-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TPLltMBc7WOC2qzQibJbceiD+v/9U1pHiYXpadggjFfr8mEAc39s2q6KrceLpkpt Mp5XMYpQkfXVW/s9n7a8Uw== 0000891618-00-000771.txt : 20000214 0000891618-00-000771.hdr.sgml : 20000214 ACCESSION NUMBER: 0000891618-00-000771 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000211 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTELLICORP INC CENTRAL INDEX KEY: 0000730169 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 942756073 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-13022 FILM NUMBER: 534208 BUSINESS ADDRESS: STREET 1: 1975 EL CAMINO REAL WEST STREET 2: SUITE 101 CITY: MOUNTAIN VIEW STATE: CA ZIP: 94040-2216 BUSINESS PHONE: 4159655500 MAIL ADDRESS: STREET 1: 1975 EL CAMINO REAL WEST STREET 2: SUITE 101 CITY: MOUNTAIN VIEW STATE: CA ZIP: 94040-2216 FORMER COMPANY: FORMER CONFORMED NAME: INTELLIGENETICS INC DATE OF NAME CHANGE: 19840802 10QSB 1 FORM 10QSB 1 FORM 10-QSB SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: December 31, 1999 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934 For the transition period from ___________ to ___________ Commission File Number 0-13022 INTELLICORP, INC. (Exact name of small business issuer as specified in its charter) DELAWARE 94-2756073 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1975 EL CAMINO REAL WEST MOUNTAIN VIEW, CALIFORNIA 94040-2216 (Address of principal executive offices) (Zip Code) (650) 965-5500 (Issuer's telephone number, including area code) Check whether the issuer (1) filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date. Outstanding as of Class January 31, 2000 --------------- ---------------- Common stock, $.001 par value 17,401,197 shares This document is comprised of 12 pages. 2 TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION Page Item 1. Financial Statements Condensed Consolidated Balance Sheets........................ 3 Condensed Consolidated Statements of Operations.............. 4 Condensed Consolidated Statements of Cash Flows.............. 5 Notes to Condensed Consolidated Financial Statements......... 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................7-9 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders.......... 10 Item 6. Exhibits and Reports on Form 8-K............................. 10 SIGNATURE................................................................... 11
2 3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS INTELLICORP, INC. CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, June 30, (In thousands) 1999 1999 (1) -------- -------- (unaudited) Assets Current assets: Cash and cash equivalents $ 2,760 $ 2,619 Accounts receivable, net 6,131 6,297 Other current assets 362 472 -------- -------- Total current assets 9,253 9,388 Property and equipment, net 1,000 1,046 Purchased intangibles, net 2,316 2,597 Other assets 144 159 -------- -------- $ 12,713 $ 13,190 ======== ======== Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 1,325 $ 1,272 Accrued compensation 1,458 1,266 Accrued royalties 126 64 Other current liabilities 1,316 1,271 Bank loan 700 453 Deferred revenues 2,711 2,063 -------- -------- Total current liabilities 7,636 6,389 Convertible notes 350 1600 Stockholders' equity: Preferred stock 1 1 Common stock 16 16 Additional paid - in capital 61,640 60,266 Accumulated deficit (56,930) (55,082) -------- -------- Total stockholders' equity 4,727 5,201 -------- -------- $ 12,713 $ 13,190 ======== ========
(1) The consolidated balance sheet at June 30, 1999, has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. See notes to condensed consolidated financial statements. 3 4 INTELLICORP, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three months ended Six months ended (In thousands, except December 31, December 31, per share amounts) 1999 1998 1999 1998 -------- -------- -------- -------- (unaudited) (unaudited) Revenues: Software $ 2,499 $ 1,581 $ 5,218 $ 2,859 Contract services 3,067 3,231 6,240 6,296 Other services 868 838 1,710 1,633 -------- -------- -------- -------- Total revenues 6,434 5,650 13,168 10,788 -------- -------- -------- -------- Costs and expenses: Cost of revenues: Software 211 344 474 613 Contract services 2,176 2,335 4,114 4,431 Other services 169 173 387 368 Research and development 1,128 1,657 2,543 3,223 Marketing, general, and administrative 3,673 3,198 7,117 5,951 -------- -------- -------- -------- Total costs and expenses 7,357 7,707 14,635 14,586 -------- -------- -------- -------- Loss from operations (923) (2,057) (1,467) (3,798) Other income (expense), net (49) (18) (87) 49 -------- -------- -------- -------- Loss before provision for income taxes (972) (2,075) (1,554) (3,749) Provision for income taxes 18 - 24 20 -------- -------- -------- -------- Net loss $ (990) $ (2,075) $ (1,578) $ (3,769) ======== ======== ======== ======== Series A and Series B Preferred stock dividends (135) (135) (270) (270) -------- -------- -------- -------- Net loss available to common shareholders $ (1,125) $ (2,210) $ (1,848) $ (4,039) ======== ======== ======== ======== Basic and diluted net loss per common shares $ (0.07) $ (0.15) $ (0.11) $ (0.27) ======== ======== ======== ======== Shares used in computing basic and diluted net loss per common share 17,092 15,215 16,757 15,194 ======== ======== ======== ========
