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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: MARCH 31, 1998 Commission File Number 000-21685
INTELIDATA TECHNOLOGIES CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 54-1820617
(State of incorporation) (I.R.S. Employer Identification Number)
13100 Worldgate Drive, Suite 600, Herndon, VA 20170
(Address of Principal Executive Offices)
(703) 834-8500
(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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The number of shares of the registrant's Common Stock outstanding on March 31,
1998 was 31,170,949.
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<PAGE>
INTELIDATA TECHNOLOGIES CORPORATION
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
Page
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PART I - FINANCIAL INFORMATION
Item 1. Unaudited Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets
March 31, 1998 and December 31, 1997 ........................3
Condensed Consolidated Statements of Operations and
Comprehensive Income (Loss)
Three Months Ended March 31, 1998 and 1997 ..................4
Condensed Consolidated Statement of Changes in
Stockholders' Equity
Three Months Ended March 31, 1998............................5
Condensed Consolidated Statements of Cash Flows
Three Months Ended March 31, 1998 and 1997...................6
Notes to Condensed Consolidated Financial Statements ........7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ...................................8
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................13
SIGNATURES ..................................................................14
<PAGE>
PART I: FINANCIAL INFORMATION
- ------------------------------
ITEM 1: FINANCIAL STATEMENTS
- -----------------------------
INTELIDATA TECHNOLOGIES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, 1998 AND DECEMBER 31, 1997
(in thousands, except share data)
<TABLE>
1998 1997
(unaudited)
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 4,162 $ 2,055
Short-term investments 5,008 9,304
Accounts receivable, net of allowances of $5,674
in 1998 and $5,679 in 1997 11,860 13,088
Inventories 21,092 23,020
Prepaid expenses and other current assets 828 354
------------ ------------
Total current assets 42,950 47,821
NONCURRENT ASSETS
Property, plant and equipment, net 5,684 6,249
Other assets 332 331
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TOTAL ASSETS $ 48,966 $ 54,401
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 6,311 $ 3,659
Accrued expenses and other liabilities 6,415 7,527
Deferred revenues 2,689 2,771
Short-term borrowings -- 1,500
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Total current liabilities 15,415 15,457
NONCURRENT LIABILITIES
Deferred revenues 1,250 1,875
------------ ------------
TOTAL LIABILITIES 16,665 17,332
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 31,862,449 shares; outstanding 31,170,949 shares 32 32
Additional paid-in capital 245,699 245,699
Treasury stock, at cost (2,064) (2,064)
Deferred compensation -- (18)
Accumulated other comprehensive income 461 425
Accumulated deficit (211,827) (207,005)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 32,301 37,069
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 48,966 $ 54,401
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</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
INTELIDATA TECHNOLOGIES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(in thousands, except per share data; unaudited)
<TABLE>
1998 1997
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<S> <C> <C>
REVENUES
Telecommunications $ 16,553 $ 20,416
Home banking 773 1,148
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Total revenues 17,326 21,564
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COST OF REVENUES
Telecommunications 15,039 13,033
Home banking 9 795
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Total cost of revenues 15,048 13,828
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Gross profit 2,278 7,736
OPERATING EXPENSES
General and administrative 2,491 3,868
Selling and marketing 3,076 2,036
Research and development 1,669 2,083
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Total operating expenses 7,236 7,987
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Operating loss (4,958) (251)
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OTHER INCOME 136 439
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INCOME (LOSS) BEFORE INCOME TAXES (4,822) 188
INCOME TAXES -- 23
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NET INCOME (LOSS) (4,822) 165
OTHER COMPREHENSIVE INCOME
NET OF INCOME TAX:
Unrealized gain on investments 36 --
COMPREHENSIVE INCOME (LOSS) $ (4,786) $ 165
============ ===========
Basic income (loss) per common share $ (0.15) $ 0.01
============ ===========
Diluted income (loss) per common share $ (0.15) $ 0.00
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Weighted average outstanding shares - basic 31,171 31,817
============ ===========
Weighted average outstanding shares - diluted 31,171 34,452
============ ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
INTELIDATA TECHNOLOGIES CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 1998
(in thousands; unaudited)
<TABLE>
Common stock Additional Other
---------------- paid-in Treasury Comprehensive Deferred Accumulated
Shares Amount capital Stock Income Compensation Deficit Total
------ ------- ---------- -------- ------------- ------------ ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997 31,181 $ 32 $ 245,699 $ (2,064) $ 425 $ (18) $ (207,005) $ 37,069
Cancellation of common stock (10) - - - - - - -
Unrealized gain on investments - - - - 36 - - 36
Compensation expense - - - - - 18 - 18
Net loss - - - - - - (4,822) (4,822)
------ ------- ---------- -------- -------- -------- ---------- ---------
Balance at March 31, 1998 31,171 $ 32 $ 245,699 $ (2,064) $ 461 $ - $ (211,827) $ 32,301
