-----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, InNaRJjizqj41ZC3w7JTunxdoQtK+8mWzCgBT+JNAKDmc88zTR9qhwjVYK9F9//t ODVQ5nZ6cXonmE2evDbxgA== 0000891618-01-500725.txt : 20010516 0000891618-01-500725.hdr.sgml : 20010516 ACCESSION NUMBER: 0000891618-01-500725 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20010515 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: 1636183 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 f72730e10qsb.txt FORM 10-QSB QUARTER ENDED MARCH 31, 2001 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: March 31, 2001 [ ] 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 April 30, 2001 ----- -------------- Common stock, $.001 par value 21,728,157 shares
This document is comprised of 18 pages. 2 TABLE OF CONTENTS
Page ---- PART I. FINANCIAL INFORMATION Item 1. Consolidated Financial Statements (unaudited) Condensed Consolidated Balance Sheets................................3 Condensed Consolidated Statements of Operations......................4 Condensed Consolidated Statements of Cash Flows......................5 Notes to Condensed Consolidated Financial Statements...............6-8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.....................9-16 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders.................17 Item 6. Exhibits and Reports on Form 8-K....................................17 SIGNATURE..........................................................................18
2 3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS INTELLICORP, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands)
March 31, June 30, 2001 2000 (1) -------- -------- (unaudited) Assets Current assets: Cash and cash equivalents $ 5,870 $ 2,240 Accounts receivable, net 7,213 5,729 Other current assets 688 1,264 -------- -------- Total current assets 13,771 9,233 Property and equipment, net 558 911 Purchased intangibles, net 1,613 2,035 Other assets 158 134 -------- -------- $ 16,100 $ 12,313 ======== ======== Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 2,283 $ 1,899 Accrued compensation 1,413 1,644 Accrued royalties 253 295 Other current liabilities 1,582 1,443 Bank loan 2,306 989 Deferred revenues 1,012 1,673 -------- -------- Total current liabilities 8,849 7,943 Stockholders' equity: Preferred stock 1 1 Common stock 20 20 Additional paid - in capital 73,414 67,079 Accumulated deficit (66,184) (62,730) -------- -------- Total stockholders' equity 7,251 4,370 -------- -------- $ 16,100 $ 12,313 ======== ========
(1) The consolidated balance sheet at June 30, 2000, has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. See accompanying notes. 3 4 INTELLICORP, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts)
Three months ended Nine months ended March 31, March 31, ------------------------- ------------------------- 2001 2000 2001 2000 -------- -------- -------- -------- (unaudited) (unaudited) Revenues: Consulting services $ 5,784 $ 2,432 $ 13,851 $ 8,672 Software license 732 1,198 3,697 6,416 License support 568 864 2,004 2,574 -------- -------- -------- -------- Total revenues 7,084 4,494 19,552 17,662 -------- -------- -------- -------- Costs and expenses: Cost of revenues: Consulting services 3,545 2,063 9,210 6,177 Software license 149 295 638 769 License support 92 179 277 566 Research and development 847 1,116 2,107 3,659 Marketing, general, and administrative 3,454 3,528 10,217 10,645 -------- -------- -------- -------- Total costs and expenses 8,087 7,181 22,449 21,816 -------- -------- -------- -------- Loss from operations (1,003) (2,687) (2,897) (4,154) Other income (expense), net 8 (94) (154) (181) -------- -------- -------- -------- Loss before provision for income taxes (995) (2,781) (3,051) (4,335) Provision for income taxes 6 14 6 38 -------- -------- -------- -------- Net loss $ (1,001) $ (2,795) $ (3,057) $ (4,373) ======== ======== ======== ======== Series A and Series B preferred stock dividends (129) (132) (396) (402) Beneficial conversion dividend related to Series C preferred stock (1,703) -- (1,703) -- -------- -------- -------- -------- Net loss attributable to common shareholders $ (2,833) $ (2,927) $ (5,156) $ (4,775) ======== ======== ======== ======== Basic and diluted net loss per common share $ (0.13) $ (0.17) $ (0.25) $ (0.28) ======== ======== ======== ======== Shares used in computing basic and diluted net loss per common share 21,704 17,668 20,944 17,058 ======== ======== ======== ========
See accompanying notes. 4 5 INTELLICORP, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Increase in cash and cash equivalents (in thousands)
Nine months ended March 31, 2001 2000 ------- ------- (unaudited) Cash flows from operating activities: Net loss $(3,058) $(4,373) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 725 915 Stock-based compensation -- 174 Write-off of capitalized software 247 -- Loss on disposal of fixed assets 6 -- Changes in assets and liabilities: Accounts receivable (1,484) 1,768 Other current assets 575 22 Other assets (24) (85) Accounts payable 384 366 Accrued compensation (231) 350 Other current liabilities 97 (210) Deferred revenues (661) (142) ------- ------- Net cash used in operating activities (3,424) (1,215) ------- ------- Cash flows from investing activities: Expenditures for property and equipment (202) (403) Net cash used in investing activities (202) (403) ------- ------- Cash flows from financing activities: Net borrowings under bank credit line 1,317 (101) Payment of cash dividends (396) (402) Cash received from sales of common stock 1,455 2,159 Cash received from sales of preferred stock 4,880 -- ------- ------- Net cash provided by financing activities 7,256 1,656 ------- ------- Increase in cash and cash equivalents 3,630 38 Cash and cash equivalents, beginning of period 2,240 2,619 ------- ------- Cash and cash equivalents, end of period $ 5,870 $ 2,657 ======= =======
