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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
------------------------------------------------
For the Quarter ended: June 30, 1997 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,
1997 was 31,844,527.
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<PAGE>
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, 1997 and December 31, 1996 ........................ 3
Condensed Consolidated Statements of Operations
Three and Six Months Ended June 30, 1997 and 1996 ........ 4
Condensed Consolidated Statement of Stockholders' Equity
Six Months Ended June 30, 1997 ........................... 5
Condensed Consolidated Statements of Cash Flows
Six Months Ended June 30, 1997 and 1996 .................. 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 ......................... 18
SIGNATURES.................................................................. 19
<PAGE>
PART I: FINANCIAL INFORMATION
- ------------------------------
ITEM 1: FINANCIAL STATEMENTS
- -----------------------------
<TABLE>
INTELIDATA TECHNOLOGIES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 1997 AND DECEMBER 31, 1996
(in thousands, except share data)
<CAPTION>
1997 1996
----------- -----------
(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 12,842 $ 26,644
Short-term investments 11,412 12,418
Accounts receivable, net of reserves of
$1,323 in 1997 and $1,788 in 1996 18,813 12,925
Inventories 30,646 28,420
Prepaid expenses and other current assets 1,610 2,582
----------- -----------
Total current assets 75,323 82,989
----------- -----------
NONCURRENT ASSETS
Costs in excess of net assets acquired 48,477 50,061
Property, plant and equipment, net 7,076 9,143
Investments 2,120 253
Other assets 1,249 1,300
----------- -----------
TOTAL ASSETS $ 134,245 $ 143,746
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 4,892 $ 4,684
Accrued expenses and other liabilities 7,578 12,773
Short-term borrowings -- 2,000
----------- -----------
TOTAL LIABILITIES 12,470 19,457
----------- -----------
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 and
outstanding 31,844,527 shares in 1997 and 31,816,693 shares in 1996 32 32
Additional paid-in capital 243,857 243,757
Receivable from sale of stock (2,456) (2,456)
Deferred compensation (75) (133)
Accumulated deficit (119,583) (116,911)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 121,775 124,289
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 134,245 $ 143,746
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
<TABLE>
INTELIDATA TECHNOLOGIES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(in thousands, except per share data; unaudited)
<CAPTION>
Three months ended Six months ended
June 30, June 30,
---------------------------- ---------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES
Consumer telecommunications $ 15,784 $ 69 $ 36,192 $ 846
Electronic commerce 1,063 479 2,211 1,028
Interactive services 16 -- 24 --
----------- ----------- ----------- -----------
Total revenues 16,863 548 38,427 1,874
----------- ----------- ----------- -----------
COST OF REVENUES
Consumer telecommunications 11,598 81 24,625 693
Electronic commerce 707 261 1,502 579
Interactive services 14 -- 20 --
----------- ----------- ----------- -----------
Total cost of revenues 12,319 342 26,147 1,272
----------- ----------- ----------- -----------
Gross profit 4,544 206 12,280 602
OPERATING EXPENSES
General and administrative 2,496 2,681 5,594 4,522
Selling and marketing 3,774 54 5,810 83
Research and development 2,501 616 4,584 1,175
Goodwill amortization 903 -- 1,673 --
----------- ----------- ----------- -----------
Total operating expenses 9,674 3,351 17,661 5,780
----------- ----------- ----------- -----------
Operating loss (5,130) (3,145) (5,381) (5,178)
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE)
Interest, net 446 333 885 693
Equity in affiliate 1,867 (468) 1,867 (894)
Other, net -- 74 -- 185
----------- ----------- ----------- -----------
Total other income (expense) 2,313 (61) 2,752 (16)
----------- ----------- ----------- -----------
Loss before income taxes (2,817) (3,206) (2,629) (5,194)
Income taxes 20 -- 43 --
----------- ----------- ----------- -----------
Net loss $ (2,837) $ (3,206) $ (2,672) $ (5,194)
=========== =========== =========== ===========
Net loss per common share $ (0.09) $ (0.20) $ (0.08) $ (0.33)
=========== =========== =========== ===========
Weighted average outstanding shares 31,819 15,882 31,818 15,833
=========== =========== =========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
