<PAGE> 1
FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES ACT OF 1934
For the transition period from to
Commission File Number 0-13022
INTELLICORP, INC.
(Exact name of small business issuer as specified in its charter)
DELAWARE 94-2756073
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1975 EL CAMINO REAL WEST
MOUNTAIN VIEW, CALIFORNIA 94040-2216
(Address of principal executive offices)
(Zip Code)
(415) 965-5500
(Issuer's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by section
13 or 15(d) of the Securities Exchange Act during the past 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
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
<TABLE>
<CAPTION>
Outstanding as of
Class October 31, 1996
----- -----------------
<S> <C>
Common stock,
$.001 par value 12,399,200 shares
</TABLE>
This document is comprised of 12 pages.
<PAGE> 2
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheets................ 3
Consolidated Condensed Statements of Operation....... 4
Consolidated Condensed Statements of Cash Flows...... 5
Notes to Consolidated Condensed Financial Statement.. 6-7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations................................ 8-9
Liquidity and Capital Resources...................... 9
Item 6. Exhibits and Reports on Form 8-K..................... 10
SIGNATURES............................................................. 11
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<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INTELLICORP, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, June 30,
1996 1996(1)
(In thousands, except -------- --------
share and per share amounts) (unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 2,505 $ 3,142
Short-term investments -- 982
Accounts receivable 2,258 2,217
Other current assets 338 214
-------- --------
Total current assets 5,101 6,555
Property and equipment - net 284 286
Capitalized software - net 336 284
Other assets 255 276
-------- --------
Total $ 5,976 $ 7,401
======== ========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 848 $ 935
Accrued compensation 422 570
Other current liabilities 1,315 1,453
Deferred revenues 661 746
-------- --------
Total current liabilities 3,246 3,704
Convertible notes 1,600 1,600
Stockholders' equity:
Preferred stock and warrants issuable -- 2,932
Preferred stock 2,263 --
Common stock 43,003 42,275
Accumulated deficit (44,136) (43,110)
-------- --------
Total stockholders' equity 1,130 2,097
-------- --------
Total $ 5,976 $ 7,401
======== ========
</TABLE>
(1) The consolidated balance sheet at June 30, 1996, has been derived from
the audited consolidated financial statements at that date but does not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements.
See notes to consolidated condensed financial statements.
3
<PAGE> 4
INTELLICORP, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three months ended
September 30,
(In thousands, except --------------------
per share amounts) 1996 1995
-------- --------
(unaudited)
<S> <C> <C>
Revenues:
Software $ 1,013 $ 870
Contract services 828 2,897
Other services 414 492
-------- --------
Total revenues 2,255 4,259
-------- --------
Costs and expenses:
Cost of revenues:
Software 334 347
Contract services 521 854
Other services 103 188
Research and development 840 904
Marketing, general, and
administrative 1,422 2,017
Corporate restructuring costs -- 414
-------- --------
Total costs and expenses 3,220 4,724
-------- --------
Loss from operations (965) (465)
Other income, net 15 9
-------- --------
Loss before provision
for income taxes (950) (456)
Provision for income taxes 31 16
-------- --------
Net loss $ (981) $ (472)
======== ========
Net loss per share $ (0.08) $ (0.04)
======== ========
Weighted average common
shares outstanding 12,394 12,125
======== ========
</TABLE>
See notes to consolidated condensed financial statements.
4
<PAGE> 5
INTELLICORP, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three months ended
September 30,
Increase (decrease) in cash and ------------------
cash equivalents (in thousands) 1996 1995
------- -------
(unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (981) $ (472)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation & amortization 167 189
Changes in assets and liabilities:
Accounts receivable (41) 1,226
Other current assets (124) (91)
Other assets -- 63
Accounts payable (87) 46
Accrued compensation (148) (105)
Other current liabilities (138) 697
Deferred revenues (85) (442)
------- -------
Net cash provided by (used in) operating activities (1,437) 1,111
------- -------
Cash flows from investing activities:
Property and equipment purchases (105) (116)
Capitalization of software development (91) --
Sale of short-term investments 982 --
------- -------
Net cash provided by (used) in investing activities 786 (116)
------- -------
Cash flows from financing activities -
Cash collected from sale of stock 14 89
------- -------
Increase (decrease) in cash and cash equivalents (637) 1,084
Cash and cash equivalents, beginning of period 3,142 2,493
------- -------
Cash and cash equivalents, end of period $ 2,505 $ 3,577
======= =======
</TABLE>
See notes to consolidated condensed financial statements.
