<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 10549
FORM 10-Q/A
(x) Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended September 30, 1998 or
( ) Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission file number: 0-28432
Boston Communications Group, Inc.
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(Exact name of registrant as specified in its charter)
Massachusetts 04-3026859
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 Sylvan Road, Woburn, Massachusetts 01801
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(Address of principal executive offices)
Registrant's telephone number, including area code: (617)692-7000
- -----------------------------------------------------------------
__________________________________________________________________
(Former name, former address, former fiscal year, if changed since
last report)
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 ( )
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date.
As of November 4, 1998 the Company had outstanding 16,271,908 shares of common
stock, $.01 par value per share.
<PAGE>
Rider A
- -------
BOSTON COMMUNICATIONS GROUP, INC.
THIS AMENDMENT ON FORM 10-Q/A AMENDS THE REGISTRANT'S QUARTERLY REPORT ON FORM
10-Q, AS FILED BY THE REGISTRANT ON NOVEMBER 13, 1998, AND IS BEING FILED TO
REFLECT THE RESTATEMENT OF THE REGISTRANT'S CONSOLIDATED FINANCIAL STATEMENTS.
SEE "RESTATEMENT OF QUARTERLY FINANCIAL STATEMENTS" IN NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS FOR A DISCUSSION OF THE BASIS FOR SUCH RESTATEMENT. PART I
ITEMS 1 AND 2 AND PART ii ITEM 6 ARE HEREBY AMENDED AND RESTATED IN THEIR
ENTIRETY.
INDEX
PAGE NUMBER
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Consolidated Balance Sheets.............................3
Consolidated Statements of Operations...................4
Consolidated Statements of Cash Flows...................5
Notes to Consolidated Financial Statements..............6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.....................8
Certain Factors That May Affect Future Results.........13
PART II. OTHER INFORMATION:
Item 6. Exhibits and Reports on Form 8-K.......................16
<PAGE>
BOSTON COMMUNICATIONS GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
December 31, September 30,
1997 1998
ASSETS ------------- --------------
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 23,601 $ 20,858
Short-term investments 10,103 4,178
Accounts receivable, net of allowance for billing adjustments and doubtful 12,445 18,961
accounts of $1,304 in 1997 and $1,289 in 1998
Inventory 1,550 3,595
Deferred income taxes 1,564 1,564
Prepaid expenses and other assets 630 1,030
-------- --------
Total current assets 49,893 50,186
Property and equipment, net 38,087 37,622
Goodwill, net 4,067 3,612
Other assets 1,338 279
-------- --------
Total assets $ 93,385 $ 91,699
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 2,786 $ 963
Accrued expenses 7,304 10,669
Income taxes payable 466 456
Current maturities of capital lease obligations 1,127 1,109
-------- --------
Total current liabilities 11,683 13,197
Capital lease obligations, net of current maturities 1,598 772
Shareholders' equity:
Preferred Stock, par value $.01 per share, 2,000,000 - -
Shares authorized, 0 share issued and outstanding
Common Stock, voting, par value $.01 per share, 163 163
35,000,000 shares authorized, 16,273,947 and
16,343,328 shares issued in 1997 and 1998 respectively
Additional paid-in capital 91,029 91,184
Treasury stock (46,420 and 101,420 shares in 1997 and
1998 respectively, at cost) (372) (673)
Accumulated deficit (10,716) (12,944)
-------- --------
Total shareholders' equity 80,104 77,730
-------- --------
Total liabilities and shareholders' equity $ 93,385 $ 91,699
======== ========
</TABLE>
<PAGE>
BOSTON COMMUNICATIONS GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1997 1998 1997 1998
-------- ---------- -------- ---------
<S> <C> <C> <C> <C>
Revenues:
Roaming services $ 9,241 $ 7,097 $24,301 $21,952
Teleservices 4,369 7,514 12,534 18,329
Prepaid wireless services 2,571 5,010 4,874 11,987
System sales 1,852 1,547 8,296 10,543