<TABLE>
INTELIDATA TECHNOLOGIES CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 1997
(in thousands; unaudited)
<CAPTION>
Common Stock Additional Receivable
------------------ paid-in from sale Deferred Accumulated
Shares Amount capital of stock Compensation Deficit Total
------ --------- ---------- ---------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 31,817 $ 32 $ 243,757 $ (2,456) $ (133) $ (116,911) $ 124,289
Issuance of common stock upon
exercise of stock options 5 -- 5 -- -- -- 5
Issuance of common stock related
to employee stock purchase plan 23 -- 95 -- -- -- 95
Compensation expense -- -- -- -- 58 -- 58
Net loss -- -- -- -- -- (2,672) (2,672)
------ --------- --------- --------- ------- ----------- ----------
Balance at June 30, 1997 31,845 $ 32 $ 243,857 $ (2,456) $ (75) $ (119,583) $ 121,775
====== ========= ========= ========= ======= =========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
<TABLE>
INTELIDATA TECHNOLOGIES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(in thousands; unaudited)
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities
Net loss $ (2,672) $ (5,194)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 3,972 203
Equity in affiliate (1,867) 894
Restructuring credit (1,167) --
Other noncash activities 23 (67)
Changes in certain assets and liabilities, net of effects of noncash
transactions:
Accounts receivable (5,888) 512
Inventories (2,226) 88
Prepaid expenses and other current assets 972 (439)
Other assets 51 163
Accounts payable 208 (498)
Accrued expenses and other liabilities (4,028) (169)
----------- -----------
Net cash used in operating activities (12,622) (4,507)
----------- -----------
Cash flows from investing activities
Net activity of short-term investments and restricted cash 1,006 (3,500)
Purchases of property and equipment (286) (1,021)
Proceeds from sale of property and equipment -- 344
----------- -----------
Net cash provided by (used in) investing activities 720 (4,177)
----------- -----------
Cash flows from financing activities
Payment of short-term borrowings (2,000) --
Proceeds from issuance of common stock 100 684
----------- -----------
Net cash provided by (used in) financing activities (1,900) 684
----------- -----------
Decrease in cash and cash equivalents (13,802) (8,000)
Cash and cash equivalents, beginning of period 26,644 25,120
----------- -----------
Cash and cash equivalents, end of period $ 12,842 $ 17,120
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
INTELIDATA TECHNOLOGIES CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) Basis of Presentation
The condensed consolidated balance sheet as of June 30, 1997,
and the related condensed consolidated statements of operations and
cash flows for the three and six month periods ended June 30, 1997 and
1996 presented in this Form 10-Q represent the results of InteliData
Technologies Corporation for 1997 and the historical results of US
Order, Inc. ("US Order") for 1996. On November 7, 1996, US Order and
Colonial Data Technologies Corp. ("Colonial Data") merged with and into
InteliData Technologies Corporation ("InteliData" or the "Company").
The condensed consolidated balance sheet of InteliData as of
June 30, 1997, and the related condensed consolidated statements of
operations and cash flows for the three and six month periods ended
June 30, 1997 and 1996, are unaudited. In the opinion of management,
all adjustments necessary for a fair presentation of such financial
statements have been included. Interim results are not necessarily
indicative of results for a full year. Certain amounts have been
reclassified to conform to the current year 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, 1996.
(2) New Accounting Standards
Statement of Financial Accounting Standards No. 128, Earnings
Per Share ("SFAS 128") was issued in February 1997 and is effective for
financial statements issued after December 15, 1997. This statement
establishes new standards for computing and presenting earnings per
share ("EPS") and will require restatement of prior years' information.
This statement simplifies the standards for computing EPS previously
found in APB Opinion 15. It replaces the presentation of primary and
fully diluted EPS with a presentation of basic EPS and diluted EPS,
requires a dual presentation on the face of the financial statements,
and requires a reconciliation of basic EPS to diluted EPS. The
presentation of basic EPS and diluted EPS would have been the same as
EPS actually reported for the respective periods.
