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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended: DECEMBER 31, 1997 Commission File Number 000-21685
INTELIDATA TECHNOLOGIES CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 54-1820617
(State of incorporation) (I.R.S. Employer Identification Number)
13100 Worldgate Drive, Suite 600, Herndon, VA 20170
(Address of Principal Executive Offices)
(703) 834-8500
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock par value $.001 per share
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- -----
State by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [ ].
The aggregate market value of the Common Stock held by non-affiliates of the
registrant on March 1, 1998, was approximately $65,142,000. In determining this
figure, the Registrant has assumed that all of its directors and executive
officers are affiliates. Such assumptions should not be deemed to be conclusive
for any other purpose.
The number of shares of the registrant's Common Stock outstanding on March 1,
1998 was 31,170,949.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of InteliData Technologies Corporation's Proxy Statement for its 1998
Annual Stockholder Meeting, to be filed within 120 days after the end of the
registrant's fiscal year, are incorporated into Part III of this Report.
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INTELIDATA TECHNOLOGIES CORPORATION
1997 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
Page
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PART I
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Item 1. Business............................................................3
Item 2. Properties.........................................................17
Item 3. Legal Proceedings..................................................17
Item 4. Submission of Matters to a Vote of Stockholders....................17
PART II
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Item 5. Market for Registrant's Common Stock and Related
Stockholder Matters................................................18
Item 6. Selected Financial Data............................................19
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operation...............................................20
Item 8. Financial Statements and Supplementary Data........................38
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure...........................................65
PART III
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Item 10. Directors and Executive Officers of the Registrant.................66
Item 11. Executive Compensation.............................................68
Item 12. Security Ownership of Certain Beneficial Owners and Management.....68
Item 13. Certain Relationships and Related Transactions.....................68
PART IV
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Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K...........................................................69
PART I
ITEM 1. BUSINESS
- -----------------
GENERAL
InteliData Technologies Corporation ("InteliData" or the "Company"),
was incorporated on August 23, 1996 under the Delaware General Corporation Law
in order to effect the mergers ("Mergers") of US Order, Inc. ("US Order") and
Colonial Data Technologies Corp. ("Colonial Data"). The Mergers were announced
on August 5, 1996, when US Order and Colonial Data entered into an Agreement and
Plan of Merger ("Merger Agreement"). On November 7, 1996, the Mergers were
consummated with each share of outstanding US Order and Colonial Data common
stock being exchanged for one share of InteliData common stock. Accounting for
the Mergers was treated as a purchase of Colonial Data by US Order. Accordingly,
financial statements of the Company included herein reflect the results of US
Order through November 7, 1996 and the consolidated results of US Order and
Colonial Data thereafter.
Effective September 30, 1996, US Order acquired the business of Braun,
Simmons & Co., an Ohio corporation ("Braun Simmons"), for approximately $7
million consisting of cash and US Order common stock (and including US Order
transaction costs) pursuant to the merger of Braun Simmons into US Order (the
"Braun Simmons Acquisition"). Braun Simmons was an information engineering firm
specializing in the development of home banking and electronic commerce
solutions for financial institutions. The acquisition expanded the Company's
product line for both large and small financial institutions.
The business of the Company consists of the businesses previously
conducted by US Order, Colonial Data and Colonial Data's subsidiaries. The
Company develops and markets products and services for the telecommunications,
retail and financial services industries through its two primary business
divisions: telecommunications and electronic commerce.
The telecommunications division 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 companies ("telcos"). The Company has concentrated its product
development and marketing efforts on products that support Caller ID and other
emerging intelligent network services, including smart telephones which provide
consumers call management features and the ability to access numerous network
services and interactive applications via telephone. The Company currently
offers a line of Caller ID adjunct units, smart telephones, small business
telecommunications systems and high-end telecommunications equipment. 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 electronic commerce division develops and markets software products
and implementation services to assist financial institutions in their home
banking and electronic bill payment initiatives. The products are designed to
assist consumers in accessing and transacting
business with their banks and credit unions electronically, and to assist
financial institutions in connecting to and transacting business with third
party processors. The services focus on consulting and maintenance agreements
that support the Company's products.
In 1994, the Company sold its bill payment operations and technology
(the "Visa Bill-Pay System") to Visa for cash and the right to future royalty
payments which are based on the number of customers utilizing the Visa Bill-Pay
System. In August 1997, Integrion Financial Network ("Integrion") acquired Visa
InterActive, and certain rights in the Visa Bill-Pay System, from Visa. In
October 1997, the Company surrendered the right to certain future royalty
payments in exchange for $5,000,000 in cash from Visa. The cash payment is
recorded as deferred revenue and is being recognized into electronic commerce
revenues over a two year period.
During the fourth quarter of 1997, the Company announced its intention
to sell the interactive services division which was established to provide
interactive applications for use on smart telephones and other small screen
devices, such as alpha-numeric pagers, Personal Communication Systems ("PCS")
devices and personal digital assistants ("PDAs"). The discontinued operations of
the interactive services division are not considered to be material to the
overall financial statements.
The Company's principal executive offices are located at 13100
Worldgate Drive, Suite 600, Herndon, Virginia 20170 and its telephone number is
(703) 834-8500.
INDUSTRY BACKGROUND
The Company maintains operations in two primary markets:
telecommunications and electronic commerce.
Telecommunications
The telecommunications division designs, develops and markets
telecommunications products that support intelligent network services being
developed and implemented by RBOCs and other telcos. Deregulation and
technological advances have intensified competition among existing operators of
telecommunication networks and encouraged the entrance of new service providers.
In the United States, competition among RBOCs, other telcos and long distance
carriers and new service providers that have entered the local and long distance
markets, has increased and may increase further as a result of the
Telecommunications Act of 1996 (the "Telecommunications Act") or industry
consolidation. RBOCs and other telcos are responding to increasing competition
by, among other things, introducing value-added, intelligent network services.
In order to deploy 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 telcos
to create, modify and deploy new services quickly and economically. In addition,
Bell Communications Research, Inc. has developed the Analog Display Services
Interface ("ADSI"), a standard protocol for the simultaneous transmission of
data and voice information between an information source and a subscriber's
telephone or other communications device such as a smart telephone.
One of the first intelligent network service offerings by RBOCs and
telcos was Caller ID, a service that provides information about the incoming
call, including the number and name of the caller and the time and date of the
call, enabling that information to be displayed on a screen located on the
telephone (an integrated telephone) or on a device located near the telephone,
in the case of an adjunct unit. InteliData estimates that the current
penetration rate of Caller ID service is approximately 25% of the total
subscribers in those areas in the United States that have Caller ID
capabilities.
By deploying the ADSI protocol in the telecommunications network, RBOCs
and other telcos will be able to offer additional intelligent network services
and third-party interactive applications. ADSI-based services will include
Caller ID on Call Waiting together with call disposition. By subscribing to
Caller ID on Call Waiting with Disposition, a subscriber who receives a Call
Waiting signal can look at the Caller ID display screen 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, conference both calls together or drop the line. Additional services which
can be supported through ADSI include on-line directory assistance, e-mail,
paging, news, weather, stock quotes and other information.
The regulatory environment relating to the telecommunications industry
is undergoing rapid and significant changes. The Telecommunications Act has
effected basic changes in the telecommunications regulatory scheme. The
intention of the Telecommunications Act is to enhance competition in all
telecommunications markets and bring new packages, lower prices and increased
innovation to telephone customers in the United States. The Federal
Communications Commission ("FCC") issued its first major order under the
Telecommunications Act in August, 1996 which constitutes the FCC's initial
measures to implement sections of the Telecommunications Act relating to
interconnection between carriers and the provision of access to unbundled
services. However, portions of this order, most significantly its pricing
provisions, have been successfully challenged in the U.S. Court of Appeals for
the Eighth Circuit. The U.S. Supreme Court has agreed to review the Eighth
Circuit's decision overturning those provisions. In December 1996, the FCC
issued a Notice of Proposed Rulemaking which suggests rules concerning the
implementation of the Telecommunications Act provisions relating to RBOC
manufacture of telecommunications and customer premises equipment. Although the
FCC has not yet implemented the regulations relating to those provisions, the
proposed regulations would permit RBOCs to manufacture products that support
Caller ID and other emerging intelligent network services subject to certain
conditions. The U.S. District Court for the Northern District of Texas has
declared the Telecommunications Act's manufacturing provisions, among others,
unconstitutional. The decision has been stayed pending review by the U.S. Court
of Appeals for the Fifth Circuit. The Company is unable to predict what effect,
if any, the Telecommunications Act and the emerging
regulatory scheme under the Telecommunications Act will have on Caller ID
service or the Company's business generally.
Electronic Commerce
The electronic commerce division provides software products and
implementation services to financial institutions whose processes and systems
are subject to regulatory approvals. Electronic commerce is a developing
marketplace. Financial institutions are expanding their electronic home banking
services to permit customers not only to review historical account information,
but also to engage in transactions such as paying bills and transferring funds.
The Company's future growth and profitability will depend, in part, upon
consumer acceptance of electronic home banking.
PRODUCTS AND SERVICES
The Company's business strategy is to develop products and services to
meet the needs of its customers in the telecommunications and electronic
commerce markets. The Company develops products and services for the RBOCs and
other telcos, financial institutions and their customers. The Company strives to
develop products with broad appeal that are easy-to-use, practical, inexpensive
and built around common industry standards. The Company believes its electronic
commerce products position the Company to offer support services which are
expected to generate recurring monthly fee revenue.
Telecommunications
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. A
substantial majority of the Company's revenues are derived from the sale of its
Caller ID products. The following represent the Company's telecommunications
products and services:
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 Company believes that RBOCs utilize
lower-priced products to reduce or eliminate 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. The Company's entry level
Caller ID adjunct devices have suggested retail prices of $19.99 to $29.99.
Full-Featured Caller ID Adjunct Devices
---------------------------------------
The Company's full-featured products display all transmitted
information before the incoming telephone 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 99 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, delivers
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 $29.99 to $59.99.
Caller ID on Call Waiting
-------------------------
Caller ID on Call Waiting allows a subscriber to combine both Caller ID
and Call Waiting network services, to view the directory name and telephone
number of an incoming call as the Call Waiting signal is delivered. The
Company's Caller ID on Call Waiting adjunct device also allows a consumer to
store approximately 85 names and numbers in memory. The Caller ID on Call
Waiting adjunct device has a suggested retail price of $69.99.
Call Manager
------------
The Call Manager is a sophisticated Caller ID device that works with
both single-data and multi-data message services. The Call Manager stores up to
75 of the most recent names and numbers called. The product incorporates a wide
variety of telco provided network services, including Caller ID on Call Waiting
with Disposition, into a compact adjunct. The Call Manager has a suggested
retail price of $89.99.
Smart Telephones
----------------
The Company offers a line of smart telephones with integrated Caller
ID, Caller ID on Call Waiting and preprogrammed keys to support intelligent
network services. The Company's ADSI-Compatible smart telephone was designed and
developed by the Company and is being marketed under the Intelifone(TM) brand
name. The smart telephone incorporates a graphics display screen, magnetic card
reader, alpha-numeric keypad, V.22 modem and a processor. It also supports
Caller ID with Disposition, the integration of Caller ID on Call Waiting and a
visual message waiting indicator. The Company's smart telephones have suggested
retail prices of $99.99 to $199.99.
Small Business Telecommunications Systems
-----------------------------------------
The Company, through one of its subsidiaries, distributes small
business telecommunications systems and multi-line telephones. The small
business telecommunications systems include analog and digital key systems that
allow up to 128 individual telephone lines to be serviced from the same
operating system. These small business systems are sold through
independent dealers that install and service the products. The IPS telephone
systems and multi-line telephones are also sold through retail stores. The
Company markets its small business telecommunications systems to small
businesses and small office/home office ("SOHO") consumers who are looking for
an easy-to-install communications system at a reasonable price.
Repair and Refurbishment
------------------------
The Company has provided telephone repair and refurbishment services to
telcos and certain telephone equipment manufacturers for a wide variety of
telecommunications products, including corded and cordless telephones, key
telephone business systems, cellular telephones and leased telephone products.
During the year ended December 31, 1997, the Company's service customer base
included Nitsuko America Corp., TIE/communications, Inc. ("TIE") and Motorola,
Inc.
Electronic Commerce
The Company's strategy in the electronic commerce market is to support
financial institutions by providing products and services that help them deploy
home banking to their customers. In addition, during the first half of 1997, the
Company supported Visa InterActive and Visa member banks with products and
services which facilitate bill payment and bill presentment. The Company's
products and services are designed to provide financial institutions the
capability to process banking transactions from multiple channels including
personal computers, internet or telephone. The following represent the Company's
electronic commerce products and services:
Interpose(TM) Financial Engine
-------------------------------
The Interpose Financial Engine is the heart of the Company's home
banking software system. It runs on the financial institution's host computer
system, providing real-time connectivity to remote delivery channels. Along with
this critical host connection, Interpose provides robust customer profiling and
control over system security. Its Advanced Financial Message Set gives banks the
functionality to offer a complete range of online financial services.
Interpose(TM) OFX Server
------------------------
The Interpose OFX Server allows a financial institution to take
advantage of the Open Financial Exchange ("OFX") standard to directly support
customers who use Intuit Quicken(R), Microsoft Money(R), Home Financial
Network's Home ATM(TM), and other OFX compliant client software. It supports
synchronized information across all delivery channels, including personal
computers, the internet and telephones.
Interpose(TM) Bill Payment Warehouse
------------------------------------
The Interpose Bill Payment Warehouse provides a software solution to
financial institutions that automates bill payment processing while giving the
financial institution the benefit of tracking payment activity and integrating
delivery channels.
MoneyClip(TM)
-------------
The MoneyClip smart card system allows financial institutions to offer
a secure banking system based on smart cards with digital certificates.
MoneyClip can turn almost any personal computer into a smart card reader,
providing home banking security and building an infrastructure for stored value
and internet commerce applications. The smart card contains a digital
certificate that permits access to bank account information and transactions,
letting users bank from any internet connected personal computer with a 3.5-inch
disk drive.
Product Support Services
------------------------
The Company offers its clients consulting services to assist in
implementation, training and customization on a time and materials basis and
provides maintenance services and software upgrades pursuant to agreements which
are typically renewable on an annual basis.
Customer Support Services
-------------------------
The Company offered bank-branded turnkey customer service to financial
institutions in support of its consumer access products. The Company's customer
service operation was open seven days a week, 18 hours a day. If a bank chose
the Company to provide customer service, the Company typically received a
start-up fee from that bank and a per minute fee per customer. The Company
discontinued its customer support services in the second quarter of 1997.
MARKETING AND DISTRIBUTION
The Company sells its products and services to telephone operating
companies, retailers and financial institutions in the United States. Revenues
from Bell Atlantic, Worldwide Telecom and the US West lease base represented
19%, 19% and 14% of total revenues for the year ended December 31, 1997.
Telecommunications
The Company markets its telecommunications products and services
through 22 employees in its direct sales force and marketing department, and
currently uses 14 independent sales representative firms. The Company's
distribution strategy is to make its products available to potential end users
through multiple distribution channels including: direct fulfillment
arrangements, direct marketing, retailers and others as described below.
Direct Fulfillment Arrangements
-------------------------------
The Company sells telecommunications products to RBOC subscribers and
other telco subscribers through direct fulfillment arrangements with Ameritech
Corporation ("Ameritech"), Bell Atlantic Corporation ("Bell Atlantic"),
BellSouth Corporation ("BellSouth") and SBC Communications Inc. ("SBC"). In most
instances, the telco representatives market both Caller ID service and the
Company's equipment to subscribers and transmit equipment orders to the Company
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 for 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
telephone 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
------------------------------------
During 1997, the Company was a party to a joint venture agreement with
the direct marketing firm of Blau Marketing Technologies, Inc. The joint venture
operated through a jointly owned corporation, Worldwide Telecom Partners, Inc.
("Worldwide Telecom"), which was 50% owned by each of the joint venturers.
Worldwide Telecom provided direct marketing services to Ameritech, Bell Atlantic
and SBC under several separate programs and has completed numerous programs for
Caller ID, Call Answering and Call Waiting services. InteliData supplied Caller
ID units and product management services for Worldwide Telecom. The joint
venture agreement was terminated by the Company in the third quarter of 1997.
Beginning in 1998, the Company has contracted with telcos directly to
market services on behalf of the telcos. The Company expects to aggressively
compete in this marketplace.
Retail and Other Customer Sales
-------------------------------
The Company sells Caller ID units, smart telephones and small business
telephone systems 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 with the support of the Company's
sales personnel. The Company's retail customers include Sears, Roebuck & Co.,
Staples, Inc. and OfficeMax, Inc. among others. In addition, the
Company sells its small business telephone systems and multi-line telephones to
small business dealers and distributors.
Electronic Commerce
The Company concentrates its marketing efforts on direct sales to
financial institutions. Currently, the Company is marketing to the top 200 banks
in the United States and targeting financial institutions that have a large
percentage of customers interested in home and remote banking. The Company is
developing products and services to assist financial institutions who want to
provide their customers with the ability to access certain information from
their bank accounts and complete transactions with the bank concerning bill
payments, loan payments, online transfers and other transactions from remote
locations via touch tone telephones, personal computers and screen based
telephones.
