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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the Quarterly Period Ended: June 30, 2003 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) (Zip Code)
(703) 259-3000
(Registrant's Telephone Number)
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 whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes No X
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The number of shares of the registrant's Common Stock outstanding on June 30,
2003 was approximately 49,618,000.
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INTELIDATA TECHNOLOGIES CORPORATION
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
Page
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheets
June 30, 2003 and December 31, 2002 ............................. 3
Condensed Consolidated Statements of Operations
Three and Six Months Ended June 30, 2003 and 2002 ................ 4
Condensed Consolidated Statement of Changes in Stockholders' Equity
Six Months Ended June 30, 2003 .................................... 5
Condensed Consolidated Statements of Cash Flows
Six Months Ended June 30, 2003 and 2002 ........................... 6
Notes to Condensed Consolidated Financial Statements .............. 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations .........................................11
Item 3. Quantitative and Qualitative Disclosures About Market Risk ........19
Item 4. Controls and Procedures ...........................................19
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders ...............19
Item 6. Exhibits and Reports on Form 8-K...................................20
SIGNATURES..................................................................21
PART I: FINANCIAL INFORMATION
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ITEM 1. FINANCIAL STATEMENTS
- ----------------------------------
INTELIDATA TECHNOLOGIES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 2003 AND DECEMBER 31, 2002
(in thousands, except share data; unaudited)
2003 2002
------------ ------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 6,204 $ 5,674
Accounts receivable, net 3,272 2,974
Other receivables 139 309
Prepaid expenses and other current assets 669 802
------------ ------------
Total current assets 10,284 9,759
NONCURRENT ASSETS
Property and equipment, net 1,833 2,554
Goodwill, net 26,238 26,238
Intangibles, net 5,420 5,780
Other assets 213 175
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TOTAL ASSETS $ 43,988 $ 44,506
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 2,201 $ 2,081
Accrued expenses 2,425 3,458
Deferred revenues 1,157 1,673
Other liabilities 256 252
Net liabilities of discontinued operations 45 51
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TOTAL CURRENT LIABILITIES 6,084 7,515
Net liabilities of discontinued operations 139 200
Other liabilities 817 337
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TOTAL LIABILITIES 7,040 8,052
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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 100,000,000 shares;
issued 50,431,000 shares in 2003 and 49,797,000 shares in 2002;
outstanding 49,618,000 shares in 2003 and 48,991,000 shares in 2002 50 50
Additional paid-in capital 303,572 302,833
Treasury stock, at cost: 813,000 shares in 2003 and 806,000 shares in 2002 (2,486) (2,473)
Deferred compensation (378) (304)
Accumulated deficit (263,810) (263,652)
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TOTAL STOCKHOLDERS' EQUITY 36,948 36,454
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 43,988 $ 44,506
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See accompanying notes to condensed consolidated financial statements.
INTELIDATA TECHNOLOGIES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 30, 2003 AND 2002
(in thousands, except per share data; unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------- -------------------------------
2003 2002 2003 2002
----------- ----------- ----------- -----------
Revenues
Software $ 295 $ 393 $ 638 $ 521
Professional services, recurring and termination fees 5,656 5,068 10,938 9,648
--------- --------- --------- -----------
Total revenues 5,951 5,461 11,576 10,169
--------- --------- --------- -----------
Cost of revenues
Software -- -- -- --
Professional services, recurring and termination fees 1,948 2,079 3,882 4,038
--------- --------- --------- -----------
Total cost of revenues 1,948 2,079 3,882 4,038
--------- --------- --------- -----------
Gross profit 4,003 3,382 7,694 6,131
Operating expenses
General and administrative 1,931 2,436 4,020 4,930
Sales and marketing 485 904 878 1,754
Research and development 1,430 2,631 2,577 5,173
Amortization of intangibles 180 180 360 360
----------- ---------- --------- -----------
Total operating expenses 4,026 6,151 7,835 12,217
----------- ---------- --------- -----------
Operating loss (23) (2,769) (141) (6,086)
Realized loss on sales of investments -- (748) -- (748)
Unrealized loss on Sybase warrants -- (377) -- --
Other income (expenses), net 12 41 (17) 55
----------- ---------- --------- -----------
Loss before income taxes (11) (3,853) (158) (6,779)
Provision for income taxes -- -- -- --
----------- ---------- --------- -----------
Loss from continuing operations (11) (3,853) (158) (6,779)
Discontinued operations, net of income taxes -- -- -- --
----------- ---------- --------- -----------
Net loss $ (11) $ (3,853) $ (158) $ (6,779)
=========== ========== ========= ===========
Basic and diluted loss per common share
Loss from continuing operations $ (0.00) $ (0.08) $ (0.00) $(0.14)
Income (loss) from discontinued operations 0.00 0.00 0.00 0.00
----------- ---------- --------- -----------
Net loss $ (0.00) $ (0.08) $ (0.00) $ (0.14)
=========== ========== ========= ===========
Basic and diluted weighted-average
common shares outstanding 49,002 48,501 48,935 48,513
=========== ========== ========= ===========
See accompanying notes to condensed consolidated financial statements.
INTELIDATA TECHNOLOGIES CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 2003
(in thousands; unaudited)
Common Stock Additional
------------------------- Paid-in Treasury Deferred Accumulated
Shares Amount Capital Stock Compensation Deficit
----------- ------------- ------------- ----------- --------------- -------------
Balance at January 1, 2003 49,797 $ 50 $ 302,833 $ (2,473) $ (304) $ (263,652)
Issuances of common stock:
Exercises of stock options 452 - 525 - - -
Employee stock purchase plan 10 - 7 - - -
Exercises of stock warrants 23 - - - - -
Issuances of restricted stock 155 - 225 - (225) -
Cancellations of restricted stock (6) - (18) - 18 -
Treasury Stock - - - (13) - -
Amortization of deferred compensation - - - - 133 -
Net loss - - - - - (158)
Comprehensive loss
----------- ------------- ------------- ----------- --------------- -------------
Balance at June 30, 2003 50,431 $ 50 $ 303,572 $ (2,486) $ (378) $ (263,810)
=========== ============= ============= =========== =============== =============
Comprehensive
Loss Total
---------------- ------------
Balance at January 1, 2003 $ 36,454
Issuances of common stock:
Exercises of stock options 525
Employee stock purchase plan 7
Exercises of stock warrants -
Issuances of restricted stock -
Cancellations of restricted stock -
Treasury Stock (13)
Amortization of deferred compensation 133
Net loss (158) (158)
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Comprehensive loss $ (158)
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Balance at June 30, 2003 $ 36,948
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See accompanying notes to condensed consolidated financial statements.