<PAGE>
Statement of Financial Accounting Standards No. 130, Reporting
Comprehensive Income ("SFAS 130") was issued in June 1997 and is
effective for financial statements issued after December 15, 1997. This
statement establishes new standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains, and
losses) in a full set of general-purpose financial statements.
Management has not yet determined the impact of SFAS 130 on future
financial statement presentations.
Statement of Financial Accounting Standards No. 131,
Disclosures about Segments of an Enterprise and Related Information
("SFAS 131") was issued in June 1997 and is effective for financial
statements issued after December 15, 1997. This statement establishes
standards for the way that public business enterprises report
information about operating segments in annual financial statements and
requires that those enterprises report selected information about
operating segments in interim financial reports issued to shareholders.
It also establishes standards for related disclosures about products
and services, geographic areas, and major customers. Management has not
yet determined the impact of SFAS 131 on future financial statement
presentations.
(3) Stock Options
On May 21, 1997, the Company offered employees participating
in the Company's Stock Option Plans the opportunity to replace any
remaining unvested stock options as of May 21, 1997 with an equal
number of options at an exercise price of $6.00, which was above the
closing market price on such date. The Company did not offer this
opportunity to the Chairman of the Board or the President, but offered
this opportunity to other key employees as an incentive. Approximately,
642,000 stock options with exercise prices ranging from $6.38 to $23.75
were replaced. The replacement options vest over three years from May
21, 1997 in equal annual increments.
(4) Corporate Restructuring
In June 1997, the Company reduced its accrued liabilities by
$1,167,000 for certain restructuring charges recognized in the fourth
quarter of 1996. The Company's management has determined that certain
liabilities associated with the facilities consolidations were no
longer necessary and, accordingly, such accruals were reversed.
(5) Equity in Affiliate
During the second quarter of 1997, the Company revalued its
investment in Home Financial Network, Inc. ("HFN") by $1,867,000. The
revaluation related to HFN selling shares of stock thereby reducing the
Company's ownership percentage from 40% to 25%. This gain was recorded
net of expected HFN operating losses accounted for on an equity basis.
<PAGE>
(6) Subsequent Events
On August 4, 1997, the Company provided notice to its joint
venture partner, Blau Marketing Technologies, Inc. of its intention to
terminate the parties' joint venture in Worldwide Telecom Partners,
Inc. ("WTP") effective September 5, 1997 or such other date as may be
necessary to wind-down WTP. The joint venture provides marketing
services to the telecommunications industry. The Company's intention in
providing notice to its joint venture partner is to bring marketing
services in-house and reduce costs. The Company's management does not
expect that costs associated with the termination of the joint venture
will be material to the Company's financial statements.
In August 1997, the Board of Directors approved a stock
repurchase program whereby the Company may repurchase up to 2,000,000
shares of its common stock from time to time on the open market.
<PAGE>
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 for the three
and six months ended June 30, 1997 and 1996. Results for the three and six
months ended June 30, 1997 represent the operations of InteliData; results for
the three and six months ended June 30, 1996 were based on the stand alone
operations of US Order, Inc., the predecessor corporation to InteliData.
Consolidated total revenues and all categories of expenses are significantly
greater in 1997 than 1996 because 1997 results include the operations of
Colonial Data Technologies Corp. ("Colonial Data") and 1996 results do not
include any of Colonial Data's operations.
THREE MONTHS ENDED JUNE 30, 1997 AND 1996
Revenues
The Company's second quarter revenues were $16,863,000 in 1997 compared
to $548,000 in 1996 an increase of $16,315,000. Revenues generated by the
consumer telecommunications division were $15,784,000 during the second quarter
of 1997. Consumer telecommunications division revenues are generated primarily
from marketing and promotional campaigns for Caller ID units and services
conducted by telephone operating companies and the Company. Contributing to the
consumer telecommunications revenues were $13,132,000 from the sale of
approximately 452,500 Caller ID adjuncts; 7,500 integrated telephones and 2,376
multi-line systems; $2,203,000 from customers within a US West Communications
leasing program; and $449,000 in the telephone repair business.