COMPETITION
Telecommunications
The market for the Company's products and services is highly
competitive and subject to increased competition resulting from rapid
technological change as well as increased competition resulting from changes in
the telecommunications regulatory environment, telecommunications industry
consolidation and the emergence of new market entrants. At present, the
Company's principal competitors in the market for Caller ID products are CIDCO
Incorporated ("CIDCO"), Lucent Technologies, Inc. ("Lucent") and Northern
Telecom, Ltd. ("Northern Telecom"). The Company's Caller ID products also
compete with Caller ID adjuncts and telephones offered by Panasonic, Sony Corp.
("Sony"), Thomson Consumer Electronics, Inc. ("Thomson"), TT Systems Corporation
("TT Systems"), US Electronics, Inc. ("US Electronics") and other companies.
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, among other things, 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.
The Company believes that the principal competitive factors in the
markets for its telecommunications products and services are knowledge of the
requirements of the various RBOCs and other telcos, product reliability, product
design, the quality of repair and support services, customer service and
support, and price relative to performance. The Company competes in the market
for its telecommunications products and services principally on the basis of its
relationships with telcos, product design and reliability, low product pricing
and flexibility of marketing alternatives, including leasing.
Electronic Commerce
The Company's electronic commerce products and services face
competition from several types of competitors. Some banks have elected to
develop internally their own home banking solutions instead of purchasing
products and services from the Company or third parties. Banks may also contract
with service bureaus, such as Checkfree Corp., Security First Network Bank or
Online Resources, Inc., to obtain electronic commerce services. Finally, a
number of other software companies, including Edify Corp., Corillian Corporation
and Destiny Software Corporation, offer products and services that compete with
those of the Company.
The Company expects that competition in all of these areas will
increase in the near future. The Company believes that a principal competitive
factor in its markets is the ability to offer an integrated system of various
electronic commerce products and services. Competition will be based upon price,
performance, customer service and the effectiveness of marketing and sales
efforts. The Company competes in its various markets on the basis of its
relationships with strategic partners, by developing many of the products
required for complete solutions, by leveraging market experience, and by
building reliable products and offering those products at reasonable prices.
PRODUCT DEVELOPMENT
The Company operates in industries that are rapidly growing and
changing. In efforts to improve the Company's position with respect to its
competition, the Company has increased its product development efforts and has
focused management efforts in the area of product development. In 1997, 1996 and
1995, the Company's research and development expenditures, exclusive of
nonrecurring in-process research and development expenses were $9,691,000,
$2,649,000 and $1,067,000, respectively.
At December 31, 1997, 43 employees were engaged in product development
including 14 in the telecommunications division and 29 in the electronic
commerce division.
Telecommunications
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.
Standard Telecommunications Ltd. ("STL") of Hong Kong, an affiliate of
the Company's principal manufacturer, provides additional design, engineering
and product development support services to the Company from time to time on a
subcontract basis. The Company also utilizes the engineering resources of some
of its other manufacturers.
Electronic Commerce
The electronic commerce division's product development efforts are
focused on software and systems for electronic banking. In particular, the
Company applies its research and development expenditures to data transaction
processing and messaging software. The electronic commerce industry is
characterized by rapid change. To keep pace with this change, the Company
maintains an aggressive program of new product development and dedicates
considerable resources to research and development to further enhance its
existing products and to create new products and technologies. The Company's
ability to attract and retain highly skilled research and development personnel
is important to the Company's continued success.
MANUFACTURING
The Company's primary equipment manufacturer in the past has been STL
and certain of its affiliates, which have ISO 9000 series certified facilities
located in the People's Republic of China, for the manufacture of its Caller ID
units, smart telephones and other products. In addition, the Company has
established relationships with other ISO 9000 series certified Asian
manufacturers for its smart telephones and small business telecommunications
products. The facilities of the Company's suppliers are supplemented, in part,
by the Company's own limited manufacturing facilities in Connecticut. The
availability or cost of the Company's products may be 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 principal 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.
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 application specific integrated
circuit ("ASIC") chips, which are purchased from a single source. 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.
GOVERNMENT REGULATION
Telecommunications
The regulatory environment relating to the telecommunications industry
is undergoing rapid and significant changes. The Telecommunications Act has
effected basic changes in the telecommunications regulatory scheme. The
intention of the Telecommunications Act is to enhance competition in all
telecommunications markets and bring new packages, lower prices and increased
innovation to telephone customers in the United States. The FCC issued its first
major order under the Telecommunications Act in August 1996 which constitutes
the FCC's initial measures to implement certain sections of the
Telecommunications Act relating to interconnection between carriers and the
provision of access to unbundled services. However, portions of this order, most
significantly its pricing provisions, have been successfully challenged in the
U.S. Court of Appeals for the Eighth Circuit. The U.S. Supreme Court has agreed
to review the Eighth Circuit's decision overturning those provisions. In
December 1996, the FCC issued a Notice of Proposed Rulemaking which suggests
rules concerning the implementation of the Telecommunications Act provisions
relating to RBOC manufacture of telecommunications and customer premises
equipment. Although the FCC has not yet implemented the regulations relating to
those provisions, the proposed regulations would permit RBOCs to manufacture
products that support Caller ID and other intelligent network services subject
to certain conditions. The U.S. District Court for the Northern District of
Texas has declared the Telecommunications Act's manufacturing provisions, among
others, unconstitutional. The decision has been stayed pending review by the
U.S. Court of Appeals for the Fifth Circuit. The Company is unable to predict
what effect, if any, the Telecommunications Act and the emerging regulatory
scheme under the Telecommunications Act will have on Caller ID service or the
Company's business generally.
In the United States, Caller ID and other intelligent network services
offered by telcos are subject to federal and state regulation. Caller ID is
currently available in all 50 states and the District of Columbia. However,
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.
A series of FCC orders require all U.S. telephone service providers
with signaling system 7 ("SS7") switching architecture to transmit to each other
without charge Caller ID number
information on interstate calls within the United States (except for public pay
phones, hotel and motel lines, and party lines). FCC orders also require that by
March 28, 1998, telcos that offer Caller ID service must provide to their
telephone subscribers without charge per-call blocking and unblocking mechanisms
to block and unblock 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 these blocking and unblocking
capabilities.
Although the initial FCC order setting forth these requirements was
implemented December 1, 1995, several factors may delay, prevent or
substantially limit the implementation or market acceptance of Caller ID. 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 and AT&T Corp. ("AT&T")
filed petitions for review of the FCC Order in federal court challenging
portions of the FCC Order. Although the FCC Order withstood that particular
challenge, other parties have also objected to, sought delays in the
implementation of or sought clarification of the FCC Order. In addition, in the
future, Caller ID service may be subject to additional state and federal
legislation, regulation and court challenges. The Company is unable to predict
what effect, if any, further legislation, regulation, court challenges or other
objections may have on the FCC Order or Caller ID service.
The Company's smart telephone products are subject to regulation by the
FCC. Among other requirements, the Company's smart telephones must comply with
Parts 15 and 68 of the FCC's regulations.
Electronic Commerce
The banking market which the Company has targeted for marketing is
highly regulated. The banking industry, although it has recently undergone
significant deregulation, remains quite regulated at both the federal and state
levels. Interpretation, implementation or revision of banking and
telecommunications regulations can accelerate or hinder the ultimate success of
the Company and its products.
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 and certain aspects of its Caller ID on Call
Waiting product. However, there can be no assurance that the patent will afford
effective protection of the Company's technology. The Company also holds or has
filed for patents on certain new features developed by the Company for use in
the ADSI
smart telephone and certain of its transaction processing technology, but there
can be no assurances that such patents will have any commercial value.
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.
The Company has rights to practice the inventions under certain of
Lucent's Caller ID patents. These patents are also licensed to others, including
the Company's competitors. Lucent receives royalties from sales and leases of
the Company's Caller ID products other than to Lucent. The Lucent license
agreement has no expiration date but is terminable by Lucent for breach on two
months' written notice unless within such time all specified breaches have been
remedied. If the Lucent license were terminated and the Company were unable to
negotiate a new patent license agreement with Lucent, 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 Lucent. Additionally, under the agreement,
the Company granted Lucent a non-exclusive, royalty-free license to all patents
on inventions which are improvements or modifications based upon the technology
licensed from Lucent.
The Company does not believe that its products and services infringe on
the rights of third parties. From time to time, third parties assert
infringement claims against the Company. There can be no assurance that any such
assertion will not result in costly litigation or require the Company to cease
using, or obtain a license to use, intellectual property rights of such parties.
EMPLOYEES
At December 31, 1997, the Company had approximately 280 employees, of
whom 265 were full-time. The Company has no collective bargaining agreements
with its employees and believes that its relationship with its employees is
good.
ITEM 2. PROPERTIES
- -------------------
The Company is headquartered in Herndon, Virginia, where it leases
30,000 square feet of office space from an unaffiliated party. The lease expires
in August 1999. The Company also leases other, less significant sales and
product development facilities.
Additionally, the Company owns a building located in New Milford,
Connecticut which consists of approximately 63,000 square feet. Certain
environmental contamination occurred in the part of the facility formerly
occupied by another tenant and the Connecticut Department of Environmental
Protection performed a clean-up and removed such contamination. The Company does
not believe the foregoing will have a materially adverse effect on the Company.
The Company believes that its facilities are suitable and adequate for
the current and foreseeable future business of the Company, however, the Company
will continue to assess its warehousing and office space needs.
ITEM 3. LEGAL PROCEEDINGS
- --------------------------
The Company is not currently a party to any material litigation. From
time to time, the Company is a party to routine litigation incidental to its
business. Management does not believe that the resolution of any or all of such
routine litigation will be likely to have a material adverse effect on the
Company's financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS
- --------------------------------------------------------
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
- ---------------------------------------------------------
STOCKHOLDER MATTERS
-------------------
Since November 8, 1996, the Company's common stock has been traded on
the Nasdaq National Market under the symbol INTD. US Order's common stock prices
were reported for the period through November 7, 1996 and were traded on the
Nasdaq National Market under the symbol USOR. Colonial Data's common stock
prices are reported for the period through November 7, 1996. Subsequent to
February 9, 1996, Colonial Data common stock was traded on the Nasdaq National
Market under the symbol CDTX. Prior to February 9, 1996, Colonial Data common
stock was traded on the American Stock Exchange. The table below sets forth the
high and low quarterly sales prices for the common stock of US Order, Colonial
Data and InteliData as reported in published financial sources for each quarter
during the last two years:
Price Range of Common Stock
---------------------------------------------------------------------------------
US Order Colonial Data InteliData
------------------------- ------------------------ ----------------------
High Low High Low High Low
---- --- ---- --- ---- ---
1997
Fourth Quarter * * * * $3 15/16 $1 1/4
Third Quarter * * * * 5 3/8 2 3/4
Second Quarter * * * * 6 1/4 4 1/8
First Quarter * * * * 8 5/8 4 7/8
1996
Fourth Quarter $11 7/8 $8 1/4 $11 5/8 $8 3/8 10 7/8 6
Third Quarter 15 1/4 8 15/16 15 1/4 8 1/2 ** **
Second Quarter 22 1/2 13 23 5/8 14 7/8 ** **
First Quarter 24 1/4 16 3/4 25 1/4 15 7/8 ** **
* No trading market was available for US Order and Colonial Data after
November 7, 1996.
** No established public trading market for InteliData common stock
existed prior to November 8, 1996.
The Company has never declared or paid any cash dividends on its common
stock. The Company currently intends to retain its future earnings, if any, to
fund the development and growth of its business and, therefore, does not
anticipate paying any cash dividends in the foreseeable future. Any future
decision concerning the payment of dividends on the Company's common stock will
depend upon the results of operations, financial condition and capital
expenditure plans of the Company, as well as such other factors as the Board of
Directors, in its sole discretion, may consider relevant.
The number of stockholders of record at March 1, 1998 was 622, and does
not include those stockholders who hold shares in street name accounts.
ITEM 6. SELECTED FINANCIAL DATA
- --------------------------------
INTELIDATA TECHNOLOGIES CORPORATION (1)
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Year Ended December 31,
------------------------------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
RESULTS OF OPERATIONS:
Revenues $ 60,309 $ 13,899 $ 4,186 $ 1,432 $ 905
Cost of revenues 43,514 10,448 2,470 1,013 908
Operating expenses 108,099 (2) 99,563 (2) 6,877 10,584 (2) 10,540 (4)
---------- ---------- ---------- ---------- ----------
Operating loss (91,304) (96,112) (5,161) (10,165) (10,543)
Net income (loss) (90,094) (95,727) (4,718) 3,713 (3) (11,225)
Preferred dividend requirement -- -- 681 1,895 1,042
---------- ---------- ---------- ---------- ----------
Net income (loss) applicable to common
shareholders $ (90,094) $ (95,727) $ (5,399) $ 1,818 $ (12,267)
Basic income (loss) per common share(5) $ (2.85) $ (5.21) $ (0.50) $ 0.36 (6) $ (2.45)
Basic weighted average shares outstanding(5) 31,574 18,370 10,772 5,000 (6) 5,000
FINANCIAL POSITION (as of December 31):
Cash, cash equivalents and
short-term investments $ 11,359 $ 39,062 $ 25,120 $ 2,568 $ 3,444
Total assets 54,401 143,746 40,252 4,637 7,694
Long-term obligations -- -- -- 4,833 4,231
Stockholders' equity (deficit) 37,069 124,289 37,733 (6,466) (5,849)
(1) Results reflect the operations of US Order for the periods presented and
operations of Braun Simmons since September 30, 1996 and Colonial Data
since November 7, 1996.
(2) Operating expenses for 1997 include $69,691,000 of unusual charges related
to impairment of assets and restructuring charges. Operating expenses for
1996 include $77,214,000 of nonrecurring in-process research and
development expenses related to the Mergers and Braun Simmons Acquisition.
Operating expenses in 1994 include a $3.25 million payment to certain
employees to cancel certain outstanding vested options in connection with
the sale of the Company's bill pay operations to Visa. Visa required that
all employees of the Company who became employees of Visa InterActive
cancel their outstanding vested options to eliminate any potential
conflicts of interest. As a result, the Company's shareholders and Board of
Directors agreed to pay all active and full-time employees of the Company
(excluding William F. Gorog, Chief Executive Officer and Chairman of the
Board) an aggregate of $3.25 million for the cancellation of 675,334 of
their outstanding and vested options with exercise prices ranging between
$0.98 and $4.00 per share. Of the $3.25 million, approximately $2.1 million
was paid to employees of the Company who became Visa InterActive employees
as of August 1, 1994.
(3) Includes gain of approximately $14.5 million on the sale of the Company's
electronic banking and bill pay operations to Visa on August 1, 1994.
(4) Operating expenses in 1993 include write-downs of terminals and terminal
components of approximately $1.5 million.
(5) All net income (loss) per common share data and weighted average shares
outstanding data has been restated for SFAS 128, Earnings Per Share.
(6) Diluted income per common share was $0.12 and diluted weighted average
shares outstanding was 14,906,000.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
- ----------------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
OVERVIEW
InteliData Technologies Corporation ("InteliData" or the "Company"),
was incorporated on August 23, 1996 under the Delaware General Corporation Law
in order to effect the mergers ("Mergers") of US Order, Inc. ("US Order") and
Colonial Data Technologies Corp. ("Colonial Data"). The Mergers were announced
on August 5, 1996, when US Order and Colonial Data entered into an Agreement and
Plan of Merger ("Merger Agreement"). On November 7, 1996, the Mergers were
consummated with each share of outstanding US Order and Colonial Data common
stock being exchanged for one share of InteliData common stock. Accounting for
the Mergers was treated as a purchase of Colonial Data by US Order. Accordingly,
the financial statements of the Company included herein reflect the results of
US Order through November 7, 1996 and the consolidated results of US Order and
Colonial Data thereafter.
Effective September 30, 1996, US Order acquired the business of Braun,
Simmons & Co., an Ohio corporation ("Braun Simmons"), for approximately $7
million consisting of cash and US Order common stock (and including US Order
transaction costs), pursuant to a merger of Braun Simmons into US Order (the
"Braun Simmons Acquisition"). Braun Simmons was an information engineering firm
specializing in the development of home banking and electronic commerce
solutions for financial institutions. The acquisition expands the Company's
product line for both large and small financial institutions.
The excess purchase price over the fair value of net assets acquired
resulted in goodwill of $49,483,000 in connection with the Mergers, and
$1,898,000 in connection with the Braun Simmons Acquisition which were being
amortized on a straight-line basis over fifteen years and seven years,
respectively. Based on rapid market and technological changes in 1997, the
goodwill generated from these transactions was considered impaired and was
written-off in the third quarter of 1997. The impairment was based on the excess
of the carrying value of the assets over the assets' fair values. The fair value
of the assets were generally determined as the estimates of future cash flows
generated by the assets.
In connection with the Mergers and the Braun Simmons Acquisition, the
Company charged, as of the respective dates of such transactions, in-process
research and development expenses of $72,300,000 for the Mergers and $4,914,000
for the Braun Simmons Acquisition, for purchased in-process technology that had
not reached technological feasibility as of the respective dates of such
transactions and which did not have alternative future uses.
The business of the Company consists of the businesses previously
conducted by US Order and Colonial Data. The Company develops and markets
products and services for the telecommunications and financial services
industries through its telecommunications and electronic commerce business
divisions.