INTELIDATA TECHNOLOGIES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2003 AND 2002
(in thousands; unaudited)
2003 2002
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Cash flows from operating activities
Loss from continuing operations $ (158) $ (6,779)
Adjustments to reconcile loss from continuing operations
to net cash used in operating activities of continuing operations:
Realized loss on sales of investments -- 748
Amortization of intangibles 360 360
Depreciation and amortization 666 745
Deferred compensation expense 133 536
Loss on disposal of property and equipment 137 2
Changes in certain assets and liabilities:
Accounts receivable (298) 1,444
Other receivables 170 355
Prepaid expenses and other current assets 95 105
Accounts payable 120 (1,076)
Accrued expenses (549) (1,546)
Deferred revenues (516) (672)
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Net cash provided by (used in) operating
activities of continuing operations 160 (5,778)
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Income (loss) from discontinued operations -- --
Change in net liabilities of discontinued operations (67) (196)
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Net cash used in operating activities of
discontinued operations (67) (196)
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Net cash provided by (used in) operating activities 93 (5,974)
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Cash flows from investing activities
Net proceeds from warrant exercise and sales of investments -- 1,718
Purchases of property and equipment (82) (311)
Payments for acquisition costs for Home Account -- (50)
----------- ----------
Net cash (used in) provided by investing activities (82) 1,357
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Cash flows from financing activities
Proceeds from issuance of common stock 532 38
Payments to acquire treasury stock (13) --
----------- ----------
Net cash provided by financing activities 519 38
----------- ----------
Increase (decrease) in cash and cash equivalents 530 (4,579)
Cash and cash equivalents, beginning of period 5,674 12,026
----------- ----------
Cash and cash equivalents, end of period $ 6,204 $ 7,447
=========== ==========
See accompanying notes to condensed consolidated financial statements.
INTELIDATA TECHNOLOGIES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2003 AND 2002
(Unaudited)
(1) Basis of Presentation
The condensed consolidated balance sheet of InteliData Technologies
Corporation ("InteliData" or the "Company") as of June 30, 2003, the related
condensed consolidated statements of operations and cash flows for the six-month
periods ended June 30, 2003 and 2002, and the related condensed consolidated
statement of changes in stockholders' equity for the six-month period ended June
30, 2003 presented in this Form 10-Q are unaudited. In the opinion of
management, all adjustments necessary for a fair presentation of such financial
statements have been included. Such adjustments consist only of normal recurring
items. The condensed consolidated balance sheet as of December 31, 2002 was
derived from the Company's audited December 31, 2002 balance sheet. Interim
results are not necessarily indicative of results for a full year. Certain
amounts in the prior periods have been reclassified to conform to the current
period presentation.
The condensed consolidated financial statements and notes are presented as
required by Form 10-Q, and do not contain certain information included in the
Company's annual audited financial statements and notes. These financial
statements should be read in conjunction with the annual audited financial
statements of the Company and the notes thereto, together with management's
discussion and analysis of financial condition and results of operations,
contained in the Form 10-K for the fiscal year ended December 31, 2002.
(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 intercompany balances and transactions. Certain
reclassifications have been made to the prior year financial statements to
conform to the 2003 financial statement presentation.
(b) Accounting Estimates - The preparation of financial statements in
conformity with accounting principles generally accepted in the United States of
America 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. Estimates include, but are not
limited to, an allowance for doubtful accounts, an estimated fair value of net
sublease rent, a provision for forward loss and project plans for the completion
and delivery of certain solutions. Actual results could differ from those
estimates.
(c) Revenue Recognition - The Company supplies Internet banking and electronic
bill presentment and payment software to financial institutions ("FI's"). The
Company's revenues associated with integrated solutions that bundle software
products with customization, installation and training services are recognized
using the percentage of completion method of accounting based on cost incurred
as compared to estimated costs at completion.
The Company enters into contracts for its bill payment technology software.
This software does not require significant customization. Upon delivery, the
Company either recognizes revenue ratably over the contract period for contracts
where vendor specific objective evidence ("VSOE") of fair value for post
contract customer support ("PCS") does not exist or recognizes revenue in full
where VSOE of fair value for PCS does exist.
The Company also enters into multiple element arrangements. Elements
typically include software, consulting, implementation and PCS. PCS contracts
generally require the Company to provide technical support and unspecified,
readily available software updates and upgrades to customers. Revenue for these
multiple element arrangements 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. Currently, the Company does not have VSOE
of fair value for some of the elements within its multiple element arrangements.
Therefore, all revenue under such arrangements is being recognized ratably over
the term of the PCS contract. Revenue from transactional services, which
includes hosting and application services provider ("ASP") services, is
recognized as transactions are processed.
Emerging Issues Task Force Abstract Issue No. 00-3, Application of AICPA
Statement of Position 97-2 to Arrangements that Include the Right to Use
Software Stored on Another Entity's Hardware ("EITF 00-3"), provides guidance in
determining whether or not the provisions of Statement of Position No. 97-2,
Software Revenue Recognition ("SOP 97-2"), should be applied to hosting
arrangements. The Company has some contracts where the customers operate our
software in an ASP environment. The customer may not take possession of the
software without incurring significant transition and infrastructure costs, as
well as potential payments of fees to the Company for the termination of such
arrangements. In cases where the customer has not licensed software from
InteliData, the customer must also purchase a license prior to having the right
to use the software in its own operating environment, in addition to the
aforementioned fees. In these situations, the Company applies the guidance under
EITF 00-3 and the Staff Accounting Bulletin No. 101, Revenue Recognition in
Financial Statements, and recognizes the revenue associated with the license
and/or implementation fees ratably over the initial term of the contract.
