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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
--------------
For the fiscal year ended: December 31, 2000 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
----------- ----------
Indicate 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 [ ].
The aggregate market value of the Common Stock held by non-affiliates of the
registrant on March 1, 2001, was approximately $161,533,000. 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,
2001 was 46,152,387.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of InteliData Technologies Corporation's Proxy Statement for its 2001
Annual Stockholder Meeting, to be held on May 23, 2001, are incorporated by
reference into Part III of this Report.
INTELIDATA TECHNOLOGIES CORPORATION
2000 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
Page
----
PART I
- ------
Item 1. Business........................................................... 3
Item 2. Properties......................................................... 7
Item 3. Legal Proceedings.................................................. 8
Item 4. Submission of Matters to a Vote of Stockholders.................... 8
PART II
- -------
Item 5. Market for Registrant's Common Stock and Related
Stockholder Matters................................................ 9
Item 6. Selected Financial Data............................................10
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations..............................................11
Item 7a. Quantitative and Qualitative Disclosures about Market Risk.........27
Item 8. Financial Statements and Supplementary Data........................29
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure..........................................50
PART III
- --------
Item 10. Directors and Executive Officers of the Registrant.................51
Item 11. Executive Compensation.............................................52
Item 12. Security Ownership of Certain Beneficial Owners
and Management.....................................................53
Item 13. Certain Relationships and Related Transactions.....................53
PART IV
- -------
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K...........................................................54
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, electronic bill
presentment and payment ("EBPP") software to financial institutions that want to
provide their own remote banking services. The Company also serves as an
Application Service Provider ("ASP") by providing Internet hosting and service
bureau solutions to financial institutions, including bankcard issuers.
The Company develops and markets software products and 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 providing these same services to
financial institutions, including bankcard issuers, on an outsourced basis, as
well as consulting and maintenance agreements that support the Company's
products.
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"). 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"). 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. 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. During the third quarter of 2000, the Company discontinued the Caller ID
leasing business. Accordingly, the Company has reclassified prior year financial
statements to account for the discontinued operations.
On January 11, 2001, InteliData acquired Home Account Holdings, Inc. and
its operating subsidiary, Home Account Network, Inc., by means of the merger of
one of the Company's wholly owned subsidiaries with and into Home Account
Holdings, with Home Account Holdings
surviving the merger. Home Account Holdings is now a wholly owned subsidiary of
InteliData. Home Account Holdings is an application services and software
provider to financial institutions for the delivery of financial products and
services over the Internet. Home Account Holdings provides a suite of UNIX-based
Internet banking and electronic bill presentment and payment products and
services in an application services provider environment. This acquisition will
be accounted for as a purchase.
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 electronic bill presentment and payment
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. In addition, the products and services the Company
develops are designed to support not only Internet access, but by other access
methods that are newly developing. These other access methods include Wireless
access and/or access via Personal Digital Assistant ("PDA").
The Company currently offers the following products and services:
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 Server
----------------------
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 the Internet, Wireless devices, and PDAs.
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 ASP Services
------------
In 2000 InteliData announced the formation of a new application service
provider ("ASP") business unit to meet the anticipated growth and demands of
providing Internet banking and electronic bill presentment and payment ("EBPP")
outsourcing services to its customers. Our outsourcing offering allows financial
institutions to operate as if the system was in-house, avoiding the delays and
customer service problems often encountered when banks use on third party
processors.
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 that 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.
o Card Solutions
--------------
Beginning January 11, 2001, the Company also offers Card Solutions, which
was previously provided by Home Account. This product offers bankcard issuers
the ability to acquire new credit card accounts using the Company's Internet
account acquisition product, to provide self-service functionalities to current
cardholders with the Internet self-service product, and to market the
self-service functionalities to the cardholder base using the issuer marketing
program.
MARKETING AND DISTRIBUTION
The Company concentrates its marketing efforts on direct sales of principal
products and services to financial institutions in the United States, including
bankcard issuers. Currently, the Company is marketing to large financial
institutions, generally with assets in excess of $1 billion. In addition, the
Company markets to bankcard issuers that are processed by First Data Resources
("FDR"), the card-issuing subsidiary of First Data Corp. 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 or other devices.
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 other vendors. Financial institutions may also
obtain competing products and services from S-1 Corporation, Corillian
Corporation, Financial Fusion, Inc., Digital Insight, Inc., and Incurrent
Solutions, Inc.
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
and EBPP 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 its efforts in the area of product development. In 2000,
1999, and 1998, the Company's research and development expenditures were
$14,512,000, $4,115,000, and $2,652,000, respectively. At December 31, 2000 and
1999, 136 and 54 employees were engaged in product development, respectively. At
March 1, 2001, after the acquisition of Home Account Holdings, 187 employees
were engaged in product development.
The Company's product development efforts are focused on software and
systems for Internet banking and electronic bill presentment and payment. In
particular, the Company applies its research and development expenditures to
data transaction processing and messaging software. This 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, 2000 and 1999, the Company had approximately 136 and 80
employees, respectively. The Company has no collective bargaining agreements
with its employees and believes that it has a positive relationship with its
employees. At March 1, 2001, after the acquisition of Home Account Holdings, the
Company had approximately 235 employees.
ITEM 2. PROPERTIES
- -------------------
The Company's headquarters are located in Reston, Virginia, where it leases
17,000 square feet of office space; this lease expires in January 2004. In March
2000, the Company leased 7,500 square feet of additional office space in Reston,
Virginia to provide additional facilities for product development close to its
already existing headquarters facility. This lease expires in December 2001. The
Company also leases 11,000 square feet of office space for its product
development facilities in Toledo, Ohio. The Ohio lease expires in January 2004.
In January 2000, the Company sold a 63,000 square foot manufacturing and
distribution facility in New Milford, Connecticut. This facility was an asset
related to the telecommunications business that was discontinued in 1998.
In January 2001, the Company acquired Home Account Holdings, which had
leased facilities in Emeryville, California, Omaha, Nebraska, and Charleston,
South Carolina. In
February 2001, the facility in California, which served as the headquarters for
the pre-merger Home Account Holdings, was shut down and the Company is currently
seeking a subtenant for the 7,200 square feet of space. The Nebraska lease for
19,000 square feet of office space, used for product development and customer
service, will expire in March 2003. The South Carolina lease for 10,000 square
feet of office space, used for product development and customer service, will
terminate in May 2001 and the Company has entered into a lease to rent 5,300
square feet of space commencing in April 2001 in a different South Carolina
facility.
All of the leasing arrangements were made with unaffiliated parties. The
Company believes that its leased properties are sufficient for its current
operations and for the foreseeable future.
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
------------- ---------
2000
Fourth Quarter $ 6.3750 $ 2.3750
Third Quarter 10.7500 3.8125
Second Quarter 16.3750 5.3750
First Quarter 21.1250 3.5000
1999
Fourth Quarter $ 4.9063 $ 1.2188
Third Quarter 4.3750 2.0313
Second Quarter 6.5000 1.2188
First Quarter 1.8438 1.0625
On March 1, 2001, the last reported sales price for the Company's common
stock was $3.50.
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, 2001 was 509, 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,
--------------------------------------------------------------------------
RESULTS OF OPERATIONS: 2000 1999 1998 1997 1996
- ---------------------- ----------- ------------ ----------- ----------- --------------
Revenues $ 5,101 $ 6,493 $ 4,683 $ 3,951 $ 2,957
Cost of revenues 2,720 1,743 618 2,129 1,657
Operating expenses 27,699 12,800 11,861 18,108 16,236
------------ ------------ ----------- ----------- --------------
Operating loss (25,318) (8,050) (7,796) (16,286) (14,936)
Other income (expense) 49,726 350 874 1,271 (2,391)
Provision for income taxes 488 -- -- -- --
------------ ------------ ----------- ----------- --------------
Income (loss) from continuing operations 23,920 (7,700) (6,922) (15,015) (17,327)
Income (loss) from discontinued operations (262) 5,805 (30,917) (75,079) (1) (78,400) (1)
------------ ------------ ----------- ----------- --------------
Net income (loss) 23,658 (1,895) (37,839) (90,094) (95,727)
Preferred stock dividend requirement -- (1,936)(2) -- -- --
------------ ------------ ----------- ----------- --------------
Net income (loss) attributable to
common stockholders $ 23,658 $ (3,831) $ (37,839) $ (90,094) $ (95,727)
============ ============ =========== =========== ==============
Basic earnings per common share
Income (loss) from continuing operations $ 0.63 $ (0.29) $ (0.22) $ (0.47) $ (0.94)
Income (loss) from discontinued operations $ (0.01) $ 0.18 $ (0.98) $ (2.38) $ (4.27)
------------ ------------ ----------- ----------- --------------
Net income (loss) $ 0.62 $ (0.11) $ (1.20) $ (2.85) $ (5.21)
============ ============ =========== =========== ==============
Diluted earnings per common share
Income (loss) from continuing operations $ 0.59 $ (0.29) $ (0.22) $ (0.47) $ (0.94)
Income (loss) from discontinued operations $ (0.01) $ 0.18 $ (0.98) $ (2.38) $ (4.27)
------------ ----------- ------------ ----------- --------------
Net income (loss) $ 0.58 $ (0.11) $ (1.20) $ (2.85) $ (5.21)
============ =========== ============ =========== ==============
Weighted-average common shares outstanding
Basic 38,237 33,367 31,450 31,574 18,370
============ =========== ============ =========== =============
Diluted 40,843 33,367 31,450 31,574 18,370
============ =========== ============ =========== =============
FINANCIAL POSITION (as of December 31):
- ---------------------------------------
Cash, cash equivalents and
short-term investments $ 27,255 $ 8,496 $ 8,050 $ 11,359 $ 39,062
Total assets 39,801 11,212 9,137 46,702 130,038
Long-term debt -- -- -- -- --
Stockholders' equity 33,570 7,087 331 37,069 124,289
(1) Discontinued operations results for 1997 include $65,200,000 of 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.
(2) 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.
Note: For the fiscal year ended December 31, 2000, the leasing business segment
was discontinued and, accordingly has been reported as discontinued
operations.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
- ---------------------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
Overview
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, bill presentment and
payment ("EBPP") software to financial institutions that want to provide their
own remote banking services. The Company also serves as an Application Service
Provider ("ASP") by providing Internet hosting and service bureau solutions to
financial institutions, including bankcard issuers.
On January 11, 2001, InteliData acquired Home Account Holdings, Inc. and
its operating subsidiary, Home Account Network, Inc., by means of the merger of
one of the Company's wholly owned subsidiaries with and into Home Account
Holdings, with Home Account Holdings surviving the merger. Home Account Holdings
is now a wholly owned subsidiary of InteliData. Home Account Holdings is an
application services and software provider to financial institutions for the
delivery of financial products and services over the Internet. Home Account
Holdings provides a suite of UNIX-based Internet banking and electronic bill
presentment and payment products and services in an application services
provider environment.
