid $7.5 million for an exclusive
licensing agreement to market and sell database products to the high-tech,
telecommunications, cable and utility industries. In conjunction with the
agreement the Company pays the licensor royalties and fees on revenue from
the sale of data and services.
The contract provides for annual target minimum payments. Royalties and
service fees for the database marketing products were sufficient to satisfy
the prorated annual target minimum payments under this agreement.
Of the total license fee of $7.5 million, $5 million is refundable under
certain conditions. Should the license be cancelled by the Company, or
cancelled due to the acquisition by the Company of a competitor of the
licensor or to the acquisition of the Company by a competitor of the
Licensor, or under certain other conditions, the refundable $5 million
portion may not be recoverable by the Company.
3. ACQUISITION OF ASSETS/ RELATED PARTY TRANSACTION
Effective January 1, 1998, the Company purchased certain assets of
Information Technology Forum, Inc. ("ITF") a company wholly owned by
Charles W. Stryker, who was a Director of the Company at the time of the
acquisition. The assets were purchased with cash and stock and the
transaction was accounted for under the purchase method. The assets
purchased were recorded at fair value at the time of purchase. The excess
of the purchase price over the fair value of amounts assigned to the net
tangible assets purchased has been assigned to goodwill in the amount of
approximately $831,000, as reported in the Company's Annual Report on Form
10-K for the period. As the operations of ITF are immaterial to the Company
as a whole, pro forma financial statements are not disclosed.
<PAGE>
INTELLIQUEST INFORMATION GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
4. STOCK REPURCHASE PROGRAM
In January 1998, the Board of Directors approved the repurchase of up to
850,000 shares of the Company's common stock. As of March 31, 1999,
720,000 shares have been repurchased.
5. SEGMENT INFORMATION
The Company is organized on the basis of products and services provided.
The table below presents information about reported segments for the three
months ended March 31, 1999 and 1998 (in thousands):
<TABLE>
<CAPTION>
Research IQ2.Net
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1999 1998 1999 1998
<S> <C> <C> <C> <C>
Revenues $ 6,034 $ 5,691 $ 4,946 $ 4,268
------------------------ ------------------------
EBIT $ (571) $ (798) $ (301) $ (1,498)
------------------------ ------------------------
------------------------ ------------------------
</TABLE>
A reconciliation of total segment revenues to total consolidated
revenues and of total segment EBIT to total consolidated operating loss,
for the three months ended March 31, 1999 and 1998 is as follows (in
thousands):
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
REVENUES
Total segment revenues $ 10,981 $ 9,959
Other reconciling items --- ---
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Consolidated revenues $ 10,981 $ 9,959
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EBIT
Total EBIT for reportable segments $ (872) $ (2,296)
Reconciling items:
Write down of capitalized software
not attributable to defined segment --- (916)
Unsuccessful launch of new segment --- (805)
Charges for unsuccessful launch of:
National sales force --- (496)
Other --- (158)
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Operating loss (872) (4,671)
Other income, net 267 408
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Loss before tax benefit $ (605) $ (4,263)
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</TABLE>
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EBIT is net income before interest and taxes. EBIT is a financial measure
commonly used as an indicator of operating performance and should not be
construed as an alternative to net income as determined in accordance with
generally accepted accounting principles.
INTELLIQUEST INFORMATION GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
EBIT for IQ2.net in 1998 includes a one-time write off of capitalized
internally developed software of $580,000.