====== ======= ========== ========= ======== ======== ========== =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
INTELIDATA TECHNOLOGIES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(in thousands; unaudited)
<TABLE>
1998 1997
----------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (4,822) $ 165
Adjustments to reconcile net income (loss) to net cash used in
operating activities:
Depreciation and amortization 660 2,139
Other noncash activities 48 693
Changes in certain assets and liabilities:
Accounts receivable 1,234 (9,296)
Inventories 1,928 1,286
Prepaid expenses and other current assets (475) 1,259
Accounts payable 2,652 (1,915)
Accrued expenses and other liabilities (1,819) (2,730)
------------ ----------
Net cash used in operating activities (594) (8,399)
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CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from the sale of short-term investments 4,296 2,512
Purchases of property and equipment (95) (161)
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Net cash provided by investing activities 4,201 2,351
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CASH FLOWS USED IN FINANCING ACTIVITIES
Payment of short-term borrowings (1,500) (2,000)
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INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,107 (8,048)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 2,055 26,644
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CASH AND CASH EQUIVALENTS, END OF PERIOD $ 4,162 $ 18,596
============ ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
INTELIDATA TECHNOLOGIES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(UNAUDITED)
(1) BASIS OF PRESENTATION
The condensed consolidated balance sheet of InteliData
Technologies Corporation ("InteliData" or "Company") as of March 31,
1998, and the related condensed consolidated statements of operations
and comprehensive income (loss) and cash flows for the three month
periods ended March 31, 1998 and 1997 presented in this Form 10-Q are
unaudited. In the opinion of management, all adjustments necessary for
a fair presentation of such financial statements have been included.
Such adjustments consist only of normal recurring items. Interim
results are not necessarily indicative of results for a full year.
Certain amounts have been reclassified to conform to the current year
presentation.
The condensed consolidated financial statements and notes are
presented as required by Form 10-Q, and do not contain certain
information included in the Company's annual audited financial
statements and notes. These financial statements should be read in
conjunction with the annual audited financial statements of the Company
and the notes thereto, together with management's discussion and
analysis of financial condition and results of operations, contained in
the Form 10-K for the fiscal year ended December 31, 1997.
(2) SUBSEQUENT EVENTS
The Company announced the further implementation of its
revitalization plan for its telecommunications division. In order to
reduce its fixed operating costs, the Company will move to outsourcing
certain functions including customer service, warehousing, product
fulfillment, repair and refurbishment and product engineering. The
plan includes reducing the Company's telecommunications division labor
force from over 200 employees to fewer than 65 employees and
eliminating certain facilities. The Company will incur restructuring
related charges in the second quarter of 1998, reflecting employee
severance costs, facility downsizing and an inventory write down of
discontinued products, including smart telephones, Caller ID adjuncts
and other products. The amount of such restructuring charges cannot be
estimated at this time.
On February 24, 1998, the Company's Board of Directors
approved the issuance of up to 200,000 restricted shares of the
Company's common stock under the Company's 1996 Incentive Plan to
employees of the home banking division. Effective April 1, 1998,
153,000 of such shares were issued to employees. Under the terms of
the stock award, the shares may not be sold or transferred for a period
of eighteen months from the date of grant and the shares are
forfeitable should the employee's employment with the Company terminate
prior to the end of the holding period.
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
Revenues
The Company's first quarter revenues were $17,326,000 in 1998 compared
to $21,564,000 in 1997 a decrease of $4,238,000. 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. Revenues generated by the telecommunications division were $16,553,000
during the first quarter of 1998 compared to $20,416,000 during the first
quarter of 1997, a decrease of 19% from the prior year. The decrease is
primarily attributed to the level of promotional campaigns conducted during the
first quarter of 1998 by the Company, as well as the decrease in the level of
activity in the Company's lease base. The Company's lease revenues decreased by
$1,154,000 or 41% from the same period a year ago. The Company has not added any
new leased equipment to the lease base since the fourth quarter of 1995.
Contributing to the telecommunications revenues for the first quarter of 1998
were $14,519,000 from Caller ID agency business, and Caller ID and small
business product shipments on the sale of approximately 345,000 adjuncts,
telephones and small business key systems; $1,664,000 from customers within a US
West Communications leasing program; and $370,000 in the telephone repair
business. Contributing to the telecommunications revenues for the first quarter
of 1997 were $16,691,000 from Caller ID and small business product shipments on
the sale of approximately 543,000 adjuncts, telephones and small business key
systems; $2,818,000 from customers within a US West Communications leasing
program; and $899,000 in the telephone repair business.
