<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, 1997
[ ] 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.
Outstanding as of
Class October 30, 1997
----- ----------------
Common stock,
$.001 par value 13,486,580 shares
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TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements
Condensed Consolidated Balance Sheets.........................3
Condensed Consolidated Statements of Operations...............4
Condensed Consolidated Statements of Cash Flows...............5
Notes to Condensed Consolidated Financial Statements........6-7
Item 2. Management's Discussion and Analysis of
Financial Conditions and Results of Operations.............8-10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.............................11
SIGNATURES..................................................................12
2
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INTELLICORP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, June 30,
(In thousands) 1997 1997(1)
------------- -------------
<S> <C> <C>
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 2,894 $ 4,363
Short-term investments 4,122 2,029
Accounts receivable, net 6,567 4,830
Other current assets 259 132
-------- -------
Total current assets 13,842 11,354
Property and equipment, net 365 334
Capitalized software, net 138 188
Other assets 114 188
-------- -------
Total $ 14,459 $12,064
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 854 $ 650
Accrued compensation 748 771
Other current liabilities 1,319 1,246
Deferred revenues 2,799 1,849
-------- -------
Total current liabilities 5,720 4,516
Convertible notes 1,600 1,600
Stockholders' equity:
Preferred stock 7,893 7,893
Common stock 46,008 45,080
Accumulated deficit (46,762) (47,025)
-------- -------
Total stockholders' equity 7,139 5,948
-------- -------
Total $ 14,459 $12,064
======== =======
</TABLE>
(1) The consolidated balance sheet at June 30, 1997, 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 condensed consolidated financial statements.
3
<PAGE> 4
INTELLICORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three months ended
(In thousands, except September 30,
per share amounts) -----------------------
1997 1996
-------- --------
(unaudited)
<S> <C> <C>
Revenues:
Software $ 2,900 $ 1,013
Contract services 1,335 828
Other services 545 414
-------- --------
Total revenues 4,780 2,255
-------- --------
Costs and expenses:
Cost of revenues:
Software 262 334
Contract services 680 521
Other services 177 103
Research and development 1,072 840
Marketing, general, and
administrative 2,151 1,422
-------- --------
Total costs and expenses 4,342 3,220
-------- --------
Income / (loss) from operations 438 (965)
Other income (expense), net 24 15
-------- --------
Income / (loss) before taxes 462 (950)
Provision for income taxes 37 31
-------- --------
Net income (loss) $ 425 $ (981)
======== ========
Series A and Series B Preferred
stock dividends (162) (50)
-------- --------
Net Income (loss) applicable to
common stockholders per
common share $ 0.02 $ (0.08)
======== ========
Weighted average common
shares outstanding 14,896 12,394
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE> 5
INTELLICORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three months ended
Increase (decrease) in cash and September 30,
cash equivalents (in thousands) ---------------------
1997 1996
------- -------
(unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 425 $ (981)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation & amortization 128 167
Changes in assets and liabilities:
Accounts receivable (1,737) (41)
Other current assets (127) (124)
Other assets 74 -
Accounts payable 204 (87)
Accrued compensation (23) (148)
Other current liabilities 73 (138)
Deferred revenues 950 (85)
------- -------
Net cash used in operating activities (33) (1,437)
------- -------
Cash flows from investing activities:
Property and equipment purchases (109) (105)
Capitalization of software development - (91)
Purchase of short-term investments (3,078)
Maturities of short-term investments 985 982
------- -------
Net cash provided by (used in) investing activities (2,202) 786
------- -------
Cash flows from financing activities -
Cash collected from exercise of warrants 712
Cash collected from sale of stock 54 14
------- -------
Net cash provided by financing activities 766 14
------- -------
Decrease in cash and cash equivalents (1,469) (637)
Cash and cash equivalents, beginning of period 4,363 3,142
------- -------
Cash and cash equivalents, end of period $ 2,894 $ 2,505
======= =======
</TABLE>
See notes to condensed consolidated financial statements.