------- ------- ------- -------
18,033 21,168 50,005 62,811
Expenses:
Cost of service revenues 11,954 13,684 32,255 38,624
Cost of system revenues 814 1,363 4,549 6,216
Engineering, research and development 1,593 1,426 3,790 4,005
Sales and marketing 1,358 1,387 3,651 4,028
General and administrative 833 1,572 2,306 4,455
Depreciation and amortization 1,534 2,908 3,627 8,055
Impairment of long-lived assets - - - 698
------- ------- ------- -------
Total operating expenses 18,086 22,340 50,178 66,082
------- ------- ------- -------
Operating loss (53) (1,172) (173) (3,271)
Interest income 254 331 651 1,043
------- ------- ------- -------
Income(loss) before income taxes 201 (841) 478 (2,228)
Provision for income taxes 100 208 241 -
------- ------- ------- -------
Net income(loss) $ 101 $(1,049) $ 237 $(2,228)
======= ======= ======= =======
Net income(loss) per common share $ 0.01 $ (0.06) $ 0.02 $ (0.14)
======= ======= ======= =======
Shares used in computing net income 15,148 16,277 13,752 16,267
(loss) per common share ======= ======= ======= =======
</TABLE>
<PAGE>
BOSTON COMMUNICATIONS GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Nine months ended
September 30,
1997 1998
--------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net income(loss) $ 237 $(2,228)
Adjustments to reconcile net income(loss) to net
cash used in operating activities:
Depreciation and amortization 3,626 8,054
Impairment of long-lived assets - 698
Changes in operating assets and liabilities:
Accounts receivable (3,983) (6,516)
Inventory (1,159) (2,045)
Prepaid expenses and other assets (724) (129)
Accounts payable and accrued expenses 1,198 1,542
Income taxes payable 154 (10)
-------- -------
Net cash used in operations (651) (634)
INVESTING ACTIVITIES
Acquisition of business, net of cash acquired (1,398) -
Purchases of property and equipment (23,056) (7,044)
Sales of short-term investments 20,817 15,113
Purchases of short-term investments (5,387) (9,188)
-------- -------
Net cash used in investing activities (9,024) (1,119)
FINANCING ACTIVITIES
Proceeds from exercise of stock options 2,227 155
Proceeds from issuance of common stock 35,792 -
Purchase of treasury stock - (301)
Repayment of capital leases (168) (844)
-------- -------
Net cash provided by(used in) financing activities 37,851 (990)
-------- -------
Increase(decrease) in cash and cash equivalents 28,176 (2,743)
Cash and cash equivalents at beginning of period 923 23,601
-------- -------
Cash and cash equivalents at end of period $ 29,099 $20,858
======== =======
Supplemental disclosure of non-cash transactions:
Capital lease obligations $ 3,182
========
</TABLE>
<PAGE>
BOSTON COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The accompanying consolidated financial statements have been prepared by the
Company, without audit, and reflect all adjustments, which in the opinion of
management, are necessary for a fair statement of the results of the interim
periods presented. All adjustments were of a normal recurring nature with
the exception of the write down of assets no longer being used in the
business. Certain information and footnote disclosures normally included in
the annual consolidated financial statements, which are prepared in
accordance with generally accepted accounting principles have been condensed
or omitted in accordance with rules of the United States Securities and
Exchange Commission. Accordingly, the Company believes that although the
disclosures are adequate to make the information presented not misleading,
the consolidated financial statements should be read in conjunction with the
footnotes contained in the Company's Form 10-K for the fiscal year ended
December 31, 1997.
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 at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income"
and SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information." Both SFAS No. 130 and SFAS No. 131 are effective for the
current year. The Company believes that the adoption of these new accounting
standards will not have a material impact on the Company's consolidated
financial statements.