See accompanying notes. 5 6 INTELLICORP, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NINE MONTHS ENDED MARCH 31, 2001 (UNAUDITED) 1. BASIS OF PRESENTATION. The accompanying condensed consolidated financial statements should be read in conjunction with the Company's consolidated financial statements for the fiscal year ended June 30, 2000, included in the Company's Annual Report on Form 10-KSB filed with the Securities and Exchange Commission. In the opinion of management, the interim statements reflect all adjustments (consisting of normal recurring entries) which are necessary for a fair presentation of the results of the interim periods presented. The interim results are not necessarily indicative of the results that may be expected for the full fiscal year ending June 30, 2001. 2. SIGNIFICANT CUSTOMERS AND EXPORT SALES. A related party accounted for 10% ($730,000) and 14% (2,677,000), respectively, of the total revenues for the three-and nine-month periods ended March 31, 2001 and 27% ($1,201,000) and 18% ($3,132,000), respectively, of the revenues for the three-and nine-month periods ended March 31, 2000. Another customer accounted for 18% ($1,275,000) and 19% ($3,722,000), respectively, of the total revenues for the three-and nine-month periods ended March 31, 2001 and 7% ($311,000) and 2% ($311,000), respectively, of the revenues for the three-and nine-month periods ended March 31, 2000. 3. INCOME TAXES. The provision for income taxes of $6,000 and $6,000 for the three-and nine-months ended March 31, 2001 is attributable to local taxes. The provision for income taxes of $14,000 and $38,000 for the three-and nine-months ended March 31, 2000 is attributable to local taxes and foreign withholding taxes. 4. COMPREHENSIVE LOSS. For the three and nine months periods ended March 31, 2001 and 2000, respectively, comprehensive loss equaled net loss. 5. BANK LOAN. In March 1999, the Company secured a $3.0 million credit facility from a bank, bearing annual interest at the bank's prime rate plus 2% (10.0 % as of March 31, 2001). The credit line is an asset-based facility, and the amount that can be borrowed under the loan is the lesser of $3.0 million or 80% of the eligible accounts receivable balances at any point in time. At March 31, 2001, the amount of the bank credit facility available was $3.0 million. The amounts collected from outstanding, eligible accounts receivable balances are remitted to the bank as loan payments when such amounts are received. The term of this facility is two years, which originally was to expire on April 27, 2001. The Company has signed a 30-day extension on this facility and is in the process of negotiating another credit facility. The credit facility is secured by essentially all of the assets of the Company. The Company owed $2.3 million on this credit facility at March 31, 2001. 6. EQUITY. In March 2001, the Company issued 4,880 shares of Series C Preferred Stock and warrants to purchase 1,084,445 shares of common stock at $2.00 per share for proceeds of $4.88 million. Each share of Series C Preferred Stock is convertible into 889 shares of common stock, subject to adjustments, at $1.125 per share. The dividends for the first year are payable at the Company's option in cash or common stock valued at 90% of the average closing price of any 20 day period preceding the dividend payment date through the distribution date. In connection with the issuance of the warrants for common stock granted in connection with the Series C Preferred Stock financing, the Company recorded a beneficial conversion dividend of $1.7 million in accordance with EITF 00-27, "Application of Issue No. 98-5 to Certain Convertible Instruments". (See Note 10) On December 28, 2000, the Company issued 600,000 shares of common stock at $0.50 per share in a private placement. On September 29, 2000, the Company issued 1.0 million shares of common stock at $1.00 per share in a private placement. The investors received five-year warrants equal to 25% of the number of shares purchased. Warrants were issued to purchase 250,000 shares of common stock at $2.00 per share. These warrants expire on September 29, 2005. 6 7 INTELLICORP, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NINE MONTHS ENDED MARCH 31, 2001 (UNAUDITED) In May 2000, the Company consummated an equity arrangement with one of its existing investors, whereby the Company had the right to require the investor to purchase, in a private placement, up to $2.8 million of the Company's common stock. The purchase price was set at 10% above the market price at the time the purchase was made, with a minimum price of $1.00 per share and a maximum price of $2.00 per share. The investor received five-year warrants equal to 25% of the number of shares purchased. This equity arrangement terminated on December 31, 2000. As of March 31, 2001, the Company has issued 596,126 and 850,000 shares of common stock at $1.6775 and $2.00 per share, respectively, for aggregate proceeds of $2.7 million under this arrangement. 7. NET LOSS PER COMMON SHARE. Net loss per common share is computed using the weighted-average number of shares of common stock outstanding. Common stock equivalent shares from outstanding stock options and warrants are not included as their effect is antidilutive. 8. RESTRUCTURING COST. On July 17, 2000, IntelliCorp announced a reorganization of its existing product offerings to provide for greater operational efficiency and focus. This reorganization included a reduction-in-force as well as staff transfers from software license production to Customer Relationship Management ("CRM")/eCRM consulting solutions, which affected approximately 20% of IntelliCorp's workforce during its first quarter of fiscal year 2001. There were a total of 13 employees affected by the reduction in force, which consisted of four technical professionals and nine employees in marketing, general and administration. The one-time cost of the reduction-in-force was approximately $120,000, which included expenses such as approximately $116,000 in severance pay and approximately $4,000 in legal fees. Of the $120,000, $3,000 was charged to cost-of-sales, $6,000 was charged to research and development expenses and $111,000 was charged to marketing, general and administrative expenses. The reorganization also included the abandonment of certain internal use software. As a result of the shift in the Company's focus from software license products, management reevaluated the effectiveness of the SAP software that was to be implemented in the fall of 2000. In that evaluation, the Company determined that the SAP software that they were about to implement did not meet the information needs of the Company, which was transitioning from a software license products to a consulting solutions focus. As a result, approximately $247,000 of capitalized costs was charged to general and administrative expenses at the time of the abandonment. The Company has disposed of the software. 