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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
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For the Quarter ended: September 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
---------
The number of shares of the registrant's Common Stock outstanding on September
30, 2000 was 38,484,734.
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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
September 30, 2000 and December 31, 1999 .......................... 3
Condensed Consolidated Statements of Operations
Three and Nine Months Ended September 30, 2000 and 1999 ........... 4
Condensed Consolidated Statement of Changes in Stockholders' Equity
Nine Months Ended September 30, 2000 .............................. 5
Condensed Consolidated Statements of Cash Flows
Nine Months Ended September 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 ......................................... 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk ........ 18
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
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2000 AND DECEMBER 31, 1999
(in thousands, except share data; unaudited)
2000 1999
-------- ----------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 28,434 $ 8,496
Restricted cash 440 --
Investments 16,571 --
Accounts receivable, net 1,975 1,924
Prepaid expenses and other current assets 317 138
-------- ---------
Total current assets 47,737 10,558
NONCURRENT ASSETS
Property and equipment, net 3,359 548
Other assets 195 175
-------- ---------
TOTAL ASSETS $ 51,291 $ 11,281
======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 3,782 $ 2,343
Accrued expenses and other liabilities 3,623 1,166
Deferred revenues -- 616
Net liabilities of discontinued operations 774 69
-------- ---------
TOTAL CURRENT LIABILITIES 8,179 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
39,175,446 shares in 2000 and 38,691,040
shares in 1999; outstanding 38,484,734
shares in 2000 and 38,009,540 shares in 1999 39 38
Additional paid-in capital 260,954 258,133
Treasury stock, at cost (2,123) (2,064)
Deferred compensation (1,108) (345)
Accumulated other comprehensive income 3,022 --
Accumulated deficit (217,672) (248,675)
-------- ---------
TOTAL STOCKHOLDERS' EQUITY 43,112 7,087
-------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 51,291 $ 11,281
======== =========
See accompanying notes to condensed consolidated financial statements.
<PAGE>
<TABLE>
INTELIDATA TECHNOLOGIES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(in thousands, except per share data; unaudited)
Three months ended Nine months ended
September 30, September 30,
---------------------- ---------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues
Software $ 54 $ 735 $ 655 $ 1,265
Consulting and services 1,387 495 3,300 1,461
Leasing and other 75 1,692 2,075 5,123
----------- -------- ----------- --------
Total revenues 1,516 2,922 6,030 7,849
----------- -------- ----------- --------
Cost of revenues
Software -- 112 -- 165
Consulting and services 850 256 2,357 557
Leasing and other -- 208 730 906
----------- ------- ----------- --------
Total cost of revenues 850 576 3,087 1,628
----------- ------- ----------- --------
Gross profit 666 2,346 2,943 6,221
Operating expenses
General and administrative 2,381 1,178 5,666 4,971
Selling and marketing 1,554 464 4,694 1,676
Research and development 3,801 1,306 9,428 2,909
----------- ------- ----------- --------
Total operating expenses 7,736 2,948 19,788 9,556
----------- ------- ----------- --------
Operating loss (7,070) (602) (16,845) (3,335)
Realized gains on sales of investments 3,831 -- 47,822 --
Other income 339 109 659 227
---------- ------- ----------- --------
Income (loss) before income taxes (2,900) (493) 31,636 (3,108)
Provision (benefit) for income taxes (57) -- 633 --
----------- ------- ----------- --------
Income (loss) from continuing operations (2,843) (493) 31,003 (3,108)
Discontinued operations - Gain from operation of
telecommunications and interactive service
divisions (net of income taxes) -- 315 -- 1,624
----------- ------- ----------- --------
Net income (loss) (2,843) (178) 31,003 (1,484)
Preferred stock dividends and amortization of discounts
arising from allocation of proceeds to warrants and
beneficial conversion feature -- (1,535) -- (1,535)
----------- ------- ----------- --------
Net income (loss) attributable to common stockholders $ (2,843) $(1,713) $31,003 $ (3,019)
=========== ======= =========== ========
Basic earnings per common share
Income (loss) from continuing operations $ (0.07) $ (0.06) $ 0.81 $ (0.14)
Income (loss) from discontinued operations 0.00 0.01 0.00 0.05
----------- ------- ----------- --------
Net income (loss) $ (0.07) $ (0.05) $ 0.81 $ (0.09)
=========== ======= =========== ========
Diluted earnings per common share
Income (loss) from continuing operations $ (0.07) $ (0.06) $ 0.76 $ (0.14)
Income (loss) from discontinued operations 0.00 0.01 0.00 0.05
----------- ------- ----------- --------
Net income (loss) $ (0.07) $ (0.05) $ 0.76 $ (0.09)
=========== ======= =========== ========
Basic weighted-average common shares outstanding 38,265 33,056 38,199 32,459
=========== ======= =========== ========
Diluted weighted-average common shares outstanding 38,265 33,056 40,994 32,459
=========== ======= =========== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