5
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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION. The accompanying consolidated condensed financial
statements should be read in conjunction with the Company's financial statements
for the fiscal year ended June 30, 1996, included in the Company's Annual Report
on Form 10-KSB filed with the Securities and Exchange Commission. In the opinion
of management, the interim statements reflect all adjustments (consisting of
normal recurring entries) which are necessary for a fair presentation of the
results of the interim periods presented. The interim results are not
necessarily indicative of the results for the full year. Certain prior year
revenues and associated costs have been reclassified to conform to the current
year's presentation.
2. SIGNIFICANT CUSTOMERS AND EXPORT SALES. A related party accounted for 14%
($306,000) of the total revenues for the three month period ended September 30,
1996. One other commercial customer accounted for 14% ($305,000) of total
revenues for the three months ended September 30, 1996. GTE accounted for 54%
($2,318,000) of total revenues for the three months ended September 30,1995.
3. ACCOUNTS RECEIVABLE. In September 1995, the Company sold to a financial
institution, without recourse, receivables in the amount of $1,915,935. The net
proceeds are reported as providing operating cash flow in the Consolidated
Statement of Cash Flows for the three months ended September 30, 1995.
4. INCOME TAXES. The Company's provision for income taxes of $31,000 and $16,000
for the three months ended September 30, 1996 and September 30, 1995,
respectively, is attributable to foreign withholding taxes.
5. CORPORATE RESTRUCTURING COSTS. The Company recorded a $414,000 pre-tax
restructuring expense in the first quarter of fiscal 1996. The restructuring was
undertaken to increase the Company's focus on live business modeling tools for
the Microsoft Windows platform and in support of commercially popular purchased
software systems. In conjunction with the restructuring the Company implemented
an across the board reduction in force of approximately 30%. The program was
completed in fiscal 1996.
6. CONVERTIBLE NOTES. In April 1996, the Company issued $3,400,000 of seven-year
unsecured senior convertible notes. Interest only is payable semi-annually in
October and April at 10% per annum (except for the first payment which is due
January 1997). Interest payments for the first two years are payable, at the
Company's option, in cash or in common stock valued at 90% of the 20 day average
bid price preceding the payment due date. On June 27, 1996, the noteholders
agreed to exchange notes totaling $1,800,000 for preferred stock and warrants.
The remaining $1,600,000 of debt is due and payable on April 30, 2003 and
is convertible at any time, at the option of the noteholders, into shares of the
Company's common stock at a conversion price of $1.55 per share. The Company has
reserved 1,032,258 shares of common stock for issuance upon conversion of these
notes. The Company has the right to prepay all or a portion of the principal
amount outstanding at any time following April 30, 1999. The notes have been
issued in a private placement, although the Company intends to register the
shares underlying the notes as soon as practicable.
7. PREFERRED STOCK. On June 27, 1996, the Company agreed to issue 580,645 shares
of preferred stock and warrants to purchase 720,000 shares of common stock at
$3.50 per share in exchange for the conversion of $1,800,000 of the convertible
notes. Such preferred shares and warrants were valued at $2,932,000, net of
issue costs. Each share of the preferred stock is convertible into two common
shares, subject to adjustments, and carries 10% mandatory cumulative dividends.
The dividends for the first two years are payable, at the Company's option, in
cash or in common stock valued at 90% of the 20 day average bid price preceding
the payment due date.
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The warrants are exercisable immediately, and expire in 2006. The Company
can redeem the warrants anytime after five years, if the common stock trades at
or above $6.00 per share, by paying a redemption price of $0.01 per warrant
share.
The preferred stock and warrants were issued in August 1996. The common
shares issued in connection with the conversion of preferred stock, the exercise
of warrants or payment of dividends will be registered as soon as practicable.
8. RELATED PARTY TRANSACTIONS. On August 8, 1996, SAP AG purchased from Informix
Corporation 1,736,263 shares of common stock of the Company. This total
represents all the Company shares previously held by Informix Corporation and,
following the purchase, SAP AG holds approximately 14% of the outstanding common
stock of the Company.
