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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, 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
INTELLICORP, INC.
(Exact name of small business issuer as specified in its charter)
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DELAWARE 94-2756073
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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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.
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<CAPTION>
Outstanding as of
Class October 31, 2000
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Common stock,
$.001 par value 20,100,607 shares
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This document is comprised of 12 pages.
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TABLE OF CONTENTS
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Page
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
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..............................10
SIGNATURE.............................................................................11
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INTELLICORP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
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<CAPTION>
September 30, June 30,
(In thousands) 2000 2000(1)
------------- --------
(unaudited)
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Assets
Current assets:
Cash and cash equivalents $ 2,113 $ 2,240
Accounts receivable, net 6,708 5,729
Other current assets 846 1,264
-------- --------
Total current assets 9,667 9,233
Property and equipment, net 564 911
Purchased intangibles, net 1,894 2,035
Other assets 165 134
-------- --------
$ 12,290 $ 12,313
======== ========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 1,548 $ 1,899
Accrued compensation 1,653 1,644
Accrued royalties 259 295
Other current liabilities 1,079 1,443
Bank loan 2,143 989
Deferred revenues 1,559 1,673
-------- --------
Total current liabilities 8,241 7,943
Stockholders' equity:
Preferred stock 1 1
Common stock 20 20
Additional paid - in capital 68,230 67,079
Accumulated deficit (64,202) (62,730)
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Total stockholders' equity 4,049 4,370
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$ 12,290 $ 12,313
======== ========
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(1) The consolidated balance sheet at June 30, 2000, 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.
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INTELLICORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
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<CAPTION>
Three months ended
(In thousands, except September 30,
per share amounts) -----------------------
2000 1999
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(unaudited)
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Revenues:
Software $ 1,590 $ 2,719
Contract services 3,713 3,173
Other services 730 842
-------- --------
Total revenues 6,033 6,734
-------- --------
Costs and expenses:
Cost of revenues:
Software 192 263
Contract services 2,817 1,938
Other services 99 218
Research and development 639 1,415
Marketing, general, and
administrative 3,590 3,444
-------- --------
Total costs and expenses 7,337 7,278
-------- --------
Loss from operations (1,304) (544)
Other income (expense), net (35) (38)
-------- --------
Loss before provision
for income taxes (1,339) (582)
Provision for income taxes -- 6
-------- --------
Net loss $ (1,339) $ (588)
======== ========
Series A and Series B Preferred
stock dividends (133) (135)
-------- --------
Net loss attributable to
common shareholders $ (1,472) $ (723)
======== ========
Basic and diluted net loss per
common share $ (0.07) $ (0.04)
======== ========
Shares used in computing basic and
diluted net loss per common share 20,043 16,421
======== ========
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See notes to condensed consolidated financial statements.
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INTELLICORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (decrease) in cash and cash equivalents
(in thousands)
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Three months ended
September 30,
---------------------
2000 1999
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(unaudited)
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Cash flows from operating activities:
Net loss $(1,339) $ (588)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation and amortization 252 314
Abandoned software written-off 249 --
Changes in assets and liabilities:
Accounts receivable (979) (1,496)
Other current assets 768 (68)
Other assets (31) 14
Accounts payable (351) (119)
Accrued compensation 9 248
Other current liabilities (400) 93
Deferred revenues (114) (13)
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Net cash (used in) operating activities (1,936) (1,615)
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Cash flows from investing activities:
Property and equipment purchases (13) (64)
------- -------
Net cash (used in) investing activities (13) (64)
------- -------
Cash flows from financing activities:
Net borrowings under bank credit line 1,154 605
Payment of dividends (133) (135)
Cash received from sale of common stock 801 18
------- -------
Net cash provided by financing activities 1,822 488
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Decrease in cash and cash equivalents (127) (1,191)
Cash and cash equivalents, beginning of period 2,240 2,619
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Cash and cash equivalents, end of period $ 2,113 $ 1,428
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See notes to condensed consolidated financial statements.
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NOTES TO UNAUDITED 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, 2000, 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
financial 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, 2001.
2. SIGNIFICANT CUSTOMERS. A related party accounted for 26% ($1,190,000)
and 13% ($881,000) of the total revenues for the three month periods
ended September 30, 2000 and 1999, respectively. A commercial customer
accounted for 19% ($834,000) and 7% ($454,000) of the total revenues for
the three month period ended September 30, 2000 and 1999, respectively.
