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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: June 30, 2000 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
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The number of shares of the registrant's Common Stock outstanding on June 30,
2000 was 38,416,588.
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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, 2000 and December 31, 1999 ............................ 3
Condensed Consolidated Statements of Operations
Three and Six Months Ended June 30, 2000 and 1999 .............. 4
Condensed Consolidated Statement of Changes in Stockholders' Equity
Six Months Ended June 30, 2000.................................. 5
Condensed Consolidated Statements of Cash Flows
Six Months Ended June 30, 2000 and 1999......................... 6
Notes to Condensed Consolidated Financial Statements ........... 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ...................................... 9
Item 3. Quantitive and Qualitative Disclosures About Market Risk........ 16
Item 4. Submission of Matters to a Vote of Security Holders............. 17
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K................................ 17
SIGNATURES ........................................................... 18
<PAGE>
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
INTELIDATA TECHNOLOGIES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 2000 AND DECEMBER 31, 1999
(in thousands, except share data; unaudited)
2000 1999
---------- ---------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 18,268 $ 8,496
Restricted cash 440 --
Investments 33,456 --
Accounts receivable, net of allowance 1,814 1,924
for doubtful accounts
Prepaid expenses and other current assets 182 138
---------- ---------
Total current assets 54,160 10,558
NONCURRENT ASSETS
Property and equipment, net 2,586 548
Other assets 195 175
---------- ---------
TOTAL ASSETS $ 56,941 $ 11,281
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 3,931 $ 2,343
Accrued expenses and other liabilities 3,421 1,166
Deferred revenues -- 616
Net liabilities of discontinued operations 834 69
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TOTAL CURRENT LIABILITIES 8,186 4,194
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 39,098,088 shares in 2000 and
38,691,040 shares in 1999; outstanding 38,416,588 39 38
shares in 2000 and 38,009,540 shares in 1999
Additional paid-in capital 260,434 258,133
Treasury stock, at cost (2,064) (2,064)
Deferred compensation (858) (345)
Accumulated other comprehensive income 6,033 --
Accumulated deficit (214,829) (248,675)
---------- ---------
TOTAL STOCKHOLDERS' EQUITY 48,755 7,087
---------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 56,941 $ 11,281
========== =========
See accompanying notes to condensed consolidated financial statements.
<PAGE>
INTELIDATA TECHNOLOGIES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(in thousands, except per share data; unaudited)
<TABLE>
Three months ended Six months ended
June 30, June 30,
----------------------------- --------------------------
2000 1999 2000 1999
----------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues
Software $ 165 $ 368 $ 601 $ 530
Consulting and services 819 777 1,913 966
Leasing and other 911 1,658 2,000 3,431
----------- ----------- ----------- ----------
Total revenues 1,895 2,803 4,514 4,927
----------- ----------- ----------- ----------
Cost of revenues
Software -- 37 -- 53
Consulting and services 933 260 1,507 301
Leasing and other 312 318 730 698
----------- ----------- ----------- ----------
Total cost of revenues 1,245 615 2,237 1,052
----------- ----------- ----------- ----------
Gross profit 650 2,188 2,277 3,875
Operating Expenses
General and administrative 1,884 2,155 3,285 3,796
Selling and marketing 1,816 504 3,140 1,212
Research and development 3,450 698 5,627 1,603
----------- ----------- ----------- ----------
Total operating expenses 7,150 3,357 12,052 6,611
----------- ----------- ----------- ----------
Operating loss (6,500) (1,169) (9,775) (2,736)
Realized gains on sales of investments 1,387 -- 43,991 --
Other income 168 77 320 120
----------- ----------- ----------- ----------
Income (loss) before income taxes (4,945) (1,092) 34,536 (2,616)
Provision (benefit) for income taxes (100) -- 690 --
----------- ----------- ----------- ----------
Income (loss) from continuing operations (4,845) (1,092) 33,846 (2,616)