See notes to condensed consolidated financial statements. 4 5 INTELLICORP, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended Increase (decrease) in cash and December 31, cash equivalents (in thousands) 1999 1998 ------- ------- (unaudited) Cash flows from operating activities: Net loss $(1,578) $(3,769) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 621 825 Compensation related to certain stock option grants 99 -- Changes in assets and liabilities: Accounts receivable 166 845 Other current assets 110 (106) Other assets 15 74 Accounts payable 53 (113) Accrued compensation 192 (116) Other current liabilities 107 160 Deferred revenues 648 (509) ------- ------- Net cash provided by (used in) operating activities 433 (2,709) ------- ------- Cash flows from investing activities: Property and equipment purchases (294) (447) Maturities of short-term investments - 1,472 ------- ------- Net cash provided by (used in) investing activities (294) 1,025 ------- ------- Cash flows from financing activities: Bank credit line 247 - Payment of dividends (270) (270) Cash received from sale of common stock 25 35 ------- ------- Net cash provided by (used in) financing activities 2 (235) ------- ------- Increase (decrease) in cash and cash equivalents 141 (1,919) Cash and cash equivalents, beginning of period 2,619 4,714 ------- ------- Cash and cash equivalents, end of period $ 2,760 $ 2,795 ======= =======
See notes to condensed consolidated financial statements. 5 6 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION. The accompanying condensed consolidated financial statements should be read in conjunction with the Company's consolidated financial statements for the fiscal year ended June 30, 1999, included in the Company's Annual Report on Form 10-KSB filed with the Securities and Exchange Commission. In the opinion of management, the interim statements reflect all adjustments (consisting of normal recurring entries) which are necessary for a fair presentation of the results of the interim periods presented. The interim results are not necessarily indicative of the results that may be expected for the full fiscal year ending June 30, 2000. 2. SIGNIFICANT CUSTOMERS AND EXPORT SALES. A related party accounted for 16% ($1,050,000) and 15% (1,931,000), respectively, of the total revenues for the three and six month periods ended December 31, 1999 and 24% ($1,373,000) and 27% ($2,878,000), respectively, of the revenues for the three and six month periods ended December 31, 1998. One other related party accounted for 11% ($604,000) and 10% ($1,107,000), respectively, of the total revenues for the three and six month periods ended December 31, 1998. 3. INCOME TAXES. The Company's provision for income taxes of $18,000 and $24,000 for the three and six months ended December 31, 1999, respectively, is attributable to local taxes and foreign withholding taxes. The provision for income taxes of $20,000 for the six months ended December 31, 1998 is attributable to local taxes and foreign withholding taxes. 4. NEW ACCOUNTING STANDARD. As of July 1, 1999, the Company adopted SOP No. 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use. As of December 31, 1999, the Company had capitalized $148,000 related to an internal-use software implementation project. Once the project is completed the total cost will be amortized over five years, the estimated useful life of the internal-use software. 5. COMPREHENSIVE LOSS. For the three and six months ended December 31, 1999 and 1998, respectively, comprehensive loss equaled net loss. 6. BANK LOAN. In March 1999, the Company secured a $3,000,000 credit facility from a bank, bearing annual interest at the bank's prime rate plus 2% (10.50 % as of December 31, 1999). The credit line is an asset-based facility, and the amount that can be borrowed under the loan is the lesser of $3,000,000 or 80% of the eligible accounts receivable balances at any point in time. The amounts collected from outstanding, eligible accounts receivable balances are remitted to the bank as loan payments when such amounts are received. The initial term of this facility is two years. The credit facility is secured by essentially all of the assets of the Company. 