2. Restatement of Prior Periods' Results of Operations
During the quarter ended September 30, 1998, the Company recognized a system
sale of $1.7 million for a sale to a distributor. The system was to be sold
by the distributor to a telecommunications company in Brazil. The Company
has now learned that the sale will not occur. The Company has subsequently
become aware that the distributor's ability to pay for the system was
dependent on the distributor's sale to the telecommunications company in
Brazil. Under these circumstances, the Company has determined that the sale
of the system should not be included in 1998 results. As a result, the
Company has restated its results of operations for the three and nine-month
periods ended September 30, 1998 to appropriately reflect the Company's
results of operations.
The table below sets forth selected operating data and accumulated deficit
for the three and nine-month periods on both a restated basis and as
previously reported.
<TABLE>
<CAPTION>
September 30, 1998
-----------------------------
Three Months Ended Nine Months Ended
-------------------------- ----------------------------
As Reported As Restated As Reported As Restated
------------ ------------ ------------ --------------
<S> <C> <C> <C> <C>
Net revenues $22,818 $21,168 $64,461 $62,811
Operating expenses 23,082 22,340 66,824 66,082
------- ------- ------- -------
Operating loss (264) (1,172) (2,363) (3,271)
Other income 331 331 1,043 1,043
------- ------- ------- -------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Income (loss) before taxes 67 (841) (1,320) (2,228)
Tax provision 208 208 - -
------- ------- ------- -------
Net loss $ (141) $(1,049) $(1,320) $(2,228)
======= ======= ======= =======
Net loss per share $ (0.01) $ (0.06) $ (0.08) $ (0.14)
======= ======= ======= =======
Accumulated deficit $12,036 $12,944
======= =======
</TABLE>
3. Earnings Per Share
In accordance with Financial Accounting Standards Board (FASB) Statement No.
128, Earnings per Share, the Company is required to calculate basic and
diluted earnings per share. Basic earnings per share excludes any dilutive
effects of options, warrants and convertible securities and diluted earnings
per share is very similar to the previously reported fully diluted earnings
per share. Basic and diluted earnings per share are the same for the Company
for the three-month and nine month periods ended September 30, 1998 and 1997.
4. Inventory
Inventories consisted of the following at (in thousands):
December 31, September 30,
1997 1998
---- ----
Purchased parts $1,114 $3,283
Work-in-process 127 312
Finished goods 309 -
------ ------
$1,550 $3,595
====== ======
5. Contingencies
The Company received a letter from AT&T Wireless Services (AWS) stating that
it believes that it is entitled to indemnification from the Company in
respect to a certain claim presently pending in a case brought against AWS.
The letter asserts that the claim gives rise to an obligation on the part of
the Company to indemnify AWS. No legal action has been brought against the
Company and no amount of potential damages has been specified. Management
believes that the claim is without merit and that the outcome is unlikely to
have a material impact on the financial condition of the Company.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations - September 30, 1997 and 1998
- ---------------------------------------------------
Service and system revenues
- ---------------------------
Total revenues increased 17.8% from $18.0 million for the three months ended
September 30, 1997 to $21.2 million for the three months ended September 30,
1998 and increased 25.6% from $50.0 million for the nine months ended September
30, 1997 to $62.8 million for the nine months ended September 30, 1998.
Roaming service revenues decreased 22.8% or $2.1 million from the three months
ended September 30, 1997 compared to the same period ended September 30, 1998
and 9.5% or $2.3 million from the nine month period ended September 30, 1997
compared to the same period in 1998. The decrease in roaming service revenues
reflects the suspension for the foreseeable future of the AT&T calling card as a
billing option and the stabilization in the automatic roaming agreements between
carriers versus prior periods in which revenues were enhanced by the temporary
suspension of certain agreements.
Teleservice revenues increased 70.5% or $3.1 million and 46.4% or $5.8 million,
respectively, for the three-month and nine month periods ended September 30,
1998 compared to the same periods in the prior year. The increases resulted
primarily from the increases in volume and service offerings for existing
carriers in addition to new teleservices programs to support carriers utilizing
the Company's prepaid wireless services.