The telecommunications division 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 companies
("telcos"). The Company has concentrated its product development and marketing
efforts on products that support Caller ID and other emerging intelligent
network services, including smart telephones which provide consumers call
management features and the ability to access numerous network services and
interactive applications via telephone. The Company currently offers a line of
Caller ID adjunct units, smart telephones, small business telecommunications
systems and high-end telecommunications equipment. 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 electronic commerce division develops and markets products and
services to assist financial institutions in their home banking and electronic
bill payment initiatives. The products are designed to assist consumers in
accessing and transacting business with their banks and credit unions
electronically, and to assist financial institutions in connecting to and
transacting business with third parties, including data processors and billers.
The services focus on consulting and maintenance agreements that support the
Company's products.
The Company has initiated a comprehensive process to evaluate its
current business strategy, including customer relationships and market
opportunities. This could result in restructuring charges in 1998.
During the fourth quarter of 1997, the Company announced its intention
to sell the interactive services division which was established to provide
interactive applications for use on smart telephones and other small screen
devices, such as alpha-numeric pagers, Personal Communication Systems ("PCS")
devices and personal digital assistants ("PDAs"). The discontinued operations of
the interactive services division are not considered to be material to the
overall financial statements.
RESULTS OF OPERATIONS - YEARS ENDED DECEMBER 31, 1997 AND 1996
The consummation of the Mergers on November 7, 1996 and the required
accounting presentation of the historical financial statements had a significant
impact on the results of operations for 1997 compared to 1996. Consolidated
total revenues and all categories of expenses are significantly greater in 1997
than 1996 because 1997 results include a full year of operations for all
businesses and 1996 results only include approximately two months of Colonial
Data's operations and three months of Braun Simmons' operations.
Revenues
The Company's revenues were $60,309,000 in 1997 compared to $13,899,000
in 1996. Telecommunications revenues increased $45,416,000 to $56,358,000 in
1997 from $10,942,000 in 1996. Telecommunications revenues in 1997 consisted of
$37,198,000 from Caller ID adjuncts and smart telephones, $8,306,000 from small
business telephone equipment, $8,570,000 from the lease of Caller ID adjuncts
and telephones and $2,284,000 from repair and other services. Contributing to
the telecommunications revenues in 1997 were sales of $11,628,000 to
the Company's direct marketing joint venture, Worldwide Telecom Partners, Inc.
The joint venture was terminated in the third quarter of 1997. During the year
ended December 31, 1997, the Company sold 1,398,500 Caller ID adjuncts, 72,137
telephones and 6,480 multi-line, small business systems.
Telecommunications revenues for 1996 consisted of $7,938,000 from
Caller ID adjuncts and smart telephones, $506,000 from small business telephone
equipment, $1,838,000 from the lease of Caller ID adjuncts and telephones and
$660,000 from product management, repair and other services. Contributing to the
telecommunications revenues in 1996 were sales of $2,845,000 to Worldwide
Telecom Partners, Inc. During 1997, the Company sold fewer units than originally
anticipated because the Company did not participate in as many telco programs
and promotional campaigns that sell high volumes of product as the Company and
Colonial Data did prior to the Mergers in 1996. The Company intends to work
aggressively to be a primary supplier and marketer for telco promotional
campaigns in 1998.
The electronic commerce division revenues increased $994,000 to
$3,951,000 in 1997 from $2,957,000 in 1996. The primary reason for the increase
was from revenues generated by the professional service and maintenance
contracts associated with the Company's software sales. This increase was
partially offset by the elimination of customer service support provided to
Visa-member banks during the second half of 1997. The Company's customer support
services were remarketed by Visa InterActive, Inc. ("Visa InterActive") to Visa
member banks under the Company's reseller agreement with Visa InterActive.
During 1997, the Company earned $1,041,000 by providing customer support
services to the Visa-member banks, $1,040,000 from software and hardware sales,
$868,000 from professional services and maintenance contracts for the Company's
software programs, recognized $625,000 from deferred revenues related to the
agreement between Visa and the Company for the Visa Bill Pay System royalties
and earned $377,000 from monthly service fees.
During 1996, the electronic commerce division earned revenues primarily
from services derived from three sources: customer support services, monthly
service fees and software and software related consulting fees. The Company
recorded $1,203,000 from its customer support services, $561,000 from its
monthly service fees and $1,193,000 from its software sales and consulting
business during 1996.
During 1997, the Company transitioned from providing primarily back-end
support to financial institutions to selling software that assists financial
institutions in processing customers who bank remotely, either from a personal
computer or telephone. The Company expects that revenues generated in the
electronic commerce division in 1998 will be a direct result of software sales
and the related consulting business.
Cost of Revenues and Gross Profit
The Company's cost of revenues increased by $33,066,000 to $43,514,000
for 1997 compared to $10,448,000 in 1996. Telecommunications cost of revenues
increased by $32,594,000 to $41,385,000 for 1997 compared to $8,791,000 for
1996. Contributing to the telecommunications cost of revenues for 1997 were
$27,852,000 from the sale of Caller ID
adjuncts and smart telephones; $7,299,000 from the sale of multi-line small
business systems; $4,718,000 from leasing Caller ID adjuncts and telephones; and
$1,516,000 from the repair and services business. Gross profit for the
telecommunications division increased $12,822,000 to $14,973,000 for 1997
compared to $2,151,000 for 1996. Gross profit margin for the telecommunications
division increased to 27% for 1997 compared to 20% for 1996. The increase is
primarily related to the Mergers and the change in the product mix and increased
margins on the US West lease base, which earned 45% gross profit margins in 1997
compared to 40% gross profit margins in 1996. Gross profit margins for the year
ended December 31, 1997 from Caller ID adjunct and telephone sales, and small
business telephone systems sales were 27% and 18%, respectively.
Cost of revenues for the electronic commerce division increased
$472,000 to $2,129,000 for 1997 compared to $1,657,000 for 1996. The increase in
cost of revenues is a direct result of the increase in revenues. Gross profit
margins for the electronic commerce division increased two percentage points to
46% for 1997 compared to 44% for 1996. The increase in gross profit margins is
attributed to a change in the product and services offered between the two
periods.
During 1997, the Company experienced declining gross margins in Caller
ID products because the market matured and competition increased.
The Company expects its gross margin percentages to vary in future
periods based upon the revenue mix between product sales and services revenues
and based upon the composition of services revenues earned during the period.
General and Administrative
General and administrative expenses decreased $1,295,000 to $14,826,000
in 1997 from $16,121,000 in 1996. The decrease was primarily attributable to
expenses related to losses in the amount of $2,801,000 related to the Company's
investment in Home Financial Network, Inc. ("HFN"), a development stage personal
computer software company, and the associated goodwill. The Company believed its
investment in HFN was impaired based on its history of losses. In 1997,
$1,267,000 of losses for the HFN investment were incurred along with increased
expenses associated with employing certain general and administrative personnel
for a full year in 1997 and increased litigation expenses during 1997. Also
contributing to the difference were the amortization of intangible assets and
nonrecurring charges for certain customer service operations.
In the future, the Company expects that aggregate recurring general and
administrative expenses will decrease as the Company aggressively pursues
options to reduce fixed overhead costs. During 1998, the Company expects that
general and administrative expenses will decrease due to implementation of
measures to reduce overhead, except as the Company upgrades its systems and
operations in anticipation of the potential for increased business.
Selling and Marketing
Selling and marketing expenses increased $11,880,000 to $13,891,000 in
1997 from
$2,011,000 in 1996. Telecommunications division selling and marketing expenses
aggregated $11,758,000 for the year ended December 31, 1997. Contributing to the
selling and marketing expenses were $3,775,000 for the Company's labor force,
travel and professional services, $2,938,000 for advertising, sales promotion,
and trade shows, $2,162,000 to support customer service for product support and
facilitating sales orders and, $1,126,000 for royalties. The increase from the
prior year is primarily related to the introduction of new products to market
including the introduction of two new small business telephone systems at retail
and through the distributor channel and a summer campaign to sell the Company's
smart telephones.
Electronic commerce division selling and marketing expenses for the
year ended December 31, 1997 aggregated $2,133,000. Contributing to the selling
and marketing expenses were $1,704,000 for the Company's labor force, travel and
professional services and $130,000 for advertising and trade shows.
The Company expects its selling, advertising and promotion expenses
will decrease substantially in 1998 due to cost saving factors being implemented
by the Company's management.
Research and Development
Research and development costs increased $7,042,000 to $9,691,000 in
1997 compared to $2,649,000 in 1996. The Company has been actively engaged in
research and development since its inception and expects that these activities
will be essential to the operations of the Company in the future. Research and
development related expenses for the telecommunications and electronic commerce
divisions were $3,477,000 and $4,602,000, respectively. In addition, the Company
invested $1,612,000 in research and development efforts for interactive service
applications. Research and development expenses for the telecommunications
division were largely attributable to developing, designing and testing
higher-end smart telephones and to lower the cost of Caller ID adjunct units.
The electronic commerce division primarily invested research and
development expenses in writing the Interpose Financial Engine for the Open
Financial Exchange ("OFX") standard. Interpose provides a turnkey software
system to allow financial institutions to: integrate multiple delivery channels,
including the Internet, PC software and the telephone; connect directly to the
customer without the use of a third party processor; and integrate multiple
"back end" processors for bill payment, credit card and mortgage processing,
brokerage, and other products.
Unusual Charges
For the year ended December 31, 1997, the Company announced a strategic
repositioning of the Company's telecommunications division based on recent
events in its marketplace and a corporate restructuring. In connection with this
repositioning and corporate restructuring, the Company's management evaluated
its financial position and determined that it would be appropriate to charge to
operations the remaining unamortized costs of intangible assets due to
impairment, adjust inventory carrying amounts to the lower of cost or market,
and reflect certain restructuring charges, including charges for separation
agreements with employees and charges
associated with the termination of a joint venture agreement. Additionally, the
Company adjusted the carrying value of a receivable from the sale of stock for
an advertising credit based on the Company's expected use of the credit. Total
unusual charges for the year aggregated $69,691,000 which includes: $49,812,000
for the impairment of intangible assets; $11,333,000 for inventories and
commitments; $2,437,000 for restructuring charges and separation agreements;
$3,653,000 for assets relating to the Worldwide Telecom joint venture; and
$2,456,000 for impairment of the advertising credits. The impairment was
measured based on the excess of the net carrying value of the assets over the
assets' fair values. The fair value of the assets were generally determined
based on estimates of future cash flows to be generated by the assets. The
charges related to the joint venture are associated with the termination of the
joint venture by the Company in the third quarter of 1997.
For the year ended December 31, 1996, the Company recorded a provision
for corporate restructuring during the fourth quarter of 1996 of $1,568,000.
This amount consists of $1,323,000 in facilities consolidations, $175,000 in
relocation expenses for certain employees and $70,000 for the write-down of
processing equipment. Additionally, in connection with the Braun Simmons
Acquisition and the Mergers in September and November 1996, respectively, the
Company charged in-process research and development expenses for purchased
in-process technology that had not reached technological feasibility as of the
date of the Mergers and the Braun Simmons Acquisition and did not have
alternative future uses. Amounts charged to in-process research and development
were based on independent appraisals and totaled $4,914,000 and $72,300,000 for
the Braun Simmons Acquisition and the Mergers, respectively.
Other Income, Net
Other income, net increased $861,000 to $1,271,000 in 1997 compared to
$410,000 in 1996. The increase is largely associated with the Company's
investment losses recorded during 1996 for the Company's proportionate share of
losses of HFN and the amortization of the excess of the purchase price over the
Company's share of the equity in net assets of HFN.
Income Taxes
Income taxes increased to $61,000 in 1997 from $25,000 in 1996 based
primarily on state income taxes incurred in connection with the Company's
operations. At December 31, 1997, the Company had net operating loss
carryforwards for federal income tax purposes of approximately $50 million which
expire by 2012. However, use of these net operating losses in future years may
be limited under applicable tax laws and regulations as a result of the Mergers
and the Braun Simmons acquisition.
Net Loss and Weighted Average Shares
As a result of the foregoing factors, basic loss applicable to common
shareholders decreased to $90,094,000 in 1997 from $95,727,000 in 1996. The
basic weighted average shares increased to 31,574,000 in 1997 from 18,370,000 in
1996. The increase in basic weighted average shares resulted primarily from the
shares issued in connection with the Mergers. The basic loss per common share
decreased to $2.85 in 1997 from $5.21 in 1996.
RESULTS OF OPERATIONS - YEARS ENDED DECEMBER 31, 1996 AND 1995
The consummation of the Mergers on November 7, 1996 and the required
accounting presentation of the historical financial statements had a significant
impact on the results of operations for 1996 compared to 1995. Consolidated
total revenues and all categories of expenses are significantly greater in 1996
than 1995 because 1996 results include approximately two months of Colonial
Data's operations and three months of Braun Simmons' operations and 1995 results
do not include any of Colonial Data's and Braun Simmons' operations.
Revenues
The Company's revenues were $13,899,000 in 1996 compared to $4,186,000
in 1995. Telecommunications revenues increased $9,125,000 to $10,942,000 in 1996
from $1,817,000 in 1995. Telecommunications revenues in 1996 consisted of
$7,938,000 from Caller ID adjuncts and smart telephones, $506,000 from small
business telephone equipment, $1,838,000 from the lease of Caller ID adjuncts
and telephones and $660,000 from product management, repair and other services.
Contributing to the telecommunications revenues in 1996 were sales of $2,845,000
to Worldwide Telecom Partners, Inc. Telecommunication revenues in 1995 were
generated primarily from the sale and supporting services for smart telephones
developed by the Company.
Electronic commerce division revenues increased by $588,000 to
$2,957,000 in 1996 from $2,369,000 in 1995. The increase is primarily attributed
to the increase in customer service support provided to Visa member banks.
Service fees in 1996 and 1995 were generated primarily from three sources:
customer support services, monthly service fees, and nonrecurring development
fees for smart telephone applications. The Company's customer support services
were remarketed by Visa InterActive, Inc. ("Visa InterActive") to Visa member
banks under the Company's reseller agreement with Visa InterActive.
Cost of Revenues and Gross Profit
The Company's cost of revenues increased by $7,978,000 to $10,448,000
for 1996 compared to $2,470,000 in 1995. Telecommunications cost of revenues
contributed 84% to the total cost of revenues for 1996. Telecommunications cost
of revenues consisted of $7,045,000 from Caller ID products and smart
telephones, $426,000 from small business equipment, $1,105,000 from the US West
Caller ID lease base and $215,000 from the repair and service business. As a
result of the Mergers, and change in product mix in 1996, gross margins related
to telecommunications revenues were 20% in 1996 compared to 4% in 1995. Gross
margins from the Company's leasing activities in the US West lease base were
approximately 40% for 1996. As a result of the Braun Simmons Acquisition, gross
margins related to electronic commerce revenues decreased to 44% from 69%. The
combined operations result in a decrease in the Company's overall gross margin
to 25% in 1996 from 41% in 1995.
General and Administrative
General and administrative expenses increased $10,338,000 to
$16,121,000 in 1996 from $5,783,000 during the comparable period in 1995. The
increase was primarily attributable to expenses related to the write-off in the
fourth quarter of $2,801,000 related to the Company's investment in Home
Financial Network, Inc. ("HFN"), a development stage personal computer software
company, and the associated goodwill. The Company believes its investment in HFN
was impaired based on its history of losses. Also contributing to the increase
was rent expense, employee related expenses for increases in personnel,
amortization of intangible assets and nonrecurring charges for certain customer
service operations.
Selling and Marketing
Selling and marketing expenses increased $1,984,000 to $2,011,000 in
1996 from $27,000 in 1995. The increase is attributed primarily to selling
expenses of $914,000 for the telecommunications division and selling expenses of
$714,000 for the interactive services division relating to an increase in sales
personnel and a substantial increase in advertising and marketing for smart
telephones which were introduced in retail stores and outlets in the fourth
quarter of 1996.
Research and Development
Research and development costs were $2,649,000 in 1996 compared to
$1,067,000 in 1995. The Company has been actively engaged in research and
development since its inception and expects that these activities will be
essential to the operations of the Company in the future. Research and
development related expenses for 1996 were largely attributable to developing,
designing and testing the Company's next generation smart telephone, the
Telesmart 4000/Intelifone(TM) smart telephone, and electronic bill payment
software for the electronic commerce division.
Unusual Charges
The Company recorded a provision for corporate restructuring during the
fourth quarter of 1996 of $1,568,000. This amount consists of $1,323,000 in
facilities consolidations, $175,000 in relocation expenses for certain employees
and $70,000 for the write-down of processing equipment.
In connection with the Braun Simmons Acquisition and the Mergers in
September and November 1996, respectively, the Company charged in-process
research and development expenses for purchased in-process technology that had
not reached technological feasibility as of the date of the Mergers and the
Braun Simmons Acquisition and did not have alternative future uses. Amounts
charged to in-process research and development were based on independent
appraisals and totaled $4,914,000 and $72,300,000 for the Braun Simmons
Acquisition and the Mergers, respectively.
Other Income, Net
Other income decreased $33,000 or 7% to $410,000 in 1996 from $443,000
in 1995. The decrease is largely associated with recognizing the Company's
proportionate share of losses of HFN and the amortization of the excess of the
purchase price over the Company's share of the equity in net assets of HFN. This
decrease was offset in part by an increase in interest income attributed to the
Company investing funds raised in its June 1995 initial public offering.