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The discussion in this report on Form 10-QSB contains forward-looking statements
that involve risks and uncertainties. The Company's actual results may differ
materially from the results discussed in the forward-looking statements. Factors
that might cause such a difference include, but are not limited to, those
discussed in "Risk Factors" in the Company's Report on Form 10-KSB for the
fiscal year ended June 30, 1996 filed with the Securities and Exchange
Commission.
In particular, it is important to note that achievement of revenue goals is
affected by numerous factors beyond the Company's control, including
competitors' product introductions, market price competition and market
acceptance of the Company's products. Historical results of the Company may not
be indicative of future operating results.
RESULTS OF OPERATIONS
The Company's total revenue is derived from three sources: software licenses,
contract services and other services including product support and training.
Total revenues were $2,255,000 for the three months ending September 30, 1996
compared to $4,259,000 for the first three months ended September 30, 1995,
representing a 47% decrease. Although revenues decreased 47%, the first quarter
of fiscal 1996 included $2,318,000 in contract services and other services
revenues related to deliverables, software support and close-out payments due
under the terminated GTE development agreement. Domestic revenues decreased by
$2,101,000 (61%) during the three month period ended September 30, 1996 compared
to the three months ended September 30, 1995, primarily due to the close-out
payments received from GTE in 1995. Export revenues increased by $97,000 (12%)
from the same prior year period. European sales increased $81,000 (19%) compared
to the same prior year period, while Pacific Rim and Latin America sales
increased $16,000 (4%) compared to the same prior year period.
Software revenues for the first three months ended September 30, 1996
increased 16% compared to the same period in the prior year. This increase is
attributable to $791,000 of software revenues from the Company's newest product,
LiveModel(TM): SAP(TM) R/3(TM) Edition released on the windows platform in June
1996. LiveModel: SAP R/3 Edition represented 78% of software revenues for the
three months ended September 30, 1996.
PowerModel(TM) (formerly known as Kappa) revenues represented 12% of
software revenues for the three months ended September 30, 1996 compared to 51%
of software revenue in the same period a year ago. Other LiveModel(TM) (formerly
known as Object Management Workbench) revenues represented 1% and 31% of
software revenues the three months ended September 30, 1996 and September 30,
1995, respectively. The remainder of software revenues is from Kappa-PC(R) and
Lisp-based KEE(R) products which represent 9% and 17% of software revenues for
the three months ended September 30, 1996 and September 30, 1995, respectively.
The Company is planning to strengthen its business and sales efforts on
PowerModel products through the addition of a managing director for this
business.
Contract services revenues decreased 71% during the first fiscal quarter of
1997 compared to the same period a year ago. The decrease is primarily due to
close-out payments under the terminated GTE development agreement of $2,261,000
related to contract services received in fiscal 1996. The Company expects to
perform additional contract services in the future. However, because a majority
of such services are performed on a short-term basis, the ultimate trend for
this type of revenue and the timing of the services are difficult to predict.
Other services revenue, which consists primarily of training and product
support, decreased 16% during the first fiscal quarter of 1997 compared to the
same period a year ago. The decrease is mainly due to product support revenues
from the GTE licenses recognized in fiscal 1996.
Gross margin, as a percentage of total revenues for the three months ended
September 30, 1996, was 58% compared to 67% in the same period in the prior
year. Software margins were 67% for the three months ended September 30, 1996,
compared to 60% for the same period in the prior year. The increase in software
margins was due to increased sales volume on a relatively fixed cost base.
Contract services margins were 37% for the three months ended September 30,
1996, compared to 71% for the same period in the prior year. The decrease in the
contract services margins were primarily due to the relatively small costs
related to the final deliverables under the GTE master software development
agreement and related close-out payment in the first quarter of fiscal 1996.
Other service margins were 75% for the three months ended September 30, 1996,
8
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compared to 62% in the same period in the prior year. This increase in margins
is attributable to lower training costs.
Research and development (R&D) expenses decreased $64,000 (7%) during the
three months ended September 30, 1996 from the same prior year period. $91,000
of software development costs were capitalized in the current quarter while no
software development costs were capitalized in the same prior year quarter. R&D
expenses, as a percentage of total revenues for the three months ended September
30, 1996, were 37% compared to 21% in the same prior year period.
Marketing, general and administrative expenses decreased by $595,000 (29%)
during the three months ended September 30, 1996, compared to the prior year.
The decrease is primarily due to the reduction in force as a result of the
restructuring in the first quarter of fiscal 1996. These expenses were 63% of
revenues for the three months ended September 30, 1996, compared to 47% of
revenues for the same period last year.
