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<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE
QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
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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)
13100 Worldgate Drive, Suite 600, Herndon, VA 20170
(Address of Principal Executive Offices)
(703) 834-8500
(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
The number of shares of the registrant's Common Stock outstanding on November 7,
1996 was 31,803,641.
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INTELIDATA TECHNOLOGIES CORPORATION
SEPTEMBER 1996 QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
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Page
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PART I - FINANCIAL INFORMATION
Item 1. Unaudited Consolidated Financial Statements
Condensed Consolidated Balance Sheets
September 30, 1996 and December 31, 1995............................................ 3
Condensed Consolidated Statements of Operations
Three Months and Nine Months Ended September 30, 1996 and 1995 ..................... 5
Condensed Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1996 and 1995....................................... 6
Notes to Condensed Consolidated Financial Statements ............................... 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations .......................................................... 13
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.................................................... 27
</TABLE>
<PAGE>
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
INTELIDATA TECHNOLOGIES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
ASSETS
(Unaudited)
September 30, December 31,
1996 1995
-------------- ------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 17,494 $ 25,120
Accounts receivable, net of allowances for doubtful accounts and sales
returns of $126 and $64 in 1996 and 1995, respectively 1,245 841
Prepaid expenses 232 100
Due from affiliates, net -- 206
Inventory, net 745 801
--------- ---------
Total current assets 19,716 27,068
-------- --------
PROPERTY AND EQUIPMENT
Terminals 1,203 1,526
Computer equipment 2,470 1,336
Furniture and fixtures 888 398
Leasehold improvements 291 95
-------- --------
Total property and equipment 4,852 3,355
Accumulated depreciation and amortization (1,978)
-------- --------
(1,907)
Net property and equipment 2,874 1,448
-------- --------
RESTRICTED CASH 4,322 3,309
INVESTMENT 1,942 3,393
INVESTMENT IN AFFILIATE, NET 3,404 4,835
COST IN EXCESS OF NET ASSETS ACQUIRED 1,898 --
OTHER ASSETS 932 199
------------ -------- --------
TOTAL ASSETS $ 35,088 $ 40,252
========== ==========
(continued)
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
INTELIDATA TECHNOLOGIES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts;
continued)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
(Unaudited)
September 30, December 31,
1996 1995
------------- ------------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 1,939 $ 1,695
Braun, Simmons & Co. acquisition consideration payable 2,000 --
Accrued acquisition integration costs 701 --
Accrued wages and taxes payable 912 781
Short-term borrowings and obligations under capital leases 291 19
Other 130 5
--------- ---------
Total current liabilities 5,973 2,500
--------- ---------
LONG-TERM 88 19
--------- ---------
TOTAL LIABILITIES 6,061 2,519
--------- ---------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, $.001 par value; 5,000,000 shares authorized;
none issued or outstanding -- --
Common stock, $0.001 par value; authorized 30,000,000 shares;
16,633,956 and 15,529,818 shares issued and outstanding in
1996 and 1995, respectively 17 15
Additional paid-in capital 68,012 61,650
Receivable from sale of stock (2,488) (2,488)
Deferred compensation (162) (260)
Unrealized losses on investment (1,450) --
Accumulated deficit (34,902) (21,184)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 29,027 37,733
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 35,088 $ 40,252
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
INTELIDATA TECHNOLOGIES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts; unaudited)
<TABLE>
<CAPTION>
For the three months ended For the nine months ended
September 30, September 30, 1996
-------------------------- -------------------------
1996 1995 1996 1995
<S> <C> <C> <C> <C>
REVENUES
Service fees $ 551 $ 570 $ 1,579 $ 1,441
Product sales, net 510 636 1,347 1,449
Miscellaneous 2 2 12 10
-------- -------- --------- --------
Total revenues 1,063 1,208 2,938 2,900
COST OF REVENUES
Service fees 130 192 709 791
Product sales, net 573 653 1,266 1,450
-------- -------- -------- --------
Total cost of revenues 703 845 1,975 2,241
-------- -------- -------- --------
Gross profit 360 363 963 659
OPERATING EXPENSES
Selling, general and administrative 2,926 1,367 7,398 3,599
Advertising and promotion 185 -- 267 7
Research and development 786 272 1,962 779
In-process research and development
from acquired company 4,914 -- 4,914 --
-------- --------- -------- --------
Total operating expenses 8,811 1,639 14,541 4,385
-------- --------- -------- --------
Operating loss (8,451) (1,276) (13,578) (3,726)
-------- --------- -------- --------
OTHER INCOME (EXPENSE)
Interest income, net 306 428 998 277
Other, net 158 -- 293 2
Equity in loss of affiliate (537) -- (1,431) --
-------- -------- -------- --------
Total other income (expense) (73) 428 (140) 279
-------- -------- -------- --------
Net loss (8,524) (848) (13,718) (3,447)
Preferred dividend requirement -- -- -- (681)
-------- -------- -------- --------
Net loss applicable to common shareholders $ (8,524) $ (848) $(13,718) $ (4,128)
======== ========= ======== ========
Net loss per common share $ (0.53) $ (0.06) $ (0.86) $ (0.44)
======== ========= ======== ========
Shares used for computation of net loss per
common share 16,044 14,899 15,903 9,277
======== ========= ======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
INTELIDATA TECHNOLOGIES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands; unaudited)
<TABLE>
<CAPTION>
For the nine months
September 30,
-------------
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities
Net loss $ (13,718) $ (3,447)
Adjustments to reconcile net loss to net cash used by
operating activities:
Depreciation and amortization 352 445
In-process research and development from acquired company 4,914 --
Equity in loss of affiliate 1,431 --
Deferred compensation expense 98 159
Gain on sale of assets (215) (2)
Write-down of assets held for resale 73 --
Reserves for inventory obsolescence 138 --
Issuance of stock options to non-affiliate 20 --
Changes in certain assets and liabilities, net of effects of non-cash
transactions:
Decrease (increase) in accounts receivable 222 (502)
Decrease (increase) in prepaid expenses (132) 194
Decrease (increase) in inventory (81) (65)
Decrease (increase) in other assets (802) 12
Decrease in accounts payable and accrued expenses (65) (509)
Increase in accrued wages and taxes payable 67 125
Decrease (increase) in other liabilities 298 (89)
-------- --------
Net cash used by operating activities (7,400) (3,679)
--------- --------
Cash flows from investing activities
Purchases of property and equipment (1,702) (572)
Issuance of short-term note receivable -- (250)
Proceeds from sale of property and equipment 187 --
Increase in restricted cash (1,013) --
Cash costs of business combination, net of cash acquired (78) --
Proceeds from sale of terminals and terminal components 220 447
-------- --------
Net cash used by investing activities (2,386) (375)
-------- --------
</TABLE>
(continued)
See accompanying notes to condensed consolidated financial statements.
<PAGE>
INTELIDATA TECHNOLOGIES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands; unaudited)
(Continued)
<TABLE>
<CAPTION>
For the nine months ended
September 30,
-------------
1996 1995
---- ----
<S> <C> <C>
Cash flows from financing activities
Proceeds from issuances of common stock, net of discount 2,173 42,141
Expenses from the issuance of common stock -- (360)
Redemption of Series B preferred stock -- (4,925)
Repayment of debt -- (4,632)
Principal payments under capital lease obligations (13) (343)
Payment of dividends -- (2,684)
-------- --------
Net cash provided by financing activities 2,160 29,197
-------- --------
Increase (decrease) in cash and cash equivalents (7,626) 25,143
Cash and cash equivalents, beginning of period 25,120 2,568
-------- --------
Cash and cash equivalents, end of period $ 17,494 $ 27,711
======== ========
Supplemental disclosure of investing activities:
Fair value of common stock issued for acquisition of
Braun, Simmons & Co. $ 4,170 $ --
======== ========
Portion of acquisition consideration payable in cash $ 2,000 $ --
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
INTELIDATA TECHNOLOGIES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) Basis of Presentation
The condensed consolidated balance sheet as of September 30,
1996, and the related condensed consolidated statements of operations
and cash flows for the three and nine month periods ended September 30,
1996 and 1995 presented in this Form 10-Q represent the historical
results of US Order, Inc. ("US Order"). On November 7, 1996, US Order
and Colonial Data Technologies Corp. ("Colonial Data") merged with and
into InteliData Technologies Corporation ("InteliData" or the
"Company"). Effective with this merger InteliData became the successor
corporation to US Order and is the registrant filing this Form 10-Q for
the period ended September 30, 1996.