6. BARTER REVENUE RECOGNITION
During the first quarter of 1999, the Company entered into six barter
agreements with Internet search engine companies. These agreements allow
IntelliQuest access to Internet banner impressions for soliciting marketing
information responses; in return, the Internet companies receive
product-marketing data from this information. These transactions had
associated recognized revenue of $231,500 and direct expenses of $231,500,
resulting in no effect on results of operations. These types of
transactions are common in this industry. Historically, the Company has
participated in these types of transactions in the past, however the
previous amounts were immaterial.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
THE FOLLOWING MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS CONTAINS TREND ANALYSIS AND OTHER
FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. SUCH
FORWARD-LOOKING STATEMENTS INCLUDE, BUT ARE NOT LIMITED TO, THE COMPANY'S
EXPECTATIONS REGARDING ITS FUTURE FINANCIAL CONDITION AND OPERATING RESULTS,
PRODUCT DEVELOPMENT, BUSINESS AND GROWTH STRATEGY, MARKET CONDITIONS AND
COMPETITIVE ENVIRONMENT. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY
FROM THOSE ANTICIPATED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF
CERTAIN FACTORS, INCLUDING, BUT NOT LIMITED TO RISKS ASSOCIATED WITH DATABASE
MARKETING INFORMATION SERVICES, RELIANCE ON KEY CUSTOMERS/TECHNOLOGY INDUSTRY
CONSOLIDATION; DEPENDENCE ON SUBSCRIPTION AND CONTRACT RENEWALS; FLUCTUATIONS
IN OPERATING RESULTS/SEASONALITY; MANAGEMENT OF GROWTH/POSSIBLE ACQUISITIONS;
COMPETITION; DEPENDENCE ON KEY PERSONNEL; DEVELOPMENT OF DIRECT SALES FORCE;
RAPID TECHNOLOGICAL CHANGE AND NEW PRODUCT INTRODUCTION; DATA COLLECTION
RISKS; RISKS RELATED TO CIMS; HISTORY OF NET LOSSES/UNCERTAIN PROFITABILITY;
LIMITED PROTECTION OF PROPRIETARY SYSTEMS, SOFTWARE AND PROCEDURES; THE
COMPANIES PURSUIT OF STRATEGIC ALTERNATIVES; AND RISKS ASSOCIATED WITH
INTERNATIONAL OPERATIONS.
OVERVIEW
IntelliQuest is a leading provider of information, technologies, and
analysis services that are designed to improve the marketing performance of
technology companies. IntelliQuest supplies customers with timely, objective,
accurate and cost-effective information about technology markets, customers and
products on both a subscription basis and a proprietary project basis. The
Company uses its proprietary databases, software and subscription-based
strategic consulting services to help technology companies track product
performance and customer satisfaction, measure advertising effectiveness, assess
brand strength and competitive position, determine price sensitivity, and
evaluate new products, markets or other business opportunities. The Company
licenses custom proprietary software applications and associated services to
technology manufacturers for customer registration. In December 1997, the
Company entered into an exclusive licensing agreement to market and sell
database products to the high-tech, telecommunications, cable and utility
industries.
The Company's continuous services are composed of renewable
subscription-based products, renewable proprietary products, customer
information products sold under contract, and recurring conferences. The
Company's renewable subscription-based product revenues are derived
substantially from four product families: IntelliTrack IQ, World Wide Internet
Tracking Study ("WWITS"), the Computer Industry Media Study ("CIMS"), and Zona
Advisory Services. The Company's renewable proprietary product revenues
typically consist of revenues from proprietary recurring tracking studies, panel
projects, "value-add" proprietary services, and customer information products.
Revenues from the customer information products are derived from a variety of
sources, including proprietary customer registration products, proprietary
customer satisfaction products and database marketing services. Renewable
customer information revenues include data medium sales, processing fees and
reporting fees. The Company's other services are composed of non-recurring
proprietary research, non-recurring conferences and database marketing services
sold to clients where an ongoing contractual agreement does not exist.
Renewable subscription products, except for CIMS, are furnished pursuant to
contracts that are
<PAGE>
generally renewable annually, and revenue is amortized pro rata over the
contract terms. Substantially all CIMS revenues and related costs are deferred
and recognized upon delivery of the final study, which typically occurs in the
third quarter. Renewable proprietary and panel products are furnished pursuant
to contracts that are generally renewable annually. Revenues for renewable
proprietary and panel products are recognized on a percentage of completion
basis. Customer information products are recognized based on actual units'
shipped/processed. Revenue for conferences is recognized in the period in which
the conference takes place.