During the quarter ended September 30, 1995, the Company recorded a
$414,000 pre-tax restructuring expense. The restructuring program was undertaken
to increase the Company's focus on live business modeling tools for the
Microsoft Windows platform and in support of commercially popular purchased
software systems. The program was completed in the second quarter of fiscal
1996.
Other income and expense for the three months ended September 30, 1996
remained relatively flat as compared with the comparable period in the prior
year.
The provision for income taxes of $31,000 and $16,000 for the three months
ended September 30, 1996, and September 30, 1995, respectively, represents
foreign withholding taxes incurred. No income tax benefit was recorded for the
three months ended September 30, 1996 and September 30,1995 since the Company
incurred a net operating loss. For the first quarter of fiscal 1997, the Company
reported a net loss of $981,000 ($0.08 per share), compared to a net loss of
$472,000 ($0.04 per share) in the first quarter of fiscal 1996.
LIQUIDITY AND CAPITAL RESOURCES
For the three months ended September 30, 1996, cash, cash equivalents and
short-term investments were $2,505,000 compared to $3,577,000 in the prior year.
There was $1,437,000 of cash used in operations during the first quarter of
fiscal 1997, compared to cash generated of $1,111,000 in the same period in the
prior year. This decrease resulted primarily from a combination of the sale of
receivables in the first quarter of fiscal 1996, lower collections from
customers as a result of lower revenues in the first quarter of fiscal 1997,
offset by lower payments to employees and suppliers. Excluding sale of
short-term investments, cash used in investing activities increased by $80,000
due to capitalized software development and fixed asset purchases. Cash provided
by financing activities decreased by $75,000 due to decreased stock purchases by
employees during the three months ended September 30, 1996.
In April 1996, the Company issued $3,400,000 of seven-year senior
convertible notes which are due April 30, 2003. Interest only is payable
semi-annually in October and April at 10% per annum. Interest payments for the
first two years are payable, at the Company's option, in cash or in common stock
valued at 90% of the 20 day average bid price preceding the payment due date. In
June 1996, the Company agreed to issue 580,645 shares of preferred stock and
warrants to purchase 720,000 shares of common stock at $3.50 per share in
exchange for $1,800,000 of the convertible debt. The preferred stock is
convertible into common shares on a one-for-two basis, subject to adjustments
for dilutive events, and carries 10% cumulative dividends.
Management's financial plans for fiscal year 1997 anticipate sufficient
revenues so as not to require additional capital resources. However, the Company
may, from time to time, raise additional capital through debt or equity
financing to take advantage of market opportunities. There can be no assurance,
however, that the Company will be able to raise additional capital on favorable
terms, if at all. If revenues for fiscal 1997 do not meet management's
expectations, and additional financings are not available, management has the
ability and may further reduce certain expenditures to lower the Company's cost
base, if required. As a result of these factors, the Company believes its cash
and cash equivalents at September 30, 1996 and expected cash generated from
operations will be adequate to fund its operations during fiscal 1997.
9
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
27 - Financial Data Schedule.
b) Reports on Form 8-K
No reports have been filed for the quarter ended September 30,
1996.
10
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INTELLICORP, INC.
/s/ Kenneth A. Czaja
----------------------
Kenneth A. Czaja
Chief Financial Officer
11
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INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Sequentially
No. Description Numbered Page
- ------- ----------- -------------
<S> <C> <C>
27 Financial Data Schedule
</TABLE>
12
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<CURRENCY> U.S. DOLLAR
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 2505
<SECURITIES> 0
<RECEIVABLES> 2758
<ALLOWANCES> 322
<INVENTORY> 0
<CURRENT-ASSETS> 5101
<PP&E> 284
<DEPRECIATION> 8034
<TOTAL-ASSETS> 5976
<CURRENT-LIABILITIES> 3246
<BONDS> 0
0
0
<COMMON> 12
<OTHER-SE> 1118
<TOTAL-LIABILITY-AND-EQUITY> 5976
<SALES> 1013
<TOTAL-REVENUES> 2255
<CGS> 334
<TOTAL-COSTS> 3220
<OTHER-EXPENSES> 15
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 40
<INCOME-PRETAX> (950)
<INCOME-TAX> 31
<INCOME-CONTINUING> (981)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (981)
<EPS-PRIMARY> (.08)
<EPS-DILUTED> (.08)
</TABLE>
