<PAGE>
RULE 424(A)
REGISTRATION NO. 33-60033
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION
DATED JUNE 13, 1995
PROSPECTUS
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2,200,000 SHARES
COLONIAL DATA TECHNOLOGIES CORP.
[LOGO OF COLONIAL DATA TECHNOLOGIES CORP. APPEARS HERE]
COMMON STOCK
Of the 2,200,000 shares of Common Stock offered hereby, 1,500,000 shares are
being issued and sold by Colonial Data Technologies Corp. ("CDT" or the
"Company"), and 700,000 shares are being sold by the Selling Stockholders. The
Company will not receive any of the proceeds from the sale of shares by the
Selling Stockholders. See "Principal and Selling Stockholders".
The Common Stock is listed on the American Stock Exchange under the symbol
"CDT". The last reported sale price for the Common Stock on June 12, 1995 was
$20 1/8 per share. See "Price Range of Common Stock".
-----------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" AT PAGE 6 OF THIS PROSPECTUS.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROCEEDS TO
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT(1) COMPANY(2) STOCKHOLDERS
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share......... $ $ $ $
- ------------------------------------------------------------------------------
Total(3).......... $ $ $ $
</TABLE>
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(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933. See "Underwriting".
(2) Before deducting expenses of the offering payable by the Company and the
Selling Stockholders, estimated at $385,000 and $15,000, respectively.
(3) The Company and certain Selling Stockholders have granted to the
Underwriters a 30-day option to purchase up to an aggregate of 330,000
additional shares of Common Stock solely to cover over-allotments, if any.
If this option is exercised in full, the total Price to Public,
Underwriting Discount, Proceeds to Company, and Proceeds to Selling
Stockholders will be , , and , respectively. See
"Underwriting".
-----------
The shares of Common Stock are offered by the several Underwriters, subject to
prior sale, when, as and if delivered to and accepted by them, and subject to
the right of the Underwriters to reject any order in whole or in part and
certain other conditions. It is expected that certificates for such shares will
be available for delivery at the offices of First Albany Corporation, Albany,
New York, on or about , 1995.
FIRST ALBANY CORPORATION
NATWEST SECURITIES LIMITED
VOLPE, WELTY & COMPANY
JULY , 1995
<PAGE>
Colonial Data provides telecommunications
companies with products and services to support
their deployment of intelligent network services...
. The Company leases Caller ID
equipment to US West
subscribers to lower the initial
consumer outlay for the
intelligent network service.
. Bell Atlantic has retained
Colonial Data to develop and
implement marketing programs
for intelligent network services.
. NYNEX purchases Colonial Data
Caller ID adjunct devices for use [PHOTO APPEARS HERE]
in targeted giveaway programs to
attract new subscribers.
. US West uses Colonial Data as
its sole fulfillment provider for a
new generation of integrated
Caller ID & Call Waiting adjunct
devices.
. Colonial Data has entered into a
strategic alliance with US Order
to manufacture and market ADSI-
based smart telephones to the
telecommunications industry.
- --------------------------------------------------------------------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE AMERICAN STOCK EXCHANGE, IN
THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY
BE DISCONTINUED AT ANY TIME.
- --------------------------------------------------------------------------------
----------------
2
<PAGE>
PROSPECTUS SUMMARY
The following is qualified in its entirety by the more detailed information
and Consolidated Financial Statements and Notes appearing elsewhere in this
Prospectus.
THE COMPANY
The Company designs, develops and markets telecommunications products that
support intelligent network services being developed and implemented by the
regional Bell operating companies ("RBOCs") and other telephone operating
companies ("telcos"). In recent years, CDT has concentrated its product
development and marketing efforts on products that support Caller ID, an
intelligent network service that allows subscribers to view the telephone
number and the directory name of a calling party before the call is answered,
and to store that information in memory. The Company also repairs and
refurbishes telecommunications products for commercial customers and provides
other services that support the development and implementation of intelligent
network services.
The Company has become a leading provider of Caller ID equipment, having sold
or leased more than 3,000,000 units. The Company is also the largest lessor of
such equipment in the United States, with over 500,000 leased units in service
as of May 31, 1995. The Company currently offers 14 models of Caller ID adjunct
units and three models of screen telephones with integrated Caller ID. CDT also
introduced an adjunct unit, known as SCWID, in April 1995 that allows Caller ID
to work with Call Waiting. CDT recently expanded its Caller ID presence through
its acquisition of the Canadian Caller ID business of TIE/communications, Inc.
in May 1995.
Caller ID is one of several intelligent network services being offered by
telcos as a way of generating additional revenues from existing subscribers.
Caller ID is the first such service to require specialized subscriber telephone
equipment. Availability of Caller ID service has expanded rapidly over the last
several years and, as of June 1, 1995, the service had been approved in 47
states. The Company estimates that as of that date, subscriber enrollment was
approximately 6% of total subscribers in available areas, which is much lower
than enrollment rates for certain other intelligent network services such as
Call Waiting, which has achieved 40% market penetration in certain available
areas. Accordingly, the Company believes that significant potential growth
opportunities exist as telcos increase their efforts to promote Caller ID and
as market acceptance of Caller ID increases. The Company also believes that its
SCWID unit will further enhance the value of both Caller ID and Call Waiting.
CDT is positioning itself to take advantage of other opportunities arising from
the development of intelligent network services. In January 1995, CDT
established a strategic alliance with US Order to jointly develop an Analog
Display Services Interface ("ADSI")-compatible "smart telephone", a telephone
with a central processing unit, a backlit display screen, a keyboard, a
magnetic stripe card reader and memory. CDT will manufacture and exclusively
market this smart telephone, initial shipments of which are expected by the
first quarter of 1996, to RBOCs and other telcos. Smart telephones are designed
to make intelligent network services more accessible to telephone subscribers.
In May 1995, the Company and Barry Blau & Partners, Inc., the third largest
direct marketing firm in the United States, formed a joint venture to market
intelligent network services to end users on behalf of RBOCs. The joint
venture, Worldwide Telecom Partners, Inc., commenced business in May 1995 with
an engagement to market Caller ID services to Bell Atlantic customers in New
Jersey.
The Company distributes its products through direct fulfillment sales and
leasing arrangements with telcos and sales to telcos, retailers and other
equipment manufacturers. The Company's principal customers include US West,
NYNEX, BellSouth and Sears. CDT also has established direct fulfillment
relationships with Bell Atlantic, BellSouth, Ameritech and Frontier.
3
<PAGE>
The Company believes its success is a result of increased availability and
market acceptance of Caller ID and other intelligent network services, CDT's
strong relationships with telcos, retailers and other equipment manufacturers,
its ability to develop and provide advanced Caller ID products, and its focus
on lowering production costs. The Company actively assists RBOCs and other
telcos in offering intelligent network services through innovative programs,
such as the leasing program developed with US West. CDT's long-standing
relationships with the telcos and Bellcore, the research entity funded jointly
by the RBOCs and other telcos, enable the Company to stay informed of and
respond to technological developments relating to intelligent network services
generally and to Caller ID specifically. The Company also believes that its
repair and refurbishment capabilities increase and diversify its revenue base
and strengthen its relationships with its telco customers.
Colonial Data Technologies Corp. was incorporated in 1982, became a
Massachusetts corporation in 1983 and was redomiciled in Delaware in May 1995.
The Company's principal executive offices are located at 80 Pickett District
Road, New Milford, Connecticut 06776, and its telephone number is (203) 355-
3178.
RISK FACTORS
The Common Stock offered hereby involves a high degree of risk. See "Risk
Factors".
THE OFFERING
<TABLE>
<C> <S>
Common Stock offered by the Company............... 1,500,000 shares
Common Stock offered by the Selling Stockholders.. 700,000 shares
Common Stock to be outstanding after the offering. 15,242,384 shares(1)
Use of proceeds by the Company.................... For general corporate
purposes, including
financing the Company's
leasing activities, working
capital, new product
introductions, expansion of
research and development
activities and expansion of
customer service, sales and
marketing operations. See
"Use of Proceeds".
AMEX symbol....................................... CDT
</TABLE>
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(1) Includes 150,598 shares to be purchased by Selling Stockholders pursuant to
the exercise of outstanding options and warrants and sold in connection
with this offering. At May 31, 1995, options and warrants to acquire
517,717 shares of Common Stock were outstanding. Also gives effect to the
issuance of 170,743 shares of Common Stock by the Company on June 9, 1995
in exchange for 230,000 shares of US Order common stock. See "Principal and
Selling Stockholders" and "Business--Products and Services".
4
<PAGE>
SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------------- -------------------
1990 1991 1992 1993 1994 1994 1995
------- ------ ------- ------- ------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS
DATA:
Revenues.............. $11,029 $8,006 $ 9,722 $17,439 $36,829 $ 6,043 $15,206
Gross profit.......... 3,647 2,564 2,913 5,235 12,601 1,926 6,105
Income from opera-
tions................ 884 252 551 2,053 6,300 889 3,838
Net income............ 544 47 311 1,103 3,578 495 2,414
Net income per share.. $ .06 $ .00 $ .03 $ .10 $ .30 $ .04 $ .18
Fully diluted weighted
average shares
outstanding.......... 9,558 9,623 10,849 10,910 11,806 11,292 13,764
OTHER OPERATING DATA:
Caller ID units sold.. 155 200 245 410 987 145 407
Leased Caller ID units
in service at end of
period............... -- -- 9 180 440 193 475
<CAPTION>
DECEMBER 31, MARCH 31, 1995
-------------------------------------- -------------------
AS
1990 1991 1992 1993 1994 ACTUAL ADJUSTED(1)
------- ------ ------- ------- ------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital....... $ 2,428 $3,902 $ 4,076 $ 2,326 $23,930 $17,518 $44,863
Equipment............. 589 612 795 3,272 5,755 6,767 6,767
Total assets.......... 6,043 5,772 5,641 10,487 33,133 36,987 67,146
Short- and long-term
borrowings........... 2,174 646 183 2,130 2,000 -- --
Stockholders' equity.. 3,017 4,514 4,825 6,082 28,353 31,082 61,820
</TABLE>
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(1) Adjusted to reflect the sale of shares of Common Stock offered by the
Company hereby at an assumed public offering price of $19 per share, the
exercise of 81,522 stock options at an exercise price of $.21 per share and
related income tax benefit and 69,076 warrants at an exercise price of
$2.92 per share by certain Selling Stockholders, and the application of the
estimated net proceeds therefrom. Also gives effect to the issuance of
170,743 shares of Common Stock by the Company on June 9, 1995 in exchange
for 230,000 shares of US Order common stock. See "Capitalization", "Use of
Proceeds" and "Business--Products and Services".
----------------
References to the "Company" or "CDT" in this Prospectus, unless the context
requires otherwise, refer to Colonial Data Technologies Corp. and its
subsidiaries, Colonial Technologies Corp., a Delaware corporation (the
"Delaware Subsidiary"), and CDT Canada Corp., a Canadian corporation (the
"Canadian Subsidiary").
Except as otherwise noted, all information contained in this Prospectus assumes
that the Underwriters' over-allotment option is not exercised.
5
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following factors
should be considered carefully by prospective investors in evaluating the
Company and its business before purchasing the shares of Common Stock offered
hereby.
RELIANCE ON CALLER ID REVENUES
During the year ended December 31, 1994 and the three months ended March 31,
1995, 90% and 95%, respectively, of the Company's revenues were derived from
sales and leases of its Caller ID units. The sale or lease of these units is
directly linked to the implementation and promotion of Caller ID service by
telcos. The timing of such implementation may be affected by the telcos'
ability to obtain necessary regulatory approvals, by switch and software
upgrades and by other factors. There can be no assurance that telcos will
continue to introduce and promote this service successfully or that it will
gain widespread market acceptance. Delays in the introduction of Caller ID
service in local markets or failure of this service to gain widespread market
acceptance would materially and adversely affect the Company's business,
operating results and financial condition. Subscriber acceptance of Caller ID
service to date has been and may in the future be negatively affected by
various factors, including the pricing of Caller ID service and equipment, the
fact that the service is currently available only when the caller is within
the same local calling area as the subscriber and the ability of callers to
block the display of their name and number. See "Business - Industry
Background", "- Products and Services" and "- Government Regulation".
COMPETITION
The market for the Company's products is highly competitive and subject to
rapid technological change. At present, the Company's principal competitors
are CIDCO Incorporated ("CIDCO"), AT&T Corp. ("AT&T") and Northern Telecom
Ltd. ("Northern Telecom"). The Company's Caller ID products also compete with
Caller ID telephones offered by Panasonic Co. ("Panasonic"), Sony Corp.
("Sony") and Thomson Consumer Electronics, Inc. ("Thomson"). The smart
telephone intended to be marketed by the Company through an alliance with US
Order, Inc. ("US Order") is subject to competition from smart telephones
marketed by Philips Home Services, Inc. ("Philips"), AT&T and Northern Telecom
as well as other emerging platforms for interactive applications delivered
through personal computers and cable television. The Company expects
competition to increase in the future from existing and new competitors,
possibly including telcos or other current customers, from network switch-
based services and from the increased application of cellular technology. The
Company's primary current and potential competitors in the market for products
that support intelligent network services have substantially greater
financial, marketing and technical resources than the Company. Increased
competition could materially and adversely affect the Company's results of
operations through price reductions and loss of market share.
The Company competes with a large number of competitors for its repair
services and other services supporting the development and implementation of
intelligent network services. Several of the Company's competitors in the
market for such services have substantially greater financial, marketing and
technological resources than the Company. There can be no assurance that the
Company will be able to continue to compete successfully against its existing
competitors or that it will be able to compete successfully against new
competitors. See "Business - Competition".
LEASING PROGRAMS
Since 1992, the Company has leased Caller ID units to US West Communications,
Inc. ("US West") subscribers through an arrangement in which US West performs
the monthly billing and collections and the Company provides all other
fulfillment and product support services. This program has grown from 9,000
leased units in service in 1992 to over 500,000 leased units in service as of
May 31, 1995. The lease arrangements are in place
6
<PAGE>
in 12 states. The lease agreement provides that the lease may be cancelled at
any time, and the Company treats these leases as operating leases. If US West
were to terminate the program or large numbers of individual customers were to
exercise their right to cancel their leases, the Company's business, operating
results and financial condition would be materially and adversely affected.
The Company intends to offer leasing programs to additional telco customers.
However, there can be no assurance that such programs will be successfully
established or maintained. Customer cancellations of existing leases could
result from, among other reasons, the Company's new product introductions,
including SCWID units and smart telephones, and other changes in technology.
See "Business - Strategy", "- Marketing and Distribution".
CONCENTRATION OF DISTRIBUTION OF PRODUCTS AND SERVICES
The Company sells its products and services to telcos, individual telephone
subscribers, other equipment manufacturers on a private label basis ("private
label customers") and retail chains. In addition, the Company leases its
products to individual telephone subscribers. Sales and leases to individual
telco subscribers are largely dependent on direct fulfillment distribution
arrangements with certain RBOCs and other telcos. Since the Company views the
telcos with which it maintains direct fulfillment relationships as its
customers, it considers its customer base to be highly concentrated. In 1994,
the Company's five largest customers (including telcos with which the Company
maintains direct fulfillment relationships) accounted for 79%, of which the
top two accounted for 55%, of its revenues. In the three months ended March
31, 1995, the five largest customers accounted for 83%, of which the top two
accounted for 58%, of the Company's revenues. The Company's current telco
fulfillment arrangements are not exclusive and may be terminated by either
party. US West, BellSouth Corp. ("BellSouth") and NYNEX Corporation ("NYNEX")
each accounted for over 10% of the Company's total revenues for 1994. The loss
of any one or more of the Company's major customers or the termination of its
distribution arrangements with any telco could materially and adversely affect
the Company's business, operating results, and financial condition. See
"Business - Marketing and Distribution".
MANAGEMENT OF GROWTH; DEPENDENCE ON KEY EMPLOYEES
During recent periods, the Company has experienced a rapid rate of growth.
Although the Company attempts to forecast growth accurately, there can be no
assurance that it will be able to consistently make accurate forecasts.
Failure to make such accurate forecasts, or the failure or inability of the
Company to manage its growth successfully, could result in problems with
respect to, among other things, the size or quality of the Company's work
force, the adequacy of the Company's and its suppliers' production facilities,
the adequacy of its management information systems and inventory controls, a
high backlog of product orders and delays in customer service and support.
The Company has responded to the growth in its business by significantly
increasing its service, support and administrative facilities and staff.
However, there can be no assurance that the Company will be able on a timely
basis to anticipate its future requirements for personnel, facilities or
systems or to maintain the levels of customer service that it has provided in
the past. The inability of the Company to anticipate and meet these
requirements, or a decline in the quality of the Company's customer service or
delays in the delivery of the Company's products could materially and
adversely affect the Company's business. See "Business - Manufacturing".
The Company is highly dependent on certain key executive officers and
technical employees, the loss of any of whom could have an adverse impact on
the future operations of the Company. The Company may need to hire additional
skilled personnel to support the continued growth of its business. Competition
for such personnel is intense, and the inability to attract and retain
additional qualified employees or the loss of current key employees could
materially and adversely affect the Company's business, operating results and
financial condition. See "Business - Employees" and "Management".