7. EQUITY INVESTMENT. In March 1999, the Company consummated an equity arrangement which requires certain investors to purchase, in a private placement, up to $3,000,000 of the Company's common stock over the next year, if and when requested by the Company. The arrangement expires in March 2000. The purchase price of the common stock is at 10% above the market price at the time the purchase is made, with a minimum price of $1.50 per share and a maximum price of $3.00 per share. As of December 31, 1999, the Company has issued 1,160,000 shares of common stock at $1.50 per share for aggregate proceeds of $1,740,000. 8. NET LOSS PER SHARE. Net loss per share is computed using the weighted-average number of shares of common stock outstanding. Common stock equivalent shares from outstanding stock options and warrants are not included as their effect is antidilutive. 9. NOTE CONVERSION. For the three and six months ended December 31, 1999, note holders converted $975,000 and $1,250,000 of the convertible notes into 634,311 and 813,220 shares of common stock, respectively, in accordance with the terms of the Company's 1996 Convertible Note Agreement. 6 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Other than statements of historical fact, the statements made in this report on Form 10-QSB are forward-looking statements that involve risks and uncertainties. The Company's actual results may differ materially from the results discussed in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in "Results of Operations" and "Liquidity and Capital Resources" below and in "Risk Factors" in the Company's Annual Report on Form 10-KSB for the fiscal year ended June 30, 1999. In particular, it is important to note that achievement of revenue goals is affected by numerous factors beyond the Company's control, including competitors' product introductions, market price competition and market acceptance of the Company's products. Historical results of the Company may not be indicative of future operating results. RESULTS OF OPERATIONS The Company's total revenue is derived from three sources: contract services, software licenses, and other services. Other services are primarily comprised of product support revenue. Total revenues were $6,434,000 and $13,168,000, respectively, for the three and six months ended December 31, 1999, compared to $5,650,000 and $10,788,000, respectively, for the same periods in the prior year. This represents a 14% and 22% increase, respectively, for the three and six month periods ended December 31, 1999 compared to the same prior year periods. The geographic breakdown of revenue is as follows:
Three months ended % Six months ended % (In thousands) December 31, Change December 31, Change 1999 1998 1999 1998 ------- ------- ------- ------- North America $ 3,302 $ 3,778 (13)% $ 8,006 $ 7,376 9% Europe 2,971 1,728 72% 4,672 3,095 51% Pacific Rim/Latin America 161 144 12% 490 317 55% ------- ------- ------- ------- ------- ------- Total revenue $ 6,434 $ 5,650 14% $13,168 $10,788 22%
The geographic revenue as a percentage of revenue is as follows:
Three months ended Six months ended December 31, December 31, 1999 1998 1999 1998 ----- ----- ----- ---- North America 51% 67% 61% 68% Europe 46% 30% 35% 29% Pacific/Latin America 3% 3% 4% 3% ----- ----- ----- ---- Total 100% 100% 100% 100%
Software revenues for the three and six month periods ended December 31, 1999 respectively, increased 58% and 83% compared to the same periods in the prior year. Both the three and six month increases are primarily attributable to progress made in strengthening the Company's sales and marketing organization, higher sales in Europe (partially offset by lower sales in North America for the three months ended December 31, 1999), improving sales of LiveInterface and the new LiveCapture product. Contract services revenues, which includes training revenues, for the three and six month periods ended December 31, 1999, respectively, decreased 5% and 1% compared to the same periods a year ago. The decreases are due to reduced contract services to a related party customer. Other services revenue increased 4% and 5% during the three and six months ended December 31, 1999, compared to the same periods a year ago, respectively. The increase is primarily due to product support revenues related to LiveInterface and LiveModel. 