9. RECENT PRONOUNCEMENTS. On October 12, 2000, the Securities and Exchange Commission (SEC) staff issued its Frequently Asked Questions (FAQ) document on Staff Accounting Bulletin No. 101 (SAB 101). The FAQ document provides new guidance and formalizes the position the SEC staff has taken on certain SAB 101 implementation issues. SAB 101 is required to be adopted no later than the fourth quarter of fiscal years beginning after December 15, 1999, with the effective date of July 1, 2000. IntelliCorp adopted SAB 101 on July 1, 2000. There was no impact on the Company's financial position or results of operations from the adoption of SAB 101. 10. DEEMED DIVIDEND. In March 2001, the Company consummated the sale of 4,880 shares of Series C convertible preferred stock from which the Company received proceeds of $4.88 million. On the date the investors were legally committed to purchase the shares, the purchase price per share of the equivalent common stock was less than the fair market value of the Company's common stock on that date. Accordingly, the difference between common stock equivalent price of $1.125 and the fair market value of $1.3125 on the date the investors were legally committed to purchase the shares, has resulted in a beneficial conversion feature that has been recorded as a deemed dividend to the Series C preferred shareholders in March 2001. In addition, in accordance with EITF 00-27, "Application of Issue No. 98-5 to Certain Convertible Instruments", the warrants attached to this preferred stock financing were valued using the Black Scholes model using the following assumptions: 0.85% volatility, 5% interest, and a term of 5 years. The value of the warrants together with the difference in fair market value on the date of commitment has together resulted in a deemed dividend of $1.7 million. The 7 8 INTELLICORP, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NINE MONTHS ENDED MARCH 31, 2001 (UNAUDITED) Company recorded the deemed dividend at the date of issuance by offsetting charges and credits to additional paid-in-capital, without any effect on total shareholders' equity. This charge was made against additional paid-in-capital, as the Company did not have retained earnings from which it could have deducted a deemed dividend. The preferred stock dividend increases the net loss allocable to common shareholders in the calculation of basic and diluted net loss per common share for the quarter ended March 31, 2001. The guidelines set forth in the Emerging Issues Task Force Consensus No. 98-5 limit the amount of the deemed dividend to the amount of the proceeds of the related financing. 8 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RECENT DEVELOPMENTS - SHIFT TOWARDS CONSULTING SERVICES IntelliCorp, Inc., ("IntelliCorp" or "The Company") develops, markets and supports a comprehensive suite of eBusiness (Electronic business conducted on the Internet) and Customer Relationship Management ("CRM" - describes any application that helps a company keep in contact with its customers) consulting services and software license products for the users of SAP,AG software. These consulting and software solutions, which consist of people, processes and technology, enable companies to accelerate the drive towards eBusiness by enabling companies to integrate front-office applications with back-office Enterprise Resource Planning ("ERP" - all-encompassing suites of business applications such as SAP R/3) systems. Beginning in fiscal 2001, we have changed our focus from software license products to consulting services that help Fortune 1000 companies rapidly enter the world of conducting electronic business (eBusiness) on the Internet. Our consulting solutions, which consist of people, processes and technology, enable companies to accelerate the drive towards eBusiness by enabling companies to integrate front-office applications with back-office applications that manage comprehensive financial, manufacturing, sales, distribution, and human resource functions, (ERP systems). These consulting solutions provide SAP, AG customers with an eBusiness strategy that maximizes their ERP investment and minimizes integration and data management issues associated with implementing software packages that combine the best applications from many different vendors to create the best product of its type (best-of-breed software). In connection with this transition, in the quarter ended September 30, 2000 we initiated a reduction-in-force and transferred staff from software license product development to CRM/eCRM consulting services. These changes affected approximately 20% of our work force. The one-time cost of the reduction-in-force was approximated $120,000, which included expenses such as severance pay and legal fees. A significant amount of our revenues has been, product and will continue to be, derived from consulting services and, to a lesser extent, software license product support. The operating margins for such services are substantially lower than the operating margins for our software license products. This disparity is principally due to the low cost of materials, royalties, and other costs associated with the Company's software license products, as compared to the relatively high personnel costs (including the higher cost of using outside consultants) incurred in providing consulting services. Our operating margins have, in the past, and may, in the future, vary significantly as a result of changes in the proportion of revenues attributable to consulting services and software license products. As the proportion of consulting and other services revenue increases, our overall margins will decrease accordingly. Our overall operating margins may thus be lower than those for software companies that do not derive such a significant percentage of revenues from consulting and other services. The Company revised its business plan. IntelliCorp determined that relying on software license product sales in the marketplace for integrated software applications was unpredictable as many companies had recently chosen their major business applications platforms and completed their year 2000 reviews. IntelliCorp therefore began to explore other strategic business opportunities, including entering into an agreement with SAP, AG