The Company develops and markets software products and 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 providing these same services to
financial institutions, including bankcard issuers, on an outsourced basis, as
well as consulting and maintenance agreements that support the Company's
products.
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 receiving and/or paying bills and transferring
funds. The Company's future growth and profitability will depend, in part, upon
consumer acceptance of Internet banking and electronic bill presentment and
payment processes and the speed at which such acceptance occurs.
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. In addition, the products and services the Company
develops are designed to support not only Internet access, but by other access
methods that are newly developing. These other access methods include Wireless
access and/or access via Personal Digital Assistant ("PDA").
The Company leased Caller ID adjunct units under an agreement with US West,
whereby the Company leased Caller ID units directly to US West customers. The
leasing program enabled 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
remained in effect. The number of active records in the Company's installed
lease base historically decreased at a rate of approximately 30% per year.
During 2000, US West notified the Company that US West would no longer
permit InteliData to include the lease billing on the US West telephone bills.
As such, InteliData has discontinued billing its legacy customers for Caller ID
adjunct unit leases in the US West telephone service territory, because the cost
of individually billing and pursuing collections for the leases would have made
it impractical and uneconomical for the Company to continue the lease program.
Accordingly, the results of operations from leasing activities have been
reported as discontinued operations.
Results of Operations - Years Ended December 31, 2000 and 1999
Revenues
The Company's revenues were $5,101,000 in 2000 compared to $6,493,000
in 1999, a decrease of $1,392,000. The decrease was a result of a decrease in
software revenue of $1,479,000, an increase in consulting and services revenues
of $1,892,000, and an expected reduction from residual royalty arrangements
relating to the sale of bill-payment software to VISA Interactive. During 2000,
software revenues contributed $673,000, consulting and services contributed
$3,884,000 and royalty arrangements contributed $544,000. During 1999, the
Company earned $2,152,000 from software sales, $1,992,000 from consulting and
services, and $2,349,000 from royalty arrangements.
The decrease in software revenue was due to several large systems sold in
the beginning of 1999, while the systems sold in 2000 occurred in the latter
part of the year. As a result, the Company was able to perform on and earn the
revenue associated with the 1999 sales during 1999. Some revenue related to the
2000 sales was deferred and will be recognized in 2001 as the systems deliveries
are completed and accounting criteria are met. Meanwhile, the increase in
consulting and services revenues from 1999 to 2000 was due to the increases in
the Company's recurring revenue from fees associate with its hosting and service
bureau operations.
During 2000, the Company continued to sell software that assists financial
institutions in connecting customers who bank via the Internet and 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
2001 will be a direct result of software sales and installations, the related
consulting business, and customer transaction fees from the installed outsourced
solutions.
During 2000, US West notified the Company that US West would no longer
permit InteliData to include the lease billing on the US West telephone bills.
As such, InteliData has discontinued billing its legacy customers for Caller ID
adjunct unit leases in the US West telephone service territory, because the cost
of individually billing and pursuing collections for the leases would have made
it impractical and uneconomical for the Company to continue the
lease program. The leasing business segment was discontinued and, accordingly
has been reported as discontinued operations.
As anticipated, the revenue for the year was negatively affected by the
decline and the cessation of the royalty revenue stream from the sale of
bill-payment software to VISA Interactive. The Company expects that the
cessation will continue to be a significant factor over the next two quarters
when comparing current period results with prior periods. In summary, the
revenues from royalties were $544,000 and $2,349,000 for the years ended
December 31, 2000 and 1999, respectively. The difference of $1,805,000 for the
year is due to the decline in the revenue stream, as previously disclosed, and
to the final cessation of the royalty streams. The significant decrease from
period to period was also attributable to 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 $977,000 to $2,720,000 in 2000
from $1,743,000 in 1999. The increase is primarily due to a change in product
mix, and an increase in cost of revenues for software and services.
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 increased $253,000 to $6,455,000 in
2000 from $6,202,000 in 1999. The increase was primarily attributable to
additional facilities expenses and an increase in employees. Management expects
general and administrative expenses in 2001 to increase over 2001 as a result of
the Home Acquisition acquisition. However, the Company does not expect the costs
to increase as a percentage of revenue.
Selling and Marketing
Selling and marketing expenses increased $4,249,000 to $6,732,000 in 2000
from $2,483,000 in 1999. The increase is primarily attributed to increases in
personnel, participation in several trade shows, production of marketing
information, bid and proposal costs, costs associated with investor relations,
and travel. The Company strategically invested to promote the Company's brand
name and expanded product and service offerings. Management expects selling and
marketing expenses in 2001 to increase over 2001 as a result of the Home
Acquisition acquisition. However, the Company does not expect the costs to
increase as a percentage of revenue.
Research and Development
Research and development costs increased $10,397,000 to $14,512,000 in 2000
from $4,115,000 in 1999. The increase is primarily attributed to the increase of
the number of research and development employees, travel, and employee-related
expenses. The Company primarily incurred research and development expenses in
writing the Interpose Transaction Engine for the Open Financial Exchange ("OFX")
standard, the development of electronic bill presentment and payment technology,
the development of the Interpose Web Banking ("IWB") front-end, creating the
infrastructure and systems for the service bureau and hosting businesses, and
developing upgrades of past software products. With the acquisition of Home
Account Holdings, the number of full-time equivalents and management expects
research and development expenses in 2001 to increase over 2001. However, the
Company does not expect the costs to increase as a percentage of revenue.
Realized Gains on Sales of Investments
On January 20, 2000, Home Financial Network, Inc. ("HFN"), a company in
which InteliData held approximately a 25% ownership interest, merged with
Sybase, Inc. InteliData accounted for its investment in HFN using the equity
method. As of the merger date, such investment's carrying value was zero. In
exchange for its portion of ownership in HFN, InteliData received approximately
$5,867,000 in cash and approximately 1,770,000 shares of Sybase stock. The
Company also held warrants to purchase HFN common stock. As part of the merger
agreement, such warrants were converted into warrants to purchase Sybase common
stock. The Company received 640,000 "warrant units" with an exercise price of
$2.60 per warrant unit. Upon exercise of each warrant unit, the Company is
entitled to receive $1.153448 in cash and 0.34794 share of Sybase common stock.
InteliData recognized a gain of approximately $42,604,000 on this transaction
during the first quarter of 2000. During the year, the Company recognized an
additional $5,998,000 in realized gains on the sales of the Sybase investment.
Total realized gains for the year were $48,602,000.
Other Income
Other income decreased $774,000 to $1,124,000 in 2000 from $350,000 in
1999. The increase is associated with higher interest income due to the
increases in cash and cash equivalents as a result of the sale of the HFN
investment.
Income Taxes
Income taxes were $488,000 and $0 for the years ended December 31, 2000 and
1999, respectively. At December 31, 2000, the Company had net operating loss
carryforwards for federal income tax purposes of approximately $103 million that
expire by 2019. 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
During 2000, US West notified the Company that US West would no longer
permit InteliData to include the lease billing on the US West telephone bills.
As such, InteliData has discontinued billing its legacy customers for Caller ID
adjunct unit leases in the US West telephone service territory, because the cost
of individually billing and pursuing collections for the leases would have made
it impractical and uneconomical for the Company to continue the lease program.
Accordingly, the results of operations from leasing activities have been
reported as discontinued operations.
In 2000, the Company experienced a loss of $262,000 in discontinued
operations, while there was a gain of $5,805,000 in 1999. The loss in 2000 was
solely related to the Caller ID business and was primarily the result of the
Company's write-off of the remaining accounts receivable. The gain of $5,805,000
in 1999 is divided into $2,579,000 from the Caller ID leasing business and
$3,226,000 from the telecommunications and interactive services divisions. All
of the above results are net of income taxes.
During 1999, the gain of $3,226,000 related to the telecommunications and
interactive services divisions 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, 2000, the Company had $755,000 in remaining liabilities
related to the discontinued operations. During the year, the Company sold the
only remaining asset it had in the discontinued operations -- the building in
New Milford, Connecticut. 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, potential
warranty and royalty costs, and potential settlements with telecom customers and
others.
Income (Loss) from Continuing and Discontinued Operations, Weighted-Average
Common Shares Outstanding and Basic and Diluted Income (Loss) Per Common Share
The basic and diluted weighted-average common shares outstanding for 2000
were 38,237,000 and 40,843,000, respectively, compared to 33,367,000 for both
for the same period in 1999. The increase resulted primarily from the exercise
of stock options and warrants, stock purchases under the Employee Stock Purchase
Plan, and the granting of certain stock awards. Also, as of November 1999, all
convertible preferred stock, which had been issued in July 1999, was converted
into common stock.
Income (loss) from continuing operations were $23,920,000 and $(7,700,000)
for the years ended December 31, 2000 and 1999, while the gain (loss) from
discontinued operations were $(262,000) and $5,805,000 for 2000 and 1999,
respectively. Net income (loss) were $23,658,000 and $(3,831,000) for 2000 and
1999, respectively.
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 1999 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."
As a result of the foregoing, basic earnings per common share for 2000
were income of $0.63 from continuing operations, loss of $(0.01) from
discontinued operations, and net income of $0.62. Diluted earnings per common
share for 2000 were income of $0.59 from continuing operations, loss of $(0.01)
from discontinued operations, and income of $0.58 for net income.
For the same period in 1999, basic and diluted income (loss) per common
share were a loss of $(0.29) from continuing operations and income of $0.18 from
discontinued operations, resulting in a basic and diluted loss per common share
of $(0.11). In 1999, the Company's net loss attributable to common stockholders
was impacted by a charge of $1,936,000 related to the Series B Preferred Stock
dividends and the amortization of discounts arising from allocation of proceeds
to warrants and the beneficial conversion feature.
Results of Operations - Years Ended December 31, 1999 and 1998
Reclassification
As discussed in the previous section, the Company discontinued the
Caller ID leasing business. Accordingly, the results of operations from leasing
activities have been reported as discontinued operations and prior year results
have been reclassified to conform to the 2000 presentation.
Revenues
The Company's revenues were $6,493,000 in 1999 compared to $4,683,000 in
1998, an increase of $1,810,000. The increase is attributable to increased
revenues for software and services, offset by the expected reduction in
royalties. During 1999, software revenues contributed $2,152,000, consulting and
services contributed $1,992,000, and royalties contributed $2,349,000 relating
to the sale the sale of bill-payment software to VISA Interactive.
During 1998, the Company earned $812,000 from software sales and
installations, $1,138,000 from consulting and services, and $2,733,000 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.