Income Taxes
Income taxes increased to $25,000 in 1996 from $0 in 1995 based
primarily on state income taxes incurred in connection with the Company's
operations. At December 31, 1996, the Company had net operating loss
carryforwards for federal income tax purposes of approximately $38 million which
expire by 2011. However, use of these net operating losses in future years may
be limited under applicable tax laws and regulations as a result of the Mergers
and the Braun Simmons Acquisition.
Net Loss and Weighted Average Shares
As a result of the foregoing factors, basic loss applicable to common
shareholders increased to $95,727,000 in 1996 from $5,399,000 in 1995. The basic
weighted average shares increased to 18,370,000 in 1996 from 10,772,000 in 1995.
The increase resulted primarily from the shares issued in connection with the
Mergers.
RESULTS OF OPERATIONS - QUARTERS ENDED DECEMBER 31, 1997, 1996 AND 1995
(UNAUDITED)
The following table sets forth selected consolidated statement of operations
data for the three months ended December 31, 1997, 1996 and 1995 (in thousands):
1997 1996 1995
---------- ---------- ----------
Revenues $ 10,174 $ 10,962 $ 1,286
Cost of revenues 7,809 8,474 229
---------- ---------- ----------
Gross profit 2,365 2,488 1,057
Operating expenses 9,429 85,022 2,492
Other income (expense) (1,180) 525 164
---------- ---------- ----------
Net loss $ (8,244) $ (82,009) $ (1,271)
========== ========== ==========
The Company's revenues decreased 7% to $10,174,000 in 1997 compared to
an increase of 752% to $10,962,000 for 1996 from $1,286,000 for 1995. The
decrease from 1996 to 1997 is the result of fewer telecommunications programs
and telco promotional campaigns that contribute to larger sales volumes. The
increase from 1995 to 1996 is attributed to the operations of the
telecommunications division subsequent to the Mergers. Revenues from the sale or
lease of Caller ID products represented $6,754,000 or 66% of the total revenues
for the fourth quarter
of 1997. Revenues from the sale or lease of Caller ID products represented
$7,793,000 or 71% of the total revenues for the fourth quarter of 1996.
The cost of revenues represented 77%, 77% and 18% of total revenues for
the quarters ended December 31, 1997, 1996 and 1995, respectively. Such results
yielded gross profit margins of 23%, 23% and 82% for the same periods. The
decrease in margins between 1995 and 1996 is attributed to the product mix. In
1995, the Company earned most of its revenues from services and software
programs with low direct costs of revenues. Most product sales in 1996 were for
lower-end model Caller ID adjuncts which yield a lower margin.
The increase in recurring operating expenses is largely attributed to
the cost of general and administrative labor, litigation expenses and selling
and marketing expenses. Fourth quarter 1997 legal expenses associated with the
defense and settlement of a patent claim and associated with a settlement
agreement with a joint venture aggregated approximately $1 million. Fourth
quarter 1997 other expenses include the impairment of a long-term investment in
HFN of $1,267,000 representing a full write-off of the investment. Nonrecurring
fourth quarter operating expenses, recorded in 1996, included in-process
research and development costs, aggregating $77,214,000 that were expensed in
connection with the Mergers and the Braun Simmons Acquisition. Other operating
expenses in 1996 include nonrecurring charges for $4,369,000 for restructuring
costs and impairment of a long-term investment in HFN. The remaining increase is
attributable to operational costs associated with additional personnel and
operating facilities in Connecticut, Ohio and Virginia as a result of the
Company's growth and the Mergers and the Braun Simmons Acquisition.
LIQUIDITY AND CAPITAL RESOURCES
During 1997, the Company's cash, cash equivalents and short-term
investments decreased by $27,703,000 resulting from funding operating losses and
accounts receivable increases and acquiring inventories, capital equipment and
treasury stock. At December 31, 1997, the Company had $11,359,000 in cash, cash
equivalents and short-term investments. To improve the yield on its cash and
equivalent holdings, in 1997, the Company invested in financial instruments that
are diversified among high credit quality securities. The investments are
reported at cost, which approximates market value, and are classified as either
short-term investments or cash equivalents. Additionally, at December 31, 1997,
the Company had working capital of $32,364,000 with no long-term debt. The
Company's total assets exceeded total liabilities by $37,069,000.
The Company's cash requirements for operating, investing and financing
activities in 1997 were financed primarily by cash acquired in the Mergers in
the fourth quarter of 1996.
The Company's principal needs for cash in 1997 were for funding
operating losses, investments in property, plant and equipment and to fund
working capital, primarily related to inventories and accounts receivable. The
Company funded an increase in accounts receivable and inventories of $4,054,000
and $5,954,000, respectively for the year ended December 31, 1997. The increase
in accounts receivable is attributed to the timing of receipts for products
shipped
relating to the telecommunications division. The increase in inventories was
primarily associated with two new lines of small business systems that were
introduced to the retail and distributor channels in the fourth quarter of 1997.
The Company's cash position benefited from a decrease in prepaid expenses
related to prepaid insurance and deposits of $1,897,000. The Company increased
its total liabilities, other than borrowings and net of noncash activities by
$184,000 from the prior year.
Net cash provided by investing activities aggregated $1,691,000 during
1997, primarily from the sale of short-term investments in the amount of
$3,114,000, offset in part by the purchase of capital equipment in the amount of
$1,423,000.
Net cash used in financing activities aggregated $2,431,000 during
1997, primarily from the acquisition of treasury stock in the amount of
$2,064,000 and the payment of short-term borrowings of $500,000, offset in part
by proceeds from the issuance of common stock in the amount of $133,000.
The Company maintained a credit agreement aggregating $15,000,000 for
cash advances and letters of credit. As of December 31, 1997, the Company had
$1,500,000 outstanding under this line of credit and $6,469,000 outstanding in
letters of credit. Since December 31, 1997, the Company has paid all outstanding
amounts. As of December 31, 1997, the Company did not meet the tangible net
worth and the debt service coverage covenants with its bank. Subsequently, the
Company received a waiver for the covenant violations from the bank.
The Company's primary needs for cash in the future are for investments
in product development, working capital, the financing of operations, strategic
ventures, potential acquisitions, capital expenditures and the upgrade of the
Company's systems and operations. In order to meet the Company's needs for cash
over the next twelve months, the Company will utilize existing cash and seek
financing from a financial institution. Additionally, the Company may utilize
funds it expects to generate from operations in the second half of 1998.
INFLATION
The Company believes that inflation has not had a material effect on
the Company's sales and revenue during the past three years.
YEAR 2000 COMPLIANCE
The inability of computers, software and other equipment utilizing
microprocessors to recognize and properly process data fields containing a 2
digit year is commonly referred to as the Year 2000 Compliance issue. As the
year 2000 approaches, such systems may be unable to accurately process certain
date-based information.
The Company has identified all significant applications that will
require modification to ensure Year 2000 Compliance. Internal and external
resources are being used to make the
required modifications and test Year 2000 Compliance. The modification process
of all significant applications is substantially complete. The Company plans on
completing the testing process of all significant applications by December 31,
1998.
In addition, the Company has communicated with others with whom it does
significant business to determine their Year 2000 Compliance readiness and the
extent to which the Company is vulnerable to any third party Year 2000 issues.
However, there can be no guarantee that the systems of other companies on which
the Company's systems rely will be timely converted, or that a failure to
convert by another company, or a conversion that is incompatible with the
Company's systems, would not have a material adverse effect on the Company.
The total cost to the Company of these Year 2000 Compliance activities
has not been and is not anticipated to be material to its financial position or
results of operations in any given year. These costs and the date on which the
Company plans to complete the Year 2000 modification and testing processes are
based on management's best estimates, which were derived utilizing numerous
assumptions of future events including the continued availability of certain
resources, third party modification plans and other factors. However, there can
be no guarantee that these estimates will be achieved and actual results could
differ from those plans.
RECENT ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 130 ("SFAS 130"),
"Reporting Comprehensive Income", was issued by the Financial Accounting
Standards Board in June 1997. This Statement requires that all items that are
required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. The Company will adopt SFAS
130 beginning January 1, 1998.
Statement of Financial Accounting Standards No. 131 ("SFAS 131"),
"Disclosures about Segments of an Enterprise and Related Information", was
issued by the Financial Accounting Standards Board in June 1997. This Statement
establishes standards for reporting information about operating segments in
annual financial statements and requires reporting of selected information about
operating segments in interim financial reports issued to stockholders. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. The Company is in the process of
finalizing its determination of its reportable segments under SFAS 131 and will
adopt SFAS 131 for the year ending December 31, 1998.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
The Company desires to take advantage of the "safe harbor" provisions
of the Private Securities Litigation Reform Act of 1995. The Company wishes to
caution readers that the following important factors, among others, in some
cases have affected the Company's actual
results, and could cause the Company's actual results for 1998 and beyond, to
differ materially from those expressed in any forward-looking statements made
by, or on behalf of, the Company.
Successful Implementation of Business Strategy
During 1997, as the market for telecommunications products and services
changed, the Company reorganized its telecommunications business in an effort to
streamline its operations and focus its telecommunications business on providing
customer acquisition services to telcos and on developing a market for small
office/home office (SOHO) products. The Company also continues to conduct its
electronic commerce business, selling software to banks. There can be no
assurances that the Company will be able to successfully implement this business
strategy or effectively fund and grow two distinctly separate lines of business.
Developing Marketplace
Electronic commerce and telecommunications are developing markets. The
Company's future growth and profitability will depend, in part, upon consumer
acceptance of electronic home banking and telecommunications technologies. Even
if these markets experience substantial growth, there can be no assurance that
the Company's products and services will be commercially successful or benefit
from such growth. Much of the Company's success in the home banking market
depends on the financial institutions' success in marketing to the consumer.
Much of the Company's success in the telecommunications market depends on the
Company's ability to meet design specifications and delivery requirements for
its products and services. There can be no assurance of the timing of
introduction of, necessary regulatory approvals for, or market acceptance of
these services and applications.
Fluctuations in Operating Results
The Company may experience fluctuations in quarterly operating results
due to a variety of factors, some of which are beyond the Company's control.
These include the size and timing of customer orders, changes in the Company's
pricing policies or those of its competitors, new product introductions or
enhancements by competitors, delays in the introduction of new products or
product enhancements by the Company or by its competitors, customer order
deferrals in anticipation of upgrades and new products, market acceptance of new
products, the timing and nature of sales, marketing, and research and
development expenses by the Company and its competitors, the timing of programs
offering Caller ID or other intelligent network services by a telco, disruptions
in sources of supply, the effects of regulation on Caller ID and other
intelligent network services, the timing and extent of promotional activities by
a telco, changes in service charges by a telco, other changes in operating
expenses, personnel changes and general economic conditions. Additionally,
certain RBOCs have recently merged and the Company is unable to assess the
future effect on the Company of these mergers and of other possible
consolidations in the telecommunications industry. 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.
Reliance on Caller ID Revenues
A substantial majority of the Company's revenues are derived from sales
and leases of its Caller ID products. Caller ID is a mature market and the
Company has experienced declining gross margins from increased competition. The
sale or lease of these products is directly linked to the implementation and
promotion of Caller ID service by telcos. The timing of such implementation may
be affected by government regulation, by changes in the telecommunications
industry resulting from changes in the regulatory and competitive environment,
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.
Concentration of Distribution of Products and Services
The Company sells its telecommunications 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 telco 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. The Company's current telco fulfillment arrangements are not
exclusive and may be terminated by either party. The loss of any one or more of
the Company's major customers or the termination of its distribution
arrangements with any telco or the failure to be selected for significant orders
or programs by a telco could materially and adversely affect the Company's
business, operating results, and financial condition. In addition, consolidation
in the telecommunications industry or changes in the telecommunications
regulatory environment could result in the loss of such customers or business.
InteliData Common Stock Owned by WorldCorp
As of December 31, 1997, WorldCorp beneficially owned approximately 29%
of the outstanding common stock of the Company. WorldCorp is highly leveraged,
and therefore requires substantial funds to meet debt service requirements each
year. As a result of WorldCorp's cash requirements, it may be required to sell
shares of the Company's common stock from time to time and such sales, or the
threat of such sales, could have a material adverse effect on the market price
for the Company's common stock. In addition, the Company's Board of Directors
has seven members, three of whom also serve on the Board of Directors of
WorldCorp. As a result of membership on the Company's Board and stock ownership,
WorldCorp may have a significant influence on the decisions made by the Company.
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
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. 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 it 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's 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 have significantly greater
financial, technological and research and development resources than the
Company.
Dependence on Foreign Production
The Company's Caller ID units and certain other products, are
manufactured by companies with facilities in Hong Kong, Taiwan, and the People's
Republic of China. These facilities are supplemented, in part, by other
manufacturers in Asia for certain smart telephone and small business system
products and by limited manufacturing facilities in Connecticut. The
availability or cost of these telecommunications products may be adversely
affected by political, economic or labor conditions in Hong Kong, Taiwan or the
People's Republic of China, including the 1997 return of Hong Kong to China, and
by fluctuations in currency exchange rates. In addition, a change in the tariff
structure or other trade policies of the United States or countries from which
InteliData will import products could adversely affect InteliData's foreign
manufacturing strategies.
Competition
Telecommunications
------------------
The market for the Company's products is highly competitive and subject
to increased competition resulting from rapid technological change as well as
resulting from changes in the telecommunications regulatory environment,
telecommunications industry consolidation and the emergence of new market
entrants. At present, the Company's principal competitors are CIDCO, Lucent, and
Northern Telecom. The Company's Caller ID products also compete with Caller ID
adjuncts and telephones offered by Panasonic, Sony, Thomson, TT Systems and US
Electronics.
The Company expects competition in the markets for its
telecommunications products and services to increase in the future and expects
competition from existing and new competitors, possibly including RBOCs, other
telcos or other current customers, as well as 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 its
telecommunications products and services have substantially greater financial,
marketing and technical resources than the Company. 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.
Electronic Commerce
-------------------
The market for interactive products and services is highly competitive
and subject to rapid innovation and technological change, shifting consumer
preferences and frequent new product introductions. The Company's home banking
products and services compete with services offered by a number of competitors
and competition may intensify as a result of new market entrants. Banks have
developed home banking products for their own customers and, in the future, may
offer these services to other banks. Non-banks also may develop home banking
products to offer to banks. Computer software and data processing companies also
offer home banking services. The Company expects that competition in these areas
will increase in the near future.
Dependence on Key Employees
The Company is highly dependent on certain key executive officers and
technical employees to manage the operations and business of the Company as well
as to implement the business plans of the Company on an ongoing basis. The loss
of any such key employees could have an adverse impact on the future operations
of the Company.
Regulation
The Telecommunications Act of 1996 and regulations or orders
promulgated thereunder may result in or accelerate changes in various aspects of
the telecommunications industry, including the competitive environment, the
delivery and pricing of various telecommunications products and services and
possible consolidation. Although the Company is unable to predict what effect,
if any, the Telecommunications Act of 1996 or other regulatory developments may
have upon the telecommunications industry or the Company's business, any such
effects could have a material adverse impact on the future operations of the
Company.
In the United States, Caller ID and other intelligent network services
are subject to federal and state regulation. 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. A series of FCC orders effective December 1, 1995, require
all United States telephone service providers with Signaling System 7 switching
architecture to transmit to each other without charge Caller ID number
information on interstate calls within the United States (except for public pay
phones, hotel and motel lines, and party lines). The FCC's orders also require
that by March 28, 1999, telcos that offer Caller ID service must provide to
their telephone subscribers without charge per-call blocking and unblocking
mechanisms to block and unblock 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 these blocking and unblocking
capabilities.
Volatility of Stock Price
The market price of the Company's stock has experienced significant
volatility. The stock market has experienced volatility that has particularly
affected the market prices of equity securities of many high technology and
developmental stage companies and that has often been unrelated to the operating
performance of such companies. Factors such as announcements of the introduction
of new products or services by the Company or its competitors, market conditions
in the banking, telecommunications and other emerging growth company sectors and
rumors relating to the Company or its competitors may have a significant impact
on the market price of the Company's stock.
Limited Proprietary Protection
The Company possesses limited patent or registered intellectual
property rights with respect to its technology. The Company depends in part upon
its proprietary technology and know-how to differentiate its products from those
of its competitors and works independently and from time to time with third
parties with respect to the design and engineering of its own products. 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
the Company will be able to protect its technology or successfully develop new
technology or gain access to such technology or that third parties will not be
able to develop similar technology independently or 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.
Certain of Lucent's Caller ID patents are licensed by Lucent to the
Company and others, including the Company's competitors. If the Lucent license
were terminated and the Company were unable to negotiate a new patent license
agreement with Lucent, 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
Lucent, and the Company's business would be materially and adversely affected.
