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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, 1999 Commission File Number 000-21685
INTELIDATA TECHNOLOGIES CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 54-1820617
(State of incorporation) (I.R.S. Employer Identification Number)
11600 Sunrise Valley Drive, Suite 100, Reston, VA 20191
(Address of Principal Executive Offices)
(703) 259-3000
(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------- -------
The number of shares of the registrant's Common Stock outstanding on June 30,
1999 was 32,968,404
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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, 1999 and December 31, 1998 .........................3
Condensed Consolidated Statements of Operations
Three Months and Six Months Ended June 30, 1999 and 1998 ....4
Condensed Consolidated Statement of Changes in
Stockholders' Equity
Six Months Ended June 30, 1999...............................5
Condensed Consolidated Statements of Cash Flows
Six Months Ended June 30, 1999 and 1998......................6
Notes to Condensed Consolidated Financial Statements ........7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ...................................9
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
- -----------------------------
INTELIDATA TECHNOLOGIES CORPORATION
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 1999 AND DECEMBER 31, 1998
(in thousands, except share data)
<TABLE>
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 7,066 $ 8,050
Accounts receivable, net of allowances of $888
in 1999 and $592 in 1998 1,489 2,113
Prepaid expenses and other current assets 48 143
------------ ------------
Total current assets 8,603 10,306
NONCURRENT ASSETS
Property and equipment, net 194 348
Other assets 175 257
------------ ------------
TOTAL ASSETS $ 8,972 $ 10,911
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 1,794 $ 1,344
Accrued expenses and other liabilities 805 910
Deferred revenues 1,585 3,056
Net liabilities of discontinued operations 3,484 5,270
------------ ------------
Total current liabilities 7,668 10,580
NONCURRENT LIABILITIES
Deferred revenues - -
------------ ------------
TOTAL LIABILITIES 7,668 10,580
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 33,649,904 shares in 1999 and 32,293,005, shares in 1998;
outstanding 32,968,404 shares in 1999 and 31,611,505 in 1998 33 32
Additional paid-in capital 249,703 247,359
Treasury stock, at cost (2,064) (2,064)
Deferred compensation (217) (152)
Accumulated deficit (246,151) (244,844)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 1,304 331
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 8,972 $ 10,911
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
INTELIDATA TECHNOLOGIES CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(in thousands, except per share data; unaudited)
<TABLE>
Three months ended Six months ended
June 30, June 30,
---------------------------- ----------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES
Software $ 368 $ - $ 530 $ -
Consulting and services 777 63 966 211
Leasing and other 1,658 2,088 3,431 4,411
----------- ----------- ----------- -----------
Total revenues 2,803 2,151 4,927 4,622
----------- ----------- ----------- -----------
COST OF REVENUES
Software 37 - 53 -
Consulting and services 260 25 301 34
Leasing and other 318 524 698 1,229
----------- ---------- ----------- ----------
Total cost of revenues 615 549 1,052 1,263
----------- ----------- ----------- -----------
GROSS PROFIT 2,188 1,602 3,875 3,359
OPERATING EXPENSES
General and administrative 2,155 1,840 3,796 3,275
Selling and marketing 504 645 1,212 1,287
Research and development 698 716 1,603 1,357
----------- ----------- ----------- -----------
Total operating expenses 3,357 3,201 6,611 5,919
----------- ----------- ----------- -----------
OPERATING LOSS (1,169) (1,599) (2,736) (2,560)
----------- ----------- ----------- -----------
OTHER INCOME 77 550 120 686
----------- ----------- ----------- -----------
LOSS BEFORE INCOME TAXES (1,092) (1,049) (2,616) (1,874)
INCOME TAXES -- -- -- --
----------- ----------- ----------- -----------
LOSS FROM CONTINUING OPERATIONS (1,092) (1,049) (2,616) (1,874)
DISCONTINUED OPERATIONS
Gain (loss) from operation of telecommunications and
interactive service divisions (net of income taxes) 1,309 (13,487) 1,309 (16,724)
Gain (loss) on disposal of telecommunications and
interactive service divisions - (8,233) - (8,993)
----------- ----------- ----------- -----------
Income (loss) from discontinued operations 1,309 (21,720) 1,309 (25,717)
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ 217 $ (22,769) $ (1,307) $ (27,591)
=========== =========== =========== ===========
Basic and diluted income (loss) from continuing
operations per common share $ (0.03) $ (0.03) $ (0.08) $ (0.06)
=========== =========== =========== ===========
Basic and diluted income (loss) from discontinued
operations per common share $ 0.04 $ (0.70) $ 0.04 $ (0.82)
=========== =========== =========== ===========
Basic and diluted income (loss) per common share $ 0.01 $ (0.73) $ (0.04) $ (0.88)
=========== =========== =========== ===========
Basic and diluted weighted average outstanding shares 32,627 31,374 32,160 31,273
=========== =========== =========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
INTELIDATA TECHNOLOGIES CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 1999
(in thousands; unaudited)
<TABLE>
Common stock Additional
---------------- Paid-in Treasury Deferred Accumulated Comprehensive
Shares Amount Capital Stock Compensation Deficit Loss Total
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998 31,612 $ 32 $ 247,359 $ (2,064) $ (152) $ (244,844) $ - $ 331