5
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION. The accompanying condensed consolidated financial
statements should be read in conjunction with the Company's financial statements
for the fiscal year ended June 30, 1997, 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.
2. NET INCOME / LOSS PER COMMON SHARE. Net income / loss per common share is
computed by dividing net income / loss by the weighted average shares of common
stock outstanding plus dilutive common stock equivalents. Certain common stock
equivalents are excluded as their effect would be antidilutive. For the three
month periods ended September 30 1997 and 1996, the net income / loss per share
has been adjusted to reflect the issuance of preferred stock dividends.
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings Per Share, which is required to be adopted on
December 31, 1997. At that time, the Company will be required to change the
method currently used to compute earnings per share and to restate all prior
periods. The impact is expected to result in no change to income / loss per
share for the three month periods ending September 30, 1997 and 1996.
3. SIGNIFICANT CUSTOMERS AND EXPORT SALES. A related party accounted for 27%
($1,305,000) and 14% ($306,000) of the total revenues for the three month
periods ended September 30, 1997 and 1996, respectively. One other customer
accounted for 14% ($305,000) of total revenues for the three months ended
September 30, 1996.
4. INCOME TAXES. The Company's provision for income taxes of $37,000 for the
three months ended September 30, 1997 is attributable to income taxes
(Alternative Minimum Tax) and foreign withholding taxes. The provision for
income taxes of $31,000 for the three months ended September 30, 1996 is
attributable to foreign withholding taxes.
5. 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. 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 (see note 6).
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 were issued
in a private placement, and the Company registered the resale of the common
stock that is issuable upon conversion of the notes or as payment of interest on
the notes.
6
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6. 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. The cumulative dividends payable as of September
30, 1997 were approximately $83,000.
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 issuable on conversion of preferred stock, the exercise of warrants or
payment of dividends were registered for resale on December 23, 1996.
On March 19, 1997, the Company issued 5,000 shares of 8% convertible
Series B Preferred Stock at $1,000 per share. Each share is convertible into 500
shares of common stock, subject to adjustments, at $2.00 per share. The
dividends for the first year 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
distribution due date. On July 31, 1997, the Company issued 55,456 shares of
common stock for payment of dividends. The cumulative dividends payable as of
September 30, 1997 were approximately $74,000.
7. WARRANTS. On September 17, 1997 warrants to purchase 350,000 shares of
common stock at $2.035 per share were exercised.
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Other than statements of historical fact, the statements made in this report on
Form 10-QSB are 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 "Results of Operations" and
"Liquidity and Capital Resources" below and in "Risk Factors" in the Company's
Annual Report on Form 10-KSB for the fiscal year ended June 30, 1997.
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 $4,780,000 for the three months ending September 30, 1997,
compared to $2,255,000 for the same period in the prior year. This represents a
112% increase over the same period a year ago. Domestic revenues increased by
$2,289,000 (167%) during the three month period ended September 30, 1997
compared to the three months ended September 30, 1996, primarily due to
increased sales of the Company's Live Model for R/3 product and revenue
recognized related to the August 1997 Joint License and Development Agreement
with SAP AG. Export revenues increased by $236,000 (27%) from the same prior
year period. European sales increased $286,000 (56%) compared to the same prior
year period, while Pacific Rim and Latin America sales decreased $50,000 (13%)
compared to the same prior year period.
