<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: March 31, 2000
--------------
[ ] 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
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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.
Outstanding as of
Class April 30, 2000
--------------------- --------------
Common stock,
$.001 par value 18,437,722 shares
This document is comprised of 13 pages.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
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 Condition and Results of Operations.....................8-10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K....................................11
SIGNATURE..........................................................................12
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INTELLICORP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, June 30,
(In thousands) 2000 1999
------------- -------------
(unaudited) (1)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 2,657 $ 2,619
Accounts receivable, net 4,529 6,297
Other current assets 450 472
------------- -------------
Total current assets 7,636 9,388
Property and equipment, net 956 1,046
Purchased intangibles, net 2,175 2,597
Other assets 244 159
------------- -------------
$ 11,011 $ 13,190
============= =============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 1,638 $ 1,272
Accrued compensation 1,616 1,266
Accrued royalties 211 64
Other current liabilities 914 1,271
Bank loan 352 453
Deferred revenues 1,921 2,063
------------- -------------
Total current liabilities 6,652 6,389
Convertible notes - 1600
Stockholders' equity:
Preferred stock 1 1
Common stock 16 16
Additional paid - in capital 64,199 60,266
Accumulated deficit (59,857) (55,082)
------------- -------------
Total stockholders' equity 4,359 5,201
------------- -------------
$ 11,011 $ 13,190
============= =============
</TABLE>
(1) The consolidated balance sheet at June 30, 1999, 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 Nine months ended
March 31, March 31,
(In thousands, except ----------------------- -----------------------
per share amounts) 2000 1999 2000 1999
-------- -------- -------- --------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenues:
Software $ 1,198 $ 1,614 $ 6,416 $ 4,473
Contract services 2,432 2,477 8,672 8,773
Other services 864 935 2,574 2,568
-------- -------- -------- --------
Total revenues 4,494 5,026 17,662 15,814
-------- -------- -------- --------
Costs and expenses:
Cost of revenues:
Software 295 338 769 951
Contract services 2,063 1,997 6,177 6,428
Other services 179 189 566 557
Research and development 1,116 1,290 3,659 4,513
Marketing, general, and
administrative 3,528 2,803 10,645 8,754
-------- -------- -------- --------
Total costs and expenses 7,181 6,617 21,816 21,203
-------- -------- -------- --------
Loss from operations (2,687) (1,591) (4,154) (5,389)
Other income (expense), net (94) (30) (181) 19
-------- -------- -------- --------
Loss before provision
for income taxes (2,781) (1,621) (4,335) (5,370)
Provision for income taxes 14 8 38 28
-------- -------- -------- --------
Net loss $ (2,795) $ (1,629) $ (4,373) $ (5,398)
======== ======== ======== ========
Series A and Series B Preferred
stock dividends (132) (135) (402) (405)
-------- -------- -------- --------
Net loss available to
common shareholders $ (2,927) $ (1,764) $ (4,775) $ (5,803)
======== ======== ======== ========
Basic and diluted net loss per
common shares $ (0.17) $ (0.12) $ (0.28) $ (0.38)
======== ======== ======== ========
Shares used in computing basic and
diluted net loss per common share 17,668 15,220 17,058 15,202
======== ======== ======== ========
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE> 5
INTELLICORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine months ended
March 31,
Increase (decrease) in cash and ---------------------
cash equivalents (in thousands) 2000 1999
------- -------
(unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss $(4,373) $(5,398)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 915 1,293
Stock-based compensation related to certain stock option grants
and services rendered by a non-employee 174 -
Changes in assets and liabilities:
Accounts receivable 1,768 2,305
Other current assets 22 (258)
Other assets (85) 32
Accounts payable 366 (105)
Accrued compensation 350 (84)
Other current liabilities (210) (155)
Deferred revenues (142) (717)
------- -------
Net cash used in operating activities (1,215) (3,087)
------- -------
Cash flows from investing activities:
Property and equipment purchases (403) (483)
Purchase of assets - (51)
Maturities of short-term investments - 1,472
------- -------
Net cash provided by (used in) investing activities (403) 938
------- -------
Cash flows from financing activities:
Repayments under credit line (101) -
Cash payment of dividends (402) (405)
Cash received from the sales of common stock 2,159 286
------- -------
Net cash provided by (used in) financing activities 1,656 (119)
------- -------
Increase (decrease) in cash and cash equivalents 38 (2,268)
Cash and cash equivalents, beginning of period 2,619 4,714
------- -------
Cash and cash equivalents, end of period $ 2,657 $ 2,446
======= =======
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE> 6
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 consolidated
financial statements for the fiscal year ended June 30, 1999, 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 that may be expected for
the full fiscal year ending June 30, 2000.