Limited Sources of Supply
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. 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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- -----------------------------------------------------
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Consolidated Financial Statements
Consolidated Balance Sheets as of December 31, 1997 and 1996............39
Consolidated Statements of Operations for the Years Ended
December 31, 1997, 1996 and 1995......................................40
Consolidated Statements of Stockholders' Equity (Deficit) for the
Years Ended December 31, 1997, 1996 and 1995............................41
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, 1996 and 1995......................................42
Notes to Consolidated Financial Statements for the Years Ended
December 31, 1997, 1996 and 1995......................................43
Independent Auditors' Reports.................................................63
INTELIDATA TECHNOLOGIES CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
(in thousands, except share data)
1997 1996
------------ ------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 2,055 $ 26,644
Short-term investments 9,304 12,418
Accounts receivable, net of allowances of $5,679
in 1997 and $1,788 in 1996 (Notes 14 and 16) 13,088 12,925
Inventories (Notes 5 and 16) 23,020 28,420
Prepaid expenses and other current assets 354 2,582
------------ ------------
Total current assets 47,821 82,989
NONCURRENT ASSETS
Costs in excess of net assets acquired (Note 3) -- 50,061
Property, plant and equipment, net (Note 6) 6,249 9,143
Other assets 331 1,553
------------ ------------
TOTAL ASSETS $ 54,401 $ 143,746
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 3,659 $ 4,684
Accrued expenses and other liabilities (Note 7) 7,527 12,380
Deferred revenues (Note 2) 2,771 393
Short-term borrowings (Note 8) 1,500 2,000
------------ ------------
Total current liabilities 15,457 19,457
NONCURRENT LIABILITIES
Deferred revenues (Note 2) 1,875 --
------------ ------------
TOTAL LIABILITIES 17,332 19,457
COMMITMENTS AND CONTINGENCIES (Note 15)
STOCKHOLDERS' EQUITY (Note 10)
Preferred stock, $0.001 par value; authorized 5,000,000 shares;
no shares issued and outstanding -- --
Common stock, $0.001 par value; authorized 60,000,000 shares; issued
31,862,449 shares in 1997 and 31,816,693 shares in 1996; outstanding
31,180,949 shares in 1997 and 31,816,693 shares in 1996 32 32
Additional paid-in capital 245,699 243,757
Treasury stock, at cost (2,064) --
Receivable from sale of stock -- (2,456)
Deferred compensation (18) (133)
Unrealized gain on investments 425 --
Accumulated deficit (207,005) (116,911)
------------ -------------
TOTAL STOCKHOLDERS' EQUITY 37,069 124,289
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 54,401 $ 143,746
============ ============
See accompanying notes to consolidated financial statements.
INTELIDATA TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(in thousands, except per share data)
1997 1996 1995
----------- ----------- -----------
Revenues
Telecommunications $ 56,358 $ 10,942 $ 1,817
Electronic commerce 3,951 2,957 2,369
----------- ----------- -----------
Total revenues 60,309 13,899 4,186
----------- ----------- -----------
Cost of revenues
Telecommunications 41,385 8,791 1,747
Electronic commerce 2,129 1,657 723
----------- ----------- -----------
Total cost of revenues 43,514 10,448 2,470
----------- ----------- -----------
Gross profit 16,795 3,451 1,716
Operating expenses (Notes 3 and 9)
General and administrative 14,826 16,121 5,783
Selling and marketing 13,891 2,011 27
Research and development 9,691 2,649 1,067
Unusual charges (Note 11) 69,691 78,782 --
----------- ----------- -----------
Total operating expenses 108,099 99,563 6,877
----------- ----------- -----------
Operating loss (91,304) (96,112) (5,161)
----------- ----------- -----------
Other income (expense)
Interest, net 1,271 1,445 684
Other, net -- (1,035) (241)
----------- ----------- -----------
Total other income, net 1,271 410 443
----------- ----------- -----------
Loss before income taxes (90,033) (95,702) (4,718)
Income taxes (Note 13) 61 25 --
----------- ----------- -----------
Net loss (90,094) (95,727) (4,718)
Preferred dividend requirement (Note 10) -- -- (681)
----------- ----------- -----------
Net loss applicable to common shareholders $ (90,094) $ (95,727) $ (5,399)
=========== =========== ===========
Basic loss per common share $ (2.85) $ (5.21) $ (0.50)
=========== =========== ===========
Basic weighted average shares 31,574 18,370 10,772
=========== =========== ===========
See accompanying notes to consolidated financial statements.
INTELIDATA TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(in thousands)
Series A Series C
Convertible Convertible Addit- Recei- Unreal-
Preferred Preferred Common ional vable Defer- ized
Stock Stock Stock Paid- Trea- from red Gain on Accum-
------------- ------------- ------------ in sury Sale Compen- Invest- ulated
Shares Amount Shares Amount Shares Amount Capital Stock of Stock sation ments Deficit Total
------ ------ ------ ------ ------ ------ ------- ------- -------- ------- ------- ---------- ---------
Balance at December 31, 1994 5,204 $ 5 1,148 $ 1 5,121 $ 5 $12,489 $ -- $(2,500) $ -- -- $ (16,466) $ (6,466)
Sale of common stock
in public offering, net -- -- -- -- 3,062 3 41,643 -- -- -- -- -- 41,646
Conversion of preferred
stock to common stock (5,204) (5) (1,148) (1) 6,352 6 -- -- -- -- -- -- --
Issuance of common stock:
Long-term investment -- -- -- -- 230 -- 3,392 -- -- -- -- -- 3,392
Investment in affiliate,
net -- -- -- -- 297 1 5,046 -- -- -- -- -- 5,047
Exercise of options
and warrants -- -- -- -- 468 1 1,419 -- -- -- -- -- 1,420
Deferred compensation on
grant of stock options -- -- -- -- -- -- 486 -- -- (486) -- -- --
Compensation expense -- -- -- -- -- -- -- -- -- 225 -- -- 225
Dividends paid - Series A -- -- -- -- -- -- (1,577) -- -- -- -- -- (1,577)
Dividends paid - Series B -- -- -- -- -- -- (141) -- -- -- -- -- (141)
Dividends paid - Series C -- -- -- -- -- -- (1,107) -- -- -- -- -- (1,107)
Use of advertising credits -- -- -- -- -- -- -- -- 12 -- -- -- 12
Net loss -- -- -- -- -- -- -- -- -- -- -- (4,718) (4,718)
------ ------ ------ ------ ------ ------ ------- ------- -------- ------- ------- ---------- ---------
Balance at December 31, 1995 -- -- -- -- 15,530 16 61,650 -- (2,488) (261) -- (21,184) 37,733
Issuance of common stock:
Braun Simmons Acquisition -- -- -- -- 375 -- 4,170 -- -- -- -- -- 4,170
Merger with Colonial Data -- -- -- -- 15,406 15 179,103 -- -- -- -- -- 179,118
Exercise of options
and warrants -- -- -- -- 730 1 2,176 -- -- -- -- -- 2,177
Employee stock
purchase plan -- -- -- -- 6 -- 50 -- -- -- -- -- 50
Retirement of common stock
for long-term investment -- -- -- -- (230) -- (3,392) -- -- -- -- -- (3,392)
Use of advertising credits -- -- -- -- -- -- -- -- 32 -- -- -- 32
Compensation expense -- -- -- -- -- -- -- -- -- 128 -- -- 128
Net loss -- -- -- -- -- -- -- -- -- -- -- (95,727) (95,727)
------ ------ ------ ------ ------ ------ ------- ------- -------- ------- ------- ---------- ---------
Balance at December 31, 1996 -- -- -- -- 31,817 32 243,757 -- (2,456) (133) -- (116,911) 124,289
Issuance of common stock:
Employee stock purchase
plan -- -- -- -- 45 -- 128 -- -- -- -- -- 128
Exercise of options -- -- -- -- 1 -- 5 -- -- -- -- -- 5
Cancellation of accrued
stock options -- -- -- -- -- -- 1,809 -- -- -- -- -- 1,809
Purchase of treasury stock -- -- -- -- (682) -- -- (2,064) -- -- -- -- (2,064)
Charge-off of advertising
credits -- -- -- -- -- -- -- -- 2,456 -- -- -- 2,456
Compensation expense -- -- -- -- -- -- -- -- -- 115 -- -- 115
Unrealized gains on
investments -- -- -- -- -- -- -- -- -- -- 425 -- 425
Net loss -- -- -- -- -- -- -- -- -- -- -- (90,094) (90,094)
------ ------ ------ ------ ------ ------ ------- ------- -------- ------- ------- ---------- ---------
Balance at December 31, 1997 -- $ -- -- $ -- 31,181 $ 32 $245,699 $(2,064) $ -- $ (18) $ 425 $(207,005) $ 37,069
====== ====== ====== ====== ====== ====== ======= ======= ======== ======= ======= ========== =========
See accompanying notes to consolidated financial statements.
INTELIDATA TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(in thousands)
1997 1996 1995
---------- ---------- ----------
Cash flows from operating activities
Net loss $ (90,094) $ (95,727) $ (4,718)
Adjustments to reconcile net loss to net cash used in
operating activities:
Impairment of assets and advertising credits 51,052 -- --
In-process research and development -- 77,214 --
Depreciation and amortization 7,335 2,725 619
Provision for losses on accounts receivable 3,891 -- --
Change in inventory reserves 11,354 -- --
Equity in loss of long-term investments -- 2,801 316
Deferred compensation expense 115 128 225
Other non-cash activities 425 (101) (162)
Changes in certain assets and liabilities, net of effects
of non-cash transactions including acquisitions:
Accounts receivable (4,054) (2,318) (681)
Inventories (5,954) (1,020) (802)
Prepaid expenses and other current assets 1,897 (1,404) 155
Other assets -- 3,742 (87)
Accounts payable (1,025) 3,033 485
Accrued expenses (3,044) 1,702 589
Deferred revenue 4,253 388 5
Due from (to) affiliates -- -- (113)
---------- ---------- ----------
Net cash used in operating activities (23,849) (8,837) (4,169)
---------- ---------- ----------
Cash flows from investing activities
Purchase of short-term investments -- (12,418) --
Purchases of property, plant and equipment (1,423) (2,304) (1,064)
Change in restricted cash -- 3,309 (3,309)
Proceeds from sale of other assets, net -- 231 683
Sale of short-term investments 3,114 -- --
Acquisitions, net of cash acquired -- 17,578 --
---------- ---------- ----------
Net cash provided by (used in) investing activities 1,691 6,396 (3,690)
---------- ---------- ----------
Cash flows from financing activities
Proceeds (payments) related to borrowings (500) 2,000 (4,633)
Proceeds from issuances of common stock, net of discount 133 2,177 43,420
Payments to acquire treasury stock (2,064) -- --
Payments for redemption of preferred stock -- -- (4,925)
Payment of preferred stock dividends -- -- (2,684)
Other financing activities -- (212) (767)
---------- ---------- ----------
Net cash provided by (used in) financing activities (2,431) 3,965 30,411
---------- ---------- ----------
Increase (decrease) in cash and cash equivalents (24,589) 1,524 22,552
Cash and cash equivalents, beginning of year 26,644 25,120 2,568
---------- ---------- ----------
Cash and cash equivalents, end of year $ 2,055 $ 26,644 $ 25,120
========== ========== ==========
See accompanying notes to consolidated financial statements.
INTELIDATA TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(1) ORGANIZATION
InteliData Technologies Corporation ("InteliData" or the "Company"), is
engaged in providing products and services for two primary markets:
telecommunications and electronic commerce. The Company designs, develops and
markets telecommunications products, including Caller ID adjuncts, integrated
and smart telephones, and markets small business systems to retailers and
distributors. The Company also develops products and services for financial
institutions to assist in home banking and electronic bill payment initiatives.
During the fourth quarter of 1997, the Company announced its intention
to sell the interactive services division which was established to provide
interactive applications for use on smart telephones and other small screen
devices, such as alpha-numeric pagers, Personal Communication Systems ("PCS")
devices and personal digital assistants ("PDAs"). The discontinued operations of
the interactive services division are not considered to be material to the
overall financial statements.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Consolidation - The consolidated financial statements include the
accounts of the Company after elimination of all intercompany balances and
transactions. Certain items from the 1996 and 1995 financial statements have
been reclassified to conform to the 1997 financial statement presentation.
(b) Accounting Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the period. Actual results could differ from those estimates. The Company
considers the impairment of long-lived assets based on an assessment of the
asset's ability to contribute to the profitability of the Company using
estimates of expected future cash flows. The Company records inventory reserves
based on current market conditions.
(c) 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. The Company recognizes service revenue from consulting and
maintenance contracts as the services are provided.
(d) Cash and Cash Equivalents - The Company considers all non-restricted
highly liquid investments with original maturities of three months or less to be
cash equivalents. Cash and cash equivalents are stated at cost, which
approximates market.
(e) Short-term Investments - The Company reports its short-term investments
in marketable securities as available-for-sale with any unrealized gains
(losses) reflected as a separate component of stockholders' equity. Realized
gains or losses are determined on the first-in, first-out method and are
reflected in net income. Short-term investments are reported at cost which
approximates fair value.
(f) Inventories - Inventories are stated at the lower of cost or market,
with cost determined on a weighted average basis.
(g) Property, Plant and Equipment - Property, plant and equipment is stated
at cost. Equipment under capital lease is stated at the lower of the present
value of minimum lease payments at the beginning of the lease term or the
estimated fair value of the equipment at the inception of the lease.
Depreciation of property and equipment is calculated using the
straight-line method over the estimated useful lives of the assets as follows:
Category Years
------------------------- -----
Building and improvements 5-20
Leasehold improvements 5-15
Leased equipment 2-5
Equipment 3-7
Molds and tools 3-5
Equipment held under capital lease and leasehold improvements are
amortized using the straight-line method over the lease term or estimated useful
life, whichever is shorter. The cost and accumulated depreciation of assets sold
or retired are removed from the respective accounts and any gain or loss is
reflected in income. Maintenance and repairs are charged to expense as incurred.
(h) Intangible Assets - The Company carried its intangible assets at
December 31, 1996, including costs in excess of net assets acquired and other
intangible assets, at cost which were amortized using the straight-line method
over 2 to 15 years. Other intangible assets are reported in other assets on the
balance sheet.
(i) Deferred Revenues - The Company received five million dollars from Visa
as a result of an agreement whereby the Company surrendered the right to certain
future royalty payments. The cash payment is recorded in deferred revenue and is
being recognized in electronic commerce revenues over a two year period.
(j) Income Taxes - Income taxes are accounted for in accordance with the
asset and liability method. Deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
(k) Accounting for Stock-Based Compensation - The Company applies APB
Opinion No. 25 and related interpretations in accounting for its plans.
Statement of Financial Accounting Standards No. 123 "Accounting for Stock-Based
Compensation" ("SFAS 123") was issued by the Financial Accounting Standards
Board in 1995 and, if fully adopted, changes the methods for recognition of cost
on plans similar to those of the Company. The Company has elected to continue to
apply the provisions of APB Opinion No. 25 and provide the pro forma disclosure
provisions of SFAS 123.
(l) Loss per Common Share - Basic loss per common share is computed by
dividing net loss, after deducting preferred stock dividend requirements, by the
basic weighted average number of shares of common stock outstanding during the
year. Diluted loss per common share includes common stock equivalents consisting
of stock options. Diluted loss per share is not presented because of the net
losses. Dilutive stock options that were not included in the loss per share
computation because they would have been antidilutive for 1997, 1996 and 1995
were approximately 3,250,000, 3,000,000 and 2,400,000, respectively.
Statement of Financial Accounting Standards No. 128, Earnings Per Share
("SFAS 128") establishes new standards for computing and presenting earnings per
share ("EPS"). It replaces the presentation of primary and fully diluted EPS
with a presentation of basic EPS and diluted EPS, requires a dual presentation
on the face of the financial statements, and requires a reconciliation of basic
EPS to diluted EPS. The presentation of basic EPS and diluted EPS would have
been the same as EPS actually reported for the respective periods because of net
losses. All prior net loss per share amounts have been named basic loss per
share and such amounts were not changed by this required restatement.
Dividend requirements on all series of the Company's preferred stock
prior to the redemption or conversion of such preferred stock are deducted from
net income or loss applicable to common shareholders in computing net loss per
common share. The preferred dividend requirement was $681,000 for the year ended
December 31, 1995.
(m) New Accounting Pronouncements - Statement of Financial Accounting
Standards No. 130, Reporting Comprehensive Income ("SFAS 130") was issued in
June 1997 and is effective for financial statements beginning after December 15,
1997. The statement establishes new standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains, and losses)
in a full set of general-purpose financial statements. The impact of SFAS 130 on
future financial statement presentations will be to show comprehensive income.
Statement of Financial Accounting Standards No. 131, Disclosures about
Segments of an Enterprise and Related Information ("SFAS 131") was issued in
June 1997 and is effective for financial statements beginning after December 15,
1997. This Statement establishes standards for the way that public business
enterprises report information about operating segments in annual financial
statements and requires that those enterprises report selected information about
operating segments in interim financial reports issued to shareholders. It also
establishes standards for related disclosures about products and services,
geographic areas, and major customers. Management has not yet determined the
impact of SFAS 131 on future financial statement presentations.
(3) ACQUISITIONS
On November 7, 1996 US Order, Inc. ("US Order") and Colonial Data were
merged with and into InteliData Technologies Corporation, a newly formed
corporation, through an exchange of stock ("Mergers"). Upon consummation of the
Mergers, each outstanding share of US Order common stock was converted into one
share of InteliData common stock and each outstanding share of Colonial Data
common stock was converted into one share of InteliData common stock. The
transaction was accounted for as a purchase of Colonial Data by US Order.
Accordingly, the historical financial results of US Order are the historical
financial results of InteliData.
Effective September 30, 1996 Braun, Simmons & Co. ("Braun Simmons"), a
firm specializing in the development of home banking and electronic commerce
solutions for financial institutions, was merged into US Order (the "Braun
Simmons Acquisition"). This merger was accounted for as a purchase of Braun
Simmons by US Order. US Order acquired all of the outstanding stock of Braun
Simmons for $2 million and 375,000 shares of the Company's common stock.