Cost of Revenues and Gross Profit
The Company's cost of revenues increased by $1,125,000 to $1,743,000 in
1999 from $618,000 in 1998. The increase is primarily due to a change in product
mix, and increase in cost of revenues for software and services.
General and Administrative
General and administrative expenses decreased $38,000 to $6,202,000 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.
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.
Research and Development
Research and development costs increased $1,463,000 to $4,115,000 in 1999
from $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.
Other Income
Other income decreased $524,000 to $350,000 in 1999 from $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 $112 million that will 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 a 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.
During 1999, the Company gained $2,579,000 from discontinued operations of
the Caller ID leasing business, as compared to $3,306,000 for 1998. The decrease
of $727,000 was attributable to the declining number of active records in the
Company's installed lease base.
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.
Income (Loss) from Continuing and Discontinued Operations, Weighted-Average
Common Shares Outstanding and Basic and Diluted Income (Loss) Per Common Share
The basic and diluted weighted-average common shares outstanding were
33,367,000 and 31,450,000 for 1999 and 1998, respectively. The increase resulted
primarily from the exercise of stock options and conversion of the Company's
Series B Convertible Preferred stock.
Loss from continuing operations were $(7,700,000) and $(6,922,000) for the
years ended December 31, 1999 and 1998, while the gain (loss) from discontinued
operations were $5,805,000 and $(30,917,000) for 1999 and 1998, respectively.
Net loss were $(1,895,000) and $(37,839,000) for 1999 and 1998, respectively.
The Company's net loss attributable to common stockholders was impacted by
a charge of $1,936,000 related to the Series B Preferred Stock dividends and the
amortization of discounts arising from allocation of proceeds to warrants and
the beneficial conversion feature. 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 1999 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."
As a result of the foregoing factors, basic and diluted income (loss) from
continuing operations per common share attributable to common stockholders were
$(0.29) and $(0.22) for the years ended December 31, 1999 and 1998,
respectively. Basic and diluted income (loss) per common share from discontinued
operations were $0.18 and $(0.98) for the years ended December 31, 1999 and
1998, respectively. Basic and diluted net (loss) were $(0.11) and $(1.20),
respectively.
Liquidity and Capital Resources
During 2000, the Company's cash and cash equivalents increased by
$18,759,000. At December 31, 2000, the Company had $27,255,000 in cash and cash
equivalents, $10,657,000 in investments and restricted cash, $30,093,000 of
working capital with no long-term debt, and $33,570,000 in stockholders' equity.
The Company's principal needs for cash in 2000 were for funding operating
losses, investments in property and equipment and to fund working capital,
primarily related to accounts receivable and other current assets. The Company
funded an increase in accounts receivable of $588,000 for the year ended
December 31, 2000. The increase in accounts receivable is attributed to the
timing of receipts for services performed. The Company's cash position benefited
from increases in accounts payable and accrued expenses of $1,945,000 and
$2,359,000, respectively.
The Company's cash requirements for operating activities in 2000 were
financed primarily by the proceeds from sales of investments. On January 20,
2000, Home Financial Network, Inc. ("HFN"), a company in which InteliData held
approximately a 25% ownership interest, merged with Sybase, Inc. InteliData
accounted for its investment in HFN using the equity method. As of the merger
date, such investment's carrying value was zero. In exchange for its portion of
ownership in HFN, InteliData received approximately $5,867,000 in cash and
approximately 1,770,000 shares of Sybase stock. The Company also held warrants
to purchase HFN common stock. As part of the merger agreement, such warrants
were converted into warrants to purchase Sybase common stock. The Company
received 640,000 "warrant units" with an exercise price of $2.60 per warrant
unit. Upon exercise of each warrant unit, the Company is entitled to receive
$1.153448 in cash and 0.34794 share of Sybase common stock. InteliData
recognized a gain of approximately $42,604,000 on this transaction during the
first quarter of 2000. During the year, the Company recognized an additional
$5,998,000 in realized gains on the sales of the Sybase investment. Total cash
proceeds from these transactions were approximately $38,700,000.
Net cash provided by investing activities in 2000 was $35,136,000. This was
a result of the sales of the HFN and Sybase investments as discussed above,
offset by the purchase of $3,313,000 of property and equipment and $251,000 of
purchases of other investments.
Financing activities provided $1,693,000 in 2000 and consisted of proceeds
from the sale of the Company's common stock through stock option exercises,
warrant exercises and the Employee Stock Purchase Plan, a capital contribution
and purchases of common stock into treasury.
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 that will carry on beyond December 31, 2000. As of
December 31, 2000, the Company had $755,000 in remaining liabilities related to
the discontinued operations. During the year, the Company sold the only
remaining asset it had in the discontinued operations -- the building in New
Milford, Connecticut. 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, potential warranty and royalty costs, and
potential settlements with telecom customers and others. The Company is working
with its professional advisors and insurer to manage its exposure to liability
for the potential environmental clean-up. The Company has hired an environmental
specialist firm to perform a study of the damages, to prepare a project plan, to
work with the state agency, and to remediate the damages. Additionally, the
Company has acquired insurance to cap the potential costs and losses at a
reasonable amount. Such amounts and insurance costs have been accrued for as of
December 31, 2000. Management believes that the combination of the project plan
and the insurance arrangements will cause the resolution of this matter to not
have a material adverse effect on the Company's financial condition or results
of operations.
The Company believes that it currently has the capital necessary to
continue funding the operations in 2001. During 2001, the Company expects its
operating losses to decline based on increases in recurring revenue and in the
adoption rates and penetration rates of Internet banking, credit card bill
presentment, and electronic bill pay operations. Additionally, through expense
and headcount reductions that commenced after the Company's merger with Home
Account, the Company expects its operating expenses to be less than the
aggregate operating expenses that were experienced in 2000 for the two separate
companies.
The Company expects to continue funding research and development in the
Consumer Services Provider products for projected delivery in 2001.
Additionally, the Company will continue funding research and development into
its OFX, Credit Card, and Electronic Banking products during 2001. Though
research and development expense will be continued in these three products, all
products are currently in operation at customer sites and development efforts
will be focused largely on product upgrades and product maintenance.
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.
SFAS 133 requires that all derivative financial instruments, such as
forward currency exchange contracts and interest rate swaps, be recognized in
the financial statements and measured at fair value regardless of the purpose or
intent for holding them. Changes in the fair value of derivative financial
instruments are either recognized periodically in income or shareholders' equity
(as a component of comprehensive income), depending on whether the derivative is
being used to hedge changes in fair value or cash flows. The Company's adoption
of this pronouncement, effective January 1, 2001, will not have a material
effect on the Company's financial statements.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements,"
which provides guidance on
the recognition, presentation and disclosure of revenue in financial statements.
The Company's application of this pronouncement did not have a material effect
on the Company's financial statements.
Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the Private
Securities Litigation Reform Act of 1995
The above information includes forward-looking statements, the realization
of which may be impacted by the factors discussed below. The forward-looking
statements are made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995 (the "Act"). The Company cautions
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 2001 and beyond to differ materially from those expressed in any
forward-looking statements made by, or on behalf of, the Company. The following
list of factors should not be construed as exhaustive or as any admission
regarding the adequacy of disclosures made by the Company prior to the date
hereof or the effectiveness of said Act. Additionally, the Company is not under
any obligation (and expressly disclaims an obligation to) update or alter its
forward-looking statements, whether as a result of new information or otherwise.
Risks Associated With Our Acquisition of Home Account Holdings
- ---------------------------------------------------------------
The acquisition costs associated with our purchase of Home Account Holdings
may exceed the benefits we ultimately realize, which could have an adverse
effect on our business, operations and financial condition. If we do not achieve
the anticipated synergies, increased revenues, such as recurring revenues
resulting from our ASP business model, cost savings, such as cost savings from
the elimination of facilities and personnel, and other benefits of the
acquisition as quickly or to the extent anticipated, our business, operations
and financial condition could suffer. If we do not successfully integrate Home
Account Holdings' operations and personnel in a timely manner or effectively
manage Home Account Holdings, the benefits of the acquisition may not be
achieved and key personnel may be lost. In addition, current and prospective
employees of Home Account Holdings and InteliData may experience uncertainty
about their future roles with us as a result of the acquisition of Home Account
Holdings or the failure to successfully integrate the operations and personnel
of Home Account Holdings. If we do not timely and seamlessly integrate Home
Account Holdings' technology, products, operations and services with our own, we
may lose existing customers of Home Account Holdings or InteliData.
Additionally, if our combined products and services do not provide our customers
with the products and services that they require, we could lose existing
customers or fail to attract new customers. Any loss in our customer base and
any failure to further expand our customer base could have an adverse effect on
our business, operations and financial condition. If we do not successfully
integrate Home Account Holdings' technology, products and services, many of the
potential benefits of the acquisition may not be realized. We intend to
integrate Home Account Holdings' technology into our own products and services
in addition to offering Home Account Holdings' products and services separately.
We may not be able to fully integrate Home Account Holdings' technology.
Additionally, we may be required to spend additional time or money on
integration that would otherwise be spent on developing our technology, products
and services. If we do not timely and effectively integrate Home Account
Holdings' technology, products and services, or if our employees spend
additional time on
integration efforts, we could experience increased operating expenses, which
could have an adverse effect on our business, operations and financial
condition.
Risk Factors Particular to Our Company
- --------------------------------------
Our operating results fluctuate which could have an adverse effect on our
business, operations and financial condition.
Our quarterly operating results have varied significantly in the past, and
it is likely that they will vary greatly in the future. Some of the factors that
will likely cause our operating results to fluctuate are:
o the size and timing of customer orders;
o changes in our pricing policies or those of our competitors;
o new product introductions or enhancements by our competitors or by us;
o delays in the introduction of new products or product enhancements by our
competitors or by us; o customer order deferrals by our customers in
anticipation of upgrades and new products; o market acceptance of new
products;
o the timing and nature of sales, marketing, and research and development
expenses by our competitors or by us; and,
o other changes in operating expenses, personnel changes and general economic
conditions.
Additionally, certain banks and other financial institutions have recently
combined or are proposing to combine, and we are unable to assess the future
effect that those combinations and other possible consolidations in the banking
industry will have upon us. No assurance can be given that quarterly variations
in our operating results will not occur in the future, and accordingly, the
results of any one quarter may not be indicative of the operating results for
future quarters.
We may require additional capital, which we may not be able to obtain, to be
able to fund future operating losses, working capital needs and capital
expenditures.
