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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended: December 31, 1999 Commission File Number 000-21685
INTELIDATA TECHNOLOGIES CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 54-1820617
(State of incorporation) (I.R.S. Employer Identification Number)
11600 Sunrise Valley Drive, Suite 100, Reston, VA 20191
(Address of Principal Executive Offices)
(703) 259-3000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
-------------------- ------------------------------------------
NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock par value $.001 per share
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 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
----------- ----
State by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [ X ].
The aggregate market value of the Common Stock held by non-affiliates of the
registrant on March 1, 2000, was approximately $535,301,682. In determining this
figure, the Registrant has assumed that all of its directors and executive
officers are affiliates. Such assumptions should not be deemed to be conclusive
for any other purpose.
The number of shares of the registrant's Common Stock outstanding on March 1,
2000 was 38,799,556.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of InteliData Technologies Corporation's Proxy Statement for its 2000
Annual Stockholder Meeting, to be held on May 24, 2000, are incorporated by
reference into Part III of this Report.
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INTELIDATA TECHNOLOGIES CORPORATION
1999 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
Page
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PART I
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Item 1. Business..............................................................3
Item 2. Properties............................................................7
Item 3. Legal Proceedings.....................................................7
Item 4. Submission of Matters to a Vote of Stockholders.......................7
PART II
- -------
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters..8
Item 6. Selected Financial Data...............................................9
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................10
Item 7a. Quantitative and Qualitative Disclosures about Market Risk...........21
Item 8. Financial Statements and Supplementary Data..........................22
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.............................................40
PART III
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Item 10. Directors and Executive Officers of the Registrant...................41
Item 11. Executive Compensation...............................................42
Item 12. Security Ownership of Certain Beneficial Owners and Management.......42
Item 13. Certain Relationships and Related Transactions.......................42
PART IV
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Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K......43
PART I
ITEM 1. BUSINESS
- -----------------
GENERAL
InteliData Technologies Corporation ("InteliData" or the "Company")
develops and markets software products and consulting services for the financial
services industry. The Company supplies Internet Banking and bill payment
software to financial institutions that want to provide their own remote banking
services. The Company provides internet hosting and service bureau solutions to
financial institutions. The Company also provides maintenance contracts on
customer installations and leases Caller ID adjunct units to customers in US
West Communications, Inc. ("US West") territory.
The Company develops and markets software products and implementation
services to assist financial institutions in their Internet Banking and
electronic bill payment initiatives. The products are designed to assist
consumers in accessing and transacting business with their financial
institutions electronically, and to assist financial institutions in connecting
to and transacting business with third party processors. The services focus on
consulting and maintenance agreements that support the Company's products.
The Company's principal executive offices are located at 11600 Sunrise
Valley Drive, Suite 100, Reston, Virginia 20191 and its telephone number is
(703) 259-3000.
INDUSTRY BACKGROUND
The Company provides software products and implementation services to
financial institutions whose processes and systems are subject to regulatory
approvals. Internet Banking is a developing marketplace. Financial institutions
are gradually expanding their Internet Banking services to permit customers not
only to access historical account information from remote locations, but also to
engage in transactions such as paying bills and transferring funds. The
Company's future growth and profitability will depend, in part, upon consumer
acceptance of Internet Banking and bill payment and presentment processes and
the speed at which such acceptance occurs.
PRODUCTS AND SERVICES
The Company's business strategy is to develop products and services,
including software, to meet the needs of financial institutions and their
customers in the Internet Banking markets. The Company strives to develop
products with broad appeal that are easy-to-use, practical and built around
common industry standards.
The Company's strategy is to support financial institutions by providing
products and services that help them deploy Internet Banking to their customers.
The Company's products and services are designed to provide financial
institutions with the capability to process
banking transactions from multiple channels, including personal computers and
the internet. The following represent the Company's products and services:
Internet Banking
o InterposeTM Transaction Engine
------------------------------
The Interpose Transaction Engine is the heart of the Company's Internet
Banking software system. It runs on the financial institution's host computer
system, providing real-time connectivity to remote delivery channels. Along with
this critical host connection, the Interpose Transaction Engine provides robust
customer profiling and control over system security. Its Advanced Financial
Message Set gives financial institutions the functionality to offer a complete
range of online financial services.
o InterposeTM OFX Gateway
-----------------------
The Interpose OFX Gateway allows a financial institution to take advantage
of the Open Financial Exchange ("OFX") standard to directly support customers
who use Intuit Quicken(R), Microsoft Money(R), and other OFX compliant client
software. It supports synchronized information across all delivery channels,
including personal computers and the internet.
o InterposeTM Payment Warehouse
-----------------------------
The Interpose Payment Warehouse provides a software solution to financial
institutions that automates bill payment processing while giving the financial
institution the benefit of tracking payment activity and integrating delivery
channels.
o Consulting Services
-------------------
The Company offers its clients consulting services to assist in
implementation, training and customization on a time and materials basis, and
provides maintenance and support services and software upgrades pursuant to
agreements which are typically renewable on an annual basis. Additionally, the
Company offers consulting services regarding the application and feasibility of
implementing Internet Banking products within the bank's mainframe computer
system.
Leasing Activities
The Company leases Caller ID adjunct units under an agreement with US West,
whereby the Company leases Caller ID units directly to US West customers. The
leasing program enables subscribers to pay a monthly fee for the equipment. In
1996, US West ceased leasing new Caller ID adjunct units under the program.
Notwithstanding the termination of this program, previously existing leases
remain in effect. Although the Company is not able to estimate the effect on
future operations of the discontinuation of the
leasing program, the number of active records in the Company's installed lease
base has historically decreased at a rate of approximately 30% per year. There
can be no assurance that this trend or the realized gross margins on these
revenues will continue. In January, 2000, the Company received notification from
its billing agent regarding proposed changes to the billing process for the US
West Caller ID Lease Base. The pending changes, which could require the
Company's lease billings to be removed from the US West customer bills, could
have a substantial effect on the rate of decline of the lease base, the cost of
billing, and the Company's ability to pursue collections. Any changes in billing
procedures could negatively affect the Company's revenue, cost of sales, gross
margin, and cash flow in future periods.
MARKETING AND DISTRIBUTION
The Company sells its principal products and services to financial
institutions in the United States. Additionally, the Company leases Caller ID
adjunct units in the US West territory. As noted above, the Company does not
market its Caller ID lease business to new customers.
The Company concentrates its marketing efforts on direct sales to financial
institutions. Currently, the Company is marketing to financial institutions that
operate large IBM mainframe processors in the United States. The Company is
developing products and services to assist financial institutions who want to
provide their customers with the ability to access certain information from
their accounts and to complete transactions with those institutions concerning
bill payments, loan payments, online transfers and other transactions from
remote locations via personal computers.
COMPETITION
The Company's products and services face competition from several types of
competitors. Some financial institutions have elected to develop internally
their own Internet Banking solutions instead of purchasing products and services
from the Company or third parties. Financial institutions may also contract with
service bureaus, such as Checkfree Corp., S-One, Inc., Digital Insight, Inc. or
Online Resources, Inc., to obtain Internet Banking services. Finally, a number
of other software companies, including Corillian Corporation and Destiny
Software Corporation, offer products and services that compete with those of the
Company.
The Company expects that competition in all of these areas will increase in
the near future. The Company believes that a principal competitive factor in its
markets is the ability to offer an integrated system of various Internet Banking
products and services. Competition will be based upon price, performance,
customer service and the effectiveness of marketing and sales efforts. The
Company competes in its various markets on the basis of its relationships with
strategic partners, by developing many of the products required for complete
solutions, by leveraging market experience, and by building reliable products
and offering those products at reasonable prices.
PRODUCT DEVELOPMENT
The Company operates in industries that are rapidly growing and changing.
In an effort to improve the Company's position with respect to its competition,
the Company has focused management efforts in the area of product development.
In 1999, 1998 and 1997, the Company's research and development expenditures were
$4,115,000, $2,652,000 and $4,347,000, respectively. At December 31, 1999, 54
employees were engaged in product development. At March 1, 2000, 83 employees
were engaged in product development.
The Company's product development efforts are focused on software and
systems for electronic banking. In particular, the Company applies its research
and development expenditures to data transaction processing and messaging
software. The Internet Banking industry is characterized by rapid change. To
keep pace with this change, the Company maintains an aggressive program of new
product development and dedicates considerable resources to research and
development to further enhance its existing products and to create new products
and technologies. The Company's ability to attract and retain highly skilled
research and development personnel is important to the Company's continued
success.
GOVERNMENT REGULATION
Although it has recently undergone significant deregulation, the banking
market, which the Company has targeted for marketing, is highly regulated at
both the federal and state levels. Interpretation, implementation or revision of
banking regulations can accelerate or hinder the ultimate success of the Company
and its products.
PATENTS, PROPRIETARY RIGHTS AND LICENSES
The Company holds limited registered intellectual property rights with
respect to its products. The Company relies on trade secret laws and licensing
agreements to establish and maintain its proprietary rights to its products.
Although the Company has obtained confidentiality agreements from its key
executives and engineers in its product development group, there can be no
assurance that third parties will not independently develop the same or similar
alternative technology, obtain unauthorized access to the Company's proprietary
technology or misuse the technology to which the Company has granted access.
The Company does not believe that its products and services infringe on the
rights of third parties. It is possible that third parties could assert
infringement claims against the Company. There can be no assurance that any such
assertion will not result in costly litigation or require the Company to cease
using, or obtain a license to use, intellectual property rights of such parties.
EMPLOYEES
At December 31, 1999, the Company had approximately 80 employees. The
Company has no collective bargaining agreements with its employees and believes
that it has a positive
relationship with its employees. At March 1, 2000, the Company had approximately
107 employees.
ITEM 2. PROPERTIES
- -------------------
The Company moved its headquarters in the second quarter of 1999 to Reston,
Virginia, where it leases 17,000 square feet of office space from an
unaffiliated party. This lease expires in January 2004. The Company leases
11,000 square feet of office space from an unaffiliated party for its product
development facilities in Toledo, Ohio. The Ohio lease expires in January 2004.
The Company also has short-term leases for other, less significant field sales
office facilities.
The Company sold a 63,000 square foot manufacturing and distribution
facility in New Milford, Connecticut in January, 2000.
In March, 2000, the Company leased 7,500 square feet of additional office
space in Reston, Virginia from an unaffiliated to provide additional facilities
for product development close to its already existing headquarters facility.