to assist them with the development of SAP's Internet Pricing and Configurator (IPC) program. IntelliCorp was also selected to implement this program at three of SAP AG's major customers due to IntelliCorp's extensive knowledge of a variety of SAP AG's software applications. From this experience, and from analysis of the growing market for consulting services attuned to the relationships of business with their customers, IntelliCorp determined that the revenue stream in the implementation services area would be more predictable in the near term than in the software license products area. In addition, IntelliCorp determined that its unique understanding of SAP's business planning system allowed IntelliCorp to expand beyond providing implementation services for SAP AG's customer management applications to providing those services to other vendors of software directed at the business-customer relationship. As part of this strategy, IntelliCorp is also finding new opportunities to sell its business management tools and applications to enable its business customers to consolidate 9 10 and/or align their business management systems with the newer customer management applications. The Company believes the revision of the business plan will have a positive impact on IntelliCorp's customers because the Company will be able to offer its customers a more comprehensive suite of eBusiness, CRM consulting services and software license products for users of SAP,AG software. Other than statements of historical fact, the statements made in this quarterly report are hereby identified as 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 "Statement of Operations Data" and "Liquidity and Capital Resources" below and in "Risk Factors" in the Company's Annual Report on Form 10-KSB for the fiscal year ended June 30, 2000. In particular, it is important to note that achievement of revenue goals is affected by numerous factors beyond the Company's control, including competitors' product introductions, market price competition and market acceptance of the Company's consulting services and software license products. Historical results of the Company may not be indicative of future operating results. 10 11 RESULTS OF OPERATIONS QUARTERLY RESULTS The following table presents the Company's condensed consolidated financial results by quarter for the last three quarters of fiscal 2000 and the first three quarters of fiscal 2001. These quarterly financial results are unaudited. In the opinion of management, however, they have been prepared on the same basis as the audited financial information and include all adjustments necessary for a fair presentation of the information set forth therein. The operating results for any quarter are not necessarily indicative of the results that may be expected for any future period. CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS DATA (UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
QUARTER ENDED FISCAL 2000 FISCAL 2001 -------------------------------------- -------------------------------------- DEC. 31 MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31 -------- -------- -------- -------- -------- -------- Revenues: Consulting services $ 3,067 $ 2,432 $ 3,268 $ 3,713 $ 4,354 $ 5,784 Software license 2,499 1,198 938 1,590 1,375 732 License support 868 864 798 730 706 568 -------- -------- -------- -------- -------- -------- Total revenues 6,434 4,494 5,004 6,033 6,435 7,084 Cost and Expenses: Cost of revenues: Consulting services 2,176 2,063 2,850 2,817 2,848 3,545 Software license 211 295 276 192 297 149 License support 169 179 162 99 86 92 Research and development 1,128 1,116 1,102 639 621 847 Marketing, general, and Administrative 3,673 3,528 3,282 3,590 3,173 3,454 -------- -------- -------- -------- -------- -------- Total costs and expenses 7,357 7,181 7,672 7,337 7,025 8,087 Loss from operations (923) (2,687) (2,668) (1,304) (590) (1,003) Other Income (expense), net Loss before provision (49) (94) (69) (35) (127) 8 -------- -------- -------- -------- -------- -------- for income taxes (972) (2,781) (2,737) (1,339) (717) (995) Provision for income taxes 18 14 3 -- -- 6 -------- -------- -------- -------- -------- -------- Net loss $ (990) $ (2,795) $ (2,740) $ (1,339) $ (717) $ (1,001) ======== ======== ======== ======== ======== ======== Series A and Series B preferred stock dividends (135) (132) (133) (133) (134) (129) Beneficial conversion dividend - Series C preferred stock -- -- -- -- -- (1,703) -------- -------- -------- -------- -------- -------- Net loss attributable to common shareholders $ (1,125) $ (2,927) $ (2,873) $ (1,472) $ (851) $ (2,833) ======== ======== ======== ======== ======== ======== Basic and diluted net loss per common share $ (0.07) $ (0.17) $ (0.16) $ (0.07) $ (0.04) $ (0.13) ======== ======== ======== ======== ======== ======== Shares used in computing basic and diluted net loss per common share 17,092 17,668 18,519 20,043 21,101 21,704 ======== ======== ======== ======== ======== ========
11 12 The geographic breakdown of revenue is as follows:
Three months ended % Nine months ended % (In thousands) March 31, Change March 31, Change -------------------- ------- -------------------- ------- 2001 2000 2001 2000 ------- ------- ------- ------- ------- ------- North America $ 5,337 $ 2,779 92% $14,212 $10,785 32% Europe 1,726 1,644 5% 5,191 6,316 (18)% Pacific Rim/Latin America 21 71 (70)% 149 561 (73)% ------- ------- ------- ------- ------- ------- Total revenue $ 7,084 $ 4,494 58% $19,552 $17,662 11%
The geographic revenue as a percentage of revenue is as follows:
Three months ended Nine months ended March 31, March 31, ----------------- ------------------ 2001 2000 2001 2000 ---- ---- ---- ---- North America 75% 62% 73% 61% Europe 25% 37% 26% 36% Pacific/Latin America 0% 1% 1% 3% ---- ---- ---- ---- Total 100% 100% 100% 100%
