<PAGE> 1
FORM 10-QSB/A-1
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: March 31, 1998
[ ] 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)
(650) 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 April 30, 1998
------------------- -----------------
<S> <C>
Common stock,
$.001 par value 14,868,559 shares
</TABLE>
This document is comprised of 15 pages.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page
<S> <C>
Item 1. Financial Statements (Restated -- See Note 7)
Condensed Consolidated Balance Sheets................................3
Condensed Consolidated Statements of Operations......................4
Condensed Consolidated Statements of Cash Flows......................5
Notes to Condensed Consolidated Financial Statements...............6-8
Item 2. Management's Discussion and Analysis of
Financial Conditions and Results of Operations....................8-12
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K....................................13
SIGNATURE..........................................................................14
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INTELLICORP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (Restated)
<TABLE>
<CAPTION>
March 31, June 30,
(In thousands) 1998 1997 (1)
----------- ----------
(unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 5,795 $ 4,363
Short-term investments -- 2,029
Accounts receivable, net 7,448 4,830
Other current assets 243 132
-------- --------
Total current assets 13,486 11,354
Purchased intangibles, net 3,680 --
Property and equipment, net 683 334
Capitalized software, net 74 188
Other assets 126 188
-------- --------
Total $ 18,049 $ 12,064
========== =========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 1,103 $ 650
Accrued compensation 1,297 771
Other current liabilities 1,901 1,246
Deferred revenues 2,604 1,849
-------- --------
Total current liabilities 6,905 4,516
Convertible notes 1,600 1,600
Stockholders' equity:
Preferred stock 1 1
Common stock 15 13
Additional paid - in capital 58,071 52,959
Accumulated deficit (48,543) (47,025)
-------- --------
Total stockholders' equity 9,544 5,948
-------- --------
Total $ 18,049 $ 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 (Restated)
<TABLE>
<CAPTION>
Three months ended Nine months ended
March 31, March 31,
(In thousands, except ------------------ -----------------
per share amounts) 1998 1997 1998 1997
------- ------ ------- -------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenues:
Software $ 3,674 $1,864 $10,033 $ 4,301
Contract services 2,228 1,126 4,924 3,202
Other services 935 394 2,176 1,147
------- ------- ------- -------
Total revenues 6,837 3,384 17,133 8,650
------- ------- ------- -------
Costs and expenses:
Cost of revenues:
Software 386 277 858 844
Contract services 1,304 552 2,708 1,824
Other services 323 140 708 419
Research and development 1,575 993 3,984 2,639
Marketing, general, and
administrative 2,637 1,727 7,172 4,824
Purchased in-process
research and development 2,700 -- 2,700 --
------- ------- ------- -------
Total costs and expenses 8,925 3,689 18,130 10,550
------- ------- ------- -------
Loss from operations (2,088) (305) (997) (1,900)
Other income (expense), net 4 (42) 95 (35)
------- ------- ------- -------
Loss before provision
for income taxes (2,084) (347) (902) (1,935)
Provision for income taxes 30 36 136 97
------- ------- ------- -------
Net loss $(2,114) $ (383) $(1,038) $(2,032)
======= ======= ======= =======
Series A and Series B Preferred
stock dividends (158) (59) (480) (148)
------- ------- ------- -------
Net loss available to common
shareholders $(2,272) $ (442) $(1,518) $(2,180)
======= ======= ======= =======
Basic and diluted net loss
per share $ (0.16) $ (0.03) $ (0.11) $ (0.17)
======= ======= ======= =======
Shares used in computing basic
and diluted net loss per share 13,999 12,809 13,505 12,546
======= ======= ======= =======
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE> 5
INTELLICORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Restated)
<TABLE>
<CAPTION>
Nine months ended
March 31,
-----------------
Increase (decrease) in cash and 1998 1997
cash equivalents (in thousands) ------ ------
(unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss $(1,038) $(2,032)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
In-process research and development charge 2,700 --
Depreciation and amortization 636 409
Issue costs of preferred stock and warrants -- (39)
Issuance of common stock in lieu of interest payment 90 119
Changes in assets and liabilities:
Accounts receivable (2,618) (1,062)
Other current assets (111) 32
Other assets 62 4
Accounts payable 453 (90)
Accrued compensation 501 44
Other current liabilities 175 (155)
Deferred revenues 755 18
------- -------
Net cash provided by (used in) operating activities 1,605 (2,752)
------- -------
Cash flows from investing activities:
Property and equipment purchases (612) (287)
Purchase of assets (2,572) --
Purchase of short-term investments (3,620) (91)
Maturities of short-term investments 5,649 982
------- -------
Net cash provided by (used) in investing activities (1,155) 604
------- -------
Cash flows from financing activities:
Cash received from exercise of warrants 712 --
Cash received from sale of preferred stock -- 5,000
Cash received from sale of common stock 270 548
------- -------
Net cash provided by financing activities 982 5,548
Increase (decrease) in cash and cash equivalents 1,432 3,400
------- -------
Cash and cash equivalents, beginning of period 4,363 3,142
------- -------
Cash and cash equivalents, end of period $ 5,795 $ 6,542
======= =======
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE> 6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND ACCOUNTING PRINCIPLES. 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.