ITEM 3. LEGAL PROCEEDINGS
- --------------------------
The Company is not currently a party to any material litigation. From time
to time, the Company is a party to routine litigation incidental to its
business. Management does not believe that the resolution of any or all of such
routine litigation will be likely to have a material adverse effect on the
Company's financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS
- --------------------------------------------------------
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
- ---------------------------------------------------------------
STOCKHOLDER MATTERS
-------------------
The Company's common stock is traded on the Nasdaq National Market under
the symbol INTD. The table below sets forth the high and low quarterly sales
prices for the common stock of the Company as reported in published financial
sources for each quarter during the last two years:
Price Range of Common Stock
----------------------------
High Low
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1999
Fourth Quarter $ 4 29/32 $ 1 7/32
Third Quarter 4 3/8 2 1/32
Second Quarter 6 1/2 1 7/32
First Quarter 1 27/32 1 1/16
1998
Fourth Quarter $ 1 7/8 $ 5/8
Third Quarter 1 1/2 9/16
Second Quarter 3 15/16
First Quarter 3 13/16 1 7/8
On March 1, 2000, the last reported sales price for the Company's common
stock was $14 3/16.
The Company has never declared or paid any cash dividends on its common
stock. The Company currently intends to retain its future earnings, if any, to
fund the development and growth of its business and, therefore, does not
anticipate paying any cash dividends in the foreseeable future. Any future
decision concerning the payment of dividends on the Company's common stock will
depend upon the results of operations, financial condition and capital
expenditure plans of the Company, as well as such other factors as the Board of
Directors, in its sole discretion, may consider relevant.
The number of stockholders of record at March 1, 2000 was 476, and does not
include those stockholders who hold shares in street name accounts.
ITEM 6. SELECTED FINANCIAL DATA
- ---------------------------------
INTELIDATA TECHNOLOGIES CORPORATION
Selected Financial Data
(in thousands, except per share data)
Year Ended December 31,
------------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ----------- --------- ---------- ---------
Results of Operations
- ---------------------
Revenues $ 10,416 $ 10,027 $ 12,521 $ 4,795 $ 4,186
Cost of revenues 3,065 2,656 6,847 2,762 2,470
Operating expenses 12,822 11,861 18,108 16,236 6,877
----------- ----------- --------- ---------- ---------
Operating loss (5,471) (4,490) (12,434) (14,203) (5,161)
Other income (expense) 350 874 1,271 (2,391) 443
----------- ----------- --------- ---------- ---------
Loss from continuing operations (5,121) (3,616) (11,163) (16,594) (4,718)
Discontinued operations 3,226 (34,223) (78,931) (79,133) --
----------- ----------- --------- ---------- ---------
Net loss (1,895) (37,839) (90,094) (95,727) (4,718)
Preferred stock dividend requirement (1,936) -- -- -- (681)
----------- ----------- --------- ---------- ---------
Net loss attributable to common
shareholders $ (3,831) $ (37,839) $ (90,094) $ (95,727) $ (5,399)
=========== =========== ========= ========== =========
Basic and diluted loss from continuing
operations per common share $ (0.21) $ (0.11) $ (0.35) $ (0.90) $ (0.50)
=========== =========== ========= ========== =========
Basic and diluted income (loss) from
discontinued operations per common share $ 0.10 $ (1.09) $ (2.50) $ (4.31) $ 0.00
=========== =========== ========= ========== =========
Basic and diluted loss per common share $ (0.11) $ (1.20) $ (2.85) $ (5.21) $ (0.50)
=========== =========== ========= ========== =========
Basic and diluted weighted average shares 33,367 31,450 31,574 18,370 10,772
outstanding =========== =========== ========= ========== =========
FINANCIAL POSITION (as of December 31):
- ---------------------------------------
Cash, cash equivalents and
short-term investments $ 8,496 $ 8,050 $ 11,359 $ 39,062 $ 25,120
Total assets 11,281 9,998 46,702 130,038 40,252
Long-term debt -- -- -- -- --
Stockholders' equity 7,087 331 37,069 124,289 37,733
Discontinued operations results for 1997 include $65,200,000 of unusual
charges related to impairment of assets, restructuring charges, and
valuation adjustments relating to inventories. Discontinued operations
results for 1996 include $72,300,000 of nonrecurring in-process research
and development expenses related to the Mergers.
Preferred stock dividends for 1999 include the effects of accretion of
discounts arising from the allocation of proceeds from issuance of
preferred stock to warrants and a beneficial conversion feature. Such
preferred stock was converted to common stock in late 1999.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
- ---------------------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
Overview
InteliData develops and markets software products and consulting services
for the financial services industry. The Company supplies Internet Banking and
bill payment software to financial institutions that want to provide their own
remote banking services. The Company also provides maintenance contracts on
customer installations and leases Caller ID adjunct units to customers in US
West Communications, Inc. ("US West") territory.
The Company develops and markets software products and implementation
services to assist financial institutions in their Internet Banking and
electronic bill payment initiatives. The products are designed to assist
consumers in accessing and transacting business with their financial
institutions electronically, and to assist financial institutions in connecting
to and transacting business with third party processors. The services focus on
consulting and maintenance agreements that support the Company's products.
Additionally, during the fourth quarter of 1997, the Company received $5 million
relating to royalties due to the Company from Visa. The cash payment was
recorded as deferred revenue and was recognized into revenues over a two-year
period in accordance with the terms of the agreement.
Background
The Company was incorporated on August 23, 1996 under the Delaware General
Corporation Law in order to effect the mergers ("Mergers") of US Order, Inc.
("US Order") and Colonial Data Technologies Corp. ("Colonial Data"). On November
7, 1996, the Mergers were consummated with each share of outstanding US Order
and Colonial Data common stock being exchanged for one share of InteliData
common stock. Accounting for the Mergers was treated as a purchase of Colonial
Data by US Order.
Effective September 30, 1996, US Order acquired the business of Braun,
Simmons & Co., an Ohio corporation ("Braun Simmons"), for approximately $7
million, including US Order transaction costs, consisting of cash and US Order
common stock pursuant to the merger of Braun Simmons into US Order (the "Braun
Simmons Acquisition"). Braun Simmons was an information engineering firm
specializing in the development of Internet Banking solutions for financial
institutions. The acquisition expanded the Company's product line for both large
and small financial institutions.
As a result of the Mergers and Braun Simmons Acquisition, the Company
operated its business in three operating segments: Internet Banking (formerly
electronic commerce), telecommunications, and interactive services.
During the fourth quarter of 1997, the Company announced its intention to
sell the interactive services division. The division had been established to
provide interactive applications for use on smart telephones and other small
screen devices, such as alpha-numeric pagers, Personal Communication Systems
("PCS") devices and personal digital assistants ("PDAs"). Certain portions of
the interactive services division were sold in the first quarter of
1998 for a nominal sum.
During the second quarter of 1998, the Company announced its intention to
discontinue the telecommunications business, other than the leasing of Caller ID
adjuncts, formerly transacted by Colonial Data. The division designed, developed
and marketed telecommunications products including Caller ID adjunct units,
smart telephones and small business telecommunications systems that supported
intelligent network services developed and implemented by the regional Bell
operating companies and other telephone companies.
Accordingly, the Company has reclassified prior year financial statements
to account for the discontinued operations.
RESULTS OF OPERATIONS - YEARS ENDED DECEMBER 31, 1999 AND 1998
Revenues
The Company's revenues were $10,416,000 in 1999 compared to $10,027,000 in
1998, an increase of $389,000. The increase is attributable to increased
revenues for software and services, offset by the expected reduction in billable
Caller ID leases and royalties. During 1999, software revenues contributed
$2,152,000, consulting and services contributed $1,992,000 and other revenues
contributed $6,272,000. Other revenues consisted of $3,923,000 from leasing
activities and $2,349,000 from royalties relating to the Visa Bill-Pay System.
During 1998, the Company earned $812,000 from software sales and
installations, $1,138,000 from consulting and services, and $8,077,000 from
other revenues. Other revenues consisted primarily of $5,344,000 from leasing
activities and $2,620,000 from royalty arrangements.
During 1999, the Company continued to sell software that assists financial
institutions in connecting customers who bank via the internet. Also during
1999, the Company began to sell outsourced solutions to financial institutions
in the form of a service bureau and internet hosting services. The Company
expects that revenues generated in 2000 will be a direct result of software
sales and installations, the related consulting business, and customer/click
fees from the installed outsourced solutions. Additionally, during 2000, the
Company expects to recognize a decrease in the Caller ID leasing business. The
number of active records in the Company's installed lease base has historically
decreased at a rate of approximately 30% per year. During 1999, InteliData
received notification from its billing agent regarding proposed changes to the
billing process for the US West Caller ID Lease Base. The pending changes, which
could require the Company's lease billings to be removed from the U.S. West
customer bills, could have a substantial effect on the rate of decline of the
lease base, the cost of billing, and the Company's ability to pursue
collections. Any changes in billing procedures could negatively affect the
Company's revenue, cost of sales, gross margin, and cash flow.
During 2000, the Company also expects to see a significant decrease in
the revenues recorded for royalties from the sale of bill-payment software to
VISA Interactive that occurred in 1995 and that was amended by the 1997 sale of
VISA Interactive to Integrion. The
$5,000,000 royalty pre-payment made in 1997, was fully recognized as revenue by
October, 1999.
Cost of Revenues and Gross Profit
The Company's cost of revenues increased by $409,000 to $3,065,000 for 1999
compared to $2,656,000 in 1998. The increase is primarily due to a change in
product mix, and increase in cost of revenues for software and services, offset
by the expected decrease in the cost of revenues for the caller ID lease base.
The Company expects its gross margin percentages to vary in future periods
based upon the revenue mix between software sales, service revenues and
outsourced services, and based upon the composition of services revenues earned
during the period. As the Company modifies its business model, cost of sales
should increase based on the higher costs associated with the operations of the
service bureau and hosting businesses.
General and Administrative
General and administrative expenses decreased $16,000 to $6,224,000 in 1999
from $6,240,000 in 1998. The decrease was primarily attributable to a slight
reduction in employee expenses associated with a lower employee headcount.
Management expects increases in general and administrative expenses in 2000 as
the Company leases additional facility space and increases its employee
headcount.
Selling and Marketing
Selling and marketing expenses decreased $486,000 to $2,483,000 in 1999
from $2,969,000 in 1998. The decrease is primarily attributed to reduced costs
associated with employees, trade shows, and travel. Management expects increases
in selling and marketing expenses in 2000 to promote the Company's brand name
and expanded product and service offerings.
Research and Development
Research and development costs increased $1,463,000 to $4,115,000 in 1999
compared to $2,652,000 in 1998. The increase is primarily attributed to the
increase of the workforce, travel, and employee expenses. The Company primarily
incurred research and development expenses in writing the Interpose Transaction
Engine for the Open Financial Exchange ("OFX") standard, creating the
infrastructure and systems for the service bureau and hosting businesses, and
developing upgrades of past software products. Management expects increases in
research and development expenses during 2000 due to hiring additional employees
who will work on customer implementations, new product development, and the
hosting and service bureau businesses.