TECHNOLOGICAL CONSIDERATIONS
The Company's business activities are concentrated in fields characterized by
rapid and significant technological advances. There can be no assurance that
the Company will remain competitive technologically or that the
7
<PAGE>
Company's products, processes, or services will continue to be reflective of
such advances. Failure to introduce new products or product enhancements that
achieve market acceptance on a timely basis could materially and adversely
affect the Company's business, operating results and financial condition. The
Company has recently introduced a new product, SCWID, which integrates Caller
ID with Call Waiting, and is working with its strategic partner to develop a
new smart telephone designed to enable the use of intelligent network services
that are expected to be made available through telcos. There can be no
assurance that the Company will not encounter unanticipated technical,
marketing or other problems or delays relating to new products, features or
services which the Company has recently introduced or which the Company may
introduce in the future. Moreover, there can be no assurance that the
Company's new products, features or services will be successful, that the
introduction of new products, features or services by the Company or its
competitors will not materially and adversely affect the sales of the
Company's existing products or that the Company will be able to adapt to
future changes in the telecommunications industry. Most of the Company's
competitors and potential competitors, such as telcos and telecommunications
equipment manufacturers, have significantly greater financial, technological
and research and development resources than the Company. See "Business -
Products and Services", "- Product Development", "- Competition" and "-
Patents, Proprietary Rights and Licenses".
LIMITED PROPRIETARY PROTECTION
The Company possesses limited patent or registered intellectual property
rights with respect to its technology. Although the Company has applied for a
patent on its SCWID product, there can be no assurance that a patent will be
issued to the Company for the SCWID product or that such patent, if issued,
will afford effective protection of the Company's technology.
The Company depends in part upon its proprietary technology and know-how to
differentiate its products from those of its competitors. The Company is
relying on a strategic partner for the design of a new smart telephone and
works closely with third parties with respect to product design and
engineering. The Company also relies on a combination of contractual rights
and trade secret laws to protect its proprietary technology. There can be no
assurance, however, that competitors will not obtain unauthorized access to
the Company's proprietary technology, that third parties will not misuse the
technology to which the Company has granted access, or that the Company's
contractual or legal remedies will be sufficient to protect the Company's
interests in its proprietary technology. There can be no assurance that the
Company will be able to successfully develop new technology or gain access to
such technology or that third parties will not be able to develop similar,
alternative technology independently. Therefore, existing and potential
competitors may be able to develop products that are competitive with the
Company's products and such competition could adversely affect the prices for
the Company's products or the Company's market share. See "Business - Patents,
Proprietary Rights and Licenses".
A portion of the messaging technology used in the Company's Caller ID products
is licensed on an exclusive basis from AT&T. However, AT&T has reserved for
itself and its subsidiaries the right to use that technology for all purposes
relating to its and its subsidiaries' business. AT&T's Caller ID patents are
licensed by AT&T to the Company and others, including the Company's
competitors. If the AT&T license were terminated and the Company were unable
to negotiate a new patent license agreement with AT&T, the Company would no
longer be authorized to manufacture or sell Caller ID products in the United
States other than to the RBOCs and to AT&T, and the Company's business would
be materially and adversely affected. See "Business - Patents, Proprietary
Rights and Licenses".
DEPENDENCE ON STRATEGIC ALLIANCE; MARKET ACCEPTANCE OF SMART TELEPHONES
The Company views its alliance with US Order as a key factor in its
development and commercialization of smart telephones. The Company has entered
into an agreement to form a strategic alliance with US Order pursuant to which
the Company will manufacture and sell to telco customers smart telephones that
have ADSI capability. The smart telephones are being developed in conjunction
with US Order, with features including a display screen, an embedded central
processing unit ("CPU"), a standard typewriter or "QWERTY" keyboard and a
magnetic stripe card reader. Under the strategic alliance with US Order, the
Company has agreed that, after the introduction of the smart telephone product
and through January 17, 2000, all ADSI-compatible smart telephones that it
manufactures, distributes or markets to telcos will be pursuant to the US
Order agreement. US
8
<PAGE>
Order can manufacture and exclusively market ADSI-compatible smart telephones
outside of the telco market but must pay the Company a 10% royalty for each
such sale or lease pursuant to the agreement. US Order may terminate the
strategic alliance agreement if the Company ceases to distribute
telecommunications products to at least four telcos during any twelve-month
period. The Company's success in the smart telephone market depends on US
Order's ability to meet design specifications and delivery requirements for
its products and services. If the smart telephone under development with US
Order is not successful, the Company's entry into the market for smart
telephones will be materially and adversely affected. See "Business - Products
and Services".
The Company's future growth and profitability will depend, in part, upon the
consumer acceptance of smart telephone technologies and a significant
expansion in the consumer market for telephone-based interactive applications
technologies. Even if these markets experience substantial growth, there can
be no assurance that the Company's products or services will be successful or
benefit from such growth. The Company's smart telephone is designed to support
ADSI-based intelligent network services such as integrated Caller ID and Call
Waiting with call disposition features, as well as new applications such as
home banking, catalogue shopping and national directory assistance. There can
be no assurance of the timing of introduction of, necessary regulatory
approvals for, or market acceptance of these services and applications. The
Company faces competition in these markets from other emerging interactive
applications delivered through personal computers, cable television and
Integrated Service Digital Network (ISDN). The Company has yet to market smart
telephones or interactive applications. The Company currently anticipates its
initial shipments of smart telephones will occur by the first quarter of 1996.
See "Business - Industry Background", "- Strategy" and "- Products and
Services".
VARIATIONS IN OPERATING RESULTS
The Company's revenues and operating results may vary from quarter to quarter
due to a variety of factors, some of which are beyond the Company's control.
Factors that may cause fluctuations in quarterly results include the timing of
the initiation of Caller ID or other intelligent network services by a telco;
the timing and extent of promotional activities by a telco; the rate of
customer acceptance of Caller ID and other intelligent network services; the
timing and market acceptance of new product introductions; disruptions in
sources of supply; changes in service charges by a telco; the timing and the
level of expenditures for sales, marketing and new product development by the
Company and its competitors; the effects of regulation on Caller ID and other
intelligent network services; general economic conditions; and other factors.
No assurance can be given that such quarterly variations will not occur in the
future and, accordingly, the results of any one quarter may not be indicative
of the operating results for future quarters. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Quarterly
Results".
DEPENDENCE ON FOREIGN PRODUCTION; LIMITED SOURCES OF SUPPLY
The Company's Caller ID units and other products have been manufactured
principally by a single manufacturer with manufacturing facilities in Hong
Kong and the People's Republic of China. It is also intended that the
Company's smart telephones will be manufactured by the same company. These
facilities are supplemented, in part, by limited manufacturing facilities in
Connecticut and Canada. The availability or cost of the Company's products may
be adversely affected by political, economic or labor conditions in the
countries where those products are manufactured, including the 1997 return of
Hong Kong to China, by fluctuations in currency exchange rates and by other
factors. In addition, a change in the tariff structure or other trade policies
of the United States could adversely affect the Company's foreign
manufacturing strategies.
The key components used in the Company's products are currently being
purchased from multiple sources, except for its application specific
integrated circuit ("ASIC") chips, which are purchased from a single source.
The only supply contract to which the Company is a party is with the maker of
its ASIC chips. The Company has no other supply contracts for its components.
Although the Company believes it could develop other sources for each of the
components for its products, the process could take several months, and the
inability or refusal of any such source to continue to supply components could
have a material adverse effect on the Company pending
9
<PAGE>
the development of an alternative source. The Company is working with another
ASIC supplier to design and develop a new ASIC chip to help meet future
production requirements. See "Business - Manufacturing".
REGULATION
In the United States, Caller ID and other intelligent network services are
subject to federal and state regulation. On May 4, 1995, the Federal
Communications Commission ("FCC") issued an order effective December 1, 1995,
requiring the passage of the calling party's number ("CPN") on an interstate
basis where a RBOC or other telco has switching architecture capable of
supporting the service. The FCC order requires RBOCs and other telcos to
provide per-call blocking of the CPN for interstate calls where technically
feasible and permits state public utility commissions to authorize per-line
blocking for interstate calls. In general, state public utility commissions
have required RBOCs and other telcos to provide per-call and/or per-line
blocking of the CPN on calls within the local calling area, thereby allowing
the caller to prevent the display of his or her name and number, which
diminishes the usefulness and may adversely impact market acceptance of Caller
ID services. The California Public Utilities Commission has filed a petition
for review in federal court challenging portions of the FCC order based upon
privacy concerns. Caller ID and other intelligent network services may in the
future be subject to further regulation by the federal government, state
public utility commissions and other regulatory authorities, as well as court
challenges, including possible challenges due to protests from special
interest groups that object to such services on the basis of privacy concerns.
The Company is unable to predict what effect, if any, further regulation or
court challenges may have on the FCC order or Caller ID service. As of June 1,
1995, Caller ID service was not available in California, Hawaii and North
Dakota. In Canada, the Canadian Radio and Telecommunications Commission
regulates Caller ID and intelligent network services. The Company believes
that Canadian regulation of telecommunications devices for intelligent network
services is not more burdensome than regulation in the United States. See
"Business - Government Regulation".
CONTROL BY OFFICERS AND DIRECTORS
Upon completion of this offering, the Company's officers and directors will
beneficially own an aggregate of approximately 24% of the Company's
outstanding Common Stock. Accordingly, these stockholders, if acting together,
would be able to exert controlling influence over the outcome of matters
requiring stockholder approval, such as the election of the Company's
directors, amendments to the Company's Certificate of Incorporation, mergers
and certain other matters. The concentration of ownership could have the
effect of delaying or preventing a change in control of the Company. See
"Principal and Selling Stockholders".
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,500,000 shares of
Common Stock offered by the Company, after deducting the estimated offering
expenses and underwriting discount and commissions payable by the Company,
will be approximately $ (approximately $ if the Underwriters' over-
allotment option is exercised in full). The Company will not receive any
proceeds from the sale of Common Stock by the Selling Stockholders.
The Company expects to use the net proceeds from this offering for general
corporate purposes, including (i) financing the Company's leasing activities,
(ii) working capital, (iii) new product introductions, including SCWID units
and smart telephones, (iv) expansion of the Company's research and development
activities and (v) expansion of the Company's customer service, sales and
marketing operations. Net proceeds may also be used to acquire or invest in
complementary businesses or technologies through potential future
acquisitions, joint ventures or other arrangements with third parties or
through internal development. The Company does not currently have any
agreements with respect to any such acquisitions, joint ventures or
arrangements. Pending such uses, the Company intends to invest the net
proceeds from the offering in investment grade, interest-bearing instruments.
The amounts and timing of the Company's expected expenditures will depend on
the progress of the Company's marketing programs, research and development,
product advances and other factors.
10
<PAGE>
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is traded on the American Stock Exchange under the
symbol CDT.
The table below sets forth for the periods indicated the high and low
quarterly sales prices of the Company's Common Stock as reported by the
American Stock Exchange. The second quarter of 1995 reflects the high and low
sales prices for such quarter through June 12, 1995.
<TABLE>
<CAPTION>
PRICE RANGE
-----------------------
HIGH LOW
----------- -----------
<S> <C> <C>
1995
Second Quarter (through June 12).................. $ 22 3/8 $ 14 1/8
First Quarter..................................... 19 1/8 12 1/4
1994
Fourth Quarter.................................... 15 3/8 4 3/8
Third Quarter..................................... 5 3/8 4
Second Quarter.................................... 6 5/8 4 1/8
First Quarter..................................... 7 1/8 3 7/8
1993
Fourth Quarter.................................... 4 1/2 1 1/16
Third Quarter..................................... 1 9/16 7/8
Second Quarter.................................... 1 5/16 7/8
First Quarter..................................... 1 3/4 7/8
</TABLE>
On May 31, 1995, there were 674 holders of record of the Company's Common
Stock. On June 12, 1995, the last reported sales price of the Company's Common
Stock was $20 1/8 per share.
DIVIDEND POLICY
The Company has never declared or paid cash dividends on its Common Stock. The
Company currently intends to retain all earnings for the operation and
expansion of its business and therefore does not anticipate paying any cash
dividends in the foreseeable future. The Company's existing bank line of
credit agreement prohibits the Company from paying dividends.
11
<PAGE>
CAPITALIZATION
The following table sets forth the historical capitalization of the Company as
of March 31, 1995 and as adjusted to give effect to the sale of the 1,500,000
shares of Common Stock offered by the Company (at an assumed public offering
price of $19 per share, and after deducting the underwriting discount and
other estimated expenses of the offering), and the exercise and related income
tax benefit of 81,522 options at an exercise price of $.21 per share and
69,076 warrants at an exercise price of $2.92 per share by the Selling
Stockholders. The table also gives effect to the issuance of 170,743 shares of
Common Stock by the Company on June 9, 1995 in exchange for 230,000 shares of
US Order common stock. See "Use of Proceeds", "Description of Capital Stock"
and "Business - Products and Services". This information should be read in
conjunction with the Company's Consolidated Financial Statements and the Notes
thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1995
-------------------------
ACTUAL AS ADJUSTED
----------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Stockholders' Equity:
Common Stock, $.01 par value; 20,000,000 shares
authorized; 13,390,253 shares issued and
outstanding actual; 15,242,384 shares issued and
outstanding, adjusted(1)........................ $ 134 $ 152
Additional paid-in capital......................... 22,407 53,127
Retained earnings.................................. 8,492 8,492
Unrealized appreciation of security held-for-sale.. 49 49
----------- -----------
Total stockholders' equity..................... $ 31,082 $ 61,820
=========== ===========
</TABLE>
- --------
(1) Includes 150,598 shares to be purchased by Selling Stockholders pursuant
to the exercise of outstanding options and warrants and sold in connection
with this offering. At March 31, 1995, options and warrants to acquire
531,507 shares of Common Stock were outstanding. See "Principal and
Selling Stockholders" and "Business--Products and Services".
12
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented below should be read in
conjunction with the Consolidated Financial Statements and Notes thereto
included elsewhere in this Prospectus. The statement of earnings data for the
years ended December 31, 1992, 1993 and 1994 and the balance sheet data as of
December 31, 1993 and 1994 have been derived from the Company's consolidated
financial statements which have been audited by Deloitte & Touche LLP,
independent certified public accountants. The consolidated financial
statements for those periods and the independent auditors' report thereon are
included elsewhere in this Prospectus. The selected statement of earnings data
for 1990 and 1991 and selected balance sheet data as of December 31, 1990,
1991 and 1992 are derived from audited financial statements not included in
this Prospectus. The consolidated financial information for the three months
ended March 31, 1994 and 1995 have not been audited, but, in the opinion of
the management of the Company, all adjustments necessary for a fair
presentation have been included. All such adjustments are of a normal
recurring nature. The results of operations for the three months ended March
31, 1995 are not necessarily indicative of the results of operations that may
be expected for the entire fiscal year. The data presented below should be
read in connection with the Consolidated Financial Statements of the Company,
together with the Notes to Consolidated Financial Statements and Management's
Discussion and Analysis of Financial Condition and Results of Operations
included elsewhere in this Prospectus.
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
----------------------------------------- -----------------
1990 1991 1992 1993 1994 1994 1995
STATEMENT OF EARNINGS DATA: ------- ------ ------ ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Products.................. $ 9,455 $6,480 $8,071 $11,667 $22,016 $ 3,492 $ 9,702
Leases.................... -- -- 142 3,525 11,630 1,704 4,793
Services.................. 1,574 1,526 1,509 2,247 3,183 847 711
------- ------ ------ ------- ------- ------- --------
Total revenues.......... 11,029 8,006 9,722 17,439 36,829 6,043 15,206
Cost of sales:
Products.................. 6,137 4,312 5,684 7,977 15,939 2,569 6,699
Leases.................... -- -- 114 2,456 6,137 986 1,921
Services.................. 1,245 1,130 1,011 1,771 2,152 562 481
------- ------ ------ ------- ------- ------- --------
Total cost of sales..... 7,382 5,442 6,809 12,204 24,228 4,117 9,101
------- ------ ------ ------- ------- ------- --------
Gross profit................ 3,647 2,564 2,913 5,235 12,601 1,926 6,105
Selling, general and
administrative expenses.... 2,460 2,015 2,066 2,855 5,519 941 1,989
Research and development.... 303 297 296 327 782 96 278
------- ------ ------ ------- ------- ------- --------
Income from operations...... 884 252 551 2,053 6,300 889 3,838
Other income (expenses)..... (32) (170) (9) (101) (132) (26) 186
------- ------ ------ ------- ------- ------- --------
Income before income taxes.. 852 82 542 1,952 6,168 863 4,024
Income taxes................ 308 35 231 849 2,590 368 1,610
------- ------ ------ ------- ------- ------- --------
Net income.................. $ 544 $ 47 $ 311 $ 1,103 $ 3,578 $ 495 $ 2,414
======= ====== ====== ======= ======= ======= ========
Fully diluted weighted
average shares outstanding. 9,558 9,623 10,849 10,910 11,806 11,292 13,764
Primary and fully diluted
net income per share....... $ .06 $ .00 $ .03 $ .10 $ .30 $ .04 $ .18
<CAPTION>
DECEMBER 31,
------------------------------------
MARCH 31,
1990 1991 1992 1993 1994 1995
BALANCE SHEET DATA: ------ ------ ------ ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Working capital......... $2,428 $3,902 $4,076 $ 2,326 $23,930 $17,518
Equipment............... 589 612 795 3,272 5,755 6,767
Total assets............ 6,043 5,772 5,641 10,487 33,133 36,987
Short- and long-term
borrowings............. 2,174 646 183 2,130 2,000 --
Stockholders' equity.... 3,017 4,514 4,825 6,082 28,353 31,082
</TABLE>
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
The Company designs, develops and markets telecommunications products that
support intelligent network services being developed and implemented by the
RBOCs and telcos. The Company also repairs and refurbishes telecommunications
products for commercial customers and provides other services that support the
development and implementation of intelligent network services. The Company
has provided maintenance and repair service for telecommunications equipment
since its formation and began to sell telephones and other telecommunications
equipment in 1985. In 1987 the Company entered the Caller ID equipment
business when it introduced the first commercially available Caller ID unit.