The expansion and development of our business may require additional
capital in the future to fund our operating losses, working capital needs and
capital expenditures. The capital markets are very volatile and we may not be
able to obtain future equity or debt financing in the future on satisfactory
terms or at all. Our failure to generate sufficient cash flows from sales of
products and services or to raise sufficient funds may require us to delay or
abandon some or all of our development and expansion plans or otherwise forego
market opportunities. Our inability to obtain additional capital on satisfactory
terms may delay or prevent the expansion of our business, which could cause our
business, operating results and financial condition to suffer.
Rapidly changing technologies could make our products obsolete that may
adversely effect our business, operations and financial conditions.
Our business activities are concentrated in fields characterized by
rapid and significant technological advances. It is possible that our products
and services will not remain competitive
technologically or that our products, processes or services will not continue to
be reflective of such advances. The following, among other factors, may
adversely affect our ability to be technologically competitive:
o our competitors may develop other technologies that could render our
products and services noncompetitive or obsolete;
o we may be unable to locate, hire and retain management and other key
personnel with the skills and abilities required to further advance and
develop our software products and services and to maintain our
technological competitiveness;
o we may be unable to introduce new products or product enhancements that
achieve timely market acceptance and meet financial institutions' or
Internet banking or EBPP customers' needs;
o we may encounter unanticipated technical, marketing or other problems or
delays relating to new products, features or services that we recently
introduced or that we may introduce in the future;
o we may be unable to keep pace with our competitors' spending on research
and development of new products because most of our competitors and
potential competitors have significantly greater financial, technological
and research and development resources than we have;
o we may be unable to develop, produce and market new products as cheaply as
our competitors and we may not be able to offer new products to customers
at a competitive price; and,
o we may be unable to leverage our relationship with Spectrum (a consortium
of banks aligned to invest in the development of an EBPP solution) into new
business opportunities in the EBPP market.
An inability to compete successfully in an increasingly competitive and crowded
marketplace could adversely affect our business, operations and financial
conditions.
The market for Internet banking and other interactive financial products
and services is highly competitive and subject to rapid innovation and
technological change, shifting consumer preferences and frequent new product
introductions. A number of corporations with vast financial resources, such as
S-1 Corporation, Corillian Corporation, Financial Fusion, Inc., Digital Insight,
Inc., and Incurrent Solutions, Inc., offer products and services that compete
directly with the products and services we offer. We expect the number of
competitors in the Internet banking and EBPP products and services industry to
expand greatly as a result of the popularity of the Internet and widespread
ownership of personal computers. We foresee our future competitors as including:
o banks that have already developed (or plan to develop) Internet banking and
EBPP products for their own customers, with the possibility of offering the
products to other banks and other banks' customers;
o non-banks that may develop Internet banking and EBPP products to offer to
banks; and
o computer software and data processing companies that currently offer, or
will offer Internet banking and EBPP services through the use of their
broad distribution channels that may be used to bundle competing products
directly to end-users or purchasers.
Our stock price fluctuates significantly and could adversely affect our
business, operations and financial condition.
It is likely that in the future our common stock will continue to
experience the significant volatility it has experienced in the past. Our common
stock is traded on the Nasdaq National Market. The stock market, particularly in
recent years, has experienced volatility that has been especially acute with
respect to high technology-based stocks such as ours. The volatility of
technology-based and development stage stocks has often been unrelated to the
operating performance of the companies represented by the stock. Factors such as
announcements of the introduction of new products or services by our competitors
or by us, market conditions in the banking and other emerging growth company
sectors and rumors relating to our competitors or us have had a significant
impact on the market price of our common stock in the past.
We possess limited patent or registered intellectual property rights with
respect to our technology and any loss or infringement of those rights could
cause us to lose a valuable competitive advantage or incur costly litigation
expenses that could have an adverse effect on our business, operations and
financial condition.
We possess limited patent or registered intellectual property rights with
respect to our technology. We depend, in part, upon our proprietary technology
and know-how to differentiate our products from those of our competitors and
work independently and from time to time with third parties with respect to the
design and engineering of our own products. We also rely on a combination of
contractual provisions, trademarks, and trade secret laws to protect our
proprietary technology. There can be no assurance, however, that we will be able
to protect our technology or successfully develop new technology or gain access
to such technology, that third parties will not be able to develop similar
technology independently or design around our intellectual property rights, that
competitors will not obtain unauthorized access to our proprietary technology,
that third parties will not misuse the technology to which we have granted them
access, or that our contractual or legal remedies will be sufficient to protect
our interests in our proprietary technology. Enforcing or defending our
intellectual property rights could be very expensive. If we cannot preserve our
intellectual property rights, we may be at a competitive disadvantage.
Claims Against Us for Infringement of Another Party's Intellectual Property
Rights Could Cause Us to Incur Costly Litigation Expenses or Impact Our Ability
to Offer Products or Services to Our Market
The Internet banking software and services industry has become an area of
substantial litigation concerning intellectual property rights. Claims of
infringement by third parties could have a significant adverse impact on our
business. The expenses associated with defending claims, even if successful, are
often significant. In the event that we were found to infringe a third party's
rights, we would be required to enter into a royalty arrangement to continue to
offer the infringing products and services. If we were unable to obtain
acceptable royalty terms, we would be forced to discontinue offering the
infringing products and services or modify the products and services to become
non-infringing. This could result in the significant loss of revenues or
considerable additional expense.
Delays in the development of new products or in the implementation of new or
existing products at customer locations and defects or errors in the products we
sell could adversely affect our business, operations and financial condition.
We may experience delays in the development of the software and computing
systems underlying our products and services. Additionally, we may experience
delays when implementing our products at customer locations, and customers may
be unable to implement our products in the time frames and with the
functionalities that they expect or require. There can be no assurance that,
despite our testing, errors will not be found in the underlying software, or
that we will not experience development delays, resulting in delays in the
shipment of our products, the commercial release of our products or in the
market acceptance of our products, each of which could have a material adverse
effect on our business, operations and financial condition.
We are dependent on key personnel, the loss of whom could adversely affect our
business, operations and financial condition. Additionally, we will need to
locate, hire and retain additional qualified personnel to continue to grow our
business.
Our performance is substantially dependent on the performance of our
executive officers and key employees. We depend on our ability to retain and
motivate high quality personnel, especially management and skilled development
teams. The loss of services of any of our executive officers or other key
employees could have a material adverse effect on our business, operations or
financial condition.
Our future success also depends on our continuing ability to identify,
hire, train and retain other highly qualified technical and managerial
personnel. Competition for such personnel is intense, and there can be no
assurance that we will be able to attract, assimilate or retain other highly
qualified technical and managerial personnel in the future. The inability to
attract and retain the necessary technical and managerial personnel could have a
material adverse effect upon our business, operations or financial condition.
Certain provisions of Delaware law, our certificate of incorporation and bylaws
make a takeover by a third-party difficult.
Certain provisions of Delaware law and of our certificate of incorporation
and bylaws could have the effect of making it more difficult for a third party
to acquire, or of discouraging a third party from attempting to acquire, control
of us. These provisions include:
o a provision allowing us to issue preferred stock with rights senior to
those of the common stock without any further vote or action by the holders
of common stock. The issuance of preferred stock could decrease the amount
of earnings and assets available for distribution to the holders of common
stock or could adversely affect the rights and powers, including voting
rights, of the holders of the common stock. In certain circumstances, such
issuance could have the effect of decreasing the market price of the common
stock;
o the existence of a stock rights plan that results in the dilution of the
value of common stock held by a potential acquirer;
o the existence of a staggered board of directors in which there are three
classes of directors serving staggered three-year terms, and thereby
expanding the time required to change the
composition of a majority of directors and perhaps discouraging someone
from making an acquisition proposal for us;
o the bylaws' requirement that stockholders provide advance notice when
nominating our directors;
o the inability of stockholders to convene a stockholders' meeting without
the meeting first being called by the chairman of the board of directors or
the secretary at the request of a majority of the directors; and,
o the application of Delaware law prohibiting us from entering into a
business combination with the beneficial owner of 15% or more of our
outstanding voting stock for a period of three years after the 15% or
greater owner first reached that level of stock ownership, unless certain
criteria are met.
Risk Facts Associated With Our Industry
- ---------------------------------------
The Internet banking and EBPP industries are relatively new and developing
markets, and our success depends on the acceptance and growing use of Internet
banking and electronic bill presentment and payment .
Internet banking and EBPP continue to be developing markets. Our future
financial success in the relatively new Internet banking and EBPP marketplace
depends, in part, upon:
o consumer acceptance of, and financial institutions' support for, Internet
banking and EBPP technologies;
o continued growth in personal computer sales and the number of personal
computers with Internet access and continued reductions in the cost of
personal computers and Internet access;
o the degree of financial institutions' success in marketing the Internet
banking and EBPP products to their customers and the ability of these
institutions to implement applications in anticipated time frames or with
anticipated features and functionalities; and,
o the continued absence of regulatory controls and oversight of the Internet
and electronic commerce.
Even if this market experiences substantial growth, there can be no
assurance that our products and services will be commercially successful or that
we will benefit from such growth. Therefore, there can be no assurance as to the
timing, introduction, or market acceptance of, or necessary regulatory approvals
for, our products and services.
Concerns related to system security and consumer protections could prevent the
widespread acceptance of Internet banking and EBPP and could adversely affect
our business, operations and financial condition.
The willingness of consumers and financial institutions to use personal
computer and Internet-based banking, bill payment and other financial services
will depend, in part, upon the following factors:
o our ability to protect consumer information relating to personal computer
and Internet-based banking and other financial services against the risk of
fraud, counterfeit and technology failure;
o the frequency of interruptions, delays and cessation in service to
financial institutions and individuals resulting from computer viruses,
break-ins or other problems;
o the increase in the cost of our services and products, as well as the cost
to up-grade the services and products to keep pace with rapidly changing
computer and Internet technologies, may be increased by expenditures of
capital and resources to reduce security breaches, break-ins and computer
viruses; and,
o the erosion of public and consumer confidence in the security and privacy
of Internet banking and EBPP.
The threat of increased government regulation of the Internet and the continuing
legal uncertainty and potential liabilities associated with sharing personal and
financial information on the Internet could adversely affect our business,
operations and financial condition.
Our products rely on the cost-effectiveness of, and ease of access to, the
Internet. There are currently few laws or regulations directly applicable to, or
commerce or other communications on, the Internet. However, due to the
increasing popularity and use of the Internet, it is possible that new laws and
regulations may be adopted with respect to the Internet, covering issues such as
user privacy, the collection or processing of personal information, copyright
infringement and the pricing, characteristics and quality of products and
services. Consumers' concerns relating to privacy, security and increasing
regulation could hinder the use of the Internet and the growth of our business.