Other Income, Net
Other income, net decreased $524,000 to $350,000 in 1999 compared to
$874,000 in
1998. The decrease is largely associated with lower interest income due to the
use of cash and cash equivalents and short-term investments during the year.
Income Taxes
Income taxes were zero for the years ended December 31, 1999 and 1998. At
December 31, 1999, the Company had net operating loss carryforwards for federal
income tax purposes of approximately $117 million which expire by 2013. However,
use of these net operating losses in future years may be limited under
applicable tax laws and regulations as a result of the Mergers and the Braun
Simmons Acquisition.
Discontinued Operations
The gain from operations of telecommunications and interactive services
divisions (net of income taxes) was $3,226,000 compared to loss of $18,049,000
for the years ended December 31, 1999 and 1998, respectively. The loss on
disposal of telecommunications and interactive services divisions was
$16,174,000 for the year ended December 31, 1998.
During 1999, the gain of $3,226,000 is attributable to specific events that
occurred during the year including: favorable settlements with former
telecommunications customers, the success of other settlements with vendors and
negotiated expense settlements, aggressive collection efforts, and experiencing
lower than anticipated shut-down costs such as warranty and customer service
expenses associated with closing down the discontinued operations.
As of December 31, 1999, the Company had $69,000 in remaining liabilities
related to the discontinued operations. The sole asset remaining in the
discontinued operations at year-end was the building in New Milford,
Connecticut. The building was sold during January, 2000. Liabilities remaining
in the discontinued operations include a reserve for potential environmental
clean-up at the New Milford location, costs for legal shut-down of former
operating subsidiaries, costs associated with the sale of the building,
potential warranty costs, and further potential settlements with telecom
customers and others.
Loss from Continuing Operations, Net Loss and Weighted Average Shares
As a result of the foregoing factors, loss from continuing operations was
$5,121,000 and $3,616,000 for the years ended December 31, 1999 and 1998,
respectively. Basic and diluted loss from continuing operations per common share
was $0.21 and $0.11 for the years ended December 31, 1999 and 1998,
respectively. Net loss was $1,895,000 and $37,839,000 for the years ended
December 31, 1999 and 1998, respectively. Basic and diluted loss per common
share attributable to common stockholders was $0.11 and $1.20 for the years
ended December 31, 1999 and 1998. The weighted average shares increased to
33,367,000 in 1999 from 31,450,000 in 1998 primarily as a result of exercise of
stock options and conversion of the Company's Series B Convertible Preferred
stock.
In accordance with generally accepted accounting principles, portions of
the proceeds
from the sale of the Company's Series B Preferred Stock were allocated to
certain warrants and to the Preferred stock's conversion feature. On the
Company's statement of operations, "Preferred stock dividend requirement" in the
amount of $1,936,000 is added to the net loss to arrive at "Net Loss
attributable to common stockholders." On November 10, 1999, all of the Series B
Preferred Stock has been converted into common stock.
RESULTS OF OPERATIONS - YEARS ENDED DECEMBER 31, 1998 AND 1997
Revenues
The Company's revenues were $10,027,000 in 1998 compared to $12,521,000 in
1997, a decrease of $2,494,000. The primary reason for the decrease was the
expected reduction in billable Caller ID leases which was partially offset by
increased royalty revenues. During 1998, software revenues contributed $812,000,
consulting and services contributed $1,138,000 and other revenues contributed
$8,077,000. Other revenues consisted of $5,344,000 from leasing activities,
$2,620,000 from royalties relating to the Visa Bill-Pay System, and $113,000
from monthly service fees.
During 1997, the Company earned $1,040,000 from software sales and
installations, $1,229,000 from consulting and services, and $10,252,000 from
other revenues. Other revenues consisted of $8,570,000 from leasing activities,
$625,000 from royalty arrangements, $697,000 from customer consulting services
and $360,000 from monthly service fees.
During 1998, the Company continued to transition from providing primarily
back-end processing support to financial institutions to selling software that
assists financial institutions in connecting customers who bank from remote
locations, either from a personal computer or telephone.
Cost of Revenues and Gross Profit
The Company's cost of revenues decreased by $4,191,000 to $2,656,000 for
1998 compared to $6,847,000 in 1997. The decrease is primarily related to the
change in the product mix and decreased costs on the Caller ID adjunct lease
base, which earned 62% gross profit margins in 1998 compared to 45% gross profit
margins in 1997. The increased margins on the Caller ID leasing activities are
attributed primarily to the Caller ID adjunct units becoming fully depreciated
in the first quarter of 1998.
The Company expects its gross margin percentages to vary in future periods
based upon the revenue mix between software sales, service revenues and other
revenues and based upon the composition of services revenues earned during the
period.
General and Administrative
General and administrative expenses decreased $1,236,000 to $6,240,000 in
1998 from $7,476,000 in 1997. The decrease was primarily attributable to cost
saving measures implemented in reducing staff employment and facilities
expenses.
Selling and Marketing
Selling and marketing expenses decreased $1,281,000 to $2,969,000 in 1998
from $4,250,000 in 1997. The decrease is primarily attributed to the inclusion
of $2,456,000 in advertising credits that were charged to operations in 1997.
The Company adjusted the carrying value of a receivable from the sale of stock
associated with advertising credits based on the Company's expected use of the
credits. Exclusive of this transaction, selling and marketing expenses actually
increased $1,175,000. This increase in recurring selling and marketing expenses
was primarily related to increases in the Company's labor force, travel and
professional services, advertising, sales promotion, and trade shows.
Research and Development
Research and development costs decreased $1,695,000 to $2,652,000 in 1998
compared to $4,347,000 in 1997. The decrease is primarily attributed to the
reduction of the workforce and elimination of certain departments within the
research and development group. The Company primarily invested research and
development expenses in writing the Interpose Transaction Engine for the Open
Financial Exchange ("OFX") standard.
Unusual Charges
For the year ended December 31, 1997, the Company incurred a charge to
operations of $2,035,000 for the remaining unamortized costs of intangible
assets associated with the Braun Simmons Acquisition due to impairment. The
impairment was measured based on the excess of the net carrying value of the
asset over the asset's fair value. The fair value of the asset was determined
based on estimates of future discounted cash flows to be generated by the asset.
Other Income, Net
Other income, net decreased $397,000 to $874,000 in 1998 compared to
$1,271,000 in 1997. The decrease is largely associated with declining interest
income as a result of the use of cash and cash equivalents and short-term
investments during the year.
Income Taxes
Income taxes were zero for the years ended December 31, 1998 and 1997. Tax
benefits arising from net operating losses were fully offset by valuation
allowances.
Discontinued Operations
The loss from operations of telecommunications and interactive services
divisions (net of income taxes) was $18,049,000 and $78,931,000 for the years
ended December 31, 1998 and 1997, respectively. The loss on disposal of
telecommunications and interactive services divisions was $16,174,000 for the
year ended December 31, 1998.
During 1998, the loss from operations of telecommunications and interactive
services divisions (net of income taxes) included $13,784,000 in inventory
adjustments. The loss on disposal of telecommunications and interactive service
divisions consisted of $2,696,000 in expected sales returns, $3,539,000 in
property adjustments, $3,010,000 in provisions for customer accounts, and
$6,929,000 in actual and expected losses from operations from the measurement
date through the date of disposal.
The Company recorded a provision for corporate restructuring during the
third quarter of 1997 of $1,003,000. This amount consisted of $771,000 in
employee reduction and related matters, $190,000 in obsolete equipment, and
$42,000 in facilities closings. During the fourth quarter of 1997, the Company
incurred employee reductions and relocation expenses aggregating $177,000 and
recorded a write-down of obsolete equipment of $190,000. As of December 31,
1997, the Company had $636,000 in remaining restructuring accruals recorded on
its books. The Company expended these amounts in 1998. Additional accruals were
posted for closing operations during 1998.
During the third quarter of 1997, the Company announced a strategic
repositioning of the Company's telecommunications division. In connection with
this repositioning and the aforementioned corporate restructuring, the Company's
management evaluated its financial position and determined that it would be
appropriate to charge to discontinued operations the remaining unamortized costs
of intangible assets due to impairment, adjust inventory carrying amounts to
market value, and reflect certain additional restructuring charges, including
charges for separation agreements with employees and charges associated with the
termination of a joint venture agreement. Such third quarter 1997 charges
aggregated $49,246,000 for the impairment of intangible assets; $11,333,000 for
inventories and commitments; $1,003,000 for restructuring charges (see above);
$1,434,000 for separation agreements; and $3,653,000 for assets relating to a
joint venture. The impairment was based on the excess of the carrying value of
the assets over the assets' fair values. The fair value of the assets were
generally determined as the estimates of future discounted cash flows generated
by those assets.
Loss from Continuing Operations, Net Loss and Weighted Average Shares
As a result of the foregoing factors, loss from continuing operations was
$3,616,000 and $11,163,000 for the years ended December 31, 1998 and 1997,
respectively. Basic and diluted loss from continuing operations per common share
was $0.11 and $0.35 for the years ended December 31, 1998 and 1997,
respectively. Net loss was $37,839,000 and $90,094,000 for the years ended
December 31, 1998 and 1997, respectively. Basic and diluted loss per common
share was $1.20 and $2.85 for the years ended December 31, 1998 and 1997. The
weighted average shares decreased to 31,450,000 in 1998 from 31,574,000 in 1997
primarily as the result of the repurchase of treasury stock in late 1997.
LIQUIDITY AND CAPITAL RESOURCES
During 1999, the Company's cash, cash equivalents and short-term
investments increased by $446,000. At December 31, 1999, the Company had
$8,496,000 in cash and cash equivalents, working capital of $6,434,000 and no
long-term debt.
The Company's cash requirements for operating activities in 1999 were
financed primarily by approximately $5,670,000 from proceeds from the issuance
of Series B Convertible Preferred Shares and other issuances of common stock in
the amount of $2,435,000. Most of the common stock issuance was in the form of
stock option exercises. These cash proceeds were offset by cash used in
operations of $5,251,000.
The Company's principal needs for cash in 1999 were for funding operating
losses, investments in property and equipment and to fund working capital,
primarily related to accrued expenses, deferred revenues and accounts
receivable. The Company funded an increase in accounts receivable of $724,000
for the year ended December 31, 1999. The increase in accounts receivable is
attributed to the timing of receipts for services performed. The Company's cash
position benefited from an increase in accounts payable of $999,000.