2. SIGNIFICANT CUSTOMERS AND EXPORT SALES. A related party accounted for 27%
($1,201,000) and 18% ($3,132,000), respectively, of the total revenues for the
three and nine month periods ended March 31, 2000 and 21% ($1,079,000) and 25%
($3,957,000), respectively, of the revenues for the three and nine month periods
ended March 31, 1999. One other related party accounted for 14% ($706,000) and
11% ($1,813,000), respectively, of the total revenues for the three and nine
month periods ended March 31, 1999. A commercial customer accounted for 7%
($311,000) and 2% ($311,000), respectively, of the total revenues for the three
and nine month periods ended March 31, 2000 and 11% ($530,000) and 3%
($530,000), respectively, of the total revenues for the three and nine month
periods ended March 31, 1999.
3. INCOME TAXES. The Company's provision for income taxes of $14,000 and $38,000
for the three and nine months ended March 31, 2000, respectively, is
attributable to local taxes and foreign withholding taxes. The provision for
income taxes of $8,000 and $28,000 for the three and nine months ended March 31,
1999 is attributable to income taxes, primarily state and local.
4. NEW ACCOUNTING STANDARD. As of July 1, 1999, the Company adopted SOP No.
98-1, Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use. As of March 31, 2000, the Company had capitalized $205,000 related
to an internal-use software implementation project. Once the project is
completed the total cost will be amortized over five years, the estimated useful
life of the internal-use software.
5. COMPREHENSIVE LOSS. For the three and nine months ended March 31, 2000 and
1999, respectively, comprehensive loss equaled net loss.
6. BANK LOAN. In March 1999, the Company secured a $3,000,000 credit facility
from a bank, bearing annual interest at the bank's prime rate plus 2% (11.00 %
as of March 31, 2000). The credit line is an asset-based facility, and the
amount that can be borrowed under the loan is the lesser of $3,000,000 or 80% of
the eligible accounts receivable balances at any point in time. The amounts
collected from outstanding, eligible accounts receivable balances are remitted
to the bank as loan payments when such amounts are received. The initial term of
this facility is two years. The credit facility is secured by essentially all of
the assets of the Company.
7. EQUITY INVESTMENT. In March 1999, the Company consummated an equity
arrangement which requires certain investors to purchase, in a private
placement, up to $3,000,000 of the Company's common stock over the next year, if
and when requested by the Company. The arrangement expired in March 2000. The
purchase price of the common stock is at 10% above the market price at the time
the purchase is made, with a minimum price of $1.50 per share and a maximum
price of $3.00 per share. As of March 31, 2000, the Company has issued 1,160,000
and 385,000 shares of common stock at $1.50 and $3.00 per share, respectively,
for aggregate proceeds of $2,895,000 under the line.
In May 2000, the Company extended a similar equity arrangement with one of its
existing investors, whereby the Company has the right to require the investor to
purchase, in a private placement, up to $2,500,000 of the Company's common
stock. The purchase price is set at 10% above the market price at the time the
purchase is made, with a minimum price of $1.00 per share and a maximum price of
$2.00 per share. The investor will receive five year warrants equal to 25% of
the number of shares purchased. This equity arrangement will terminate the
earlier of December 31, 2000 or upon the receipt by the Company of at least
$5,000,000 in other third party equity financing.
6
<PAGE> 7
8. NET LOSS PER SHARE. Net loss per share is computed using the weighted-average
number of shares of common stock outstanding. Common stock equivalent shares
from outstanding stock options and warrants are not included, as their effect is
antidilutive.
9. NOTE CONVERSION. For the three and nine months ended March 31, 2000, note
holders converted $350,000 and $1,600,000 of the convertible notes into 227,705
and 1,040,925 shares of common stock, respectively, in accordance with the terms
of the Company's 1996 Convertible Note Agreement.
10. RECENT PRONOUNCEMENTS. On March 31, 2000, the FASB issued Interpretation No.
44, "Accounting for Certain Transactions involving Stock Compensation," which
provides guidance on several implementation issues related to Accounting
Principles Board Opinion No. 25. The most significant are clarification of the
definition of employee for purposes of applying Opinion 25 and the accounting
for options that have been repriced. Under the interpretation, the
employer-employee relationship would be based on case law and Internal Revenue
Service regulations. The FASB granted an exception to this definition for
outside directors. Under the interpretation, repriced options effectively
changed the terms of the plan, which would make it a variable plan subject to
compensation expense. The impact of the interpretation on our financial position
and results of operations is not expected to be material.