Discontinued operations - Gain from operation of
telecommunications and interactive service
divisions (net of income taxes) -- 1,309 -- 1,309
----------- ----------- ----------- ----------
Net income (loss) $ (4,845) $ 217 $ 33,846 $ (1,307)
=========== =========== =========== ==========
Basic earnings per common share
Income (loss) from continuing operations $ (0.13) $ (0.03) $ 0.89 $ (0.08)
Income (loss) from discontinued operations 0.00 0.04 0.00 0.04
----------- ----------- ----------- ----------
Net income (loss) $ (0.13) $ 0.01 $ 0.89 $ (0.04)
=========== =========== =========== ==========
Diluted earnings per common share
Income (loss) from continuing operations $ (0.13) $ (0.03) $ 0.83 $ (0.08)
Income (loss) from discontinued operations 0.00 0.04 0.00 0.04
----------- ----------- ----------- ----------
Net income (loss) $ (0.13) $ 0.01 $ 0.83 $ (0.04)
=========== =========== =========== ==========
Basic weighted-average common shares outstanding 38,173 32,627 38,082 31,160
=========== =========== =========== ==========
Diluted weighted-average common shares outstanding 38,173 32,627 40,926 31,160
=========== =========== =========== ==========
</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, 2000
(in thousands; unaudited)
<TABLE>
Accumulated
Common stock Additional Deferred Other Compre- Accumu- Compre-
-------------- Paid-in Treasury Compen- hensive lated hensive
Shares Amount Capital Stock sation Income Deficit Income Total
------- ------ ---------- -------- --------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 2000 38,010 $ 38 $ 258,133 $(2,064) $ (345) $ - $ (248,675) $ 7,087
Issuance of common stock:
Exercise of stock options 199 1 505 - - - - 506
Employee stock purchase plan 17 - 45 - - - - 45
Exercise of stock warrants 159 - 197 - - - - 197
Issuance of restricted stock 32 - 292 - (292) - - -
Cancellation of restricted stock - - (14) - 14 - - -
Issuance of warrants - - 419 - (419) - - -
Capital contribution - - 857 - - - - 857
Compensation expense - - - - 184 - - 184
Unrealized gain on investments,
net of taxes - - - - - 6,033 - 6,033 6,033
Net income - - - - - - 33,846 33,846 33,846
---------
Comprehensive income 39,879
=========
------- ------ ---------- -------- --------- ----------- ----------- ---------
Balance at June 30, 2000 38,417 $ 39 $ 260,434 $(2,064) $ (858) $ 6,033 $ (214,829) $ 48,755
======= ====== ========== ======== ========= =========== =========== =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
INTELIDATA TECHNOLOGIES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(in thousands; unaudited)
2000 1999
--------- ----------
Cash flows from operating activities
Net income (loss) from continuing operations $ 33,846 $ (2,616)
Adjustments to reconcile net income (loss) from
continuing operations to net cash used in
operating activities of continuing operations:
Realized gains on sales of investments (43,991) --
Deferred income taxes 690 --
Depreciation and amortization 693 154
Deferred compensation and other noncash items 184 169
Changes in certain assets and liabilities:
Accounts receivable 110 624
Inventories -- --
Prepaid expenses and other current assets (44) 95
Other assets (20) 82
Accounts payable 1,588 450
Accrued expenses and other liabilities 710 (105)
Deferred revenues (616) (1,471)
---------- ---------
Net cash used in operating activities (6,850) (2,618)
of continuing operations ---------- ---------
Net gain from discontinued operations -- 1,309
Change in net liabilities of
discontinued operations 765 (1,786)
---------- ----------
Net cash provided by (used in) operating
activities of discontinued operations 765 (477)
---------- ----------
Net cash used in operating activities (6,085) (3,095)
Cash flows from investing activities
Proceeds from sale of investments 16,252 --
Purchases of property and equipment (2,000) --
---------- ----------
Net cash provided by investing activities 14,252 --
---------- ----------
Cash flows from financing activities
Proceeds from the issuance of common stock 748 2,111
Capital contribution 857 --
---------- ----------
Net cash provided by financing activities 1,605 2,111
---------- ----------
Increase (decrease) in cash and cash equivalents 9,772 (984)
Cash and cash equivalents, beginning of period 8,496 8,050
---------- ----------
Cash and cash equivalents, end of period $ 18,268 $ 7,066
========== ==========
Supplemental schedule of non-cash investing activity - The Company purchased
approximately $731,000 of assets that were not paid for as of June 30, 2000.