The Company's exposure to foreign currency rate fluctuations has been
relatively low. First, the Company generally requires payment from its customers
in U.S. dollars. Second, the Company controls vendor related foreign currency
risk both through contractual clauses requiring clients to reimburse the Company
for any material losses on contracts caused by exchange rate fluctuations and by
locking in forward currency contracts. The Company's objective in managing the
exposure to foreign currency fluctuations is to reduce earnings and cash flow
volatility associated with foreign exchange rate changes. Accordingly, the
Company utilizes foreign currency option contracts and forward contracts to
hedge a portion of its exposure on anticipated transactions and firm commitment
transactions. The currency hedged is the British pound. The Company monitors
its foreign exchange exposures to ensure the overall effectiveness of its
foreign currency hedge positions. However, there can be no assurance the
Company's foreign currency hedging activities will substantially reduce the
impact of fluctuations in currency exchange rates on its results of operations
and financial position. As of March 31, 1999, there were no outstanding forward
contracts in place.
RESULTS OF OPERATIONS
TOTAL REVENUES. Total revenues increased from $10.0 million to $11.0
million for the quarters ended March 31, 1998 and 1999, respectively. This
growth represents a 10.0% increase for the three-month period ended March 31,
1999 from the comparable 1998 period.
Revenues from continuous services increased 3.4% from $8.2 million to $8.5
million for the quarters ended March 31, 1998 and 1999, respectively. This was
due to shifts in the product lines and divisional sales mix. Other revenue
increased 42.6% to $2.5 million for the three months ended March 31, 1999 from
$1.7 million for first quarter of 1998. This increase was incurred in the
panel division, due to non-recurring sales of customized panels. Also,
contributing to the increase was the execution of barter agreements and the
revenue recognition of $231,500 associated with these agreements.
Revenues attributable to international market research increased 18.2% from
$2.2 million to $2.6 million for the quarters ended March 31, 1998 and 1999,
respectively. This was due to increased projects associated with our current
customer base.
COSTS OF REVENUES. Costs of revenues are primarily composed of data
collection, labor charges, database marketing service charges, royalties,
telecommunications charges and other costs directly attributable to products or
projects. Costs of revenues decreased 1% from $5.8 million to $5.7 million for
the quarters ended March 31, 1998 and 1999, respectively. Costs of revenues
decreased as a percentage of total revenues from 58% to 52% for the quarters
ended March 31, 1998 and 1999, respectively. The decrease was a result of under
utilized labor in the research area, with this deficiency being absorbed in
sales, general and administration expenses.
<PAGE>
SALES, GENERAL AND ADMINISTRATIVE EXPENSES. Sales, general and
administrative expenses consist primarily of personnel and other costs
associated with sales, marketing, administration, finance, information systems,
human resources and general management. Sales, general and administrative
expenses decreased 12.3% from $6.1 million to $5.4 million for the quarters
ended March 31, 1998 and 1999, respectively. As a percentage of total revenues,
sales, general and administrative expenses decreased to 49.0% for the first
quarter of 1999 from 61.4% for the first quarter of 1998. This decrease is due
primarily to one-time adjustments totaling $1.5 million for reorganization
efforts in Q1 1998.
PRODUCT DEVELOPMENT EXPENSES. Product development expenses include costs
incurred to develop or design new products, services or processes and
significantly enhance existing products, services, and processes. Product
development expenses were $2.4 million and $410,000 for the three months ended
March 31, 1998 and 1999, respectively. As a percentage of total revenues,
product development expenses represented 23.9% and 3.7% for the first quarters
of 1998 and 1999, respectively. The decrease is primarily related to one-time
charges during the first quarter of 1998 to write-off capitalized software
development costs totaling $2.0 million due to an impairment in foreseeable
future benefit. Before the effect of these one-time charges, product
development expenses for the first quarter of 1999 were flat in absolute dollars
versus the prior year and represented 4% of total revenues for the quarter.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased
6.7% from $329,000 to $351,000 for the quarters ended March 31, 1998 and 1999,
respectively.
INCOME TAXES. Benefit for income taxes as a percentage of income before
income taxes represents 55.2% for the quarter ended March 31, 1999. This rate
is higher than the Company's combined federal and state income tax rates due to
significant interest income derived from in tax-free investments, as a
percentage of loss before taxes. As a percentage of operating income before
investment income the rate is 38.3% which approximates the Company's effective
tax rate.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1999, the Company had cash of $2.9 million and short-term
investments of $27.9 million and working capital of $41.5 million.