<TABLE>
INTELIDATA TECHNOLOGIES CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 2000
(in thousands; unaudited)
Accumulated
Other
Common stock Additional Trea- Compre- Accu- Compre-
----------------- Paid-in sury Deferred hensive mulated hensive
Shares Amount Capital Stock Compensation Income Deficit Income Total
------ ------- ---------- -------- ------------- --------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 2000 38,691 $ 38 $ 258,133 $(2,064) $ (345) $ - $(248,675) $7,087
Issuance of common stock:
Exercise of stock options 210 1 528 - - - - 529
Employee stock purchase plan 17 - 45 - - - - 45
Exercise of stock warrants 166 - 228 - - - - 228
Issuance of restricted stock 91 - 758 - (758) - - -
Cancellation of restricted stock - - (14) - 14 - - -
Issuance of warrants - - 419 - (419) - - -
Capital contribution - - 857 - - - - 857
Compensation expense - - - - 400 - - 400
Treasury stock - - - (59) - - - (59)
Unrealized gain on investments,
net of taxes - - - - - 3,022 - $ 3,022 3,022
Net income - - - - - - 31,003 31,003 31,003
----------
Comprehensive income $ 34,025
------ ------- ---------- -------- ------------- --------- ---------- ========== -------
Balance at September 30, 2000 39,175 $ 39 $ 260,954 $(2,123) $ (1,108) $ 3,022 $(217,672) $43,112
====== ======= ========== ======== ============= ========= ========== =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
<TABLE>
INTELIDATA TECHNOLOGIES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(in thousands; unaudited)
2000 1999
------------ ------------
<S> <C> <C>
Cash flows from operating activities
Net income (loss) from continuing operations $ 31,003 $ (3,108)
Adjustments to reconcile net income (loss) from continuing operations
to net cash from operating activities of continuing operations:
Realized gains on sales of investments (47,822) -
Deferred income taxes 633 -
Depreciation and amortization 363 190
Deferred compensation 400 243
Changes in certain assets and liabilities:
Accounts receivable (51) (1,109)
Prepaid expenses and other current assets (179) 138
Other assets (20) 82
Accounts payable 1,439 282
Accrued expenses and other liabilities 1,450 593
Deferred revenues (616) (1,220)
------------ ------------
Net cash used in operating activities of
continuing operations (13,400) (3,909)
------------ ------------
Net gain from discontinued operations - 1,624
Change in net liabilities of discontinued operations 705 (3,106)
------------ ------------
Net cash provided by (used in) operating activities
of discontinued operations 705 (1,482)
------------ ------------
Net cash used in operating activities (12,695) (5,391)
Cash flows from investing activities
Proceeds from the sales of investments 34,145 -
Purchases of property and equipment (2,861) (56)
Purchases of investments (251) -
------------ ------------
Net cash provided by (used in) investing activities 31,033 (56)
------------ ------------
Cash flows from financing activities
Proceeds from the issuance of preferred stock - 5,670
Proceeds from the issuance of common stock 802 2,126
Capital contribution 857 -
Purchases of common stock into treasury (59) -
------------ ------------
Net cash provided by financing activities 1,600 7,796
------------ ------------
Increase in cash and cash equivalents 19,938 2,349
Cash and cash equivalents, beginning of period 8,496 8,050
------------ ------------
Cash and cash equivalents, end of period $ 28,434 $ 10,399
============ ============
</TABLE>
Supplemental schedule of non-cash activity - The Company purchased approximately
$313 of assets that had not yet been paid for as of September 30, 2000.
See accompanying notes to condensed consolidated financial statements.
<PAGE>
INTELIDATA TECHNOLOGIES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(Unaudited)
(1) Basis of Presentation
The condensed consolidated balance sheets of InteliData
Technologies Corporation ("InteliData" or "Company") as of September
30, 2000, the related condensed consolidated statements of operations
for the three and nine month periods ended September 30, 2000 and 1999,
the condensed consolidated statement of changes in stockholders' equity
for the nine month period ended September 30, 2000, and the condensed
consolidated statements of cash flows for the nine month periods ended
September 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):
<PAGE>
--------------------------- ------------------ ----------- -------------------
Internet Banking Leasing Consolidated
--------------------------- ------------------ ----------- -------------------
2000 Third Quarter
---------------------------
Revenues $ 1,516 $ - $ 1,516
Operating (loss) income (7,070) - (7,070)
1999 Third Quarter
Revenues $ 1,988 $ 934 $ 2,922
Operating (loss) income (1,328) 726 (602)
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--------------------------- ------------------ ----------- -------------------
Internet Banking Leasing Consolidated
--------------------------- ------------------ ----------- -------------------
2000 Nine Months
Revenues $ 4,499 $ 1,531 $ 6,030
Operating (loss) income (17,646) 801 (16,845)
1999 Nine Months
Revenues $ 4,833 $ 3,016 $ 7,849
Operating (loss) income (5,445) 2,110 (3,335)
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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 has
discontinued 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 ceased in
June 2000.