12 13 COMPARISON OF THE THIRD QUARTER ENDED MARCH 31, 2001 AND 2000 Revenues: The Company's total revenue is derived from three sources all related to providing a suite of consulting services and software license products to the SAP community: consulting services, software license products, and software license product support. Total revenues were $7,084,000 and $4,494,000, for the three months ended March 31, 2001 and 2000, respectively. This represents a 58% increase for the period ended March 31, 2001 compared to the same prior year period. This is primarily attributed to the continued growth in our CRM consulting services and the Company's plan to transition from primarily a software license products focus to consulting services and software license product solutions provider to the SAP community. Consulting services revenues, which also includes software license product training revenues, were $5,784,000 and $2,432,000 for the three month periods ended March 31, 2001 and 2000, respectively. This 138% increase compared to the same period in the prior year is primarily due to continued growth in our CRM consulting services. Software license product revenues were $732,000 and $1,198,000 for the three month periods ended March 31, 2001 and 2000, respectively. This 39% decrease in software license product revenues is primarily attributable to a reduction in product demand due to economic uncertainty during the first quarter of the calendar year 2001 and customers delaying capital expenditures. Sofware license product support revenues were $568,000 and $864,000 for the three month periods ended March 31, 2001 and 2000, respectively, which is a decrease of 34% compared to the same period in the prior year. The decrease is primarily due to lower than expected software license product support renewals related to LiveInterface and LiveModel software license products and lower overall software license product sales in the quarter ended March 31, 2001. Gross Margins: Gross margin, as a percentage of total revenues for the three months ended March 31, 2001 was 47% compared to 44% in the same period in the prior year. Consulting services margin was 39% for the three months ended March 31, 2001, compared to 15% in the same period in the prior year. The increase in consulting services margins compared to the prior year period is primarily due to the increase in higher overall consulting revenues while the cost structure did not increase portionally to the increased revenue. The software license product gross margin was 80% for the three months ended March 31, 2001, compared to 75% for the same prior year period. The increase in software license product margins is due to lower than expected royalty costs in the period ended March 31, 2001. Software license product support margin was 84% for the three months ended March 31, 2001 compared to 79% for the same prior year period. The increase in the current quarter over the prior year quarter is primarily due to decreased labor costs associated with software license product support revenues. Research and Development (R&D): R&D expenses decreased $269,000 during the three months ended March 31, 2001 from the same prior year period. The decrease is primarily due to a decrease in headcount supporting the R&D function. The headcount decrease is attributable to the transitioning of the Company's focus. Personnel were transferred from software license production to consulting services to provide for greater operational efficiency and focus. This decrease as a percentage of revenues is primarily the result of the increase in revenues for the three month period ended March 31, 2001 compared to the same period of the prior year. R&D expenses, as a percentage of total revenues for the three months ended March 31, 2001 was 12% compared to 25% in the same prior year period. Marketing, General and Administrative: Marketing, general and administrative expenses decreased $74,000 during the three months ended March 31, 2001 compared to the same prior year period. The decrease is primarily due to decreased headcount in the sales and marketing departments resulting from the Company's reorganization. Other Income and Expense: Other income and expense, net, which includes interest income and expense, decreased $102,000 for the three months ended March 31, 2001 compared with the same period in the prior year. The net decrease is primarily due to increased interest expense from bank borrowings and gains related to foreign currency exchange. 13 14 Provision for Income Taxes: The provision for income taxes decreased $8,000 for the three months ended March 31, 2001 compared with the same period in the prior year. The taxes are primarily related to foreign withholding taxes and state and local taxes. Net Loss Per Common Share. Basic and diluted net loss per common share for the quarter ended March 31, 2001 was ($0.13), compared with ($0.17) for the same period in 2000. For the quarter ended March 31, 2001, the actual net loss per common share included a one-time deemed dividend of ($0.08), associated with a deemed dividend of $1.7 million relating to the beneficial conversion feature associated with the March 2001 private placement of Series C preferred stock. (See Notes to Consolidated Financial Statements -- Note 10). COMPARISON OF NINE MONTHS ENDED MARCH 31, 2001 AND 2000 Revenues: Total revenues were $19,552,000 and $17,662,000, for the nine months ended March 31, 2001 and 2000, respectively. This represents an 11% increase for the nine months period ended March 31, 2001 compared to the same prior year period. Consulting services revenues, were $13,851,000 and $8,672,000 for the nine month periods ended March 31, 2001 and 2000, respectively, which is an increase of 60% compared to the same period in the prior year. The increase is due to the continued growth in the CRM consulting services. Software license product revenues were $3,697,000 and $6,416,000 for the nine month periods ended March 31, 2001 and 2000. This 42% decrease in software license product revenues is primarily attributable to the increased sales in the prior year which were driven by year 2000 testing and compliance requirements and decreased sales of the LiveInterface and LiveModel software license products during the current year. Software license product support revenues were $2,004,000 and $2,574,000 for the nine month periods ended March 31, 2001 and 2000, respectively, which is a decrease of 22% compared to the same period in the prior year. The decrease is primarily due to lower overall software license product sales and lower than expected software license product support renewals. Gross Margins: Gross margin, as a percentage of total revenues for the nine months ended March 31, 2001 was 48% compared to 57% in the same period in the prior year. Consulting services margin was 34% for the nine months ended March 31, 2001, compared to 