Net cash used by investing activities aggregated $433,000 during 1999 from
the purchase of capital equipment.
The decision by the Company to divest itself of its telecommunications
business segment created certain financial obligations and uncertainties for the
future. The Company is required to satisfy certain obligations of the
telecommunications business which will carry on beyond December 31, 1999. Such
obligations include satisfaction of product royalties and license fees, further
potential settlements with telecom customers, providing product warranty
service, selling fees, environmental escrow, and issues related to the shutdown
of warehouse facilities, and final closedown of all operating activities and
compliance with all federal and state regulatory requirements.
As of December 31, 1999, the Company had $69,000 in remaining liabilities
related to the discontinued operations. The sole asset remaining in the
discontinued operations at year-end was the building in New Milford,
Connecticut. The building was sold during January 2000. Liabilities reamaining
in the discontinued operations include a reserve for potential environmental
clean-up at the New Milford location, costs for legal shut-down of former
operating subsidiaries, costs associated with the sale of the building,
potential warranty costs, and further potential settlements with telecom
customers and others.
At December 31, 1999, including discontinued operations, the Company had
$6,434,000 in working capital and $7,087,000 in shareholders' equity.
On January 20, 2000, the sale of the Company's stake in Home Financial
Network, Inc. was completed. As a result of this sale, the Company received
$5,867,000 in cash and 1,770,000 shares of Sybase (SYBS-NASDAQ) stock, that had
a valuation of $33,405,000 as of January 20, 2000. The total value of the
transaction is approximately $39,272,000. An escrow account was established to
provide Sybase, Inc. indemnity protection against possible claims that might
arise against HFN. Currently, 133,000 shares of Sybase owned by InteliData
remain in escrow, along with $440,000 of cash. These amounts reflect 7.5% of the
transaction proceeds.
The Company expects that its current working capital and the proceeds from
the closing of the sale of the Company's investment in HFN will provide the
ability to continue to
fund operating losses and fund the purchase of equipment and fixtures used in
the operation of the business.
In addition, the Company's accuracy in predicting revenues and cash flow is
limited in that the sale of the Company's core product is dependent to a large
degree on the banking industry's willingness to invest in a new market, internet
banking. This market segment is slowly evolving and is subject to a number of
variables in 2000 that will determine the timing and quantity of new sales that
the Company is able to achieve. Such variables include: (1) the effect of
consolidations in the banking industry; and (2) the banking customers'
willingness to adopt a relatively untested customer channel.
New Accounting Pronouncements - In June, 1998, the FASB issued Statement of
Financial Accounting Standards No. 22, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"), which establishes accounting and reporting
standards for derivative instruments and for hedging activities by requiring
that all derivatives be recognized in the fiscal years beginning after June 15,
2000.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
The Company desires to take advantage of the "safe harbor" provisions of
the Private Securities Litigation Reform Act of 1995. The Company wishes to
caution readers that the following important factors, among others, in some
cases have affected the Company's actual results, and could cause the Company's
actual results for 2000 and beyond to differ materially from those expressed in
any forward-looking statements made by, or on behalf of, the Company.
Successful Implementation of Business Strategy
During 1999, the Company's focus was on its Internet Banking business,
selling software and services to financial institutions. There can be no
assurances that the Company will be able to successfully implement this business
strategy or continue to effectively fund and grow this line of business.
Developing Marketplace
Internet Banking is a developing market. The Company's future growth and
profitability will depend, in part, upon consumer acceptance of Internet Banking
technologies. Even if this market experiences substantial growth, there can be
no assurance that the Company's products and services will be commercially
successful or benefit from such growth. Much of the Company's success in the
Internet Banking market depends on the financial institutions' success in
marketing to the consumer. Consumer acceptance of Internet Banking will depend
to a large degree on the ability of the Company's financial institution
customers to implement applications in anticipated time frames or with
anticipated features and
functionality. Therefore, there can be no assurance of the timing of,
introduction of, necessary regulatory approvals for, or market acceptance of the
Company's products and services.
Liquidity and Capital Resources
The Company's accuracy in predicting revenues and cash flow is limited in
that the sale of the Company's core product is dependent to a large degree on
the banking industry's willingness to adopt a new market, home banking. This
market segment is slowly evolving and is subject to a number of variables in
2000 that will determine the timing and quantity of new sales that the Company
is able to achieve. Such variables include: (1) the effect of consolidations in
the banking industry; (2) the banking customers' willingness to adopt a
relatively untested customer channel.
Fluctuations in Operating Results
The Company may experience fluctuations in operating results due to a
variety of factors, some of which are beyond the Company's control. These
include the size and timing of customer orders, changes in the Company's pricing
policies or those of its competitors, new product introductions or enhancements
by competitors, delays in the introduction of new products or product
enhancements by the Company or by its competitors, customer order deferrals in
anticipation of upgrades and new products, market acceptance of new products,
the timing and nature of sales, marketing, and research and development expenses
by the Company and its competitors, other changes in operating expenses,
personnel changes and general economic conditions. Additionally, certain
financial institutions have recently merged and it is difficult for the Company
to assess the future effect on the Company of these mergers and of other
possible consolidations in the banking industry. Furthermore, it is believed
that customer purchasing decisions were delayed by their devoting attention and
resources to Year 2000 compliance issues. No assurance can be given that such
variations will not occur in the future and, accordingly, the results of any one
quarter or one year may not be indicative of the operating results for future
quarters or years.
Technological Considerations
The Company's business activities are concentrated in fields characterized
by rapid and significant technological advances. There can be no assurance that
the Company will remain competitive technologically or that the Company's
products, processes or services will continue to be reflective of such advances.
Failure to introduce new products or product enhancements that achieve market
acceptance on a timely basis could materially and adversely affect the Company's
business, operating results and financial condition. There can be no assurance
that the Company will not encounter unanticipated technical, marketing or other
problems or delays relating to new products, features or services which the
Company has recently introduced or which it may introduce in the future.
Moreover, there can be no assurance that the Company's new products, features or
services will be successful, that the introduction of new products, features or
services by the Company's competitors will not materially and adversely affect
the sales of the Company's existing products or that the Company will be able to
adapt to future changes in the Internet Banking industry. Most of the
Company's competitors and potential competitors have significantly greater
financial, technological and research and development resources than the
Company.
Competition
The market for Internet Banking products and services is highly competitive
and subject to rapid innovation and technological change, shifting consumer
preferences and frequent new product introductions. The Company's Internet
Banking products and services compete with services offered by a number of
competitors, and competition may intensify as a result of new market entrants
and industry consolidation. Financial institutions have developed Internet
Banking products for their own customers and, in the future, may offer these
services to other financial institutions. Other third parties also may develop
Internet Banking products to offer to financial institutions. Computer software
and data processing companies also offer Internet Banking services. The Company
expects that competition in these areas will increase in the near future.
Reliance on Caller ID Leasing Revenues
During 1999, approximately 38% of the Company's revenues were derived from
the leasing of Caller ID products. The Company leases Caller ID adjunct units
under an agreement with US West, whereby the Company leases Caller ID units
directly to US West customers. The leasing program enables subscribers to pay a
monthly fee for the equipment and provides the Company with a stream of
recurring revenues. In 1996, US West ceased leasing new Caller ID adjunct units
under the program. Notwithstanding the termination of this program, previously
existing leases remain in effect. Although the Company is not able to estimate
the effect on future operations of the discontinuation of the leasing program,
the number of active records in the Company's installed lease base has
historically decreased at a rate of approximately 30% per year. There can be no
assurance that this trend or the realized gross margins on these revenues will
continue. In January 2000, the Company received notification from its billing
agent regarding proposed changes to the billing process for the US West Caller
ID Lease Base. The pending changes, which could require the Company's lease
billings to be removed from the U.S. West customer bills, could have a
substantial effect on the rate of decline of the lease base, the cost of
billing, and the Company's ability to pursue collections. Any changes in billing
procedures could negatively affect the Company's revenue, cost of sales, gross
margin, and cash flow in future periods.
Dependence on Key Employees
The Company is highly dependent on certain key executive officers and
technical employees to manage the operations and business of the Company as well
as to implement the business plans of the Company on an ongoing basis. The loss
of any such key employees could have an adverse impact on the future operations
of the Company.
Volatility of Stock Price
The market price of the Company's stock has experienced significant
volatility. The stock market has experienced volatility that has particularly
affected the market prices of
equity securities of many high technology and development stage companies, and
that volatility has often been unrelated to the operating performance of such
companies. Factors such as announcements of the introduction of new products or
services by the Company or its competitors, market conditions in the banking and
other emerging growth company sectors and rumors relating to the Company or its
competitors may have a significant impact on the market price of the Company's
stock.
Limited Proprietary Protection
The Company possesses limited patent or registered intellectual property
rights with respect to its technology. The Company depends in part upon its
proprietary technology and know-how to differentiate its products from those of
its competitors and works independently and from time to time with third parties
with respect to the design and engineering of its own products. The Company also
relies on a combination of contractual rights and trade secret laws to protect
its proprietary technology. There can be no assurance, however, that the Company
will be able to protect its technology or successfully develop new technology or
gain access to such technology or that third parties will not be able to develop
similar technology independently or that competitors will not obtain
unauthorized access to the Company's proprietary technology, that third parties
will not misuse the technology to which the Company has granted access, or that
the Company's contractual or legal remedies will be sufficient to protect the
Company's interests in its proprietary technology.
InteliData Common Stock Owned by WorldCorp
As of March 13, 2000, all remaining Company shares owned by WorldCorp had
been sold. Prior to that, as of December 31, 1999, WorldCorp owned approximately
6,100,000 shares or approximately 16% of the outstanding common stock of the
Company.
On February 12, 1999, WorldCorp announced that it had reached an agreement
with it creditors to restructure the company. Pursuant to the restructuring,
WorldCorp filed a voluntary petition under Chapter 11 of the U.S. Bankruptcy
Code. In 1999, WorldCorp began the liquidation of its shares in InteliData to
satisfy their obligations under the bankruptcy agreement.
ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- ------------------------------------------------------------------------
The Company currently has no long-term debt and is not currently engaged in
any transactions that involve foreign currency. The Company does not engage in
hedging activities.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- -----------------------------------------------------
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Consolidated Financial Statements
Consolidated Balance Sheets as of December 31, 1999 and 1998...............23
Consolidated Statements of Operations for the Years Ended
December 31, 1999, 1998 and 1997.........................................24
Consolidated Statements of Changes in Stockholders' Equity for the Years
Ended December 31, 1999, 1998 and 1997...................................25
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1999, 1998 and 1997.........................................26
Notes to Consolidated Financial Statements for the Years Ended
December 31, 1999, 1998 and 1997.........................................27
Independent Auditors' Report..................................................39
INTELIDATA TECHNOLOGIES CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
(in thousands, except share data)
1999 1998
------------ ------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 8,496 $ 8,050
Accounts receivable, net of allowances of $523
in 1999 and $592 in 1998 1,924 1,200
Prepaid expenses and other current assets 138 143
------------ ------------
Total current assets 10,558 9,393
NONCURRENT ASSETS
Property and equipment, net (Note 6) 548 348
Other assets 175 257
------------ ------------
TOTAL ASSETS $ 11,281 $ 9,998
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 2,343 $ 1,344
Accrued expenses and other liabilities (Note 7) 1,166 910
Deferred revenues 616 2,143
Net liabilities of discontinued operations (Note 4) 69 5,270
------------ ------------
Total current liabilities 4,194 9,667
COMMITMENTS AND CONTINGENCIES (Note 14)
STOCKHOLDERS' EQUITY (Note 9)
Preferred stock, $0.001 par value; authorized 5,000,000 shares;
no shares issued and outstanding -- --
Common stock, $0.001 par value; authorized 60,000,000 shares; issued
38,691,040 shares in 1999 and 32,293,005 shares in 1998; outstanding
38,009,540 shares in 1999 and 31,611,505 shares in 1998 38 32
Additional paid-in capital 258,133 247,359
Treasury stock, at cost (2,064) (2,064)
Deferred compensation (345) (152)
Accumulated deficit (248,675) (244,844)
------------- ------------
TOTAL STOCKHOLDERS' EQUITY 7,087 331
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 11,281 $ 9,998
============ ============
See accompanying notes to consolidated financial statements.
INTELIDATA TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(in thousands, except per share data)
1999 1998 1997
----------- --------- -----------
Revenues
Software $ 2,152 $ 823 $ 1,040
Consulting and services 1,992 1,138 1,229
Leasing and other 6,272 8,077 10,252
----------- --------- -----------
Total revenues 10,416 10,027 12,521
----------- --------- -----------
Cost of revenues
Software 460 109 223
Consulting and services 1,283 509 987
Leasing and other 1,322 2,038 5,637
----------- --------- -----------
Total cost of revenues 3,065 2,656 6,847
----------- --------- -----------
Gross profit 7,351 7,371 5,674
Operating expenses
General and administrative 6,224 6,240 7,476
Selling and marketing 2,483 2,969 4,250
Research and development 4,115 2,652 4,347
Unusual charges (Note 10) -- -- 2,035
----------- --------- -----------
Total operating expenses 12,822 11,861 18,108
----------- --------- -----------
Operating loss (5,471) (4,490) (12,434)
----------- --------- -----------
Other income (expense)
Interest, net 350 874 1,271
----------- --------- -----------
Total other income (expense) 350 874 1,271
----------- --------- -----------
Loss before income taxes (5,121) (3,616) (11,163)
Income taxes (Note 12) -- -- --
----------- --------- -----------
Loss from continuing operations (5,121) (3,616) (11,163)
Discontinued operations (Note 4):
Loss from operation of telecommunications and
Interactive service divisions (net of income taxes) -- (18,049) (78,931)
Gain (loss) on disposal of telecommunications and
Interactive service divisions (net of income taxes) 3,226 (16,174) --
------------ ----------- -----------
Total discontinued operations 3,226 (34,223) (78,931)
----------- --------- -----------
Net loss (1,895) (37,839) (90,094)
Preferred stock dividends and amortization of discounts -- -- --
arising from allocation of proceeds to warrants and (1,936) -- --
beneficial conversion feature ----------- --------- -----------
Net loss attributable to common stockholders $ (3,831) $ (37,839) $ (90,094)
=========== ========= ===========
Basic and diluted loss from continuing operations per $ (0.21) $ (0.11) $ (0.35)
common share =========== ========= ===========
Basic and diluted income (loss) from discontinued $ 0.10 $ (1.09) $ (2.50)
operations per common share =========== ========= ===========
Basic and diluted loss per common share $ (0.11) $ (1.20) $ (2.85)
=========== ========= ===========
Weighted average shares 33,367 31,450 31,574
=========== ========= ===========
See accompanying notes to consolidated financial statements.
INTELIDATA TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(in thousands)
Accum-
ulated
Other
Preferred Common Addi- Rec- Compre- Compre-
Stock stock tional eivable Deferred hensive Accumu- hensive
---------- --------- Paid-in Treasury from Sale Compen- Income lated (Loss)
Shares Amt Shares Amt Capital Stock of Stock sation (Loss) Deficit Income Total
------ --- ------ --- -------- ------- --------- -------- -------- --------- -------- -------
Balance at January 1, 1997 -- -- 31,817 $32 $243,757 $ -- $ (2,456)$ (133)$ -- $(116,911) 124,289
Issuance of common stock:
Employee stock purchase plan -- -- 45 -- 128 -- -- -- -- -- 128
Exercise of options -- -- 1 -- 5 -- -- -- -- -- 5
Cancellation of accrued
stock options -- -- -- -- 1,809 -- -- -- -- -- 1,809
Purchase of treasury stock -- -- (682) -- -- (2,064) -- -- -- -- (2,064)
Charge-off of advertising credit -- -- -- -- -- -- 2,456 -- -- -- 2,456
Compensation expense -- -- -- -- -- -- -- 115 -- -- 115
Unrealized gains on investments -- -- -- -- -- -- -- -- 425 -- $ 425 425
Net loss -- -- -- -- -- -- -- -- -- (90,094) (90,094) (90,094)
--------
Comprehensive loss $(89,699)
---- --- ------ --- -------- ------- --------- -------- -------- --------- -------- -------
Balance at December 31, 1997 -- -- 31,181 32 245,699 (2,064) -- (18) 425 (207,005) 37,069
Issuance of common stock:
Employee stock purchase plan -- -- 68 -- 67 -- -- -- -- -- 67
Exercise of options -- -- 300 -- 294 -- -- -- -- -- 294
Issuance of restricted stock -- -- 156 -- 462 -- -- (462) -- -- --
Cancellation of restricted stock -- -- (53) -- (159) -- -- 159 -- -- --
Cancellation of common stock -- -- (40) -- -- -- -- -- -- -- --
Cancellation accrued
stock options -- -- -- -- 996 -- -- -- -- -- 996
Compensation expense -- -- -- -- -- -- -- 169 -- -- 169
Recognized gain on investments -- -- -- -- -- -- -- -- (425) -- $ (425) (425)
Net loss -- -- -- -- -- -- -- -- -- (37,839) (37,839) (37,839)
--------
Comprehensive loss $(38,264)
---- --- ------ --- -------- ------- --------- -------- -------- --------- --------- -------
Balance at December 31, 1998 -- -- 31,612 32 247,359 (2,064) -- (152) -- 244,844) 331
Issuance of common stock:
Employee stock purchase plan -- -- 23 -- 27 -- -- -- -- -- 27
Exercise of options -- -- 1,250 1 2,407 -- -- -- -- -- 2,408
Conversion of preferred stock (1) -- 4,793 5 (5) -- -- -- -- -- --
Issuance of Preferred Stock 1 -- -- -- 5,670 -- -- -- -- -- 5,670
and warrants
Amortization and accretion -- -- -- -- 1,936 -- -- -- -- (1,936) --
of preferred dividend
Issuance of restricted stock -- -- 369 -- 670 -- -- (670) -- -- --
Cancellation of restricted stock -- -- (37) -- (72) -- -- 72 -- -- --
Issuance of Warrants -- -- -- -- 141 -- -- (141) -- -- --
Compensation expense -- -- -- -- -- -- -- 546 -- -- 546
Net loss -- -- -- -- -- -- -- -- -- (1,895) $ (1,895) (1,895)
--------
Comprehensive loss $ (1,895)
---- --- ------ --- -------- ------- --------- -------- -------- --------- -------- -------
Balance at December 31, 1999 -- -- 38,010 $38 $258,133 $(2,064)$ -- $ (345)$ -- $(248,675) $ 7,087
==== ==== ======= === ======== ======= ========= ======== ======== ========= =======
See accompanying notes to consolidated financial statements.
INTELIDATA TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(in thousands)
1999 1998 1997
---------- --------- ---------
Cash flows from operating activities
Net loss $ (1,895) $ (37,839) $ (90,094)
Adjustments to reconcile net loss to net cash
used in (provided by) operating activities:
Loss from discontinued operations -- 18,049 78,931
Gain (loss) on disposal of discontinued operations (3,226) 16,174 --
Impairment of advertising credits -- -- 2,456
Depreciation and amortization 233 1,567 3,331
Deferred compensation expense 546 169 115
Other non-cash charges -- (425) 425
Changes in operating assets and liabilities:
Accounts receivable (724) (804) 998
Prepaid expenses and other current assets 5 22 884
Other assets 82 71 1,833
Accounts payable 999 588 (200)
Accrued expenses 256 (2,325) (169)
Deferred revenue (1,527) (1,590) 4,253
---------- --------- ---------
Net cash (used in) provided by operating activities (5,251) (6,343) 2,763
----------- --------- ---------
Net cash used in (provided by) discontinued operations (1,975) 4,268 (26,612)
---------- --------- ---------
Cash flows from investing activities
Purchases of property and equipment-continuing operations (433) (95) (516)
Purchases of property and equipment-discontinued operations -- -- (907)
Sale of short-term investments -- 9,304 3,114
---------- --------- ---------
Net cash (used in) provided by investing activities (433) 9,209 1,691
---------- --------- ---------
Cash flows from financing activities
Proceeds (payments) related to borrowings-discontinued operations -- (1,500) (500)
Proceeds from issuances of common stock 2,435 361 133
Payments to acquire treasury stock -- -- (2,064)
Proceeds from the issuance of preferred stock 5,670 -- --
---------- --------- ---------
Net cash provided by (used in) financing activities 8,105 (1,139) (2,431)
---------- --------- ---------
Increase (decrease) in cash and cash equivalents 446 5,995 (24,589)
Cash and cash equivalents, beginning of year 8,050 2,055 26,644
---------- --------- ---------
Cash and cash equivalents, end of year $ 8,496 $ 8,050 $ 2,055
========== ========= =========
See accompanying notes to consolidated financial statements.
INTELIDATA TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(1) ORGANIZATION
InteliData Technologies Corporation ("InteliData" or the "Company"), is
engaged in developing and marketing software products and services for financial
institutions to assist in Internet Banking and electronic bill payment
initiatives. The Company is incorporated in the State of Delaware and operates
primarily from its corporate headquarters in Reston, Virginia.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Principles of Consolidation - The consolidated financial statements include
the accounts of the Company and its wholly owned subsidiaries after elimination
of all intercompany balances and transactions. Certain items from the 1998 and
1997 financial statements have been reclassified to conform to the 1999
financial statement presentation.