Revenues generated from prepaid wireless services (C2C) increased 92.3% or $2.4
million and 145% or $7.1 million, respectively for the three and nine month
periods ended September 30, 1998 as compared to the same periods in the prior
year. The increases were due to the increase in the number of markets where C2C
prepaid services were commercially available, and an increase in subscribers and
usage in existing markets. As of September 30, 1998, fifty-six C2C network
switches were deployed in various markets throughout North America compared to
forty-six as of September 30, 1997. These switches were processing calls for
approximately 623,000 C2C subscribers as of September 30, 1998 compared to
197,000 subscribers as of September 30, 1997.
System sales decreased 16.5% or $305,000 from the three-month period ended
September 30, 1997 to the same period ended September 30, 1998 and increased
26.5% or $2.2 million from the nine-month period ended September 30, 1997 to the
same period ended September 30, 1998. The decrease in sales for the quarter
ended September 30, 1998 compared to the same period in the prior year reflected
the reduction in the number of prepaid systems sold for the period. The
increase for the nine-month period resulted primarily from the sale of systems
to continue the expansion of prepaid wireless systems throughout South America.
Cost of service revenues
- ------------------------
Cost of service revenues consist primarily of wireless network and landline
transmission costs in addition to the personnel costs associated with operator
assisted roaming service calls, teleservice calls and C2C operations. Cost of
service revenues decreased from 74.1% of service revenues for the three months
ended September 30, 1997 to 69.9% of service revenues for the three months ended
September 30, 1998. Cost of service revenues decreased from 77.5% of service
revenues for the nine months ended September 30, 1997 to 73.8% of
<PAGE>
service revenues for the nine months ended September 30, 1998. The decreases in
cost of service revenues as a percentage of service revenues were primarily due
to significant increases in revenues generated by C2C, which better absorbed its
operating costs. In addition, cost reductions were realized from lower
telecommunications costs due to the negotiation of lower rates and improved call
flow efficiencies. The cost of service revenues as a percentage of service
revenues is expected to continue to decrease as usage on the C2C network
increases.
Cost of system revenues
- -----------------------
Cost of system revenues represents the cost of prepaid and voice systems sold by
the Company's systems division. Cost of system revenues increased from 44.0% of
system revenues for the three months ended September 30, 1997 to 88.1% of system
revenues for the three months ended September 30, 1998. Cost of system revenues
increased from 54.2% of system revenues for the nine months ended September 30,
1997 to 59.0% of system revenues for the nine months ended September 30, 1998.
Significant increases in licensing costs for certain systems that had not been
reflected in sales prices were absorbed during the three-month period ended
September 30, 1998. These additional costs yielded an increase in cost of system
revenues as a percentage of system revenues for the three and nine-month periods
ended September 30, 1998. The Company intends to reflect these particular costs
in systems sales prices in future periods. In addition, the low sales volume in
the three-month period ended September 30, 1998 was not sufficient to more fully
absorb the fixed portion of systems costs for the period. System sale margins
can vary from period to period based on the size, type and installation
requirements of the system sold.
Engineering, research and development expenses
- ----------------------------------------------
Engineering, research and development expenses primarily include the salaries
and benefits for software development and engineering personnel associated with
the development, implementation and maintenance of existing and new services and
systems. Engineering, research and development expenses decreased $167,000 or
10.5% from the three-month period ended September 30, 1997 to the same period in
1998. The decrease in expenses resulted from engineers devoting more time to
support the existing C2C infrastructure rather than developing and building out
the infrastructure as they had in the prior year. Engineering, research and
development expenses increased $215,000 or 5.7% from the nine months ended
September 30, 1997 to the nine months ended September 30, 1998. The increase
was principally due to the costs, including recruiting fees and other personnel
costs, associated with the Company's hiring of new personnel to support ongoing
development and enhancements, implementation and deployment of the C2C Network.
Engineering, research and development expenses are expected to decrease in
proportion to revenues as more engineers devote time to maintaining the existing
C2C infrastructure.