29% in the same period in the prior year. The increase in consulting services margins compared to the prior year period is primarily due to the increase in higher overall consulting revenues. The software license product gross margin was 83% for the nine months ended March 31, 2001, compared to 88% for the same prior year period. The decrease in software license product margins is due to increased sales of the LiveSynchronizer product, which incurs a higher royalty expense. Software license product support margin was 86% for the nine months ended March 31, 2001 compared to 78% for the same prior year period. The increase in the nine months in fiscal 2001 over the prior year period is primarily due to lower labor costs associated with software license product support revenues. Research and Development (R&D): R&D expenses decreased $1,552,000 during the nine months ended March 31, 2001 from the same prior year period. The decrease is primarily due to a decrease in headcount supporting the R&D function. The headcount decrease is attributable to the transitioning of the Company's focus. Personnel were transferred from software license production to consulting services to provide for greater operational efficiency and focus. R&D expenses, as a percentage of total revenues for the nine months ended March 31, 2001 was 11% compared to 21% in the same prior year period. Marketing, General and Administrative: Marketing, general and administrative expenses decreased $428,000 during the nine months ended March 31, 2001, compared to the same prior year period. The decrease is primarily due to reduction in head count in the sales and marketing departments resulting from the Company's reorganization. Marketing, general and administrative expenses, as a percentage of revenues for the nine months ended March 31, 2001 was 52% compared to 60% in the same prior year period. Other Income and Expense: Other income and expense, net, which includes interest income and expense, decreased $27,000 for the nine months ended March 31, 2001 compared with the same 14 15 period in the prior year. The net decrease is primarily due to increased interest expense from bank borrowings and gains related to foreign currency exchange. Provision for Income Taxes: The provision for income taxes decreased $32,000 for the nine months ended March 31, 2001 compared with the same period in the prior year. The taxes are primarily related to foreign withholding taxes and state and local taxes. BOOKINGS AND BACKLOG CRM bookings were $3.6 million and $4.2 million for the third quarter of fiscal 2001 and 2000, respectively, and $10.5 million and $6.8 million for the nine months ended March 31, 2001 and 2000, respectively. Bookings were derived primarily from CRM consulting services to large commercial companies. At the end of the third quarter of fiscal 2001 and 2000, backlog stood at $4.1 million and $3.2 million, respectively. The Company's bookings and backlog are largely dependent upon continued business related to CRM consulting solutions. LIQUIDITY AND CAPITAL RESOURCES At March 31, 2001, cash, cash equivalents and short-term investments were $5,870,000 compared to $2,240,000 at June 30, 2000. Cash used in operations was $3,424,000 during the nine months ended March 31, 2001, compared to $1,215,000 used in operations in the same period in the prior year. The increase in cash used in operations is primarily due to the increase in accounts receivable and off set by the decrease in net losses, decrease in deferred revenue, and increase in accrued compensation for the same period in the prior year. Cash used in investing activities was $202,000 in the nine months ended March 31, 2001 compared to $403,000 used by investing activities in the same period in the prior year. The decrease in cash used by investing activities is due to the decreased purchasing of property and equipment. Cash provided by financing activities was $7,256,000 for the nine months ended March 31, 2001 compared to $1,656,000 provided by financing activities in the same prior year period. The increase in cash provided by financing activities was due to additional equity funding and the increased draw down of the Company's revolving credit facility. In March 2001, the Company issued 4,880 shares of Series C Preferred Stock and warrants to purchase up to 1,084,445 shares of common stock at $2.00 per share for proceeds of $4.88 million. Each share of Series C Preferred Stock is convertible into 889 shares of common stock, subject to adjustments, at $1.125 per share. The dividends for the first year are payable at the Company's option in cash or common stock valued at 90% of the average closing price of any 20 day period preceding the dividend payment date through the distribution date in connection with the issuance of the warrants for common stock granted in connection with Series C Preferred Stock financing. The Company recorded a beneficial conversion dividend of $1.7 million. On December 28, 2000, the Company issued 600,000 shares of common stock at $0.50 per share in a private placement. On September 29, 2000, the Company issued 1.0 million shares of common stock at $1.00 per share in a private placement. The investors received five-year warrants equal to 25% of the number of shares purchased. Warrants were issued to purchase 250,000 shares of common stock at $2.00 per share. These warrants expire on September 29, 2005. In May 2000, the Company consummated an equity arrangement with one of its existing investors, whereby the Company had the right to require the investor to purchase, in a private placement, up to $2.8 million of the Company's common stock. The purchase price was set at 10% above the market price at the time the purchase was made, with a minimum price of $1.00 per share and a maximum price of $2.00 per share. The investor received five-year warrants 15 16 equal to 25% of the number of shares purchased. This equity arrangement terminated on December 31, 2000. As of March 31, 2001, the Company has issued 596,126 and 850,000 shares of common stock at $1.6775 and $2.00 per share, respectively, for aggregate proceeds of $2.7 million under this arrangement. In addition to the equity investment agreements, the Company secured a $3.0 million credit facility from a bank, bearing annual interest at the bank's prime rate plus 2% (10.0 % as of March 31, 2001). The credit line is an