Since 1992, the Company has also leased Caller ID units to US West
subscribers. Substantially all of the Company's revenues in 1994 and the first
quarter of 1995 were derived from sales and leases of Caller ID products.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain items from
the Company's Consolidated Financial Statements as a percentage of total
revenues:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------- ----------------
1992 1993 1994 1994 1995
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Revenues:
Products..................... 83.0% 66.9% 59.8% 57.8% 63.8%
Leases....................... 1.5 20.2 31.6 28.2 31.5
Services..................... 15.5 12.9 8.6 14.0 4.7
------- ------- ------- ------- -------
Total revenues............. 100.0 100.0 100.0 100.0 100.0
Cost of sales(1):
Products..................... 70.4 68.4 72.4 73.6 69.0
Leases....................... 80.3 69.7 52.8 57.9 40.1
Services..................... 67.0 78.8 67.6 66.4 67.7
Total cost of sales........ 70.0 70.0 65.8 68.1 59.9
------- ------- ------- ------- -------
Gross profit................... 30.0 30.0 34.2 31.9 40.1
Selling, general and
administrative expenses....... 21.3 16.3 15.0 15.6 13.1
Research and development....... 3.0 1.9 2.1 1.6 1.8
------- ------- ------- ------- -------
Income from operations......... 5.7 11.8 17.1 14.7 25.2
Other income (expenses)........ (0.1) (0.6) (0.4) (0.4) 1.3
------- ------- ------- ------- -------
Income before income taxes..... 5.6 11.2 16.7 14.3 26.5
Income taxes................... 2.4 4.9 7.0 6.1 10.6
------- ------- ------- ------- -------
Net income..................... 3.2% 6.3% 9.7% 8.2% 15.9%
======= ======= ======= ======= =======
</TABLE>
- --------
(1) Percentages related to cost of sales represent percentages of each revenue
category and, as a result, are not additive.
THREE MONTHS ENDED MARCH 31, 1994 COMPARED TO THREE MONTHS ENDED MARCH 31, 1995
- -------------------------------------------------------------------------------
Revenues
Revenues for the first quarter of 1994 were $6,043,000 compared to $15,206,000
in the first quarter of 1995. Caller ID revenues were $5,087,000 in the first
quarter of 1994 compared to $14,430,000 in the first quarter of 1995, with
approximately 67% of the increase being generated by sales and 33% from
leasing. The growth in Caller ID revenues was primarily a result of higher
sales volume of Caller ID units and continued expansion of
14
<PAGE>
the US West leasing program. This growth was stimulated by increased
availability and acceptance of Caller ID service resulting from additional
state regulatory approvals and marketing and promotional campaigns conducted
by telcos and the Company. Service revenues declined from $847,000 in 1994 to
$711,000 in 1995 due to the substantial completion of one repair contract and
the timing of certain non-recurring projects.
Cost of Sales and Gross Profit
Cost of sales increased from $4,117,000 in the first quarter of 1994 to
$9,101,000 in the first quarter of 1995 due to costs associated with the
increases in both sales and leasing of Caller ID units. Gross profit margin
derived from sales of products increased from 26% in the first quarter of 1994
to 31% in the first quarter of 1995, primarily as a result of changes in
product mix in connection with promotional activities undertaken by certain
telco customers. Gross profit margin derived from Caller ID leasing increased
from 42% in the first quarter of 1994 to 60% in the first quarter of 1995 as a
result of an increase in the number of fully depreciated units under lease,
increased leasing of higher margin units and generally lower production costs.
The combined result of these factors was the improvement in the overall gross
margin from 32% in 1994 to 40% in 1995. The Company anticipates that gross
profit margins may fluctuate due to changes in product mix, the introduction
of new products and the maturation and expansion of leasing programs.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased 111% from $941,000 for
the first quarter of 1994 to $1,989,000 for the same period in 1995, but
decreased from 16% to 13% of total revenues for the respective periods. The
most significant component of the expense increase was salaries and employee
related expenses resulting from an increase in personnel to support higher
business volume. The Company anticipates that personnel additions will
continue as revenue levels increase. Other major components of the increase
were commission and royalty expenses associated with higher Caller ID
revenues.
Research and Development
First quarter research and development expenses increased 190% from 1994 to
1995 primarily due to services performed by the Company's principal
manufacturer on a contract basis, the hiring of additional personnel to
support higher levels of new product development activity, research and
development activities related to the introduction of its SCWID product, and
the development of its smart telephone planned for introduction by the first
quarter of 1996.
Other Income (Expenses)
Net other expenses, consisting primarily of interest expense in 1994, was
$26,000 in the first quarter of 1994 compared to net other income of $186,000
in the first quarter of 1995. In 1994, interest expense resulted from
borrowings under the Company's revolving line of credit, which was utilized to
fund expansion of the lease base and working capital. In 1995, interest income
was earned on the unused proceeds of the Company's October 1994 Common Stock
offering.
Income Taxes
Income taxes were $368,000 in the first quarter of 1994 compared to $1,610,000
in the first quarter of 1995. The effective income tax rates decreased from
43% in 1994 to 40% in 1995 because of a change in the mix of taxable income by
state.
YEARS ENDED DECEMBER 31, 1992, 1993 AND 1994
- --------------------------------------------
Revenues
Total revenues increased from $9,722,000 in 1992 to $17,439,000 in 1993 and
$36,829,000 in 1994. Caller ID revenues increased from $7,514,000 in 1992 to
$14,692,000 in 1993 and $33,234,000 in 1994. This growth,
15
<PAGE>
which was attributable primarily to higher unit sales volume and expansion of
the leasing program, was stimulated by increased availability and acceptance
of Caller ID service resulting from regulatory approvals and marketing and
promotional campaigns by telcos and the Company.
Of the $7,178,000 increase in Caller ID revenues from 1992 to 1993, $3,383,000
was generated from a leasing program implemented by the Company for US West
subscribers. Of the $18,542,000 increase in Caller ID revenues in 1994,
$8,105,000 was attributable to the US West leasing program. The success of the
leasing program resulted from additional state approvals for US West to offer
Caller ID service, combined with promotional campaigns in new and existing
areas.
Service revenues increased from $1,509,000 in 1992 to $2,247,000 in 1993 and
$3,183,000 in 1994. The growth in service revenues in 1993 and 1994 was due
primarily to new business from a telco customer. Sales of miscellaneous
telephone products declined from $699,000 in 1992 to $500,000 in 1993 and
$412,000 in 1994 as the Company continued to focus its marketing and new
product development on Caller ID.
Cost of Sales and Gross Profit
Cost of sales increased from $6,809,000 in 1992 to $12,204,000 in 1993 and
$24,228,000 in 1994 as a result of the increases in sales and leasing of
Caller ID units and increased service activity. Gross profit margin derived
from sales of products was 30% in 1992, 32% in 1993 and 28% in 1994. The
changes in gross profit margin were caused by changes in product mix among the
various models of Caller ID units being marketed by the Company. Gross profit
margin derived from Caller ID leasing was 20% in 1992, 30% in 1993 and 47% in
1994. Gross profit margin was lower in 1992 because of start up costs
associated with the leasing program. Gross profit margin for services was 33%
in 1992, 21% in 1993 and 32% in 1994. The increase in service costs in 1993
was primarily attributable to start up costs associated with a new contract
from a service customer. As a result of the foregoing factors, overall gross
profit margins were 30%, 30% and 34% for 1992, 1993 and 1994, respectively.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were $2,066,000 in 1992 compared
with $2,855,000 in 1993 and $5,519,000 in 1994. Higher commission and royalty
expense payable on Caller ID revenues plus an increase in customer service
staffing were the major components of the increase in 1994.
Research and Development
Research and development expenses were $296,000 in 1992 compared to $327,000
in 1993 and $782,000 in 1994. The 139% increase from 1993 to 1994 resulted
from increased product development activity by the Company and its principal
manufacturer, including work on the Company's SCWID product, integrating
Caller ID with Call Waiting.
Other Expenses
Net other expense, consisting primarily of interest expense, increased from
$9,000 in 1992 to $101,000 in 1993 and $132,000 in 1994 due to increased
borrowing under the Company's revolving line of credit. Increased borrowings
were used to fund higher levels of inventories, leased equipment and increases
in accounts receivable.
Income Taxes
Income taxes increased from $231,000 in 1992 to $849,000 in 1993 and
$2,590,000 in 1994 based on higher taxable income. The effective income tax
rate was 43% in 1992 and 1993 and 42% in 1994.
16
<PAGE>
QUARTERLY RESULTS
The following tables set forth unaudited selected financial information for
the periods indicated, as well as such information expressed as a percentage
of total revenues for the same period. This information has been derived from
unaudited consolidated financial statements which, in the opinion of
management, include all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of such information. The
results of operations for any quarter are not necessarily indicative of the
results to be expected for any future period. See "Risk Factors - Variations
in Operating Results".
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------------------------------
3/31/93 6/30/93 9/30/93 12/31/93 3/31/94 6/30/94 9/30/94 12/31/94 3/31/95
------- ------- ------- -------- ------- ------- ------- -------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Products............... $ 2,451 $ 2,066 $ 3,051 $ 4,099 $ 3,492 $ 4,669 $ 5,898 $ 7,957 $ 9,702
Leases................. 240 709 1,080 1,496 1,704 1,945 3,452 4,529 4,793
Services............... 326 534 690 697 847 776 607 953 711
------- ------- ------- ------- ------- ------- ------- ------- -------
Total revenues....... 3,017 3,309 4,821 6,292 6,043 7,390 9,957 13,439 15,206
Cost of sales:
Products............... 1,692 1,372 2,045 2,868 2,569 3,392 4,269 5,709 6,699
Leases................. 169 507 745 1,035 986 1,119 1,828 2,204 1,921
Services............... 238 412 559 562 562 539 413 638 481
------- ------- ------- ------- ------- ------- ------- ------- -------
Total cost of sales.. 2,099 2,291 3,349 4,465 4,117 5,050 6,510 8,551 9,101
------- ------- ------- ------- ------- ------- ------- ------- -------
Gross profit............ 918 1,018 1,472 1,827 1,926 2,340 3,447 4,888 6,105
Selling, general and
administrative
expenses............... 601 601 715 938 941 1,223 1,654 1,701 1,989
Research and
development............ 74 88 84 81 96 99 91 496 278
------- ------- ------- ------- ------- ------- ------- ------- -------
Income from operations.. $ 243 $ 329 $ 673 $ 808 $ 889 $ 1,018 $ 1,702 $ 2,691 $ 3,838
======= ======= ======= ======= ======= ======= ======= ======= =======
Net income.............. $ 137 $ 179 $ 354 $ 433 $ 495 $ 568 $ 981 $ 1,534 $ 2,414
======= ======= ======= ======= ======= ======= ======= ======= =======
Net income per share.... $ .01 $ .02 $ .03 $ .04 $ .04 $ .05 $ .09 $ .12 $ .18
======= ======= ======= ======= ======= ======= ======= ======= =======
Fully diluted weighted
average shares
outstanding............ 10,831 10,791 10,817 11,203 11,292 11,249 11,211 13,254 13,764
======= ======= ======= ======= ======= ======= ======= ======= =======
<CAPTION>
QUARTER ENDED
---------------------------------------------------------------------------------
3/31/93 6/30/93 9/30/93 12/31/93 3/31/94 6/30/94 9/30/94 12/31/94 3/31/95
------- ------- ------- -------- ------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Products............... 81.2% 62.5% 63.3% 65.1% 57.8% 63.2% 59.2% 59.2% 63.8%
Leases................. 8.0 21.4 22.4 23.8 28.2 26.3 34.7 33.7 31.5
Services............... 10.8 16.1 14.3 11.1 14.0 10.5 6.1 7.1 4.7
------- ------- ------- ------- ------- ------- ------- ------- -------
Total revenues....... 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Cost of sales:(1)
Products............... 69.0 66.6 67.0 70.0 73.6 72.6 72.4 71.7 69.0
Leases................. 70.8 71.1 69.0 69.0 57.9 57.5 53.0 48.7 40.1
Services............... 73.0 77.2 81.0 80.6 66.4 69.5 68.0 66.9 67.7
Total cost of sales.. 69.6 69.2 69.5 71.0 68.1 68.3 65.4 63.6 59.9
------- ------- ------- ------- ------- ------- ------- ------- -------
Gross profit............ 30.4 30.8 30.5 29.0 31.9 31.7 34.6 36.4 40.1
Selling, general and
administrative......... 19.9 18.2 14.8 14.9 15.6 16.6 16.6 12.7 13.1
Research and
development............ 2.4 2.7 1.7 1.3 1.6 1.3 0.9 3.7 1.8
------- ------- ------- ------- ------- ------- ------- ------- -------
Income from operations.. 8.1% 9.9% 14.0% 12.8% 14.7% 13.8% 17.1% 20.0% 25.2%
======= ======= ======= ======= ======= ======= ======= ======= =======
Net income.............. 4.6% 5.4% 7.4% 6.8% 8.2% 7.7% 9.9% 11.4% 15.9%
======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
- --------
(1) Percentages related to cost of sales represent percentages of each revenue
category and, as a result, are not additive.
17
<PAGE>
Total revenues have grown during the period from the first quarter of 1993
through the first quarter of 1995, with some fluctuation between quarters.
This growth has primarily resulted from increased sales and leases of Caller
ID units, partially offset by fluctuating service activity. Income from
operations during the quarters presented has also grown, with some variation
resulting primarily from fluctuations in revenues.
The Company's quarterly operating results may fluctuate as a result of a
number of factors, some of which are beyond the Company's control. Factors
which may cause fluctuations in quarterly results include the timing of the
initiation of Caller ID or other intelligent network services by a telco; the
timing and extent of promotional activities by a telco; the rate of customer
acceptance of Caller ID and other intelligent network services; the timing and
market acceptance of new product introductions; disruptions in sources of
supply; changes in service charges by a telco; the timing and the level of
expenditures for sales, marketing and new product development by the Company
and its competitors; the effects of regulation on Caller ID and other
intelligent network services; general economic conditions; and other factors.
Because the Company operates on a relatively small backlog, quarterly sales
and operating results generally depend on the volume and timing of orders
received during or just prior to the start of a quarter. The Company's expense
levels are based in part on its forecasts of future revenue and, if such
revenue were to be below expectations, the Company's operating results could
be adversely affected. Accordingly, there can be no assurance that the Company
will be profitable in any particular quarter.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary needs for cash are for the acquisition of equipment for
leasing and for other equipment purchases and to fund working capital,
primarily related to inventory and accounts receivable. Inventory and accounts
receivable were $6,473,000 and $5,102,000, respectively, on December 31, 1994
compared to $2,991,000 and $2,804,000, respectively, on December 31, 1993.
Inventory and accounts receivable increased to $6,804,000 and $8,370,000,
respectively, as of March 31, 1995. The increase in inventory during 1994 and
the first quarter of 1995 was planned to ensure that units were available for
timely fulfillment of lease and sales orders. The increase in accounts
receivable of $3,292,000 in the first quarter of 1995 resulted from higher
sales and the timing of certain collections. Additions to leased equipment
from the Company's US West lease program totaled $4,043,000 for 1993,
$6,453,000 for 1994 and $1,056,000 for the first quarter of 1995. Other
machinery and equipment purchases in the first quarter of 1995 of $928,000
were made to support the Company's growth. Working capital increased from
$2,326,000 at December 31, 1993 to $23,930,000 at December 31, 1994 and
decreased to $17,518,000 at March 31, 1995. To improve the yield on its cash
and equivalent holdings, in February 1995, the Company acquired a United
States Treasury Note with a February 1997 maturity. This note is reported at
market value as a noncurrent asset held for sale and, if necessary, can be
liquidated to meet future cash requirements. Working capital, adjusted to
include the value of the Treasury Note, was $23,512,000 at March 31, 1995.
These cash requirements were financed primarily by cash provided by operations
of $2,185,000 in 1993, $4,370,000 in 1994 and $3,289,000 in the first quarter
of 1995, by the Company's credit facility and by net proceeds of $16.1 million
from a Common Stock offering completed in October 1994. In addition, the
Company maintains a $4 million line of credit under a revolving loan agreement
to meet short term cash requirements. The Company utilized $3.3 million of the
proceeds from its October 1994 stock offering to reduce its bank debt. The
Company elected to reduce the credit line from $8 million to $4 million in the
first quarter of 1995. At March 31, 1995, approximately $3.3 million of the
line of credit was available to fund drawdowns and additional letters of
credit ("LCs"). The Company issues LCs to its principal manufacturer in
connection with the purchase of inventory. Issuances of LCs result in the
utilization of available funds under the revolving loan arrangement. The loan
agreement is subject to renewal on April 30, 1996.
In order to meet the Company's needs for cash during the foreseeable future,
including cash required to fund acquisition of leased equipment, inventory
purchases, accounts receivable, new product introductions, research and
development activities and customer service, sales and marketing operations,
the Company will utilize existing cash, the proceeds from this offering, line
of credit availability and cash provided by operations.
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<PAGE>
BUSINESS
The Company designs, develops and markets telecommunications products that
support intelligent network services being developed and implemented by the
RBOCs and other telcos. In recent years, CDT has concentrated its product
development and marketing efforts on products that support Caller ID, an
intelligent network service that allows subscribers to view the telephone
number and the directory name of a calling party before the call is answered,
and to store that information in memory. The Company also repairs and
refurbishes telecommunications products for commercial customers and provides
other services that support the development and implementation of intelligent
network services.
The Company has become a leading provider of Caller ID equipment, having sold
or leased more than 3,000,000 units. The Company is also the largest lessor of
such equipment in the United States, with over 500,000 leased units in service
as of May 31, 1995. The Company currently offers 14 models of Caller ID
adjunct units and three models of screen telephones with integrated Caller ID.