On January 23, 1998, the Company entered into an asset purchase agreement with
ICS Deloitte Management LLC, an affiliate of Deloitte & Touche, ("D&T") to
purchase the Universal Portable Interface ("UPI") technology. This technology
consisted of the intellectual and proprietary property comprised of UPI and
included all related copyrights, processes, designs, formulas, inventions, trade
secrets, know-how, technology, methodologies, principles of operations, flow
charts, schematics, codes and databases, and related in-process technology. In
consideration for this asset purchase, the Company paid D&T approximately $2.6
million in cash and 1,000,000 shares of the Company's common stock (with a fair
market value of $3.56 per share) and assumed certain liabilities totaling
$453,000. IntelliCorp intends to significantly change the nature of the revenue
producing activity by selling the current UPI product through its direct sales
force and indirect sales partners and by incurring significant future research
and development expenses to further develop the UPI technology. Therefore,
historical financial results of the acquired product's operations are not
meaningful for an understanding of the future operations of the Company, and,
therefore, pro forma information has not been presented.
Purchased intangible assets primarily consist of developed and in-process
technology and other intangibles related to the acquisition of assets from D&T
accounted for by the purchase method. See Note 3. Amortization of these
purchased intangibles is provided on the straight-line basis over the respective
useful lives of the assets. The purchased intangible assets are amortized over a
period of 78 months or less. Acquired in-process research and development
without alternative future use was expensed when acquired.
2. LOSS PER SHARE. In 1997, The Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, Earnings Per Share.
Statement 128 replaced primary and fully diluted earnings per share under APB 15
with basic and diluted earnings per share. Unlike primary earnings per share,
basic earnings per share excludes any dilutive effects of options, warrants, and
convertible securities. Diluted earnings per share is very similar to the
previously reported fully diluted earnings per share. All loss per share amounts
for all periods have been presented, and where necessary, restated to conform to
the Statement 128 requirements. The following table sets forth the computation
of basic and diluted net loss per share.
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
------------------------ ------------------------
1998 1997 1998 1997
------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
Numerator:
Net loss $(2,114) $ (383) $(1,038) $(2,032)
Preferred stock dividends (158) (59) (480) (148)
------- -------- ------- -------
Net loss available to common
shareholders (2,272) (442) (1,518) (2,180)
======= ======== ======= =======
Denominator:
Weighted average shares
outstanding -- basic and
diluted 13,999 12,809 13,505 12,546
======= ======== ======= =======
Net loss per share -- basic and diluted $ (0.16) $ (0.03) $ (0.11) $ (0.17)
======= ======== ======= =======
</TABLE>
6
<PAGE> 7
3. ASSET PURCHASE AGREEMENT WITH DELOITTE & TOUCHE CONSULTING GROUP/ICS. As
described in Note 1, the Company acquired assets related to the UPI technology.
The acquisition was accounted for using the purchase method of accounting. For
financial reporting purposes, the Company is required to determine the fair
value of all identified intangible assets and expense the fair value associated
with in-process research and development for which there is no alternative
future use. The Company believes such fair value cannot exceed an amount a third
party would pay for it. The Company's total purchase price, including
liabilities assumed is $6,638,000 of which $2,700,000 was allocated to purchased
in-process research and development and $3,938,000 was allocated to purchased
intangible assets which primarily consist of developed technology.