7 8 Gross margin, as a percentage of total revenues for the three and six months ended December 31, 1999 was 60% and 62% compared to 50% in the same periods in the prior year. Software margins were 92% and 91% for the three and six months ended December 31, 1999, compared to 78% and 79% for same prior year periods. The increase in software margins is due to lower third party royalty costs and lower amortization expense incurred in fiscal 2000 related to acquired technology. Contract services margins were 29% and 34% for the three and six months ended December 31, 1999, compared to 28% and 30% in the same periods in the prior year. The increase in contract services margins compared to the prior year quarters is due to improved labor utilization and higher average pricing of services. Other services margins were 81% and 77% for the three and six month periods ended December 31, 1999 compared to 79% and 77% for the same prior year periods. The increases in the fiscal 2000 quarters over the prior year quarters is primarily due to increased support revenues on a relatively fixed cost base. Research and development (R&D) expenses decreased $529,000 (32%) and $680,000 (21%) during the three and six months ended December 31, 1999 from the same prior year periods. The decreases are due primarily to re-deployment of resources to revenue generating services and normal attrition. R&D expenses, as a percentage of total revenues for the three and six months ended December 31, 1999 were 18% and 19% compared to 29% and 30% in the same prior year periods. Marketing, general and administrative expenses increased $475,000 (15%) and $1,166,000 (20%), respectively, during the three and six months ended December 31, 1999, compared to the same prior year periods. The increases are due to several factors, including, labor costs, contractor and consultant fees, recruiting costs, trade show expenses, expenses related to the opening of a French office, provision for bad debt, sales training expense, and expenses related to the LiveInterface operations in Philadelphia. In total, marketing, general and administrative expenses were 57% and 54% of revenues for the three and six months ended December 31, 1999, compared to 57% and 55% of revenues for the same periods last year. Other income and expense, net, which includes interest income and expense, for the three and six months ended December 31, 1999 increased $31,000 and $136,000 compared with the same periods in the prior year primarily due to increased interest expense from bank borrowings. The provision for income taxes of $18,000 and $24,000 for the three and six months ended December 31, 1999 is due primarily to foreign withholding taxes and state and local taxes. This compares to $20,000 related to local and foreign withholding taxes for the three and six months ended in the prior year. LIQUIDITY AND CAPITAL RESOURCES At December 31, 1999, cash, cash equivalents and short-term investments were $2,760,000 compared to $2,619,000 at June 30, 1999. Cash provided by operations was $433,000 during the six months ended December 31, 1999, compared to $2,709,000 used by operations in the same period of the prior year. The increase in cash provided in operations is primarily due to the decrease in net losses, increase in deferred revenue and decrease in accounts receivable from the same period in prior year. Cash used by investing activities was $294,000 in the six months ended December 31, 1999 compared to $1,025,000 provided by investing activities in the same period in the prior year. The increase in cash used by investing activities is due to the liquidation of short-term investments. Cash provided by financing activities was $2,000 for the six months ended December 31, 1999 compared to $235,000 used in financing activities in the same prior year period. The increase in cash provided by financing activities was due to the Company's bank credit line. In March 1999, the Company consummated an equity arrangement which requires certain investors to purchase, in a private placement, up to $3,000,000 of the Company's common stock over the next year, if and when requested by the Company. The purchase price is set at 10% above the market price at the 8 9 time the purchase is made, with a minimum price of $1.50 per share and a maximum price of $3.00 per share. As of December 31, 1999, the Company has issued 1,160,000 shares of common stock at $1.50 per share for aggregate proceeds of $1,740,000. In addition to the equity investment agreement, the Company secured a $3,000,000 credit facility from a bank, bearing annual interest at the bank's prime rate plus 2% (10.50 % as of December 31, 1999). The credit line is an asset-based facility, and the amount that can be borrowed under the loan is the lesser of $3,000,000 or 80% of the eligible accounts receivable balances at any point in time. The amounts collected from outstanding, eligible accounts receivable balances are remitted to the bank as loan payments when such amounts are received. The initial