The condensed consolidated balance sheet of InteliData as of
September 30, 1996, and the related condensed consolidated statements
of operations and cash flows for the three and nine month periods ended
September 30, 1996 and 1995, 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. Interim results are not necessarily
indicative of results for a full year.
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 US Order
and Colonial Data and the notes thereto, together with management's
discussion and analysis of financial condition and results of
operations, contained in US Order's and Colonial Data's Forms 10-K for
the fiscal year ended December 31, 1995.
Certain amounts have been reclassified to conform to the
current year presentation.
<PAGE>
(2) Merger of US Order and Colonial Data
On November 7, 1996, US Order and Colonial Data merged with
and into InteliData (the "Merger"). The Merger is being accounted for
under the purchase method of accounting, with US Order being deemed the
acquirer. Pursuant to this transaction, InteliData became the successor
corporation to US Order. Under the terms of the Merger, each
outstanding share of the common stock of US Order and Colonial Data,
$.001 par value and $.01 par value, respectively, was converted into
one share of InteliData common stock, $.001 par value. Immediately
following the merger, former holders of US Order common stock held
approximately 52% of the outstanding shares of the Company, with former
holders of Colonial Data common stock collectively holding the
remaining 48% of the Company's outstanding shares of common stock.
Colonial Data designs, develops and markets telecommunications products
that support intelligent network services being developed and
implemented by the regional Bell operating companies and other
telephone operating companies, and these operations will initially be
an important segment of the Company's ongoing operations. The
allocation of the purchase price of Colonial Data approximated $189
million is based on a preliminary independent appraisal of the fair
market value of certain of the assets acquired and liabilities assumed.
The appraisal preliminarily allocated: (1) approximately $87 million to
tangible and intangible assets net of liabilities assumed, (2)
approximately $30 million to the cost in excess of net assets acquired
("goodwill") and (3) approximately $72 million to in-process research
and development with no alternative future use, which will be expensed
by the Company in the fourth quarter of 1996.
The effect of the combination of Braun, Simmons & Co. ("Braun,
Simmons") and US Order is discussed in Note 3 and shown below as "Pro
Forma US Order". The unaudited consolidated results of operations on a
pro forma basis, excluding the impact of the charges for acquired
in-process research and development, relating to Braun, Simmons and
Colonial Data and as though both companies had been acquired and merged
as of the beginning of the Company's fiscal years 1996 and 1995 are
reported below (in thousands). This method of combining historical
financial statements for the preparation of the pro forma condensed
consolidated financial information is for presentation only. The
unaudited pro forma condensed consolidated financial information is
provided for illustrative purposes only and is not necessarily
indicative of the consolidated financial position or consolidated
results of operations that would have been reported had the mergers
occurred at the beginning of the year, nor do they represent a forecast
of the consolidated financial position or results of operations for any
future period.
<TABLE>
<CAPTION>
For the three months ended For the three months ended
September 30,1996 September 30,1995
---------------------------------------------- --------------------------------------------
Pro Forma Historical Pro Forma Pro Forma Historical Pro Forma
--------- ------------ ---------- --------- ------------- ---------
US Order Colonial Data InteliData US Order Colonial Data InteliData
--------- ------------- ---------- --------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 2,085 $ 12,544 $ 14,629 $ 1,643 $ 19,626 $ 21,269
Gross profit 674 4,339 4,514 651 8,181 8,333
Operating income (loss) (3,715) 84 (4,300) (1,340) 5,135 3,126
Net income (loss) (3,789) 238 (4,071) (915) 3,454 2,395
Net income (loss) per share $ (0.23) $ 0.02 $ (0.13) $ (0.06) $ 0.23 $ 0.07
</TABLE>
<TABLE>
<CAPTION>
For the nine months ended For the nine months ended
September 30,1996 September 30,1995
--------------------------------------------- --------------------------------------------
Pro Forma Historical Pro Forma Pro Forma Historical Pro Forma
--------- ------------- ---------- --------- ------------- ----------
US Order Colonial Data InteliData US Order Colonial Data InteliData
--------- ------------- ---------- --------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 5,677 $ 50,152 $ 55,589 $ 4,370 $ 53,140 $ 57,510
Gross profit 1,999 17,578 18,081 1,490 21,790 21,784
Operating income (loss) (8,795) 6,597 (6,746) (3,983) 13,493 4,962
Net income (loss) (8,941) 4,944 (5,437) (3,708) 8,693 2,387
Net income (loss) per share $ (0.55) $ 0.32 $ (0.17) $ (0.38) $ 0.61 $ 0.07
</TABLE>
<PAGE>
Pro Forma Adjustments
The pro forma InteliData information reflects adjustments made to the
unaudited financial statements of US Order and Colonial Data for:
(1) the elimination of intercorporate transactions
(2) the preliminary allocation of purchase price to developed
technology, the excess of the estimated fair market value over
the carrying amount of Colonial Data's lease base, and goodwill.
Such developed technology is amortized on a straight-line basis
over two years; the asset related to the Colonial Data lease base
is amortized on a straight-line basis over five years; and
goodwill is amortized on a straight-line basis over seven to
fifteen years
(3) the accrual of estimated transaction and other related costs.
Estimated costs incurred by Colonial Data relating to the
mergers of $2 million have been reflected as expenses
(4) the effect of the combination of Braun Simmons', US Order's
and Colonial Data's operations and adjustments on income taxes
(3) Acquisition of Braun, Simmons
On September 30, 1996, the Company acquired all of the
outstanding capital stock of Braun, Simmons (the "Acquisition"), an
information engineering firm specializing in the development of home
banking and commerce solutions for financial institutions. The
Acquisition was accounted for under the purchase method of accounting.
The majority shareholder of Braun, Simmons became an employee of the
Company effective with the Acquisition. Established in 1990, Braun,
Simmons has formal business relationships with the Company intends to
continue and expand, with CheckFree, CompuServe, IBM, Microsoft,
Prodigy, Tandem and Visa InterActive. The purchase price of the
Acquisition was computed as follows (in thousands):
<TABLE>
<S> <C>
Estimated fair value of common stock to be issued .......................... $ 4,170
Cash consideration ......................................................... 2,000
Estimated US Order transaction costs ....................................... 913
--------
$ 7,083
========
</TABLE>
<TABLE>
<CAPTION>
The allocation of the purchase price among identifiable intangible
assets was based on a preliminary independent appraisal of the
estimated fair value of those assets as follows:
<S> <C>
Current assets ............................................................. $ 700
Equipment and other......................................................... 286
In-process research and development ........................................ 4,914
Goodwill ................................................................... 1,898
Liabilities assumed ........................................................ (715)
--------
Total.................................................................. $ 7,083
========
</TABLE>
<PAGE>
The purchased in-process research and development was expensed
by US Order on September 30, 1996, as the technology had not reached
technological feasibility and does not have alternative future uses.
The goodwill will be amortized over a seven year period on a
straight-line basis. The Company believes that this Acquisition is a
strong strategic and technological fit and enhances the Company's
ability to offer a spectrum of end-to-end solutions for remote banking
and provides the Company with a strong position in the middleware
connectivity business for financial institutions. See Note 2 for pro
forma effect.
(4) Long-Term Investment
On April 6, 1995, US Order entered into a stock exchange
agreement with Colonial Data, a strategic alliance partner. As part of
the agreement, US Order agreed to exchange $3,000,000 of its restricted
common stock on April 15, 1996 for $3,000,000 of Colonial Data's
unregistered common stock, subject to certain limitations. The
agreement was modified on April 1, 1996 to change the date of the
exchange to July 15, 1996 and was modified again on July 10, 1996 to
change the date of the exchange to October 15, 1996. On August 5, 1996,
US Order and Colonial Data entered into an Agreement and Plan of
Merger, postponing the stock exchange agreement, as amended, pending
consummation of the merger. The merger was consummated on November 7,
1996. See Note 2.
The terms of the Company's investment in the common stock of
Colonial Data restricted the Company from selling such stock until June
8, 1997. As of September 30, 1996, the Company had classified this
investment as "available for sale" and was carrying the investment at
fair value, based on the quoted market value. As of September 30, 1996,
an unrealized loss of $1,450,000 on this investment was recognized due
to a decline in the market value of Colonial Data's stock, and this
unrealized loss was carried as a separate component of stockholders'
equity. Concurrent with the consummation of the merger between US Order
and Colonial Data on November 7, 1996, the shares of common stock
exchanged by US Order and Colonial Data on June 8, 1995 were canceled.