Issuance of common stock: - - - - - - - -
Exercise of stock options 1,108 1 1,866 - - - - 1,867
Issuance of restricted stock 269 - 347 - (103) - - 244
Issuance of stock warrants - - 141 - (141) - - -
Cancellation of restricted stock (22) - (10) - 10 - - -
Compensation expense - - - - 169 - - 169
Net loss - - - - - (1,307) (1,307) (1,307)
------------------------------------------------------------------------------------------------
Balance at June 30, 1999 32,967 $ 33 $ 249,703 $ (2,064) $ (217) $ (246,151) $ (1,307) $ 1,304
================================================================================================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
INTELIDATA TECHNOLOGIES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(in thousands; unaudited)
<TABLE>
1999 1998
----------- -----------
<S> <C> <C>
Cash flows from operating activities of continuing operations
Loss from continuing operations $ (2,616) $ (1,874)
Adjustments to reconcile loss from continuing operations
to net cash used in operating activities for continuing operations:
Depreciation and amortization 154 413
Provision for losses on accounts receivable 296 -
Deferred compensation and other noncash items 169 (105)
Changes in certain assets and liabilities:
Accounts receivable 328 235
Inventories - (22)
Prepaid expenses and other current assets 95 14
Other assets 82 141
Accounts payable 450 (289)
Accrued expenses and other liabilities (105) (226)
Deferred revenues (1,471) (1,330)
----------- -----------
Net cash used in operating activities
for continuing operations (2,618) (3,043)
----------- -----------
Net gain from discontinued operations 1,309 -
Change in net liability in discontinued operations (1,786) -
----------- -----------
Net cash provided by (used in) operating activities
for discontinued operations (477) 1,301
----------- -----------
Net cash provided by (used in) operating activities (3,095) (1,742)
Cash flows from investing activities
Proceeds from the sale of short-term investments - 9,304
Purchases of property and equipment-continuing operations - (7)
----------- -----------
Net cash provided by investing activities - 9,297
----------- -----------
Cash flows used in financing activities
Payment of short-term borrowings-discontinued operations - (1,500)
Proceeds from the issuance of common stock 2,111 294
----------- -----------
Net cash provided by (used in) financing activities 2,111 (1,206)
----------- -----------
Increase (decrease) in cash and cash equivalents (984) 6,349
Cash and cash equivalents at beginning of period 8,050 2,055
----------- -----------
Cash and cash equivalents at end of period $ 7,066 $ 8,404
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
INTELIDATA TECHNOLOGIES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(Unaudited)
(1) Basis of Presentation
The condensed consolidated balance sheet of InteliData
Technologies Corporation ("InteliData" or "Company") as of June 30,
1999, and the related condensed consolidated statements of operations
for the three and six month periods ended June 30, 1999 and 1998 and
condensed consolidated statements of cash flows for the six month
periods ended June 30, 1999 and 1998 presented in this Form 10-Q are
unaudited. In the opinion of management, all adjustments necessary for
a fair presentation of such financial statements have been included.
Such adjustments consist only of normal recurring items. Interim
results are not necessarily indicative of results for a full year.
Certain amounts for previous periods have been reclassified to conform
to the current period presentation.
The condensed consolidated financial statements and notes are
presented as required by Form 10-Q, and do not contain certain
information included in the Company's annual audited financial
statements and notes. These financial statements should be read in
conjunction with the annual audited financial statements of the Company
and the notes thereto, together with management's discussion and
analysis of financial condition and results of operations, contained in
the Form 10-K for the fiscal year ended December 31, 1998.
(2) Segment Reporting
The company's continuing operations are reported in two
operating segments: Internet Banking and Leasing. The basis for
determining the Company's operating segments is the manner in which
financial information is used by the Company in managing its
operations. Management organizes and operates the business according to
units which provide unique products and services. Operating (loss)
income in these two segments represents total revenues less operating
expenses, and excludes other income and expense and income taxes.
Segment financial information is as follows (in thousands):
<PAGE>
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Internet Banking Leasing Consolidated
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1999 Second Quarter
Revenues $ 1,811 $ 992 $ 2,803
Operating (loss) income (1,843) 674 (1,169)
1998 Second Quarter
Revenues $ 766 $ 1,385 $ 2,151
Operating (loss) income (2,460) 861 (1,599)
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Internet Banking Leasing Consolidated
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1999 Six Months
Revenues $ 2,845 $ 2,082 $ 4,927
Operating (loss) income (3,787) 1,054 (2,733)
1998 Six Months
Revenues $ 1,539 $ 3,083 $ 4,622
Operating (loss) income (4,414) 1,854 (2,560)
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(3) Subsequent Events
On July 22, 1999, the Company closed a private placement of
600 shares of 4% Convertible Preferred Stock, $.001 par value per
share, for an aggregate purchase price of approximately $6.0 million.