(4) Series B Convertible Preferred Stock
In accordance with generally accepted accounting principles,
portions of the proceeds from the sale of the Company's Series B
Preferred Stock in July 1999 were allocated to certain warrants and to
the Preferred Stock's conversion feature. On the Company's condensed
consolidated statements of operations for the three and nine month
periods ended September 30, 1999, "Preferred stock dividends and
amortization of discounts arising from allocation of proceeds to
warrants and beneficial conversion
<PAGE>
feature" in the amount of $1,535,000 was added to the net loss to
arrive at "Net Loss attributable to common stockholders." As of
November 10, 1999, all of the Series B Preferred Stock was converted
into common stock.
(5) 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 believes that the adoption of this SAB will not have
a material impact on the financial statements.
In June, 1998, the FASB issued Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"), which establishes accounting and
reporting standards for derivative instruments and for hedging
activities by requiring that all derivatives be recognized in the
balance sheet and measured at fair value. As amended by SFAS 137, SFAS
133 is effective for fiscal years beginning after June 15, 2000. The
Company has not completed its evaluation of the impact of adopting such
statement. The Company does not currently have any investments that
would fall under these guidelines.
* * * * * *
<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 nine months ended September 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 September 30, 2000 and 1999
Revenues
The Company's third quarter revenues were $1,516,000 in 2000 compared
to $2,922,000 in 1999, a decrease of 48% or $1,406,000. The decrease is
primarily attributable to the decrease in the revenue from the caller ID lease
base 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 third quarter of 2000, software revenues
contributed $54,000, consulting and services revenues contributed $1,387,000,
and other revenues contributed $75,000. Other revenues consisted of royalties
which ceased in September 2000.
During the third quarter of 1999, software revenues contributed
$735,000, consulting and services revenues contributed $495,000, and other
revenues contributed $1,692,000. Other revenues consisted of $934,000 from
leasing activities and $758,000 from royalties relating to the original sale of
the Visa Bill-Pay system.
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 has discontinued 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 ceased in June 2000.
As anticipated, the revenue for the quarter was negatively affected by
the decline and the cessation of the lease base revenue stream and the royalty
revenue stream. The effect for the third quarter was a combined $1,617,000. The
Company expects that the cessation will continue to be a significant factor over
the next three quarters when comparing current period results with prior
periods. In summary, the combined revenue for the lease base and royalty will be
$2,075,000 and $6,272,000 for the years ended December 31, 2000 and 1999,
respectively. The
<PAGE>
difference of $4,197,000 for the year is due to the decline in the revenue
streams, as previously disclosed, and to the final cessation of the lease base
and royalty streams.
Cost of Revenues
The Company's third quarter cost of revenues was $850,000 in 2000
compared to $576,000 in 1999, an increase of 48% or $274,000. The increase is
primarily attributable to the increase in revenues from consulting and services,
which were $1,387,000 and $495,000 in 2000 and 1999, respectively. All costs of
revenues during the third quarter of 2000 were from consulting and services.
There were no costs of revenues for leasing, since leasing revenues ceased in
June 2000.
During the third quarter of 1999, software cost of revenues contributed
$112,000, consulting and services contributed $256,000 and other cost of
revenues contributed $208,000. Other cost of revenues consisted of expenses
associated with leasing activities.
Overall gross profit margins decreased to 44% for the third quarter of
2000 from 80% for the third quarter of 1999. The decrease in gross profit margin
was primarily attributable to three factors: 1) because of changes in the
product mix, gross profit margin from consulting and services decreased to 39%
in 2000 from 48% in 1999; 2) there was no revenue and costs of revenues from
leasing in 2000, which in the prior period generated 78% of gross profit margin;
and, 3) there were $75,000 and $758,000 of royalty revenue in 2000 and 1999,
respectively, that had no associated cost of revenues. 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 volume.