(b) Accounting Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the period. Actual results could differ from those estimates.
(c) Revenue Recognition - Revenue for off-the-shelf product is recorded when
products are shipped and title passes to the customer. Lease revenue is recorded
based on the units in service at the end of the prior month since these leases
are cancelable at any time. Revenue from consulting, hosting, and maintenance
contracts are recognized as services are provided. Beginning in 1998, the
Company sold integrated solutions that bundle software products with
customization, installation and training services. These arrangements are
recognized using the percentage of completion method of accounting. Losses on
uncompleted contracts are recorded when such amounts become determinable.
(d) Cash and Cash Equivalents - The Company considers all non-restricted highly
liquid investments with original maturities of three months or less to be cash
equivalents. Cash and cash equivalents are stated at cost, which approximates
market.
(e) Short-term Investments - The Company reports its short-term investments in
marketable securities as available-for-sale with any unrealized gains (losses)
reflected, net of tax, as other comprehensive income (loss). Realized gains or
losses are determined on the first-in, first-out method and are reflected in net
income.
(f) Property and Equipment - Property and equipment is stated at cost.
Depreciation of property and equipment is calculated using the straight-line
method over the estimated useful lives of the assets. Office equipment and
furniture and fixtures are depreciated over 3 to 7 years.
(g) Net (Liabilities) Assets of Discontinued Operations - Under various disposal
plans adopted in 1997 and 1998, the Company has completed the divestiture
of all of its telecommunications and interactive services businesses, excluding
Caller ID adjunct leasing activities. See Note 4 to the financial statements.
(h) Deferred Revenues - The Company received $5 million from Visa in the fourth
quarter of 1997, as a result of an agreement whereby the Company surrendered the
right to certain future royalty payments. The cash payment was recorded in
deferred revenues and was recognized in other revenues over the two year period
of the arrangement. Other deferred revenues represents cash received for
services to be provided.
(i) Income Taxes - Income taxes are accounted for in accordance with the asset
and liability method. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date. A valuation allowance is
established against deferred tax assets when it is deemed, based on available
evidence, that it is more likely than not that some portion or all of the
deferred tax asset will not be realized.
(j) Accounting for Stock-Based Compensation - The Company applies APB Opinion
No. 25 and related interpretations in accounting for its plans. Statement of
Financial Accounting Standards No. 123 "Accounting for Stock-Based Compensation"
("SFAS 123") was issued by the Financial Accounting Standards Board in 1995 and,
if fully adopted, changes the methods for recognition of cost on plans similar
to those of the Company. The Company has elected to continue to apply the
provisions of APB Opinion No. 25 and provide the pro forma disclosure pursuant
to SFAS 123.
(k) Net Loss Attributable to Common Stockholders per share - Basic and diluted
loss per common share is computed by dividing net loss, after deducting
preferred stock dividend requirements and amortization of the discounts on the
preferred stock, by the weighted average number of shares of common stock
outstanding during the year. The effects of stock options were not included in
the loss per share computations because they would have been antidilutive.
(l) Fair Value of Financial Instruments - The carrying values of the Company's
financial instruments such as cash and cash equivalents, accounts receivable and
accounts payable approximate their fair values.
(m) New Accounting Pronouncements - In June, 1998, the FASB issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"), which establishes accounting and reporting
standards for derivative instruments and for hedging activities by requiring
that all derivatives be recognized in the balance sheet and measured at fair
value. As amended by SFAS 137, SFAS 133 is effective for fiscal years beginning
after June 15, 2000.
(n) Long-Lived Assets - The Company considers the impairment of long-lived
assets based on an assessment of the asset's ability to contribute to the
profitability of the Company using estimates of expected future undiscounted
cash flows.
(3) SUBSEQUENT EVENTS
In November, 1999, Home Financial Network, Inc. (HFN), a company in which
InteliData held approximately a 25% ownership interest, signed a letter of
intent to merge with Sybase, Inc. On January 20, 2000, the merger was completed.
In exchange for its portion of ownership in HFN, InteliData received $5,867,000
in cash and 1,770,000 shares of Sybase stock. InteliData will recognize a gain
of approximately $39,272,000 on such sale during the first quarter of 2000.
InteliData accounted for such investment in HFN using the equity method. As of
December 31, 1999, such investment's carrying value was zero. An escrow account
was established to provide Sybase, Inc. indemnity protection against possible
claims that might arise against HFN. Currently, 1332,000 shares of Sybase owned
by InteliData remain in escrow, along with $440,000 of cash. These amounts
reflect 7.5% of the transaction proceed and are payable to the Company on
January 20, 2001.
(4) DISCONTINUED OPERATIONS
During the second quarter of 1998, the Company adopted a plan to dispose of
its various telecommunications divisions through sale and liquidation. The
Company's Caller ID adjunct inventory was sold in May 1998. The Company's Plexus
inventory was sold in December 1998. The Company's IPS and Landmark inventory
was sold in February, 1999. At December 31, 1999, the net liabilities of
discontinued operations, consisting primarily of warehouse facilities, offset by
liabilities associated with a building escrow, building shut-down costs and
product reserves, have been classified as current liabilities at their estimated
net realizable value.
Net revenues and loss from discontinued operations are as follows:
Years Ended December 31,
----------------------------
(in thousands) 1998 1997
- --------------------------------------------------------------------------------
Net revenues $ 23,567 $ 47,788
Cost of revenues 29,054 48,000
Operating expenses 32,803 78,658
Loss from operations (38,290) (78,870)
Income (benefit) taxes (3,628) 61
Loss from discontinued operations (34,223) (78,931)
- --------------------------------------------------------------------------------
Net (liabilities) assets of discontinued operations are as follows:
December 31,
----------------------------
(in thousands) 1999 1998
- --------------------------------------------------------------------------------
Trade receivables, net $ - $ 864
Inventories and other current assets - 945
Property, plant and equipment, net 588 1,000
Trade payables - (539)
Other current liabilities (657) (7,540)
----------------------------
Net liabilities of discontinued operations $ (69) $ (5,270)
======== ========
- --------------------------------------------------------------------------------
Summary of Discontinued Operations
The gain on disposal of the telecommunications and interactive services
divisions (net of income taxes) was $3,226,000 in 1999 compared to a loss of
$16,174,000 for the year ended December 31, 1998. The gain of $3,226,000 is
attributable to specific events that occurred during the year including:
favorable settlements with former telecommunications customers, the success of
other settlements with vendors and negotiated expense settlements, aggressive
collection efforts, and experiencing lower than anticipated shut-down costs such
as warranty and customer service expenses associated with closing down the
discontinued operations.
During 1998, the loss from operations of telecommunications and interactive
services divisions (net of income taxes) included $13,784,000 in inventory
adjustments. The loss on disposal of telecommunications and interactive service
divisions consisted of $2,696,000 in expected sales returns, $3,539,000 in
property adjustments, $3,010,000 in provisions for doubtful customer accounts
and $6,929,000 in actual and expected losses from operations from the
measurement date through the date of disposal.
During the third quarter of 1997, the Company recorded a provision for
corporate restructuring of $1,003,000. This amount consists of $771,000 in
employee reduction and related matters, $190,000 in obsolete equipment, and
$42,000 in facilities closings. During the fourth quarter of 1997, the Company
incurred employee reductions and relocation expenses aggregating $177,000 and a
write-down related to obsolete equipment of $190,000 Additional accruals were
posted for closing operations during 1998.
During the third quarter of 1997, the Company announced a strategic
repositioning of the Company's telecommunications. In connection with this
repositioning and the aforementioned corporate restructuring, the Company's
management evaluated its financial position and determined that it was
appropriate to charge to discontinued operations the remaining unamortized costs
of intangible assets due to impairment, to adjust inventory carrying amounts to
market value, and to reflect certain additional restructuring charges, including
charges for separation agreements with employees and charges associated with the
termination of a joint venture agreement. Such third quarter 1997 charges
aggregated $49,246,000 for the impairment of intangible assets; $11,333,000 for
inventories and commitments; $1,003,000 for restructuring charges (see above);
$1,434,000 for separation agreements; and $3,653,000 for assets relating to the
joint venture. The impairment was based on the excess of the carrying value of
the assets over the assets' fair values. The fair value of the assets were
generally determined as the estimates of future discounted cash flows generated
by the assets.
(5) SEGMENT REPORTING
The Company maintains operations in two primary operating segments:
Internet Banking and leasing. The basis for determining the Company's operating
segments is the manner in which financial information is used by the Company in
managing its operations. Management operates and organizes itself according to
business units which comprise unique products and services. There are no
intersegment sales. Operating (loss) income in these two market divisions
represents total revenues less operating expenses, and excludes other income and
expense and income taxes. Identifiable assets are those assets employed by each
segment's operation. Segment financial information is as follows (in thousands):
Internet
Banking Leasing Consolidated
- --------------------------------------------------------------------------------
1999
Revenues $ 6,493 $ 3,923 $10,416
Operating (loss) income (8,072) 2,601 (5,471)
Identifiable assets 11,281 -- 11,281
Depreciation and amortization 234 -- 234
Capital expenditures 433 -- 433
1998
Revenues $ 4,683 $ 5,344 $10,027
Operating (loss) income (7,796) 3,306 4,490)
Identifiable assets 10,050 861 10,911
Depreciation and amortization 1,361 206 1,567
Capital expenditures 95 -- 95
1997
Revenues $ 3,951 $ 8,570 $12,521
Operating (loss) income (16,286) 3,852 (12,434)
Identifiable assets 13,466 1,515 14,981
Depreciation and amortization 1,345 1,986 3,331
Capital expenditures 516 -- 516
- --------------------------------------------------------------------------------
(6) PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31 (in
thousands):
1999 1998
---------- ----------
Leased product $ 2,287 $ 2,182
Office equipment 1,421 1,040
Furniture and fixtures 191 139
---------- ----------
3,899 3,361
Accumulated depreciation (3,351) (3,013)
---------- ----------
$ 548 $ 348
========== ==========
(7) ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities consists of the following at
December 31 (in thousands):
1999 1998
---------- ----------
Accrued compensation $ 399 $ 293
Accrued professional fees 72 181
Accrued tax liabilities 13 276
Accrued insurance 221 142
Other liabilities 461 18
--------- ----------
$ 1,166 $ 910
========== ==========
(8) RELATED-PARTY TRANSACTIONS
Strategic Business Partner
In August 1994, the Company sold its electronic banking and bill pay
operations (the "Visa Bill-Pay System") to Visa. As part of the Visa
transaction, the Company's president was appointed to, and the Company's
chairman was named an advisor to, the board of directors of Visa InterActive.