Software revenues for the first three months ended September 30, 1997
increased 186% compared to the same period in the prior year. This increase is
attributable to increased revenue related to the Company's LiveModel: SAP R/3
Edition product (including revenue related to the Joint Development and License
Agreement with SAP AG). Total revenues related to LiveModel: SAP R/3 were
$2,763,000 (95% of total software sales) for the three months ended September
30, 1997 compared to sales of $791,000 (78% of total software sales) for the
same period a year ago. The increase in revenue related to LiveModel: SAP R/3
Edition sales was offset by a decrease in sales of the Company's other Live
Model products, PowerModel Products, and Kappa PC products which were $0,
$56,000 (2% of total software sales), and $11,000 (less than 1% of total
software sales) respectively, for the three months ended September 30, 1997
compared to $12,000 (1% of total software sales), $118,000 (12% of total
software sales), and $28,000 (3% of total software sales) respectively, for the
same period a year ago. Sales of the Company's Lisp-based KEE products remained
about the same at $65,000 (2% of total software sales) for the three months
ended September 30, 1997 compared to $64,000 (6% of total software sales) for
the same period a year ago. The Company's Live Analyst product, introduced in
June 1997, had sales of $5,000 (less than 1% of total software sales) for the
three month period ended September 30, 1997.
Contract services revenues increased 61% during the first quarter of 1998
compared to the same period a year ago. The increase is primarily due to revenue
from consulting related to LiveModel: SAP R/3 which increased to $784,000 for
the three months ended September 30, 1997 compared to $374,000 for the same
period a year ago. Additionally, PowerModel consulting revenue increased to
$551,000 compared to $403,000 for the prior year period.
Other services revenue, which consists primarily of training and product
support, increased 32% for the first quarter of 1998 compared to the same period
a year ago. The increase is mainly due to product support and training revenues
related to the LiveModel: SAP R/3 product.
8
<PAGE> 9
Gross margin, as a percentage of total revenues for the three months ended
September 30, 1997 was 77% compared to 58% in the same period in the prior year.
Software margins were 91% for the three months ended September 30,1997 compared
to 67% 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 49% for the three months ended September 30, 1997 compared
to 37% for the same period in the prior year. The increase is attributable to
the higher rates Intellicorp consultants were able to command in the first
quarter of fiscal 1998 compared to the first quarter of fiscal 1997. Other
services margins were 68% for the three months ended September 30, 1997 compared
to 75% in the same period in the prior year. This decrease in margins is
attributable to higher training costs.
Research and development (R&D) expenses increased $232,000 (28%) during
the three months ended September 30, 1997 from the same prior year period. No
software development costs were capitalized in the current quarter while $91,000
of 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, 1997 were 22% compared to 37% in the same prior year period.
Marketing, general and administrative expenses increased $729,000 during
the three months ended September 30, 1997, compared to the prior year quarter.
The increase is due to several factors, including, labor costs, contractor and
consultant fees, recruiting costs, and trade show expenses. In total, marketing,
general and administrative expenses were 45% of revenues for the three months
ended September 30, 1997, compared to 63% of revenues for the same period last
year. This decrease as a percentage of revenues is due to the relatively fixed
nature of certain marketing, general and administrative expenses.