Additionally, based on the EITF 00-3 guidance, the Company concluded that
SOP 97-2 should not be applied to certain of its contracts and their related
revenues for license and professional services were recognized under the
percentage of completion method. In addition to our developing and delivering
the solution, the Company is entitled to transaction fees based on the number of
users and transactions. These transaction fees are earned based on the monthly
user counts and as transactions are processed.
(d) Recent Accounting Pronouncements - In May 2003, the Financial Accounting
Standards Board ("FASB") issued SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity ("SFAS 150"),
which requires that an issuer classify financial instruments that are within
scope of SFAS 150 as a liability. Under prior guidance, these same instruments
would be classified as equity. SFAS 150 is effective for all financial
instruments entered into or modified after May 31, 2003. Otherwise, it is
effective on July 1, 2003. The Company does not believe that the adoption of
SFAS 150 will have a material effect on our financial position or results of
operations.
In May 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities ("SFAS 149"), which amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities under SFAS
No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS 149
is effective for contracts entered into or modified after June 30, 2003, and for
hedging relationships designated after June 30, 2003. The Company does not
believe that the adoption of SFAS 149 will have a material impact on our
financial position or results of operations.
In December 2002, the FASB issued Statement of Financial Accounting
Standard ("SFAS") No. 148, Accounting for Stock-Based Compensation-Transition
and Disclosure-an amendment of FAS 123 ("SFAS 148"). SFAS 148 amends SFAS No.
123, Accounting for Stock-Based Compensation ("SFAS 123"), to provide
alternative methods of transition for an entity that voluntarily changes to the
fair value based method of accounting for stock-based employee compensation. It
also amends the disclosure provisions of SFAS 123 to require prominent
disclosure about the effects on reported net income of an entity's accounting
policy decisions with respect to stock-based employee compensation. SFAS 148
also amends APB Opinion No. 28, Interim Financial Reporting, to require
disclosure about those effects in interim financial information. SFAS 148 is
effective for annual and interim periods beginning after December 15, 2002. As
the Company has elected not to change to the fair value based method of
accounting for stock-based employee compensation, SFAS 148 does not have any
impact on our financial position, results of operations or cash flows.
In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities (including Certain Costs Incurred in a
Restructuring) ("SFAS 146"), which supersedes Emerging Issues Task Force Issue
No. 94-3, Liability Recognition for Certain Employee Termination Benefits and
Other Costs to
Exit an Activity ("EITF 94-3"). SFAS 146 requires recognition of a liability for
costs associated with an exit or disposal activity when the liability is
incurred, rather than when the entity commits to an exit plan under EITF 94-3.
The provisions of SFAS 146 are effective for exit or disposal activities that
are initiated after September 30, 2002. As of March 31, 2003, the Company ceased
use of certain office space in its corporate offices in Reston, Virginia. The
remaining obligation on this lease was approximately $1,090,000 through December
31, 2006. In accordance with SFAS 146, the Company estimated the fair value of
net sublease rent to be approximately $465,000 over the remaining term.
Accordingly, the Company recorded an expense of $625,000 and a corresponding
liability as of March 31, 2003. As of May 1, 2003, the Company has a subtenant
for this space for the majority of the remaining lease term and the actual
results of net sublease rent could differ from the above estimates. As of June
30, 2003, the liability was $534,000.
(e) Goodwill and Other Intangible Assets - SFAS No. 141, Business Combinations
("SFAS 141") requires business combinations initiated after June 30, 2001 to be
accounted for using the purchase method of accounting, and broadens the criteria
for recording intangible assets separate from goodwill. SFAS No. 142, Goodwill
and Other Intangible Assets ("SFAS 142") requires the use of an amortization and
non-amortization approach to account for purchased goodwill and certain
intangibles. Under a non-amortization approach, goodwill and certain intangibles
are not to be amortized into results of operations, but instead would be
reviewed for impairment and written down and charged to results of operations
only in the periods in which the recorded value of goodwill and certain
intangibles is more than its fair value. The amortization and non-amortization
provisions of SFAS 142 are to be applied to all goodwill and intangible assets
acquired after June 30, 2001. The provisions of each statement that apply to
goodwill and intangible assets acquired prior to June 30, 2001 was adopted by
the Company on January 1, 2002. As of January 1, 2002, in accordance with SFAS
142, the Company ceased recognizing amortization expense on goodwill. The
goodwill and intangible assets consisted of the following components (in
thousands):
As of June 30, 2003: Goodwill Intangible Total
---------- ---------- -------
Gross carrying amount $ 29,793 $ 7,200 $ 36,993
Accumulated amortization (3,555) (1,780) (5,335)
---------- ---------- --------
Net $ 26,238 $ 5,420 $ 31,658
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As of December 31, 2002: Goodwill Intangible Total
---------- ---------- -----
Gross carrying amount $ 29,793 $ 7,200 $ 36,993
Accumulated amortization (3,555) (1,420) (4,975)
---------- ---------- --------
Net $ 26,238 $ 5,780 $ 32,018
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In accordance with SFAS 142, the Company had six months from adoption (up
until June 30, 2002) to complete the initial test for impairment as of January
1, 2002, the adoption date of SFAS 142. In accordance with the transition
provisions of SFAS No. 142, the Company conducted the first step of the
impairment tests as described above. The Company assessed the fair value of its
only reporting unit by considering its projected cash flows, comparable company
valuations, and recent purchase prices paid for entities within our industry.
Given consideration of these factors, the Company concluded that the fair value
of the reporting unit exceeded the carrying amount of its net assets. The
Company is required to perform reviews for impairment in future periods, at
least annually, that may result in future periodic write-downs. Tests for
impairment between annual tests may be required if events occur or circumstances
change that would more likely than not reduce the fair value of the net carrying
amount. As of June 30, 2003, the Company performed the required annual review
for impairment using the same approach and similar considerations as the initial
test. As a result, the Company concluded that the fair value of the reporting
unit exceeds the carrying amount of its net assets.