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, 2000 AND 1999
(Unaudited)
(1) Basis of Presentation
The condensed consolidated balance sheets of InteliData
Technologies Corporation ("InteliData" or "Company") as of June 30,
2000, the related condensed consolidated statements of operations for
the three and six month periods ended June 30, 2000 and 1999, and the
condensed consolidated statements of changes in stockholders' equity
and cash flows for the six month periods ended June 30, 2000 and 1999,
presented in this Form 10-Q, are unaudited. In the opinion of
management, all adjustments necessary for a fair presentation of such
financial statements have been included. Such adjustments consist only
of normal recurring items. Interim results are not necessarily
indicative of results for a full year. Certain amounts for previous
periods have been reclassified to conform to the current period
presentation.
The condensed consolidated financial statements and notes are
presented as required by Form 10-Q, and do not contain certain
information included in the Company's annual audited financial
statements and notes. These financial statements should be read in
conjunction with the annual audited financial statements of the Company
and the notes thereto, together with management's discussion and
analysis of financial condition and results of operations, contained in
the Form 10-K for the fiscal year ended December 31, 1999.
(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):
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Internet Banking Leasing Consolidated
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2000 Second Quarter
Revenues $ 1,199 $ 696 $ 1,895
Operating (loss) income (6,884) 384 (6,500)
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<PAGE>
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1999 Second Quarter
Revenues $ 1,811 $ 992 $ 2,803
Operating (loss) income (1,843) 674 (1,169)
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Internet Banking Leasing Consolidated
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2000 Six Months
Revenues $ 2,983 $ 1,531 $ 4,514
Operating (loss) income (10,576) 801 (9,775)
1999 Six Months
Revenues $ 2,845 $ 2,082 $ 4,927
Operating (loss) income (4,120) 1,384 (2,736)
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(3) US West Caller ID Lease Base
In January 2000, the Company received notification from its
billing agent regarding proposed changes to the billing process for
the US West Caller ID Lease Base. During June 2000, these changes were
finalized and went into effect. US West has notified the Company that
US West will no longer permit InteliData to include the lease billing
on the US West telephone bills after June 2000. As such, InteliData
will discontinue billing its legacy customers for Caller ID adjunct
unit leases in the US West telephone service territory, because the
cost of individually billing and pursuing collections for the leases
has made it impractical and uneconomical for the Company to continue
the lease program. Accordingly, the revenues from leasing activities
will cease.
(4) New Accounting Pronouncement
In December 1999, the SEC Staff issued Staff Accounting Bulletin
(SAB) No. 101, "Revenue Recognition," which provides the Staff's views
in applying generally accepted accounting principles to selected
revenue recognition issues. The SAB is effective no later than the
fourth fiscal quarter of fiscal years beginning after December 15,
1999. The Company has not yet determined what impact, if any, will
result from the adoption of this SAB.
* * * * * *
<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 month periods ended June 30, 2000
and 1999. 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, 2000 and 1999
-----------------------------------------
Revenues
The Company's second quarter revenues were $1,895,000 in 2000 compared to
$2,803,000 in 1999, a decrease of 32% or $908,000. The decrease is primarily
attributable to the decrease in the lease base revenue and the royalties
relating to the Visa Bill-Pay system, as well as the progress of several bank
installations and the resulting revenue recognition in the prior period. During
the second quarter of 2000, software revenues contributed $165,000, consulting
and services revenues contributed $819,000, and other revenues contributed
$911,000. Other revenues consisted of $696,000 from leasing activities and
$215,000 from royalties.
During the second quarter of 1999, software revenues contributed $368,000,
consulting and services revenues contributed $777,000, and other revenues
contributed $1,658,000. Other revenues consisted of $992,000 from leasing
activities and $666,000 from royalties. The Company expects the trend of
declining royalties to continue.
In January 2000, the Company received notification from its billing agent
regarding proposed changes to the billing process for the US West Caller ID
Lease Base. During June 2000, these changes were finalized and went into effect.