The financing was offered and sold solely to accredited investors. The
Company intends to use the proceeds of the financing for general
working capital purposes.
On July 27, 1999, the Company received notification regarding
possible changes to the billing process for the US West Caller ID Lease
Base. The pending changes could have a substantial effect on the rate
of decline of the lease base, the cost of billing, and the Company's
ability to pursue collections. Any and all of these changes could
negatively effect the Company's revenue, cost of sales and gross margin
in future periods.
<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
Technologies Corporation for the three and six months ended June 30, 1999 and
1998. Such information should be read in conjunction with the interim financial
statements and the notes thereto in Part I, Item 1 of this Quarterly Report.
THREE MONTHS ENDED JUNE 30, 1999 AND 1998
Revenues
The Company's second quarter revenues were $2,803,000 in 1999 compared
to $2,151,000 in 1998, an increase of 30% or $652,000. The increase is
attributed primarily to the increase in software sales and professional
services, offset by the expected decrease in the billable Caller ID leases.
During the second quarter, software revenues contributed $368,000, consulting
and services revenues contributed $777,000, and other revenues contributed
$1,658,000. Software and consulting revenue were the result of progress on bank
installations at Mid-Atlantic Federal Credit Union, Summit Bank, BB&T, Compass
Bank and US Trust. At the end of the period the BB&T and Summit installations
had been completed.
During the same period in 1998, there were no software revenues,
consulting and services contributed $63,000 and other revenues contributed
$2,088,000. During the second quarter of 1999, revenues from leasing and other
operations consisted of $992,000 from customers within its lease base and
$666,000 from royalties relating to the Visa Bill-Pay system. During the same
period in 1998, the Company recognized $1,385,000 from customers within its
lease base, $625,000 from monthly service fees for bill pay operations, and
$78,000 in revenues from maintenance contracts related to the sale of software.
Cost of Revenues
The Company's second quarter cost of revenues were $615,000 in 1999
compared to $549,000 in 1998, an increase of 12% or $66,000. The increase is
attributed primarily to the increase in revenue over the same period in 1998,
offset by the expected decreasing revenue from Caller ID leasing activities.
During the second quarter of 1999, software cost of revenues contributed
$37,000, consulting and services contributed $260,000 and other cost of revenues
contributed $318,000. Other cost of revenues consisted of expenses associated
with leasing activities.
During the second quarter of 1998, there were no software cost of
revenues, consulting and services contributed $25,000 and other cost of revenues
contributed $524,000. Other cost of revenues consisted of expenses associated
with leasing activities.
<PAGE>
Overall gross profit margins increased to 78% for the second quarter of
1999 from 75% for the second quarter of 1998. The increase in gross profit
margins was attributed primarily to the lack of depreciation expense for the
leasing activities in the second quarter of 1999. The lease base became fully
depreciated in 1998. The Company anticipates that gross profit margins may
fluctuate in the future due to changes in product mix and distribution,
outsourcing activities associated with a service bureau business model,
competitive pricing pressure, the introduction of new products and changes in
the volume, terms, and billing costs of leasing activity.
General and Administrative
General and administrative expenses were $2,155,000 for the second
quarter of 1999 as compared to $1,840,000 in the second quarter of 1998. The
increase of $315,000 was primarily the result of a non-cash charge of $244,000
associated with certain stock grants and additional expense incurred as the
result of investment banking services, legal and due diligence costs associated
with the negotiations surrounding the proposed merger with Home Financial
Network, Inc., which negotiations were halted in favor of establishment of a
joint marketing arrangement.
Selling and Marketing
Selling and marketing expenses decreased to $504,000 for the second
quarter of 1999 from $645,000 for the same period last year. The reduction is
attributed primarily to decreases in the number of marketing employees, the
level of newspaper and other print advertising, and the reduction of other
outside consulting expenses.
Research and Development
Research and development costs were $698,000 in the second quarter of
1999, as compared to $716,000 in the same period in 1998. The decrease is
largely attributable to the increase in certain employees billable hours on
customer projects which are reflected within cost of revenue. The Company
primarily invests research and development expenses in writing and developing
the Interpose Transaction Engine for the Open Financial Exchange ("OFX")
standard, and has begun the initial development work associated with the
company's service bureau business.
Other Income
Other income, primarily investment income, was $77,000 for the second
quarter of 1999 compared to $550,000 for the same period in the prior year. The
decrease of $473,000 was attributed to the previous year's recognition of
realized gains in the Company's investment portfolio.
<PAGE>
Discontinued Operations
Discontinued operations for the Company consists of business activities
of the telecommunications and interactive services divisions. During 1998, the
Company recorded liabilities to account for the operations and activities of
discontinued operations. During the second quarter of 1999, the Company realized
a gain of $1,309,000 from the operations of the discontinued business, primarily
attributable to favorable settlements with former telecommunication customers
and retailers and the success of aggressive collection efforts related to
accounts receivable from customers of the discontinued business. For the second
quarter of 1998, the loss from operations of discontinued operations (net of
income taxes) was $13,487,000 and the loss from disposal of the discontinued
operations was $8,233,000.