(5) Lines of Credit
In May 1996, the Company entered into two credit agreements
with the same bank that provide for borrowings of up to $5,000,000. The
first credit agreement covers the period through May 1997 and is a
revolving line of credit of $1,000,000 that is fully collateralized by
a bank certificate of deposit. The second credit agreement is a
$4,000,000 line of credit utilized for the purpose of issuing letters
of credit. The advances and/or face amounts of letters of credit issued
under this agreement are collateralized by either 100% of pledged
certificates of deposit or 90% of pledged Treasury investments
acceptable to the bank. These agreements provide for various interest
rates at the Company's election and do not have a commitment fee on the
unused portion of the credit lines. These agreements also contain
<PAGE>
certain conditions including, but not limited to, restrictions related
to cash and cash equivalent balances, net worth, indebtedness, and
loans or advances to other entities, as well as restrictions with
respect to acquisitions and the sale of assets. As of September 30,
1996 and November 10, 1996, the Company had no borrowings or advances
against the $1 million revolving line of credit, but had committed
$3,309,000 of the $4 million letter of credit line through the issuance
of a letter of credit to Standard Telecommunications Ltd. ("STL")
through December 31, 1996. This letter of credit was issued by the
Company for a commitment to purchase from STL approximately $3,300,000
of its next generation smart telephones for delivery in 1996. These
credit agreements are collateralized by bank certificates of deposit
totaling $4,322,000 which are included in restricted cash in the
accompanying consolidated balance sheet as of September 30, 1996.
On April 30, 1996, Colonial Data renewed its credit facility,
increasing its credit line to $5 million and letter of credit
availability to $10 million. The Colonial Data loan agreement is
subject to renewal on April 30, 1998. As of September 30, 1996,
Colonial Data had the entire credit line available and $9 million of
letter of credit available.
(6) New Accounting Standards
On January 1, 1996, the Company adopted Financial Accounting
Standards Board Statement of Financial Accounting Standards No. 121,
Accounting for the Impairment of Long-lived Assets and for Long-lived
Assets to be Disposed of ("Statement 121") and No. 123, Accounting for
Stock-based Compensation ("Statement 123"). Statement 121 requires that
the Company review its long-lived assets for impairment whenever events
or circumstances indicate that the carrying amount of an asset may not
be recoverable. To the extent that the future undiscounted net cash
flows expected to be generated from an asset are less than the carrying
amount of the asset, an impairment loss will be recognized based on the
difference between the asset's carrying amount and its fair market
value. The adoption of Statement 121 had no impact on the accompanying
consolidated financial statements.
Statement 123 recommends, but does not require, the adoption
of a fair value based method of accounting for stock-based compensation
to employees, including common stock options. The Company has elected
to continue recording stock-based compensation to employees under the
intrinsic value method of accounting for stock-based compensation to
employees, as permitted by Statement 123. Certain pro forma disclosures
will be included in the Company's Form 10-K for the year ending
December 31, 1996 as if the fair value based method had been adopted.
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
US Order, Inc. ("US Order") was organized in 1990 to provide interactive
applications (including home banking) primarily to individual customers on a
smart telephone. On November 7, 1996, US Order and Colonial Data Technologies
Corp. ("Colonial Data") merged with and into InteliData Technologies Corporation
("InteliData" or the "Company"). Pursuant to this merger on November 7, 1996,
InteliData became the successor corporation to US Order.
On August 1, 1994, the Company sold its electronic banking and bill pay
operations to Visa International Services Association ("Visa") for approximately
$15 million, the assumption of certain liabilities and the right to receive
certain royalties during a 72 month period commencing January 1, 1995. In
addition, Visa designated the Company as a "preferred provider" through the
72-month royalty period and, as such, will make its member banks aware that the
Company can provide certain of its interactive applications, customer support
services and smart telephones to Visa member banks.
On October 19, 1995, the Company completed a transaction to acquire a 40%
equity interest in Home Financial Network, Inc. ("HFN"), a newly formed,
development stage personal computer company that is developing and delivering
electronic financial products and services for consumers. At closing, the
Company exchanged 296,746 shares of its common stock, valued at approximately $5
million, for 40% of HFN. In April 1996, Fleet Venture Resources, Inc. acquired a
3.8% equity interest in HFN for $1 million, and as a result, the Company's
equity interest in HFN was reduced to approximately 39%. The Company believes
that its investment in HFN will complement its home banking strategy by adding a
personal computer based application to the current smart telephone and
touch-tone applications that the Company offers. The Company expects HFN to
incur operating losses at least through 1996 of which the Company will record
its proportionate share.
On September 30, 1996, the Company acquired all of the outstanding stock
of Braun, Simmons & Co. ("Braun, Simmons"), an information engineering firm
specializing in the development of home banking and commerce solutions for
financial institutions. The acquisition was accounted for under the purchase
method of accounting. Established in 1990, Braun, Simmons has formal business
relationships with CheckFree, CompuServe, IBM, Microsoft, Prodigy, Tandem and
Visa InterActive. The purchase price approximated $7.1 million, including a cash
payment of $2 million (paid in October 1996) and the issuance of 375,000 shares
of common stock, valued at $4.17 million. As a result of the acquisition of
Braun, Simmons, the Company recognized a $4.9 million in-process research and
development charge and recorded $1.95 million in costs in excess of net assets
acquired ("goodwill") in the quarter ended September 30, 1996. The Company
believes that this acquisition is a strong strategic and technological fit and
enhances the Company's ability to offer a spectrum of end-to-end solutions for
remote banking as well as expanding the Company's home banking connectivity
product line.
<PAGE>
On November 7, 1996, US Order and Colonial Data merged with and into
InteliData. The merger was accounted for under the purchase method of
accounting, with US Order being deemed the acquirer. Pursuant to this
transaction, InteliData became the successor corporation to US Order. Under the
terms of the merger, each outstanding share of the common stock of US Order and
Colonial Data, $.001 par value and $.01 par value, respectively, was converted
into one share of InteliData common stock, $0.001 par value. Immediately
following the merger, former holders of US Order common stock held approximately
52% of the outstanding shares of the Company, with former holders of Colonial
Data common stock collectively holding the remaining 48% of the Company's
outstanding shares of common stock.
InteliData will concentrate on three markets. In the electronic commerce
business, the Company markets its bill payment and home banking products to
financial institutions. In the consumer telecommunications device business, the
Company offers a revolutionary smart telephone and an integrated line of caller
identification products through both telephone companies and retailers. In the
on-line service business, InteliData delivers information services to users of
smart telephones, digital PCS phones, alphanumeric pagers and personal digital
assistants.
The purchase price of Colonial Data was approximately $189 million,
allocated as follows: (1) approximately $87 million to tangible and intangible
assets net of liabilities assumed, (2) approximately $30 million to the cost in
excess of net assets acquired ("goodwill"), and (3) approximately $72 million to
in-process research and development, which will be expensed by the Company in
the fourth quarter of 1996.
To date, the Company has generated limited revenues based on the
historical operations of US Order. Colonial Data had revenues of approximately
$74 million in the fiscal year ended December 31, 1995 and $50 million in the
nine months ended September 30, 1996. InteliData will generate future revenues
through the sale of its newly acquired Colonial Data telecommunications product
lines, smart telephones and home banking products, as well as by generating
monthly fees for providing ongoing services, including interactive applications
and customer support services. Colonial Data's telecommunications product line
includes Caller ID adjunct units, corded and cordless telephones with integrated
Caller ID, and small business telecommunication systems. Further, US Order began
shipping its next generation smart telephone to retail stores during the quarter
ended September 30, 1996. This next generation smart telephone is sold under the
brand name "Intelifone(TM)" in the retail and paging markets and as the
"Telesmart 4000" in the telecommunications channel. Revenue from
telecommunications and smart telephone product sales and related interactive
services will be dependent on the Company's success in marketing and selling
these products and related services in the retail, paging and telecommunications
markets, as well as in keeping current with new technology and product releases
<PAGE>
in this competitive market place. The Company's success in generating revenues
from home banking products and related services is dependent, in part, on the
success of its strategic partner, Visa InterActive, in marketing and selling
these products and services to Visa member banks, as well as by the Company's
success in taking advantage of Braun, Simmons' current strategic relationships
and existing market channels. In addition, the Company has the right to receive
on a quarterly basis from Visa $0.666 per month per active bill pay customer
that uses the Visa Bill-Pay System through December 31, 2000. This payment from
Visa is subject to certain limitations, including a reduction in the royalty
payment for each quarter beginning January 1, 1995 through December 31, 1997 by
an offset amount (the "Visa Offset"). The Visa Offset, initially set at $73,315
per quarter, accumulates quarterly up to an aggregate of $879,780. The Company
has not received any revenue from these Visa royalty payments through September
30, 1996 and does not expect to receive any revenue from these payments, after
application of the Visa Offset, through at least the first half of 1997.