Other income, net, which includes interest income and expense, increased
by $9,000 for the three months ended September 30, 1997 compared to the same
period in the prior year. The increase is due to higher interest earned as a
result of the higher short term investment balances in the first quarter of
fiscal 1998 compared to the same period in the prior year
The provision for income taxes of $37,000 for the three months ended
September 30, 1997 is due to income (Alternative Minimum Tax) and foreign
withholding taxes incurred. This compares to $31,000 of foreign withholding
taxes for the prior year period. For the first quarter of fiscal 1997, the
Company reported net income of $425,000 ($0.02 per common share after deducting
preferred stock dividends), compared to a net loss of $981,000 ($0.08 per common
share after deducting preferred stock dividends) in the first quarter of fiscal
1997.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1997, cash, cash equivalents and short-term investments were
$7,016,000 compared to $2,505,000 at September 30, 1996. $33,000 of cash was
used in operations during the first quarter of fiscal 1998, compared to
$1,437,000 in the same period in the prior year. The decrease in cash used in
operations is primarily due to the Company having a net profit of $425,000 in
the first quarter of fiscal 1998 compared to a net loss of $981,000 in the first
quarter of fiscal 1997, an increase in deferred revenue of $950,000 in the first
quarter of fiscal 1998 compared to a decrease in deferred revenue of $85,000 in
the first quarter of fiscal 1997, and an increase in accounts payable of
$204,000 in the first quarter of fiscal 1998 compared to a decrease in accounts
payable of $87,000 in the first quarter of fiscal 1997. These increases are
offset by an increase in accounts receivable of $1,737,000 in the first quarter
of fiscal 1998 compared to an increase in accounts receivable of just $41,000 in
the first quarter of fiscal 1997. Cash used in investing activities was
$2,202,000 in the first quarter of fiscal 1998 compared to $786,000 provided by
investing activities in the first quarter of fiscal 1997. The increase in cash
used in investing activities was due to purchases of short term investments
totaling $3,078,000 in the first quarter of fiscal 1998. These purchases were
made possible as a result of the Company's improved cash position for the three
months ended September 30, 1997 compared to the prior year period. Cash provided
by financing activities increased to $766,000 for the first quarter of fiscal
1998 compared to $14,000 for the first quarter of fiscal 1997. The increase is
primarily due to cash received on September 17, 1997 upon exercise of warrants
to purchase 350,000 shares of the Company's common stock at $2.035 per share.
9
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Management's plans for fiscal year 1998 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 1998 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, 1997 and expected cash generated from operations
will be adequate to fund its operations during fiscal 1998.
10
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
11.1 - Statement Regarding Computation of Net Income / (Loss) per
share.
27 - Financial Data Schedule.
c) Reports on Form 8-K
No reports have been filed for the quarter ended September 30, 1997.
11
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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
12
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INDEX TO EXHIBITS
Exhibit
No. Description
------- -----------
11.1 Statement Regarding Computation of Net Income / (Loss)
Per Share
27 Financial Data Schedule
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EXHIBIT 11.1
INTELLICORP, INC.
STATEMENT REGARDING COMPUTATION OF NET INCOME/(LOSS) PER SHARE
<TABLE>
<CAPTION>
(In thousands, except per share amounts)
Three months ended
September 30,
---------------------
1997 1996
------- -------
<S> <C> <C>
Primary
Average shares outstanding 13,044 12,394
Net effect of dilutive stock options and warrants based on the
treasury stock method using average market price 1,852 -
------- -------
Total 14,896 12,394
Net Income / (Loss) 425 (981)
Preferred stock dividend requirement (162) (50)
------- -------
Net Income / (Loss) available to common stockholders 263 (1,031)
======= =======
Net Income / (Loss) per share $ 0.02 $ (0.08)
======= =======
Fully Diluted
Average shares outstanding 13,044 12,394
Net effect of dilutive stock options and warrants based on the
treasury stock method using average market price 2,212 -
------- -------
Total 15,256 12,394
Net Income / (Loss) 425 (981)
Preferred stock dividend requirement (162) (50)
------- -------
Net Income / (Loss) available to common stockholders 263 (1,031)
======= =======
Net Income / (Loss) per share $ 0.02 $ (0.08)
======= =======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 2,894
<SECURITIES> 4,122
<RECEIVABLES> 7,012
<ALLOWANCES> 445
<INVENTORY> 0
<CURRENT-ASSETS> 13,842
<PP&E> 8,459
<DEPRECIATION> 8,094
<TOTAL-ASSETS> 14,459
<CURRENT-LIABILITIES> 5,720
<BONDS> 1,600
0
1
<COMMON> 13
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 14,459
<SALES> 2,900
<TOTAL-REVENUES> 4,780
<CGS> 262
<TOTAL-COSTS> 4,342
<OTHER-EXPENSES> 15
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 44
<INCOME-PRETAX> 462
<INCOME-TAX> 37
<INCOME-CONTINUING> 425
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 425
<EPS-PRIMARY> 0.02
<EPS-DILUTED> 0.02
</TABLE>