IN-PROCESS RESEARCH AND DEVELOPMENT
To determine the value of the in-process research and development, the expected
future cash flows of the in-process technology were based on forecasts of future
results that management believes are likely to occur. The future cash flows were
discounted taking into account, the state of development of the in-process
"project", the cost to complete that project, the expected income stream, the
life cycle of the product ultimately developed, and the associated risks. Such
risks include, but are not limited to, the inherent difficulties and
uncertainties in completing the project and, thereby achieving technological
feasibility and risks related to the viability of and potential changes to
future target markets. This analysis resulted in amounts assigned to in-process
research and development projects which have not yet reached technological
feasibility (as defined and utilized by the Company in assessing software
capitalization) and do not have alternative future uses.
DEVELOPED TECHNOLOGY
To determine the value of the developed technology, the expected future cash
flows of the existing developed technology were discounted taking into account
the characteristics and applications of the product, existing and future
markets, the aggregate size and growth rate of the existing and future markets,
and assessments of the product sales cycle.
4. SIGNIFICANT CUSTOMERS AND EXPORT SALES. A related party accounted for 15%
($1,051,000) and 20% ($3,475,000), respectively, of the total revenues for the
three and nine month periods ended March 31, 1998 and 18% ($608,000) and 18%
($1,596,000), respectively, of the total revenues for the three and nine month
periods ended March 31, 1997. Two commercial customers accounted for 11%
($755,000) and 8% ($1,322,000), respectively, of the total revenues for the
three and nine month periods ended March 31, and 13% ($448,000) and 8%
($694,000), respectively, of the total revenues for the three and nine month
periods ended March 31, 1997.
5. INCOME TAXES. The Company's provision for income taxes of $30,000 and
$136,000, respectively, for the three and nine months ended March 31, 1998 is
attributable to income taxes (Alternative Minimum Tax) and foreign withholding
taxes. The provision for income taxes of $36,000 and $97,000, respectively, for
the three and nine months ended March 31, 1997 is attributable to foreign
withholding taxes.
6. WARRANTS. On September 17, 1997 warrants to purchase 350,000 shares of
common stock at $2.035 per share were exercised.
7. REVISION OF PURCHASE PRICE ALLOCATION. As previously disclosed in Note 1
and Management's Discussion and Analysis of Financial Condition and Results of
Operations, the Company has finalized the allocation of the purchase price
associated with the acquisition of the UPI technology. As a result, the Company
has made an adjustment to decrease the amount previously expensed as in process
research and development and increase the amount capitalized as purchased
intangibles. This revision has been made to reflect certain of the views of the
U.S. Securities and Exchange Commission relating to in-process research and
development, expressed publicly on September 9, 1998.
7
<PAGE> 8
The effect of this reallocation on previously reported consolidated financial
statements as of and for the three and nine month periods ended March 31, 1998
is as follows (in thousands):
<TABLE>
<CAPTION>
Three Months ended March 31, Nine Months ended March 31,
---------------------------- ---------------------------
As reported Restated As reported Restated
<S> <C> <C> <C> <C>
Purchased in-process
research and development $ 4,800 $ 2,700 $ 4,800 $ 2,700
Loss from operations (4,009) (2,088) (2,918) (997)
Net loss (4,035) (2,114) (2,959) (1,038)
Net loss applicable to common
shareholders (4,193) (2,272) (3,439) (1,518)
Basic and diluted net loss
per share (0.30) (0.16) (0.25) (0.11)
</TABLE>
<TABLE>
<CAPTION>
March 31, 1998
--------------------------
As reported Restated
----------- --------
<S> <C> <C>
Purchased intangibles 1,759 3,680
Accumulated deficit $(50,464) $(48,543)
</TABLE>
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.