Weighted Average Outstanding Shares and Basic and Diluted Loss Per Common Share
The basic and diluted weighted average shares increased to 32,627,000
for the second quarter of 1999 compared to 31,693,000 for the second quarter of
1998. The increase resulted primarily from the exercise of stock options and the
granting of certain stock awards during the second quarter of 1999.
As a result of the foregoing, basic and diluted loss per common share
from continuing operations was $(0.03) for the second quarter of 1999 compared
to a loss of $(0.03) for the second quarter of 1998. Basic and diluted income
from discontinued operations per common share was $0.04 during the second
quarter of 1999, as compared to a loss of $(0.70) for the same period in 1998.
Basic and diluted income per common share was $0.01 for the second quarter of
1999 compared to a loss of $(0.73) for the second quarter of 1998.
SIX MONTHS ENDED JUNE 30, 1999 AND 1998
Revenues
The Company's revenues for the first six months of 1999 were $4,927,000
compared to $4,622,000 in 1998, an increase of 7% or $305,000. The Company
recognized $530,000 in software revenue during the first six months of 1999.
During the same period in 1998, the Company did not sell any software.
Consulting and services revenues aggregated $966,000 in the first six months of
1999 while during the same period in 1998, the Company recognized $211,000 in
consulting and services. Leasing and other revenues were $3,431,000 in the first
six months of 1999 compared to $4,411,000 in the first six months of 1998.
During the first six months of 1999, revenues from leasing and other operations
consisted of $2,082,000 from customers within its lease base, and $1,349,000
from royalty revenues related to the VISA Bill-Pay system. During the same
period in 1998, the Company recognized $3,083,000 from customers within its
lease base, $78,000 in revenues from maintenance contracts related to the sale
of software, and $1,250,000 from royalties related to the VISA Bill-Pay system.
The number of active records in the Company's installed lease base historically
decreases at a rate of 27% per year. The Company expects this trend to continue.
<PAGE>
Cost of Revenues
The Company's cost of revenues for the first six months of 1999 were
$1,052,000 compared to $1,263,000 in 1998, a decrease of 20% or $211,000. The
Company did not sell any software during the first six months of 1998 while in
the same period in 1999, the Company incurred $53,000 in costs associated with
software sales. Consulting and services cost of revenues aggregated $301,000 in
the first six months of 1999, while during the same period in 1998, the Company
aggregated $34,000 in cost of revenues for consulting and services. Cost of
revenues associated with leasing aggregated $698,000 in the first six months of
1999 compared to $1,229,000 in the same period of 1998. The decrease in cost of
revenues for the Company's lease base from the first half of 1998 to the first
half of 1999 was attributed primarily to the lease base becoming fully
depreciated in 1998 and an expected decrease in the number of active lease
customers.
Overall gross profit margins increased to 79% for the first six months
of 1999 from 73% for the same period in 1998. The large increase in gross profit
margins was attributed primarily to a shift in the source of revenues for the
Company and the effects of the Company's lease base becoming fully depreciated
of the Company's lease base. The Company anticipates that gross profit margins
may fluctuate in the future due to changes in product mix, competitive pricing
pressure, the introduction of new products and changes in the volume, terms, and
billing costs of leasing activity.
General and Administrative
General and administrative expenses were $3,796,000 for the first six
months of 1999 as compared to $3,275,000 in the first six months of 1998. The
increase of $518,000 was attributed to expanding the Company's development
facilities in Toledo, Ohio, expenses associated with the move of the Company's
headquarters to Reston, Virginia, non-cash charges associated with certain stock
grants, and expenses associated with the due diligence performed in connection
with the potential merger and joint marketing arrangement with Home Financial
Network, Inc.. Throughout the year, the Company expects to control general and
administrative expenses and plans to continually assess its operations in
managing the continued development of infrastructure to handle anticipated
business levels. The Company expects to increase the level of contract activity
thereby reducing the percentage of employee time allocated to corporate general
and administrative activities.
Selling and Marketing
Selling and marketing expenses decreased to $1,212,000 for the first
six months of 1999 from $1,287,000 for the same period last year. The decrease
is primarily attributable to the lower headcount in the marketing areas, and
lower expenses associated with advertising and trade shows.
<PAGE>
Research and Development
Research and development costs were $1,603,000 in the first six months
of 1999 compared to $1,357,000 for the same period in 1998. The increase of
$246,000 was largely attributable to increases in employee expenses during the
first three months of the year, as well as outside consulting services,
expansion of the company's development facility in Ohio and noncapitalized
equipment purchases. The Company primarily invests research and development
expenses in writing and developing the Interpose Transaction Engine for the Open
Financial Exchange ("OFX") standard, and has begun the initial development work
associated with the company's service bureau business.
Other Income
Other income, primarily investment income, was $120,000 for the first
six months of 1999 compared to $686,000 for the same period in the prior year.