Sales and marketing expenses
- ----------------------------
Sales and marketing expenses include direct sales force and product management
salaries, commissions, travel expenses, in addition to the cost of trade shows,
advertising and other promotional expenses. Sales and marketing expenses
increased $29,000 or 2.1% from the three months ended September 30, 1997 to the
three months ended September 30, 1998 and increased $379,000 or 10.4% from the
nine months ended September 30, 1997 to the nine months ended September 30,
1998. The increases in sales and marketing expenses were primarily due to
additional salaries, commissions, benefits and other expenditures to augment the
growth of the prepaid wireless service and teleservice businesses.
<PAGE>
General and administrative expenses
- -----------------------------------
General and administrative expenses include salaries, benefits and other
expenses that provide administrative support to the Company. General and
administrative expenses increased $739,000 or 88.7% from the three months ended
September 30, 1997 to the three months ended September 30, 1998. For the nine
months ended September 30, 1998, general and administrative expenses increased
$2.2 million or 95.7% from the same period in the prior year. The increases
resulted principally from the addition of staff to support the Company's growth
and the organization of the Company into its four operating divisions. As a
result of the divisional structure, certain senior management personnel changed
their functional responsibilities from marketing and engineering to general
management and oversight of the divisions.
Depreciation and amortization expenses
- --------------------------------------
Depreciation and amortization expenses include depreciation of
telecommunications systems, furniture and equipment, leasehold improvements and
goodwill. The Company provides for depreciation using the straight-line method
over the estimated useful lives of the assets, which range from three to seven
years. Goodwill is being amortized over eight years. Depreciation and
amortization expenses increased $1.4 million or 93.3% and $4.5 million or 125%,
respectively, during the three and nine-month periods ended September 30, 1998
compared to the same periods in the prior year. The increases were due
primarily to depreciation of additional technical equipment and software to
support the expansion and continuing development of the Company's prepaid
wireless network. Depreciation and amortization expenses are expected to
continue to increase in future periods due to increased capital expenditures for
telecommunications systems to support the continued expansion and enhancement of
the C2C Network.
Impairment of Long Lived Assets
- -------------------------------
During the quarter ended June 30, 1998, the Company recorded a pre-tax charge of
$698,000 for an additional impairment loss on equipment that had already been
removed from operations. This equipment was sold in September 1998.
Interest income, net
- --------------------
Interest income increased $77,000 and $392,000, respectively, for the three and
nine-month periods ended September 30, 1998 as compared to the same periods in
the prior year. Interest income was earned on the investment of proceeds from
the Company's public offerings. The increases in interest income were generated
from higher average cash and investment balances than in the prior year.
Provision for income taxes
- --------------------------
In the quarter ended September 30, 1998, the Company recorded income tax expense
of $208,000 that represents the reversal of the income tax benefit that was
recorded in the first quarter of 1998. Accordingly, the Company has not
recorded an income tax benefit for any net operating losses generated during
1998. This adjustment represents the Company's best estimate of its effective
tax rate including the effect of any valuation allowance necessary for the year
ending December 31, 1998. The Company's effective tax rate is negatively
impacted by non-deductible goodwill and this is expected to continue in the
foreseeable future.
Liquidity and Capital Resources
- -------------------------------
<PAGE>
At September 30, 1998 the Company had cash, cash equivalents and short-term
investments of $25.0 million as compared to $33.7 million at December 31, 1997.
Net cash used in operating activities for the nine months ended September 30,
1998 was $634,000 and resulted from an increase in accounts receivable and
inventory offset by increased depreciation expense. Accounts receivable
increased $6.5 million primarily due to increased revenues from prepaid wireless
services, teleservices and, to a lesser extent, extended payment terms granted
for two large system sales in 1998. Inventory balances increased in order to
meet customer demand for the Company's systems. These increases were offset by
depreciation and amortization expense of $8.1 million primarily resulting from
greater capital investment made in the Company's C2C network.