asset-based facility, and the amount that can be borrowed under the loan is the lesser of $3.0 million or 80% of the eligible accounts receivable balances at any point in time. At March 31, 2001, the amount of the bank credit facility available was $3.0 million. The amounts collected from outstanding, eligible accounts receivable balances are remitted to the bank as loan payments when such amounts are received. The initial term of this facility is two years, which expires on April 27, 2001. The Company has signed a 30-day extension and is in negotiations with the bank for securing a follow-on credit facility. The credit facility is secured by essentially all of the assets of the Company. The Company owed $2.3 million under this credit facility at March 31, 2001. The Company believes its cash and cash equivalents at March 31, 2001, along with expected cash generated from operations and available funds from equity arrangements and the credit facility, will be adequate to fund its operations through fiscal 2002. If revenues for the remainder of fiscal 2001 and fiscal 2002 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. 16 17 PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a) Exhibits 1.) First Amendment to Employment Agreement - Kenneth Hass 2.) Second Amendment to Employment - Kenneth Hass b) Reports on Form 8-K Form 8-K was filed on May 3, 2001 17 18 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. INTELLICORP, INC. /s/ Jerome F. Klajbor ------------------------------------ Jerome F. Klajbor Chief Financial Officer Date: May 15, 2001 18 19 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION - ------ ----------- 1 First Amendment to Employment Agreement - Kenneth Hass 2 Second Amendment to Employment - Kenneth Hass
EX-1 2 f72730ex1.txt EXHIBIT 1 1 INTELLICORP, INC. AMENDMENT TO EMPLOYMENT AGREEMENT THIS AMENDMENT TO THE EMPLOYMENT AGREEMENT (the "AMENDMENT") is effective as of December 27, 2000 by and among IntelliCorp, Inc., a Delaware corporation (the "COMPANY") and Kenneth H. Haas (the "EMPLOYEE"). A. The Employee and the Company have previously entered into an Employment Agreement dated October 30, 1991 (the "EMPLOYMENT AGREEMENT") to provide for the terms of employment between the Company and the Employee. B. The Company and the Employee now wish to amend the Employment Agreement on the terms and subject the conditions set forth herein. THE PARTIES AGREE AS FOLLOWS: 1. At the request of the Board of Directors of the Company, the Employee shall relinquish his title as the Chief Executive Officer of the Company and thereafter be employed by the Company under the Employment Agreement (as amended hereby) holding the position of Chairman of the Board of Directors of the Company, which shall be an officer and a full time position with the Company. Employee shall report to the Company's Board of Directors. The Company agrees that any rights of the Employee to receive payments contemplated by Section 5.3 of the Employment Agreement as a result of Section 5.1(b)(ii)(x) which arise by Employee's relinquishing his position as the Chief Executive Officer are not waived by accepting employment as a full time Chairman of the Board of Directors of the Company. 2. The Company and the Employee agree that an option to purchase 100,000 shares granted on December 27, 2000 (the "December Option") is amended as follows: In the event the Employee's employment is terminated "other than for cause" or by "voluntary termination", as defined in Section 5.1(b) and (c), respectively, of the Employment Agreement, the Company's right of repurchase with respect to the shares issuable upon exercise of the December Option shall immediately expire with respect to 100% of such shares. For purposes of clarification of Section 5 of the Employment Agreement, "termination" shall also be deemed to have occurred (1) if and when Employee's employment has been reduced to less than one day or less than eight hours per week, or if and when Employee is no longer an officer of the Company; and (2) irrespective of the fact that Employee may remain a Board member of the Company or a consultant to the Company, and solely for purposes of this paragraph 2 and the Company's right of repurchase of such shares, irrespective of the fact that Employee may be receiving severance at the time. 3. Notwithstanding any provisions of the Company's 1982 Stock Option Plan and 1991 Stock Option Plan, (i) in accordance with actions that have been taken by the Company with respect to a group of officer and non-officer employees, an option to purchase 100,000 shares granted on November 5, 1991 and repriced on November 12, 1992 ("November Option") and an option to purchase 95,000 shares granted on May 3, 1993 ("May Option) are amended to provide for extension of the option term until May 2 31, 2004, and (ii)the term of all options to purchase common stock of the Company previously granted to Employee (the "Options") shall extend to the original term of such Options, as amended. If Employee's employment is terminated "other than for cause" or by "voluntary termination", as defined in Section 5.1(b) and (c), respectively, of the Employment Agreement, the Employee shall, notwithstanding such termination, have the right to exercise such Option until the end of the Option term, as amended. Solely to the extent necessary to effect the foregoing amendments of the Options, the Company's 1982 Stock Option Plan and 1991 Stock Option Plan are being amended. 4. During any period covered by severance under the Employment Agreement, which period shall extend until the twelve months following the date the lump sum severance payment is made to the Employee, Employee shall also be entitled to receive full continuation of health and disability benefits, paid by the Company either directly or by reimbursement of payments made by Employee pursuant to COBRA. 5. This Amendment shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. Nothing in this Amendment is intended to confer upon any person other than the parties hereto and their respective successors and permitted assigns any rights or remedies whatsoever. 6. This Amendment may be executed in one or more counterparts, all of which taken together shall constitute one and the same instrument. 