(a) Unaudited Pro Forma Condensed Consolidated Financial Information
The unaudited pro forma condensed consolidated statements of operations
for the years ended December 31, 1996 and 1995 give effect to the Mergers and
the Braun Simmons Acquisition as if each was completed as of January 1, 1995 and
combines US Order's, Braun Simmons' and Colonial Data's statements of operations
for each of those periods. Such statements of operations do not include the
combined effect of the $77 million nonrecurring charges for in-process research
and development. However, such statements do reflect adjustments for the
elimination of historical transactions between US Order, Braun Simmons and
Colonial Data, amortization of goodwill and related income tax effects.
The unaudited pro forma condensed consolidated financial information is
provided for illustrative purposes only and is not necessarily indicative of the
consolidated financial information that would have been reported had the mergers
occurred on the dates indicated, nor do they represent a forecast of the
consolidated financial information for any future period. The unaudited pro
forma condensed consolidated financial information should be read in conjunction
with the historical financial statements and accompanying notes of the Company.
Shown below is the unaudited pro forma condensed consolidated
statements of operations for the combined businesses of US Order, Braun Simmons
and Colonial Data (in thousands, except per share amounts).
Year Ended December 31, 1995:
Historical Pro Forma
---------------------------------------- ----------
US Order Braun Simmons Colonial Data Adjustments Reference InteliData
-------- ------------- ------------- ----------- ------------- ----------
Revenues......................... $ 4,186 $ 1,841 $ 74,194 $ -- $ 80,221
--
Cost of revenues................. 2,470 1,024 44,240 1,089 (2) 48,823
Gross profit..................... 1,716 817 29,954 (1,089) (2) 31,398
Operating expenses............... 6,877 826 11,056 5,494 (3) 24,253
Operating income (loss).......... (5,161) (9) 18,898 (6,583) (2)(3) 7,145
Net income (loss)................ (4,718) (29) 12,523 (4,313) (2)(3)(4)(5) 3,463
Basic income (loss) per share.... $ (0.50) $ 0.87 $ 0.14
Diluted income (loss) per share.. $ (0.50) $ 0.84 $ 0.11
Year Ended December 31, 1996:
Pro Forma Pro Forma
---------------------------------------- ----------
US Order Braun Simmons Colonial Data Adjustments Reference InteliData
-------- ------------- ------------- ----------- ------------ ----------
Revenues......................... $ 4,227 $ 3,653 $ 63,987 $ (1,894) (1) $ 69,973
Cost of revenues................. 3,832 2,272 43,490 101 (1)(2) 49,695
Gross profit..................... 395 1,381 20,497 (1,995) (2) 20,278
Operating expenses............... 19,911 1,284 18,312 2,285 (3) 41,792
Operating income (loss).......... (19,516) 97 2,185 (4,280) (2)(3) (21,514)
Net income (loss)................ (19,349) 67 688 4,011 (2)(3)(4)(5) (14,583)
Basic and diluted income (loss)
per share...................... $ (1.20) $ 0.04 $ (0.46)
Pro Forma Adjustments
The following pro forma adjustments have been made to the unaudited pro
forma condensed consolidated financial information:
(1) Reflects the elimination of intercorporate transactions.
(2) Reflects the amortization associated with an allocation of the
purchase price of Colonial Data for its lease base of $1.9 million to recognize
the excess of the estimated fair market value over the carrying amount and its
amortization on a straight-line basis over five years.
(3) Reflects the allocation of purchase price to developed technology
and goodwill. Such developed technology is amortized on a straight-line basis
over two years; goodwill is amortized on a straight-line basis over 7 years for
Braun Simmons and 15 years for Colonial Data.
(4) Reflects accrual of the transactions and other related costs. Estimated
costs incurred by Colonial Data relating to the Mergers of $2 million have been
reflected as expenses in the pro forma statement of operations for the year
ended December 31, 1995. Estimated costs incurred by Braun Simmons relating to
the Braun Simmons Acquisition of $50,000 have been reflected as expenses in the
pro forma consolidated condensed statement of operations for the year ended
December 31, 1995.
(5) Reflects the effect of the combination of Braun Simmons', US Order's
and Colonial Data's operations and the above adjustments on income taxes. A
valuation allowance has been recognized for the pro forma net deferred tax
assets of InteliData, relating primarily to operating loss carryforwards
generated by US Order prior to the Mergers and the Braun Simmons Acquisition,
based on an assessment of the likelihood of recoverability of such amounts. As a
result of the Mergers and the Braun Simmons Acquisition, the use of US Order's
operating loss carryforwards may be limited in future years.
(b) Purchase Accounting (in thousands)
The purchase amount of Braun Simmons was:
Fair value of common stock issued $4,170
Cash consideration 2,000
US Order transaction costs 913
------
Total $7,083
======
The purchase amount was allocated for Braun Simmons as follows:
Current assets $ 700
Equipment and other 286
In-process research and development 4,914
Goodwill 1,898
Liabilities assumed (715)
------
Total $7,083
======
The purchase amount of Colonial Data was:
Fair value of common stock issued $179,118
Fair value of employee stock options and warrants 2,805
Cost of previous investment in Colonial Data 3,393
US Order transaction costs 1,309
--------
Total $186,625
========
The purchase amount was allocated for Colonial Data as follows:
Current assets $ 60,488
Lease base 3,747
Equipment and other 5,754
In-process research and development 72,300
Developed technology 1,418
Goodwill 49,483
Liabilities assumed (6,565)
--------
Total $186,625
========
The allocation of the purchase amounts to both Braun Simmons and
Colonial Data tangible and identifiable intangible assets was based on
independent appraisals of the estimated fair value of certain of those assets.
Such appraisals indicated approximately $5 million and $72 million,
respectively, for purchased in-process research and development for Braun
Simmons and Colonial Data, respectively, which was expensed by the Company upon
each closing, as the
technologies had not reached technological feasibility and did not have
alternative future uses. The unaudited pro forma condensed consolidated
statements of operations do not include this one-time charge for purchased
in-process technology as it represents a material nonrecurring charge.
(c) Income (Loss) Per Share
US Order's historical loss per share for the year ended December 31,
1995 includes $681,000 of preferred dividend requirement which has been deducted
from historical net loss in determining net loss attributable to common
stockholders. All of US Order's series of preferred stock, including accumulated
dividends, were redeemed or converted to common stock in June 1995. The
historical preferred dividend requirement has been excluded from the
computations of pro forma income (loss) per share.
The weighted average shares used in the computations of pro forma basic
and diluted income (loss) per share assumes that the shares issued in the
acquisition of Braun Simmons and the total number of shares exchanged in the
Mergers and the Braun Simmons Acquisition, net of canceled intercorporate
investment shares, were outstanding for all periods presented. The impact of
outstanding stock options and warrants of the Company has been considered using
the treasury stock method.
(4) SEGMENT REPORTING
The Company maintains operations in two primary markets:
telecommunications and electronic commerce. Intersegment sales are not material.
Operating loss in these two market divisions represents total revenues less
operating expenses, and excludes general corporate expenses, other income and
expense and income taxes. Identifiable assets are those assets employed in each
segment's operation, including an allocated value to each segment of cost in
excess of net assets acquired. Corporate assets consist primarily of cash and
cash equivalents, investments, and assets not employed in the production of
goods or services. Segment financial information is as follows (in thousands):
Telecom- Electronic
munications Commerce Corporate Consolidated
----------- ---------- ---------- ------------
1997
----
Revenues $ 56,358 $ 3,951 $ -- $ 60,309
Operating loss (68,116) (6,588) (16,600) (91,304)
Identifiable assets 40,816 845 12,740 54,401
Depreciation and amortization 5,990 450 895 7,335
Capital expenditures 907 163 353 1,423
1996
----
Revenues $ 10,942 $ 2,957 $ -- $ 13,899
Operating loss (79,014) (9,072) (8,026) (96,112)
Identifiable assets 97,801 7,932 38,013 143,746
Depreciation and amortization 1,484 198 1,043 2,725
Capital expenditures 110 771 1,423 2,304
Operating losses for 1997 for the telecommunications, electronic
commerce and corporate divisions include charges associated with the impairment
of assets, including goodwill and advertising credits, were $60,853,000,
$2,035,000 and $4,331,000, respectively. Operating loss for 1996 for the
telecommunications and electronic commerce divisions include in-process research
and development expenses of $72,300,000 and $4,914,000, respectively. Segment
information for 1995 is not presented as the Company did not operate under
separate business markets during these periods.
(5) INVENTORIES
Inventories consist of the following at December 31 (in thousands):
1997 1996
-------- --------
Finished goods $ 21,912 $ 23,577
Raw materials 1,108 4,843
--------- ----------
$ 23,020 $ 28,420
======== ========
The Company's inventories have been reduced by reserves aggregating
$11,354,000 at December 31, 1997.
(6) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following at December 31
(in thousands):
1997 1996
-------- --------
Land and building $ 1,623 $ 1,482
Equipment 5,801 4,491
Leased equipment 3,053 4,366
Leasehold improvements 834 852
Furniture and fixtures 589 678
-------- --------
11,900 11,869
Accumulated depreciation (5,651) (2,726)
-------- --------
$ 6,249 $ 9,143
======== ========
(7) ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities consists of the following at
December 31 (in thousands):
1997 1996
-------- --------
Accrued selling expenses $ 1,363 $ 740
Accrued professional and insurance 1,176 669
Accrued wages and related expenses 1,040 2,387
Accrued compensation expense 954 2,805
Accrued inventory and equipment 933 713
Accrued corporate restructuring and acquisition 636 2,476
Accrued tax liabilities 408 1,100
Other liabilities 1,017 1,490
-------- --------
$ 7,527 $ 12,380
======== ========
(8) BORROWINGS
In May 1996, the Company entered into a credit facility agreement with
a bank that provides for borrowings of up to $15,000,000 for cash advances and
letters of credit. The loan is secured by substantially all of the Company's
assets and bears interest at an annual rate equal to the bank's prime rate. The
bank's prime rate was 8.50% and 8.25% as of December 31, 1997 and 1996,
respectively. As of December 31, 1997, the Company had $1,500,000 outstanding
under the line of credit and had available $7,031,000 for cash advances and
letters of credit. The weighted average interest rate, maximum amount borrowed
and average amount borrowed in 1997 were 8.49%, $2,100,000 and $326,000,
respectively. The carrying amount of the borrowings at December 31, 1997 and
December 31, 1996 represent the fair values at the same dates, respectively. The
loan agreement contains restrictive covenants, the most significant of which are
certain financial ratios and prohibition of dividends. As of December 31, 1997,
the Company did not meet the tangible net worth and the debt service coverage
covenants of its credit agreement with the bank and was put on notice of
default. Subsequently, the Company received a waiver for the covenant violations
from the bank.
Interest expense was $53,000, $2,000 and $286,000 for the years ended
December 31, 1997, 1996 and 1995, respectively. Cash paid for interest was
$53,000, $16,000 and $324,000 in 1997, 1996 and 1995, respectively.
(9) RELATED-PARTY TRANSACTIONS
(a) Strategic Business Partner
In August 1994, the Company sold its electronic banking and bill pay
operations (the "Visa Bill-Pay System") to Visa. As part of the Visa
transaction, the Company's president was appointed to, and the Company's
chairman was named an advisor to, the board of directors of Visa InterActive.
Included in service fee revenues are $751,000, $1,219,000 and $737,000 in 1997,
1996 and 1995, respectively, related to services provided by the Company to Visa
InterActive and Visa banks/members. Included in the accompanying consolidated
balance sheets are receivables due from Visa InterActive totaling $581,000 as of
December 31, 1996 which was paid in 1997. In August 1997, Visa InterActive was
sold to an unrelated party and the Company's officers resigned from their Visa
InterActive board positions.
(b) Primary Investor
The chairman of the board of directors of the Company is a director of
WorldCorp, Inc. ("WorldCorp"), the Company's primary investor. Two other
directors of the Company are also members of the board of directors of
WorldCorp. WorldCorp owned approximately 29% of the Company's outstanding voting
stock as of December 31, 1997 and 1996.
The Company had a $3,500,000 long-term note that was redeemed in June
1995 with a portion of the proceeds from the sale of common stock in its initial
public offering. Interest expense on this long-term note was $216,000 for the
year ended December 31, 1995. WorldCorp also paid certain of the Company's
personnel costs including salary, benefits, business and other
related costs for which the Company was billed on a cost-reimbursed basis. In
November 1996, the Company terminated this relationship with WorldCorp. During
the years ended December 31, 1996 and 1995, the Company paid WorldCorp
approximately $439,000 and $207,000, respectively, related to these
arrangements. At December 31, 1997 and 1996, the Company was not indebted to
WorldCorp for significant amounts.
(c) Investment in Joint Venture
On August 4, 1997, the Company provided notice to its joint venture
partner, Blau Marketing Technologies, Inc. ("BMT") of its intention to terminate
the parties' joint venture in Worldwide Telecom Partners, Inc. ("Worldwide
Telecom") effective September 5, 1997. The joint venture provided
telecommunications products combined with marketing services to the
telecommunications industry. As of September 30, 1997, the Company wrote-off its
investment in the joint venture and provided for certain reserves for accounts
receivable due from the joint venture.
The Company's subsidiary filed suit in September 1997 against Worldwide
Telecom, BMT and an officer of BMT in Connecticut Superior Court seeking payment
by Worldwide Telecom of past due accounts receivable in the amount of
approximately $11.0 million and making certain other claims including breach of
contract. BMT filed a separate suit against the Company and its subsidiary,
Worldwide Telecom and an officer of the Company on October 31, 1997 alleging
breach of contract and making certain other claims and seeking damages in excess
of $15,000. In January 1998, the Company settled out of court with BMT in an
agreement whereby the Company received the remaining ownership shares in
Worldwide Telecom and cash of $1 million.
(d) Long-term Investments
On October 18, 1995, the Company acquired an equity interest in HFN, a
newly formed, development stage personal computer software company that plans to
develop and deliver electronic financial products and services to consumers. In
1996, the Company recorded losses in its investment in HFN of $2,801,000. The
Company believes its investment was impaired based on the history of losses of
HFN.
(10) STOCKHOLDERS' EQUITY
(a) Stock Options
The Company sponsors the following stock option plans which cover
substantially all employees and certain directors: the US Order 1991 Stock
Option Plan ("1991 Plan"), the Colonial Data 1994 Long-Term Incentive Plan
("Colonial Data Plan"), the US Order 1995 Incentive Plan ("1995 Plan"), the US
Order 1995 Non-Employee Directors' Stock Option Plan ("1995 Directors' Plan"),
the InteliData 1996 Incentive Plan ("1996 Plan"), the InteliData 1996
Non-Employee Directors' Stock Option Plan ("1996 Non-Employee Directors' Plan"),
the InteliData 1997 Executive Plan, and Additional Plans.
1991 Plan
---------
The Company had reserved 3,000,000 shares of common stock for the
exercise of options under this plan. Options are granted for purchases of the
same number of shares of the Company's common stock. For the 1991 Plan, options
typically vest monthly over a period of three to five years and expire after
eight years. However, no vesting occurs until after the employee has completed
one year of service with the Company. The 1991 Plan was terminated in May 1995.
As of December 31, 1997, there were 1,157,365 shares vested and exercisable
under the 1991 Plan.
Colonial Data Plan
------------------
Colonial Data'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. Colonial Data's board of directors as part of its 1994 Long-Term
Incentive Plan authorized 500,000 shares of stock to be available for grants.
The options vest periodically through 2000 and expire in 2006 and expire after
10 years from the date of grant. The Colonial Data Plan was terminated in
November 1996. As of December 31, 1997, there were 98,165 shares vested and
exercisable under the Colonial Data Plan.
1995 Plan
---------
The Company had reserved 1,000,000 shares of common stock for the
exercise of options under this plan. Options are granted for purchases of the
same number of shares of the Company's common stock. For the 1995 Plan, options
typically vest monthly over a period of three to five years and expire after
eight years from the date of grant. However, no vesting occurs until after the
employee has completed one year of service with the Company. The 1995 Plan was
terminated in November 1996. As of December 31, 1997, there were 70,576 shares
vested and exercisable under the 1995 Plan.
1995 Directors' Plan
--------------------
The Company had reserved 250,000 shares of common stock for the
exercise of options under this plan. Options were granted for purchases of the
same number of shares of the Company's common stock. For the 1995 Directors'
Plan, options vest monthly over a three year period beginning on the date of
grant and expire ten years subsequent to the date of grant. The grant price for
the plan was based on the average of the closing Nasdaq market price of the
Company's stock on the thirty trading days preceding the date of the grant. The
1995 Directors' Plan was terminated in November 1996. As of December 31, 1997,
there were 3,958 shares vested and exercisable under the 1995 Directors' Plan.
1996 Plan
---------
The Company had reserved 1,500,000 shares of common stock for the
exercise of options under this plan. Options are granted for purchases of the
same number of shares of the
Company's common stock. The exercise price of each option shall not be less than
eight-five percent (85%) of the fair market value of the Company's common stock
on the date the option is granted and an option's maximum term is 10 years.