The estimated aggregate amortization expense related to the
contracts/relationships intangible asset for each of the next five years is as
follows (in thousands):
Year ending December 31: Expense
-------
2003 $ 720
2004 720
2005 720
2006 720
2007 720
The amortization of certain intangibles continued at an annualized rate of
$720,000 for the six-month periods ended June 30, 2003 and 2002.
(3) Discontinued Operations
As of June 30, 2003, the net liabilities of discontinued operations of
$184,000 relate to the telecommunications divisions. These liabilities relate to
the potential environmental clean up associated with InteliData's former New
Milford, Connecticut property. In January 2000, InteliData sold the New Milford,
Connecticut building, its only remaining asset in discontinued operations of the
telecommunications division. In the context of this sale, InteliData agreed to
undertake limited remediation of the site in accordance with applicable state
law. The subject site is not a federal or state Superfund site and InteliData
has not been named a "potentially responsible party" at the site. The
remediation plan agreed to with the purchaser allows InteliData to use
engineering and institutional controls (e.g., deed restrictions) to minimize the
extent and costs of the remediation. Further, at the time of the sale of the
facility, InteliData established a $200,000 escrow account for certain
investigation/remediation costs. As of June 30, 2003, this escrow account
balance remained at $200,000. Moreover, InteliData has obtained environmental
insurance to pay for remediation costs up to $6,600,000 in excess of a retained
exposure limit of $600,000. InteliData estimates its remaining liability related
to this matter and other costs to be approximately $184,000 and has recorded a
liability for this amount.
The Company has engaged a legal firm and an environmental specialist firm
to represent it regarding this matter. The timing of the ultimate resolution of
this matter is estimated to be from two to four years under the Company's
proposed compliance plan, which involves a natural attenuation and periodic
compliance monitoring approach. Management does not believe that the resolution
of this matter will likely have a material adverse effect on the Company's
financial condition or results of operations.
(4) Subsequent Event
On July 8, 2003, the Company issued 1,431,364 shares of its common stock
pursuant to the exercise of warrants, as amended, by institutional investors who
participated in the Company's private placement of common stock in November and
December, 2001. The warrant exercise resulted in gross proceeds of approximately
$3,335,000. The placement agent in the transaction received approximately
$200,000 in commissions. All of the warrants that were issued as part of the
2001 private placement have now been exercised.
* * * * * *
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
- ----------------------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
Critical Accounting Policies
We consider the following accounting policies to be the most important to
our financial position and results of operations or are policies that require
the exercise of significant judgment and/or estimates.
Revenue Recognition - We consider our revenue recognition policy critical
to the understanding of our business operations and results of operations. The
Company supplies Internet banking and electronic bill presentment and payment
software to financial institutions ("FI's"). The Company's revenues associated
with integrated solutions that bundle software products with customization,
installation and training services are recognized using the percentage of
completion method of accounting.
The Company's bill payment technology software does not require significant
customization. Upon delivery, the Company either recognizes revenue ratably over
the contract period for contracts where vendor specific objective evidence
("VSOE") of fair value for post contract customer support ("PCS") does not exist
or recognizes revenue in full where VSOE of fair value for PCS does exist.
The Company enters into multiple element arrangements. Elements typically
include software, consulting, implementation and PCS. PCS contracts generally
require the Company to provide technical support and unspecified readily
available software updates and upgrades to customers. Revenue for these multiple
element arrangements 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. Currently, the Company does not have VSOE
of fair value for some of the elements within its multiple element arrangements.
Therefore, all revenue under such arrangements is being recognized ratably over
the term of the PCS contract. Revenue from transactional services, which
includes hosting and application services provider ("ASP") services, is
recognized as transactions are processed.
Emerging Issues Task Force Abstract Issue No. 00-3, Application of AICPA
Statement of Position 97-2 to Arrangements that Include the Right to Use
Software Stored on Another Entity's Hardware ("EITF 00-3"), provides guidance in
determining whether or not the provisions of Statement of Position No. 97-2,
Software Revenue Recognition ("SOP 97-2"), should be applied to hosting
arrangements. The Company has some contracts where the customers operate our
software in an ASP environment. The customer may not take possession of the
software without incurring significant transition and infrastructure costs, as
well as potential payments of fees to the Company for the termination of such
arrangements. In cases where the customer has not licensed software from
InteliData, the customer must also purchase a license prior to having the right
to use the software in its own operating environment, in addition to the
aforementioned fees. In these situations, the Company applies the guidance under
EITF 00-3 and the Staff Accounting Bulletin No. 101, Revenue Recognition in
Financial Statements, and recognizes the revenue associated with the license
and/or implementation fees ratably over the initial term of the contract.
Additionally, based on the EITF 00-3 guidance, the Company concluded that
SOP 97-2 should not be applied to certain of its contracts and their related
revenue for license and professional services were recognized under the
percentage of completion method. In addition to our developing and delivering
the solution, the Company is entitled to transaction fees based on the number of
users and transactions. These transaction fees are earned based on the monthly
user counts and as transactions are processed.
Estimates at Completion - Revenues related to some of the Company's
contracts are recognized using the percentage of completion method of
accounting, which requires that we make estimates and judgments as to
anticipated project scope, timing and costs to complete the projects. The
completion of certain development efforts are critical for the Company to
perform on certain contracts. Delays in product implementation or new product
development at customer locations and product defects or errors could affect our
estimates and judgments. 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. The accuracy of these estimates and
judgments could affect our business, operations and financial condition.
Allowance for Doubtful Accounts - Determination of our allowance for
doubtful accounts requires significant estimates. Financial instruments that
potentially subject the Company to credit risk consist principally of trade
receivables. The Company sells its products primarily to FI's 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 and the financial position of the FI's that are highly
regulated. 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.
A number of factors are considered in establishing the allowance including,
but not limited to, historical collection experience, the macro-economic
environment, estimates of forecasted write-offs, and the aging of the accounts
receivable portfolio. If the financial condition of our accounts receivable
portfolio deteriorates, additional allowances would be required.
Valuation of Long-Lived Assets - On an annual basis, we review long-lived
assets such as identifiable intangibles and goodwill for impairment whenever
events or changes in circumstances indicate that the carrying amount may not be
recoverable. This review requires us to make estimates of our undiscounted
future cash flows in order to determine if our long-lived assets are impaired.