During the three months ended March 31, 1999, the Company used $2.4 million
for operating activities versus $2.9 million during the same period in the prior
year. This increase in cash flow used for operations was primarily due to the
Company's ramp up of the projects in process and the reduction of current
liabilities. Billed amounts are recorded as deferred revenues on the Company's
financial statements and are recognized as income when earned. As of March 31,
1998 and 1999, the Company had $2.2 million and $2.9 million, respectively, of
deferred revenues. In addition, when work is performed in advance of billing,
the Company will record this work as unbilled revenue. As of March 31, 1998 and
1999, the Company had $4.7 million and $4.3 million of unbilled revenues,
respectively. Substantially all deferred and unbilled revenues will be earned
and billed, respectively, within 12 months of the respective period ends.
The Company generated net cash from investing activities of $1.5 million
and had net outflows of $275,000 for the three months ended March 31, 1998 and
1999, respectively. Investments in short-term securities did generate cash flow
of $39,000 in 1999, while purchases of equipment/leasehold improvements and
other investing activities used $314,000. The overall reduction is a result of
the
<PAGE>
Company's use of short-term investment cash to purchase treasury stock.
The Company used cash for financing activities of $12,000 and generated
cash of $32,000 in the quarters ended March 31, 1998 and 1999, respectively.
The Company believes that the cash flows from operations, together
with existing cash balances, short term investments and the line of credit, will
be sufficient to meet its working capital and capital expenditure requirements
for at least the next 12 months. Beyond that time, if cash flows from
operations and available borrowing from the line of credit are not sufficient to
satisfy its financing needs, the Company may seek additional funding through the
sale of its securities, including equity securities. There can be no assurance
that such funding can be obtained on favorable terms, if at all.
YEAR 2000 COMPLIANCE
The Year 2000 issue is a result of computer programs that were written
using two digits rather than four to define the applicable year. For example,
computer programs that have time-sensitive software may recognize a date using
00 as the year 1900 rather than the year 2000. To the extent that the Company's
software applications contain operating instructions that are unable to
interpret appropriately the upcoming calendar year 2000 and beyond, some level
of modification or replacement of such applications will be necessary to avoid
system failures and the temporary inability to process transactions or engage in
other normal business activities.
Management has implemented a company-wide program to assess the computer
systems and applications for the year 2000. A team was established in 1998,
headed by the Company's chief operating officer, to coordinate the Company's
Year 2000 compliance efforts. The Year 2000 team is staffed with
representatives of the Company's management information group and the business
units. Consultants and legal counsel are being leveraged as needed. The chief
operating officer reports regularly on the status of the Year 2000 project to
the Company's Board of Directors.
The Year 2000 team has completed an inventory of all computer-based systems
and applications (including embedded systems) the Company uses in its
operations. The inventory includes an assessment of all computer-based systems
and applications. Corrective action plans have been carried out based upon
criticality to the Company's operations and only a small percentage of less
critical corrections remain to be performed.. The Year 2000 team is currently
conducting tests necessary to verify that the modified systems are operational
and transitioning the compliant systems into the regular operations of the
Company.
The Year 2000 team is also examining the Company's relationships with key
vendors and clients with whom the Company has significant business relationships
to determine, to the extent practical, the degree of such outside parties' Year
2000 compliance. Vendors and clients have been prioritized based upon
criticality to the Company's business operations. The team is in the process of
assessing vendor and client Year 2000 compliance.
As part of the Year 2000 compliance effort, the team will be establishing
and implementing a contingency plan to provide for viable alternatives to ensure
that the
<PAGE>
Company's core business operations are able to continue in the event of a Year
2000-related systems failure.
The Company is currently in the testing phases of the compliance plan, with
compliance expected to be completed prior to December 31, 1999. The Company
expects to incur costs of approximately $150,000 to $250,000 through 1999 for
consulting, administration, hardware, software, and other expenses associated
with Year 2000 compliance. This quarter, the Company has incurred
approximately $26,000 related to the correction and testing phases of the Year
2000 project. These charges are reported as a component of selling, general and
administrative expenses. The Company plans to expense maintenance costs as
incurred, while costs of updated software and hardware will be amortized over
the respective lives of the assets. The total cost of the project is being
funded through operating cash flows.