UPI ASSET PURCHASE
On January 23, 1998, the Company entered into an asset purchase agreement with
ICS Deloitte Management LLC, an affiliate of Deloitte & Touche, ("D&T") to
purchase the Universal Portable Interface ("UPI") technology. This technology
consisted of the intellectual and proprietary property comprised of UPI and
included all related copyrights, processes, designs, formulas, inventions, trade
secrets, know-how, technology, methodologies, principles of operations, flow
charts, schematics, codes and databases, and related in-process technology. In
consideration for this asset purchase, the Company paid D&T approximately $2.6
million in cash and 1,000,000 shares of the Company's common stock (with a fair
market value of $3.56 per share) and assumed certain liabilities totaling
$453,000. IntelliCorp intends to significantly change the nature of the revenue
producing activity by selling the current UPI product through its direct sales
force and indirect sales partners and by incurring significant future research
and development expenses to further develop the UPI technology. Therefore,
historical financial results of the acquired product's operations are not
meaningful for an understanding of the future operations of the Company, and,
therefore, pro forma information has not been presented.
8
<PAGE> 9
In consideration for these assets, the Company paid D&T approximately $2.6
million in cash and 1,000,000 shares of the Company's common stock (with a fair
market value of $3.56 per share) and assumed certain liabilities totaling
$453,000. The acquisition was accounted for using the purchase method of
accounting. For financial reporting purposes, values were assigned to acquired
in-process research and development, developed technology, customer base and the
assembled workforce.
The write-off of in-process research and development related to the asset
acquisition described above totaled $2,700,000, all of which was recorded in the
quarter ended March 31, 1998. The value was computed using discounted cash flow
analysis on the anticipated income stream of the related product sales. The
discounted cash flow analysis was based on forecasts of future revenues and
expenses that management believes are likely to occur. This analysis resulted in
amounts assigned to in-process research and development for the project which
has not yet reached technological feasibility (as defined and utilized by the
Company in assessing software capitalization) and does not have alternative
future uses.
Revenues for the in-process technology were estimated for a portion of fiscal
1999 through fiscal 2004. Upon introduction of the new product, these revenue
projections assume near term growth rates resulting from the expansion of
existing sales channels and growth in the overall applications integration
market and then declines as that product life cycle phases down. The Company's
estimates of cost of goods sold, research and development, and selling, general
and administrative expense are based on historical averages recently experienced
by the Company. The cost to complete the in-process technology was based on
management's estimate of the effort necessary to complete the project and all
associated costs. Income tax expense was assumed at the statutory rate.
The Company discounted the net cash flows of the in-process technology to their
present value using a discount rate of 30%. This rate was derived based on the
Company's estimated weighted average cost of capital plus a risk premium to
account for the inherent uncertainty surrounding the successful completion of
the project from its current stage of development and achieving the estimated
cash flows.
Revenues for developed and core technology were estimated for the remainder of
fiscal 1998 through fiscal 2004. The Company anticipates sales of the acquired
developed product will decline significantly during fiscal 1999 when and as the
revenues are anticipated to shift to the new product solution which is expected
to be introduced into the market in the second half of fiscal year 1999. It
should be noted that while revenues allocated to the developed and in-process
technologies are expected to individually phase down over time (consistent with
normal software product life cycles), the composite revenue attributed to all
applications integration products and technologies (including future follow-on
technologies) is planned to continue growing in the foreseeable future.
The Company discounted the net cash flows of the developed technology to their
present value using a discount rate of 25%. This rate was derived based on the
Company's estimated average cost of capital plus a risk premium associated with
the uncertainty of achieving the estimated cash flows.
At the time of acquisition, the Company estimated that an aggregate of
approximately $2.0 million of research and development spending is anticipated
over an approximately one year development period from the acquisition date in
order to develop the acquired in-process research and development into a viable
product offering. Accordingly, the Company expects future research and
development expenses to increase. If a viable new product is successfully
developed, it will replace the acquired product. However, there is significant
uncertainty as to whether this new product can be successfully developed and
therefore, there can be no assurance that the Company will be successful in
completing the development of such in-process research and development or that
development efforts will result in a viable and competitive future product
offering.
9
<PAGE> 10
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 $6,837,000 and $17,133,000, respectively, for the three and
nine months ending March 31, 1998, compared to $3,384,000 and $8,650,000,
respectively, for the same periods in the prior year. This represents a 102% and
98% increase, respectively, for the three and nine month periods ended March 31,
1998 compared to the same prior year periods.