In April 1995, CDT commenced shipment of its SCWID adjunct unit, which allows
Caller ID to work with Call Waiting, to US West customers in limited
quantities. CDT also recently expanded its Caller ID presence through its
acquisition of the Canadian Caller ID business of TIE/communications, Inc.
("TIE") in May 1995.
INDUSTRY BACKGROUND
General
Deregulation and technological advances have intensified competition among
existing operators of telecommunications networks and encouraged the entrance
of new service providers. In the United States, RBOCs, other telcos and long
distance carriers are increasingly competing with one another and with new
competitive service providers, such as cellular and other wireless service
networks, that have entered the local and long distance markets. RBOCs and
other telcos are responding to increasing competition by introducing value-
added, intelligent network services and lowering their cost structures.
Certain intelligent network services such as Call Waiting, Call Forwarding and
Speed Dialing have been available to telephone customers since 1968. In the
mid 1980s, Bell Communications Research, Inc. ("Bellcore") developed a series
of intelligent network services targeted to residential customers known as
Custom Local Area Signaling Services ("CLASS"). These services include Repeat
Dialing, Selective Call Forward, Automatic Call Back, Selective Call Block,
Distinctive Ringing, Call Trace and Caller ID.
In order to deploy these intelligent network services, the telcos have been
upgrading their telecommunications networks to support a set of standards,
known as the Intelligent Networks ("IN"). IN supports open, distributed
switching and processing capabilities and allows the telco to create, modify
and deploy new services quickly and economically. An important aspect of IN is
a signaling protocol called Signaling System No. 7 ("SS7"). Based upon
industry sources, the Company estimates that within the RBOCs over 70% of
telephone lines have been upgraded for SS7 capabilities.
The RBOCs and other telcos have made significant reductions in their employee
base over the past ten years and have announced additional planned reductions
over the next few years. In order to maintain a consistent level of service
with fewer employees, certain RBOCs and other telcos have outsourced certain
areas of their business, such as the marketing of intelligent network
services, telephone refurbishing operations and other functional areas. The
Company believes that further outsourcing by RBOCs and other telcos could
create significant opportunities for companies providing telecommunications
equipment and services.
Caller ID Service
Caller ID is a CLASS service that displays information about the incoming call
(including the number and name of the caller and the time and date of the
call) on a device located near the telephone (in the case of an adjunct unit)
or on a display screen located on the telephone (in the case of an integrated
Caller ID telephone). The
19
<PAGE>
actual information displayed depends on the Caller ID equipment and whether the
call is local or outside the local calling area. CDT introduced the first
commercially available Caller ID units in connection with the introduction of
such services by New Jersey Bell in 1987.
While the introduction of Caller ID provided users with significant service
benefits in terms of privacy, security, and efficiency for the user, deployment
of the service met resistance from certain state regulatory agencies and
special interest groups. As a result, the deployment of Caller ID services is
today principally limited to transferring the calling party information between
callers within the same local calling area. Calls from outside the local
calling area are currently not identified to the user of the Caller ID service.
However, on May 4, 1995, the FCC issued an order, effective December 1, 1995,
that requires all telephone service providers with SS7 switching capability to
transmit calling party number information to each other on interstate calls
within the United States (except for public pay phones and party lines). The
Company believes that the FCC's action will make Caller ID services more useful
and more appealing to Caller ID subscribers. See "Business - Government
Regulation".
As of June 1, 1995, Caller ID is offered by telcos in all or part of 47 states.
Caller ID is not yet offered in California, Hawaii and North Dakota,
principally for regulatory reasons. The Company estimates that the current
penetration rate of Caller ID service is approximately 6% of the total
subscribers in those areas in the United States that have Caller ID
capabilities and have received regulatory approval. The Company believes that
significant growth opportunities for products incorporating Caller ID exist in
the United States market as telcos increase their marketing efforts to provide
more intelligent network services such as Caller ID.
While Caller ID has been successful in Canada, where it has achieved 20%
penetration of available lines according to industry estimates, the service is
not yet widely available in markets outside of the United States and Canada.
The Company believes that further opportunities for Caller ID may emerge over
the long term in international markets.
Emergence of ADSI-Based Network Services
In addition to CLASS services such as Caller ID, Bellcore has developed ADSI, a
standard protocol defining the flow of voice and data information between
telecommunications network elements (such as switches, voice mail platforms and
intelligent peripherals) and a subscriber's terminal equipment (such as screen
telephones, personal computers and smart telephones). By deploying the ADSI
protocol in the telecommunications network, RBOCs and other telcos increasingly
will be able to offer additional intelligent network services and third-party
interactive applications.
New ADSI-based services will include Caller ID with Call Waiting together with
call disposition. By subscribing to Caller ID with Call Waiting, a subscriber
who receives a call waiting signal could look at the display screen on the
smart telephone and see the name and number of the calling party before
deciding whether to answer the call, send a prerecorded message telling the
calling party to wait, forward the call to voice mail or drop the line.
Additional services are expected to include home banking, on-line directory
assistance, e-mail, paging, electronic yellow pages, stock quotations, news,
weather and advanced home shopping.
The Company believes that a significant application for smart telephones will
be home banking services, as financial institutions look for solutions that
reduce the cost of doing business, provide fee-based income and strengthen
their customer relationships, and as RBOCs and other telcos seek to provide
additional intelligent network services. While the Company is seeking to
capitalize on what it believes will be market opportunities related to ADSI-
based services, such as home banking, consumer preferences are difficult to
predict, and there can be no assurance of the success of any ADSI-based service
or of the Company in introducing planned products and services in this area.
The following diagram illustrates the evolution and increased functionality of
Caller ID through a series of display screens as they would appear on Caller ID
adjunct devices and smart telephones.
20
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Caller ID
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------ ----------------------------------------- -----------------------------------------
Caller ID Caller ID Deluxe: Name and Number Out-of-Area Caller ID
- ------------------------------------------ ----------------------------------------- -----------------------------------------
<S> <C> <C>
========================================== ========================================= =========================================
555-1234 Jones, William Jones, William
555-1234 212-555-1234
10/21 6:30 PM New Call #: 12 10/21 6:30 PM New Call #: 12 10/21 6:30 PM New Call #: 12
========================================== ========================================= =========================================
Caller ID service allows the Switch and software upgrades have Effective December 1, 1995,
consumer to view the number allowed telcos to pass both the name pursuant to an FCC order, Caller
of a calling party within and number of the calling party to ID subscribers will begin receiving
the local calling area before the Caller ID subscriber. out-of-area Caller ID information
actually answering the call. on calls originating within the
United States. See "Business --
Government Regulation".
- ------------------------------------------------------------------------------------------------------------------------------------
Caller ID + Call Waiting ("SCWID")
- ------------------------------------------------------------------------------------------------------------------------------------
[PHOTO The integration of Caller ID and Call =========================================
APPEARS Waiting allows a subscriber to view the Jones, William
HERE] name and number of a calling party as the
Call Waiting signal is delivered. The 212-555-1234
consumer must subscribe to both services
and purchase a SCWID Caller ID unit. 10/21 6:30 PM New Call #: 12
=========================================
- ------------------------------------------------------------------------------------------------------------------------------------
ADSI-Compatible Telephone
- ------------------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------
PHOTO APPEARS HERE ===============================================================================
talking to: call from:
Jones, William Smith, Jane
212-555-1234 617-555-2345
answer the call send hold message
route to voice mail send busy message
===============================================================================
-----------------------------------------------------------------------------------------
The Company's smart telephone products will support the ADSI
protocol and will increase the functionality of integrated Caller ID and
Call Waiting by enabling sophisticated call disposition features giving
consumers greater flexibility in how they communicate. The
Company's first smart telephone is expected to be available by the first
quarter of 1996. See "Business -- Products and Services".
</TABLE>
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<PAGE>
STRATEGY
The Company's principal business objective is to be a leading provider of
telecommunications equipment that supports the deployment of intelligent
network services. The Company also seeks to provide services to the RBOCs and
other telcos that assist in the rapid deployment and penetration of
intelligent network services, including Caller ID, and enhance the Company's
overall working relationships with its RBOC and other telco customers. The
Company considers the following to be important elements of its strategy:
Enhance Relationships with RBOCs and other Telcos
CDT focuses on providing RBOCs and other telcos with innovative products which
support intelligent network services, marketing and support services for those
products and repair and refurbishing of telecommunications equipment. The
Company believes that by developing broad relationships with its RBOC and
other telco customers, it will be able to provide an increasing number of
products and services to these customers.
Assist RBOCs in Increasing the Penetration of Intelligent Network Services
The RBOCs are seeking to increase the penetration of intelligent network
services in order to generate increased revenue per subscriber and strengthen
customer relationships in an increasingly competitive environment. The Company
not only provides equipment, but also provides marketing, fulfillment and
leasing programs to its RBOC and other telco customers. These services enable
RBOCs and other telcos to outsource non-strategic functions of their business
to CDT and reduce their operating costs.
Expand Leasing Programs with RBOCs and other Telco Customers
In 1992, the Company entered into a leasing agreement with US West, whereby
the Company leases Caller ID units directly to US West customers. The leasing
program enables subscribers to pay a monthly fee for the service and the
equipment and provides CDT with a stream of recurring revenues. This program
has grown from 9,000 leased units in service in 1992 to more than 500,000
leased units in service as of May 31, 1995. The Company seeks to expand its
leasing program with US West and to other RBOCs and telcos. In addition, the
Company believes that leasing will be an increasingly attractive option for
telcos and telco customers for higher-priced equipment, such as ADSI-
compatible smart telephones.
Provide High Quality, Innovative Products at Low Cost
The Company seeks to increase consumer demand for intelligent network services
by offering high quality products that are innovative, easy to use and
aesthetically pleasing. The Company's new product efforts are focused on
developing additional product features, enhancements to existing products and
new products. The Company recently introduced its SCWID unit, which integrates
Caller ID with Call Waiting, and has entered into a strategic partnership with
US Order to provide RBOC and telco customers with ADSI-compatible smart
telephones.
The Company focuses on providing low cost products by integrating its product
designs and engineering methods to reduce the cost and number of components,
while maintaining quality and reliability. When possible, the Company
integrates the functionality of multiple components onto an ASIC chip to
reduce the per unit cost of its products. In addition, the Company's smart
telephones, which are being developed in conjunction with US Order, will use
proprietary digital signal processing (DSP) architecture that will allow the
product to be manufactured with fewer components than other currently
available smart telephones.
Identify Complementary Joint Venture and Acquisition Opportunities
The Company has identified joint venture and acquisition opportunities to
complement and enhance its strategy of supporting its RBOC customers in their
deployment of intelligent network services.
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<PAGE>
. In 1995, the Company acquired the Canadian Caller ID business of TIE,
facilitating CDT's ability to market Caller ID adjunct devices,
integrated Caller ID telephones and Caller ID answering machines in
Canada, to widen its product offerings, strengthen its product
development capability and add manufacturing capacity.
. The Company recently formed Worldwide Telecom Partners, Inc. ("Worldwide
Telecom") pursuant to a joint venture with Barry Blau & Partners, Inc.
for the marketing of intelligent network services to end users on behalf
of the RBOCs and other telcos.
. The Company entered into a strategic alliance with US Order to
manufacture and market smart telephones designed to support ADSI-
compatible network services and interactive applications such as home
banking, national directory assistance, catalogue shopping and prepaid
long distance.
PRODUCTS AND SERVICES
Since introducing the first commercially available Caller ID unit in 1987, the
Company has developed and marketed Caller ID products with increased
functionality to meet the needs of its RBOC and other telco customers. During
the years ended December 31, 1992, 1993 and 1994 and the three months ended
March 31, 1995, 77%, 84%, 90% and 95%, respectively, of the Company's revenues
were derived from sale and leasing of its Caller ID units.
Entry Level Caller ID Adjunct Devices
The Company provides low-priced, entry level Caller ID devices primarily to
support RBOC marketing and promotional campaigns in which a telco may give
away or subsidize the purchase of a Caller ID adjunct device when a consumer
subscribes for the service. The units display only the number of an incoming
call and are capable of storing calling information for up to 50 calls. The
Company believes that RBOCs utilize lower-priced products to reduce the
initial consumer expenditure required to obtain the service and, as a result,
may subsequently achieve higher penetration rates for Caller ID in selected
markets.
Full-Featured Caller ID Adjunct Devices
The Company's full-featured products display all transmitted information
before the incoming phone call is answered and store this information in
memory. Among the features available on the Company's full-featured products
are memory capacity for up to 94 calls, a "blocked call"/"new call" light, a
patented "Block the Blocker" feature, a bilingual display and a "message
waiting alert" light that indicates to a network voice mail subscriber that a
new voice mail message has been received. "Block the Blocker" is a feature
that detects when call block is used by a caller, provides a message to that
caller that the Caller ID subscriber does not accept blocked calls and
disconnects the call. The Company's full-featured Caller ID adjunct devices
have suggested retail prices of $49.99 to $79.99.
Integrated Phones and Answering Machines
Recently, the Company has begun to market a line of telephones with integrated
Caller ID functionality. In the fourth quarter of 1995, the Company plans to
introduce a digital answering machine with Caller ID functions. The Company's
integrated telephones have suggested retail prices of $69.99 to $109.99.
SCWID (Integrated Caller ID and Call Waiting)
The integration of Caller ID and Call Waiting allows a subscriber to both
services to view the directory name and telephone number of an incoming call
as the Call Waiting signal is delivered. The Company's SCWID adjunct device
also allows a consumer to store approximately 85 names and numbers in memory.
The Company has applied for a patent for its SCWID technology. The Company
commenced shipment of its SCWID adjunct device to US West customers in limited
quantities in April 1995. U.S. West is currently conducting market trials with
the Company's SCWID unit in certain service areas. The SCWID adjunct device
has a suggested retail price of $89.99.
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<PAGE>
ADSI-Compatible Smart Telephones
The Company is developing ADSI-compatible smart telephones in conjunction with
its strategic alliance partner, US Order. The Company believes that this
alliance will help strengthen the Company's product offerings for the next
generation of intelligent network capability. CDT's smart telephone products
will be ADSI-compatible and will feature a backlit display screen capable of
displaying text and graphics, an embedded CPU, a QWERTY keyboard, a magnetic
stripe card reader and memory. The Company expects to offer its smart
telephone by the first quarter of 1996 at a suggested retail price point of
$200 or less.
The Company's smart telephone is designed not only to simplify the use of
existing intelligent network services, but also to support new network
services such as integrated Caller ID and Call Waiting with call disposition
and to support interactive applications such as home banking, catalogue
shopping, national directory assistance, e-mail and paging. CDT believes that
the marketing of smart telephones will be actively supported by RBOCs and
other telcos which are seeking to offer intelligent network services to their
customers, and by banks which are seeking to reduce costs through the adoption
by consumers of home banking services.
Under the Company's strategic alliance with US Order, the Company has agreed
that until January 17, 2000, all smart telephones that it produces and sells
to telcos will be pursuant to the US Order agreement. During the term of the
agreement, the Company will manufacture and exclusively market the smart
telephone to telco customers. For each such smart telephone that the Company
sells or leases through December 31, 1997, the Company will pay US Order a
royalty of 10% of the sale or lease price, with the royalty thereafter subject
to annual good faith renegotiations. The strategic alliance may be terminated
by the Company if the smart telephone under development is not available for
commercial distribution by April 1, 1996. The agreement grants US Order the
right to manufacture and exclusively market ADSI-compatible smart telephones
outside of the telco market, and provides that US Order will pay CDT a royalty
of 10% of the sale or lease price for each such sale or lease. US Order may
terminate the strategic alliance agreement if the Company ceases to distribute
telecommunications products to at least four telcos during any twelve-month
period. CDT will exclusively purchase from US Order and resell interactive
applications made available by US Order, such as national directory assistance
and home catalogue shopping.
In accordance with the Company's strategic alliance agreement with US Order,
and an exchange agreement entered into on April 6, 1995, the Company exchanged
170,743 shares of the Company's Common Stock for 230,000 shares of common
stock of US Order with an equivalent fair market value. The agreement also
provides for the Company and US Order to exchange up to an additional $3
million in fair market value of each other's common stock in April 1996 with a
maximum of 200,000 shares.
Services
For a number of years, the Company has provided telephone repair and
refurbishment services to RBOCs, other telcos and certain telephone equipment
manufacturers for a wide variety of telecommunications products, including
corded and cordless telephones, key telephone business systems, coin
telephones and leased telephone products. In 1994, more than 100,000 units of
telecommunications equipment were repaired or refurbished by the Company. The
Company believes that its capabilities in this area have strengthened its
relationship with the RBOCs and other telcos. Among the current customer base
are AT&T, Southern New England Telecommunications Corp. ("SNET"), TIE, Nitsuko
America Corp. and Sears, Roebuck & Co. ("Sears").
Additionally, through its joint venture, Worldwide Telecom, the Company seeks
to market intelligent network services to end users on behalf of RBOCs. This
joint venture commenced activity in May 1995 with an engagement from Bell
Atlantic Corp. ("Bell Atlantic") to market Caller ID services to Bell Atlantic
customers in New Jersey. See "Business - Marketing and Distribution".
MARKETING AND DISTRIBUTION
The Company markets its products and services through a direct sales force of
nine employees, supported by its marketing department, and currently uses nine
independent sales representative firms.
24
<PAGE>
The Company's distribution strategy is to make its products available to
potential end users through multiple distribution channels described below.