The decrease of $566,000 was attributed to decreased cash, cash equivalents and
short-term investment balances in the first half of 1999 compared to the first
half of 1998 and a realization of a large gain in the company's investment
portfolio during 1998. The decrease in cash, cash equivalents and short-term
investment balances were related to the funding of the Company's working capital
and operating losses, partially offset by the effects of favorable customer
settlements and improved collections in discontinued operations..
Discontinued Operations
Discontinued operations for the Company consists of business activities
of the telecommunications and interactive services divisions. During 1998, the
Company recorded liabilities to account for the operations and activities of
discontinued operations. During the first six months of 1999, the Company
realized a gain of $1,309,000 from the operations of the discontinued business,
primarily from favorable settlements with former telecommunication customers and
retailers, and the success of aggressive collection efforts related to accounts
receivable from customers of the discontinued business. For the first six months
of 1998, the loss from discontinued operations (net of income taxes) was
$16,724,000 and the loss from disposal of the discontinued operations was
$8,993,000.
Weighted Average Outstanding Shares and Basic and Diluted Loss Per Common Share
The basic and diluted weighted average shares increased to 32,160,000
for the first half of 1999 compared to 31,273,000 for the first half of 1998.
The increase in shares is primarily attributable to the exercise of stock
options and stock grants to key employees. As a result of the foregoing, basic
and diluted loss per common share from continuing operations was $(0.08) for the
first half of 1999 compared to $(0.06) for the first half of 1998; basic and
diluted income per common share from discontinued operations was $0.04 for the
first half of 1999 compared to a loss of $(0.82) for the first half of 1998;
basic and diluted loss per common share was $(0.04) for the first half of 1999
compared to $(0.88) for the first half of 1998.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
During the first six months of 1999, the Company's cash, cash
equivalents and short-term investments decreased by $984,000. At June 30, 1999,
the Company had $7,066,000 in cash and cash equivalents. At June 30, 1999, the
Company had working capital of $935,000 with no long-term debt. The Company's
total assets exceeded total liabilities by $1,304,000.
During the first six months of 1999, cash used in activities from
continuing operations was $2,618,000 compared to $3,043,000 in the same period
in 1998. Cash used in operating activities of continuing operations during the
first six months of 1999 reflects operating losses arising from certain fixed
costs and the declining level of advanced payments by customers (deferred
revenues), offset in part by net cash generated from increases in accounts
payable and reductions in prepaid expenses.
Cash used in activities of continuing operations during the first half
of 1998 were primarily related to funding payments of trade payables and accrued
expenses, and the declining level of advanced payments by customers, offset in
part by decreases in prepaid expenses and other assets. Cash used from
discontinued operations during the first six months of 1999 was $477,000
resulting primarily from payments related to severance agreements and
settlements with customers, partially offset by cash collections from
telecommunications customers.
The Company had no investing activities during the first six months of
1999. Cash provided by investing activities in 1998 was primarily the result of
the sale of short-term investments.
Financing activities provided $2,111,000 in the first half of 1999
compared to the use of $1,206,000 during the first half of 1998. Financing
activities in the first six months of 1999 consisted primarily of proceeds from
the sale of the Company's common stock through stock option exercises. Financing
activities in the first half of 1998 consisted of the repayment of short-term
borrowings, partially offset by proceeds from the sale of the Company's common
stock through stock option exercises.
The Company's continuation as a going concern is dependent upon its
ability to generate sufficient cash flows to meet its obligations on a timely
basis, to obtain additional financing, and ultimately to attain profitability.
To that extent, on July 22, 1999, the Company closed a private placement of 600
shares of 4% Convertible Preferred stock, $.001 par value per share for an
aggregate purchase price of approximately $6.0 million.
In addition, the Company's accuracy in predicting revenues and cash
flow is limited in that the sale of the Company's core product is reliant on the
banking industry's willingness to invest in a new market, internet banking. This
market segment is slowly evolving and is subject to a number of variables in
1999 that will determine the timing and quantity of new sales that the Company
is able to achieve. Such variables include: (1) the effect of consolidations in
the banking industry; (2) financial institutions' progress on Year 2000
compliance; and (3) the banking customers' willingness to invest freely in an
untested customer channel.
<PAGE>
The Company received notification from the Nasdaq Stock Market that it
intended to delist the Company's common stock from the Nasdaq Stock Market,
effective May 4, 1999, due to the Company's failure to meet Nasdaq's net
tangible asset requirement of $4 million. InteliData has appealed Nasdaq's
decision in accordance with Nasdaq procedures, initially by requesting a
hearing. Such a hearing was held on July 1, 1999 and to date, no action has been
taken to delist the Company. InteliData has taken steps to remedy its net
tangible asset deficiency and on July 22, 1999, secured a private placement of
approximately $6.0 million of Convertible Preferred Stock in an effort to
maintain its Nasdaq listing. InteliData believes that its current financing will
permit the Company to comply with Nasdaq's listing requirements. Until a
decision is made by Nasdaq's Listings Hearings Department, the Company's common
stock will remain listed on Nasdaq. If InteliData is not successful in its
appeal, its common stock will continue to trade on the over the counter market
or on another appropriate trading exchange or market. The decision by Nasdaq
will have no effect on the Company's day-to-day business operations.