Included in service fee revenues are $751,000 in 1997 related to services
provided by the Company to Visa InterActive and Visa banks/members. In August
1997, Visa InterActive was sold to an unrelated party, and the Company's
officers resigned from their Visa InterActive board positions.
(9) STOCKHOLDERS' EQUITY
(a) Issuance and Subsequent Conversion of Preferred Stock and Warrants
On July 22, 1999, the Company issued 600 shares of 4% Convertible Preferred
Stock, for net proceeds of $5,670,000. A portion of the proceeds was allocated
to warrants and to the beneficial conversion feature of such preferred stock,
with the resulting discount on the preferred stock being amortized as dividends.
In the fourth quarter of 1999, all of the preferred stock was converted to
common shares.
(b) Stock Options
The Company sponsors several stock option plans which cover substantially
all employees and directors. Options granted under such plans typically vest
monthly over periods ranging from one to five years and generally expire after
between eight and ten years, although some grants provide for vesting in annual
increments or allow for accelerated vesting based upon reaching performance
milestones. Most options granted under the plans allow the purchase of stock at
the fair value of such common stock at the respective grant dates.
In 1997 and in June 1998, employees other than the then President and Chief
Executive Officer were given the opportunity to cancel their options and have
them replaced with options with strike prices equal to the common stock's fair
value on those dates (option repricing).
A summary of stock option activity for each of the Company's stock option
plans is as follows:
Exercise Prices
-------------------- Number
Description Minimum Maximum of Options
----------- ------- ------- -------------------
January 1, 1997 $0.21 $23.65 3,124,559
Granted $1.63 $6.00 2,916,450
Exercised $4.50 $4.50 (1,000)
Canceled $0.21 $23.75 (1,305,796)
-------------------
December 31, 1997 $0.21 $23.75 4,734,213
Granted $0.63 $1.78 893,650
Exercised $0.98 $0.98 (300,000)
Canceled $0.21 $20.38 (2,346,600)
-------------------
December 31, 1998 $0.63 $20.38 2,981,263
Granted $1.22 $4.91 2,584,850
Exercised $1.38 $6.44 (1,334,945)
Canceled $0.63 $7.13 (1,058,073)
-------------------
December 31, 1999 $0.63 $20.38 3,173,095
===================
The Company applies the intrinsic value method of Accounting Principles
Board Opinion No. 25 and related interpretations in accounting for its stock
plans. In connection therewith, during 1998 and 1997, the Company recognized
$18,000 and $115,000 of compensation expense in connection with option grants at
exercise prices below fair market value on the dates of the grant.
Had compensation cost been determined based on the fair value method of
Statement of Financial Accounting Standards No. 123, the Company's net loss and
loss per share (basic and diluted) for the years ended December 31, 1999, 1998
and 1997 would have been $7,679,000 and $.23 per share, $38,437,000 and $1.22
per share; and $95,180,000 and $3.01 per share, respectively.
The weighted average fair value of options granted during 1999, 1998 and
1997 was $1.53, $1.15 and $2.57 per share, respectively. The fair value of
options granted was estimated on the date of grant using the Black-Scholes
option pricing model. For 1999 year-end, the following weighted average
assumptions were used: no dividend yield, expected volatility of 156%, and a
risk free interest rate of 5.5% per annum. For 1998 year-end, the following
weighted average assumptions were used: no dividend yield, expected volatility
of 136% and a risk free interest rate of 5.28 per annum. For 1997
year-end, the following weighted average assumptions were used: no dividend
yield expected volatility of 85% and a risk-free interest rate of 6.00% per
annum.
The Company has options outstanding and exercisable in varying price
ranges. The schedule below details the Company's options by price range:
Options Outstanding Options Exercisable
------------------------------- --------------------
Weighted Weighted
Weighted Average Average
Range of Number Average Exercise Number of Exercise
Exercise Prices Of Options Life Price Options Price
--------------- ---------- ------- --------- ---------- ---------
$0.69 - $2.375 2,712,731 7.3 years $ 1.16 578,242 $ 1.15
$2.38 - $4.75 464,400 7.9 years $ 3.09 6,000 $ 3.13
$4.76 - $7.125 43,000 6.4 years $ 5.32 35,000 $ 5.42
$7.13 - $18.86 64,464 2.5 years $12.98 64,464 $12.98
-------------- --------- --------- --------- --------- --------
3,284,595 683,706
========= =========
(c) Employee Stock Purchase Plan
Under the Employee Stock Purchase Plan, approved in 1996, the Company is
authorized to issue up to 500,000 shares of common stock to its full-time
employees, nearly all of whom are eligible to participate. Under the terms of
the Plan, employees can choose each period to have up to twenty percent of their
annual base earnings withheld to purchase the Company's common stock. The
purchase price of the stock is 85 percent of the lower of its
beginning-of-period or end-of-period market price. During the years ended
December 31, 1999, 1998, and 1997 the Company issued 33,498, 44,307, and 68,056
shares of stock under the plan, respectively.
(d) Treasury Stock
During 1997, the Company paid $2,064,000 to repurchase 681,500 shares of
its common stock. The Company did not repurchase any shares in 1998 or 1999.
(e) Stockholder Rights Plan
In January 1998, the Company's Board of Directors adopted a Stockholder
Rights Plan. The rights are designed to assure that all the Company's
stockholders receive fair and equal treatment in the event of any proposed
takeover of the Company and to guard against partial tender offers, open market
accumulations and other tactics to gain control of the Company without paying
all stockholders a control premium.
Terms of the Stockholder Rights Plan provide for a dividend distribution of
one right for each share of common stock to holders of record at the close of
business on February 6, 1998. Shareholders will be able to exercise the rights
only in the event, with certain exceptions, an acquiring party accumulates 20
percent or more of the Company's voting stock,
or if a party (an acquiring person) announces an offer to acquire
20 percent or more without prior approval of the Company's Board of Directors.
The rights will expire on January 21, 2008. Each right initially will entitle
the holder to buy one one-thousandth of a share of a new series of preferred
stock at a price of $13.
In addition, upon the occurrence of certain events, holders of the rights
will be entitled to purchase either the Company's common stock or shares in an
acquiring person at half of market value. Further, at any time after a person or
group acquires 20 percent or more of the Company's outstanding voting stock, the
board of directors may, at its option, exchange part or all of the rights (other
than rights held by the acquiring person, which will become void) for shares of
the Company's common stock on a one-for-one basis. The rights will therefore
cause substantial dilution to a person or group that acquires 20 percent or more
of the Company's common stock on terms not approved by the board.
(10) UNUSUAL CHARGES
During the third quarter of 1997, the Company assessed and adjusted the
carrying value of goodwill associated with an earlier acquisition. The
impairment charge aggregated $2,035,000 and was based on the excess of the
carrying value of the assets over the assets' fair values. The fair value of the
assets were generally determined as the estimates of future discounted cash
flows generated by the assets.
(11) EMPLOYEE 401(k) SAVINGS PLAN
The Company sponsors a defined contribution plan ("Plan") that qualifies
for preferential tax treatment under Section 401(a) of the Internal Revenue
Code. Participation in the Plan is available to employees who are at least
twenty-one years of age and have three months of service. Company contributions
to the Plan are based on a percentage of employee contributions. The Company
contributed $60,000, $128,000, and $99,000 in 1999, 1998, and 1997,
respectively. Administrative expenses for the Plan were paid by the Company.
(12) INCOME TAXES
A reconciliation of taxes computed at the statutory federal tax rate on
loss before income taxes from continuing operations to the actual income tax
expense is as follows (in
thousands):
Years ended December 31,
------------------------
1999 1998 1997
------- ------- -------
Income tax benefit computed at the statutory rate $(1,792) $(1,266) $(3,908)
Other 61 26 61
Changes in valuation allowance 1,731 1,240 3,847
------- ------- -------
Income taxes $ -- $ -- $ --
======= ======= =======
The tax effects of temporary differences that give rise to significant
portions of the
deferred tax assets and liabilities at December 31, 1999 and 1998, are as
follows (in thousands):
1998 1997
---- ----
Deferred tax assets:
Net operating loss carryforwards $41,092 $ 33,239
Accounts receivable and inventory revaluation 523 6,730
Property and Equipment 56 1,100
General business credit carryforward 489 489
Alternative minimum tax carryforward 60 60
------- --------
Total gross deferred tax asset 42,220 41,618
Valuation allowance (44,220) (41,618)
------- --------
Net deferred tax assets $ -- $ --
======== ========
The net changes in the total valuation allowance for the years ended
December 31, 1999, 1998 and 1997 were an increase of $602,000 $3,923,000 and
$15,485,000, respectively. A valuation allowance was established for deferred
tax assets as of December 31, 1999 and 1998 because it was deemed, based on
available evidence, that it is more likely than not that all of the deferred tax
asset will not be realized.
At December 31, 1999, the Company had net operating loss carryforwards for
federal income tax purposes of approximately $117 million, which expire in 2007
through 2014, general business tax credits of approximately $489,000, which
expire in 2005 through 2010, and an alternative minimum tax credit carryforward
of approximately $60,000, which may be carried forward indefinitely and used to
offset future regular taxable income.
(13) MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to credit risk
consist principally of trade receivables. The Company sells its products
primarily to financial institutions in the United States and leases caller ID
adjuncts to individual consumers. The Company believes that the concentration of
credit risk in its trade receivables is substantially mitigated by the Company's
ongoing credit evaluation process. The Company does not generally require
collateral from customers. The Company establishes an allowance for doubtful
accounts based upon factors surrounding the credit risk of specific customers,
historical trends and other information.
Combined revenues from US West lease customers and the Visa Bill-Pay System
royalties represented 60%, 81%, and 82% of total revenues for the years ending
December 31, 1999, 1998, and 1997, respectively. In January, 2000, the Company
received notification from its billing agent regarding proposed changes to the
billing process for the US West Caller ID Lease Base. The pending changes, which
could require the Company's lease billings to be removed from the US West
customer bills, could have a substantial effect on the rate of decline of the
lease base, the cost of billing, and the Company's ability to pursue
collections. Any changes in billing procedures could negatively affect the
Company's revenue, cost of sales, gross margin, and cash flow in future periods.
(14) COMMITMENTS AND CONTINGENCIES
(a) Leases
The Company leases facilities and equipment under cancelable and
noncancellable operating lease agreements. The facility leases are for terms
from one to five years. Rent expense was $483,000, $877,000 and $1,054,000 for
the years ended December 31, 1999, 1998 and 1997, respectively.