7. This Amendment amends and replaces only the provisions of the Agreement relating to Employee's stock options and termination provisions as specifically provided herein. All other terms and provisions of the Agreement shall remain in full force and effect. 8. This Amendment shall be governed by and construed in accordance with the laws of the State of California applicable to contracts entered into and to be performed entirely within the State of California by residents of the State of California. IN WITNESS WHEREOF, the parties have executed this Amendment to Employment Agreement as of the date first above written. COMPANY: INTELLICORP, INC. By: --------------------------------- Name: ------------------------------- Title: ------------------------------ EMPLOYEE: ------------------------------------ Kenneth H. Haas EX-2 3 f72730ex2.txt EXHIBIT 2 1 INTELLICORP, INC. SECOND AMENDMENT TO EMPLOYMENT AGREEMENT THIS IS A SECOND AMENDMENT (the "SECOND AMENDMENT") to an Employment Agreement between IntelliCorp, Inc., a Delaware corporation (the "COMPANY"), and Kenneth H. Haas (the "EMPLOYEE"). That Employment Agreement was originally entered into as of October 30, 1991. It was amended as of December 27, 2000. References in this Second Amendment to the "AGREEMENT" are to that original Employment Agreement before it was first amended. References in this Second Amendment to the "FIRST AMENDMENT" are to that first amendment. The date of this Second Amendment is May 1, 2001. B A C K G R O U N D The Employee is the Chief Executive Officer and a director of the Company. The First Amendment contemplates that the Employee will, eventually, be relinquishing his role as Chief Executive Officer. That is now happening. The purpose of this Second Amendment is to articulate arrangements related to that transition. ACCORDINGLY, THE PARTIES AGREE AS FOLLOWS: 1. The Employee shall serve as Vice Chair of the Board of Directors of the Company during the period ending on the earlier of December 31, 2001 and the date of the Company's next shareholder meeting at which it elects directors if the Employee is not reelected as a director at that meeting. (That period is referred to in this Second Amendment as the "Vice Chair Term".) As Vice Chair, the Employee shall perform such tasks, on behalf of the Company, as are prescribed from time to time by Norman Wechsler. Mr. Wechsler is being elected as the Chair of the Company's Board of Directors. Circumstances willing, Mr. Wechsler will give the Employee reasonable notice of those tasks, so that the Employee can plan his other activities in an orderly manner. To the extent the tasks specified by Mr. Wechsler do not consume the Employee's professional time, the Employee shall be free to pursue other activities without any impact on the Employee's compensation from, or other arrangements with, the Company. That said, the Employee shall not consult for, or otherwise render services to, any competitor or prospective competitor of the Company during the balance of 2001. 2 2. The Employee will continue to serve as a director of the Company for the balance of his current term as a director. Nothing in this Second Amendment or otherwise requires the Company to nominate the Employee for any further term or terms as a director of the Company or requires the Employee to serve any further term or terms as a director. 3. For his services as Vice Chair of the Company, the Employee shall receive his current regular salary from the Company for the balance of 2001 (i.e., salary, before withholdings, at the rate of $200,000 per full year). That shall be so even if, because the Company's next shareholders meeting at which it elects directors occurs before December 31, 2001, the Employee is not reelected as a director at that meeting and, accordingly, the Vice Chair Term ends before December 31, 2001. 4. During the balance of 2001, the Employee's present fringe benefits as an executive officer of the Company will continue in effect. Those include medical insurance, rights to participate in the Company's 401(k) plan, reimbursement of documented business expenses, participation in authorized conferences, and access to an office and related support services and equipment. 5. The Employee hereby resigns as the Company's Chief Executive Officer effective as of the date of this Second Amendment. 6. During January 2002, the Employee shall receive the lump sum severance payment called for by Section 5.3 of the Agreement and the Company-paid COBRA benefits called for by Section 4 of the First Amendment, provided that the Employee delivers, to the Company, the waiver of claims contemplated by that Section 5.3 if the Company requires such a waiver. However, if the Company does require such a waiver, it shall deliver, to the Employee, a waiver of claims by the Company against the Employee of like tenor to the waiver the Company requires the Employee to deliver. 7. Notwithstanding anything else in the Agreement, the First Amendment or the Second Amendment, the Employee may, if he wishes, take a full time or other position with another company or pursue other activities, before the end of the Vice Chair Term, that causes or is likely to cause a material time conflict with the duties Mr. Wechsler prescribes or will prescribe for the Employee under Section 1 of this Second Amendment. If the Employee does that, his salary shall then be discontinued and the Company shall then pay the Employee's lump sum severance, subject to the requirements referred to previously about waivers. If the Employee is contemplating taking such a position or pursuing such activities but is uncertain about the prospect of such a time conflict and thus whether his taking the position or pursuing the activities would cause the early discontinuance of his salary, at the Employee's request Mr. Wechsler, in good faith on behalf of the Company, will advise the Employee regarding the future tasks that Mr. Wechsler expects the Employee to perform during the balance of the Vice Chair Term. 2 3 8. Except as provided otherwise in this Second Amendment, the Agreement, as amended by the First Amendment, shall remain in full force and effect. IN WITNESS WHEREOF, the parties have signed and delivered this Second Amendment as of the last date indicated in its first paragraph. COMPANY: INTELLICORP, INC. By --------------------------------- Norman Wechsler, Chair of the Board of Directors EMPLOYEE: ------------------------------------ KENNETH H. HAAS 3 -----END PRIVACY-ENHANCED MESSAGE-----