YEAR 2000 UPDATE
General
- -------
The inability of computers, software and other equipment utilizing
microprocessors to recognize and properly process data fields containing a 2
digit year is commonly referred to as the Year 2000 Compliance issue. As the
year 2000 approaches, such systems may be unable to accurately process certain
date-based information.
The Company believes it has identified all significant applications
that will require modification to ensure Year 2000 Compliance. Internal and
external resources are being used to make the required modifications and test
Year 2000 Compliance.
Project
- -------
The Company's Year 2000 Project ("Project") is generally proceeding on
schedule. In 1996, the Company began a significant re-engineering of its
business processes across the Company including improved access to business
information through common, integrated computing systems. As a result, the
Company replaced its business systems with systems from J.D. Edwards & Company,
IBM Corporation and Microsoft Corporation, which are designed to be Year 2000
Compliant. The Company became fully operational on these systems in 1998.
The Company has a Project team, with certain sub teams. The Project
includes four major areas corporate business systems, local software systems,
third party suppliers of goods and services, and Interpose software systems. The
general phases of the Project are: (1) inventorying date-aware items; (2)
determining criticality and assigning priorities to identified items; (3)
assessing the Year 2000 compliance of items determined to be material to the
Company; (4) repairing, replacing or identifying workarounds for material items
that are determined not to be
<PAGE>
Year 2000 Compliant; (5) testing material items; (6) identifying critical third
parties; and (7) designing contingency plans.
At September 30, 1998, the inventory, priority assessment and
compliance assessment phases of each area of the Project were essentially
complete. Material items are those believed by the Company to have a risk
involving the welfare of our customers or substantially affect revenues.
Corporate business systems proceeding on schedule or complete as of
March 31, 1999 include hardware and systems software, networks and
telecommunications. All corporate systems activities are expected to be complete
by September, 1999.
Local software systems include process control and instrumentation
systems and building systems. Operational improvement projects already underway
address some of the Year 2000 concerns. Some manufacturer replacements or
upgrades are behind schedule; however, the Company estimates necessary
replacements or upgrades will be completed by September, 1999.
The third party suppliers phase includes the process of identifying and
prioritizing critical suppliers of goods and services, and communicating with
them about their plans and progress in addressing the Year 2000 concerns. The
Company completed the identification phase and evaluated the most critical third
parties. These evaluations were followed by the development of contingency plans
as necessary, including plans to use alternative third party vendors, if
necessary. This Project phase was completed by mid-1999, with monitoring planned
through the remainder of 1999.
The Company has contingency plans for some mission-critical
applications and is working on plans for others. For example, contingency plans
for the payroll system have been in place since the second quarter of 1998,
while detailed plans for other business processes will be completed by year-end.
A steering committee is closely monitoring the progress of business process
contingency plans involving, among other actions, manual workarounds and
additional staffing.
The Interpose software phase included actions to address the issue of
Year 2000 Compliance as it relates to the Company's customer software. The
Company believes that its current version of the Interpose software is Year 2000
Compliant. Actions taken to address previous releases of the software were, with
minor exceptions, programming changes to replace a non-compliant date conversion
routine with one that was already Year 2000 compliant. Any customer whose
product was not already compliant was notified of any source code changes and/or
release updates made to the product. The Company has issued letters to its
customers that assure that any changes pertinent to the correcting Year 2000
concerns were addressed by the third quarter of 1997 and that all future
releases of Interpose will be fully year 2000 compliant.
<PAGE>
Costs
- -----
The estimated total cost associated with required modifications to
become Year 2000 compliant has not been and is not anticipated to be material to
the Company's financial position or results of operations in any given year. The
estimated total cost of the Project is or will be expensed and includes
allowances for some items for which a fix or workaround is still being
determined.
Risks
- -----
The failure to correct a material Year 2000 problem could result in an
interruption in, or failure of certain normal business activities or operations,
which could materially and adversely affect the Company's results of operations,
liquidity and financial condition. Due to the general uncertainty inherent in
the Year 2000 problem, resulting in part from the uncertainty of the Year 2000
readiness of third-party suppliers and customers, the Company is unable to
determine at this time whether the consequences of Year 2000 problems will have
a material impact on the Company's results of operations, liquidity or financial
condition. The Project is expected to reduce significantly the Company's level
of uncertainty about the Year 2000 problem and, in particular, about the Year
2000 compliance and readiness of its material third-party suppliers. The Company
believes that with the previously accomplished implementation of global business
systems and completion of the Project as scheduled, the possibility of material
interruptions of normal operations should be reduced significantly.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
The above information includes forward-looking statements, the
realization of which may be impacted by the factors discussed below. The
forward-looking statements are made pursuant to the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995 (the "Act"). This report
contains forward looking statements that are subject to risks and uncertainties,
including, but not limited to, successful implementation of business strategy,
liquidity and capital resources, developing internet banking marketplace,
fluctuations in operating results, reliance on Caller ID leasing revenues and
billing operations, InteliData common stock owned by WorldCorp and World
Airways, technological considerations, competition, dependence on key employees,
volatility of stock price, the Company's ability to continue its listing on the
Nasdaq National Market, limited proprietary protection, 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, 1998. These risks could cause the Company's
actual results for 1999 and beyond to differ materially from those expressed in
any forward looking statements made by, or on behalf of, 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 (* denotes filed herewith)
--------
* 10.15 General Release and Severance Agreement dated June 23, 1999
between InteliData Technologies Corporation and John C.