Direct Fulfillment Arrangements
The Company sells telecommunications products to RBOC and other telco
subscribers through direct fulfillment arrangements with US West, NYNEX, Bell
Atlantic, Ameritech Corp. ("Ameritech"), Frontier Corporation ("Frontier") and
BellSouth. In addition, the Company leases products on a direct fulfillment
basis to customers of US West. In most instances, the telco representatives
market both Caller ID service and CDT equipment to subscribers and transmit
equipment orders to CDT electronically on a daily basis. The Company then
ships its equipment directly to the subscribers and bills the telco, which, in
turn, bills its subscribers directly or through a third party. As part of
promotional campaigns, some RBOCs may elect to purchase Caller ID units from
the Company and distribute them to their subscribers free of charge. The
Company provides an 800 number service and support to help the subscriber
understand how to utilize the Caller ID service and equipment.
The Company continually seeks to strengthen its current telco marketing
alliances and to develop new alliances. The Company believes that marketing of
Caller ID service and equipment is more successful when the subscriber can
subscribe to Caller ID service and purchase or lease Caller ID equipment from
a single source, especially when payment for equipment can be made either on
an installment basis or by monthly lease payments through the subscriber's
phone bill. The Company believes that subscriber satisfaction with Caller ID
service is enhanced when the subscriber receives Caller ID equipment promptly
after ordering the service and is provided an 800 number for service and
support.
Direct Marketing on Behalf of Telcos
On May 16, 1995 the Company entered into a joint venture agreement with the
direct marketing firm of Barry Blau & Partners, Inc. The joint venture will
operate through a newly formed and jointly owned corporation, Worldwide
Telecom. The Company owns 50% of the joint venture. The joint venture
agreement is terminable by either party upon sufficient advance notice to the
other to enable Worldwide Telecom to complete performance of any outstanding
contracts with telcos.
The purpose of the joint venture is to provide telecommunications products
combined with marketing services to the telecommunications and other
appropriate industries. The Company believes that outsourcing of certain
marketing functions by RBOCs and other telcos may increase as they restructure
or downsize their businesses. It is anticipated that Worldwide Telecom will
engage in marketing to telco customers through direct mail and telemarketing
and provide direct fulfillment for product orders.
In May 1995, Worldwide Telecom was engaged to market Caller ID services to
Bell Atlantic customers in New Jersey. Worldwide Telecom recently completed
its first mailing of approximately 1,000,000 pieces of direct mail advertising
and is currently conducting outbound telemarketing to potential Caller ID
customers among Bell Atlantic subscribers.
Direct Sales to Telcos
Through its direct sales force and sales representatives, the Company sells
Caller ID units in quantity to a number of telcos, including BellSouth, NYNEX,
Bell Atlantic and others, either under the CDT name or the respective telco's
trade name. The Company, through the Canadian Subsidiary, sells its products
directly to Bell Canada International Inc. and to other telcos in Canada.
Retail/Private Label Customer Sales
The Company sells Caller ID units to national, regional and local retailers
and private label customers. A substantial portion of the Company's retail
sales are made through manufacturers' representatives or distributors
25
<PAGE>
with the support of the Company's sales personnel. The Company's private label
customers include Gemini Industries, Inc., Recoton Corp. and Northern Telecom.
The Company's retail customers include Sears and Home Depot Inc. in the United
States and Consumers Distributing Co. and Price/Costco Inc. in Canada.
PRODUCT DEVELOPMENT
The Company's product development efforts are focused on new products that
support intelligent network services, product enhancements, international
standards compliance and the continued improvement of hardware components to
reduce manufacturing costs. The Company's product development group is
experienced in engineering products for high-volume assembly, stressing low-
cost manufacturing design while maintaining quality, consistency and
reliability. The Company's products utilize proprietary electrical, mechanical
and software design.
The Company has a strategic alliance agreement with US Order pursuant to which
the Company and US Order will jointly develop and the Company will manufacture
and sell to telco customers smart telephones based on the ADSI protocol. See
"Business - Products and Services".
In 1992, 1993 and 1994 and for the three months ended March 31, 1995, the
Company's research and development expenditures were $296,000, $327,000,
$782,000 and $278,000, respectively.
At June 1, 1995, nine employees were engaged in product development including
five in the Company's New Milford, Connecticut facility and four in the
Company's Brampton, Ontario, Canada facility. On September 15, 1994, the
Company entered into an agreement with Standard Telecommunications Ltd. of
Hong Kong ("STL"), an affiliate of the Company's principal manufacturer, to
provide additional design, engineering and product development support
services to the Company on a subcontract basis. In addition, the Company
expects to increase the number of personnel devoted to product development
efforts.
There can be no assurance that the Company's product development efforts will
result in commercially successful products, or that the Company's products
will not be rendered obsolete by changing technology or new product
introductions by others. See "Risk Factors - Technological Considerations".
MANUFACTURING
The Company presently uses STL and certain of its affiliates, which have ISO
certified facilities located in Hong Kong and the People's Republic of China,
to manufacture its Caller ID units and substantially all of its other
products. These facilities are supplemented, in part, by limited manufacturing
facilities in Connecticut and Canada. The availability or cost of the
Company's products may be adversely affected by political, economic or labor
conditions in the countries where those products are manufactured, including
the 1997 return of Hong Kong to China, by fluctuations in currency exchange
rates and by other factors. In addition, a change in the tariff structure or
other trade policies of the United States could adversely affect the Company's
foreign manufacturing strategies.
The Company does not have any production contracts with its assembly
contractors. The Company's manufacturer performs comprehensive inspection and
statistical process control testing, utilizing the Company's internally
designed automated testing equipment. To date, the Company has not experienced
significant returns of defective products. See "Risk Factors - Dependence on
Foreign Production; Limited Sources of Supply".
In May 1995, the Company, through its Canadian Subsidiary, acquired certain
assets of TIE's Canadian subsidiary related to TIE's Canadian Caller ID
business. In connection with that acquisition, the Company entered into a
sublease for a facility in Brampton, Ontario, Canada and hired 15 people to
staff the Company's operations from such facility. In addition to design and
sales functions, the facility supports manufacturing capability sufficient to
supply its needs for the Canadian market.
26
<PAGE>
In the United States, the Company's manufacturing operations are limited to
the testing, quality control and shipping of finished products and the
purchase and inventory management of two key components of the Company's
products.
The key components used in the Company's products are currently being
purchased from two sources, except for its ASIC chips, which are purchased
from a single source. The only supply contract to which the Company is a party
is with the maker of its ASIC chips. The Company has no other supply contracts
for its components. Although the Company believes it could develop other
sources for each of the components for its products, the process could take
several months, and the inability or refusal of any such source to continue to
supply components could have a material adverse effect on the Company pending
the development of an alternative source. The Company is working with another
ASIC supplier to design and develop a new ASIC chip to help meet future
production requirements.
COMPETITION
The market for the Company's products and services is highly competitive and
subject to rapid technological change. At present, the Company's principal
competitors are CIDCO, AT&T and Northern Telecom. The Company's Caller ID
products also compete with Caller ID telephones offered by Panasonic, Sony and
Thomson. The smart telephone intended to be marketed by the Company through an
alliance with US Order is subject to competition from smart telephones
marketed by Philips, AT&T and Northern Telecom as well as other emerging
platforms for interactive applications delivered through personal computers
and cable television. The Company expects competition to increase in the
future from existing and new competitors, possibly including telcos or other
current customers, from network switch-based services and from the increased
application of cellular technology. The Company's primary current and
potential competitors in the market for products that support intelligent
network services have substantially greater financial, marketing and technical
resources than the Company. Increased competition could materially and
adversely affect the Company's results of operations through price reductions
and loss of market share.
The Company competes with a large number of competitors for its repair
services and other services supporting the development and implementation of
intelligent network services. Several of the Company's competitors in the
market for such services have substantially greater financial, marketing and
technological resources than the Company. There can be no assurance that the
Company will be able to continue to compete successfully against its existing
competitors or that it will be able to compete successfully against new
competitors. See "Risk Factors - Competition".
The Company believes that the principal competitive factors in its markets are
knowledge of the requirements of the various RBOCs and other telcos, product
reliability, product design, the quality of its repair and support services,
customer service and support, and price relative to performance. The Company
competes in the market for products that support intelligent network services
principally on the basis of its relationships with telcos, product design and
reliability, low product pricing and emphasis on the leasing program.
GOVERNMENT REGULATION
In the United States, Caller ID and other intelligent network services offered
by telcos are subject to federal and state regulation. Although Caller ID is
currently available in 47 states, during the past several years, protests by
special interest groups and regulatory concerns regarding the privacy aspects
of the service have been effective in both slowing down the regulatory
approval process and, in most states, requiring free per-call or per-line call
blocking to be offered by the telcos, thereby allowing a caller to prevent the
display of his or her name and number. As of June 1, 1995, Caller ID service
was not available in California, Hawaii and North Dakota.
In most states, the telcos have been instrumental in gaining regulatory
approval of the service and have sought to address privacy concerns by
offering a "call blocking" service. However, in certain states, regulatory
delays have caused telcos to postpone the introduction of Caller ID service
and in others, such as California, telcos have chosen not to introduce the
service because of the undue burden of restrictions proposed by regulatory
authorities.
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<PAGE>
On May 4, 1995, the FCC issued an order which requires that, effective
December 1, 1995, all U.S. telephone service providers with SS7 switching
architecture must transmit to each other without charge Caller ID number
information on interstate calls within the United States (except for public
payphones and party lines). The FCC's order also requires that telcos that
offer Caller ID service must provide to their telephone subscribers without
charge a per-call blocking mechanism to block the transmission of their Caller
ID information on interstate calls and must inform subscribers that their
telephone numbers may be identified to a called party and how to use this
blocking capability.
Although the FCC order mandates implementation after December 1, 1995, no
assurance can be given that the service will be available to residential
subscribers after that date, if at all. Several factors may delay, prevent or
substantially limit the implementation or market acceptance of Caller ID. For
example, state regulatory approval must be received before the service can be
offered, and the availability of Caller ID service in a particular area
requires end-to-end interconnection of SS7 networks between telcos and other
carriers. Further, the FCC order requires telcos to offer free per-call
blocking for interstate calls to all customers to protect privacy interests
and permits state public utility commissions to authorize per-line blocking
for interstate calls. Such blocking, if widely adopted, could limit the
usefulness and marketability of the Caller ID service. The California Public
Utilities Commission has filed a petition for review in federal court
challenging portions of the FCC order based upon privacy concerns. Caller ID
service may in the future be subject to further state and federal legislation
and regulation and court challenges. The Company is unable to predict what
effect, if any, further regulation or court challenges may have on the FCC
order or Caller ID service.
In Canada, the Canada Radio and Telecommunications Commission regulates Caller
ID and intelligent network services. The Company believes that Canadian
regulation of telecommunications devices for intelligent network services is
not more burdensome than regulation in the United States. In Canada, Caller ID
service is available on a national and local basis on networks with SS7
architecture. See "Risk Factors - Regulation".
PATENTS, PROPRIETARY RIGHTS AND LICENSES
The Company holds limited patent or registered intellectual property rights
with respect to its products. The Company has been issued a patent for its
"Block the Blocker" feature. The Company has also applied for a patent on its
SCWID product. However, there can be no assurance that a patent will be issued
to the Company for its SCWID product or that such patent, if issued, will
afford effective protection of the Company's technology. The Company also
believes that, because of the rapid pace of technological change in the voice
and data communications market, the knowledge, ability and experience of the
Company's employees, the frequency of product enhancements and the quality of
support services provided by the Company will all contribute to the Company's
success.
The Company additionally relies on trade secret laws to establish and maintain
its proprietary rights to its products. Although the Company has obtained
confidentiality agreements from its key executives and engineers in its
product development group, there can be no assurance that third parties will
not independently develop the same or similar alternative technology, obtain
unauthorized access to the Company's proprietary technology or misuse the
technology to which the Company has granted access.
A portion of the messaging technology used in the Company's Caller ID products
is licensed from AT&T on an exclusive basis. However, AT&T reserved to itself
and its subsidiaries the right to use the technology for all purposes relating
to its and its subsidiaries' businesses. AT&T's Caller ID patents are licensed
by AT&T to the Company and others, including the Company's competitors. AT&T
receives royalties from sales and leases of the Company's Caller ID products
other than to AT&T. The Company incurred royalty expense of $277,000, $684,000
and $285,000 in 1993, 1994 and the three months ended March 31, 1995,
respectively. The AT&T license agreement has no expiration date but is
terminable by AT&T for breach on two months' written notice unless within such
time all specified breaches have been remedied. If the AT&T license were
terminated and the Company were unable to negotiate a new patent license
agreement with AT&T, the Company would no longer be authorized to manufacture
or sell Caller ID products in the United States other than to the RBOCs and to
AT&T. Additionally, under the agreement, CDT granted AT&T a non-exclusive,
royalty-free license to all patents on inventions which are improvements or
modifications based upon the technology licensed from AT&T.
28
<PAGE>
LITIGATION
The Company is not a party to any material legal proceedings.
EMPLOYEES
At June 1, 1995, the Company employed 129 full-time persons, of whom 62 were
engaged in repair and manufacturing, nine in product development, nine in sales
and marketing, 24 in customer service, 12 in operations and 13 in management,
finance and administration. The Company has no collective bargaining agreement
with its employees and believes that its relationship with its employees is
good. See "Risk Factors - Management of Growth; Dependence on Key Employees".
PROPERTIES
The Company maintains its principal administrative, development and support
facility at a building located in New Milford, Connecticut which consists of
approximately 63,000 square feet. The Company leases this facility under a
lease dated as of September 1, 1994 that expires in August 2004. The rent is
$2.20 per square foot per year plus taxes, operating expenses and insurance.
The Company's lease includes an option to purchase the building at fair market
value as defined in the lease at any time from July 1, 1999 until the
expiration of the lease. The Company believes that the New Milford facility is
suitable and adequate for the current and foreseeable future business of the
Company.
The facility is owned by Cee Associates Limited Partnership, a partnership in
which Robert J. Schock, Chief Executive Officer of the Company, and Constantine
S. Macricostas and Frederick P. Masotta, Jr., directors of the Company, are
limited partners and the Company is the sole general partner. The limited
partners have a 99% interest in the partnership. Rent paid by the Company to
the partnership for the year ended December 31, 1994 was approximately
$125,000. The Company believes that the lease terms are no less favorable than
those available from a disinterested third party. Financing for the acquisition
of the facility by the partnership in 1983 was provided through industrial
development bonds issued by the Connecticut Development Authority. The
outstanding principal amount of the bonds was approximately $1,400,000 at March
31, 1995. The bonds are secured by a mortgage on the facility but are non-
recourse to the partnership. As a result of a default by another tenant in the
building under its lease, the former bondholder declared a default under the
bonds and commenced a foreclosure proceeding with respect to the facility. In
connection with the settlement of the foreclosure litigation, a company owned
97% by Walter M. Fiederowicz, a director and chairman of the Company, and 1%
each by Robert J. Schock, Frederick P. Masotta, Jr. and Constantine S.
Macricostas, agreed to purchase the bonds in an arm's-length transaction with
the bondholder for $550,000. The company which purchased the bonds also paid
approximately $100,000 in property taxes owing with respect to the facility. As
an accommodation while that company secured financing, the Company briefly
acquired the bonds in the settlement in June 1994, and then transferred the
bonds in the same month to the new bondholders at cost. The foreclosure
litigation was withdrawn in connection with the settlement without the
admission of any liability on the part of the Company. The Company believes
that the value of the facility is substantially less than the outstanding
principal amount of the bonds.
Certain environmental contamination occurred in the part of the facility
formerly occupied by another tenant and the Connecticut Department of
Environmental Protection ("DEP") performed a clean-up and removed such
contamination. The DEP notified Cee Associates Limited Partnership in the first
quarter of 1994 that it is a responsible party for the costs of the
environmental clean-up performed at the facility and demanded payment by the
partnership of $125,000. The Company has not received any notice of any
violation of environmental laws by the Company or any notice of any direct
claim against the Company associated with the contamination or clean-up at the
facility. The Company does not believe that the foregoing will have a
materially adverse effect on the Company.
The Company also maintains a manufacturing, research and sales facility in
Brampton, Ontario, Canada which consists of 15,750 square feet. The Company
leases this facility under a sublease dated on May 1, 1995 that expires October
31, 1996. The rent is $5.75 (Canadian) per square foot per year plus taxes,
operating expenses and insurance.
29
<PAGE>
MANAGEMENT
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Robert J. Schock(1)(2).............. 54 President, Chief Executive Officer and Director
Walter M. Fiederowicz(2)............ 48 Chairman of the Board of Directors
Joseph W. Cline..................... 46 Vice President - Sales and Marketing
Daniel V. Cusack.................... 48 Senior Vice President
John N. Giamalis.................... 37 Vice President - Finance, Chief Financial Officer,
Treasurer and Secretary
William L. Nutter................... 58 Vice President - Research, Development and
Engineering
Frederick P. Masotta, Jr.(1)(3)..... 63 Director
Constantine S. Macricostas(3)....... 60 Director
</TABLE>
- --------
(1) Member of Compensation Committee
(2) Member of Executive Committee.
(3) Member of Audit Committee
ROBERT J. SCHOCK has served as President and Chief Executive Officer of the
Company since September 1989 and as President of the Delaware Subsidiary since
1981. From 1977 to 1980, Mr. Schock was director of national operations for
ICOT Corporation, a telecommunications equipment manufacturer. From 1966 to
1977, Mr. Schock held a variety of positions with Xerox Corporation, including
product manager, regional sales operations manager and regional manager for
microsystems.
WALTER M. FIEDEROWICZ has been Chairman of the Board of Directors since August
1994, a director of the Company since September 1989 and a director of the
Delaware Subsidiary since 1985. From 1979 to December 1988, Mr. Fiederowicz
was a partner of the law firm of Cummings & Lockwood and served as counsel to
that firm from December 1988 until September 1990. From January 1991 until
July 1994, he held various positions, including chairman, and served as a
director of Conning Corporation, the parent company of an investment firm. He
is also a director of Photronics, Inc., a photomask manufacturer. Mr.