If the total of the expected undiscounted future cash flows is less than the
carrying amount of the assets, we are required to make estimates of our
discounted future cash flows in order to calculate a loss for the difference
between the fair value and carrying value of the assets. We make significant
assumptions and estimates in this process regarding matters that are inherently
uncertain, such as calculating remaining useful lives and assuming discount
rates. The resulting cash flows are computed over an extended period of time,
which subjects those assumptions and estimates to an even larger degree of
uncertainty. When known and available, we also use comparable values of similar
businesses in corroborating the results from the discounted cash flows approach.
This process involves making estimates about matters that are inherently
uncertain. Reviews for impairment between annual reviews may be required if
events occur or circumstances change that would more likely than not reduce the
fair value of the net carrying amount. While we believe that our estimates are
reasonable, different assumptions regarding such cash flows could materially
affect our valuation.
Depreciation of Fixed Assets - The Company's business requires our
investment in office and computer equipment to facilitate certain research and
development activities and to support the operations in serving our customers.
We record these assets, which in management's opinion extend the useful life of
the underlying asset, at cost and depreciate the assets over their estimated
useful lives. We periodically reassess the economic life of these elements and
make adjustments to these useful lives using, among others, historical
experience, capacity requirements, and assessments of new product and market
demands. When these factors indicate certain elements may not be useful for as
long as anticipated, we depreciate the remaining book value over the remaining
useful life. Further, the timing and deployment of any new technologies could
affect the estimated lives of our assets, which could have significant impacts
on results of operations in the future.
Recent Accounting Pronouncements - In May 2003, the Financial Accounting
Standards Board ("FASB") issued SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity ("SFAS 150"),
which requires that an issuer classify financial instruments that are within
scope of SFAS 150 as a liability. Under prior guidance, these same instruments
would be classified as equity. SFAS 150 is effective for all financial
instruments entered into or modified after May 31, 2003. Otherwise, it is
effective on July 1, 2003. The Company does not believe that the adoption of
SFAS 150 will have a material effect on our financial position or results of
operations.
In May 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities ("SFAS 149"), which amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities under SFAS
No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS 149
is effective for contracts entered into or modified after June 30, 2003, and for
hedging relationships designated after June 30, 2003. The Company does not
believe that the adoption of SFAS 149 will have a material impact on our
financial position or results of operations.
In December 2002, the FASB issued Statement of Financial Accounting
Standard ("SFAS") No. 148, Accounting for Stock-Based Compensation-Transition
and Disclosure-an amendment of FAS 123 ("SFAS 148"). SFAS 148 amends SFAS No.
123, Accounting for Stock-Based Compensation ("SFAS 123"), to provide
alternative methods of transition for an entity that voluntarily changes to the
fair value based method of accounting for stock-based employee compensation. It
also amends the disclosure provisions of SFAS 123 to require prominent
disclosure about the effects on reported net income of an entity's accounting
policy decisions with respect to stock-based employee compensation. SFAS 148
also amends APB Opinion No. 28, Interim Financial Reporting, to require
disclosure about those effects in interim financial information. SFAS 148 is
effective for annual and interim periods beginning after December 15, 2002. As
the Company has elected not to change to the fair value based method of
accounting for stock-based employee compensation, SFAS 148 does not have any
impact on our financial position, results of operations or cash flows.
In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities (including Certain Costs Incurred in a
Restructuring) ("SFAS 146"), which supersedes Emerging Issues Task Force Issue
No. 94-3, Liability Recognition for Certain Employee Termination Benefits and
Other Costs to Exit an Activity ("EITF 94-3"). SFAS 146 requires recognition of
a liability for costs associated with an exit or disposal activity when the
liability is incurred, rather than when the entity commits to an exit plan under
EITF 94-3. The provisions of SFAS 146 are effective for exit or disposal
activities that are initiated after September 30, 2002. As of March 31, 2003,
the Company ceased use of certain office space in its corporate offices in
Reston, Virginia. The remaining obligation on this lease was approximately
$1,090,000 through December 31, 2006. In accordance with SFAS 146, the Company
estimated the fair value of net sublease rent to be approximately $465,000 over
the remaining term. Accordingly, the Company recorded an expense of $625,000 and
a corresponding liability as of March 31, 2003. As of May 1, 2003, the Company
has a subtenant for this space for the majority of the remaining lease term and
the actual results of net sublease rent could differ from the above estimates.
As of June 30, 2003, the liability was $534,000.
Results of Operations for the Three Months Ended June 30, 2003 and 2002
The following represents the results of operations for InteliData
Technologies Corporation for the three months ended June 30, 2003 and 2002. Such
information should be read in conjunction with the interim financial statements
and the notes thereto in Part I, Item 1 of this Quarterly Report.
Revenues
The Company's second quarter revenues were $5,951,000 in 2003 compared to
$5,461,000 in 2002, an increase of $490,000. The increase was a result of an
increase in professional services, recurring and termination fees of $588,000
and a decrease in software revenues of $98,000. During the second quarter of
2003, the Company generated $295,000 of software revenues and $5,656,000 of
professional services, recurring and termination fees. During the second quarter
of 2002, software revenues were $393,000 and professional services, recurring
and termination fees were $5,068,000.
The increase in professional services, recurring and termination fees from
the second quarter of 2002 to the second quarter of 2003 was primarily due to
increases in the Company's recurring revenue from fees associated with its
application services provider ("ASP") operations and increases in the
professional services billing rates. The decrease in software revenues from the
second quarter of 2002 to the second quarter of 2003 was primarily due to the
timing of system deliveries.
Cost of Revenues and Gross Profit
The Company's cost of revenues decreased $131,000 to $1,948,000 for the
second quarter of 2003 from $2,079,000 for the second quarter of 2002. The
decrease was primarily due to a decrease in service provider costs resulting
from contract renegotiations.
Overall gross profit margins increased to 67% for the second quarter of
2003 from 62% for the second quarter of 2002. The increase in gross profit
margin was attributable to increases in recurring revenue and
professional services revenue from legacy clients coupled with the decrease in
cost of revenues as discussed above. The Company anticipates that gross profit
margins may fluctuate in the future due to changes in product mix and
distribution, outsourcing activities associated with an ASP business model,
competitive pricing pressure, the introduction of new products, and changes in
volume.