3. INCOME TAXES. The Company's provision for income taxes of $6,000 for the
three months ended September 30, 1999 is attributable to income taxes,
primarily state and local.
4. COMPREHENSIVE LOSS. For the three months ended September 30, 2000 and
1999, respectively, comprehensive loss equaled net loss.
5. BANK LOAN. In March 1999, the Company secured a $3.0 million credit
facility from a bank, bearing annual interest at the bank's prime rate
plus 2% (11.5 % as of September 30, 2000). The credit line is an
asset-based facility, and the amount that can be borrowed under the loan
is the lesser of $3.0 million or 80% of the eligible accounts receivable
balances at any point in time. At September 30, 2000, the amount of the
bank credit facility available was $2.1 million. 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 owed $2.1
million on this credit facility at September 30, 2000.
6. EQUITY INVESTMENT. In May 2000, the Company consummated an 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 $2,800,000 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 on
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. As of
September 30, 2000, the Company has issued 596,126 and 850,000 shares of
common stock at $1.6775 and $2.00 per share, respectively, for aggregate
proceeds of $2,700,000 under this arrangement.
In September 2000, the Company consummated an equity arrangement, which
requires certain investors to purchase, in a private placement, up to
$1,000,000 of the Company's common stock. The purchase price is set at
$1.00 per share. The investors will receive five-year warrants equal to
25% of the number of shares purchased. On September 29, 2000, the
Company issued 1,000,000 shares of common stock.
7. 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.
8. RESTRUCTURING COST. On July 17, 2000, IntelliCorp announced a
reorganization of its existing product offerings to provide for greater
operational efficiency and focus. This reorganization included a
reduction-in-force as well as staff transfers from products to CRM/eCRM
consulting solutions, which affected approximately 20% of IntelliCorp's
workforce. The reorganization also
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included the abandonment of certain internal use software. There were a
total of 13 employees affected by the reduction in force, which
consisted of four technical professionals and nine employees in
Marketing, General and Administration. The one-time cost of the
reduction-in-force was approximately $120,000, which included expenses
such as severance pay, legal fees and contract cancellation fees.
IntelliCorp expensed $247,000 in connection with the abandonment of
internal use software, which had previously been capitalized.
9. RECENT PRONOUNCEMENTS. On October 12, 2000, the Securities and Exchange
Commission (SEC) staff issued its Frequently Asked Questions (FAQ)
document on Staff Accounting Bulletin No. 101 (SAB101). The FAQ document
provides new guidance and formalizes the position the SEC staff has
taken on certain SAB101 implementation issues. Additionally, the SAB and
FAQ document also provides guidance on disclosure, both in footnotes and
in M D & A, registrants should make regarding their revenue recognition
policies and impact of events and trends on revenue. SAB 101 is required
to be adopted no later than the fourth quarter of fiscal years beginning
after December 15, 1999, with the effective date of July 1, 2000. The
Company does not expect a material impact from the adoption of SAB 101
on its future revenues and results of operations.
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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, 2000.
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, which is primarily comprised of product
support revenue.
Total revenues were $6,033,000 for the three months ended September 30, 2000,
compared to $6,734,000 for the same period in the prior year.
The geographic breakdown of revenue is as follows:
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Three months ended %
(In thousands) September 30, Change
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2000 1999
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North America $4,210 $4,704 (11)%
Europe 1,726 1,701 1%
Pacific Rim/Latin America 97 329 (71)%
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Total revenue $6,033 $6,734 10%
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The geographic revenue as a percentage of revenue is as follows:
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Three months ended
September 30,
------------------
2000 1999
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<S> <C> <C>
North America 70% 70%
Europe 29% 25%
Pacific/Latin America 1% 5%
--- ---
Total 100% 100%
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Software revenues for the three month period ended September 30, 2000 decreased
42% compared to the same period in the prior year. The lower revenue is
primarily attributable to lower revenue from LiveModel license sales.
Contract services revenues, which includes training revenues and consulting
services, increased 17% for the three month period ended September 30, 2000,
compared to the same prior year period. The increase is primarily due to growth
in Customer Relationship Management (CRM) consulting services, however, the
overall contract service revenue was offset in lower revenues in LiveModel and
LiveInterface services and paid application development services.