General and Administrative
General and administrative expenses were $2,381,000 for the third
quarter of 2000 as compared to $1,178,000 in the third quarter of 1999. The
increase of $1,203,0000 was primarily related to the increase of bad debt
expense and other costs related to the leasing business in 2000 and increases in
recruiting costs. 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 $1,554,000 for the third
quarter of 2000 from $464,000 for the same period last year. The increase of
$1,090,000 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.
<PAGE>
Research and Development
Research and development costs were $3,801,000 in the third quarter of
2000, as compared to $1,306,000 in the same period in 1999. The increase of
$2,495,000 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 and the
InterposeTM Web Banking ("IWB") front-end.
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, 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
September 30, 2000 is $3,022,000 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 September 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 third quarter, InteliData recognized a
gain of approximately $3,831,000 on the disposition of a portion of the
investment in Sybase common stock.
Other Income
Other income, primarily investment and interest income, was $339,000
for the third quarter of 2000 compared to $109,000 for the same period in the
prior year. The increase of
<PAGE>
$230,000 was due to the increased levels of cash and cash equivalents during the
third quarter of 2000 compared to the third 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 third quarter of 2000, there were no
significant developments in discontinued operations. During the third quarter of
1999, the Company realized a gain of $315,000 from the operations of the
discontinued business, primarily attributable to favorable settlements with
former telecommunications customers and retailers, the success of aggressive
collection efforts related to accounts receivable from customers of the
discontinued business, and decreased expenses related to warranty, customer
service, and royalties.
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 September 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 Loss Per Common
Share
The basic and diluted weighted-average common shares outstanding
increased to 38,265,000 for the third quarter of 2000 compared to 33,056,000 for
the third 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. Also, as of November 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 $0.07 and $0.06 for the third quarters of 2000
and 1999, respectively. Basic and diluted income from discontinued operations
per common share was $0.00 and $0.01 for the third quarters of 2000 and 1999,
respectively. Basic and diluted loss per common share was $0.07 for the third
quarter of 2000 compared to $0.05 for the third quarter of 1999.
The Company's net loss attributable to common stockholders for the
third quarter of 1999 was impacted by a charge of $1,535,000 related to the
Series B Preferred Stock dividends and the amortization of discounts arising
from allocation of proceeds to warrants and the beneficial conversion feature.
<PAGE>
Nine months ended September 30, 2000 and 1999
Revenues
The Company's revenues for the first nine months of 2000 were
$6,030,000 compared to $7,849,000 in 1999, a decrease of 23% or $1,819,000.
Excluding leasing and other revenues, revenues for the period increased 45% or
$1,229,000. The Company recognized $655,000 and $1,265,000 in software revenue
during the first nine months of 2000 and 1999, respectively. The $610,000
decrease was primarily due to the timing of completion of sales and status of
the implementation projects. Consulting and services revenues aggregated
$3,300,000 and $1,461,000 in the first nine months of 2000 and 1999,
respectively. The $1,839,000 increase was primarily attributable to the services
rendered in building the IFX-based network electronic bill payment switch, as
well as the commencement of recurring revenues from the service bureau and
hosting business.
Leasing and other revenues were $2,075,000 in the first nine months of
2000 compared to $5,123,000 in the first nine months of 1999. During the first
nine months of 2000, revenues from leasing and other operations consisted of
$1,531,000 from customers within its lease base, and $544,000 from royalty
revenues related to the VISA Bill-Pay system. During the same period in 1999,
the Company recognized $3,016,000 from customers within its lease base and
$2,107,000 from royalties related to the VISA Bill-Pay system. As discussed
above, the streams of revenues from leasing and royalty ceased in June
and September 2000, respectively.
As anticipated, the revenue for the nine months ended September 30,
2000 was negatively affected by the decline and the cessation of the lease base
revenue stream and the royalty revenue stream. The effect for the period was a
combined $3,048,000. The Company expects that the cessation will continue to be
a significant factor over the next three quarters when comparing current period
results with prior periods. In summary, the combined revenue for the lease base
and royalty will be $2,075,000 and $6,272,000 for the years ended December 31,
2000 and 1999, respectively. The difference of $4,197,000 for the year is due to
the decline in the revenue streams, as previously disclosed, and to the final
cessation of the lease base and royalty streams.
Cost of Revenues
The Company's cost of revenues for the nine months of 2000 were
$3,087,000 compared to $1,628,000 in 1999, an increase of 90% or $1,459,000. The
Company did not incur any software related expenses during the first nine months
of 2000, but incurred $165,000 during the same period in 1999. Consulting and
services cost of revenues aggregated $2,357,000 in the first nine months of
2000, while during the same period in 1999, the Company's costs aggregated
$557,000. Cost of revenues associated with leasing aggregated $730,000 in the
first nine months of 2000 compared to $906,000 in the same period of 1999.