The home banking division (formerly the electronic commerce division)
contributed $773,000 in revenues in the first quarter of 1997, a 33% decrease
over the same period in the prior year. The decrease is primarily attributed to
the shift in business strategy to sell software systems and consulting services
rather than providing customer service support for financial institutions.
During the first quarter of 1998, the Company recognized $625,000 from deferred
revenues related to an agreement whereby the Company surrendered the right to
certain future royalty payments in exchange for a lump sum payment received in
the fourth quarter of 1997. Additionally, the Company recognized $148,000 in
revenues from maintenance contracts related to the sale of software systems and
other product sales and consulting services. The home banking division
contributed $1,148,000 in revenues in the first quarter of 1997. Contributing to
the first quarter 1997 revenues were service fees of $512,000, customer support
revenues, which were remarketed by Visa InterActive to Visa member banks,
aggregating $364,000, and service fees of $60,000. Service fees revenues are
from customers who use the Company's previous generation smart telephones and
associated interactive applications.
<PAGE>
Cost of Revenues
The Company's first quarter cost of revenues increased to $15,048,000
for 1998 from $13,828,000 for the same period in 1997. During the first quarter
of 1998, the telecommunications division contributed $15,039,000 of the total
cost of revenues, consisting of $14,022,000 from the sale of Caller ID and small
business product shipments; $705,000 from leasing activities and $312,000 from
telephone repair services. During the first quarter of 1997, the
telecommunications division contributed $13,033,000 of the total cost of
revenues, consisting of $11,076,000 from the sale of Caller ID and small
business product shipments; $1,446,000 from leasing activities and $505,000 from
telephone repair services.
The home banking division reported cost of revenues aggregating $9,000
for the first quarter of 1998 compared to $795,000 for the first quarter of
1997. The decrease is directly attributed to the change in business strategy and
the level of labor support for the revenues. Cost of revenues during the first
quarter of 1998 consisted of labor associated with consulting services provided
by the Company. Cost of revenues from the home banking division during the first
quarter of 1997 consisted of $105,000 in software product sales, $340,000 in
customer service expenses, and $350,000 in consulting and professional services
including service cost of revenue related to generating monthly fee revenues.
Overall gross profit margins decreased to 13% for the first quarter of
1998 from 36% for the first quarter of 1997. Gross profit margins for the
telecommunications and home banking divisions were 9% and 99%, respectively for
the first quarter of 1998 and were 36% and 31%, respectively for the first
quarter of 1997. The large decrease in gross profit margins in the
telecommunications division was attributed primarily to large promotional
campaign expenses, including telemarketing and direct mail pieces. The Company
anticipates that gross profit margins may fluctuate in the future due to changes
in product mix and distribution, competitive pricing pressure, the introduction
of new products and changes in the volume and terms of leasing activity.
General and Administrative
General and administrative expenses were $2,491,000 for the first
quarter of 1998 as compared to $3,868,000 in the first quarter of 1997. The
decrease of $1,377,000 was primarily the result of a reduction in headcount and
other comprehensive cost reducing measures implemented by the Company as well as
the reduction of goodwill amortization expense resulting from a valuation
adjustment in the third quarter of 1997. Throughout the year, the Company
expects to control general and administrative expenses and plans to continually
assess its operations in managing the continued development of infrastructure to
handle the anticipated business levels in both the telecommunications and home
banking divisions.
<PAGE>
Selling and Marketing
Selling and marketing expenses increased to $3,076,000 for the first
quarter of 1998 from $2,036,000 for the same period last year. The Company is
increasing its marketing efforts in promoting the 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. Selling and marketing
expenses are related primarily to the development of innovative marketing
programs, paying salaries and commissions to the Company's sales force and
working with telemarketers and other third party vendors to sell
telecommunications products. The increase of $1,040,000 from the same period
last year is attributed primarily to increased direct sales costs including
royalties, marketing efforts associated with agency programs, the introduction
of products to the retail markets and efforts to market home banking products.
Research and Development
Research and development costs were $1,669,000 in the first quarter of
1998 as compared to $2,083,000 for the same period in 1997. The decrease of
$414,000 was largely attributable to cost saving measures particularly relating
to third party telecommunications research and development efforts. The Company
has been actively pursuing third party sources for research and development in
the telecommunications division and expects that these activities will be
essential to the operations of the Company in the future.
Other Income
Other income, primarily interest income, was $136,000 for the first
quarter of 1998 compared to $439,000 for the same period in the prior year. The
decrease of $303,000 was due to decreased cash, equivalents and short-term
investment balances for the first quarter of 1998 compared to the first quarter
of 1997, primarily related to use of investments to fund operations during 1997.