Results of Operations
- ---------------------
The following represent the results of operations for InteliData for the three
months and nine months ended September 30, 1996 and 1995. These results were
based on the stand alone operations of US Order, Inc., the predecessor
corporation to InteliData.
Three months ended September 30, 1996 and 1995
Revenues
The Company's third quarter revenues decreased by $145,000 from
$1,208,000 in 1995 to $1,063,000 in 1996. Product revenues decreased by $126,000
between periods, from $636,000 in the third quarter of 1995 to $510,000 for the
same period in 1996. The Company began shipping its next generation smart
telephone, the Intelifone(TM), to retail markets near the end of the third
quarter of 1996, and revenues from these product sales comprised approximately
64% of the product revenues for the third quarter of 1996. The product revenues
generated in the third quarter of 1995 were from the sale of the Company's
previous generation PhonePlus(TM) smart telephones, which the Company was
selling through its strategic relationship with Visa. Service fees revenue for
the third quarter of 1996 were $551,000 compared to $570,000 for the same period
in 1995, a decrease of $19,000. The Company's customer support revenues, which
are remarketed by Visa InterActive to Visa member banks, totaled $422,000 for
the third quarter of 1996, a $244,000 increase over the same period in 1995.
This increase offset decreases in monthly service fees revenue and development
fees for smart telephones totaling $88,000 and $178,000, respectively, between
periods. Monthly service fees revenue are from customers who use the Company's
previous generation smart telephones and associated interactive applications,
and the decrease was primarily due to the Company's continuing efforts to
convert these customers to Visa member banks. The Company expects its merger
with Colonial Data to significantly increase revenues in the fourth quarter of
1996 and thereafter. See Summary of Operations and Financial Positions for
Colonial Data.
Cost of Revenues
The Company's third quarter cost of revenues decreased by $142,000 from
$845,000 in 1995 to $703,000 for the same period in 1996. Product cost of
revenue decreased by $80,000 between periods, from $653,000 in the third quarter
of 1995 to $573,000 for the same period in 1996. Included in product cost of
revenue in the third quarter of 1996 is a $138,000 reserve for inventory
obsolescence related to writing down the Company's previous generation smart
<PAGE>
telephone, the PhonePlus(TM), to fair market value. This increase in product
cost revenue is offset by a decrease in sales of the Company's smart telephones
between periods resulting from the transition from primarily selling the
Company's PhonePlus(TM) smart telephone to selling its next generation smart
telephone, the Intelifone(TM), which the Company began shipping to retail
markets at the end of the third quarter of 1996 and which comprised the majority
of product revenue in the third quarter of 1996. The Company's third quarter
service cost of revenue decreased by $62,000 from $192,000 in 1995 to $130,000
for the same period in 1996. Service cost of revenue related to generating
monthly fee revenues decreased by $122,000, offsetting a $57,000 increase in
costs related to providing customer support services to Visa, Visa member banks
and third parties. The service cost of revenues related to monthly service fees
decreased between periods due to the full depreciation in the fourth quarter of
1995 of the smart telephones utilized to generate monthly fee revenues and due
to the continuing conversion of customers utilizing smart telephones to Visa
member banks. The increase in cost of revenue related to customer service was a
direct result of increased customer volume and revenue from this source. The
Company expects its merger with Colonial Data to significantly increase cost of
revenues in the fourth quarter of 1996 and thereafter. See Summary of Operations
and Financial Positions for Colonial Data.
Gross margin for product sales was (12%) for the third quarter of 1996
as compared to approximately break even for the same period in 1995. The
negative gross margin for the third quarter of 1996 was due to the inventory
obsolescence reserve recorded in the third quarter of 1996 for the PhonePlus(TM)
smart telephone. The gross margin for the same period in 1995 reflects the
Company's previous strategy in 1995 of selling its prior generation smart
telephones at low margins through its strategic alliance with Visa to build an
installed base of subscribers who are potential sources of monthly fees. In
addition, as a result of the change in the composition of service fees revenue
and the costs associated with service fees revenue, gross margins related to
service fees increased from 66% in the third quarter of 1995 to 76% for the same
period in 1996. The composition of product revenues primarily reflecting retail
sales in the third quarter of 1996 and the increases in service fee gross
margins between periods, offset by the inventory reserve recorded in the third
quarter of 1996, resulted in an increase of overall gross margins from 30% in
the third quarter of 1995 to 34% in the third quarter of 1996. The Company
expects its gross margin percentages to vary in future periods based on the
revenue mix between product sales, lease and service revenues as well as based
upon the composition of its product and service fee revenues earned during the
period. The Company expects its merger with Colonial Data to significantly
increase gross profit in the fourth quarter of 1996 and thereafter. See Summary
of Operations and Financial Positions for Colonial Data.
Selling, General and Administrative
Selling, general and administrative expenses were $2,926,000 for the
third quarter of 1996 as compared to $1,367,000 in the third quarter of 1995.
The increase of $1,559,000 was a result of the Company's hiring of additional
staff, upgrading systems and operations in anticipation of the potential of
increased business later in 1996 resulting from its strategic alliance with Visa
InterActive, as well as from other markets for the Company's smart telephone and
home banking products and services. The Company expects that selling, general
and administrative expenses will continue to increase during the remainder of
<PAGE>
1996 and thereafter as a result of the merger with Colonial Data and the
acquisition of Braun, Simmons, as well as the continued development of
infrastructure to handle the anticipated increase in business in both home
banking and telecommunications product and service sales.
Advertising and Promotion
Advertising and promotion expenses increased between periods by
$185,000, from $0 in the third quarter of 1995 to $185,000 for the same period
in 1996. During the third quarter of 1996, the Company began selling its
Intelifone(TM) smart telephone directly to retail stores and outlets. The
Company expects its advertising and promotion expenses to increase substantially
in future periods from the expenditures incurred during the third quarter (and
first nine months) of 1996 and during the fiscal year ended December 31, 1995
with the entrance of its next generation smart telephone into these retail
channels, the merger with Colonial Data and the acquisition of Braun, Simmons.
The merger with Colonial Data, in particular, will increase advertising and
promotion expenses as the Company promotes Colonial Data's telecommunications
product lines to retail markets and to the regional Bell operating companies and
other telephone operating companies with whom Colonial Data generated its
product, lease and service revenues.
Research and Development
Research and development costs were $786,000 in the third quarter of
1996 as compared to $272,000 for the same period in 1995. The increase of
$514,000 was largely attributable to developing, designing and testing both the
Company's home banking connectivity products and support services and the
Company's next generation smart telephone and its associated interactive
services. The Company has been actively engaged in research and development
since its inception and expects that these activities will be essential to the
operations of the Company in the future. The Company also expects research and
development costs to increase during the remainder of 1996 and thereafter as a
result of the merger with Colonial Data and the acquisition of Braun, Simmons on
September 30, 1996 as both are actively engaged in research and development
activities.
In-Process Research and Development from Acquired Company
The Company incurred a $4,914,000 expense in the third quarter of 1996
for in-process research and development related to the acquisition of Braun,
Simmons on September 30, 1996. The accounting principles of a purchase business
combination require that the purchase price be allocated to in-process research
and development projects and, if these projects have no alternative future use,
be expensed at the date of consummation of the business combination. In the
fourth quarter of 1996, it is expected that the Company will incur approximately
$72 million of in-process research and development expenses in the fourth
quarter of 1996 as a result of its merger with Colonial Data on November 7,
1996.