Fiederowicz was chairman and director of Covenant Mutual Insurance Company, a
property and casualty insurance company ("Covenant") from 1989 until March
1993, and was president and chief executive officer of Covenant from 1989
until December 1992. Covenant was placed in rehabilitation by the Insurance
Commissioner of the State of Connecticut in 1993 and subsequently liquidated
as a result of losses in connection with insurance claims relating to
Hurricane Andrew. Mr. Fiederowicz is a director of Barry Blau & Partners, Inc.
and trustee of its employee stock ownership plan.
JOSEPH W. CLINE has served as Vice President - Sales and Marketing since
January 1995. Previously, Mr. Cline was President of SNET's Deregulated
Products Group where he led SNET's customer premises and equipment business on
a regional and national basis. Mr. Cline has more than 20 years of experience
in the telecommunications industry, having held positions in systems planning
and development, product management and development, sales and marketing and
management with SNET.
DANIEL V. CUSACK has served as Senior Vice President of the Company since May
1995, as Vice President - Manufacturing from September 1989 to May 1995 and as
Vice-President of Manufacturing of the Delaware Subsidiary since January 1981.
From 1976 to 1980, Mr. Cusack was a field service manager of ICOT Corporation.
JOHN N. GIAMALIS has served as Vice President, Finance, Treasurer, Chief
Financial Officer and Secretary since May 1995 and was Director of Finance for
the Company from March 1995 to May 1995. From 1992 to 1995 Mr. Giamalis was
the Vice President and Treasurer of Connecticut National Life Insurance
Company where he served as its principal financial officer. From 1990 to 1992
and 1983 to 1985, Mr. Giamalis held positions with
30
<PAGE>
the Travelers Corporation, including Director of Corporate Financial Planning.
From 1985 to 1990, he was with Deloitte & Touche LLP, holding the position of
Senior Audit Manager from 1987 to 1990.
FREDERICK P. MASOTTA, JR. has been a director of the Company since September
1989 and a director of the Delaware Subsidiary since 1981. For more than the
last five years he has been president of Craftsmen, Inc., a privately-held
construction company.
CONSTANTINE S. MACRICOSTAS has been a director of the Company since September
1989 and a director of the Delaware Subsidiary since 1987. Since 1974, Mr.
Macricostas has served in several positions including as chairman and chief
executive officer of Photronics, Inc., a photomask manufacturer. He also
serves as a director of Nutmeg Federal Savings and Loan Association and Orbit
Semiconductor Inc., a semiconductor manufacturer.
WILLIAM L. NUTTER has served as Vice President - Research, Development and
Engineering of the Company since December 1989. Prior thereto, Mr. Nutter was
employed by AT&T for 28 years in a number of positions. Immediately prior to
joining the Company, Mr. Nutter served as Manager of Terminal Product
Development for AT&T Network Systems.
The Audit Committee is responsible for recommending the independent auditors
for the Company and consults with and reviews the services provided by the
Company's independent auditors.
The Compensation Committee reviews and recommends to the Board the
compensation and benefits of all officers of the Company. The Compensation
Committee also administers the Company's 1983 Stock Option Plan and 1994 Long-
Term Incentive Plan.
The Executive Committee is authorized to exercise the powers of the Board of
Directors during intervals between Board meetings, subject to limitations set
by the Board and the Company's By-Laws. The Executive Committee's approval of
any extraordinary transactions is subject to Board ratification.
All directors hold office until the next annual meeting of stockholders and
until their successors are duly elected and qualified. Executive officers are
appointed by and serve at the discretion of the Board of Directors. There are
no family relationships among any of the directors or executive officers of
the Company. Directors are entitled to receive a fee of $800 per meeting.
31
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the aggregate and
percentage ownership of the Company's Common Stock as of May 31, 1995, and as
adjusted to reflect the sale of 2,200,000 shares of Common Stock offered
hereby by the Company and the Selling Stockholders pursuant to this offering,
by (i) each holder known by the Company to beneficially own more than five
percent of the Company's Common Stock, (ii) each of the Company's directors,
(iii) all directors and executive officers as a group and (iv) each Selling
Stockholder.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO OFFERING(1) AFTER OFFERING(1)(2)
-------------------------- SHARES TO BE ----------------------
NUMBER SOLD IN NUMBER
5% STOCKHOLDERS OF SHARES PERCENT OFFERING(2) OF SHARES PERCENT
- --------------- ------------ --------- ------------ ------------ ---------
<S> <C> <C> <C> <C> <C>
Photronics, Inc......... 854,755 6.3% 125,000 729,755 4.8%
1061 East Indian Town
Road
Jupiter, FL 33477
DIRECTORS
Robert J. Schock........ 1,054,295(3) 7.8 150,000 904,295 5.9
Frederick P. Masotta,
Jr. ................... 744,526(4) 5.5 50,242 694,284 4.6
Walter M. Fiederowicz... 278,416(5) 2.0 75,000 203,416 1.3
Constantine S.
Macricostas............ 140,590(6) 1.0 75,000 65,590 *
OTHER SELLING
STOCKHOLDERS
Daniel V. Cusack........ 410,840(7) 3.0 75,000 335,840 2.2
David S. Allsopp........ 65,420 * 24,670 40,750 *
Robin Davis............. 37,005(8) * 37,005 -- --
John R. Lakian.......... 37,004 * 37,004 -- --
George R. Begley........ 37,004 * 7,004 30,000 *
Joseph DeFelice......... 27,137(9) * 27,137 -- --
Jan Pilkington-Miksa.... 17,004 * 12,004 5,000 *
Robert M. Wallace....... 4,934(10) * 4,934 -- --
Directors and executive
officers as a group (8
persons)............... 2,765,100(11) 20.1 425,242 2,339,858 15.3
</TABLE>
- --------
* Less than one percent.
(1) Except as otherwise indicated, the named person has the sole voting and
investment power with respect to the shares of the Company's Common Stock
set forth opposite each person's name, subject to the information
contained in the footnotes to the table; gives effect to the issuance of
170,743 shares of Common Stock by the Company on June 9, 1995 in exchange
for 230,000 shares of US Order common stock. See "Business - Products and
Services" .
(2) Assumes no exercise of the Underwriters' over-allotment option to
purchase up to an aggregate of 330,000 shares of Common Stock (130,000
shares from the Company and 200,000 shares from certain Selling
Stockholders).
(3) Includes 480,295 shares held by his wife as to which Mr. Schock disclaims
beneficial ownership. Mr. Schock may be deemed to share voting and
investment power over such shares.
(4) Includes 6,522 shares for which Mr. Masotta holds options exercisable
within 60 days.
(5) Represents 278,416 shares held by his wife as to which Mr. Fiederowicz
disclaims beneficial ownership. Mr. Fiederowicz may be deemed to share
voting and investment power over such shares. All shares shown as being
sold by Mr. Fiederowicz are owned by his wife. Excludes all shares owned
by Photronics, Inc., of which Mr. Fiederowicz is a director but as to
which Mr. Fiederowicz disclaims beneficial ownership.
(6) Includes 100,590 shares for which Mr. Macricostas holds options
exercisable within 60 days but does not include 854,755 shares held by
Photronics, Inc., of which Mr. Macricostas is chairman of board of
directors and chief executive officer and a controlling shareholder. Mr.
Macricostas disclaims beneficial ownership of such shares. Mr.
Macricostas may be deemed to share voting and investment power over such
shares.
32
<PAGE>
(7) Includes 94,500 shares held by his wife and children as to which Mr.
Cusack disclaims beneficial ownership. Mr. Cusack may be deemed to share
voting and investment power over such shares.
(8) Includes 37,005 shares for which Mr. Davis holds warrants exercisable
within 60 days.
(9) Includes 27,137 shares for which Mr. DeFelice holds warrants exercisable
within 60 days.
(10) Includes 4,934 shares for which Mr. Wallace holds warrants exercisable
within 60 days.
(11) Includes 135,445 shares for which executive officers and directors hold
options exercisable within 60 days.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 20,000,000 shares of
Common Stock, $.01 par value per share.
COMMON STOCK
As of May 31, 1995, 13,421,043 shares of Common Stock were issued and
outstanding (not including 431,372 shares of Common Stock issuable upon
exercise of outstanding stock options and 86,345 shares issuable upon exercise
of outstanding warrants).
Holders of Common Stock are entitled to one vote per share on all matters to
be voted upon by stockholders and do not have cumulative voting rights.
Accordingly, holders of a majority of the shares of Common Stock entitled to
vote in any election of directors may elect all of the directors standing for
election. The Company's Board of Directors is not classified. Holders of
Common Stock are entitled ratably to dividends which may be paid out of
legally available funds (see "Dividend Policy") and any distributions of
assets remaining after payment of liabilities in the event of a liquidation,
dissolution or winding up of the Company. The holders of Common Stock have no
preemptive or subscription rights, nor are there any redemption or conversion
right provisions with respect to Common Stock. All outstanding shares of
Common Stock are fully paid and non-assessable and, upon payment therefor, the
shares of Common Stock to be issued pursuant to this offering will be fully
paid and non-assessable.
WARRANTS
As of May 31, 1995 there were outstanding warrants expiring on March 31, 1997
to purchase an aggregate of 86,345 shares of Common Stock at an exercise price
of $2.92 per share. The exercise price is subject to adjustment for stock
splits, stock dividends and certain other changes in capital structure. The
holders of the warrants and the holders of 115,682 shares of Common Stock
previously issued pursuant to the exercise of warrants have "piggy-back"
registration rights, which entitle them to include such shares in registered
offerings of securities by the Company, subject to certain conditions.
LIMITATION OF LIABILITY
The Company's Certificate of Incorporation provides that the personal
liability of the directors of the Company is eliminated to the fullest extent
permitted by the provisions of Section 102(b)(7) of the General Corporation
Law of the State of Delaware, which Section provides that the liability of a
director to the corporation or its stockholders for monetary damage for breach
of fiduciary duty as a director may be limited or eliminated, except liability
(i) for any breach of the director's duty of loyalty to the corporation or its
stockholders; (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under section 174
of the Delaware General Corporation Law or (iv) for any transaction from which
the director derived an improper personal benefit.
33
<PAGE>
The Company's Certificate of Incorporation and By-Laws further provide for the
indemnification of the Company's directors and officers to the fullest extent
permitted by the Delaware General Corporation Law.
A principal effect of these provisions is to limit or eliminate the potential
liability of the Company's directors for monetary damages arising from
breaches of their fiduciary duty of care, unless the breach involves one of
the four exceptions described in (i) through (iv) above.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Company's Common Stock is American
Stock Transfer & Trust Company, New York, New York.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have 15,242,384 shares of
Common Stock outstanding (assuming no exercise of the Underwriters' over-
allotment option). All of the shares outstanding after the offering will be
freely tradeable by persons other than "affiliates" of the Company, without
restriction under the Securities Act of 1933, as amended (the "Securities
Act"), except as follows. First, the Selling Stockholders, as well as certain
other stockholders, have agreed not to offer, sell or otherwise dispose of any
of the 3,513,863 shares of Common Stock beneficially owned by them for a
period of 180 days after the date of this Prospectus without the prior written
consent of First Albany Corporation on behalf of itself and the other
Representatives of the Underwriters. In addition, 707,336 shares are
"restricted securities" within the meaning of Rule 144 under the Securities
Act, and may only be sold pursuant to a registration statement under the
Securities Act or an applicable exemption from the registration requirements
of the Securities Act, including Rule 144. As defined in Rule 144, an
"affiliate" of an issuer is a person that directly or indirectly through one
or more intermediaries controls, or is controlled by, or is under common
control with, such issuer. Sales of significant numbers of shares of the
Common Stock in the public market could adversely affect the market price of
the Common Stock and could impair the Company's future ability to raise
capital through an offering of its equity securities.
In general, under Rule 144, as currently in effect, any person (or persons
whose shares are aggregated), who has beneficially owned restricted securities
(as that term is defined in Rule 144) for at least two years from the later of
the date such securities were acquired from the Company or (if applicable) the
date they were acquired from an affiliate, is entitled to sell, within any
three-month period, a number of such shares that does not exceed the greater
of 1% of the then outstanding shares of Common Stock (approximately 152,424
shares immediately after the offering, assuming no exercise of the
Underwriters' over-allotment option) or the average weekly trading volume in
the Common Stock during the four calendar weeks preceding the date on which
notice of such sale was filed under Rule 144, provided certain requirements
concerning availability of public information, manner of sale and notice of
sale are satisfied. In addition, any stockholder deemed to be an affiliate of
the Company must comply with the restrictions and requirements of Rule 144,
other than the two-year holding period requirement, in order to sell shares of
Common Stock that are not restricted securities. Under Rule 144(k), if a
period of at least three years has elapsed between the later of the date
restricted securities were acquired from the Company or (if applicable) the
date they were acquired from an affiliate of the Company, a stockholder who is
not an affiliate of the Company at the time of sale and has not been an
affiliate at any time during the 90 days prior to the sale would be entitled
to sell the shares immediately without compliance with the foregoing
requirements under Rule 144.
As of May 31, 1995, options to purchase a total of 431,372 shares of Common
Stock were outstanding under the Company's two option plans (of which options
to purchase 286,472 shares were then exercisable). An additional 342,600
shares were available for future stock option grants under the one plan which
is still effective. Options for 81,522 shares will be exercised by Selling
Stockholders in connection with this offering.
As of May 31, 1995 there were outstanding warrants to purchase an aggregate of
86,345 shares of Common Stock at an exercise price of $2.92 per share. The
holders of the warrants have "piggy-back" registration rights,
34
<PAGE>
which entitle them to include shares issuable upon exercise of the warrants in
registered offerings of securities by the Company, subject to certain
conditions. Certain holders of warrants have exercised such registration
rights in connection with this offering. After the offering, warrants to
purchase an aggregate of 17,269 shares of Common Stock will be outstanding.
The warrants expire on March 31, 1997.
The exchange agreement with US Order provides that US Order has "piggy-back"
registration rights with respect to all shares issued to US Order pursuant to
the agreement, including 170,743 shares issued in June 1995 and up to 200,000
additional shares issuable in April 1996. Beginning January 1, 1996, these
rights entitle US Order to include such shares in registered offerings of
securities by the Company, subject to certain conditions and limitations.
UNDERWRITING
Under the terms and subject to the conditions contained in the Underwriting
Agreement dated the date hereof, each of the Underwriters named below for whom
First Albany Corporation, NatWest Securities Limited and Volpe, Welty &
Company are acting as Representatives have severally agreed to purchase, and
the Company and the Selling Stockholders have agreed to sell to them,
severally, the respective numbers of shares of Common Stock set forth opposite
their respective names below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES OF COMMON STOCK
----------- ----------------------
<S> <C>
First Albany Corporation..............................
NatWest Securities Limited............................
Volpe, Welty & Company................................
Total............................................................ 2,200,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions, including the absence of any material
adverse change in the Company's business and the receipt of certain
certificates, opinions and letters from the Company and its counsel and
independent auditors. The nature of the Underwriters' obligations is such that
they are committed to purchase all shares of the Common Stock offered hereby
(other than those covered by the over-allotment option described below) if any
of such shares are purchased.
The Company and the Selling Stockholders have been advised by the
Representatives of the Underwriters that the Underwriters propose to offer the
shares of Common Stock to the public at the public offering price set forth on
the cover page of this Prospectus and to certain dealers at such price less a
concession not in excess of $ per share. The Underwriters may allow, and
such dealers may reallow, a concession not in excess of $ per share to
certain other dealers. After the public offering, the offering price and other
selling terms may be changed by the Representatives of the Underwriters.
35
<PAGE>
Pursuant to the Underwriting Agreement, the Company and certain Selling
Stockholders have granted to the Underwriters an option, exercisable not later
than 30 days after the date of this Prospectus, to purchase up to 330,000
additional shares of Common Stock (130,000 shares from the Company and 200,000
shares from the Selling Stockholders) at the public offering price less the
underwriting discounts and commissions set forth on the cover page of this
Prospectus. To the extent that the Underwriters exercise such option, each of
the Underwriters will have a firm commitment to purchase approximately the
same percentage thereof that the number of shares of Common Stock to be
purchased by it shown in the above table bears to 2,200,000, and the Company
and such Selling Stockholders will be obligated, pursuant to the option, to
sell such shares to the Underwriters. The Underwriters may exercise such
option only to cover over-allotments made in connection with the sale of
Common Stock offered hereby. If purchased, the Underwriters will offer such
additional shares on the same terms as those on which the 2,200,000 shares are
being offered.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act.
The Selling Stockholders and certain other stockholders of the Company have
agreed not to offer, sell or otherwise dispose of any shares of Common Stock
for a period of 180 days after the date of this Prospectus without the prior
written consent of First Albany Corporation on behalf of itself and the other
Representatives of the Underwriters.
The Representatives of the Underwriters have informed the Company that the
Underwriters do not intend to confirm sales to any accounts over which they
exercise discretionary authority.
NatWest Securities Limited, a United Kingdom broker-dealer and a member of the
Securities and Futures Authority Limited, has agreed that, as part of the
distribution of the Common Stock offered hereby and subject to certain
exceptions, it will not offer or sell any Common Stock within the United
States, its territories or possessions, or to persons who are citizens thereof
or residents therein. The Underwriting Agreement does not limit sale of the
Common Stock offered hereby outside of the United States.