Backus, Jr.
(b) Reports on Form 8-K
-------------------
The Company filed Current Reports on Form 8-K with the Securities and
Exchange Commission on June 3, 1999 and July 26, 1999 (as amended on
July 28, 1999).
<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/ Alfred S. Dominick, Jr.
---------------------------
Alfred S. Dominick, Jr.
President and Chief Executive Officer and
Acting Chief Financial Officer
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GENERAL RELEASE AND SEVERANCE AGREEMENT
This General Release and Severance Agreement (the "Agreement") is
entered into between InteliData Technologies Corporation, a Delaware corporation
("InteliData"), and John C. Backus, Jr. ("Backus").
WHEREAS, InteliData and Backus entered into an Employment Agreement
effective as of August 11, 1997 (the "Employment Agreement"), governing the
terms of his employment as President and Chief Executive Officer;
WHEREAS, Backus served as InteliData's President and Chief Executive
Officer pursuant to the terms and conditions of that Agreement;
WHEREAS, Backus subsequently became Chairman of the Executive
Committee, and ceased to serve in the capacity of President and Chief Executive
Officer;
WHEREAS, since approximately December 31, 1998, Backus has devoted
substantially less than full time and effort to the business of InteliData, and
has devoted the majority of his time and efforts to other businesses;
WHEREAS, Backus continues to serve InteliData as a Director of the
Company, but wishes to discontinue his service in that capacity;
WHEREAS, InteliData continued to provide compensation and benefits to
Backus as of March 1999 at the levels specified in the Employment Agreement,
notwithstanding the changes in Backus' circumstances;
WHEREAS, InteliData and Backus have certain disagreements as to the
current status of Backus' employment and his rights under the Employment
Agreement;
WHEREAS, InteliData and Backus wish to enter into this Agreement to
resolve those differences and to specify the terms and conditions that will
govern the cessation of Backus' employment with InteliData;
THEREFORE, in exchange for good and adequate consideration, the
adequacy of which is hereby specifically acknowledged, the Parties agree as
follows:
1. Termination of Backus' Employment and Director Status. Backus agrees
that his employment and service with InteliData, in all capacities, including
service as a Director of the Company or any of its subsidiaries, and as one of
the Company's designated Director of Home Financial Network, Inc., will be
deemed to have terminated effective as of the Effective Date.
2. Severance. In consideration for Backus' relinquishment of various
contract rights under the Employment Agreement, within seven days of the
Effective Date of this Agreement, InteliData agrees to pay severance to Backus
in the lump sum amount of $450,000.
<PAGE>
3. Company Property / Account Balance. In consideration for Backus'
relinquishment of various contract rights under the Employment Agreement,
InteliData agrees that it will allow Backus to retain all Company property
described in section 5(k) of the Employment Agreement, and that it will allow
Backus to retain the entire prepaid mileage balance in his United Airlines
Passplus Account that existed as of December 31, 1998.
4. Stock Options and Consulting Services. Effective as of the Effective
Date of this Agreement, all unvested stock options for InteliData stock held by
Backus under the InteliData 1996 Incentive Plan shall be canceled. The 125,000
unvested stock options for InteliData stock held by Backus under the US Order
1991 Stock Option Plan shall remain in full force and effect pursuant to the
terms of such options through December 31, 1999. Provided however, in
consideration for Backus continuing consultation services to the Company through
December 31, 1999, regarding the Company's financing plans and merger and
acquisition strategy, the provision of Section 5 of the February 24, 1998 Stock
Option Agreement granting said options shall be modified to provide that the
Option shall not terminate upon Backus' resignation as an employee, but shall
otherwise continue in accordance with the terms of the Stock Option Agreement
through December 31, 1999. Any options that are not vested by December 31, 1999
shall be cancelled.
5. Medical Benefits. Backus shall continue coverage under the Company's
medical, vision and dental plans through December 31, 2000 pursuant to COBRA,
except that the Company shall pay all applicable premiums.
6. Beneficiaries. Any payment to which Backus is entitled under this
Agreement shall, in the event of his death, be made to his wife or such other
persons as Backus shall designate in writing to InteliData form time to time. If
no such beneficiaries survive Backus, such payments shall be made to Backus'
estate.