Options for existing employees are granted by the board of directors and
typically vest ratably over four years. Options granted to new hires are awarded
at the discretion of the Company's management in accordance with guidelines
approved by the board of directors. However, typically, no vesting occurs until
after the employee has completed one year of service with the Company. As of
December 31, 1997, there were 60,000 shares vested and exercisable under the
1996 Plan.
1996 Non-Employee Directors' Plan
---------------------------------
The Company reserved 200,000 shares of common stock for the exercise of
options under this plan. Options are granted for each non-employee director who
qualifies for participation under the plan. The exercise price of each option
shall be the fair market value as defined in the plan of the Company's common
stock and an option's maximum term is 10 years. For the 1996 Non-Employee
Directors' Plan, options vest monthly over a period of one year. As of December
31, 1997, there were 12,496 shares vested and exercisable under the 1996
Non-Employee Directors' Plan.
1997 Executive Plan
-------------------
The Company's Compensation Committee approved the reservation of
1,425,000 shares of common stock for the exercise of options in connection with
a newly hired officer's agreeing to be employed by the Company under this plan
subject to the approval of the board of directors. The board of directors
approved this plan in February 1998. Options are granted by the board of
directors and vest according to different schedules: 925,000 options are vested
in equal annual increments over three years; 500,000 options vest at the end of
eight years but may be accelerated with certain performance milestones. As of
December 31, 1997, there were no shares vested and exercisable under the 1997
Executive Plan.
Stock Option Repricing
----------------------
In order to motivate and retain employees, on May 21, 1997, the Company
offered employees participating in the Company's Stock Option Plans, except for
the Chairman of the Board and the Chief Executive Officer, the opportunity to
replace any remaining unvested stock options as of May 21, 1997 with an equal
number of options at an exercise price of $6.00, which was above the closing
market price on such date. Approximately, 642,000 stock options with exercise
prices ranging from $6.38 to $23.75 were replaced. The replacement options vest
over three years from May 21, 1997 in equal annual increments. As part of the
process for the Company's recruitment of a senior executive officer in December
1997, the Company's president and chief executive officer agreed to cancel
425,000 options with an exercise price of $3.00 previously granted to him. In
consideration of this cancellation of options, the Compensation Committee of the
board of directors repriced 850,000 options previously granted to the executive
(of which 750,000 were vested) from an exercise price of $7.13 to an exercise
price of $1.80. The vesting schedule for the repriced options was also changed
to provide that 425,000 options are vested and the remaining 425,000 options
will vest in 2002, but will accelerate
upon certain stock performance milestones. The Compensation Committee approved
the repricing in February 1998.
Additional Plans
----------------
In addition to options issued in 1995 under both the 1991 and 1995
Plans, the Company issued 15,000 options to three of its five non-affiliate
directors and 25,000 options to a non-affiliate who helped in arranging a
placement of Series C preferred stock. Each of these grants has a $7.13 exercise
price. The 45,000 options issued to non-affiliate directors vest monthly over a
three-year period, and the 25,000 options granted to the non-affiliate vested
immediately. As of December 31, 1997, of these 45,000 options, 30,000 options
have been canceled, and options for 39,166 shares of common stock are
exercisable under the plan.
A summary of the changes in stock options for each of the Company's
stock option plans is as follows:
Exercise Prices
--------------- Number
Description Min Max of Options
----------- --- --- ----------
December 31, 1994 $0.98 $7.13 2,430,921
Granted $7.13 $23.75 406,400
Exercised $0.98 $7.13 (373,106)
Canceled $0.98 $21.00 (22,510)
----------
December 31, 1995 $0.98 $23.75 2,441,705
Acquired in Mergers $0.21 $20.38 474,800
Granted $7.00 $23.50 756,530
Exercised $0.98 $18.75 (353,182)
Canceled $0.98 $23.13 (195,294)
----------
December 31, 1996 $0.21 $23.75 3,124,559
Granted $1.63 $6.00 2,916,450
Exercised $4.50 $4.50 (1,000)
Canceled $0.21 $23.75 (1,305,796)
==========
December 31, 1997 $0.21 $23.75 4,734,213
==========
During 1996 and 1995, the Company recognized $128,000 and $225,000 of
compensation expense, respectively, in connection with options granted at
exercise prices below the estimated fair market value of the Company's common
stock at the date of grant. As of December 31, 1997, deferred compensation
relating to these grants was $18,000, which will be recognized over the
remaining vesting period.
(b) Stock Compensation Plans
At December 31, 1997, the Company has eight stock-based compensation
plans. The Company applies Accounting Principles Board Opinion No. 25 and
related Interpretations in accounting for stock options granted under the stock
compensation plans. Had compensation cost for the Company's stock compensation
plans been determined based on the fair value at the grant dates for the 1997,
1996 and 1995 awards under those plans, the Company's net loss and basic loss
per share for the years ended December 31, 1997, 1996 and 1995 would have been
$95,180,000 and $3.01 per share; $99,341,000 and $5.41 per share; and $5,674,000
and $0.53 per share, respectively. Stock compensation expense for 1995 was
calculated for the period from the initial public offering to the end of the
year.
The weighted average fair value of options granted during 1997, 1996
and 1995 was $2.57, $16.69 and $11.36 per share, respectively. The fair value of
options granted was estimated on the date of grant using the Black-Scholes
option pricing model with the following weighted average assumptions: no
dividend yield, expected volatility of 85%, and a risk free interest rate of
6.00%.
Options Outstanding Options Exercisable
------------------------------------- ----------------------
Weighted Weighted
Plan Description Weighted Average Average
- ---------------- Range of Number Average Exercise Number of Exercise
Exercise Prices of Options Life Price Options Price
----------------- ---------- ---------- ------ ------- -----
1991 Plan $0.98 - $9.50 1,697,383 5.3 years $2.78 1,157,365 $2.79
Colonial Data Plan $3.00 - $20.38 186,776 9.2 years $6.11 98,165 $6.21
1995 Plan $6.00 - $23.75 359,754 6.2 years $8.72 70,576 $18.24
1995 Directors' Plan $18.86 - $18.86 7,500 9.8 years $18.86 3,958 $18.86
1996 Plan $1.80 - $6.00 997,800 8.7 years $3.98 60,000 $5.99
1996 Non-Employee
Directors' Plan $5.03 - $5.03 20,000 9.3 years $5.03 12,496 $5.03
1997 Executive Plan $1.63 - $1.63 1,425,000 8.7 years $1.63 -- --
Additional Plans $7.13 - $7.13 40,000 7.0 years $7.13 39,166 $7.13
The Company has options outstanding and exercisable in varying price
ranges. The schedule below details the Company's options by price range:
Options Outstanding Options Exercisable
----------------------------------- ---------------------
Weighted Weighted
Weighted Average Average
Range of Number Average Exercise Number of Exercise
Exercise Prices of Options Life Price Options Price
----------------- ---------- ---------- ------ ------- -----
$0.98 - $1.63 1,826,811 6.9 years $1.48 401,811 $0.98
$1.64 - $3.00 1,480,578 8.2 years $2.29 469,078 $1.86
$3.01 - $4.70 174,426 6.0 years $4.20 111,641 $4.16
$4.71 - $7.00 834,595 7.4 years $5.80 82,496 $5.81
$7.01 - $10.50 323,860 4.8 years $7.39 292,773 $7.36
$10.51 - $23.75 93,943 5.8 years $18.43 83,927 $18.33
(c) Employee Stock Purchase Plan
Under the Employee Stock Purchase Plan, approved in 1996, the Company
is authorized to issue up to 500,000 shares of common stock to its full-time
employees, nearly all of whom are eligible to participate. Under the terms of
the Plan, employees can choose each period to have up to twenty percent of their
annual base earnings withheld to purchase the Company's common stock. The
purchase price of the stock is 85 percent of the lower of its
beginning-of-period or end-of-period market price. The Employee Stock Purchase
Plan's first period began January 2, 1997. During the year ended December 31,
1997, the Company issued 44,307 shares of stock
under the plan. The Company had an employee stock purchase plan in existence
during 1996, however, there was not a significant number of shares of stock sold
under the Plan in 1996.
(d) Treasury Stock
On August 12, 1997, the Company announced that its board of directors
authorized a stock repurchase program whereby the Company is authorized to
repurchase from time to time up to two million shares of the Company's common
stock from the open market. As of December 31, 1997, the Company had paid
$2,064,000 to repurchase 681,500 shares of its common stock.
(e) Receivable from Sale of Stock
In connection with a private placement offering in 1993, the Company
received $2,500,000 in advertising credits. The Company has recognized
advertising credits aggregating $44,000 through 1996. During the third quarter
of 1997, the Company wrote-off the advertising credits based on the expected
lack of use of the credit. As of December 31, 1996, the receivable from sale of
stock was included in the accompanying balance sheet as a reduction of
stockholders' equity.
(f) Subsequent Event
In January 1998, the Company announced that its Board of Directors has
adopted a Stockholder Rights Plan. The rights are designed to assure that all
the Company's stockholders receive fair and equal treatment in the event of any
proposed takeover of the Company and to guard against partial tender offers,
open market accumulations and other tactics to gain control of the Company
without paying all stockholders a control premium.
Terms of the Stockholder Rights Plan provide for a dividend
distribution of one right for each share of common stock to holders of record at
the close of business on February 6, 1998. Shareholders will be able to exercise
the rights only in the event, with certain exceptions, an acquiring party
accumulates 20 percent or more of the Company's voting stock, or if a party (an
acquiring person) announces an offer to acquire 20 percent or more without prior
approval of the Company's Board of Directors. The rights will expire on January
21, 2008. Each right initially will entitle the holder to buy one one-thousandth
of a share of a new series of preferred stock at a price of $13.
In addition, upon the occurrence of certain events, holders of the
rights will be entitled to purchase either the Company's common stock or shares
in an acquiring person at half of market value. Further, at any time after a
person or group acquires 20 percent or more of the Company's outstanding voting
stock, the board of directors may, at its option, exchange part or all of the
rights (other than rights held by the acquiring person, which will become void)
for shares of the Company's common stock on a one-for-one basis. The rights will
therefore cause substantial dilution to a person or group that acquires 20
percent or more of the Company's common stock on terms not approved by the
board.
(11) CORPORATE RESTRUCTURING AND UNUSUAL CHARGES
The Company recorded a provision for corporate restructuring during the
fourth quarter of 1996 of $1,568,000. This amount consists of $1,323,000 in
facilities consolidations, $175,000 in relocation expenses for certain
employees, and $70,000 for the write-down of duplicative processing equipment.
During 1997, the Company incurred $301,000 in facilities consolidation costs in
the second quarter when it closed its customer service location in Virginia,
incurred $90,000 in relocation costs for certain employees during the first and
second quarter, and incurred $70,000 for the write-down of duplicative
processing equipment in the first quarter. The remaining $1,107,000 of the
accrual for corporate restructuring costs was associated with other facilities
consolidations that did not occur because the Company recognized the need to
retain such facilities for product development during 1997 and accordingly,
these expenses were reversed back into income during the second quarter of 1997.
The Company recorded a provision for corporate restructuring during the
third quarter of 1997 of $1,003,000. This amount consists of $771,000 in
employee reduction and related matters, $190,000 in obsolete equipment, and
$42,000 in facilities closings. As of December 31, 1997, the Company incurred
employee reductions and relocation expenses aggregating $177,000 and write-down
for obsolete equipment of $190,000. As of December 31, 1997, the Company has
$636,000 in remaining restructuring accruals recorded on its books. Management
believes that these costs will be incurred by the Company in 1998.
During the third quarter of 1997 the Company announced a strategic
repositioning of the Company's telecommunications division based on recent
events in its marketplace. In connection with this repositioning and the
aforementioned corporate restructuring, the Company's management evaluated its
financial position and determined that it would be appropriate to charge to
operations the remaining unamortized costs of intangible assets due to
impairment, adjust inventory carrying amounts to the lower of cost or market,
and reflect certain additional restructuring charges, including charges for
separation agreements with employees and charges associated with the termination
of a joint venture agreement. Additionally, the Company adjusted the carrying
value of a receivable from the sale of stock for an advertising credit based on
the Company's expected use of the credit. Such third quarter 1997 unusual
charges aggregated $49,246,000 for the impairment of intangible assets;
$11,333,000 for inventories and commitments; $1,003,000 for restructuring
charges (see above); $1,434,000 for separation agreements; $3,653,000 for assets
relating to the joint venture; and $2,456,000 for impairment of the advertising
credits. The impairment was based on the excess of the carrying value of the
assets over the assets' fair values. The fair value of the assets were generally
determined as the estimates of future cash flows generated by the assets.
(12) EMPLOYEE 401(K) SAVINGS PLAN
The Company adopted a defined contribution plan ("Plan") that qualifies
for preferential tax treatment under Section 401(a) of the Internal Revenue
Code. Participation in the Plan is available to employees who are at least
twenty-one years of age and have three months of service. Company contributions
to the Plan are based on a percentage of employee contributions and were not
significant. Administrative expenses for the Plan were paid for by the Company.
(13) INCOME TAXES
Income taxes consist of current state income taxes of $61,000 and
$25,000 for the years ended December 31, 1997 and 1996, respectively.
A reconciliation of taxes computed at the statutory federal tax rate on
loss before income taxes to the actual income tax expense is as follows (in
thousands):
YEARS ENDED DECEMBER 31,
--------------------------------------------
1997 1996 1995
----------- ----------- -----------
Income tax benefit computed at the statutory rate $ (31,512) $ (33,496) $ (1,604)
Book expenses not deductible for tax purposes 27,190 28,378 129
Generation of net operating loss carryforwards 4,383 5,118 1,475
State income tax net of federal benefit 61 25 --
----------- ----------- -----------
Income taxes $ 61 $ 25 $ --
=========== =========== ===========
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31, 1997 and
1996, are as follows (in thousands):
1997 1996
-------- --------
Deferred tax assets:
Net operating loss carryforwards $ 20,469 $ 15,942
Capitalized start-up expenditures -- 341
Accounts receivable and inventory revaluation 9,811 6,394
Equipment and property 122 137
General business credit carryforward 489 489
Alternative minimum tax carryforward 60 60
Other -- 128
-------- --------
Total gross deferred tax asset 30,951 23,491
Valuation allowance (30,951) (22,210)
-------- --------
Net deferred tax assets -- 1,281
Deferred tax liability:
Accounts payable and accrued liabilities -- (1,281)
Net deferred taxes $ -- $ --
======== ========
The net changes in the total valuation allowance for the years ended
December 31, 1997 and 1996 were an increase of $8,741,000 and $13,239,000,
respectively.
At December 31, 1997, the Company had net operating loss carryforwards
for federal income tax purposes of approximately $50 million, which expire in
2007 through 2012, general business tax credits of approximately $490,000, which
expire in 2005 through 2010, and an alternative minimum tax credit carryforward
of approximately $60,000, which may be carried
forward indefinitely and used to offset future regular taxable income. Included
in the Company's net operating loss carryforward is approximately $3,521,000,
related to exercises of employee stock options, which, if utilized in the future
to reduce taxable income, will be credited directly to additional paid-in
capital. Cash paid for income taxes was not significant in 1997, 1996 and 1995.
(14) 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 telephone operating companies, retailers and financial institutions
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. 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.
Revenues from Bell Atlantic, Worldwide Telecom and the US West lease
base represented 19%, 19% and 14% of total revenues for the year ended December
31, 1997, respectively. Revenues from Worldwide Telecom, the US West lease base
and Visa InterActive represented 20%, 13% and 11% of total revenues for the year
ended December 31, 1996. Revenues from Visa InterActive and a financial
institution were 27% and 11% of total revenues for the year ended December 31,
1995.
Accounts receivable from Worldwide Telecom, the US West lease base and
Bell Atlantic represent 52%, 25% and 16% of the total accounts receivable as of
December 31, 1997. Accounts receivable from Worldwide Telecom and the US West
lease base represented 24% and 12% of the total accounts receivable at December
31, 1996.
(15) COMMITMENTS AND CONTINGENCIES
(a) Leases
The Company leases facilities and equipment under cancelable and
noncancellable operating lease agreements. The facility leases are for terms
from one to nine years. Rent expense was $1,054,000, $907,000 and $234,000 for
the years ended December 31, 1997, 1996 and 1995, respectively.
Future minimum lease payments under noncancellable operating leases
with initial or remaining terms in excess of one year at December 31, 1997, were
as follows (in thousands):
Year ending December 31,
------------------------
1998 $ 1,017
1999 641
2000 92
--------
Total minimum lease payments $ 1,750
========
(b) Royalties
The Company has a license relating to certain Caller ID patents and
technology with Lucent Technologies, Inc. ("Lucent"). For licensed products
leased, sold or put in use, the Company pays a royalty to Lucent. The Company
also pays a royalty for the sale of Caller ID or other products using certain
RBOC names in marketing channels other than sales directly to the RBOC or
through an agency program on behalf of the RBOC. Royalty expense was $1,225,000
and $106,000 for the year ended December 31, 1997 and for the period from
November 7, 1996 through December 31, 1996, respectively.
(c) Letters of Credit
The Company was contingently liable for outstanding letters of credit
for overseas purchases totaling $6,469,000 and $4,500,000 on December 31, 1997
and 1996, respectively.
(d) Patent Matters
The Company does not believe that its products and services infringe on
the rights of third parties. From time to time, third parties assert
infringement claims against InteliData. There can be no assurance that any such
assertion will not result in costly litigation or require the Company to cease
using, or obtain a license to use, intellectual property rights of such parties.
(e) Environmental Matters
The Company was informed that certain environmental contamination
existed in the part of the Company's premises formerly occupied by another
tenant and that the Connecticut Department of Environmental Protection has
performed a clean-up and removed such contamination. The Company does not
believe that the foregoing will have a material adverse effect on the Company's
consolidated financial position or results of operations.