NatWest Securities Limited has further represented and agreed that (a) it has
not offered or sold and will not offer or sell in the United Kingdom by means
of any document, any Common Stock other than to persons whose ordinary
business it is to buy or sell shares or debentures (whether as principal or
agent) or in circumstances which do not constitute an offer to the public
within the meaning of the Companies Act 1985; (b) it has complied and will
comply with all applicable provisions of the Financial Services Act 1986 with
respect to anything done by it in relation to the Common Stock in, from or
otherwise involving the United Kingdom; and (c) it has issued or passed on and
will issue or pass on to any person in the United Kingdom any document
received by it in connection with the issue of Common Stock only if that
person is of a kind described in Article 9(3) of the Financial Services Act
1986 (Investment Advertisement) (Exemptions) Order 1988, as amended.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed upon
for the Company and the Selling Stockholders by LeBoeuf, Lamb, Greene &
MacRae, L.L.P., Hartford, Connecticut. Certain legal matters in connection
with the offering will be passed upon for the Underwriters by Foley, Hoag &
Eliot, Boston, Massachusetts.
EXPERTS
The consolidated financial statements as of December 31, 1993 and 1994 and for
each of the three years in the period ended December 31, 1994 included in this
Prospectus and the related financial statements incorporated by reference in
the Registration Statement have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their reports appearing herein and
incorporated herein by reference, and have been so included in reliance upon
the reports of such firm given upon its authority as experts in accounting and
auditing.
36
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the reporting requirements of the Securities
Exchange Act of 1934 and files reports and other information with the
Securities and Exchange Commission (the "Commission") in accordance therewith.
Reports, proxy statements and other information filed by the Company with the
Commission can be inspected and copied at the public reference facilities of
the Commission located at 450 Fifth Street, N.W., Room 1024, Washington, D.C.
20549, and at the following Regional Offices of the Commission: 7 World Trade
Center, Suite 1300, New York, New York 10048 and 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of such material can be obtained
from the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. Reports, proxy statements and
other information filed by the Company with the American Stock Exchange can be
inspected at such exchange.
The Company has filed with the Commission a Registration Statement on Form S-2
under the Securities Act with respect to the shares of Common Stock offered
hereby. This Prospectus does not contain all of the information set forth in
the Registration Statement and the exhibits and schedules thereto. For further
information with respect to the Company and the Common Stock offered hereby,
reference is made to the Registration Statement and the exhibits and schedules
filed therewith. Statements contained in this Prospectus regarding the
contents of any contract or other document referred to are not necessarily
complete, and in each instance reference is made to the copy of such contract
or other document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference. The Registration
Statement, including the exhibits and schedules thereto, may be inspected at
the principal offices of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549, and copies of such materials may be obtained upon written request
from the Public Reference Section of the Commission, 450 Fifth Street, N.W.,
Washington, D.C., at prescribed rates.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
Each of (i) the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1994, File No. 0-15562, and (ii) the Company's Quarterly Report
on Form 10-Q for the fiscal quarter ended March 31, 1995, File No. 0-15562,
each as filed by the Company with the Commission, is incorporated in this
Prospectus by reference. Any statement contained in a document incorporated by
reference shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained herein modifies or
supersedes such statement.
Copies of any documents incorporated by reference in this Prospectus (other
than exhibits to such documents, unless they are specifically incorporated by
reference), may be obtained from the principal executive offices of the
Company without charge, by any person, including any beneficial owner, to whom
this Prospectus is delivered, upon oral or written request to Secretary,
Colonial Data Technologies Corp., 80 Pickett District Road, New Milford,
Connecticut 06776, telephone (203) 355-3178.
37
<PAGE>
COLONIAL DATA TECHNOLOGIES CORP.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ANNUAL FINANCIAL STATEMENTS
Independent Auditors' Report............................................ F-2
Consolidated Balance Sheets, December 31, 1993 and 1994................. F-3
Consolidated Statements of Earnings for the Years Ended December 31,
1992, 1993 and 1994.................................................... F-4
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1992, 1993 and 1994....................................... F-5
Consolidated Statements of Cash Flows for the Years Ended December 31,
1992, 1993 and 1994.................................................... F-6
Notes to Consolidated Financial Statements.............................. F-7
INTERIM FINANCIAL STATEMENTS (UNAUDITED)
Consolidated Condensed Balance Sheets as of December 31, 1994 and March
31, 1995............................................................... F-13
Consolidated Condensed Statements of Earnings for the Three Months Ended
March 31, 1994 and 1995................................................ F-14
Consolidated Condensed Statement of Stockholders' Equity for the Three
Months Ended March 31, 1995............................................ F-15
Consolidated Condensed Statements of Cash Flows for the Three Months
Ended March 31, 1994 and 1995.......................................... F-16
Notes to Consolidated Condensed Financial Statements.................... F-17
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Colonial Data Technologies Corp.
New Milford, Connecticut
We have audited the accompanying consolidated balance sheets of Colonial
Data Technologies Corp. and its subsidiary (the "Company") as of December 31,
1993 and 1994, and the related consolidated statements of earnings,
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 1994. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Colonial Data Technologies
Corp. and its subsidiary as of December 31, 1993 and 1994, and the results of
their operations and their cash flows for each of the three years in the
period ended December 31, 1994 in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
Hartford, Connecticut
January 19, 1995
F-2
<PAGE>
COLONIAL DATA TECHNOLOGIES CORP.
CONSOLIDATED BALANCE SHEETS, DECEMBER 31, 1993 AND 1994
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
1993 1994
------- -------
<S> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents.................................... $ 11 $14,013
Accounts receivable (net of allowance of $15 in 1993 and $56
in 1994) (Note 8)........................................... 2,804 5,102
Income taxes receivable...................................... 863
Merchandise sold under contract (Note 2)..................... 699
Inventories.................................................. 2,991 6,473
Prepaid expenses............................................. 108 128
Deferred income taxes (Note 5)............................... 118 131
------- -------
Total current assets....................................... 6,731 26,710
EQUIPMENT (Note 3):
Leased....................................................... 2,638 5,001
Other........................................................ 634 754
------- -------
Total equipment............................................ 3,272 5,755
DEFERRED INCOME TAXES (Note 5)................................. 484 668
------- -------
$10,487 $33,133
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable............................................. $ 894 $ 1,497
Accrued liabilities.......................................... 516 579
Accrued salaries............................................. 268
Income taxes payable......................................... 672 263
Deferred revenue............................................. 193 173
Short-term borrowings (Note 4)............................... 2,130
------- -------
Total current liabilities.................................. 4,405 2,780
LONG-TERM BORROWINGS (Note 4).................................. 2,000
COMMITMENTS AND CONTINGENCIES (Notes 7 and 9)
STOCKHOLDERS' EQUITY (Note 6):
Common stock, par value $.01, authorized 12,500,000 shares in
1993 and 20,000,000 shares in 1994, issued and outstanding
9,948,300 shares in 1993 and 13,299,241 shares in 1994...... 99 133
Additional paid-in capital................................... 3,483 22,142
Retained earnings............................................ 2,500 6,078
------- -------
Total stockholders' equity................................. 6,082 28,353
------- -------
$10,487 $33,133
======= =======
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
COLONIAL DATA TECHNOLOGIES CORP.
CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1992, 1993 AND 1994
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
1992 1993 1994
---------- ---------- ----------
<S> <C> <C> <C>
REVENUES (Notes 2 and 8):
Products................................. $ 8,071 $ 11,667 $ 22,016
Leases................................... 142 3,525 11,630
Services................................. 1,509 2,247 3,183
---------- ---------- ----------
Total revenues......................... 9,722 17,439 36,829
COST OF SALES:
Products................................. 5,684 7,977 15,939
Leases................................... 114 2,456 6,137
Services................................. 1,011 1,771 2,152
---------- ---------- ----------
Total cost of sales.................... 6,809 12,204 24,228
---------- ---------- ----------
GROSS PROFIT............................... 2,913 5,235 12,601
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES.................................. 2,066 2,855 5,519
RESEARCH AND DEVELOPMENT................... 296 327 782
---------- ---------- ----------
INCOME FROM OPERATIONS..................... 551 2,053 6,300
---------- ---------- ----------
OTHER INCOME (EXPENSE):
Interest expense......................... (12) (105) (224)
Interest income.......................... 2 75
Other.................................... 1 4 17
---------- ---------- ----------
Total other expense.................... (9) (101) (132)
---------- ---------- ----------
INCOME BEFORE INCOME TAXES................. 542 1,952 6,168
INCOME TAXES (Note 5)...................... 231 849 2,590
---------- ---------- ----------
NET INCOME................................. $ 311 $ 1,103 $ 3,578
========== ========== ==========
PRIMARY AND FULLY DILUTED NET INCOME PER
SHARE..................................... $ .03 $ .10 $ .30
========== ========== ==========
WEIGHTED AVERAGE SHARES:
Primary.................................. 10,785,236 10,867,047 11,731,325
========== ========== ==========
Fully diluted............................ 10,848,802 10,910,480 11,805,992
========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
COLONIAL DATA TECHNOLOGIES CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1992, 1993 AND 1994
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK
---------------- ADDITIONAL
PAR PAID-IN RETAINED
SHARES VALUE CAPITAL EARNINGS TOTAL
---------- ----- ---------- -------- -------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1991........ 9,823,050 $ 99 $ 3,329 $1,086 $ 4,514
Net income...................... 311 311
---------- ---- ------- ------ -------
BALANCE, December 31, 1992........ 9,823,050 99 3,329 1,397 4,825
Issuance of common stock due to
exercise of stock options and
warrants....................... 125,250 154 154
Net income...................... 1,103 1,103
---------- ---- ------- ------ -------
BALANCE, December 31, 1993........ 9,948,300 99 3,483 2,500 6,082
Issuance of common stock, net of
related costs (Note 6)......... 2,400,000 24 16,078 16,102
Issuance of common stock due to
exercise of stock options and
warrants and related income tax
benefit........................ 950,941 10 2,581 2,591
Net income...................... 3,578 3,578
---------- ---- ------- ------ -------
BALANCE, December 31, 1994........ 13,299,241 $133 $22,142 $6,078 $28,353
========== ==== ======= ====== =======
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
COLONIAL DATA TECHNOLOGIES CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1992, 1993 AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
1992 1993 1994
----- ------ -------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................... $ 311 $1,103 $ 3,578
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation....................................... 255 1,808 4,159
Loss on disposal of assets......................... 174
Provision for bad debts............................ 3 5 72
Increase in reserve for inventories................ 68 94
Deferred income taxes.............................. (640) (197)
Changes in assets and liabilities:
Accounts receivable.............................. (601) (1,207) (2,370)
Merchandise sold under contract.................. 1,195 714 605
Inventories...................................... (393) (1,299) (3,482)
Prepaid expenses................................. 121 (55) (20)
Accounts payable................................. (198) 657 603
Income taxes receivable and payable.............. 128 582 843
Accrued liabilities.............................. 83 449 311
----- ------ -------
Net cash provided by operating activities...... 904 2,185 4,370
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures:
Leased equipment................................... (241) (4,043) (6,453)
Other equipment.................................... (297) (242) (363)
Proceeds from sale of equipment...................... 100
----- ------ -------
Net cash used in investing activities.......... (438) (4,285) (6,816)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net of
related costs and related income tax benefit........ 154 16,578
Net (repayments) proceeds from borrowings............ (463) 1,947 (130)
----- ------ -------
Net cash (used in) provided by financing
activities.................................... (463) 2,101 16,448
----- ------ -------
NET INCREASE IN CASH................................... 3 1 14,002
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR......... 7 10 11
----- ------ -------
CASH AND CASH EQUIVALENTS AT END OF YEAR............... $ 10 $ 11 $14,013
===== ====== =======
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
COLONIAL DATA TECHNOLOGIES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1992, 1993 AND 1994
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business - Colonial Data Technologies Corp. (together with its wholly-owned
subsidiary, the "Company") designs, develops and markets telecommunications
products that support enhanced network services being developed and
implemented by the regional Bell operating companies and other telephone
operating companies. The Company also repairs and refurbishes
telecommunications products for commercial customers.
Consolidation - The consolidated financial statements include the accounts
of the Company after elimination of all intercompany balances and
transactions. Certain 1992 and 1993 amounts were reclassified to conform to
the 1994 presentation.
Revenue Recognition - Revenue is recorded when products and repair
merchandise are shipped to the customer. Lease revenue is recorded based on
the units in service at the end of the prior month since these leases are
cancelable at any time.
Cash and Cash Equivalents - Cash and cash equivalents consist of cash and
short-term U.S. Treasury bills, with original maturities of ninety days or
less.
Inventories - Inventories are recorded at the lower of cost or market with
cost determined on a weighted average basis and consist primarily of finished
goods.
Equipment - Equipment is carried at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets. The cost
and accumulated depreciation of assets sold or retired are removed from the
respective accounts and any gain or loss is reflected in net income.
Maintenance and repairs are charged to expense as incurred.
Income Taxes - Income taxes are computed on the basis of consolidated
financial statement income. Deferred income taxes reflect the tax effects of
differences between the carrying amounts of assets and liabilities for
financial reporting and the amounts used for income tax purposes.
Net Income per Share - Net income per share of common stock is based upon
the weighted average number of shares outstanding during the year. Net income
per share gives effect to the exercise of stock options and warrants using the
treasury stock method. Stock options and warrants are not considered in the
calculation when they have an antidilutive effect.
2. MERCHANDISE SOLD UNDER CONTRACT
On July 2, 1991, the Company entered into a sales agreement with a
distributor for the sale of 70% of the Company's inventories as of June 30,
1991. The accounting treatment of this sale has been to recognize revenue upon
the receipt of payments from the distributor. Accordingly, $1,846,000,
$869,000, and $319,000 of revenue was recorded for the years ended December
31, 1992, 1993 and 1994, respectively.
F-7
<PAGE>
COLONIAL DATA TECHNOLOGIES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. EQUIPMENT
Equipment consists of the following at December 31:
<TABLE>
<CAPTION>
1993 1994
------- -------
(IN THOUSANDS)
<S> <C> <C>
Leased equipment........................................ $ 4,251 $ 9,902
Molds and tools......................................... 648 756
Plant equipment......................................... 444 640
Leasehold improvements.................................. 262 333
Transportation equipment................................ 134 140
Furniture and fixtures.................................. 49 72
------- -------
5,788 11,843
Accumulated depreciation................................ (2,516) (6,088)
------- -------
$ 3,272 $ 5,755
======= =======
</TABLE>
4. BORROWINGS
On April 11, 1994, the Company changed its banking relationship and signed a
new loan agreement which increased its credit line from $3.5 million to $6
million. On August 29, 1994, the Company amended its revolving loan agreement
to increase its credit line from $6 million to $8 million. The loan agreement
is subject to renewal on April 30, 1996. The loan is secured by substantially
all of the Company's assets. The loan agreement bears interest at an annual
rate of 1/4% above the bank's prime rate. The bank's prime rate was 8 1/2% per
annum at December 31, 1994. At December 31, 1994, $2 million was outstanding
on the credit line. The loan agreement contains restrictive covenants, the
most significant of which are certain financial ratios and prohibition of
dividends.
Under the previous bank credit agreement that expired on April 30, 1994, the
Connecticut Development Authority guaranteed 20% of the loan in an amount not
to exceed $700,000. The agreement provided that the Company may obtain letters
of credit for overseas purchases or request cash advances. The loan was
secured by substantially all of the Company's assets. The loan agreement bore
interest at an annual rate of 3/4% above the bank's prime rate. The bank's
prime rate was 6% per annum at December 31, 1993.
Cash paid for interest for the years ended December 31, 1992, 1993, and 1994
was $16,000, $93,000 and $235,000, respectively.
5. INCOME TAXES
Income taxes (benefit) consists of the following for the years ended
December 31:
<TABLE>
<CAPTION>
1992 1993 1994
---- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal........................................ $163 $1,073 $2,288
State.......................................... 68 416 499
---- ------ ------
231 1,489 2,787
Deferred:
Federal ....................................... (463) (230)
State.......................................... (177) 33
---- ------ ------
(640) (197)
---- ------ ------
$231 $ 849 $2,590
==== ====== ======
</TABLE>
F-8
<PAGE>
COLONIAL DATA TECHNOLOGIES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The net deferred income tax asset includes the following components at
December 31:
<TABLE>
<CAPTION>
1993 1994
----- -----
(IN
THOUSANDS)
<S> <C> <C>
Current deferred tax asset:
Accounts receivable allowance............................. $ 6 $ 21
Reserve for inventories................................... 28 18
Accrued liabilities....................................... 108 115
----- -----
142 154
Current deferred tax liability - prepaid expenses........... (24) (23)
----- -----
Net current deferred asset.................................. 118 131
Noncurrent deferred tax asset - depreciation................ 484 668
----- -----
Total net deferred tax asset................................ $602 $799
===== =====
</TABLE>
A reconciliation between the income taxes computed by applying the federal
statutory rate to income before income taxes to the actual income taxes is as
follows:
<TABLE>
<CAPTION>
1992 1993 1994
---- ---- ----
<S> <C> <C> <C>
Federal income taxes at statutory rate..................... 34% 34% 34%
Nondeductible expenses..................................... 2 1 1
State income taxes - net of federal tax benefit............ 9 9 6
Other...................................................... (2) (1) 1
--- --- ---
43% 43% 42%
=== === ===
</TABLE>
Cash paid for income taxes for the years ended December 31, 1992, 1993, and
1994 was approximately $85,000, $933,000 and $1,944,000, respectively.
6. STOCKHOLDERS' EQUITY
Stock Offering
On October 21, 1994, the Company sold 3,680,000 shares of the Company's
common stock, of which 2,400,000 shares were issued by the Company and
1,280,000 shares were sold by certain selling stockholders. The net proceeds
to the Company from the sale of the 2,400,000 shares of common stock were
$16,102,000 after deducting the applicable issuance costs and expenses. The
net proceeds were used to raise funds to support the growth of the Company's
leasing activities, for working capital and general corporate purposes and
repayment of certain indebtedness.