7. Taxes. To the extent any excise taxes are due with respect to the
payments or other consideration set forth in paragraphs 2 through 5 of this
Agreement, InteliData agrees to pay such taxes and to indemnify and hold Backus
harmless for any tax claims or penalties resulting from any failure by
InteliData to pay such taxes. To the extent any taxes other than excise taxes,
including federal or state income taxes, are due with respect to the payments or
other consideration set forth in paragraphs 2 through 5 of this Agreement,
Backus agrees to pay such taxes and not to seek reimbursement or indemnification
from InteliData.
8. Indemnification / D&O Insurance. The provisions of section 4(g) of
the Employment Agreement shall continue in full force and effect, except that
the last sentence of that section 4(g) shall be amended to provide that such
obligations shall apply with respect to acts and events occurring prior to and
through the last date upon which Backus provides consulting services as
referenced in paragraph 4 of this Agreement, rather than prior to and through
the date of termination.
9. Nondisparagement. The provisions of section 16 of the Employment
Agreement shall continue in full force and effect.
<PAGE>
10. Nonapplicability of Noncompetition Covenants. InteliData and Backus
agree that the provisions of section 15 of the Employment Agreement do not apply
with respect to Backus' activities either before or after the date of
termination described in paragraph 1 of this Agreement.
11. Effective Date. For purposes of all provisions set forth herein,
the Effective Date of this Agreement shall be the first day as of which the
seven-day revocation period described in paragraph 14(b) of this Agreement has
expired.
12. Integration of Employment Agreement. Except to the extent expressly
incorporated by reference within this Agreement, the parties agree that, as of
the Effective Date of this Agreement, the Agreement supersedes the Employment
Agreement and that the Employment Agreement will be of no further force and
effect thereafter.
13. Mutual Release of Claims and Covenant Not to Sue. Except with
regard to obligations created by, arising out of, or described in this
Agreement, Backus and InteliData agree for themselves and any present or future
successors, assigns, parents, subsidiaries, affiliates, directors, officers,
shareholders, general or limited partners, employees, heirs, beneficiaries,
devisees, executors, administrators, attorneys, agents, and representatives, to
release, discharge, and covenant not to sue each other for any claims, debts,
demands, accounts, judgments, rights, causes of action, claims for equitable
relief, damages, costs, charges, complaints, obligations, promises, agreements,
controversies, suits, expenses, compensation, responsibility and liability of
every kind and character whatever (including attorneys' fees and costs), whether
in law or equity, known or unknown, asserted or unasserted, suspected or
unsuspected, which they may have against each other; provided, however, that
notwithstanding anything to the contrary set forth herein, this General Release
shall not extend to claims by Backus for benefits under employee pension benefit
plans or retiree welfare benefit plans in which Backus may have been a
participant by virtue of his employment with InteliData or for benefit claims
under employee welfare benefit plans for occurrences (e.g., medical care, death,
or onset of disability) arising after the execution of this Agreement by Backus.
14. Release of Age Discrimination Claims, Periods for Review and
Reconsideration.
a. Backus understands and agrees that this paragraph 14 of this Agreement
includes a release of claims arising under the Age Discrimination in Employment
Act (ADEA) and that this provision does not waive rights or claims that may
arise after the date the waiver is executed. Backus understands and warrants
that he has been given a period of twenty-one (21) days to review and consider
this Agreement. Backus is hereby advised to consult with an attorney prior to
executing the Agreement. Backus further warrants that he understands that he may
use as much of or all of this 21-day period as he wishes before signing, and
warrants that he has done so.
b. Backus further warrants that he understands that he has seven (7) days after
signing this Agreement to revoke the Agreement by notice in writing to William
F. Gorog, Chairman of InteliData. This Agreement shall be binding, effective,
and enforceable upon the
<PAGE>
expiration of this seven-day revocation period with William Gorog having receive
no such revocation, but not before such time.
15. Amendment. This Agreement may be amended or modified only by
agreement by both parties signed by both Backus and a duly authorized
representative of InteliData.
16. Governing Law. This Agreement shall be governed and construed in
all respects in accordance with the laws of the Commonwealth of Virginia without
regard to the conflict of laws and rules contained herein.
17. Understanding and Authority. The parties understand and agree that
all terms of this Agreement are contractual and are not a mere recital, and
represent and warrant that they are competent to covenant and agree as herein
provided.
18. Severability. In any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction or other authority
to be invalid, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions of this Agreement shall remain in full force and
effect and shall in no way be affected, impaired or invalidated.
The parties have carefully read this Agreement in its entirety; fully
understand and agree to its terms and provisions; and intend to agree that it
final and binding on all parties.
IN WITNESS WHEREOF, and intending to be legally bound, the parties have
executed the foregoing on the date shown below.
Dated:/s/ June 21, 1999 By:/s/ John C. Backus, Jr.
------------------ -------------------------------------
John C. Backus, Jr.
Dated:/s/ June 23, 1999 By:/s/ William F. Gorog
------------------ -------------------------------------
William F. Gorog, Chairman
InteliData Technologies Corporation