The electronic commerce division contributed $1,063,000 in revenues in
the second quarter of 1997, a 122% increase over the same period in the prior
year. The increase is primarily attributed to the expansion of the division's
product sales and related services which aggregated $676,000 for the second
quarter of 1997. Service fees revenues for the second quarter of 1997 were
$387,000 compared to $479,000 for the same period in 1996, a decrease of
$92,000. The Company's customer support revenues, which are remarketed by Visa
InterActive to Visa member banks, decreased 12% and aggregated $295,000 for the
second quarter of 1997, compared to $335,000 for the same period in the prior
year. The decrease is attributed to a wind-down relating to the termination of
the customer service agreement with Visa InterActive announced in the first
quarter of 1997. The customer service agreement terminated effective July 31,
1997. The Company's decision to exit the customer service business was in a
manner mutually agreed upon by the Company and Visa InterActive. During the
first quarter of 1997, the Company ceased technical support services for Visa
InterActive, and in the second quarter, the Company decreased its customer
service support levels. Monthly service fees revenues decreased to $92,000 in
1997 from $140,000 for the same period in 1996. Monthly service fees revenues
are from customers who use the Company's previous generation smart telephones
and associated interactive applications, and the decrease was primarily due to
the Company's continuing efforts to convert these customers to Visa member
banks.
<PAGE>
The interactive services division recorded revenue of $16,000 during
the second quarter of 1997 related to SmartTime(R) services that are offered to
customers on a variety of small screen devices, primarily screen telephones.
Cost of Revenues
The Company's second quarter cost of revenues increased to $12,319,000
for 1997 from $342,000 for the same period in 1996. The consumer
telecommunications division contributed $11,598,000 of the total cost of
revenues, consisting of $10,068,000 from the sale of Caller ID adjuncts,
integrated telephones and multi-line system shipments; $1,220,000 from leasing
activities and $310,000 from telephone repair services.
The electronic commerce division reported cost of revenues aggregating
$707,000 for the second quarter of 1997 or a 171% increase over the same period
in the prior year. Cost of revenues from the electronic commerce division during
the second quarter of 1997 consisted of $118,000 in software product sales,
$250,000 in customer service expenses, and $339,000 in consulting and
professional services including service cost of revenue related to generating
monthly fee revenues.
Overall gross profit margins decreased to 27% for the second quarter of
1997 from 38% for the second quarter of 1996. Gross profit margins for the
consumer telecommunications, electronic commerce and interactive services
divisions were 27%, 33% and 13%, respectively for the second quarter of 1997.
The gross profit margin derived from the sale of Caller ID adjuncts, integrated
telephones and multi-line systems was 23% for the second quarter of 1997. During
the quarter, the Company experienced pricing pressures from competition in
Caller ID adjuncts. The market for the Company's telecommunications products is
highly competitive and is also subject to increased pressures resulting from
rapid technological change and the emergence of new market entrants.
The Company's management expects such pricing pressures to continue in the
future.
General and Administrative
General and administrative expenses were $2,496,000 for the second
quarter of 1997 as compared to $2,681,000 in the second quarter of 1996.
Included in the general and administrative expenses was a reversal of $1,167,000
for certain restructuring charges recognized in the fourth quarter of 1996. The
Company's management has determined that certain liabilities associated with
facilities consolidations were no longer necessary and accordingly, such
accruals were reversed in the second quarter of 1997. Exclusive of this
restructuring charge, the increase of $982,000 was primarily the result of
additional staff obtained through the merger with Colonial Data and the
acquisition of Braun, Simmons & Co., Inc. ("Braun Simmons") in September 1996,
and upgrading network systems and operations. 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 the Company's
infrastructure.
<PAGE>
Selling and Marketing
Selling and marketing expenses increased to $3,774,000 for the second
quarter of 1997 from $54,000 for the same period last year. The Company is
increasing its marketing efforts in promoting its residential and small business
telecommunications product lines to retail markets and to the regional Bell
operating companies and other telephone operating companies with whom the
Company generates its product, lease and service revenues. In the second quarter
of 1997, selling and marketing expenses were related primarily to the
development of innovative marketing programs, advertising through trade
publications and trade shows, introducing the multi-line systems in the retail
market, initiating a direct sales force, organizing direct mail campaigns for
smart telephones, paying salaries and commissions to the Company's sales force
and working with telemarketers and other third party vendors.