The Company does rely on third-party providers for key services such as
telecommunications and database marketing services. Interruption of these
services could, in management's view, have a material impact on the operations
of the Company. Efforts have begun to evaluate the readiness of these critical
suppliers. Management believes that, should the Company or other third parties,
with whom the Company has a significant business relationship, have a Year
2000-related systems failure, the most significant impact would likely be the
inability to deliver products in a timely fashion to its clients, to receive
certain products from vendors, or to process electronically certain internal
database programs. The impact could be material to the Company's liquidity or
results of operations.
STOCK REPURCHASE PROGRAM
In January 1998, the Board of Directors approved the repurchase of up to
850,000 shares of the Company's outstanding common stock. As of the date of
this filing there were 720,000 shares repurchased under the plan.
STRATEGIC ALTERNATIVES
On February 26, 1999, the Company disclosed that it had retained U.S.
Bancorp Piper Jaffrey Inc. to assist in reviewing strategic alternatives,
including the potential sale of all or part of the operations of the Company.
As a result of this review the Company is in discussions with certain parties
which are potentially interested in acquiring all or part of the operations of
the Company. There is no certainty that a transaction will result from these
discussions or that any definitive agreement will be executed.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
In connection with the acquisition by the Company of certain assets of
Information Technology Forum, Inc. ("ITF") in January 1998, the
Company issued 67,532 shares of its common stock, and paid $150,000 to
ITF in exchange for assets valued at $883,000 including cash accounts
of $12,000. No underwriters were used in connection with the
issuance. With respect to the issuance, the Company relied on the
exemption from registration afforded by Section 4(2) of the Securities
Act of 1933, as amended.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11.1 Statement Regarding Computation of Net Income Per Share
27 Financial Data Schedule
(b) Reports on Form 8-K
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused the report to be signed on its behalf by the
undersigned thereunto duly authorized.
DATED May 15, 1999
IntelliQuest Information Group, Inc.
(Registrant)
By: /s/ Francis S Webster III
-------------------------------
Francis S. Webster III
Chief Financial Officer
<PAGE>
Exhibit 11.1
INTELLIQUEST INFORMATION GROUP, INC.
STATEMENT REGARDING COMPUTATION OF NET LOSS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
For the Three Months Ended
March 31, 1999
-------------------------------------------
Weighted
Average
Loss Shares Per-Share
(Numerator) (Denominator) Amount
----------- -------------- ------------
<S> <C> <C> <C>
Basic EPS
Net loss available to common stockholders $ (271) 7,858 $ (.03)
-----------
-----------
Effect of Dilutive Securities
Options (A)
----------------------------
Diluted EPS $ (271) 7,858 $ (.03)
----------- -------------- ------------
----------- -------------- ------------
</TABLE>
<TABLE>
<CAPTION>
For the Three Months Ended
March 31, 1998
-------------------------------------------
Weighted
Average
Loss Shares Per-Share
(Numerator) (Denominator) Amount
----------- -------------- ------------
<S> <C> <C> <C>
Basic EPS
Net loss available to common stockholders $ (2,369) 8,484 $ (.28)
-----------
-----------
Effect of Dilutive Securities
Options (A)
----------------------------
Diluted EPS $ (2,369) 8,484 $ (.28)
----------- -------------- ------------
----------- -------------- ------------
</TABLE>
(A) Due to the net loss in the first quarter of 1998 and 1999, diluted weighted
average shares excludes the effect of dilutive securities.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE MARCH
31, 1999 FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 2,904
<SECURITIES> 27,905
<RECEIVABLES> 10,490
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 50,222
<PP&E> 2,935
<DEPRECIATION> 0
<TOTAL-ASSETS> 62,125
<CURRENT-LIABILITIES> 8,741
<BONDS> 0
0
0
<COMMON> 1
<OTHER-SE> 53,331
<TOTAL-LIABILITY-AND-EQUITY> 62,125
<SALES> 10,981
<TOTAL-REVENUES> 10,981
<CGS> 5,716
<TOTAL-COSTS> 5,716
<OTHER-EXPENSES> 6,137
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (605)
<INCOME-TAX> (334)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (271)
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