General and Administrative
General and administrative expenses decreased $505,000 to $1,931,000 for
the second quarter of 2003 from $2,436,000 for the second quarter of 2002. The
decrease was primarily attributable to the Company's reduction of corporate and
administrative expenses that resulted from the continued evaluation of on-going
cost structures. The Company plans to continually assess its operations to
manage its expenses and infrastructures in light of anticipated business levels.
Sales and Marketing
Sales and marketing expenses decreased $419,000 to $485,000 for the second
quarter of 2003 from $904,000 for the second quarter of 2002. This was primarily
attributable to decreases in the number of selling and marketing employees, and
travel and outside professional consulting expenses that resulted from the
continued evaluation of on-going cost structures. The Company plans to
continually assess its operations to manage its expenses and infrastructures in
light of anticipated business levels.
Research and Development
Research and development costs decreased $1,201,000 to $1,430,000 for the
second quarter of 2003 from $2,631,000 for the second quarter of 2002. The
decrease was primarily attributable to the Company's reduction of research and
development expenses that resulted from the continued evaluation of on-going
cost structures. The Company incurs research and development expenses primarily
in developing the next generation, open standards-based InteliWorks(TM)
Enterprise Payment Solution. The Company plans to continually assess its
operations to manage its expenses and infrastructures in light of anticipated
business levels.
Amortization of Goodwill and Intangibles
Statement of Financial Accounting Standards No. 142, Goodwill and Other
Intangible Assets ("SFAS 142"), requires the Company to not amortize goodwill
and certain intangibles into results of operations, but instead the Company
would review these assets for impairment. The assets would be written down and
impairment losses would be charged to results of operations only in the periods
in which the recorded values are determined to be more than their fair values.
As of January 1, 2002, in accordance with SFAS 142, the Company ceased
recognizing amortization expense on goodwill. The amortization of certain
intangibles continues at an annualized rate of $720,000 for 2003 and 2002.
In accordance with SFAS 142, the Company had six months from adoption (up
until June 30, 2002) to complete the initial test for impairment as of January
1, 2002, the adoption date of SFAS 142. In accordance with the transition
provisions of SFAS No. 142, the Company conducted the first step of the
impairment tests. The Company assessed the fair value of its only reporting unit
by considering its projected cash flows, comparable company valuations, and
recent purchase prices paid for entities within our industry. Given
consideration of these factors, the Company concluded that the fair value of the
reporting unit exceeded the carrying amount of its net assets. The Company is
required to perform reviews for impairment in future periods, at least annually,
that may result in future periodic write-downs. Tests for impairment between
annual tests may be required if events occur or circumstances change that would
more likely than not reduce the fair value of the net carrying amount. As of
June 30, 2003, the Company performed the required annual review for impairment
using the same approach and similar consideration as the initial test. As a
result, the Company concluded that the fair value of the reporting unit exceeds
the carrying amount of its net assets.
Realized and Unrealized Gains on Investments
As part of the January 20, 2000 merger between Home Financial Network, Inc.
("HFN") and Sybase, Inc. ("Sybase"), InteliData received certain consideration
in exchange for its approximate 25% ownership interest in HFN. As part of this
consideration, 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
was entitled to receive $1.153448 in cash and 0.34794 share of Sybase common
stock.
Statement of Financial Accounting Standards No. 133, Accounting for
Derivative Instruments and Hedging Activities ("SFAS 133"), establishes
accounting and reporting standards for derivative instruments and for hedging
activities by requiring that derivatives be recognized in the balance sheet and
measured at fair value. The Company accounted for its investment in the warrants
to purchase Sybase common stock under SFAS 133.
SFAS 133 requires that derivative financial instruments, such as forward
currency exchange contracts, interest rate swaps and the Company's warrants to
purchase Sybase stock, 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. In accordance with SFAS 133, the Company recorded an
unrealized loss on investment of $377,000 in the statements of operations for
the three months ended June 30, 2002. During June 2002, the Company exercised
all of its 640,000 warrants units to purchase Sybase common stock and sold the
resulting 223,000 shares of Sybase common stock. The Company recorded a loss of
$748,000 as a result of the sales of investments.
Other Income
Other income (expense), primarily interest income and other expenses
including state and local taxes, decreased $29,000 to $12,000 for the second
quarter of 2003 from $41,000 for the second quarter of 2002. The decrease is
primarily associated with decreased levels of cash and cash equivalents in 2003,
as compared to 2002, which resulted in lower interest income.
Weighted-Average Common Shares Outstanding and Basic and Diluted Loss Per Common
Share
The basic and diluted weighted-average common shares outstanding increased
to 49,002,000 for the second quarter of 2003 compared to 48,501,000 for the
second quarter of 2002. The increase resulted primarily from the issuance of
stock pursuant to the exercises of stock options, stock awards and stock
purchases under the Employee Stock Purchase Plan.
Losses from continuing operations were $11,000 and $3,853,000 for the
three-month periods ended June 30, 2003 and 2002, respectively, while there was
no gain or loss from discontinued operations in either period. Net losses were
$11,000 and $3,853,000 for 2003 and 2002, respectively. As a result of the
foregoing, basic and diluted net loss per common share was $0.00 for the second
quarter of 2003 compared to a basic and diluted net loss per common share of
$0.08 for the second quarter of 2002.
Results of Operations for the Six Months Ended June 30, 2003 and 2002
The following represents the results of operations for InteliData
Technologies Corporation for the six months ended June 30, 2003 and 2002. Such
information should be read in conjunction with the interim financial statements
and the notes thereto in Part I, Item 1 of this Quarterly Report.
Revenues
The Company's revenues for the first six months were $11,576,000 in 2003
compared to $10,169,000 for 2002, an increase of $1,407,000. The increase was a
result of an increase in professional services, recurring and termination fees
of $1,290,000 and an increase in software revenues of $117,000. During the first
six months of
2003, the Company generated $638,000 of software revenues and $10,938,000 of
professional services, recurring and termination fees. During the first six
months of 2002, software revenues were $521,000 and professional services,
recurring and termination fees were $9,648,000.