The adoption of restrictive laws or regulations may increase the cost of doing
business over the Internet. The application to the Internet of existing laws and
regulations governing such issues as property ownership and personal privacy is
subject to substantial uncertainty. Mandatory privacy and security standards and
protocols are still being developed by government agencies, and we may incur
significant expenses to comply with any requirements that are ultimately
adopted. Our financial institution customers require that our products and
services will permit them to operate in compliance with all applicable laws and
regulations. We may become subject to direct regulation as the market for our
products and services evolves. Additionally, current or new government laws and
regulations, or the application of existing laws and regulations, may expose us
to significant liabilities or otherwise impair our ability to achieve our
strategic objectives through increased operating costs or reduced market
acceptance. If Internet use does not grow as a result of privacy or security
concerns, increasing regulation or for other reasons, the sale of Internet
banking and electronic bill presentment and payment products would be hindered
and our business, operations and financial condition would be adversely
affected.
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.
As of December 31, 2000, the fair value of the Company's investment
portfolio is approximately $10,217,000, which consisted of $6,435,000 of Sybase
common stock, $3,541,000 of warrants to purchase Sybase common stock, and
$241,000 of fixed income securities. Changes in the fair value of the Sybase
common stock and fixed income securities will continue to be recognized as
shareholders' equity (as a component of comprehensive income). SFAS 133, which
the Company will adopt effective January 1, 2001, requires that changes in the
fair value of the warrants to purchase Sybase common stock to be recognized
periodically in income. A 10% decline in the stock price would result in
approximate decreases of $644,000 and $354,000 in the fair value of the
Company's holdings of Sybase common stock and warrants, respectively.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- -----------------------------------------------------
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Consolidated Financial Statements
Consolidated Balance Sheets as of December 31, 2000 and 1999................30
Consolidated Statements of Operations for the Years Ended
December 31, 2000, 1999 and 1998..........................................31
Consolidated Statements of Changes in Stockholders'Equity for the Years Ended
December 31, 2000, 1999 and 1998..........................................32
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2000, 1999 and 1998..........................................33
Notes to Consolidated Financial Statements for the Years Ended
December 31, 2000, 1999 and 1998..........................................34
Independent Auditors' Report..................................................49
INTELIDATA TECHNOLOGIES CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2000 AND 1999
(in thousands, except share data)
2000 1999
--------------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 27,255 $ 8,496
Restricted cash 440 --
Investments 10,217 --
Accounts receivable, net of allowances of $718
in 2000 and $442 in 1999 1,569 981
Net assets of discontinued operations -- 874
Prepaid expenses and other current assets 320 138
---------- ------------
Total current assets 39,801 10,489
NONCURRENT ASSETS
Property and equipment, net 3,282 548
Other assets 195 175
------------ ------------
TOTAL ASSETS $ 43,278 $ 11,212
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 4,288 $ 2,343
Accrued expenses and other liabilities 3,651 1,166
Deferred revenues 1,014 616
Net liabilities of discontinued operations 755 --
------------- ------------
Total current liabilities 9,708 4,125
------------- ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
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 39,320,609 shares
in 2000 and 38,691,040 shares in 1999;
outstanding 38,629,897 shares in 2000
and 38,009,540 shares in 1999 39 38
Additional paid-in capital 261,552 258,133
Treasury stock, at cost: 690,712
shares in 2000 and 681,500 shares 1999 (2,123) (2,064)
Deferred compensation (1,375) (345)
Accumulated other comprehensive income 494 --
Accumulated deficit (225,017) (248,675)
------------- ------------
Total stockholders' equity 33,570 7,087
------------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 43,278 $ 11,212
============= ============
See accompanying notes to consolidated financial statements.
INTELIDATA TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(in thousands, except per share data)
2000 1999 1998
------------ ------------ -------------
Revenues
Software $ 673 $ 2,152 $ 812
Consulting and services 3,884 1,992 1,138
Royalties and other 544 2,349 2,733
------------ ------------ -------------
Total revenues 5,101 6,493 4,683
------------ ------------ -------------
Cost of revenues
Software -- 460 109
Consulting and services 2,720 1,283 509
------------ ------------ -------------
Total cost of revenues 2,720 1,743 618
------------ ------------ -------------
Gross profit 2,381 4,750 4,065
Operating expenses
General and administrative 6,455 6,202 6,240
Selling and marketing 6,732 2,483 2,969
Research and development 14,512 4,115 2,652
------------ ------------ -------------
Total operating expenses 27,699 12,800 11,861
------------ ------------ -------------
Operating loss (25,318) (8,050) (7,796)
Realized gains on sales of investments 48,602 -- --
Other income 1,124 350 874
------------ ------------ -------------
Income (loss) before income taxes 24,408 (7,700) (6,922)
Provision for income taxes 488 -- --
------------ ------------ -------------
Income (loss) from continuing operations 23,920 (7,700) (6,922)
Discontinued operations:
Income (loss) from operations, net of income taxes (262) 2,579 (14,743)
Gain (loss) on disposal, net of income taxes -- 3,226 (16,174)
------------ ------------ -------------
Total discontinued operations (262) 5,805 (30,917)
------------ ------------ -------------
Net income (loss) 23,658 (1,895) (37,839)
Preferred stock dividends and amortization of discounts
arising from allocation of proceeds to warrants and
beneficial conversion feature -- (1,936) --
------------ ------------ -------------
Net income (loss) attributable to common stockholders $ 23,658 $ (3,831) $ (37,839)
============ ============ =============
Basic earnings per common share
Income (loss) from continuing operations $ 0.63 $ (0.29) $ (0.22)
Income (loss) from discontinued operations (0.01) 0.18 (0.98)
------------ ------------ -------------
Net income (loss) $ 0.62 $ (0.11) $ (1.20)
============ ============ =============
Diluted earnings per common share
Income (loss) from continuing operations $ 0.59 $ (0.29) $ (0.22)
Income (loss) from discontinued operations (0.01) 0.18 (0.98)
------------ ------------ -------------
Net income (loss) $ 0.58 $ (0.11) $ (1.20)
============ ============ =============
Weighted-average common shares outstanding
Basic 3 8,237 33,367 31,450
============ ============ =============
Diluted 40,843 33,367 31,450
============ ============ =============
See accompanying notes to consolidated financial statements.
INTELIDATA TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(in thousands)
Accumulated
Other
Compre- Compre
Pre Additional Deferred hensive Accum- hensive
ferred Stock Common stock Paid-in Treasury Compen- Income ulated Income
Shares Amount Shares Amount Capital Stock sation (Loss) Deficit (Loss) Total
----- ------ ------ ------ ---------- -------- ------- ------ --------- ------- ---------
Balance at January 1, 1998 -- -- 31,862 $32 $245,699 $(2,064) $ (18) $ 425 $(207,005) $ 37,069
Issuance of common stock:
Exercise of stock options -- -- 300 -- 294 -- -- -- -- 294
Employee stock purchase plan -- -- 68 -- 67 -- -- -- -- 67
Issuance of restricted stock -- -- 156 -- 462 -- (462) -- -- --
Cancellation of restricted stock -- -- (53) -- (159) -- 159 -- --
Cancellation of common stock -- -- (40) -- -- -- -- -- -- --
Cancellation of 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 -- -- 32,293 32 247,359 (2,064) (152) -- (244,844) 331
Issuance of common stock:
Exercise of stock options -- -- 1,250 1 2,407 -- -- -- -- 2,408
Employee stock purchase plan -- -- 23 -- 27 -- -- -- -- 27
Issuance of preferred stock
& warrants 1 -- -- -- 5,670 -- -- -- -- 5,670
Conversion of preferred stock (1) -- 4,793 5 (5) -- -- -- -- --
Amortization and accretion of
preferred dividend -- -- -- -- 1,936 -- -- -- (1,936) --
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 -- -- 38,691 38 258,133 (2,064) (345) -- (248,675) 7,087
Issuance of common stock:
Exercise of stock options -- -- 258 1 591 -- -- -- -- 592
Employee stock purchase plan -- -- 30 -- 75 -- -- -- -- 75
Exercise of stock warrants -- -- 166 -- 228 -- -- -- -- 228
Issuance of restricted stock -- -- 206 -- 1,401 -- (1,401) -- -- --
Cancellation of restricted stock -- -- (30) -- (152) -- 152 -- -- --
Issuance of stock warrants -- -- -- -- 419 -- (419) -- -- --
Capital contribution -- -- -- -- 857 -- -- -- -- 857
Purchase of treasury stock -- -- -- -- -- (59) -- -- -- (59)
Unrealized gains on investments -- -- -- -- -- -- -- 494 -- $ 494 494
Compensation expense -- -- -- -- -- -- 638 -- -- 638
Net income -- -- -- -- -- -- -- -- 23,658 23,658 23,658
--------
Comprehensive income $ 24,152
---- ---- -------- ---- --------- -------- -------- ------ ---------- ========= ---------
Balance at December 31, 2000 -- -- 39,321 $39 $261,552 $(2,123) $(1,375) $ 494 $(225,017) $ 33,570
==== ==== ======== ==== ========= ======== ======== ====== ========== =========
See accompanying notes to consolidated financial statements.
INTELIDATA TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(in thousands)
2000 1999 1998
--------- ---------- ----------
Cash flows from operating activities
Income (loss) from continuing operations $ 23,920 $ (7,700) $ (6,922)
Adjustments to reconcile income (loss) from continuing operations
to net cash from operating activities of continuing operations:
Realized gain on sale of investments (48,602) -- --
Provision for income taxes 116 -- --
Depreciation and amortization 579 233 943
Deferred compensation expense 638 546 169
Other non-cash charges -- -- (425)
Changes in operating assets and liabilities:
Accounts receivable (588) (1,585) 79
Prepaid expenses and other current assets (182) 5 22
Other assets (20) 82 71
Accounts payable 1,945 999 588
Accrued expenses 2,359 256 (2,325)
Deferred revenue 398 (1,527) (2,503)
--------- ---------- ----------
Net cash used in operating activities of continuing operations (19,437) (8,691) (10,303)
--------- ---------- ----------
Income (loss) from discontinued operations (262) 5,805 (30,917)
Change in net liabilities of discontinued operations 1,629 (4,340) 39,145
--------- ---------- ----------
Net cash provided by operating activities
of discontinued operations 1,367 1,465 8,228
--------- ---------- ----------
Net cash used in operating activities (18,070) (7,226) (2,075)
Cash flows from investing activities
Proceeds from sales of investments 38,700 -- 9,304
Purchases of property and equipment (3,313) (433) (95)
Purchase of investments (251) -- --
--------- ---------- ----------
Net cash provided by (used in) investing activities 35,136 (433) 9,209
--------- ---------- ----------
Cash flows from financing activities
Proceeds from the issuance of preferred stock -- 5,670 --
Proceeds from the issuance of common stock 895 2,435 361
Payments on borrowings related to discontinued operations -- -- (1,500)
Capital contribution 857 -- --
Payments to acquire treasury stock (59) -- --
--------- ---------- ----------
Net cash provided by (used in) financing activities 1,693 8,105 (1,139)
--------- ---------- ----------
Increase in cash and cash equivalents 18,759 446 5,995
Cash and cash equivalents, beginning of year 8,496 8,050 2,055
--------- ---------- ----------
Cash and cash equivalents, end of year $ 27,255 $ 8,496 $ 8,050
========= ========== ==========
See accompanying notes to consolidated financial statements.