US West has notified the Company that US West will no longer permit InteliData
to include the lease billing on the US West telephone bills after June 2000. As
such, InteliData will discontinue billing its legacy customers for Caller ID
adjunct unit leases in the US West telephone service territory, because the cost
of individually billing and pursuing collections for the leases has made it
impractical and uneconomical for the Company to continue the lease program.
Accordingly, revenues from leasing activities will cease.
Cost of Revenues
The Company's second quarter cost of revenues was $1,245,000 in 2000
compared to $615,000 in 1999, an increase of 102% or $630,000. The increase is
primarily attributable to changes in product mix and increased costs related to
billings on the Caller ID leasing activities, which earned a 55% gross profit
margin in 2000 compared to a 68% gross profit margin in 1999. During the second
quarter of 2000, consulting and services contributed $933,000 and other cost
<PAGE>
of revenues contributed $312,000. Other cost of revenues consisted of expenses
associated with 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.
Overall gross profit margins decreased to 34% for the second quarter of
2000 from 78% for the second quarter of 1999. The decrease in gross profit
margin was primarily attributable to increased costs and the recording of
forward losses on strategic contracts. 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, and the introduction of new products and
changes in volume.
General and Administrative
General and administrative expenses were $1,884,000 for the second quarter
of 2000 as compared to $2,155,000 in the second quarter of 1999. The decrease of
$271,000 was primarily the result of a 1999 non-cash charge of $244,000
associated with certain stock grants and additional expense incurred in 1999 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.
Selling and Marketing
Selling and marketing expenses increased to $1,816,000 for the second
quarter of 2000 from $504,000 for the same period last year. The increase is
primarily attributable to an increase in the number of employees in the customer
care center, an increase in the sales force, our active participation in trade
shows, and an increased level of newspaper and other print advertising.
Research and Development
Research and development costs were $3,450,000 in the second quarter of
2000, as compared to $698,000 in the same period in 1999. The increase of
$2,752,000 is reflective of our investment in the development of our product
offerings and the resulting increase in employees and the use of outside
consulting services. The Company primarily invests research and development
expenses in writing and developing the Interpose Transaction Engine for the Open
Financial Exchange ("OFX") standard and building the Interactive Financial
Exchange ("IFX")-based network electronic bill payment switch.
Realized Gains on Sales of Investments
On January 20, 2000, Home Financial Network, Inc. (HFN), a company in which
InteliData held approximately a 25% ownership interest, merged with Sybase, Inc.
InteliData accounted for its investment in HFN using the equity method. As of
the merger date, such investment's carrying value was zero. In exchange for its
portion of ownership in HFN,
<PAGE>
InteliData received approximately $5,867,000 in cash and approximately 1,770,000
shares of Sybase common stock valued at approximately $33,405,000 on that date.
The Company also held warrants to purchase HFN common stock. As part of the
merger agreement, such warrants were converted into warrants to purchase Sybase
common stock. The Company received 640,000 "warrant units" with an exercise
price of $2.60 per warrant unit. Upon exercise of each warrant unit, the Company
is entitled to receive $1.153448 in cash and 0.34794 share of Sybase common
stock. These warrants were valued at approximately $3,332,000 on that date.
An escrow account was established to provide Sybase, Inc. indemnity
protection against possible claims that might arise against HFN. Currently,
approximately 133,000 shares of Sybase owned by InteliData remain in escrow,
along with approximately $440,000 of cash. These amounts are payable to the
Company on January 20, 2001, unless subject to claims under the escrow
provision.
The Company considers its investments in the Sybase common stock and
warrants to be available-for-sale under the provisions of Statement of Financial
Accounting Standards No. 115, Accounting for Certain Investments in Debt and
Equity Securities, and as such, included within stockholders' equity as of June
30, 2000 is $6,033,000 of unrealized gain on investments (net of taxes), which
represents the increase in the fair market value of the Sybase holdings from
January 20, 2000 to June 30, 2000. Future disposition of the Sybase shares will
be reflected as gains or losses based on the then market value as the
transactions occur. For the second quarter, InteliData recognized a gain of
approximately $1,387,000 on the disposition of a portion of the investment in
Sybase common stock.