<PAGE>
Interest Income, Net
Interest income was $306,000 for the third quarter of 1996 compared to
$428,000 for the third quarter of 1995. The decrease of $122,000 was due to
decreased cash balances between periods based on the Company's use of cash
throughout the fourth quarter of 1995 and the first nine months of 1996 to fund
operations and invest in infrastructure and capital equipment. In connection
with the merger with Colonial Data, additional cash and equivalent balances of
$23 million were acquired. The Company expects interest income to increase in
the fourth quarter of 1996 and thereafter. The Company incurred minimal interest
expense in the third quarter of 1996 and 1995.
Equity in loss of affiliate
Equity in loss of affiliate was $537,000 in the third quarter of 1996
compared to $0 in the third quarter of 1995. The increase was due to the Company
recording its proportionate share of losses of HFN and the amortization of the
excess of the purchase price over the Company's share of the equity in net
assets of HFN, following the Company's investment in HFN in October 1995. HFN is
a newly formed, development stage personal computer software company that is
developing and delivering electronic financial products for consumers and
services through banks. The Company expects HFN's operating losses to continue
through the remainder of 1996.
Nine months ended September 30, 1996 and 1995
Revenues
The Company's revenues for the first nine months of 1996 increased by
$38,000 from $2,900,000 in 1995 to $2,938,000 in 1996. Product revenues
decreased by $102,000 between periods, from $1,449,000 in the first nine months
of 1995 to $1,347,000 for the same period in 1996. The Company began shipping
its next generation smart telephone, the Intelifone(TM), to retail markets in
the third quarter of 1996, and revenues from these product sales comprised
approximately 42% of the product revenues for the first nine months of 1996. The
product revenues generated in the first nine months of 1995 were primarily from
the sale of the Company's previous generation PhonePlus(TM) smart telephones,
which the Company was selling through its strategic relationship with Visa.
Service fees revenue for the first nine months of 1996 were $1,579,000 compared
to $1,441,000 for the same period in 1995, an increase of $138,000. The
Company's customer support revenues, which are remarketed by Visa InterActive to
Visa member banks, totaled $1,138,000 for the first nine months of 1996, a
$620,000 increase over the same period in 1995. This increase offset decreases
in monthly service fees revenue and development fees for smart telephones
totaling $290,000 and $203,000, respectively, between periods. Monthly service
fees revenue are from customers who use the Company's previous generation smart
telephones and associated interactive applications, and the decrease was
primarily due to the Company's continuing efforts to convert these customers to
Visa member banks. The Company expects its merger with Colonial Data to
significantly increase revenues in the fourth quarter of 1996 and thereafter.
See Summary of Operations and Financial Positions for Colonial Data.
<PAGE>
Cost of Revenues
The Company's cost of revenues for the first nine months decreased by
$266,000 from $2,241,000 in 1995 to $1,975,000 for the same period in 1996.
Product cost of revenues decreased by $184,000 between periods, from $1,450,000
in the first nine months of 1995 to $1,266,000 for the same period in 1996.
Included in product cost of revenue for the first nine months of 1996 is a
$132,000 reserve for inventory obsolescence related to the write down of the
Company's previous generation smart telephone, the PhonePlus(TM), to fair market
value. This increase is offset by a decrease in sales of the Company's smart
telephones resulting from the transition from primarily selling the Company's
PhonePlus(TM) smart telephone to selling its next generation smart telephone,
the Intelifone(TM), which the Company began shipping to retail markets at the
end of the third quarter of 1996. The Company's third quarter service cost of
revenues for the first nine months decreased by $82,000 from $791,000 in 1995 to
$709,000 for the same period in 1996. Service cost of revenues related to
generating monthly fee revenues decreased by $446,000, offsetting a $366,000
increase in costs related to providing customer support services to Visa, Visa
member banks and third parties. The service cost of revenues related to monthly
service fees decreased between periods due to the full depreciation in the
fourth quarter of 1995 of the smart telephones utilized to generate monthly fee
revenues and due to the continuing conversion of customers utilizing smart
telephones to Visa member banks. The increase in cost of revenues related to
customer service was a direct result of increased customer volume and revenue
from this source.
Gross margin for product sales was 6% for the first nine months of 1996
as compared to approximately break even for the same period in 1995. The gross
margin for product revenues for the first nine months of 1996 reflects a
$138,000 reserve for inventory obsolescence. The gross margin for the first nine
months of 1995 reflected the Company's previous strategy in 1995 of selling its
prior generation smart telephones at negligible margins through its strategic
alliance with Visa to build an installed base of subscribers who are potential
sources of monthly fees. Revenues from product sales for the first nine months
of 1995 consisted primarily of sales of the Company's previous generation smart
telephone, the PhonePlus(TM). In addition, as a result of the change in the
composition of service fees revenue and the costs associated with service fees
revenue, gross margins related to service fees increased from 45% in the first
nine months of 1995 to 55% for the same period in 1996. The composition of
product revenues and the increases in service fee gross margins between periods,
offset by the inventory obsolescence reserve for the PhonePlus(TM) smart
telephones, resulted in an increase of overall gross margin from 23% in the
first nine months of 1995 to 33% in the first nine months of 1996. The Company
expects its gross margin to vary in future periods based on the revenue mix
between product sales, lease and service revenues as well as based upon the
composition of its product and service fee revenues earned during the period.
The Company expects its merger with Colonial Data to significantly increase cost
of revenues in the fourth quarter of 1996 and thereafter. See Summary of
Operations and Financial Positions for Colonial Data.
<PAGE>
Selling, General and Administrative
Selling, general and administrative expenses were $7,398,000 for the
first nine months of 1996 as compared to $3,599,000 in the third quarter of
1995. The increase of $3,799,000 was a result of the Company's hiring of
additional staff and an increase in costs associated with upgrading systems and
operations in anticipation of the potential of increased business later in 1996
resulting from its strategic alliance with Visa InterActive, as well as from
other markets for the Company's smart telephone and home banking products and
services. The Company expects that selling, general and administrative expenses
will continue to increase during the remainder of 1996 and thereafter based on
the Company's acquisitions and integration of operations of both Braun, Simmons
and Colonial Data, as well as the continued development of infrastructure to
handle the anticipated increase in business in both home banking and
telecommunications product and service sales. See Summary of Operations and
Financial Positions for Colonial Data.
Advertising and Promotion
Advertising and promotion expenses increased between periods by
$260,000, from $7,000 in the first nine months of 1995 to $267,000 for the same
period in 1996. During the third quarter of 1996, the Company began selling its
Intelifone(TM) smart telephone directly to retail stores and outlets. The
Company expects its advertising and promotion expenses to increase substantially
in future periods from the expenditures incurred during the third quarter (and
first nine months) of 1996 and during the fiscal year ended December 31, 1995
with the entrance of its next generation smart telephone into these retail
channels and with the acquisition of Braun, Simmons and Colonial Data. The
merger with Colonial Data, in particular, will result in increased advertising
and promotion expenses as the Company promotes Colonial Data's
telecommunications product lines to retail markets and to the regional Bell
operating companies and other telephone operating companies with whom Colonial
Data generated its product, lease and service revenues. See Summary of
Operations and Financial Positions for Colonial Data.
Research and Development
Research and development costs were $1,962,000 in the first nine months
of 1996 as compared to $779,000 for the same period in 1995. The increase of
$1,183,000 was largely attributable to developing, designing and testing both
the Company's home banking connectivity products and support services and the
Company's next generation smart telephone and its associated interactive
services. The Company has been actively engaged in research and development
since its inception and expects that these activities will be essential to the
operations of the Company in the future. The Company also expects research and
development costs to increase during the remainder 1996 and thereafter based on
the acquisition of Braun, Simmons on September 30, 1996. The Company also
expects its merger with Colonial Data to significantly affect research and
development expenses in the fourth quarter of 1996 and thereafter. See Summary
of Operations and Financial Positions for Colonial Data.
<PAGE>
In-Process Research and Development from Acquired Company
The Company incurred a $4,914,000 expense in the first nine months of
1996 for in-process research and development related to the acquisition of
Braun, Simmons on September 30, 1996. The accounting principles of a purchase
business combination require that the purchase price be allocated to incomplete
research and development projects and, if these projects have no alternative
future use, be expensed at the date of consummation of the business combination.
The Company will record approximately $72 million in related in-process research
and development expenses in the fourth quarter of 1996 in connection with the
merger with Colonial Data on November 7, 1996.