Net cash used in investing activities was $1.1 million for the nine months ended
September 30, 1998. Purchases of telecommunications systems equipment and
software of $7.0 million were made primarily to support the expansion of the
Company's C2C network. These purchases were partially offset by net proceeds of
$5.9 million from sales of short-term investments. The Company anticipates that
over the next 12 months, capital investments will continue to be made to support
service enhancements and additional equipment to support the C2C network.
Net cash used in financing activities for the nine months ended September 30,
1998 was $990,000 and consisted principally of capital lease payments and
repurchases of the Company's common stock. On September 1, 1998 the Board of
Directors of the Company authorized a program to repurchase up to two million
shares of the Company's common stock. As of September 30, 1998, 55,000 shares
had been repurchased for an aggregate price of $301,000.
The Company believes that existing cash balances and funds anticipated to be
generated from operations will be sufficient to finance the Company's operations
and the expansion of the C2C Network for at least the next 12 months.
Year 2000
- ---------
The Company is currently implementing enterprise-wide project and test plans in
order that all products, services and support systems can fully process
date/time data before, during, and after midnight, December 31, 1999, recognize
the year 2000 as a Leap Year and maintain existing interoperability and
interfaces with other devices already in use without any modifications or
changes in operations. The Company is assessing its readiness by:
1) Conducting comprehensive inventories of all hardware, software,
telecommunications providers, and material third party relationships.
This stage is nearly complete.
2) Seeking compliance certification from each vendor through direct
communication. BCGI will conduct unit, regression, interoperability,
and call flow tests wherever possible. Dedicated resources, including
senior level management and paid consultants, manage this comprehensive
effort which will continue into 1999.
3) Implementing test plans that are supported by doctorate level technical
consultants and dedicated QA equipment and personnel that are examining
multiple static and rollover date scenarios. Testing is projected to be
completed by April 30, 1999.
The assessment process follows a method to focus on vendors/products that are
most significant to the Company's operations with the intent to maximize the
lead time
<PAGE>
should any issues arise. For any systems that may need replacement, the Company
will take the necessary steps to obtain, test and install qualified systems to
ensure timely Year 2000 compliance.
In June 1998, the Company completed the re-write, redesign and implementation of
its C2C prepaid system. The Company's development team invested nearly a year
to produce the necessary changes and included year 2000 compliance as part of
this process. Additionally, desktop hardware and software, call distribution
systems and customer service handling software are 90% compliant today. Core
business teams for all divisions expect to examine all internal and external
support systems including facilities, finance and human resource components.
The Company is engaged in a comprehensive on-site physical inventory and upgrade
of all of its C2C nodes, of which Year 2000 compliance is a component, that is
projected to be completed by December 31, 1998. Any remedial action required as
a result of this inventory is expected to be implemented by September 30, 1999.
The Company licenses some of the software used to support the Company's services
from only one source and these sources are small corporations. The Company is
testing the software of such sources and expects to receive updates from these
sources to achieve Year 2000 compliance. In the event that this compliance is
not achieved by June 30, 1999, the Company will establish contingency plans to
ensure that they will not adversely impact operations.
BCGI has identified 23 UNIX servers that require upgrades; all necessary
software has been obtained and the project is expected to be completed by June
30, 1999.
The Company is fully dependent on the services of multiple telecommunications
providers. If these providers fail to deliver these services, BCGI would be
vulnerable to serious service failures and be exposed to liability to customers
and third parties, including the potential for significant lost revenue. BCGI
is communicating with all providers in order to assess this risk. Additionally,
the Company will evaluate contingency options in the event of a failure by such
providers.
The Company has not currently developed any contingency plans for their
services. In the event that tests reveal failures that cannot be remedied
within the Company's timetable for compliance, contingency plans will be
established.
The Company has spent significant amounts in research and development of its C2C
prepaid service system to ensure its compliance for Year 2000. In addition,
through September 30, 1998 the Company has incurred and expensed approximately
$90,000 in payroll, benefit and consulting costs for dedicated resources related
to Year 2000 issues. The Company currently estimates additional costs of
approximately $1.2 million will be incurred to resolve Year 2000 issues. The
Company anticipates that the amounts and resources utilized to achieve Year 2000
compliance will not delay or reduce the resources available to complete other
projects.