Stock Options
The Company's board of directors authorized the issuance of options for
purchase of common stock for key employees. The options entitle the holder to
purchase the Company's common stock at the fair market value at the date of
grant. 304,762 of the options issued are currently exercisable, and expire at
December 31, 1996.
The Company's board of directors as part of its 1994 Long-Term Incentive
Plan authorized 500,000 stock options to be available for grants. 108,400
options were granted to key employees, which entitle the holder to purchase
the Company's common stock at a stated price. The options vest periodically
through 1998 and expire in 2004.
F-9
<PAGE>
COLONIAL DATA TECHNOLOGIES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
A summary of the changes in stock options is as follows:
<TABLE>
<CAPTION>
EXERCISE PRICES NUMBER OF SHARES
--------------- ----------------
<S> <C> <C>
Outstanding, December 31, 1991........... $.21 - $6.00 1,349,870
Canceled............................... $6.00 (100,000)
---------
Outstanding, December 31, 1992........... $.21 - $3.00 1,249,870
Canceled............................... $.21 (2,000)
Exercised.............................. $.21 (3,000)
---------
Outstanding, December 31, 1993........... $.21 - $3.00 1,244,870
Granted................................ $4.50 - $8.50 108,400
Canceled............................... $.21 - $3.00 (116,526)
Exercised.............................. $.21 (823,582)
---------
Outstanding, December 31, 1994........... $.21 - $8.50 413,162
=========
</TABLE>
Warrants
The Company has 184,758 warrants outstanding as of December 31, 1994. These
warrants (expiration date of March 31, 1997) entitle the holder to purchase
one share of the Company's common stock at $2.92 per share. A summary of the
changes in warrants is as follows:
<TABLE>
<CAPTION>
EXERCISE PRICES NUMBER OF SHARES
--------------- ----------------
<S> <C> <C>
Outstanding, December 31, 1991 and
1992.................................. $1.25 - $2.92 434,367
Exercised............................ $1.25 (122,250)
--------
Outstanding, December 31, 1993......... $1.25 - $2.92 312,117
Exercised............................ $1.25 - $2.92 (127,359)
--------
Outstanding, December 31, 1994......... $2.92 184,758
========
</TABLE>
Preferred Stock
The Company has authorized and unissued 6,250 shares of Series Preferred
Stock with $.01 par value.
7. LEASE
The Company signed a new lease agreement for its principal administrative,
development and support facility which consists of approximately 63,000 square
feet with Cee Associates Limited Partnership ("Cee") in September 1994 that
expires August 2004. The Company's lease includes an option to purchase the
building at fair market value as defined in the lease at any time from July 1,
1999 until the expiration of the lease. The lease agreement includes the
rental of an additional 30,000 square feet of office and warehouse space. The
rent is $2.20 per square foot per year plus taxes, operating expenses and
insurance. Cee is a partnership in which the Company is a general partner and
certain directors and an officer of the Company are limited partners. In June
1994, the Company acquired and then sold at cost the industrial development
bonds that were an obligation of the partnership to a company owned by certain
directors of the Company for $550,000. The trustee of the bonds had previously
brought an action against this partnership. This action was withdrawn without
the admission of any liability on the part of the Company or the partnership.
The annual rental payments were approximately $66,000, $65,000 and $125,000 in
1992, 1993, and 1994, respectively.
F-10
<PAGE>
COLONIAL DATA TECHNOLOGIES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Future minimum lease payments under noncancelable operating leases with
initial or remaining terms in excess of one year at December 31, 1994 were as
follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1995....................................................... $ 139
1996....................................................... 139
1997....................................................... 139
1998....................................................... 139
1999....................................................... 139
2000-2004.................................................. 652
------
$1,347
======
</TABLE>
8. MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to credit risk
consist principally of trade receivables. The Company sells its products
primarily to retailers and regional Bell operating companies in the United
States. The Company believes that the concentration of credit risk in its
trade receivables is substantially mitigated by the Company's ongoing credit
evaluation process and relatively short collection terms. The Company does not
generally require collateral from customers. The Company establishes an
allowance for doubtful accounts based upon factors surrounding the credit risk
of specific customers, historical trends and other information. Historically,
the Company has not incurred any significant credit related losses.
Sales to two customers were approximately 19% and 15% of total sales for the
year ended December 31, 1992. The Company had two customers which represented
approximately 40% and 10% of the total accounts receivable at December 31,
1992.
Sales to two customers were approximately 20% and 18% of total sales for the
year ended December 31, 1993. The Company had two customers which represented
approximately 42% and 20% of total accounts receivable at December 31, 1993.
Sales to three customers were approximately 33%, 22% and 12% of total sales
for the year ended December 31, 1994. The Company had three customers which
represented approximately 22%, 27%, and 16% of total accounts receivable at
December 31, 1994.
9. COMMITMENTS AND CONTINGENCIES
The Company has a nonexclusive license with AT&T for a portion of its
messaging technology used in the Company's Caller ID products. For licensed
products leased, sold or put in use, the Company pays a royalty to AT&T.
Royalty expense was $78,000, $277,000 and $684,000 for the years ended
December 31, 1992, 1993 and 1994, respectively.
The Company was contingently liable for outstanding letters of credit for
overseas purchases or request cash advances totaling $500,000 and $700,000 at
December 31, 1993 and 1994, respectively.
The Company has become informed that certain environmental contamination
existed in the part of the Company's premises occupied by another tenant and
that the Connecticut Department of Environmental Protection has performed a
clean-up and removed such contamination. The Company has not received any
notice of any violation of environmental laws or regulations by the Company or
any notice of any claim against the Company associated with the contamination
or clean-up at the premises. The Company does not believe that the
F-11
<PAGE>
COLONIAL DATA TECHNOLOGIES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
foregoing will have a material adverse effect on the Company's consolidated
financial position or results of operations.
10. QUARTERLY FINANCIAL DATA - UNAUDITED
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH TOTAL
------ ------ ------ ------- -------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C>
Fiscal 1993
Revenues.............................. $3,017 $3,309 $4,821 $6,292 $17,439
Gross profit.......................... 918 1,018 1,472 1,827 5,235
Net income............................ 137 179 354 433 1,103
Net income per share.................. $ .01 $ .02 $ .03 $ .04 $ .10
Fiscal 1994
Revenues.............................. $6,043 $7,390 $9,957 $13,439 $36,829
Gross profit.......................... 1,926 2,340 3,447 4,888 12,601
Net income............................ 495 568 981 1,534 3,578
Net income per share.................. $ .04 $ .05 $ .09 $ .12 $ .30
</TABLE>
F-12
<PAGE>
COLONIAL DATA TECHNOLOGIES CORP.
CONSOLIDATED CONDENSED BALANCE SHEETS
DECEMBER 31, 1994 AND MARCH 31, 1995
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
1994 1995
------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash..................................................... $14,013 $ 7,639
Accounts receivable (net of allowance of $56 in 1994 and
$80 in 1995)............................................ 5,102 8,370
Income taxes receivable.................................. 863 118
Inventories.............................................. 6,473 6,804
Prepaid expenses......................................... 128 346
Deferred income taxes.................................... 131 146
------- -------
Total current assets................................... 26,710 23,423
EQUIPMENT:
Leased................................................... 5,001 4,838
Other.................................................... 754 1,929
------- -------
Total equipment........................................ 5,755 6,767
DEFERRED INCOME TAXES...................................... 668 803
SECURITY HELD-FOR-SALE (Note 2)............................ 5,994
------- -------
$33,133 $36,987
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable......................................... $ 1,497 $ 2,773
Accrued liabilities...................................... 579 525
Accrued salaries......................................... 268 213
Income taxes payable..................................... 263 2,013
Deferred revenue......................................... 173 381
------- -------
Total current liabilities.............................. 2,780 5,905
LONG-TERM BORROWINGS (Note 3).............................. 2,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (Note 4):
Common stock, par value $.01, authorized 20,000,000
shares, issued and
outstanding 13,299,241 shares in 1994 and 13,390,253
shares in 1995.......................................... 133 134
Additional paid-in capital............................... 22,142 22,407
Retained earnings........................................ 6,078 8,492
Unrealized appreciation of security held-for-sale........ 49
------- -------
Total stockholders' equity............................. 28,353 31,082
------- -------
$33,133 $36,987
======= =======
</TABLE>
See notes to consolidated condensed financial statements.
F-13
<PAGE>
COLONIAL DATA TECHNOLOGIES CORP.
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
FOR THE THREE MONTHS ENDED MARCH 31, 1994 AND 1995
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
1994 1995
---------- ----------
(UNAUDITED)
<S> <C> <C>
REVENUES:
Products.............................................. $ 3,492 $ 9,702
Leases................................................ 1,704 4,793
Services.............................................. 847 711
---------- ----------
Total revenues...................................... 6,043 15,206
COST OF SALES:
Products.............................................. 2,569 6,699
Leases................................................ 986 1,921
Services.............................................. 562 481
---------- ----------
Total cost of sales................................. 4,117 9,101
---------- ----------
GROSS PROFIT............................................ 1,926 6,105
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES............ 941 1,989
RESEARCH AND DEVELOPMENT................................ 96 278
---------- ----------
INCOME FROM OPERATIONS.................................. 889 3,838
NET OTHER (EXPENSE) INCOME.............................. (26) 186
---------- ----------
INCOME BEFORE INCOME TAXES.............................. 863 4,024
INCOME TAXES............................................ 368 1,610
---------- ----------
NET INCOME.............................................. $ 495 $ 2,414
========== ==========
PRIMARY AND FULLY DILUTED NET INCOME PER SHARE.......... $ .04 $ .18
========== ==========
WEIGHTED AVERAGE SHARES:
Primary............................................... 11,285,252 13,764,213
========== ==========
Fully diluted......................................... 11,291,771 13,764,296
========== ==========
</TABLE>
See notes to consolidated condensed financial statements.
F-14
<PAGE>
COLONIAL DATA TECHNOLOGIES CORP.
CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1995 (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
UNREALIZED
COMMON STOCK APPRECIATION
---------------- ADDITIONAL OF SECURITY
PAR PAID-IN RETAINED HELD-FOR-
SHARES VALUE CAPITAL EARNINGS SALE TOTAL
---------- ----- ---------- -------- ------------ -------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31,
1994................... 13,299,241 $133 $22,142 $6,078 $28,353
Issuance of common
stock due to exercise
of stock options and
warrants............. 91,012 1 265 266
Net income............ 2,414 2,414
Unrealized
appreciation of
security held-for-
sale................. $49 49
---------- ---- ------- ------ --- -------
BALANCE, March 31, 1995. 13,390,253 $134 $22,407 $8,492 $49 $31,082
========== ==== ======= ====== === =======
</TABLE>
See notes to consolidated condensed financial statements.
F-15
<PAGE>
COLONIAL DATA TECHNOLOGIES CORP.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1994 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1994 1995
----- -------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................... $ 495 $ 2,414
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation............................................... 735 972
Provision for bad debts.................................... 24
Increase in reserve for inventories........................ 144
Deferred income taxes...................................... (200) (150)
Changes in assets and liabilities:
Accounts receivable...................................... 699 (3,292)
Merchandise sold under contract.......................... 145
Inventories.............................................. (467) (475)
Prepaid expenses......................................... (238) (218)
Accounts payable......................................... (196) 1,276
Income taxes receivable and payable...................... (42) 2,495
Accrued liabilities...................................... 82 99
----- -------
Net cash provided by operating activities.............. 1,013 3,289
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures......................................... (355) (1,984)
Purchase of security held-for-sale........................... (5,945)
----- -------
Net cash used in investing activities.................. (355) (7,929)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock....................... 58 266
Net repayments on borrowings................................. (720) (2,000)
----- -------
Net cash used in financing activities.................. (662) (1,734)
----- -------
NET DECREASE IN CASH........................................... (4) (6,374)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............... 11 14,013
----- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD..................... $ 7 $ 7,639
===== =======
Cash paid for:
Interest..................................................... $ 34 $ 4
Income taxes................................................. 610 114
</TABLE>
See notes to consolidated condensed financial statements.
F-16
<PAGE>
COLONIAL DATA TECHNOLOGIES CORP.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS FOR
THE THREE MONTHS ENDED MARCH 31, 1994 AND 1995 (UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Rule
10-01 of Regulation S-X. They do not include all information and footnotes
required by generally accepted accounting principles for complete financial
statements. However, except as disclosed herein, there has been no material
change in the information disclosed in the notes to consolidated financial
statements included in the Annual Report on Form 10-K of Colonial Data
Technologies Corp. for the year ended December 31, 1994. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three-month period ended March 31, 1995 are not necessarily
indicative of the results that may be expected for the year ending December
31, 1995.
2. ACCOUNTING POLICY - SECURITY HELD-FOR-SALE
The Company began reporting its investment holdings according to Financial
Accounting Standards Board Statement No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." Accordingly, a U.S. Treasury Note
with a February 1997 maturity, which the Company will use to fund working
capital, is classified as a noncurrent asset held for sale and carried at
market value. Changes in the market value of securities held for sale are
included in stockholders' equity, net of applicable income taxes.
3. BORROWINGS
On February 22, 1995, the Company elected to amend its loan agreement and
reduce its credit line from $8 million to $4 million. The loan agreement is
subject to renewal on April 30, 1996.
4. SUBSEQUENT EVENTS
Stockholders' Equity
In May 1995, the stockholders approved the Company's reincorporation into
Delaware from Massachusetts. As a result of this reincorporation, the
Company's authorized class of preferred stock, of which no shares were issued
and outstanding, was eliminated.
US Order
In April 1995, the Company entered into a stock exchange agreement with US
Order, Inc. ("US Order") a strategic alliance partner for analog display
services interface protocol capable "smart telephones." Under the terms of the
agreement, on the date of closing of a US Order public offering of equity
securities, the Company will exchange unregistered common stock for 230,000
shares of US Order restricted common stock. The value of this exchange will be
based on US Order's value at their initial public offering price and an equal
value of the Company's common stock based on the average closing price for a
specified period of time, as defined in the agreement, preceding the date of
the exchange. On June 2, 1995, US Order's initial public offering was
effective at a price per share of $14.75. Accordingly, 170,743 shares of the
Company's unregistered common stock will be issued to US Order on June 8,
1995.
The agreement provides for the Company and US Order to exchange on April 15,
1996 the lesser of 200,000 shares of each company's common stock or $3 million
of the Company's unregistered common stock, subject to certain conditions, for
$3 million of US Order's restricted common stock. Each company's stock will be
valued at the average closing price of their respective common stock for a
specified period of time, as defined in the
F-17
<PAGE>
COLONIAL DATA TECHNOLOGIES CORP.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
agreement, preceding the date of the exchange. Both companies will have
certain "piggyback" registration rights and rights of first refusal with
respect to each others' stock.
CDT Canada Corp.
In May 1995, the Company purchased the Canadian Caller ID business of
TIE/communications, Inc. through an acquisition of certain assets. The
acquisition costs and operations purchased were not significant to the
Company. In connection with the acquisition, a newly formed subsidiary, CDT
Canada Corp. will manage the Company's Canadian operations, which will include
a manufacturing, engineering and sales facility in Brampton, Ontario, Canada.
Worldwide Telecom Partners, Inc.
In May 1995, the Company acquired a 50% interest in a joint venture,
Worldwide Telecom Partners, Inc. The venture will also be owned by Barry Blau
& Partners, Inc. The venture will provide marketing services to the
telecommunications industry. The cost of this investment was not significant.
Common Stock Offering
In June 1995, the Company announced the filing of a registration statement
with the Securities and Exchange Commission for the public offering of
2,200,000 shares (exclusive of the underwriters' over-allotment option) of the
Company's common stock, of which 1,500,000 shares will be issued by the
Company and 700,000 shares will be sold by certain selling stockholders.
F-18
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH IN-
FORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY, ANY SELLING STOCKHOLDER OR ANY OF THE UNDERWRITERS. THIS PRO-
SPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO
BUY, ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES
OR AN OFFER TO, OR SOLICITATION OF, ANY PERSON IN ANY JURISDICTION WHERE SUCH
AN OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PRO-
SPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR
THAT INFORMATION CONTAINED HEREINIS CORRECT AS OF ANY TIME SUBSEQUENT TO THE
DATE HEREOF.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 6
Use of Proceeds........................................................... 10
Price Range of Common Stock............................................... 11
Dividend Policy........................................................... 11
Capitalization............................................................ 12
Selected Consolidated Financial Data...................................... 13
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 14
Business.................................................................. 19
Management................................................................ 30
Principal and Selling Stockholders........................................ 32
Description of Capital Stock.............................................. 33
Shares Eligible for Future Sale........................................... 34
Underwriting.............................................................. 35
Legal Matters............................................................. 36
Experts................................................................... 36
Available Information..................................................... 37
Incorporation of Certain Documents by Reference........................... 37
Index to Consolidated Financial Statements................................ F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
2,200,000 SHARES
[LOGO OF COLONIAL DATA TECHNOLOGIES CORP. APPEARS HERE]
COLONIAL DATA
TECHNOLOGIES CORP.
COMMON STOCK
------------------
P R O S P E C T U S
------------------
FIRST ALBANY CORPORATION
NATWEST SECURITIES LIMITED
VOLPE, WELTY & COMPANY
JULY , 1995
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
Graphic Appendix List
Page Picture Description
2 Right side of page. Collage of Caller ID adjunct unit,
integrated Caller ID telephone, Caller ID with Call Waiting
unit (SCWID) adjunct unit and ADSI-compatible smart telephone.
21 Middle of page. A drawing of a man in profile talking on a
telephone.
Bottom of page. A picture of a telephone with display screen
and function keys.