Other Income
Other income, primarily investment and interest income, was $168,000 for
the second quarter of 2000 compared to $77,000 for the same period in the prior
year. The increase of $91,000 was due to the increased levels of cash and cash
equivalents during the second quarter of 2000 compared to the second quarter of
1999. This increase was a result of the cash proceeds from the merger
transaction and the subsequent disposition of some of the Sybase common stock.
Discontinued Operations
Discontinued operations for the Company consist of business activities of
the telecommunications and interactive services divisions. During 1998, the
Company recorded liabilities to account for the operations and activities of
discontinued operations. For the second quarter of 2000, there were no
significant developments in 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 telecommunications customers and retailers and the success of aggressive
collection efforts related to accounts receivable from customers of the
discontinued business.
<PAGE>
The net liabilities of discontinued operations as of December 31, 1999
included an asset - a building in New Milford, Connecticut. The Company received
net proceeds of $988,000 for the sale of the building during January 2000.
Liabilities remaining in the discontinued operations as of June 30, 2000 include
a reserve for potential environmental clean-up at the New Milford location,
costs for legal shut-down of the former operating subsidiaries, potential
warranty costs, and further potential settlements with telecom customers and
others.
Weighted-Average Common Shares Outstanding and Basic and Diluted Earnings (Loss)
Per Common Share
The basic and diluted weighted-average common shares outstanding increased
to 38,173,000 for the second quarter of 2000 compared to 32,627,000 for the
second quarter of 1999. The increase resulted primarily from the exercise of
stock options and warrants, stock purchases under the Employee Stock Purchase
Plan, and the granting of certain stock awards during 1999. Also, during the
third and fourth quarter of 1999, all convertible preferred stock, which had
been issued in July 1999, was converted into common stock.
As a result of the foregoing, basic and diluted loss per common share from
continuing operations was $0.13 and $0.03 for the second quarters of 2000 and
1999, respectively. Basic and diluted income from discontinued operations per
common share was $0.00 and $0.04 for the second quarters of 2000 and 1999,
respectively. Basic and diluted income (loss) per common share was a loss of
$0.13 for the second quarter of 2000 compared to income of $0.01 for the second
quarter of 1999.
Six months ended June 30, 2000 and 1999
---------------------------------------
Revenues
The Company's revenues for the first six months of 2000 were $4,514,000
compared to $4,927,000 in 1999, a decrease of 8% or $413,000. The Company
recognized $601,000 in software revenue during the first six months of 2000.
During the same period in 1999, the Company recognized $530,000 in software
revenue. Consulting and services revenues aggregated $1,913,000 in the first six
months of 2000 while during the same period in 1999, the Company recognized
$966,000. Leasing and other revenues were $2,000,000 in the first six months of
2000 compared to $3,431,000 in the first six months of 1999. During the first
six months of 2000, revenues from leasing and other operations consisted of
$1,531,000 from customers within its lease base, and $469,000 from royalty
revenues related to the VISA Bill-Pay system. During the same period in 1999,
the Company recognized $2,082,000 from customers within its lease base and
$1,349,000 from royalties related to the VISA Bill-Pay system. The Company
expects the trend of declining royalties to continue.
In January 2000, the Company received notification from its billing agent
regarding proposed changes to the billing process for the US West Caller ID
Lease Base. During June 2000, these changes were finalized and went into effect.
US West has notified the Company that US West will no longer permit InteliData
to include the lease billing on the US West telephone bills after June 2000. As
such, InteliData will discontinue billing its legacy customers for Caller ID
adjunct unit leases in the US West telephone
<PAGE>
service territory, because the cost of individually billing and pursuing
collections for the leases has made it impractical and uneconomical for the
Company to continue the lease program. Accordingly, the revenues from leasing
activities will cease.
Cost of Revenues
The Company's cost of revenues for the first six months of 2000 were
$2,237,000 compared to $1,052,000 in 1999, an increase of 113% or $1,185,000.