The Company incurred minimal interest expense in the first quarter of 1998 and
1997.
Weighted Average Outstanding Shares and Basic and Diluted Income (Loss)
Per Common Share
The primary and fully diluted weighted average shares decreased to
31,171,000 for the first quarter of 1998 compared to 32,223,000 for the first
quarter of 1997. The decrease resulted primarily from the purchase of treasury
shares during 1997 and the cancellation of certain shares of common stock. As a
result of the foregoing, basic income (loss) per common share was $(0.15) for
the first quarter of 1998 compared to $0.01 for the first quarter of 1997 and
diluted income (loss) per common share was $(0.15) for the first quarter of 1998
compared to $0.00 for the first quarter of 1997.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
During the first quarter of 1997, the Company's cash, equivalents and
short-term investments decreased by $2,189,000 resulting from the payment of
outstanding liabilities at year-end, including short-term borrowings and the
financing of certain operations. At March 31, 1998, the Company had $9,170,000
in cash, equivalents and short-term investments that were invested in financial
instruments that are diversified among high credit quality securities. The
investments are securities that are available-for-sale, reported at market
value, and are classified as short-term investments and cash equivalents.
Additionally, at March 31, 1998, the Company had working capital of $27,535,000
with no long-term debt. The Company's total assets exceeded total liabilities by
$32,301,000.
During the first quarter of 1998, cash used in operating activities was
$594,000 compared to $8,399,000 in the same period in 1997. Cash flows from
operations during the first quarter of 1998 include certain fixed costs in
operating expenses, payment of certain liabilities and an increase in prepaid
expenses, offset in part by net cash generated from the Company's accounts
receivable, of $1,234,000 and the change in inventories of $1,928,000. Cash
flows from operations during the first quarter of 1997 were primarily related to
financing an increase in accounts receivable of $9,296,000 and funding payments
from accounts payable and accrued expenses of $4,465,000, offset in part by
decreases in inventories and prepaid expenses aggregating $2,545,000.
Investing activities provided $4,201,000 during the first quarter of
1998 compared to providing $2,351,000 during the same period in 1997. Cash
provided by investing activities was primarily contributed by the sale of
short-term investments offset in part by the purchase of certain property and
equipment, primarily to support an upgrade for the Company's internal networks.
Financing activities used $1,500,000 in the first quarter of 1998
compared to using $2,000,000 in the same period in 1997. This change resulted
from the repayment of short-term borrowings from December 31, 1998 compared to
1997.
The Company's primary needs for cash in the future are for investments
in product development, working capital, the financing of operations, strategic
ventures, potential acquisitions, capital expenditures and the upgrade of the
Company's systems and operations. In order to meet the Company's needs for cash
throughout the year, the Company will utilize cash on-hand, short-term
investments, collateralized borrowings and may utilize, to the extent available,
funds generated from operations and the sale of certain assets.
<PAGE>
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, successful implementation of business strategy,
developing home banking marketplace, deteriorating Caller ID marketplace,
fluctuations in operating results, reliance on Caller ID revenues, success in
outsourcing certain functions, concentration of distribution of products and
services, InteliData common stock owned by WorldCorp, technological
considerations, dependence on foreign production, competition, dependence on key
employees, regulation, volatility of stock price, limited proprietary
protection, and limited sources of supply 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, 1997. These risks could cause the Company's actual
results for 1998 and beyond to differ materially from those expressed in any
forward looking statements made by, or on behalf of, the Company. The foregoing
list of factors should not be construed as exhaustive or as any admission
regarding the adequacy of disclosures made by the Company prior to the date
hereof or the effectiveness of said Act.
<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, Jr.
-------------------------------------
John C. Backus, Jr.
President and Chief Executive Officer
By: /s/ John W. Hillyard
------------------------------------------
John W. Hillyard
Vice President and Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001021810
<NAME> INTELIDATA TECHNOLOGIES CORPORATION
<MULTIPLIER> 1,000
<CURRENCY> U.S.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 4,162
<SECURITIES> 5,008
<RECEIVABLES> 17,534
<ALLOWANCES> (5,674)
<INVENTORY> 21,092
<CURRENT-ASSETS> 42,950
<PP&E> 11,997
<DEPRECIATION> (6,313)
<TOTAL-ASSETS> 48,966
<CURRENT-LIABILITIES> 15,415
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0
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<COMMON> 32
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<TOTAL-LIABILITY-AND-EQUITY> 48,966
<SALES> 14,442
<TOTAL-REVENUES> 17,326
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<OTHER-EXPENSES> 7,236
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<INCOME-PRETAX> (4,822)
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</TABLE>