7
<PAGE> 8
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, 1999.
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: contract services,
software licenses, and other services. Other services are primarily comprised of
product support revenue. Total revenues were $4,494,000 and $17,662,000,
respectively, for the three and nine months ended March 31, 2000, compared to
$5,026,000 and $15,814,000, respectively, for the same periods in the prior
year. This represents a 11% decrease and 12% increase, respectively, for the
three and nine month periods ended March 31, 2000, 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
--------- ------- --------- ------
2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
North America $ 2,779 $ 3,405 (18)% $10,785 $10,781 0%
Europe 1,644 1,543 7 % 6,316 4,638 36%
Pacific Rim/Latin America 71 78 (9)% 561 395 42%
------- ------- ------- ------- ------- -------
Total revenue $ 4,494 $ 5,026 (11)% $17,662 $15,814 12%
</TABLE>
The geographic revenue as a percentage of revenue is as follows:
<TABLE>
<CAPTION>
Three months ended Nine months ended
March 31, March 31,
-------- --------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
North America 62% 67% 61% 68%
Europe 36% 31% 36% 29%
Pacific/Latin America 2% 2% 3% 3%
---- ---- ---- ----
Total 100% 100% 100% 100%
</TABLE>
Software revenues for the three and nine month periods ended March 31, 2000,
respectively, decreased 26% and increased 43% compared to the same periods in
the prior year. The decrease from the three month period in the prior year is
attributed to the general slowing of the ERP market, as well as by the
transition in the Company's sales management. The increase from the nine month
period in the prior year is attributed to strong sales performance in the first
two quarters of fiscal year 2000.
Contract services revenues, which include training revenues, for the three and
nine months period ended March 31, 2000, respectively, decreased 2% and 1%
compared to the same periods a year ago. Consulting revenue for the third
quarter was unfavorably impacted by certain large project bookings occurring
late in the quarter, where the project work could not begin until either late in
the quarter or after March 31, 2000. Nonetheless, within the total contract
revenue, consulting revenues
8
<PAGE> 9
related to Customer Relationship Management solutions increased by 73% for the
nine months ended March 31, 2000, compared to the prior fiscal year.
Other services revenue decreased 8% and remained the same during the three and
nine months ended March 31, 2000, compared to the same periods a year ago,
respectively. The decrease is primarily due to product support revenues related
to IntelliCorp's LiveInterface and LiveModel products.
Gross margin, as a percentage of total revenues for the three and nine months
ended March 31, 2000, was 44% and 57% compared to 50% in the same periods in the
prior year. Software margins were 75% and 88% for the three and nine months
ended March 31, 2000, compared to 79% and 60% for same prior year periods. The
decrease in software margins for the three month period is due to higher third
party royalty costs. The increase in software margin for the nine months is
attributed to lower amortization expense incurred in fiscal 2000 related to
acquired technology.
Contract services margins were 15% and 29% for the three and nine months ended
March 31, 2000, compared to 19% and 27% in the same periods in the prior year.
The decrease in contract services margins for the three months compared to the
prior year is due to late booking of contracts. The increase in margins for the
nine months is due to improved labor utilization and higher average pricing of
services. Other services margins were 79% and 78% for the three and nine month
periods ended March 31, 2000 compared to 80% and 78% for the same prior year
periods.
Research and development (R&D) expenses decreased $174,000 (13%) and $854,000
(19%) during the three and nine months ended March 31, 2000 from the same prior
year periods. The decreases are due primarily to deployment of resources to
revenue generating services and normal attrition. R&D expenses, as a percentage
of total revenues for the three and nine months ended March 31, 2000, were 25%
and 21%, compared to 26% and 29% in the same prior year periods.
Marketing, general and administrative expenses increased $725,000 (26%) and
$1,891,000 (22%), respectively, during the three and nine months ended March 31,
2000, 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,
provision for bad debt, sales training expense, and expenses related to the
LiveInterface operations in Philadelphia. In total, marketing, general and
administrative expenses were 79% and 60% of revenues for the three and nine
months ended March 31, 2000, compared to 56% and 55% 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, 2000 increased $64,000 and $200,000
compared with the same periods in the prior year primarily due to increased
interest expense from bank borrowings and foreign currency conversion losses.
The provision for income taxes of $14,000 and $38,000 for the three and nine
months ended March 31, 2000 is due primarily to foreign withholding taxes and
state and local taxes. This compares to $8,000 and $28,000 related to income
taxes (primarily state and local) for the three and nine months ended in the
prior year.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2000, cash, cash equivalents and short-term investments were
$2,657,000 compared to $2,619,000 at June 30, 1999.