Research and Development
Research and development costs were $2,501,000 in the second quarter of
1997 as compared to $616,000 for the same period in 1996. The increase of
$1,885,000 was largely attributable to developing, designing and testing new
telecommunications products and the Company's home banking connectivity products
and support services and the Company's next generation smart telephone and its
associated interactive services. The Company has been actively engaged in
research and development since its inception and expects that these activities
will be essential to the operations of the Company in the future. The Company
expects research and development costs to remain consistent during the remainder
of 1997.
Goodwill Amortization
The Company incurred $903,000 in goodwill amortization as a result of
the Company's acquisition of Braun Simmons and merger with Colonial Data in
September and November 1996, respectively. With respect to goodwill from these
transactions, goodwill is amortized on a straight-line basis over seven years
for the acquisition of Braun Simmons and fifteen years for the merger with
Colonial Data.
Other Income (Expense), Net
Other income (expense), net was $2,313,000 for the second quarter of 1997
compared to $(61,000) for the same period in the prior year. Interest income,
net was $446,000 for the second quarter of 1997 compared to $333,000 for the
second quarter of 1996. The increase of $113,000 was due to increased cash,
equivalents and short-term investment balances for the second quarter of 1997
compared to the second quarter of 1996, primarily related to the merger with
Colonial Data which provided additional cash, equivalent and short-term
investment balances. The Company incurred minimal interest expense in the second
quarter of 1997 and 1996. During the second quarter of 1997, the Company
revalued its investment in Home Financial Network, Inc. ("HFN") by $1,867,000.
The revaluation related to HFN selling shares of stock thereby reducing the
Company's ownership percentage from 40% to 25%. This gain was recorded net of
expected
<PAGE>
HFN operating losses accounted for on an equity basis. In 1996, the Company
incurred a loss of $468,000 in its proportionate share of HFN and recognized
other income from the sale of assets of $74,000.
Weighted Average Outstanding Shares and Net Loss Per Common Share
The primary and fully diluted weighted average shares increased to
31,819,000 for the second quarter of 1997 compared to 15,882,000 for the second
quarter of 1996. The increase resulted primarily from shares issued in
connection with the acquisition of Braun, Simmons & Co. and the merger with
Colonial Data in September and November 1996, respectively. As a result of the
foregoing, net loss per common share was $(0.09) for the second quarter of 1997
compared to $(0.20) for the second quarter of 1996.
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
Revenues
The Company's first six month revenues were $38,427,000 in 1997 compared to
$1,874,000 in 1996, an increase of $36,553,000. Revenues generated by the
consumer telecommunications division were $36,192,000 during the first six
months of 1997. Consumer telecommunications division revenues are generated
primarily from marketing and promotional campaigns for Caller ID units and
services conducted by telephone operating companies and the Company.
Contributing to the consumer telecommunications revenues were $29,823,000 from
the sale of approximately 938,500 Caller ID adjuncts, 63,750 integrated
telephones and 3,071 multi-line systems; $5,021,000 from customers within a US
West Communications leasing program; and $1,348,000 in the telephone repair
business.
The electronic commerce division contributed $2,211,000 in revenues in
the first six months of 1997, a 115% increase over the same period in the prior
year. The increase is primarily attributed to the expansion of the division's
product sales and related services which aggregated $1,312,000 for the first six
months of 1997. Service fees revenues for the first six months of 1997 were
$899,000 compared to $1,028,000 for the same period in 1996, a decrease of
$129,000. The service fees revenues were generated primarily from customer
support services and monthly service fees. The Company's customer support
revenues, which are remarketed by Visa InterActive to Visa member banks,
aggregated $751,000 for the first six months of 1997, compared to $716,000 for
the same period in the prior year. Monthly service fees revenues decreased to
$152,000 in 1997 from $304,000 for the same period in 1996. Monthly service fees
revenues are from customers who use the Company's previous generation smart
telephones and associated interactive applications, and the decrease was
primarily due to the Company's continuing efforts to convert these customers to
Visa member banks.