term of this facility is two years. The credit facility is secured by essentially all of the assets of the Company. The Company believes its cash and cash equivalents at December 31, 1999, along with expected cash generated from operations and available funds from the equity arrangement and bank credit line, will be adequate to fund its operations during fiscal 2000. There can be no assurance, however, that the Company will be able to raise additional capital on favorable terms, if at all. If revenues for the remainder of fiscal 2000 do not meet management's expectations, and additional financing is not available, management has the ability to, and may, reduce certain planned expenditures to lower the Company's operating costs, if required. YEAR 2000 ISSUE The Company has conducted a comprehensive review of its information technology and non-information technology systems to identify the systems that could be affected by the year 2000 Issue. The year 2000 issue is the result of computer programs being written using two digits rather than four to define applicable year. Any of the Company's programs that have time-sensitive software or micro controllers may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a major system failure or miscalculations. To date, the Company has not experienced any year 2000 problems either in-house or with any of our vendors and suppliers. However, that can be no assurance that the Company, vendors or suppliers will not encounter any year 2000 problems in the coming months. PURCHASED INTANGIBLE ASSETS On January 23, 1998, the Company entered into an asset purchase agreement with ICS Deloitte Management LLC, an affiliate of Deloitte & Touche, ("D&T") to purchase the rights to the Universal Portable Interface ("UPI") technology. This technology consisted of the intellectual and proprietary property comprised of UPI and included all related copyrights, processes, designs, formulas, inventions, trade secrets, know-how, technology, methodologies, principles of operations flow charts, schematics, codes and databases. At the time of acquisition, revenues for developed and core technology were estimated for the remainder of fiscal 1998 through fiscal 2004. As of the end of the first quarter of fiscal 2000, the Company believes that total revenues over the life of the product will not differ to such an extent as to require a devaluation of the current carrying value of the intangible assets. It should be noted that while revenues allocated to the developed and in-process technologies are expected to individually phase down over time (consistent with normal software product life cycles), the composite revenue attributed to all applications integration products and technologies (including future follow-on technologies) is planned to continue growing in the foreseeable future. 9 10 PART II. OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS a) On December 7, 1999, the Registrant held its Annual Meeting of stockholders. b) As listed below, all of management's nominees for directors were elected at the meeting:
-------------------------------------------------------------------------------------- Name of Nominee No. of Votes For No. of Votes No. of Votes Withheld Abstain -------------------------------------------------------------------------------------- Arthur W. Berry 14,913,929 358,666 0 Katharine C. Branscomb 14,423,212 849,383 0 Kenneth H. Haas 14,879,029 393,566 0 Robert A. Lauridsen 14,912,729 359,866 0 Norman J. Wechsler 14,952,154 320,441 0 --------------------------------------------------------------------------------------
c) The proposal to amend the Company's 1991 Non-employee Directors Stock Option Plan to increase the numbers of options automatically granted to non-employee directors under the Plan and to provide that such options will be fully vested and exercisable on grant was approved with 13,970,042 shares voting in favor, 1,235,449 voting against and 67,104 shares abstaining. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a) Exhibits 27 - Financial Data Schedule. b) Reports on Form 8-K No reports have been filed for the quarter ended December 31, 1999. 10 11 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. INTELLICORP, INC. /s/ Kenneth A. Czaja ------------------------- Kenneth A. Czaja Chief Financial Officer 11 12 INDEX TO EXHIBITS
Exhibit Sequentially No. Description Numbered Page ------- ----------------------- ------------- 27 Financial Data Schedule
12 EX-27 2 FINANCIAL DATA SCHEDULE
5 3-MOS JUN-30-2000 OCT-31-1999 DEC-31-1999 2,760 0 6,644 513 0 362 10,438 9,438 12,713 7,636 0 0 1 16 4,710 12,713 6,434 6,434 2,556 0 4,801 923 43 972 18 0 0 0 0 990 .07 .07
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