INTELIDATA TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(1) ORGANIZATION
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, electronic bill
presentment and payment software to financial institutions that want to provide
their own remote banking services. The Company also serves as an Application
Service Provider ("ASP") by providing Internet hosting and service bureau
solutions to financial institutions, including bankcard issuers.
The Company is incorporated in the State of Delaware and has its corporate
headquarters in Reston, Virginia. There are operating facilities in Charleston,
South Carolina, Omaha, Nebraska, and Toledo, Ohio.
(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 material inter-company balances and transactions. Certain
reclassifications have been made to the 1999 and 1998 financial statements to
conform to the 2000 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 - 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.
Starting late in 2000, the Company entered into contracts for which the
products do not require significant customization and for which revenue is
recognized in accordance with Statement of Position (SOP) 97-2, Software Revenue
Recognition. SOP 97-2 requires that revenue recognized from software
arrangements be allocated to each element of the arrangement based on the
relative fair values of the elements, such as software products, upgrades,
enhancements, post contract customer support, installation or training. Under
SOP 97-2, the determination of fair value is based on objective evidence that is
specific to the vendor. If evidence of fair value for each element of the
arrangement does not exist, all revenue from the arrangement is deferred until
such time as evidence of fair value does exist or until all elements of the
arrangement are delivered.
In December 1998, the American Institute of Certified Public Accountants
issued SOP 98-9, Modification of SOP 97-2, Software Revenue Recognition with
Respect to Certain Transactions. SOP 98-9 amends SOP 97-2 to require the entity
to recognize revenue for multiple element arrangements using the "residual
method" when: (1) there is vendor-specific evidence of the fair values of all of
the undelivered elements; (2) vendor-specific evidence of fair value does not
exist for one or more of the delivered elements; and (3) the revenue recognition
criteria of SOP 97-2 are satisfied. SOP 98-9 was adopted by the Company and did
not have a material effect on the Company's consolidated results of operations,
financial position or cash flows.
License revenue is recognized when there is persuasive evidence of an
arrangement and delivery to the customer has occurred, the fee is fixed and
determinable, and collectibility is considered probable. Advance payments are
recorded as deferred revenue until the products are shipped, services are
delivered and all obligations are met.
Maintenance contracts generally require the Company to provide technical
support and software updates and upgrades to customers. Revenue from maintenance
contracts is recognized ratably over the term of the maintenance contract, on a
straight-line basis. Consulting service revenue, consisting primarily of
consulting and implementation, is generally recognized at the time the service
is performed. Revenue from transactional services, which includes hosting and
service bureaus, is recognized as transactions are processed.
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.
(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
their fair market value.
(e) Investments - The Company reports its investments in marketable securities
as available-for-sale with any unrealized holding gains and losses, net of the
related income tax effect, excluded from earnings and reported as a separate
component of stockholders' equity until such gains or losses are realized.
Dividends and interest income are recognized when earned. Realized gains or
losses are included in earnings and are derived using the first-in, first-out
method for determining cost of securities sold.
(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, which are generally in the
range of three to seven years.
(g) Net Liabilities of Discontinued Operations - Under various disposal plans
adopted in 1997, 1998, and 2000, the Company has completed the divestiture of
all of its telecommunications, interactive services businesses and the Caller ID
adjunct leasing activities.
(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 represent 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. Valuation allowances are
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 accounts for employee
stock options in accordance with Accounting Principles Board Opinion No. 25 (APB
25), Accounting for Stock Issued to Employees. Under APB 25, the Company
recognizes no compensation expense related to employee stock options, as no
options are granted at a price below the market price on the day of grant. The
Company accounts for stock options issued to non-employees in accordance with
the provisions of Statement of Financial Accounting Standards No. 123 (SFAS
123), Accounting for Stock-Based Compensation.
SFAS 123 prescribes the recognition of compensation expense based on the
fair value to options on the grant date and allows companies to continue
applying APB 25 if certain pro forma disclosures are made assuming hypothetical
fair value method application. The Company has elected to continue to apply the
provisions of APB 25 for options granted to employees and provide the pro forma
disclosures pursuant to SFAS 123.
(k) Net Income (Loss) Attributable to Common Stockholders per share - Basic and
diluted loss per common share is computed by dividing net income (loss), after
deducting preferred stock dividend requirements and amortization of the
discounts on the preferred stock that was issued in 1999 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 in 1999 and
1998 because they would have been anti-dilutive.
(l) Fair Value of Financial Instruments - The carrying values of the Company's
financial instruments such as cash and cash equivalents, investments in common
stock and bonds, 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.
SFAS 133 requires that all derivative financial instruments, such as
forward currency exchange contracts and interest rate swaps, be recognized in
the financial statements and measured at fair value regardless of the purpose or
intent for holding them. Changes in the fair value of derivative financial
instruments are either recognized periodically in income or shareholders' equity
(as a component of comprehensive income), depending on whether the derivative is
being used to hedge changes in fair value or cash flows. The Company's adoption
of this pronouncement, effective January 1, 2001, will not have a material
effect on the Company's financial statements.
The carrying value of financial instruments approximates fair value and is
generally determined by reference to market values resulting from trading on a
national securities exchange or in an over-the-counter market. In cases where
quoted market prices are not available, fair value may be based on estimates
using present value or other valuation techniques.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements,"
which provides guidance on the recognition, presentation and disclosure of
revenue in financial statements. The Company's application of this pronouncement
did not have a material effect on the Company's financial statements.
(n) Long-Lived Assets - The Company evaluates its long-lived assets for
impairment whenever events or changes in circumstances indicate that the
carrying amount of such assets or intangibles may not be recoverable.
Recoverability of assets to be held and used is measured by a comparison of the
carrying amount of an asset to future undiscounted net cash flows expected to be
generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets.
(o) 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. The Company believes that the concentration of credit risk in its trade
receivables is substantially mitigated by the Company's on-going 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.
(p) Segment Reporting - The Company maintained operations in two primary
operating segments: Internet banking and leasing. As discussed in Note 4, the
Company has discontinued its leasing segment and all related financial
information has been reclassified to reflect the results of operations as
discontinued operation.
(3) INVESTMENTS
On January 20, 2000, Home Financial Network, Inc. ("HFN"), a company in
which InteliData held approximately a 25% ownership interest, merged with
Sybase, Inc. InteliData accounted for its investment in HFN using the equity
method. As of the merger date, such investment's carrying value was zero. In
exchange for its portion of ownership in HFN,
InteliData received approximately $5,867,000 in cash and approximately 1,770,000
shares of Sybase stock. The Company also held warrants to purchase HFN common
stock. As part of the merger agreement, such warrants were converted into
warrants to purchase Sybase common stock. The Company received 640,000 "warrant
units" with an exercise price of $2.60 per warrant unit. Upon exercise of each
warrant unit, the Company is entitled to receive $1.153448 in cash and 0.34794
share of Sybase common stock. InteliData recognized a gain of approximately
$42,604,000 on this transaction during the first quarter of 2000.
An escrow account was established to provide Sybase, Inc. indemnity
protection against possible claims that might arise against HFN. Approximately
133,000 shares of Sybase common stock owned by InteliData were put in escrow,
along with approximately $440,000 of cash. In March 2001, the Company received
the escrow payments less approximately $127,000 for miscellaneous claims under
the escrow provision.
Additionally, the Company acquired approximately $251,000 of marketable
securities during 2000. The Company considers all of its investments to be
available-for-sale under the provisions of Statement of Financial Accounting
Standards No. 115, Accounting for Certain Investments in Debt and Equity
Securities, and as such, included within stockholders' equity as of December 31,
2000 is $494,000 of unrealized gain on investments (net of taxes), which
represents the increase in the fair market value of the investment holdings from
the acquisition price to December 31, 2000. As discussed in Note 1, effective
January 1, 2001, the Company's investment in the Sybase warrants will be
accounted for in accordance with SFAS 133.
As of December 31, 2000, the Company has classified all investments as
available-for-sale, including the above-mentioned investment held in escrow. The
amortized cost, gross unrealized holding gains, gross unrealized holding losses
and fair value of the securities were as follows (in thousands):
Cost or Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ----------- ---------- ----------
Fixed income $ 251 $ - $ (10) $ 241
Equity securities 9,462 514 - 9,976
---------- ----------- ---------- ----------
Total $ 9,713 $ 514 $ (10) $10,217
All fixed income securities are due after five years.
As of December 31, 2000, approximately $3,541,000 of the equity securities
represented the warrants to purchase Sybase common stock. The fair value of the
warrants described above was estimated on December 31, 2000 using the
Black-Scholes model using the following: no dividend yield, expected volatility
of 60%, life of 12 months, and a risk free interest rate of 6.10% per annum.
(4) DISCONTINUED OPERATIONS
The Company leased Caller ID adjunct units under an agreement with US West,
whereby the Company leased Caller ID units directly to US West customers. The
leasing program enabled 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
remained in effect. The number of active records in the Company's installed
lease base historically decreased at a rate of approximately 30% per year.
During 2000, US West notified the Company that US West would no longer
permit InteliData to include the lease billing on the US West telephone bills.
As such, InteliData has discontinued billing its legacy customers for Caller ID
adjunct unit leases in the US West telephone service territory, because the cost
of individually billing and pursuing collections for the leases would have made
it impractical and uneconomical for the Company to continue the lease program.
Accordingly, the results of operations from leasing activities have been
reported as 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.
As of December 31, 2000, the Company had $755,000 in remaining liabilities
related to the discontinued operations. During the year, the Company sold the
only remaining asset it had in the discontinued operations -- the building in
New Milford, Connecticut. 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, potential
warranty and royalty costs, and potential settlements with telecom customers and
others. The Company is working with its professional advisors and insurer to
manage its exposure to liability for the potential environmental clean-up.
Management does not believe that the resolution of this matter will be likely to
have a material adverse effect on the Company's financial condition or results
of operations.