The interactive services division recorded revenues of $24,000 for the
first six months related to bill-pay subscriptions and SmartTime(R) services
that are offered to customers on a variety of small screen devices, primarily
screen telephones.
<PAGE>
Cost of Revenues
The Company's first six months cost of revenues increased to
$26,147,000 for 1997 from $1,272,000 for the same period in 1996. The consumer
telecommunications division contributed $24,625,000 of the total cost of
revenues, consisting of $21,144,000 from the sale of Caller ID and small
business product shipments; $2,666,000 from leasing activities and $815,000 from
telephone repair services.
The electronic commerce division reported cost of revenues aggregating
$1,502,000 for the first six months of 1997 or a 159% increase over the same
period in the prior year. Cost of revenues from the electronic commerce division
during the first six months of 1997 consisted of $223,000 in software product
sales, $590,000 in customer service expenses, and $689,000 in consulting and
professional services including service cost of revenue related to generating
monthly fee revenues.
Overall gross profit margins remained consistent at 32% for the first
six months of 1997 compared to the first six months of 1996. Gross profit
margins for the consumer telecommunications, electronic commerce and interactive
services divisions were 32%, 32% and 17%, respectively for the first six months
of 1997. The gross profit margin derived from the sale of Caller ID and small
business units was 29% for the first six months of 1997. During the quarter, the
Company experienced pricing pressures from competition in Caller ID adjuncts.
The market for the Company's telecommunications products is highly competitive
and is also subject to increased pressures resulting from rapid technological
change and the emergence of new market entrants. The Company's management
expects such pricing pressures to continue in the future.
General and Administrative
General and administrative expenses were $5,594,000 for the first six
months of 1997 as compared to $4,522,000 in the first six months of 1996.
Included in the general and administrative expenses was a reversal of $1,167,000
for certain restructuring charges recognized in the fourth quarter of 1996. The
Company's management has determined that certain liabilities associated with
facilities consolidations were no longer necessary and accordingly, such
accruals were reversed in the first six months of 1997. Exclusive of this
restructuring charge, the increase of $2,239,000 was primarily the result of
additional staff obtained through the merger with Colonial Data and the
acquisition of Braun Simmons, and upgrading network systems and operations.
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 the Company's infrastructure.
Selling and Marketing
Selling and marketing expenses increased to $5,810,000 for the first six
months of 1997 from $83,000 for the same period last year. The Company is
increasing its marketing efforts in promoting its residential and small business
telecommunications product lines to retail markets
<PAGE>
and to the regional Bell operating companies and other telephone operating
companies with whom the Company generates its product, lease and service
revenues. In the first six months of 1997, selling and marketing expenses were
related primarily to the development of innovative marketing programs,
advertising through trade publications and trade shows, introducing the
multi-line systems in the retail market, initiating a direct sales force,
organizing direct mail campaigns for smart telephones, paying salaries and
commissions to the Company's sales force and working with telemarketers and
other third party vendors.
Research and Development
Research and development costs were $4,584,000 in the first six months
of 1997 as compared to $1,175,000 for the same period in 1996. The increase of
$3,409,000 was largely attributable to developing, designing and testing new
telecommunications products and the Company's home banking connectivity products
and support services and the Company's next generation smart telephone and its
associated interactive services. The Company has been actively engaged in
research and development since its inception and expects that these activities
will be essential to the operations of the Company in the future. The Company
expects research and development costs to remain consistent during the remainder
of 1997.
Goodwill Amortization
The Company incurred $1,673,000 in goodwill amortization as a result of
the Company's acquisition of Braun Simmons and merger with Colonial Data in
September and November 1996, respectively. With respect to goodwill from these
transactions, goodwill is amortized on a straight-line basis over seven years
for the acquisition of Braun Simmons and fifteen years for the merger with
Colonial Data.