The costs of the project to complete Year 2000 analysis and remediation are
based on management's best estimates, which have been determined through
numerous assumptions about future events including the availability of resources
and other factors. However, there can be no assurances that these estimates
will be achieved and actual results could differ materially from those
anticipated. Specific factors that could generate significant negative
consequences include undetected errors or defects of third party hardware and
software utilized in the Company's operations, noncompliance of other providers
(phone service, electricity, other utilities, etc.) and other uncertainties.
Although management does not expect Year 2000 issues to have a material impact
on its business or results of operations, there can be no assurance that there
will not be interruptions or other limitations of system functionality.
<PAGE>
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
This Quarterly Report contains forward-looking statements that involve risks and
uncertainties including statements regarding costs of deploying and supporting
the C2C network, decreases in cost of service revenues as a percentage of
service revenues, varying margins on system sales, greater costs of depreciation
and amortization and the negative impact of non-deductible goodwill on the
Company's effective income tax rate. The Company's actual results may differ
significantly from the results discussed in the forward-looking statements. A
number of uncertainties exist that could affect the Company's future operating
results, including, without limitation, technological changes in the Company's
industry, the ability of the Company to continue to support its C2C Network, the
ability of the Company's carrier customers to successfully market and sell C2C
prepaid wireless services, the Company's ability to retain existing customers
and attract new customers, increased competition and general economic factors.
Historically, a significant portion of the Company's revenues in any particular
period has been attributable to a limited number of customers. This
concentration of customers can cause the Company's revenues and earnings to
fluctuate from quarter to quarter, based on the volume of call traffic generated
through these customers, the billing options available on the roaming services
platform, the services being performed for the teleservice programs and the
level of system sales. A significant decrease in business from any of the
Company's major customers, including a decrease in business due to factors
outside of the Company's control, would have a material adverse effect on the
Company's business, financial condition and results of operations.
The Company has experienced fluctuations in its quarterly operating results and
anticipates that such fluctuations will continue and could intensify. The
Company experienced an operating loss in 1997 and the first three quarters of
1998, primarily due to expenses associated with the development and expansion of
its C2C Network. The Company's quarterly operating results may vary
significantly depending on a number of factors including, the timing of the
introduction or acceptance of new services offered by the Company or its
competitors, changes in the mix of services provided by the Company, variations
in the level of system sales, changes in regulations affecting the wireless
industry, changes in the Company's operating expenses, the ability to identify,
hire and retain qualified personnel and general economic conditions. Due to all
of the foregoing factors, it is possible that in some future quarter the
Company's results of operations will be below prior results or the expectations
of public market analysts and investors. In such event, the price of the
Company's Common Stock would likely be materially and adversely affected.
The Company historically has provided its services almost exclusively to
wireless carriers. Although the wireless telecommunications market has
experienced significant growth in recent years, there can be no assurance that
such growth will continue at similar rates, or at all, or that wireless carriers
will continue to use the Company's services. In addition, the prepaid wireless
and PCS services are relatively new services in new markets, and if these
markets do not grow as expected or if the carriers in these markets do not use
the Company's services, the Company's business, financial condition and results
of operations would be materially and adversely affected.
The Company's future success depends, in large part, on the continued use of its
existing services and systems, the acceptance of new services in the
<PAGE>
wireless industry and the Company's ability to develop new services and systems
that keep pace with changes in the wireless telephone industry. Further, a rapid
shift away from the use of wireless in favor of other services could affect
demand for the Company's service offerings and could require the Company to
develop modified or alternative service offerings addressing the particular
needs of providers of such new services. There can be no assurance that the
Company will be successful in developing or marketing its existing or future
service offerings or systems in a timely manner, or at all.