Interest Income, Net
Interest income, net was $998,000 for the first nine months of 1996
compared to $277,000 for the same period of 1995. The increase of $721,000 was
due primarily to the significant increases in the Company's cash balances
between periods from its June 1995 public offering and a decrease in interest
expense between periods, primarily due to two factors: (i) in June 1995, the
Company retired substantially all long term debt as it related to its capital
leases and outstanding borrowings with WorldCorp and Verifone with proceeds
derived from its initial public offering and (ii) in August 1994, in addition to
purchasing the Company's electronic banking and bill pay operations, Visa
assumed $853,000 of the Company's capital lease obligations and miscellaneous
liabilities. The Company expects its merger with Colonial Data to significantly
affect interest income in the fourth quarter of 1996 and thereafter. See Summary
of Operations and Financial Positions for Colonial Data.
Equity in loss of affiliate
Equity in loss of affiliate was $1,431,000 in the first nine months of
1996 compared to $0 in the same period of 1995. The increase was due to the
Company recording its proportionate share of losses of HFN and the amortization
of the excess of the purchase price over the Company's share of the equity in
net assets of HFN, following the Company's investment in HFN in October 1995.
HFN is a newly formed, development stage personal computer software company that
is developing and delivering electronic financial products and services to
consumers. The Company expects HFN's operating losses to continue through the
remainder of 1996.
<PAGE>
Summary of Operations and Financial Positions for Colonial Data
The following selected consolidated financial data is derived from the
consolidated financial statements of Colonial Data (in thousands, except per
share data):
<TABLE>
<CAPTION>
For the three months ended For the nine months ended
September 30, September 30,
-------------------------- -------------------------
1996 1995 1996 1995
------ ------ ------ ------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Statement of Operations Data:
Revenues $ 12,544 $ 19,626 $ 50,152 $ 53,140
Gross profit 4,339 8,181 17,578 21,790
Income from operations 84 5,135 6,597 13,493
Net income 238 3,454 4,944 8,693
Net income per share $ 0.02 $ 0.23 $ 0.32 $ 0.61
Weighted average shares 15,573 15,335 15,592 14,306
</TABLE>
<TABLE>
<CAPTION>
September 30, 1996 December 31, 1995
--------------------------- --------------------------
(unaudited)
<S> <C> <C>
Balance Sheet Data:
Working capital $ 74,606 $ 68,915
Current assets 78,464 74,752
Property, plant and equipment, net 5,425 6,733
Total assets 88,061 86,405
Total borrowings -- 1,000
Stockholders' equity 80,568 84,203
</TABLE>
Three months ended September 30, 1996 and 1995 for Colonial Data
Revenues
Revenues for the three months ended September 30, 1996 were $12,544,000
compared to $19,626,000 for the same period in the prior year. Product revenues
decreased 33% to $9,215,000 for the three months ended September 30, 1996 from
$13,828,000 for the three months ended September 30, 1995. This decrease
resulted from lower product promotional sales. Lease revenues decreased to
$2,738,000 for the three months ending September 30, 1996 compared to $5,362,000
for the same period in the prior year due to a decline in the number of units
under lease by customers. Service revenues increased 36% to $591,000 for the
three months ended September 30, 1996 from $436,000 for the same period in the
prior year, primarily due to the completion of certain repair contracts.
Gross Profit
For the three months ended September 30, 1996, Colonial Data generated
gross profit of $4,339,000 on revenues of $12,544,000, for a gross margin of 35%
for the period compared to 42% for the same period last year. The Company
expects its gross margin percentages to vary in future periods based on the
revenue mix between product sales, lease and service revenues, competitive
pricing influences and, the composition of its product and service fee revenues
earned during the period.
<PAGE>
Operating income for the three months ended September 30, 1996 was
$84,000 compared to $5,135,000 for the same period in the prior year. The
decrease in income from operations is primarily attributed to declining profits
on the Caller ID leasing program due to attrition and increasing operating costs
associated with the hiring of additional personnel. Also contributing to the
decrease in operating income were merger and one-time charges totaling $629,000,
net of applicable income taxes, or $0.04 per share.
Net Income
Net income was $238,000 for the three months ended September 30, 1996
compared to net income of $3,454,000 for the same period in the prior year. The
decrease in net income is primarily related to the decline in income from
operations, and a decrease in investment income of $210,000 for the period.
Net Income per Share
Net income per share was $0.02 for the three months ended September
30, 1996 compared to $0.23 for the same period in the prior year.
Weighted Average Shares
The fully diluted weighted average shares increased to 15,573,000 for
the three months ended September 30, 1996 compared to 15,335,000 for the same
period in the prior year. The increase resulted primarily from stock options
issued to employees since the third quarter of 1995.
Nine months ended September 30, 1996 and 1995
Revenues
Revenues for the nine months ended September 30, 1996 were $50,152,000
compared to $53,140,000 for the same period in the prior year. Product revenues
increased 7% to $38,456,000 for the nine months ended September 30, 1996 from
$36,008,000 for the nine months ended September 30, 1995. This growth resulted
from marketing and promotional campaigns conducted by telcos and the Company and
revenues from CDT Telecom Systems, Inc., the Company's small business product
subsidiary. Lease revenues decreased to $10,155,000 for the nine months ending
September 30, 1996 compared to $15,550,000 for the same period in the prior year
due to a decline in the number of units under lease by customers. Service
revenues decreased 3% to $1,541,000 for the nine months ended September 30, 1996
from $1,582,000 for the same period in the prior year, primarily due to the
completion of certain repair contracts.
<PAGE>
Gross Profit
For the nine months ended September 30, 1996, Colonial Data generated
gross margin of $17,578,000 on revenues of $50,152,000, for a gross margin of
35% for the period compared to 41% for the same period last year. The Company
intends to continue Colonial Data's operations as an integral part of its
operations. The Company expects its gross margin percentages to vary in future
periods based on the revenue mix between product sales, lease and service
revenues, competitive pricing influences, the composition of its product and
service fee revenues earned during the period, and competitive pricing
influences.
Operating income
Operating income for the nine months ended September 30, 1996 was
$6,597,000 compared to $13,493,000 for the same period in the prior year. The
decrease in income from operations is primarily attributed to declining profits
on the Caller ID leasing program due to attrition and increasing operating costs
associated with the hiring of additional personnel. Merger and one-time charges
in the third quarter totaled $629,000, net of applicable income taxes, or $0.04
per share.
Net Income
Net income was $4,944,000 for the nine months ended September 30, 1996
compared to net income of $8,693,000 for the same period in the prior year. The
decrease in net income is directly related to the decline in income from
operations, offset in part by an increase in investment income of $565,000 for
the period.
Net Income per Share
Net income per share was $0.32 for the nine months ended September
30, 1996 compared to $0.61 for the same period in the prior year.
Weighted Average Shares
The fully diluted weighted average shares increased to 15,592,000 for
the nine months ended September 30, 1996 compared to 14,306,000 for the same
period in the prior year. The increase resulted primarily from shares issued in
connection with a secondary common stock offering of 1,645,000 shares by
Colonial Data in July 1995.
Liquidity and Capital Resources
The Company, formerly US Order, has generated operating losses since
its inception. As a result of the merger with Colonial Data on November 7, 1996,
the Company has acquired operations that generated net income of approximately
$12,523,000 and $4,944,000, respectively, for the fiscal year ended December 31,
1995 and the nine months ended September 30, 1996. The Company's smart telephone
and home banking products and services are subject to the risks inherent in the
<PAGE>
marketing and development of new products. The market for these products and
services is relatively new and is characterized by rapid technological change,
evolving standards, changes in end-user requirements and frequent new product
introductions and enhancements. However, the merger with Colonial Data has
provided the Company with established product lines and sales channels in large
telecommunications markets. The industry for the Company's products and services
is intensely competitive. The Company experiences direct competition from
manufacturers of smart telephones, Caller ID units, and cordless phones and from
companies that develop transaction processing software for interactive
applications and customer support services. To date, the Company has generated
limited revenues from its product and service sales; however, the merger with
Colonial Data has provided the Company with an established revenue stream that
totaled approximately $74 million and $50 million, respectively, for the year
ended December 31, 1995 and the nine months ended September 30, 1996. There can
be no assurance as to what level of future sales or royalties, if any, that the
Company will receive from Visa, Visa member banks and retail markets for its
smart telephone and home banking products and services.
During the first nine months of 1996, operating activities used
$7,400,000 compared to $3,679,000 in the same period in 1995. This increase was
primarily related to increased operating losses in the first nine months of
1996.