The increase in professional services, recurring and termination fees from
the first six months of 2002 to the first six months of 2003 was primarily due
to increases in the Company's recurring revenue from fees associated with its
application services provider ("ASP") operations and increases in the
professional services billing rates. The increase in software revenues from the
first six months of 2002 to the first six months of 2003 was primarily due to
the timing of system deliveries and an increase in software license sales.
Cost of Revenues and Gross Profit
The Company's cost of revenues decreased $156,000 to $3,882,000 for the
first six months of 2003 from $4,038,000 for the first six months in 2002. The
decrease was primarily due to a decrease in service provider costs resulting
from contract renegotiations.
Overall gross profit margins increased to 66% for the first six months of
2003 from 60% for the first six months of 2002. The increase in gross profit
margin was attributable to increases in recurring revenue, software revenue, and
professional services revenue from legacy clients coupled with the decrease in
cost of revenues as discussed above. The Company anticipates that gross profit
margins may fluctuate in the future due to changes in product mix and
distribution, outsourcing activities associated with an ASP business model,
competitive pricing pressure, the introduction of new products, and changes in
volume.
General and Administrative
General and administrative expenses decreased $910,000 to $4,020,000 for
the first six months of 2003 from $4,930,000 for the first six months of 2002.
The decrease was primarily attributable to the Company's reduction of corporate
and administrative expenses that resulted from the continued evaluation of
on-going cost structures. The Company plans to continually assess its operations
to manage its expenses and infrastructures in light of anticipated business
levels.
Sales and Marketing
Sales and marketing expenses decreased $876,000 to $878,000 for the first
six months of 2003 from $1,754,000 for the first six months of 2002. This was
primarily attributable to decreases in the number of selling and marketing
employees, and travel and outside professional consulting expenses that resulted
from the continued evaluation of on-going cost structures. The Company plans to
continually assess its operations to manage its expenses and infrastructures in
light of anticipated business levels.
Research and Development
Research and development costs decreased $2,596,000 to $2,577,000 for the
first six months of 2003 from $5,173,000 for the first six months of 2002. The
decrease was primarily attributable to the Company's reduction of research and
development expenses that resulted from the continued evaluation of on-going
cost structures. The Company incurs research and development expenses primarily
in developing the next generation, open standards-based InteliWorks(TM)
Enterprise Payment Solution. The Company plans to continually assess its
operations to manage its expenses and infrastructures in light of anticipated
business levels.
Amortization of Goodwill and Intangibles
Statement of Financial Accounting Standards No. 142, Goodwill and Other
Intangible Assets ("SFAS 142"), requires the Company to not amortize goodwill
and certain intangibles into results of operations, but instead the Company
would review these assets for impairment. The assets would be written down and
impairment losses would be charged to results of operations only in the periods
in which the recorded values are determined to be more than their fair values.
As of January 1, 2002, in accordance with SFAS 142, the Company ceased
recognizing
amortization expense on goodwill. The amortization of certain intangibles
continues at an annualized rate of $720,000 for 2003 and 2002.
In accordance with SFAS 142, the Company had six months from adoption (up
until June 30, 2002) to complete the initial test for impairment as of January
1, 2002, the adoption date of SFAS 142. In accordance with the transition
provisions of SFAS No. 142, the Company conducted the first step of the
impairment tests. The Company assessed the fair value of its only reporting unit
by considering its projected cash flows, comparable company valuations, and
recent purchase prices paid for entities within our industry. Given
consideration of these factors, the Company concluded that the fair value of the
reporting unit exceeded the carrying amount of its net assets. The Company is
required to perform reviews for impairment in future periods, at least annually,
that may result in future periodic write-downs. Tests for impairment between
annual tests may be required if events occur or circumstances change that would
more likely than not reduce the fair value of the net carrying amount. As of
June 30, 2003, the Company performed the required annual review for impairment
using the same approach and similar consideration as the initial test. As a
result, the Company concluded that the fair value of the reporting unit exceeds
the carrying amount of its net assets.
Realized and Unrealized Gains on Investments
As part of the January 20, 2000 merger between Home Financial Network, Inc.
("HFN") and Sybase, Inc. ("Sybase"), InteliData received certain consideration
in exchange for its approximate 25% ownership interest in HFN. As part of this
consideration, 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
was entitled to receive $1.153448 in cash and 0.34794 share of Sybase common
stock.
Statement of Financial Accounting Standards No. 133, Accounting for
Derivative Instruments and Hedging Activities ("SFAS 133"), establishes
accounting and reporting standards for derivative instruments and for hedging
activities by requiring that derivatives be recognized in the balance sheet and
measured at fair value. The Company accounted for its investment in the warrants
to purchase Sybase common stock under SFAS 133.
SFAS 133 requires that derivative financial instruments, such as forward
currency exchange contracts, interest rate swaps and the Company's warrants to
purchase Sybase stock, 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. During June 2002, the Company exercised all of its
640,000 warrants units to purchase Sybase common stock and sold the resulting
223,000 shares of Sybase common stock. Accordingly, the Company did not have any
unrealized gain or loss on investment for the reporting periods. The Company
recorded a loss of $748,000 as a result of the sales of investments.
Other Income
Other income (expense), primarily interest income and other expenses
including state and local taxes, decreased $72,000 to ($17,000) for the first
six months of 2003 from $55,000 for the first six months of 2002. The decrease
is primarily associated with decreased levels of cash and cash equivalents in
2003, as compared to 2002, which resulted in lower interest income.
Weighted-Average Common Shares Outstanding and Basic and Diluted Loss Per Common
Share
The basic and diluted weighted-average common shares outstanding increased
to 48,935,000 for the first six months of 2003 compared to 48,513,000 for the
first six months of 2002. The increase resulted primarily from the issuance of
stock pursuant to the exercises of stock options, stock awards and stock
purchases under the Employee Stock Purchase Plan.