Net revenues and loss from discontinued operations are as follows:
Years Ended December 31,
-----------------------------------------------------------
(in thousands) 2000 1999 1998
- ---------------------------------------------------------------------------------------------------------------
Net revenues $ 1,531 $ 3,923 $ 28,911
Cost of revenues 730 1,322 31,092
Operating expenses 1,068 (3,204) 32,803
Income (loss) from operations (267) 5,805 (34,984)
Income (benefit) taxes (5) -- (3,628)
Income (loss) from discontinued operations (262) 5,805 (31,356)
- ---------------------------------------------------------------------------------------------------------------
Net (liabilities) assets of discontinued operations are as follows:
December 31,
----------------------------------
(in thousands) 2000 1999
- --------------------------------------------------------------------------------
Trade receivables, net $ -- $ --
Inventories and other current assets -- --
Property, plant and equipment, net -- 588
Trade payables -- --
Other current liabilities (755) (657)
----------------------------------
Net liabilities of discontinued operations $ (755) $ (69)
========== ==========
- --------------------------------------------------------------------------------
Summary of Discontinued Operations
In 2000, the Company experienced a loss of $262,000 in discontinued
operations, while there was a gain of $5,805,000 in 1999. The loss in 2000 was
solely related to the Caller ID business and was primarily the result of the
Company's write-off of the remaining accounts receivable. The gain of $5,805,000
in 1999 is divided into $2,579,000 from the Caller ID leasing business and
$3,226,000 from the telecommunications and interactive services divisions. All
of the above results are net of applicable income taxes.
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) of $18,049,000 included $13,784,000 in
inventory adjustments and $4,265,000 of other activity, while there was a gain
of $3,306,000 from the Caller ID leasing business. 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.
(5) PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31 (in
thousands):
2000 1999
----------- -----------
Building Improvements $ 45 $ --
Office equipment 4,269 1,421
Furniture and fixtures 610 191
----------- -----------
4,924 1,612
Accumulated depreciation (1,642) (1,064)
----------- -----------
$ 3,282 $ 548
=========== ===========
(6) ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities consists of the following at
December 31 (in thousands):
2000 1999
---------- ----------
Accrued compensation $ 1,645 $ 399
Accrued professional fees 291 72
Accrued tax liabilities 10 13
Accrued insurance 209 221
Other liabilities 1,496 461
----------- ----------
$ 3,651 $ 1,166
=========== ==========
(7) 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 to purchase 120,000 shares of InteliData common stock 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.
The fair value of these 120,000 warrants, which expire five years from the
issuance date and have an exercise price of $4.53, was estimated as of the grant
date using the Black-Scholes model. The following assumptions were used: no
dividend yield, expected volatility of 129%, life of 5 years, and a risk free
interest rate of 4.00% per annum. Accordingly, the Company allocated
approximately $369,000 to these warrants and the charge was amortized over the
period that the preferred stock was outstanding. As of December 31, 2000,
104,000 warrants remained outstanding.
(b) Stock Options
The Company sponsors several stock option plans that 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 in
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 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, 1998 $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 $0.69 $20.38 3,173,095
Granted $2.59 $19.44 805,700
Exercised $0.81 $14.75 (234,011)
Canceled $0.97 $12.75 (141,009)
-----------------
-----------------
December 31, 2000 $0.69 $19.44 3,603,775
=================
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, the Company recognized $18,000 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 results of
operation would have been as follows (in thousands, except for per share data)
for the years ended December 31:
2000 1999 1998
------- --------- ---------
Net income (loss) $18,836 $ (7,679) $(38,437)
Basic earnings (loss) per common share $ 0.49 $ (0.23) $ (1.22)
Diluted earnings (loss) per common share $ 0.46 $ (0.23) $ (1.22)
The weighted average fair value of options granted during 2000, 1999,
and 1998 was $6.85, $1.53, and $1.15 per share, respectively. The fair value of
options granted was estimated on the date of grant using the Black-Scholes
option-pricing model. For 2000 year-end, the following weighted average
assumptions were used: no dividend yield, expected volatility of 134%, and a
risk free interest rate of 5.16% per annum. 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.
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
----------------- ------------ ----------- ---------- ----------- -----------
$ 0.690 - 2.375 2,296,586 6.7 years $ 1.23 1,430,606 $ 1.21
2.376 - 4.750 502,225 6.4 years 3.28 148,941 3.13
4.751 - 7.125 436,300 6.6 years 5.92 14,750 5.01
7.126 - 9.500 260,234 6.7 years 8.18 35,830 7.93
9.501 -23.750 108,430 4.3 years 14.83 29,630 16.51
----------------- ------------ ----------- ---------- ----------- -----------
3,603,775 1,659,757
============ ===========
(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 who 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, 2000, 1999, and 1998 the Company issued 20,079, 33,498, and 44,307
shares of stock under the plan, respectively.
(d) Treasury Stock
In 2000, the Company paid $59,000 to acquire an additional 9,212 shares of
its own common stock. These shares were surrendered by employees of the Company
to satisfy tax-withholding obligations associated with the vesting of certain
restricted stock awards. As of December 31, 2000, the Company had a total of
690,712 common shares in treasury at an aggregate cost of $2,123,000.
(e) Stockholder Rights Plan
In January 1998, the Company's Board of Directors adopted a Stockholder
Rights Plan. This plan was amended on May 24, 2000. 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 $42.50.
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.
(f) Stock Warrants
In 2000, the Company entered into a five-year agreement with an unrelated
party, whereby the Company issued warrants to this entity in exchange for the
entity's becoming a premier reference site for InteliData's service bureau
offering. As a premier reference site, the entity would make its facility and
personnel reasonably accessible for InteliData, InteliData's potential clients,
analysts, and industry publication reporters, in order to demonstrate or answer
questions regarding a service bureau environment and InteliData's capabilities.
On June 30, 2000, InteliData issued five-year, fully-vested warrants to purchase
50,000 share of InteliData common stock at an exercise price of $4.75 per share.
The fair value of these warrants was estimated as of the grant date using the
Black-Scholes model. The following assumptions were used: no dividend yield,
expected volatility of 143%, life of 2 years, and a risk free interest rate of
6.44% per annum. Accordingly, the Company recorded approximately $419,000 of
deferred compensation that is being amortized over the term of this agreement.
As of December 31, 2000, all of these warrants were still outstanding.
(8) 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. Company contributions to the Plan are based on a
percentage of employee contributions. The Company contributed $89,000, $60,000,
and $128,000 in 2000, 1999, and 1998, respectively. The Company also pays for
administrative expenses incurred by the Plan.
(9) 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,
----------------------------------
2000 1999 1998
---------- --------- ----------
Income tax liability (benefit)
computed at the statutory rate $ 8,543 $ (1,792) $ (1,266)
Other 85 61 26
Change in valuation allowance (8,140) 1,731 1,240
---------- --------- ----------
Income taxes $ 488 $ -- $ --
========== ========= ==========
The balance of $488,000 represents the current federal income tax
provision. The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and liabilities at December 31,
2000 and 1999, are as follows (in thousands):
2000 1999
---------- -----------
Deferred tax assets:
Net operating loss carryforwards $ 36,140 $ 39,342
Basis differences in investments (3,466) 1,750
Accounts receivable and inventory revaluation 381 523
Property and Equipment (64) 56
General business credit carryforward 489 489
Other 359 --
Alternative minimum tax credit carryforward 241 60
---------- ---------
Total gross deferred tax asset 34,080 42,220
Valuation allowance (34,080) (42,220)
---------- ---------
Net deferred tax assets $ -- $ --
========== ==========
The net changes in the total valuation allowance for the years ended
December 31, 2000, 1999, and 1998 were an increase (decrease) of $(8,140,000),
$602,000, and $3,923,000, respectively. A valuation allowance was established
for deferred tax assets as of December 31, 2000 and 1999 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, 2000, the Company had net operating loss carryforwards for
federal income tax purposes of approximately $103 million, which expire in 2007
through 2019, general business tax credits of approximately $489,000, which
expire in 2005 through 2010, and an alternative minimum tax credit carryforward
of approximately $241,000, which may be carried forward indefinitely and used to
offset future regular taxable income.
(10) COMMITMENTS AND CONTINGENCIES
(a) Leases
The Company leases facilities and equipment under cancelable and
noncancelable operating lease agreements. The facility leases are for terms from
one to five years. Rent expense was $735,000, $483,000 and $877,000 for the
years ended December 31, 2000, 1999, and 1998, respectively.
Future minimum lease payments under noncancelable operating leases with
initial or remaining terms in excess of one year at December 31, 2000, were as
follows (in thousands):
Year ending December 31,
------------------------
2001 $ 722
2002 530
2003 541
2004 410
2005 --
2006 and thereafter --
------------
Total minimum lease payments $ 2,203
============
(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.
(11) VALUATION AND QUALIFYING ACCOUNTS
The components of significant valuation and qualifying accounts associated
with accounts receivable for the years ended December 31, 2000 and 1999 were as
follows (in thousands):
Balance, December 31, 1998 $ 511
Recoveries (217)
Charged to costs and expenses -
Write-offs 148
------------
Balance, December 31, 1999 442
Recoveries -
Charged to costs and expenses 276
Write-offs -
------------
Balance, December 31, 2000 $ 718
============
(12) ACQUISITION OF HOME ACCOUNT
On January 11, 2001, InteliData acquired Home Account Holdings, Inc.
(Home Account), a Delaware corporation, and its operating subsidiary, Home
Account Network, Inc., by means of the merger of one of the Company's wholly
owned subsidiaries with and into Home Account Holdings, with Home Account
Holdings surviving the merger. Home Account Holdings is now a wholly owned
subsidiary of InteliData. Home Account Holdings is an application services and
software provider to financial institutions for the delivery of financial
products and services over the Internet. Home Account Holdings provides a suite
of UNIX-based Internet banking and electronic bill presentment and payment
products and services in an application services provider environment.
The Company acquired all of the outstanding common stock and options of
Home Account by issuing 6,900,000 of InteliData common stock and paying
approximately $320,000 in cash. The value of the shares issued as part of the
purchase consideration of approximately $29,011,000 was measured based on the
market price of the issued common stock a few days before and after January 11,
2001 - the date that the merger transaction was agreed to and announced. This
acquisition is accounted for as a purchase under Accounting Principles Board
Opinion No. 16, Business Combinations (APB No. 16). In accordance with APB No.
16, the Company is allocating the purchase price of Home Account based on the
fair value of the assets acquired and liabilities assumed. Goodwill resulting
from the Home Account acquisition will be amortized over seven years.
(13) UNAUDITED QUARTERLY FINANCIAL DATA
The results of the Company's quarterly operations for the years ended
December 31, 2000 and 1999 are set forth in the following table (in thousands,
except per share data). During 2000, the Company discontinued the Caller ID
leasing business. Accordingly, the results of operations from leasing activities
have been reported as discontinued operations and prior period results have been
reclassified to conform to this presentation.