The Company did not incur any software related expenses during the first six
months of 2000, but incurred $53,000 during the same period in 1999. Consulting
and services cost of revenues aggregated $1,507,000 in the first six months of
2000, while during the same period in 1999, the Company's costs aggregated
$301,000. Cost of revenues associated with leasing aggregated $730,000 in the
first six months of 2000 compared to $698,000 in the same period of 1999.
Overall gross profit margins decreased to 50% for the first six months of
2000 from 79% for the same period in 1999. The decrease in gross profit margin
was primarily attributable to increased costs and the recording of forward
losses on strategic contracts. 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, and the introduction of new products and changes
in volume.
General and Administrative
General and administrative expenses were $3,285,000 for the first six
months of 2000, as compared to $3,796,000 for the first six months of 1999. The
decrease of $511,000 was attributable to 1999 activities to expand 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.
Selling and Marketing
Selling and marketing expenses increased to $3,140,000 for the first six
months of 2000 from $1,212,000 for the same period last year. The increase is
primarily attributable to an increase in the number of employees in customer
care center, an increase in the sales force, our active participation in trade
shows, and an increased level of newspaper and other print advertising.
<PAGE>
Research and Development
Research and development costs were $5,627,000 in the first six months of
2000 compared to $1,603,000 for the same period in 1999. The increase of
$4,024,000 is reflective of our investment in the development of our product
offerings and the resulting increase in employees and the use of outside
consulting services. The Company primarily invests research and development
expenses in writing and developing the Interpose Transaction Engine for the Open
Financial Exchange ("OFX") standard and building the Interactive Financial
Exchange ("IFX")-based network electronic bill payment switch.
Realized Gains on Sales of Investments
As discussed above, on January 20, 2000, Home Financial Network, Inc.
(HFN), a company in which InteliData held approximately a 25% ownership
interest, merged with Sybase, Inc. In exchange for its portion of ownership in
HFN, InteliData received approximately $5,867,000 in cash and approximately
1,770,000 shares of Sybase stock. The Company also received 640,000 "warrant
units" with an exercise price of $2.60 per warrant unit. Upon exercise of each
warrant unit, the Company is entitled to receive $1.153448 in cash and 0.34794
share of Sybase common stock.
For the six months ended June 30, 2000, InteliData recognized a gain of
approximately $43,991,000 on the merger transaction and the subsequent
disposition of a portion of the investment in Sybase common stock.
Other Income
Other income, primarily investment and interest income, was $320,000 and
$120,000 for the six months ended June 30, 2000 and 1999, respectively. The
increase of $200,000 was due to the increased level of cash and cash equivalents
in 2000 as compared to 1999. This increase was a result of the cash proceeds
from the merger transaction and the subsequent disposition of some of the Sybase
common stock.
Discontinued Operations
Discontinued operations for the Company consist of business activities of
the telecommunications and interactive services divisions. During 1998, the
Company recorded liabilities to account for the operations and activities of
discontinued operations. For 2000, there were no significant developments in the
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 telecommunications customers
and retailers and the success of aggressive collection efforts related to
accounts receivable from customers of the discontinued business.
The net liabilities of discontinued operations as of December 31, 1999
included an asset - a building in New Milford, Connecticut. The Company received
net proceeds of $988,000 for
<PAGE>
the sale of the building during January 2000. Liabilities remaining in the
discontinued operations as of June 30, 2000 include a reserve for potential
environmental clean-up at the New Milford location, costs for legal shut-down of
the former operating subsidiaries, potential warranty costs, and further
potential settlements with telecom customers and others.
Weighted-Average Common Shares Outstanding and Basic and Diluted Earnings (Loss)
Per Common Share
The basic and diluted weighted-average common shares outstanding for the
six months ended June 30, 2000 was 38,082,000 and 40,926,000, respectively,
compared to 31,160,000 for both for the same period in 1999. The increase
resulted primarily from the exercise of stock options and warrants, stock
purchases under the Employee Stock Purchase Plan, and the granting of certain
stock awards during 1999. Also, during the third and fourth quarter of 1999, all
convertible preferred stock, which had been issued in July 1999, was converted
into common stock.