Investing activities used $2,386,000 during the first nine months of
1996 compared to $375,000 in the same period in 1995. The increase in the use of
cash for investing activities was primarily due to $1,013,000 invested in a
certificate of deposit pledged as collateral for a line of credit and an
increase in the purchase of computer equipment to support customer service and
upgrade internal networks.
Financing activities provided $2,160,000 in the first nine months of
1996 compared to $29,197,000 in the same period in 1995. This decrease resulted
from the net proceeds received by the Company's initial public offering in June
1995, after the redemption of preferred stock, repayment of debt, and payment of
dividends on both redeemable and convertible preferred stock.
In November 1995, the Company committed to purchase from Standard
Telecommunication Ltd. ("STL") approximately $3,300,000 worth of its next
generation smart telephones for delivery during 1996. The Company began selling
these next generation smart telephones to retail stores in the third quarter of
1996. The Company expects to incur significant capital expenditures in 1997 to
enhance current infrastructure and internal systems to handle increased business
and to integrate the operations of Colonial Data and Braun, Simmons.
In May 1996, the Company entered into a facility operating lease for an
additional 10,478 square feet of office space which will be used in addition to
the Company's current office space. The lease covers a 54 month period which
commenced in August 1996 with aggregate minimum lease payments equal to
approximately $450,000.
<PAGE>
In May 1996, the Company entered into two credit agreements with the
same bank that provide for borrowings up to $5,000,000. As of September 30, 1996
and October 31, 1996, the Company had no borrowings against either of these two
credit lines, but had committed $3,309,000 of these credit lines through the
issuance of a letter of credit to STL for the purchase of its next generation
smart telephone.
The Company's primary needs for cash in the future are for investments
in product development, working capital, strategic ventures, potential
acquisitions, capital expenditures and the upgrade of the Company's systems and
operations in order to support its strategic alliance with Visa InterActive and
integration activities relating to the merger and acquisition of Colonial Data
and Braun, Simmons. In order to meet the Company's needs for cash over the next
twelve months, the Company will utilize proceeds from its 1995 initial public
offering, additional cash and short-term investments resulting from the merger
with Colonial Data (approximately $23 million), credit lines, and, to the extent
available, gross margins generated from the sale and lease of its products and
services. Additionally, the Company will utilize proceeds from its approximately
$2,500,000 advertising credit, which was received as partial consideration for
certain shares of Series C convertible preferred stock in 1993, subject to
certain restrictions regarding its usage.
Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the Private
Securities Litigation Reform Act of 1995
The above information includes forward-looking statements, the
realization of which may be impacted by the factors discussed below. The
forward-looking statements are made pursuant to the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995 (the "Act"). This report
contains forward looking statements that are subject to risks and uncertainties,
including, but not limited to, the impact of competitive products, product
demand and market acceptance risks, reliance on key strategic alliances,
fluctuations in operating results, delays in development of highly-complex
products, the timing of implementation and promotion of Caller ID service by
telephone operating companies, reliance on key strategic alliances,
concentration of customer base and resulting adverse effects from the loss of
any one or more of the Company's major customers, the telecommunications
regulatory environment, changes in general economic conditions and other risks
detailed from time to time in the Company's filings with the Securities and
Exchange Commission, including the risk factors disclosed in the Company's
Registration Statement on Form S-4 (Commission File No. 333-11081) and the
Reports on Form 10-K of US Order and Colonial Data for the year ended December
31, 1995. These risks could cause the Company's actual results for 1996
and beyond to differ materially from those expressed in any forward looking
statements made by, or on behalf of, the Company. 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.
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Begins
Exhibit Sequential
No. Exhibit Page No.
------- ------- ----------
<S> <C> <C>
4.1 Form of Warrant, as amended (Incorporated by
reference to Exhibit 4.3 to the Colonial Data
Technologies Corp. Registration Statement on Form
S-4, File No. 33-30242).
10.1 Technical Information and Patent License Agreement effective
as of August 1, 1987 by and between American Telephone and
Telegraph and Colonial Data Technologies Corp. (Incorporated
by reference to Exhibit 1 to the Colonial Data Technologies
Corp. Report on Form 10-Q for the quarter ended September
30, 1989, File No.
0-15562).
10.2 Sales and Service Subcontract Agreement, dated December
20, 1994, between US Order, Inc. and Visa Interactive, Inc.
(Incorporated by reference to the US Order Registration
Statement on Form S-1, dated June 1, 1995 as filed with
the Commission, File No. 33-90978).
10.3 Acquisition Agreement, as amended, dated July 15, 1994,
among Visa International Service Association, US Order, Inc.
and WorldCorp, Inc. (Incorporated by reference to the US
Order Registration Statement on Form S-1, dated June 1,
1995 as filed with the Commission, File No. 33-90978).
10.4 Stock Option Agreement, dated as of August 1, 1994, be-
tween US Order, Inc. and John C. Backus, Jr. (Incorporated
by reference to the US Order Registration Statement on Form
S-1, dated June 1, 1995 as filed with the Commission, File
No. 33-90978).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Begins
Exhibit Sequential
No. Exhibit Page No.
------- ------- ----------
<S> <C> <C>
10.5 Letter Agreement dated April 5, 1995 between Visa
International Service Association and US Order, Inc.
(Incorporated by reference to the US Order Registration
Statement on Form S-1, dated June 1, 1995 as filed with the
Commission, File No. 33-90978).
10.6 Amendment No. 1, dated as of May 1, 1995, to Stock Op-
tion Agreement between US Order, Inc. and John C. Backus,
Jr. (Incorporated by reference to the US Order Registration
Statement on Form S-1, dated June 1, 1995 as filed with the
Commission, File No. 33-90978).
10.7 Colonial Data Technologies Corp. 401(k) Plan (Incorporated
by reference to the Colonial Data Technologies Corp. Report
on Form 10-Q for the year ended December 31, 1994, File No.
0-15562).
10.8 Agreement, dated as of March 1, 1996 between Colonial Data
Technologies Corp. and Robert J. Schock (Incorporated by
reference to the Colonial Data Technologies Corp. Report on
Form 10-Q for the quarter ended March 31, 1996, File No.
0-15562).
10.9 Amended and Restated Loan and Security Agreement between
Colonial Technologies Corp. and People's Bank, dated
May 3, 1996 (Incorporated by reference to the Colonial Data
Technologies Corp. Report on Form 10-Q for the quarter
ended June 30, 1996, File No. 0-15562).
10.10 Revolving Credit Note between Colonial Technologies Corp.
and People's Bank, dated May 3, 1996 (Incorporated by
reference to the Colonial Data Technologies Corp. Report on
Form 10-Q for the quarter ended June 30, 1996, File No.
0-15562).
10.11 Guaranty Agreement between Colonial Data Technologies
Corp. and People's Bank, dated May 3, 1996 (Incorporated
by reference to the Colonial Data Technologies Corp. Report
on Form 10-Q for the quarter ended June 30, 1996, File No.
0-15562).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Begins
Exhibit Sequential
No. Exhibit Page No.
------- ------- ----------
<S> <C> <C>
10.12 Master Trademark License Agreement between Colonial
Data Technologies Corp. and Pacific Bell (Incorporated
by reference to the Colonial Data Technologies Corp.
Report on Form 10-Q for the quarter ended June 30, 1996,
File No. 0-15562).
*10.13 Bond Purchase Agreement by and among CDT Realty Corp. 32
and 80 Pickett District Associates, L.L.C., dated as of
September 13, 1996.
11 Calculations of Earnings per Common Share 35
*27 Financial Data Schedule
*Filed herewith
(b) Reports on Form 8-K
(i) Colonial Data Technologies Corp. filed a report on Form
8-K on August 5, 1996 under Item 5 relating to Colonial
Data Technologies Corp. entering into an Agreement and
Plan of Merger with US Order, Inc., dated August 5, 1996,
pursuant to which Colonial Data Technologies Corp. and
US Order, Inc. would be merged into the Registrant.
(ii) US Order, Inc. filed a report on Form 8-K on August 5,
1996 under Item 5 relating to US Order, Inc. entering into
an Agreement and Plan of Merger with Colonial Data
Technologies Corp., pursuant to which US Order, Inc. and
Colonial Data Technologies Corp. would be merged into the
Registrant.