The geographic breakdown of revenue is as follows:
<TABLE>
<CAPTION>
Three months ended % Nine months ended %
(In thousands) March 31, Change March 31, Change
------------------ ------ ----------------- ------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
North America $5,037 $2,322 117% $13,043 $5,610 132%
Europe 1,667 759 120% 3,426 1,962 75%
Pacific Rim/Latin America 133 303 (56%) 664 1,078 (38%)
------ ------ --- ------- ------ ---
Total revenue $6,837 $3,384 102% $17,133 $8,650 98%
</TABLE>
The geographic revenue as a percentage of revenue is as follows:
<TABLE>
<CAPTION>
Three months ended Nine months ended
March 31, March 31,
------------------ -----------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
North America 79% 69% 76% 65%
Europe 17% 22% 20% 23%
Pacific/Latin America 4% 9% 4% 12%
--- --- --- ---
Total 100% 100% 100% 100%
</TABLE>
Software revenues for the three and nine month periods ended March 31, 1998,
respectively, increased 97% and 133% compared to the same periods in the prior
year. Both the three and nine month increases are largely due to increased sales
of the Company's LiveModel(TM): SAP(TM) R/3(TM) Edition product and initial
sales of the Company's newly acquired UPI product (LiveInterface). Sales of the
Company's older PowerModel product line continue to decline over the prior year
periods.
Contract services revenues for the three and nine month periods ended March 31,
1998, increased 98% and 54% compared to the same periods a year ago. Both the
three and nine month increases are due primarily to consulting revenue related
to LiveModel: SAP R/3 Edition and the configure to order consulting business.
Other services revenue, which consists primarily of training and product
support, increased 137% and 90% during the three and nine months ended March 31,
1998, compared to the same periods a year ago. The increase is primarily due to
product support and training revenues related to the LiveModel: SAP R/3 product
offset by reduced support and training related to PowerModel.
Gross margin, as a percentage of total revenues for the three and nine months
ended March 31, 1998, was 71% and 75% compared to 71% and 64% in the same
periods in the prior year. Software margins were 89% and 91% for the three and
nine months ended March 31, 1998, compared to 85% and 80% for same prior year
periods. The increase in software margins was due to increased sales volume on a
relatively fixed cost base. Contract services margins were 41% and 45% for the
three and nine months ended March 31, 1998, compared to 51% and 43% for the same
periods in the prior year. The decrease in contract services margins for the
three months ended March 31, 1998 compared to the prior year quarter is due to
two factors. First, the Company had lower utilization rates due to newly hired
employees which require a certain amount of orientation and training time until
they can be fully utilized. Second, the Company had higher costs associated with
the newly acquired LiveInterface consulting business. Management believes it
will be able to lower these costs in the future as high cost outside contractors
are replaced with lower cost full-time employees. The nine month increase in
margins is primarily due to higher rates charged by the Company as a result of
increasing demand for consulting services as well as the impact of the SAP
Development Agreement signed in August 1997.
10
<PAGE> 11
Research and development (R&D) expenses increased $582,000 (59%) and $1,345,000
(51%) during the three and nine months ended March 31, 1998 from the same prior
year periods. The increases are due primarily to increased headcount and higher
labor costs related to continuing development on LiveModel: SAP R/3 as well as
development costs associated with LiveInterface. R&D expenses, as a percentage
of total revenues for the three and nine months ended March 31, 1998 were both
23% compared to 29% and 31% in the same prior year periods.
Marketing, general and administrative expenses increased $910,000 (53%) and
$2,348,000 (49%), respectively, during the three and nine months ended March 31,
1998, compared to the same prior year periods. The increases are due to several
factors, including, labor costs, contractor and consultant fees, recruiting
costs, trade show expenses, expenses related to the opening of a French office,
and expenses related to the LiveInterface operations in Philadelphia. In total,
marketing, general and administrative expenses were 39% and 42% of revenues for
the three and nine months ended March 31, 1998, compared to 51% and 56% of
revenues for the same periods last year.
Other income and expense, net, which includes interest income and expense, for
the three and nine months ended March 31, 1998 increased $46,000 and $130,000
compared with the same periods in the prior year primarily due to increased
interest income due to higher short term investment balances.