Other Income (Expense), Net
Other income (expense), net was $2,752,000 for the first six months of
1997 compared to $(16,000) for the same period in the prior year. Interest
income, net was $885,000 for the first six months of 1997 compared to $693,000
for the first six months of 1996. The increase of $192,000 was due to increased
cash, equivalents and short-term investment balances for the first six months of
1997 compared to the first six months of 1996, primarily related to the merger
with Colonial Data which provided additional cash, equivalent and short-term
investment balances. The Company incurred minimal interest expense in the first
six months of 1997 and 1996. During the second quarter of 1997, the Company
revalued its investment in HFN by $1,867,000. The revaluation related to HFN
selling shares of stock thereby reducing the Company's ownership percentage from
40% to 25%. This gain was recorded net of expected HFN operating losses
accounted for on an equity basis. In the first half 1996, the Company incurred a
loss of $894,000 in its proportionate share of HFN and recognized other income,
primarily from the sale of assets of $185,000.
<PAGE>
Weighted Average Outstanding Shares and Net Loss Per Common Share
The primary and fully diluted weighted average shares increased to
31,818,000 for the first six months of 1997 compared to 15,833,000 for the first
six months of 1996. The increase resulted primarily from shares issued in
connection with the acquisition of Braun, Simmons & Co. and the merger with
Colonial Data in September and November 1996, respectively. As a result of the
foregoing, net loss per common share was $(0.08) for the first six months of
1997 compared to $(0.33) for the second half of 1996.
LIQUIDITY AND CAPITAL RESOURCES
During the first six months of 1997, the Company's cash, equivalents
and short-term investments decreased by $14,818,000 resulting from the payment
of outstanding liabilities at year-end and the financing of certain accounts
receivable balances and inventory purchases. At June 30, 1997, the Company had
$24,254,000 in cash, equivalents and short-term investments that were invested
in financial instruments that are diversified among high credit quality
securities. The investments are reported at cost, which approximates market
value, and are classified as short-term investments and cash equivalents.
Additionally, at June 30, 1997, the Company had working capital of $62,853,000
with no long-term debt. The Company's total assets exceeded total liabilities by
$121,775,000.
During the first six months of 1997, cash used in operating activities
was $12,622,000 compared to $4,507,000 in the same period in 1996. This increase
was primarily related to financing an increase in accounts receivable of
$5,888,000, inventories of $2,226,000 and funding net payments from accounts
payable and accrued expenses of $3,820,000, offset in part by decreases in
prepaid expenses and other assets aggregating $1,023,000.
Investing activities provided $720,000 during the first six months of
1997 compared to using $4,177,000 in the same period in 1996. 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 $1,900,000 in the first six months of 1997
compared to providing $684,000 in the same period in 1996. Current year
activities consisted of the repayment of short-term borrowings from December 31,
1996 in the amount of $2,000,000 offset by proceeds received from the issuance
of common stock during the first six months of 1997. During the first six months
of 1996, the Company received $684,000 from the issuance of common stock.
The Company's primary needs for cash in the future are for investments in
product development, working capital, the financing of operations, potential
acquisitions, strategic ventures, capital expenditures and the upgrade of the
Company's systems and operations. In addition, the Company may from time to time
repurchase shares of its common stock on the open
<PAGE>
market. In order to meet the Company's needs for cash throughout the year, the
Company will utilize cash, short-term investments and may utilize, to the extent
available, funds generated from operations in the second half of 1997 through
the collections of accounts receivable and sale of inventories.
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, timing of customer
programs, uncertainty as to future financial results, developing marketplace,
fluctuations in operating results, reliance on Caller ID revenues, concentration
of products and services, InteliData common stock owned by WorldCorp,
technological considerations, dependence on foreign production, dependence on
key employees, regulation, volatility of stock price, limited proprietary
protection, and limited sources of supply, manufacturing delays, the
availability of key component parts, product obsolescence, inventory levels and
valuations and other risks detailed from time to time in the Company's 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,
1996. These risks could cause the Company's actual results for 1997 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.
<PAGE>
PART II: OTHER INFORMATION
- ---------------------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ------------------------------------------
(a) Exhibits
--------
None
(b) Reports on Form 8-K
-------------------
None
<PAGE>
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
------------------------------------------
John C. Backus
President and Chief Executive Officer
By: /s/ John W. Hillyard
------------------------------------------
John W. Hillyard
Vice President and Chief Financial Officer
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