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
INTELIDATA TECHNOLOGIES CORPORATION
By: /s/ John C. Backus
----------------------------
John C. Backus
President
(Duly Authorized Officer
By: /s/ Timothy R. Welles
-----------------------------
Timothy R. Welles
Executive Vice President
(Duly Authorized Officer
By: /s/ John N. Giamalis
-----------------------------
John N. Giamalis
Vice President and Chief Financial Officer
(Principal Accounting Officer)
Date: November 14, 1996
<PAGE>
Commission file number 000-21685
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBITS
to
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal quarter ended September 30, 1996
INTELIDATA TECHNOLOGIES CORPORATION
(Exact name of registrant as specified in its charter)
<PAGE>
EXHIBIT 10.13
BOND PURCHASE AGREEMENT
This Agreement, (the "Agreement") is made and entered into this 13th
day of September, 1996, by and among 80 Pickett District Associates, L.L.C., a
Connecticut limited liability company ("80 PDA") and CDT Realty Corp., a
Connecticut corporation ("CDT Realty").
R E C I T A L S :
WHEREAS, 80 PDA is the owner of the issued and outstanding Connecticut
Development Authority ("CDA") Industrial Development bonds (Diventco Project -
1983 Series) issued September 2, 1983, in the original principal amount of
$2,000,000 (the "Bonds").
NOW THEREFORE, in consideration of the mutual covenants and agreements
hereinafter set forth, and other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged by the parties hereto, the
parties hereto hereby agree as follows:
1. Subject to the terms and provisions contained herein, at the Closing
(as hereinafter defined) 80 PDA agrees to transfer, sell and convey all
of its right, title and interest in the Bonds together with any and all
rights and benefits of 80 PDA under the Indenture of Trust dated
September 2, 1993 from the Connecticut Development Authority to
Citytrust, as Trustee (the "Indenture") and all monies due or to become
due under the Bonds, the Indenture and the Financing Documents (as
defined in the Indenture) to CDT Realty and CDT Realty agrees to
purchase the Bonds from 80 PDA for a price equal to One Million Three
Hundred Fifty Thousand Dollars ($1,350,000) in cash by delivering a
certified check or checks payable to the order of 80 PDA (the "Purchase
Price").
2. 80 PDA represents and warrants to CDT Realty that: (i) 80 PDA has
authorized the execution, delivery and performance of this Agreement by
all necessary limited liability company action; and (ii) 80 PDA owns
the Bonds free and clear of liens, encumbrances, liabilities and
restrictions (collectively, "Liens"), and the delivery of the Bonds
pursuant to this Agreement will transfer to CDT Realty good and
marketable title to the Bonds free and clear of all Liens.
3. CDT Realty represents and warrants to 80 PDA that CDT Realty has
authorized the execution, delivery and performance of this Agreement by
all necessary corporation action.
4. The closing of the transactions contemplated hereby (the "Closing")
shall take place at the offices of LeBoeuf, Lamb, Greene MacRae,
L.L.P., 225 Asylum Street, Hartford, Connecticut, at 9:00 a.m. on
September 13, 1996 or such other date as the parties shall mutually
agree.
<PAGE>
5. At the Closing, 80 PDA shall deliver to CDT Realty the following:
(a) an Assignment duly executed by 80 PDA in the form of Exhibit
A attached hereto; and
(b) the original Bonds.
6. At the Closing, CDT Realty shall deliver to 80 PDA a certified
check in the amount of $1,350,000.
7. The obligations of CDT Realty to consummate the transactions
contemplated herein shall be subject to the satisfaction at Closing of
each of the following conditions:
(a) the representations and warranties of 80 PDA contained herein
shall have been true and correct when made and shall be true and
correct at Closing as though such representations and warranties
were made at and as of such date; and
(b) 80 PDA shall have performed and complied with all covenants
and other obligations to be performed or complied with by it at
or prior to Closing.
8. The obligations of 80 PDA to consummate the transactions
contemplated herein shall be subject to the satisfaction at Closing of
each of the following conditions:
(a) the representations and warranties of CDT Realty contained
herein shall have been true and correct when made and shall be true and
correct at Closing as though such representations and warranties were
made at and as of such date; and
(b) CDT Realty shall have performed and complied with all
covenants and other obligations to be performed or complied with by it
at or prior to Closing.
9. From and after the Closing, the parties shall execute and deliver
such other instruments of conveyance and transfer and take such other
actions as may be reasonably required to effectively carry out the
transactions contemplated herein.
10. In the event any portion of this Agreement is found to be invalid
or unenforceable, the remainder shall remain in full force and effect.
11. This Agreement may be executed in any number of counterparts and by
the various parties on separate counterparts, each of which, when taken
as a whole, shall be deemed to be the complete agreement of the
parties.
12. This Agreement shall in all respects be construed in accordance
with and governed by the substantive laws of the State of Connecticut
without reference to its choice of law rules.
<PAGE>
13. This Agreement embodies the entire agreement and understanding of
the parties hereto with respect to the subject matter hereof, and
supersedes all prior and contemporaneous agreements and understandings
relative to such subject matter.
14. This Agreement and the various rights and obligations arising
hereunder shall inure to the benefit of and be binding upon the
parties, their successors and assigns.
15. None of the covenants, terms or conditions of this Agreement to be
paid, observed and performed by any party shall in any manner be
altered, waived, modified, changed or abandoned except by a written
instrument, duly signed and delivered by all of the parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
80 PICKETT DISTRICT ASSOCIATES, L.L.C.
BY: /s/ Robert J. Schock
Name: Robert J. Schock
Title: Manager
CDT REALTY CORP.
By: /s/ John N. Giamalis
Name: John N. Giamalis
Title: Vice President
[SIGNATURE PAGE TO BOND PURCHASE AGREEMENT]
<PAGE>
Exhibit 11
INTELIDATA TECHNOLOGIES CORPORATION
CALCULATIONS OF EARNINGS PER COMMON SHARE
(In thousands, except per share amounts; unaudited)
<TABLE>
<CAPTION>
For the three months ended For the nine months ended
September 30, September 30, 1996
--------------------------- -------------------------
1996 1995 1996 1995
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Adjustments to net loss:
Net loss $ (8,524) $ (848) $ (13,718) $ (3,447)
Preferred dividend requirement -- -- -- (681)
-------- -------- -------- --------
Net loss applicable to common stock
and common stock equivalents used
for primary computation (8,524) (848) (13,718) (4,128)
Fully diluted adjustments - preferred
dividend requirement -- -- -- 681
-------- -------- -------- --------
Adjusted net loss applicable to
common stock assuming full dilution $ (8,524) $ (848) $ (13,718) $ (3,447)
======== ======== ========= =========
Average number of share of common
stock outstanding 16,044 14,899 15,903 9,277
Fully diluted adjustments (2):
Assume exercise of options and warrants 1,131 2,354 1,584 2,270
Assume conversion of preferred stock -- -- -- 3,676
-------- -------- -------- --------
Total number of shares assumed to
be outstanding after full dilution 17,175 17,253 17,487 15,223
======= ======= ======== ========
Net loss per common share:
Primary loss per share (1) $ (0.53) $ (0.06) $ (0.86) $ (0.44)
======== ======== ======== =========
Fully diluted loss per share (2) $ (0.50) $ (0.05) $ (0.78) $ (0.23)
======== ======== ======== =========
</TABLE>
(1) The assumed exercise of options and warrants in periods of net loss are
anti-dilutive and are not included in the computation and presentation of
primary earnings per share.
(2) The assumed exercise of options, warrants and conversion of preferred stock
are anti-dilutive but are included in the calculation of fully-diluted
earnings per share in accordance with Regulation S-K Item 601 (a)(11).
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 17,494
<SECURITIES> 0
<RECEIVABLES> 1,371
<ALLOWANCES> 126
<INVENTORY> 745
<CURRENT-ASSETS> 19,716
<PP&E> 2,874
<DEPRECIATION> 1,978
<TOTAL-ASSETS> 35,088
<CURRENT-LIABILITIES> 5,973
<BONDS> 0
0
0
<COMMON> 17
<OTHER-SE> 29,010
<TOTAL-LIABILITY-AND-EQUITY> 35,088
<SALES> 1,347
<TOTAL-REVENUES> 2,938
<CGS> 1,266
<TOTAL-COSTS> 1,975
<OTHER-EXPENSES> 14,541
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (13,718)
<INCOME-TAX> 0
<INCOME-CONTINUING> (13,718)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (13,718)
<EPS-PRIMARY> (0.44)
<EPS-DILUTED> (0.23)
</TABLE>