Cash used by operations was $1,215,000 during the nine months ended March 31,
2000, compared to $3,087,000 used by operations in the same period of the prior
year. The decrease in cash used in operations is primarily due to the decrease
in net losses, decrease on accounts receivable, increase in accounts payable and
increase in accrued compensation from the same period in prior year. Cash used
by investing activities was $403,000 in the nine months ended March 31, 2000,
compared to $938,000 provided by investing activities in the same period in the
prior year. The increase in cash used by investing activities is due primarily
to the liquidation of short-term investments in FY99.
9
<PAGE> 10
Cash provided by financing activities was $1,656,000 for the nine months ended
March 31, 2000, compared to $119,000 used in financing activities in the same
prior year period. The increase in cash provided by financing activities was
primarily due to the Company's bank credit line and the exercise of stock
options by employees of the Company.
In March 1999, the Company consummated an equity arrangement, which requires
certain investors to purchase, in a private placement, up to $3,000,000 of the
Company's common stock over the next year, if and when requested by the Company.
The purchase price is set at 10% above the market price at the time the purchase
is made, with a minimum price of $1.50 per share and a maximum price of $3.00
per share. As of March 31, 2000, the Company has issued 1,160,000 and 385,000
shares of common stock at $1.50 and $3.00 per share, respectively, for aggregate
proceeds of $2,895,000 related to this arrangement.
In May 2000, the Company extended a similar equity arrangement with one of its
existing investors, whereby the Company has the right to require the investor to
purchase, in a private placement, up to $2,500,000 of the Company's common
stock. The purchase price is set at 10% above the market price at the time the
purchase is made, with a minimum price of $1.00 per share and a maximum price of
$2.00 per share. The investor will receive five year warrants equal to 25% of
the number of shares purchased. This equity arrangement will terminate the
earlier of December 31, 2000 or upon the receipt by the Company of at least
$5,000,000 in other third party equity financing.
In addition to the equity investment agreement, the Company secured a $3,000,000
credit facility from a bank, bearing annual interest at the bank's prime rate
plus 2% (11.00 % as of March 31, 2000). The credit line is an asset-based
facility, and the amount that can be borrowed under the loan is the lesser of
$3,000,000 or 80% of the eligible accounts receivable balances at any point in
time. The amounts collected from outstanding, eligible accounts receivable
balances are remitted to the bank as loan payments when such amounts are
received. The initial term of this facility is two years. The credit facility is
secured by essentially all of the assets of the Company.
The Company believes its cash and cash equivalents at March 31, 2000, along with
expected cash generated from operations and available funds from the equity
arrangement and bank credit line, will be adequate to fund its operations during
fiscal 2000. 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 the
remainder of fiscal 2000 do not meet management's expectations, and additional
financing is not available, management has the ability to, and may, reduce
certain planned expenditures to lower the Company's operating costs, if
required.
PURCHASED INTANGIBLE ASSETS
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 rights to 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.
At the time of acquisition, revenues for developed and core technology were
estimated for the remainder of fiscal 1998 through fiscal 2004. The Company
believes that total revenues over the life of the product will not differ to
such an extent as to require a devaluation of the current carrying value of the
intangible assets. 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.
10
<PAGE> 11
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
See Index to Exhibits.
b) Reports on Form 8-K
The Registrant filed no reports on Form 8-K during the quarter
ended March 31, 2000.
11
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SIGNATURE
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
<PAGE> 13
INDEX TO EXHIBITS
Exhibit Sequentially
No. Description Numbered Page
------- ----------- -------------
27 Financial Data Schedule
13
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 2,657
<SECURITIES> 0
<RECEIVABLES> 5,017
<ALLOWANCES> (488)
<INVENTORY> 0
<CURRENT-ASSETS> 450
<PP&E> 10,545
<DEPRECIATION> (9,589)
<TOTAL-ASSETS> 11,011
<CURRENT-LIABILITIES> 6,652
<BONDS> 0
0
1
<COMMON> 16
<OTHER-SE> 4,342
<TOTAL-LIABILITY-AND-EQUITY> 11,011
<SALES> 4,494
<TOTAL-REVENUES> 4,494
<CGS> 2,537
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 4,644
<LOSS-PROVISION> (2,687)
<INTEREST-EXPENSE> (94)
<INCOME-PRETAX> (2,781)
<INCOME-TAX> 14
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,795)
<EPS-BASIC> (0.17)
<EPS-DILUTED> (0.17)
</TABLE>