First Second Third Fourth YTD
---------- ----------- ------------ ----------- --------
2000
- ----
Revenues $ 1,784 $ 1,199 $ 1,516 $ 602 $ 5,101
Cost of revenues 574 933 850 363 2,720
Operating expenses 4,902 6,715 7,103 8,979 27,699
------------ ------------ ----------- ---------- -----------
Operating loss (3,692) (6,449) (6,437) (8,740) (25,318)
Other income (expense) 42,756 1,555 4,170 1,245 49,726
Provision (benefit) for income taxes 790 (100) (57) (145) 488
------------ ------------ ----------- ---------- -----------
Income (loss) from continuing operations 38,274 (4,794) (2,210) (7,350) 23,920
Income (loss) from discontinued operations 417 (51) (633) 5 (262)
------------ ------------ ----------- ---------- -----------
Net income (loss) 38,691 (4,845) (2,843) (7,345) 23,658
Preferred stock dividend requirement -- -- -- -- --
------------ ----------- ----------- ---------- -----------
Net income (loss) attributable
to common stockholders $ 38,691 $ (4,845) $ (2,843) $ (7,345) $ 23,658
============ =========== =========== ========== ===========
Basic earnings per common share
Income (loss) from continuing operations $ 1.00 $ (0.13) $ (0.05) $ (0.19) $ 0.63
Income (loss) from discontinued operations 0.01 0.00 (0.02) 0.00 (0.01)
------------ ----------- ----------- ---------- -----------
Net income (loss) $ 1.01 $ (0.13) $ (0.07) $ (0.19) $ 0.62
============ =========== =========== ========== ===========
Diluted earnings per common share
Income (loss) from continuing operations $ 0.93 $ (0.13) $ (0.05) $ (0.19) $ 0.59
Income (loss) from discontinued operations 0.01 0.00 (0.02) 0.00 (0.01)
------------ ----------- ----------- ---------- -----------
Net income (loss) $ 0.94 $ (0.13) $ (0.07) $ (0.19) $ 0.58
============ =========== =========== ========== ===========
Weighted-average common shares outstanding
Basic 38,147 38,173 38,265 38,349 38,237
============ =========== =========== ========== ==========
Diluted 40,955 38,173 38,265 38,349 40,843
============ =========== =========== ========== ==========
1999
- ----
Revenues $ 1,034 $ 1,811 $ 1,988 $ 1,660 $ 6,493
Cost of revenues 57 297 368 1,021 1,743
Operating expenses 3,251 3,393 2,911 3,245 12,800
------------ ----------- ----------- ---------- ----------
Operating loss (2,274) (1,879) (1,291) (2,606) (8,050)
Other income (expense) 43 77 109 121 350
Provision (benefit) for income taxes -- -- -- -- --
------------ ----------- ----------- ---------- ----------
Income (loss) from continuing operations (2,231) (1,802) (1,182) (2,485) (7,700)
Income (loss) from discontinued operations 710 2,019 1,004 2,072 5,805
------------ ----------- ----------- ---------- ----------
Net income (loss) (1,521) 217 (178) (413) (1,895)
Preferred stock dividend requirement -- -- (1,535) (401) (1,936)
------------ ----------- ----------- ---------- ----------
Net income (loss) attributable
to common stockholders $ (1,521) $ 217 $ (1,713) $ (814) $ (3,831)
============ =========== =========== ========== ==========
Basic and diluted earnings per common share
Income (loss) from continuing operations $ (0.07) $ (0.05) $ (0.08) $ (0.08) $ (0.29)
Income (loss) from discontinued operations 0.02 0.06 0.03 0.06 0.18
------------ ----------- ----------- ---------- ----------
Net income (loss) $ (0.05) $ 0.01 $ (0.05) (0.02) $ (0.11)
============ =========== =========== ========== ==========
Weighted-average common shares outstanding
Basic and Diluted 31,693 32,627 33,056 36,090 33,367
============ ========== =========== ========== ==========
* * * * * *
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,
2000 and 1999, 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, 2000. 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, 2000 and 1999, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2000, in conformity with accounting principles generally accepted
in the United States of America.
/s/ Deloitte & Touche LLP
McLean, Virginia
March 14, 2001
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 2001 Stockholder's Meeting to
be filed within 120 days after the end of the Company's fiscal year (the "2001
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 75 Chairman of the Board
Alfred S. Dominick, Jr. 55 President and Chief Executive Officer
Michael E. Jennings 55 Executive Vice President of the Consumer
Services Business Unit
Steven P. Mullins 34 Vice President, Chief Financial Officer
and Treasurer
Albert N. Wergley 53 Vice President, General Counsel and Secretary
Charles A. White 42 Vice Chairman, Corporate Development
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.
Michael E. Jennings has served as the Executive Vice President of the Consumer
- -------------------
Services Business Unit since joining InteliData in June 2000. He is in charge of
overall business planning and business development activities for electronic
bill presentment and payment, Internet
banking, and outsourcing. Previous to joining InteliData, Mr. Jennings served at
Bank of America as a Senior Vice President of Self Service Delivery. During the
eight years prior to joining InteliData, he worked on alternative delivery
strategies and managing several different areas of electronic Banking including:
Debit Cards, ATMs, ATM/POS Operations, PC and Internet Banking, and EFT
switches. Mr. Jennings is a former director of CIRRUS, Money Transfer Systems,
Credit Systems Inc., and was chairman of the American Banking Association's
Retail Payment Systems Committee.
Steven P. Mullins has served as Vice President, Chief Financial Officer, and
- -----------------
Treasurer of the Company since October 2000. From January 2000 to October 2000,
he served as the Vice President of Finance, Treasurer, and Controller. 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.
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.
Charles A. White joined InteliData through the merger with Home Account. He was
- ----------------
President and CEO of Home Account from 1998 through the merger. From 1994 to
1998, Mr. White was at First Data Corporation, where he was President of
Electronic Commerce Payment Services. At First Data, Mr. White managed start-up
ventures in electronic bill presentment and Internet home banking. He led the
company's bill presentment concept and established the joint venture MSFDC,
later Transpoint, with Microsoft. Prior to First Data, Mr. White held executive
technology management positions at Visa International, where he was responsible
for the development and engineering of distributed, real-time, payment
processing solutions.
Beneficial Ownership Reporting
The Company incorporates herein by reference the information required
by Item 405 of Regulation S-K contained in its 2001 Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
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The Company incorporates herein by reference the information concerning
executive compensation contained in the 2001 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
2001 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 2001 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
2.1 Agreement and Plan of Merger, dated January 11, 2001, by and
among Intelidata Technologies Corporation, InteliData Merger Sub,
Inc., Home Account Holdings, Inc., and Edward F. Glassmeyer and
Ronald Terry, each in his capacity as representative of the
stockholders of Home Account. (Incorporated herein by reference
to the Current Report on Form 8-K filed with the Commission on
January 26, 2001).
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 Compan'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).
4.1.1 Amendment No. 1 dated May 24, 2000 to the 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 Current Report on Form
8-A/A filed with the Commission on July 6, 2000).
4.2 Registration Rights Agreement, dated January 11, 2001, by and
among InteliData Technologies Corporation and the holders of
common stock listed on Exhibit A attached thereto. (Incorporated
herein by reference to the Current Report on Form 8-K filed with
the Commission on January 26, 2001).
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).InteliData
Technologies Corporation 1996 Incentive Plan. (Incorporated
herein by reference to
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. (Incorporated herein by reference to Exhibit 10
to the Company's Report on Form 10-K for the year ended December
31, 1999).
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. (Incorporated herein by reference
to Exhibit 10 to the Company's Report on Form 10-K for the year
ended December 31, 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 Employment and Non-Competition Agreement between InteliData
Technologies Corporation and Michael E. Jennings, dated June 14,
2000 (Incorporated herein by reference to Exhibit 10 to the
Company's Report on Form 10-Q for the quarter ended September
30, 2000).
10.9 Employment and Non-Competition Agreement between InteliData
Technologies Corporation and William F. Gorog, dated November 1,
2000 (Incorporated herein by reference to Exhibit 10 to the
Company's Report on Form 10-Q for the quarter ended September 30,
2000).
10.10 Employment and Non-Competition Agreement between InteliData
Technologies Corporation and Steven P. Mullins, dated November 1,
2000 (Incorporated herein by reference to Exhibit 10 to the
Company's Report on Form 10-Q for the quarter ended September 30,
2000).
10.11 Merger Consideration Escrow Agreement, dated January 11, 2001,
by and among InteliData Technologies Corporation, Home Account
Holdings, Inc., Edward Glassmeyer and Ronald Terry, each in his
capacity as representative of the stockholders of Home Account,
and SunTrust Bank, Richmond, Virginia, as Escrow Agent.
(Incorporated herein by reference to the Current Report on Form
8-K filed with the Commission on January 26, 2001).
10.12 IIndemnity Escrow Agreement, dated January 11, 2001, by and
among InteliData Technologies Corporation, Home Account Holdings,
Inc., Edward Glassmeyer and Ronald Terry, each in his capacity as
representative of the stockholders of Home Account, and SunTrust
Bank, Richmond, Virginia, as Escrow Agent. (Incorporated herein
by reference to the Current Report on Form 8-K filed with the
Commission on January 26, 2001).
10.13 Note and Fee Exchange Agreement, dated January 11, 2001, by and
among InteliData Technologies Corporation, Home Account Holdings,
Inc., U.S. Bancorp Piper Jaffray and the persons listed on
Exhibit A thereto. (Incorporated herein by reference to the
Current Report on Form 8-K filed with the Commission on January
26, 2001).
* 21.1 InteliData Technologies Corporation List of Significant
Subsidiaries.
* 23.1 Consent of Deloitte & Touche LLP.
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* filed herewith
(b) REPORTS ON FORM 8-K
None.
* * * * * *
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 26, 2001
- --------------------------- Officer, and Director
Alfred S. Dominick, Jr.
/s/ William F. Gorog Chairman of the Board March 26, 2001
- --------------------------- and Director
William F. Gorog
/s/ Steven P. Mullins Vice President, Chief March 26, 2001
- -------------------------- Financial Officer, and
Steven P. Mullins Treasurer (Principal
Financial and
Accounting Officer)
/s/ Neal F. Finnegan Director March 26, 2001
- ---------------------------
Neal F. Finnegan
/s/ Patrick F. Graham Director March 26, 2001
- ---------------------------
Patrick F. Graham
/s/ John J. McDonnell, Jr. Director March 26, 2001
- ---------------------------
John J. McDonnell, Jr.
/s/ L. William Seidman Director March 26, 2001
- ---------------------------
L. William Seidman
/s/ Norman J. Tice Director March 26, 2001
- ---------------------------
Norman J. Tice
/s/ Charles A. White Director March 26, 2001
- ---------------------------
Charles A. White