Losses from continuing operations were $158,000 and $6,779,000 for the
six-month periods ended June 30, 2003 and 2002, respectively, while there was no
gain or loss from discontinued operations in either period. Net losses were
$158,000 and $6,779,000 for 2003 and 2002, respectively. As a result of the
foregoing, basic and
diluted net loss per common share was $0.00 for the first six months of 2003
compared to a basic and diluted net loss per common share of $0.14 for the first
six months of 2002.
Liquidity and Capital Resources
During the first six months of 2003, the Company's cash and cash
equivalents increased by $530,000. At June 30, 2003, the Company had $6,204,000
in cash and cash equivalents, $4,200,000 of working capital with no long-term
debt, and $36,948,000 in stockholders' equity. The Company's principal needs for
cash in the first six months of 2003 were for funding operating losses and
changes in working capital.
The Company's cash requirements for operating activities in the first six
months of 2003 were financed primarily by cash and cash equivalents on hand.
Net cash used in investing activities in the first six months of 2003 was
$82,000 for the purchases of property and equipment.
Financing activities provided net cash of $519,000 in the first six months
of 2003 and consisted of $532,000 from the issuance of the Company's common
stock through stock option exercises and the Employee Stock Purchase Plan,
offset by $13,000 related to payments made to acquire treasury stock.
On July 8, 2003, the Company issued 1,431,364 shares of its common stock
pursuant to the exercise of warrants, as amended, by institutional investors who
participated in the Company's private placement of common stock in November and
December, 2001. The warrant exercise resulted in gross proceeds of approximately
$3,335,000. The placement agent in the transaction received approximately
$200,000 in commissions. All of the warrants that were issued as part of the
2001 private placement have now been exercised.
Based on the Company's current capital levels and its assumptions about
future operating results, the Company believes that it will have sufficient
resources to fund existing operating plans. However, if actual results differ
materially from current assumptions, the Company may not have sufficient capital
resources and may have to modify operating plans and/or seek additional capital
resources. If the Company engages in efforts to obtain additional capital, it
can make no assurances that these efforts will be successful or that the terms
of such funding would be beneficial to the common stockholders.
Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the Private
Securities Litigation Reform Act of 1995
The information contained in this report 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").
This report contains forward-looking statements that are subject to risks and
uncertainties, including, but not limited to, our ability to continue funding
operating losses, our ability to manage our expenses in line with anticipated
business levels, the ability of the Company to complete product implementations
in required time frames and the Company's ability to increase its recurring
revenues and profits through its ASP business model, the Company's ability to
retain key customers and to increase revenue from existing customers, the impact
of competitive products, pricing pressure, product demand and market acceptance
risks, pace of consumer acceptance of home banking and reliance on the Company's
bank clients to increase usage of Internet banking by their customers, the
effect of general economic conditions on the financial services industry,
mergers and acquisitions, risk of integration of the Company's technology by
large software companies, the ability of financial institution customers to
implement applications in the anticipated time frames or with the anticipated
features, functionality or benefits, reliance on key strategic alliances and
newly emerging technologies, the ability of the Company to leverage its
relationships with third parties into new business opportunities in the EBPP
market, the on-going viability of the mainframe marketplace and demand for
traditional mainframe products, the ability to attract and retain key employees,
the availability of cash for long-term growth, product obsolescence, ability to
reduce product costs, fluctuations in operating results, delays in development
of highly complex products and other risks detailed from time to time in
InteliData filings with the Securities and
Exchange Commission, including the risk factors disclosed in the Company's Form
10-K for the fiscal year ended December 31, 2002. These risks could cause the
Company's actual results for 2003 and beyond to differ materially from those
expressed in any forward-looking statements made by, or on behalf of,
InteliData. The foregoing 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. InteliData 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- ------------------------------------------------------------------
The Company currently has no long-term debt and is not currently engaged in
any transactions that involve foreign currency. The Company does not engage in
hedging activities.
ITEM 4. CONTROLS AND PROCEDURES
- --------------------------------
(a) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
The Company's chief executive officer and chief financial officer, after
evaluating the effectiveness of the Company's "disclosure controls and
procedures" (as defined in the Securities Exchange Act of 1934 Rules 13a-14(c)
and 15-d-14(c)) as of a date ("Evaluation Date") within 90 days before the
filing of this quarterly report, have concluded that as of the Evaluation Date,
the Company's disclosure controls and procedures were adequate and designed to
ensure that material information relating to the Company and its consolidated
subsidiaries would be made known to them by others within those entities.
(b) CHANGE IN INTERNAL CONTROLS
There were no significant changes in our internal controls or in other
factors that could significantly affect our disclosure controls and procedures
subsequent to the Evaluation Date.
PART II: OTHER INFORMATION
- --------------------------
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
The Company's Annual Meeting of Stockholders was held on May 29, 2003.
Matters submitted at the meeting for vote by the Stockholders were the
following:
1) Election of Directors
The Stockholders elected two Class I members of the Board of Directors with
the following votes: L. William Seidman with 44,613,401 votes for and
440,232 withheld and Norman J. Tice with 44,616,151 votes for and 437,482
votes withheld.
2) Ratification of Independent Auditors
The Stockholders ratified the selection of Deloitte & Touche LLP as
independent auditors for InteliData for the year ending December 31, 2003
with the following votes: 44,461,457 for, 539,806 against, and 52,370
abstain.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ------- --------------------------------
(a) EXHIBITS
31.1 Certification of Chief Executive Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
32.1 Certification of Chief Executive Officer pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
32.2 Certification of Chief Financial Officer pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
(b) REPORTS ON FORM 8-K
The Company furnished a Current Report on Form 8-K with the Securities and
Exchange Commission on May 14, 2003, relating to Regulation FD Disclosure to
furnish a copy of the press release dated May 14, 2003, that reported
InteliData's results of operations and financial condition for the quarter ended
March 31, 2003.
* * * * * *
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized on July 31, 2003.
INTELIDATA TECHNOLOGIES CORPORATION
By: /s/ Alfred S. Dominick, Jr.
-----------------------------------------
Alfred S. Dominick, Jr.
Chairman and Chief Executive Officer
/s/ John R. Polchin
-----------------------------------------
John R. Polchin
Vice President, Chief Financial Officer,
and Treasurer