Overall gross profit margins decreased to 49% for the first nine months
of 2000 from 79% for the same period in 1999. The decrease in gross profit
margin was primarily attributable to three factors: 1) because of changes in the
product mix, gross profit margin from consulting
<PAGE>
and services decreased to 29% in 2000 from 62% in 1999; 2) the gross profit
margins from leasing were 52% and 70% in 2000 and 1999, respectively; and, 3)
there was $544,000 and $2,107,000 of royalty revenue in 2000 and 1999,
respectively, that had no associated cost of revenues. 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 volume.
General and Administrative
General and administrative expenses were $5,666,000 for the first nine
months of 2000, as compared to $4,971,000 for the first nine months of 1999. The
increase of $695,000 was primarily related to the increase of bad debt expense
and other costs related to the leasing business in 2000 and increases in
recruiting costs. 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 $4,694,000 for the first
nine months of 2000 from $1,676,000 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 $9,428,000 in the first nine months
of 2000 compared to $2,909,000 for the same period in 1999. The increase of
$6,519,000 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 and the
InterposeTM Web Banking ("IWB") front-end.
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.
<PAGE>
For the nine months ended September 30, 2000, InteliData recognized a
gain of approximately $47,822,000 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 $659,000
and $227,000 for the nine months ended September 30, 2000 and 1999,
respectively. The increase of $432,000 was due to the increased levels 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 first nine months of 1999, the Company
realized a gain of $1,624,000 from the operations of the discontinued business,
primarily attributable to favorable settlements with former telecommunications
customers and retailers, the success of aggressive collection efforts related to
accounts receivable from customers of the discontinued business, and reduced
expenses related to warranty, customer service, and royalty payments.
Weighted-Average Common Shares Outstanding and Basic and Diluted Income (Loss)
Per Common Share
The basic and diluted weighted-average common shares outstanding for
the nine months ended September 30, 2000 was 38,199,000 and 40,994,000,
respectively, compared to 32,459,000 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. Also, as of November 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 $0.81 and $0.76, respectively, for the nine-month
period in 2000. There has been no gain or loss from discontinued operations in
2000. For the same period in 1999, basic and diluted income (loss) per common
share was a loss of $(0.14) from continuing operations and income of $0.05 from
discontinued operations, resulting in a basic and diluted loss per common share
of $(0.09).
The Company's net loss attributable to common stockholders was impacted
by a charge of $1,535,000 related to the Series B Preferred Stock dividends and
the amortization of discounts arising from allocation of proceeds to warrants
and the beneficial conversion feature.
<PAGE>
Liquidity and Capital Resources
During the first nine months of 2000, the Company's cash and cash
equivalents increased by $19,938,000. At September 30, 2000, the Company had
$28,434,000 in cash and cash equivalents, $17,011,000 in investments and
restricted cash, and working capital of $39,558,000, with no long-term debt.
During the first nine months of 2000, cash used in operating activities
of continuing operations was $13,400,000 compared to $3,909,000 in the same
period in 1999. Cash used in operating activities of continuing operations
during the first nine months of 2000 reflects operating losses 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 operating activities of continuing operations
during the first nine months of 1999 was primarily related to the operating
losses and the increases in accounts receivable and deferred revenues.
Cash provided by investing activities for the first nine months of 2000
was $34,145,000 in proceeds from the sale of investments, offset by $2,861,000
of property and equipment purchases and $251,000 of investment purchases. The
Company had $56,000 of property and equipment purchases during the first nine
months of 1999.
Financing activities provided $1,600,000 in the first nine months of
2000 compared to $7,796,000 during the first nine months of 1999. Financing
activities in the first nine months of 2000 consisted of proceeds from the sale
of the Company's common stock through stock option exercises, warrant exercises
and the Employee Stock Purchase Plan, a capital contribution and purchases of
common stock into treasury. Financing activities in the first nine months of
1999 reflected the sale of the Company's common stock and the issuance of the
Series B Preferred Stock.
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
<PAGE>
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
Electronic Bill Presentment and Payment 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.
PART II: OTHER INFORMATION
--------------------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
-----------------------------------------
(a) Exhibits
--------
10.9 Employment and Non-Competition Agreement between InteliData
Technologies Corporation and Michael E. Jennings, dated June
14, 2000.
10.10 Employment and Non-Competition Agreement between InteliData
Technologies Corporation and William F. Gorog, dated November 1,
2000.
10.11 Employment and Non-Competition Agreement between InteliData
Technologies Corporation and Steven P. Mullins, dated November 1,
2000.
(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,
and Director