As a result of the foregoing, basic and diluted income per common share
from continuing operations was $0.89 and $0.83, respectively, for the six-month
period in 2000. There has been no discontinued operations activity in 2000. For
the same period in 1999, basic and diluted income (loss) per common share was a
loss of $0.08 from continuing operations and income of $0.04 from discontinued
operations, resulting in a basic and diluted loss per common share of $0.04.
Liquidity and Capital Resources
-------------------------------
During the first six months of 2000, the Company's cash and cash
equivalents increased by $9,772,000. At June 30, 2000, the Company had
$18,268,000 in cash and cash equivalents, $33,896,000 in investments and
restricted cash, and working capital of $45,974,000, with no long-term debt.
During the first six months of 2000, cash used in activities from
continuing operations was $6,850,000 compared to $2,618,000 in the same period
in 1999. Cash used in operating activities of continuing operations during the
first six months of 2000 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 accrued expenses and other liabilities. Cash used in activities of
continuing operations during the first half of 1999 were primarily related to
the operating losses with the positive cash flows from accounts receivable and
accounts payable offset by deferred revenues.
Cash flows from investing activities for the first six months of 2000 were
$16,252,000 in proceeds from the sale of investments, offset by $2,000,000 of
property and equipment purchases. The Company had no investing activities during
the first six months of 1999.
Financing activities provided $1,605,000 in the first half of 2000 compared
to $2,111,000 during the first half of 1999. Financing activities in the first
six months of 2000 consisted of
<PAGE>
proceeds from the sale of the Company's common stock through stock option
exercises, warrant exercises and the Employee Stock Purchase Plan, and a capital
contribution. Financing activities in the first half of 1999 reflected the sale
of the Company's common stocks.
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 ability of the Company to complete
implementations in required time frames and the Company's ability to increase
its recurring revenues and profits through its ASP business model, the impact of
competitive products, pricing pressure, product demand and market acceptance
risks, pace of consumer acceptance of home banking and reliance on the Company's
bank clients to increase usage of Internet banking by their customers, mergers
and acquisitions, risk of integration of the Company's technology by large
software companies, the ability of financial institution customers to implement
applications in the anticipated time frames or with the anticipated features,
functionality or benefits, reliance on key strategic alliances and newly
emerging technologies, the ability of the Company to leverage its Spectrum
relationship into new business opportunities in the EBPP market, the on-going
viability of the mainframe marketplace and demand for traditional mainframe
products, the ability to attract and retain key employees, the availability of
cash for long-term growth, product obsolescence, ability to reduce product
costs, fluctuations in operating results, ability to continue funding operating
losses, delays in development of highly complex products, 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,
1999. These risks could cause the Company's actual results for 2000 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
-------------------------------------------------------------------
The Company currently has no long-term debt and is not currently engaged in
any transactions that involve foreign currency. The Company does not engage in
hedging activities.
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
-------------------------------------------------------------
The Company's Annual Meeting of Stockholders was held on May 24, 2000.
Matters submitted at the meeting for vote by the Stockholders were the
following:
1) Election of Class I Directors
The Stockholders elected two members of the Board of Directors with
the following votes: William F. Gorog with votes of 36,258,964 for and
476,199 against; and L. William Seidman with votes of 36,260,464 for
and 474,699 against.
2) Amendment to 1996 Incentive Plan
The Stockholders approved an amendment to the Company's 1996 Incentive
Plan reserving an additional 1,000,000 shares of the Company's Common
Stock for issuance thereunder and increasing the maximum aggregate
number of shares that may be issued as stock awards to 500,000 shares
with the following votes: 34,447,479 for, 2,082,997 against, and
204,687 abstain.
3) Ratification of Deloitte & Touche LLP
The Stockholders ratified the selection of Deloitte & Touche LLP as
the Company's independent auditors for the year ending December 31,
2000 with the following votes: 36,535,149 for, 98,682 against, and
101,332 abstain.
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/ Alfred S. Dominick, Jr.
---------------------------
Alfred S. Dominick, Jr.
President, Chief Executive Officer,
Chief Financial Officer, and Director