(f) Litigation
The Company is not currently a party to any material litigation. From
time to time, the Company is a party to routine litigation incidental to its
business. Management does not believe that the resolution of any or all of such
routine litigation will be likely to have a material adverse effect on the
Company's financial condition or results of operations.
(16) VALUATION AND QUALIFYING ACCOUNTS
The components of significant valuation and qualifying accounts for
the years ended December 31, 1996 and 1997 were as follows (in thousands):
Allowance for
Doubtful Reserve for
Accounts Inventories
------------- -----------
Balance, December 31, 1995 $ 63 $ --
Acquired in Mergers 1,725 --
------------- -----------
Balance, December 31, 1996 1,788 --
Charged to costs and expenses 4,279 11,354
Write-offs (388) --
------------- -----------
Balance, December 31, 1997 $ 5,679 $ 11,354
============= ===========
(17) UNAUDITED QUARTERLY FINANCIAL DATA
The results of the Company's quarterly operations for the years ended
December 31, 1997 and 1996 were (in thousands, except per share amounts):
First Second Third (1) Fourth (2) Total
--------- --------- ---------- ---------- ----------
1997
----
Revenues $ 21,564 $ 16,863 $ 11,708 $ 10,174 $ 60,309
Operating loss (251) (5,130) (78,859) (7,064) (91,304)
Income (loss) before income taxes 188 (2,817) (79,160) (8,244) (90,033)
Net income (loss) 165 (2,837) (79,178) (8,244) (90,094)
Basic income (loss) per common
share $ 0.01 $ (0.09) $ (2.51) $ (0.26) $ (2.85)
Diluted net income (loss) per
common share $ 0.00 $ (0.09) $ (2.51) $ (0.26) $ (2.85)
1996
----
Revenues 1,326 $ 548 $ 1,063 $ 10,962 $ 13,899
Operating loss (2,033) (3,145) (8,451) (82,483) (96,112)
Loss before income taxes (1,988) (3,206) (8,524) (81,984) (95,702)
Net loss (1,988) (3,206) (8,524) (82,009) (95,727)
Basic and diluted loss per
common share(3) $ (0.13) $ (0.20) $ (0.53) $ (3.21) $ (5.21)
(1) During the third quarter of 1997, the Company announced a strategic
repositioning and determined that it would be appropriate to charge
to operations the remaining unamortized costs of intangible assets
due to impairment, and inventory carrying amounts to the lower of
cost or market, and to reflect certain restructuring charges. Such
transactions resulted in an aggregate charge of $69,125,000 to
operations.
(2) On November 7, 1996, US Order, Inc. and Colonial Data Technologies
Corp. consummated a Plan and Agreement of Merger. Operations of the
Company subsequent to November 7, 1996 reflect the operations of
the business of US Order and Colonial Data combined. The fourth
quarter of 1996 also includes in-process research and development
charges of $77,214,000 and restructuring charges of $1,568,000.
(3) Loss per share numbers are not necessarily additive due to current
year activities and rounding differences.
INDEPENDENT AUDITORS' REPORT
BOARD OF DIRECTORS AND STOCKHOLDERS
INTELIDATA TECHNOLOGIES CORPORATION
HERNDON, VIRGINIA
We have audited the accompanying consolidated balance sheets of InteliData
Technologies Corporation and subsidiaries (the "Company") as of December 31,
1997 and 1996, and the related consolidated statements of operations,
stockholders' equity, and cash flows for the years then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
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 referred to above present
fairly, in all material respects, the financial position of InteliData
Technologies Corporation and subsidiaries as of December 31, 1997 and 1996, and
the results of their operations and their cash flows for the years then ended,
in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Hartford, Connecticut
February 4, 1998
INDEPENDENT AUDITORS' REPORT
BOARD OF DIRECTORS AND STOCKHOLDERS
INTELIDATA TECHNOLOGIES CORPORATION
We have audited the accompanying consolidated statements of operations,
stockholders' equity (deficit), and cash flows for the year ended December 31,
1995. 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the results of operations and cash flows of
InteliData Technologies Corporation for the year ended December 31, 1995, in
conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Washington, D.C.
February 5, 1996
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
- ---------------------------------------------------------
ACCOUNTING AND FINANCIAL DISCLOSURE
-----------------------------------
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- ------------------------------------------------------------
Directors
The Company incorporates herein by reference the information concerning
directors contained in its Proxy Statement for its 1998 Stockholder's Meeting to
be filed within 120 days after the end of the Company's fiscal year (the "1998
Proxy Statement").
Executive Officers
The following table sets forth the names and ages of all executive
officers of the Company and all positions and offices within the Company
presently held by such executive officers:
Name Age Position Held
---- --- -------------
William F. Gorog 72 Chairman of the Board
John C. Backus, Jr. 39 President and Chief Executive Officer,
Electronic Commerce Division
Brian A. Bogosian 41 President and Chief Executive Officer,
Telecommunications Division
John W. Hillyard 41 Vice President and Chief Financial Officer
Albert N. Wergley 50 Vice President, General Counsel and Secretary
Mark L. Baird 43 Vice President, Operations
WILLIAM F. GOROG has served as Chairman and director of the Company since
November 1996. Mr. Gorog had served as Chairman of US Order from May 1990 to
November 1996. From October 1987 until founding US Order in May 1990, he served
as chairman of the board of Arbor International, an investment management firm.
From 1982 to 1987, he served as president and chief executive officer of the
Magazine Publishers of America, an association representing the principal
consumer publications in the United States. During the Ford Administration, Mr.
Gorog served as deputy assistant to the President for Economic Affairs and
Executive Director of the Council on International Economic Policy. Prior to
that time, he founded and served as chief executive officer of DataCorp., which
developed the Lexis and Nexis information systems for legal and media research
and which was subsequently sold to the Mead Corporation. He currently serves as
a director of WorldCorp.
JOHN C. BACKUS, JR. has been Chief Executive Officer since April 1997 and
President and a director of the Company since November 1996. Prior to November,
1996, he had worked at US Order since its inception in 1990 and had served as
President, Chief Operating Officer and a director of US Order since 1994. Prior
to working with US Order, Mr. Backus worked for six years at WorldCorp and its
subsidiaries holding a variety of executive positions including vice president
of corporate development, vice president of finance, and vice president of sales
and marketing at a WorldCorp subsidiary. Prior to joining WorldCorp, Mr. Backus
worked for Bain & Company, Inc., a worldwide strategy consulting firm with
approximately 1,200 employees, in its consulting and venture capital groups
where he focused on consumer products and services. Mr. Backus serves on the
board of directors of World Airways, Inc. and Home Financial Network.
BRIAN A. BOGOSIAN has served as President and Chief Executive Officer of the
Company's Telecommunications division since December 1997 and as a director
since January 1998. Before joining the Company, he was president of
USTeleCenters, a marketer of local exchange services for the Regional Bell
Operating Companies, since 1988. Prior thereto, he was Senior Vice President of
AIM Telecom, a New Jersey based telephone equipment company. Before AIM, he
served in management positions with Bell Atlantic, Southern New England
Telephone, and CTC Communications.
JOHN W. HILLYARD has served as Vice President and Chief Financial Officer of the
Company since January 1997. Prior thereto, Mr. Hillyard was executive vice
president and chief financial officer of Vision Technologies LLC, an assembler
and seller of computers and peripherals from August 1996 to January 1997. From
May 1985 to August 1996, he was the chief financial officer of Deluxe Data
Systems, Inc., an electronic funds transfer services company. From May 1982 to
May 1985, he was vice president of finance for Hogan Systems, Inc., a developer
of an integrated line of application software for large financial institutions.
Mr. Hillyard is a Certified Public Accountant.
ALBERT N. WERGLEY has served as Vice President and General Counsel of the
Company since November 1996. From May 1995 to November 1996, he served as Vice
President and General Counsel of US Order. From 1986 to 1994, Mr. Wergley was
vice president and general counsel of Verdix Corporation (now Rational Software
Corporation), a manufacturer of software development tools. Previous to that he
was associated with the McLean, Virginia office of the law firm of Reed Smith
Shaw & McClay and with the law firm of Howrey & Simon in Washington, D.C.
MARK L. BAIRD has served as Vice President of Operations of the Company since
November 1996. Mr. Baird had served as Director of Staff Operations and then as
Vice President of Operations for Colonial Data since July 1994. Prior to joining
Colonial Data, Mr. Baird was vice president of Consolidated Asset Recovery
Corporation, a subsidiary of the Chase Manhattan Bank of Connecticut, N.A., with
responsibilities related primarily to special asset management. Prior to joining
Chase Manhattan, Mr. Baird held various positions, most recently as assistant
vice president of The Bank Mart, a mutual savings bank. Prior to that, Mr. Baird
was assistant to the chairman of the Bodine Corporation, a privately held
machine tool manufacturer.
Beneficial Ownership Reporting
The Company incorporates herein by reference the information required
by Item 405 of Regulation S-K contained in its 1998 Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
- -------------------------------
The Company incorporates herein by reference the information concerning
executive compensation contained in the 1998 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- -----------------------------------------------------------------------
The Company incorporates herein by reference the information concerning
security ownership of certain beneficial owners and management contained in the
1998 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- -------------------------------------------------------
The Company incorporates herein by reference the information concerning
certain relationships and related transactions contained in the 1998 Proxy
Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
- -------------------------------------------------------------------------
(a) 1. FINANCIAL STATEMENTS
See Item 8 of this Report
2. FINANCIAL STATEMENT SCHEDULES
See Item 8 of this Report
3. EXHIBITS (* denotes filed herewith)
Status of Prior Documents
InteliData's Annual Report on Form 10-K for the year ended
December 31, 1997, at the time of filing with the Securities and
Exchange Commission, shall modify and supersede all prior
documents filed pursuant to Sections 13, 14, and 15(d) of the
Securities Exchange Act of 1934 for purposes of any offers or
sales of any securities after the date of such filing pursuant to
any Registration Statement or Prospectus filed pursuant to the
Securities Act of 1933, as amended, which incorporates by
reference such Annual Report on Form 10-K.
2.1 Agreement and Plan of Merger dated as of August 5, 1996,
between Colonial Data Technologies Corp. and US Order,
Inc. (Incorporated herein by reference to the Company's
Registration Statement on Form S-4, File Number
333-11081).
2.2 Amendment No. 1 dated as of November 7, 1996, by and among
US Order, Inc., Colonial Data Technologies Corp. and
InteliData Technologies Corporation to the Agreement and
Plan of Merger. (Incorporated herein by reference to the
Company's Current Report on Form 8-K filed with the
Commission on November 12, 1996).
3.1 Certificate of Incorporation of InteliData Technologies
Corporation. (Incorporated herein by reference to the
Company's Registration Statement on Form S-4, File Number
333-11081).
3.2 Bylaws of InteliData Technologies Corporation. (Incorporated
herein by reference to the Company's Registration Statement
on Form S-4, File Number 333-11081).
10.1 US Order, Inc. 1991 Stock Option Plan. (Incorporated herein
by reference to the US Order Registration Statement on Form
S-1, File Number 33-90978).
10.2 US Order, Inc. 1995 Incentive Plan. (Incorporated herein by
reference to the US Order Registration Statement on Form
S-1, File Number 33-90978).
10.3 US Order, Inc. Non-Employee Directors' and Directors' Stock
Option Plans. (Incorporated herein by reference to the US
Order Registration Statements on Form S-8, File Numbers
333-2348 and 333-2346).
10.4 Stock Option Agreement, dated as of August 1, 1994, between
US Order, Inc. and John C. Backus, Jr. (Incorporated herein
by reference to the US Order Registration Statement on Form
S-1, dated June 1, 1995, File Number 33-90978).
10.5 Amendment No. 1, dated as of May 1, 1995, to Stock Option
Agreement between US Order, Inc. and John C. Backus, Jr.
(Incorporated herein by reference to the US Order
Registration Statement on Form S-1, File Number 33-90978).
10.6 Employment Agreement, dated as of July 1, 1996, between
Colonial Data Technologies Corp. and Robert J. Schock.
(Incorporated herein by reference to the Company's
Registration Statement on Form S-4, File Number 333-11081).
10.7 Technical Information and Patent License Agreement
effective as of August 1, 1987 by and between American
Telephone and Telegraph and Colonial Data Technologies
Corp. (Incorporated herein by reference to the Colonial
Data Report on Form 10-Q for the quarter ended September
30, 1989, File Number 0-15562).
10.8 Colonial Data Technologies Corp. 401(k) Plan. (Incorporated
herein by reference to the Colonial Data Report on Form 10-K
for the year ended December 31,
1994, File Number 0-15562).
10.9 Agreement, dated as of March 1, 1996 between Colonial Data
Technologies Corp. and Robert J. Schock. (Incorporated
herein by reference to the Colonial Data Report on Form
10-Q for the quarter ended March 31, 1996, File Number
0-15562).
10.10 Amended and Restated Loan and Security Agreement between
Colonial Technologies Corp. and People's Bank, dated May
3, 1996. (Incorporated herein by reference to the Colonial
Data Report on Form 10-Q for the quarter ended June 30,
1996, File Number 0-15562).
10.11 Revolving Credit Note between Colonial Technologies Corp.
and People's Bank, dated May 3, 1996. (Incorporated herein
by reference to the Colonial Data Report on Form 10-Q for
the quarter ended June 30, 1996, File Number 0-15562).
10.12 Guaranty Agreement between Colonial Data Technologies
Corp. and People's Bank, dated May 3, 1996. (Incorporated
herein by reference to the Colonial Data Report on Form
10-Q for the quarter ended June 30, 1996, File Number
0-15562).
10.13 Bond Purchase Agreement by and among CDT Realty Corp. and
80 Pickett District Associates, L.L.C., dated as of
September 13, 1996. (Incorporated herein by reference to
the Company's Report on Form 10-Q for the quarter ended
September 30, 1996, File Number 000-21685).
10.14 InteliData Technologies Corporation 1996 Incentive Plan.
(Incorporated herein by reference to the Company's
Registration Statement on Form S-8, File Number 333-16115).
10.15 InteliData Technologies Corporation Non-Employee Directors'
Stock Option Plan. (Incorporated herein by reference to the
Company's Registration Statement on Form S-8, File Number
333-16117).
10.16 InteliData Technologies Corporation Employee Stock Purchase
Plan. (Incorporated herein by reference to the Company's
Registration Statement on Form S-8, File Number 333-16121).
10.17 Aircraft Lease Agreement between CDT Corp. and Colonial
Data Technologies Corp. (Incorporated herein by reference to
Exhibit 10 to Registrant's Report on Form 10-K of the year
ended December 31, 1996, File Number 000-21685).
10.18 Employment Agreement dated August 11, 1997 between
InteliData Technologies Corporation and John C. Backus,
Jr. (Incorporated herein by reference to Exhibit 10 to
Registrant's Report on Form 10-Q of the quarter ended
September 30, 1997, File Number 000-21685).
* 10.19 Consulting Agreement dated May 7, 1997 between InteliData
Technologies Corporation and Robert J. Schock.
* 10.20 Employment and Non-Competition Agreement dated December 17,
1997 between InteliData Technologies Corporation and Mark L.
Baird.
* 10.21 Employment and Non-Competition Agreement dated December 17,
1997 between InteliData Technologies Corporation and John W.
Hillyard.
* 10.22 Employment and Non-Competition Agreement dated December 17,
1997 between InteliData Technologies Corporation and Albert N.
Wergley.
16.1 Letter from KPMG Peat Marwick LLP. (Incorporated herein by
reference to the Company's Current Report on Form 8-K filed
with the Commission on November 27, 1996).
* 21.1 InteliData Technologies Corporation List of Significant
Subsidiaries.
* 23.1 Consent of Deloitte & Touche LLP.
* 23.2 Consent of KPMG Peat Marwick LLP.
27.1 Financial Data Schedule, December 31, 1997.
27.2 Financial Data Schedule, March 31, 1997 (restated).
(b) REPORTS ON FORM 8-K
The Company filed a Current Report on Form 8-K with the Securities and
Exchange Commission on January 21, 1998.
* * * * * * * * * * * * * * *
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
INTELIDATA TECHNOLOGIES CORPORATION
By /s/ John C. Backus, Jr.
-----------------------------------------
John C. Backus, Jr.
President and Chief Executive Officer of
Electronic Commerce Division and Director
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ John C. Backus, Jr. President and Chief Executive Officer March 30, 1998
- ----------------------- of Electronic Commerce Division and
John C. Backus, Jr. Director (Principal Executive Officer)
/s/ William F. Gorog Chairman of the Board and Director March 30, 1998
- --------------------
William F. Gorog
/s/ Brian A. Bogosian President and Chief Executive Officer March 30, 1998
- --------------------- of Telecommunications Division
Brian A. Bogosian and Director
/s/ John W. Hillyard Vice President and Chief Financial March 30, 1998
- ------------------- Officer (Principal Financial and
John W. Hillyard Accounting Officer)
/s/ T. Coleman Andrews, III Director March 30, 1998
- ---------------------------
T. Coleman Andrews, III
/s/ Patrick F. Graham Director March 30, 1998
- ---------------------
Patrick F. Graham
/s/ John J. McDonnell, Jr. Director March 30, 1998
- --------------------------
John J. McDonnell, Jr.
/s/ L. William Seidman Director March 30, 1998
- ----------------------
L. William Seidman