Other services revenue decreased 13% during the three months ended September 30,
2000, compared to the same period a year ago. The decrease is primarily due to
decreased product support revenues related to LiveInterface and LiveModel
licenses.
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Gross margin, as a percentage of total revenues for the three months ended
September 2000, was 48% compared to 64% in the same period in the prior year.
The decrease in gross margin was due to increased Contract Service revenue which
has a lower overall margin than Software Licensing. Software margins were 88%
for the three months ended September 30, 2000, compared to 90% for the same
prior year period. The decrease in software margins were due to higher royalty
payments for new products, particularly LiveSynchronizer. Contract services
margins were 24% for the three months ended September 30, 2000, compared to 39%
in the same period in the prior year. Lower margins in Contract Services are
primarily attributed to decreased margins in the Company's application
development services and BPM/EAI services due to a decrease in such revenues.
The margin on other services was 86% for the three months period ended September
30, 2000, compared to 74% for the same prior year period. The increase in gross
margin on other services was due to lower overall expenses in the related
department.
Research and development (R&D) expenses decreased $776,000 (55%) during the
three months ended September 30, 2000 from the same prior year period. R&D
expenses as a percentage of total revenues for the three months ended September
30, 2000 were 11% compared to 21% in the same prior year period. Both lower
expenses and a lower percentage of revenue can be attributed to the
transitioning of software products from development to production.
Marketing, general and administrative expenses increased $146,000 (4%) during
the three months ended September 30, 2000, compared to the same prior year
period. The increase is primarily due to the write-off of abandoned software,
which was purchased for internal use and increased recruiting costs. The
increase was offset by the decreased head count in the sales and marketing
departments due to the Company's reorganization. In total, marketing, general
and administrative expenses were 60% of revenues for the three months ended
September 30, 2000 compared to 51% of revenues for the same period last year.
Other income and expense, net, which includes interest income and expense, for
the three months ended September 30, 2000 decreased $3,000 compared with the
same period in the prior year. Other income and expense, net, remained
relatively flat.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2000, cash, cash equivalents and short-term investments were
$2,113,000 compared to $2,240,000 at June 30, 2000.
Cash used in operations was $1,936,000 during the three months ended September
30, 2000, compared to $1,615,000 in the same period of the prior year. The
increase in cash used in operations is primarily due to the increase in accounts
receivable of $979,000 during the period. Cash used by investing activities was
$13,000 in the three months ended September 30, 2000 compared to $64,000 in the
same period the prior year.
Cash provided by financing activities was $1,822,000 for the three months ended
September 30, 2000 compared to $488,000 in the same period in the prior year.
The increase in cash provided by financing activities was due to the increased
draw down of the Company's revolving bank credit line and the additional equity
funding.
In May 2000, the Company consummated an 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 on 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 September 2000, the Company consummated an equity arrangement, which requires
certain investors to purchase, in a private placement, up to $1,000,000 of the
Company's common stock. The purchase price is set at $1.00 per share. The
investors will receive five-year warrants equal to
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25% of the number of shares purchased. On September 29, 2000, the Company issued
1,000,000 shares of common stock.
In addition to the equity investment agreements, the Company secured a $3.0
million credit facility from a bank, bearing annual interest at the bank's prime
rate plus 2% (11.5 % as of September 30, 2000). The credit line is an
asset-based facility, and the amount that can be borrowed under the loan is the
lesser of $3.0 million or 80% of the eligible accounts receivable balances at
any point in time. At September 30, 2000, the amount of the bank credit facility
available was $2.1 million. 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
owed $2.1 million under this credit facility at September 30, 2000.
The Company believes its cash and cash equivalents at September 30, 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
through fiscal 2001. 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 2001 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. As of the end of
the first quarter of fiscal 2001, 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.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
27.1 Financial Data Schedule.
b) Reports on Form 8-K
No reports have been filed for the quarter ended September 30,
2000.
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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/ Jerome F. Klajbor
------------------------------------
Jerome F. Klajbor
Chief Financial Officer
Date: November 14, 2000
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INDEX TO EXHIBITS
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Exhibit Sequentially
No. Description Numbered Page
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27.1 Financial Data Schedule
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