The provision for income taxes of $136,000 for the nine months ended March 31,
1998 is due to income taxes (Alternative Minimum Tax) and foreign withholding
taxes incurred. This compares to $97,000 of foreign withholding taxes for the
prior year period.
For the nine months ended March 31, 1998, the Company reported a net loss of
$1,038,000 ($0.11 per share, both basic and diluted), compared to a net loss of
$2,032,000 ($0.17 per share, both basic and diluted) for the nine months ended
March 31,1997. Excluding the one time charge, net income for the nine months
ended March 31, 1998 was $1,662,000 ($0.09 per share - basic and $0.08 per share
- - diluted).
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1998, cash, cash equivalents and short-term investments were $5,795
compared to $6,392,000 at June 30, 1997. $1,605,000 of cash was provided by
operations during the nine months ended March 31, 1998 compared to $2,752,000
used in operations in the same period in the prior year.
The Company had a net loss of $1,038,000 for the nine months ended March 31,
1998, compared to a net loss of $2,032,000 for the same prior year period. The
net loss for the nine months ended March 31, 1998 includes a one-time charge for
the write off of acquired in-process research and development of $2,700,000.
The increase in cash flows from operating activities is primarily due to an
adjustment to reconcile net loss to net cash provided by operating activities of
$2,700,000 related to the in-process research and development charge and an
increase in various liability accounts offset by an increase in accounts
receivable.
Cash used in investing activities was $1,155,000 in the nine months ended March
31, 1998 compared to $604,000 provided by investing activities in the same prior
year period. The decrease in cash from investing activities is largely due to
the payment of $2,572,000 for the acquisition of certain assets related to UPI,
partially offset by an increase in cash due to maturities of short term
investments in excess of purchases of short term investments.
Cash provided by financing activities was $982,000 for nine months ended March
31, 1998 compared to $5,548,000 for the same prior year period. The decrease
from the prior year is primarily due to $5,000,000 received upon sale of
preferred stock in the prior year period which is partially offset by $712,000
received upon exercise of warrants in the nine months ended March 31, 1998.
11
<PAGE> 12
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 March 31, 1998 and expected cash generated from operations will
be adequate to fund its operations during fiscal 1998.
YEAR 2000 ISSUE
The Company has conducted a comprehensive review of its computer systems to
identify the systems that could be affected by the year 2000 Issue. The year
2000 issue is the result of computer programs being written using two digits
rather than four to define applicable year. Any of the Company's programs that
have time-sensitive software may recognize a date using "00" as the year 1900
rather than the year 2000. This could result in a major system failure or
miscalculations. The Company presently believes that, with modifications to
existing software and conversions to new software, the Year 2000 problem will
not pose significant operational problems for the Company's computer systems as
so modified and converted. Additionally, the costs required to modify existing
systems are not expected to be significant.
All of the software products sold by the Company are currently year 2000
compliant.
12
<PAGE> 13
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
Incorporated by reference to the Company's current report on Form 8-K
related to UPI asset purchase filed on February 9, 1998.
13
<PAGE> 14
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.
October 6, 1998 INTELLICORP, INC.
/s/ Kenneth A. Czaja
----------------------------------------
Kenneth A. Czaja
Chief Financial Officer
14
<PAGE> 15
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Sequentially
No. Description Numbered Page
------- ----------- -------------
<S> <C> <C>
27 Financial Data Schedule
</TABLE>
15
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 5,795
<SECURITIES> 0
<RECEIVABLES> 7,427
<ALLOWANCES> 416
<INVENTORY> 0
<CURRENT-ASSETS> 13,486
<PP&E> 8,962
<DEPRECIATION> 8,279
<TOTAL-ASSETS> 18,049
<CURRENT-LIABILITIES> 6,905
<BONDS> 1,600
0
1
<COMMON> 15
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 18,049
<SALES> 3,674
<TOTAL-REVENUES> 6,837
<CGS> 386
<TOTAL-COSTS> 6,225
<OTHER-EXPENSES> 2,700
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 44
<INCOME-PRETAX> (2,084)
<INCOME-TAX> 30
<INCOME-CONTINUING> (2,114)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,114)
<EPS-PRIMARY> (.16)
<EPS-DILUTED> (.16)
</TABLE>