Future minimum lease payments under noncancellable operating leases with
initial or remaining terms in excess of one year at December 31, 1999, were as
follows (in thousands):
Year ending December 31,
2000 $ 513
2001 528
2002 544
2003 560
2004 114
2005 and thereafter 0
-----------
Total minimum lease payments $ 2,259
===========
(b) Patent Matters
The Company does not believe that its products and services infringe on the
rights of third parties. From time to time, third parties assert infringement
claims against InteliData. There can be no assurance that any such assertion
will not result in costly litigation or require the Company to cease using, or
obtain a license to use, intellectual property rights of such parties.
(c) Litigation
The Company is not currently a party to any material litigation. From time
to time, the Company is a party to routine litigation incidental to its
business. Management does not believe that the resolution of any or all of such
routine litigation will be likely to have a material adverse effect on the
Company's financial condition or results of operations.
(15) VALUATION AND QUALIFYING ACCOUNTS
The components of significant valuation and qualifying accounts associated
with accounts receivable for the years ended December 31, 1999 and 1998 were as
follows (in thousands):
Balance, December 31, 1996 $ 1,788
Recoveries (86)
------------
Balance, December 31, 1997 $ 1,702
Recoveries (361)
Charged to costs and expenses 21
Write-offs (770)
------------
Balance, December 31, 1998 $ 592
Recoveries (217)
Charged to costs and expenses -
Write-offs 148
------------
Balance, December 31, 1999 $ 523
============
* * * * * *
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
InteliData Technologies Corporation
Reston, Virginia
We have audited the accompanying consolidated balance sheets of InteliData
Technologies Corporation and subsidiaries (the "Company") as of December 31,
1999 and 1998, and the related consolidated statements of operations, changes in
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 1999. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of InteliData Technologies Corporation
and subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States of America.
/s/ Deloitte & Touche LLP
McLean, Virginia
February 16, 2000
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
- --------------------------------------------------------------
ACCOUNTING AND FINANCIAL DISCLOSURE
-----------------------------------
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- -------------------------------------------------------------
Directors
The Company incorporates herein by reference the information concerning
directors contained in its Proxy Statement for its 2000 Stockholder's Meeting to
be filed within 120 days after the end of the Company's fiscal year (the "1999
Proxy Statement").
Executive Officers
The following table sets forth the names and ages of all executive officers
of the Company and all positions and offices within the Company presently held
by such executive officers:
Name Age Position Held
---- --- -------------
William F. Gorog 74 Chairman of the Board
Alfred S. Dominick, Jr. 54 President and Chief Executive Officer
Steven P. Mullins 33 Vice President of Finance, Treasurer
and Controller
Thomas R. Oxendine 51 Chief Technology Officer and Vice President
Albert N. Wergley 52 Vice President, General Counsel and Secretary
William F. Gorog has served as Chairman and director of the Company since
November 1996. Mr. Gorog had served as Chairman of US Order from May 1990 to
November 1996. From October 1987 until founding US Order in May 1990, he served
as chairman of the board of Arbor International, an investment management firm.
From 1982 to 1987, he served as president and chief executive officer of the
Magazine Publishers of America, an association representing the principal
consumer publications in the United States. During the Ford Administration, Mr.
Gorog served as deputy assistant to the President for Economic Affairs and
Executive Director of the Council on International Economic Policy. Prior to
that time, he founded and served as chief executive officer of DataCorp., which
developed the Lexis and Nexis information systems for legal and media research
and which was subsequently sold to the Mead Corporation.
Alfred S. Dominick, Jr. has served as the President and Chief Executive Officer
of the Company since August 1998. Prior to joining InteliData, Mr. Dominick
served as president of the Retail Products Delivery Group at M&I Data Services.
Prior to joining M&I Data Services in July 1995, he was Executive Vice President
of Retail Banking and a member of the Executive Committee for Boatmen's
Bancshares Corporation for three years. Prior to that Mr. Dominick was an
Executive Vice President with Bank One Texas, since 1985. Prior to Bank One
Texas, Mr. Dominick was a Senior Vice President with Fleet National Bank.
Steven P. Mullins has served as the Vice President of Finance, Treasurer and
Controller of the Company since January, 2000. From January, 1999 to January,
2000, he served as Controller and Director of Finance and from June, 1997 to
January, 1999, he served as
Director of Financial Planning of the Company. From 1995 to 1997, he ran a
financial consulting practice. Previous to that he was an Administrator with the
Fairfax County, Virginia Government.
Thomas R. Oxendine has served as Chief Technology Officer and Vice President of
Engineering and Implementation since June 1998. From 1994 to 1998, he was
Executive Vice President, Banking Systems, for Olivetti North America. From 1991
to 1994, he served as Vice President, Systems Division, and from 1988 to 1991,
he was Regional Manager, Implementation and Support, for Olivetti North America.
Previously he held various management positions with Ericsson Information
Systems, ISC Systems Corp., and Durango Systems.
Albert N. Wergley has served as Vice President, General Counsel, and Secretary
of the Company since November 1996. From May 1995 to November 1996, he served as
Vice President and General Counsel of US Order. From 1986 to 1994, Mr. Wergley
was vice president and general counsel of Verdix Corporation (now Rational
Software Corporation), a manufacturer of software development tools. Previous to
that he was associated with the McLean, Virginia office of the law firm of Reed
Smith Shaw & McClay and with the law firm of Howrey & Simon in Washington, D.C.
Beneficial Ownership Reporting
The Company incorporates herein by reference the information required by
Item 405 of Regulation S-K contained in its 2000 Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
- -------------------------------
The Company incorporates herein by reference the information concerning
executive compensation contained in the 2000 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- -----------------------------------------------------------------------
The Company incorporates herein by reference the information concerning
security ownership of certain beneficial owners and management contained in the
2000 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- -------------------------------------------------------
The Company incorporates herein by reference the information concerning
certain relationships and related transactions contained in the 2000 Proxy
Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
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(a) 1. FINANCIAL STATEMENTS
See Item 8 of this Report
2. FINANCIAL STATEMENT SCHEDULES
See Item 8 of this Report
3. EXHIBITS
EXHIBIT INDEX
Exhibit
Number Description
-------- ------------
3.1 Certificate of Incorporation of InteliData Technologies
Corporation. (Incorporated herein by reference to Appendix IV
to the Joint Proxy Statement/Prospectus included in the
Registration Statement on Form S-4 filed with the Commission
on August 29, 1996, as amended, File Number 333-11081).
3.1.1 Amendment to the Certificate of Incorporation. (Incorporated
herein by reference to the Company's Registration Statement
on Form S-8, File Number 333-93227).
3.2 Bylaws of InteliData Technologies Corporation. (Incorporated
herein by reference to Appendix V to the Joint Proxy
Statement /Prospectus included in the Registration Statement
on Form S-4 filed with the Commission on August 29, 1996, as
amended, File Number 333-11081).
4.1 Rights Agreement, dated as of January 21, 1998, by and
between the Company and American Stock Transfer & Trust
Company, as Rights Agent. (Incorporated herein by reference
to the Registration Statement on Form 8-A filed with the
Commission on January 26, 1998).
10.1 Description of InteliData Technologies Corporation Merger
Stock Compensation Plan. (Incorporated herein by reference to
the Company's Registration Statement on Form S-8, File Number
333-76631).
10.2 InteliData Technologies Corporation 1996 Incentive Plan
(Incorporated herein by reference to the Company's
Registration Statement on Form S-8, File Number 333-16115).
10.2.1 Description of Amendment to the 1996 Incentive Plan
(Incorporated herein by reference to the Company's Proxy
Statement filed with the Commission on September 9, 1999).
10.3 InteliData Technologies Corporation Non-Employee Directors'
Stock Option Plan. (Incorporated herein by reference to the
Company's Registration Statement on Form S-8, File Number
333-16117).
10.4 InteliData Technologies Corporation Employee Stock Purchase
Plan. (Incorporated herein by reference to the Company's
Registration Statement on Form S-8, File Number 333-16121).
10.5 Employment Agreement dated April 5, 1999 between InteliData
Technologies Corporation and Alfred S. Dominick, Jr.
(Incorporated herein by reference to the Company's Report on
Form 10-Q for the quarter ended March 31, 1999).
* 10.5.1 InteliData Technologies Corporation 1998 Chief Executive
Officer's Plan.
10.6 Employment and Non-Competition Agreement dated December 17,
1997 between InteliData Technologies Corporation and Albert
N. Wergley. (Incorporated herein by reference to Exhibit 10
to the Company's Report on Form 10-K for the year ended
December 31, 1997).
* 10.6.1 Amendment to the Employment and Non-Competition
Agreement between InteliData Technologies Corporation and
Albert N. Wergley, dated June 14, 1999.
10.7 Employment Agreement dated November 3, 1998 between
InteliData Technologies Corporation and Thomas R. Oxendine.
(Incorporated herein by reference to Exhibit 10 to the
Company's Report on Form 10-K for the year ended December
31, 1998).
10.8 General Release and Severance Agreement dated June 23, 1999
between InteliData Technologies Corporation and John C.
Backus, Jr. (Incorporated herein by reference to Exhibit 10
to the Company's Report on Form 10-Q for the quarter ended
June 30, 1999).
* 21.1 InteliData Technologies Corporation List of Significant
Subsidiaries.
* 23.1 Consent of Deloitte & Touche LLP.
* 27.1 Financial Data Schedule, December 31, 1999.
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* filed herewith
(b) REPORTS ON FORM 8-K
The Company filed a Current Report on Form 8-K/A with the Securities and
Exchange Commission on November 4, 1999, in accordance with the provisions of
Item 601 of Regulation S/K, amending the Company's unaudited consolidated
balance sheet as of September 30, 1999.
* * * * * * * * * * *
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
INTELIDATA TECHNOLOGIES CORPORATION
By /s/ Alfred S. Dominick, Jr.
---------------------------------------
Alfred S. Dominick, Jr.
President and Chief Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Alfred S. Dominick, Jr. President, Chief Executive March 29, 2000
- --------------------------- Officer, Chief Financial
Alfred S. Dominick, Jr. Officer and Director
/s/ William F. Gorog Chairman of the Board March 29, 2000
- -------------------- and Director
William F. Gorog
/s/ Steven P. Mullins Vice President of Finance, March 29, 2000
- --------------------- Treasurer and Controller
Steven P. Mullins (Principal accounting officer)
/s/ Norman J. Tice Director March 29, 2000
- ------------------
Norman J. Tice
/s/ Patrick F. Graham Director March 29, 2000
- ---------------------
Patrick F. Graham
Director March 29, 2000
- --------------------------
John J. McDonnell, Jr.
/s/ L. William Seidman Director March 29, 2000
- ----------------------
L. William Seidman