The Company is currently devoting significant resources toward the enhancement
and deployment of its prepaid wireless services and systems, including continued
expansion of its C2C Network. There can be no assurance that the Company will
successfully support and enhance the C2C Network effectively, that the market
for the Company's prepaid wireless services and systems will continue to
develop, or that the Company's C2C Network will successfully support current and
future growth. Furthermore, the Company has expended significant amounts of
capital to support the C2C agreements it has secured with its carrier customers.
Because C2C revenues are principally generated by prepaid subscriber minutes of
use, the Company's C2C revenues can be impacted by the carrier's ability to
successfully market and sell prepaid services. In addition, teleservices
revenues associated with billing inquiry support for C2C customers have become a
more significant portion of teleservices revenues and therefore these revenues
are dependent upon the size and growth of the C2C subscriber base.
The Company has expanded its operations rapidly, creating significant demands on
the Company's administrative, operational, development and financial personnel
and other resources. Additional expansion by the Company may further strain the
Company's management, financial and other resources. There can be no assurance
that the Company's systems, procedures, controls and existing space will be
adequate to support expansion of the Company's operations. If the Company's
management is unable to manage growth effectively, ensure the quality of the
Company's services and retain key personnel, its business, financial condition
and results of operations could be materially and adversely affected.
The market for services to wireless carriers is highly competitive and subject
to rapid change. A number of companies currently offer one or more of the
services offered by the Company. In addition, many wireless carriers are
providing or can provide, in-house, the services that the Company offers. In
addition, the Company anticipates continued growth and competition in the
wireless carrier services industry and consequently, the entrance of new
competitors in the future. An increase in competition could result in price
reductions and loss of market share and could have a material adverse effect on
the Company's business, financial condition or results of operations.
The Company's success and ability to compete is dependent in part upon its
proprietary technology. If unauthorized copying or misuse of the Company's
technology were to occur to any substantial degree, the Company's business,
financial condition and results of operations could be materially adversely
affected. In addition, some of the software used to support the Company's
services is licensed by the Company from one source and these sources are small
corporations. There can be no assurance that these suppliers will continue to
license this software to the Company or, if any supplier terminates its
agreement with the Company, that the Company will be able to develop or
otherwise procure software from another supplier on a timely basis and at
commercially acceptable prices.
<PAGE>
The Company's operations are dependent on its ability to maintain its computer,
switching and other telecommunications equipment and systems in effective
working order and to protect its systems against damage from fire, natural
disaster, power loss, telecommunications failure or similar events. Any damage,
failure or delay that causes interruptions in the Company's operations could
have a material adverse effect on the Company's business, financial condition
and results of operations.
The Company is actively addressing the concerns of its operations with respect
to Year 2000 issues. Company management, with the assistance of consultants, is
implementing an enterprise-wide project to identify systems, equipment, vendors
and customers that may be affected by the Year 2000 issues and to develop a
comprehensive plan to be in compliance with the Year 2000 issues prior December
31, 1999. The Company expects to make the necessary changes to be Year 2000
compliant, but there can be no assurances that the Company will adequately
identify all Year 2000 issues and the associated costs and expenses in a timely
manner. Also, there can be no assurance that such costs and expenses will not
have a material adverse effect on the Company's business, financial condition
and results of operations.
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
The exhibits listed in the Exhibit Index are part of or
included in this report.
b) Reports on Form 8-K
NONE
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Boston Communications Group, Inc.
---------------------------------
(Registrant)
Date: March 3, 1999 By: /s/Fritz von Mering
-------------------
Fritz von Mering
Vice President, Finance
and Administration (Principal
Financial and Accounting
Officer and Duly Authorized Officer)
<PAGE>
BOSTON COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTER ENDED September 30, 1998
INDEX TO EXHIBITS
-----------------
Exhibit No. Description
- ----------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998
<PERIOD-START> JUL-01-1998 JAN-01-1998
<PERIOD-END> SEP-30-1998 SEP-30-1998
<CASH> 20,858 20,858
<SECURITIES> 4,178 4,178
<RECEIVABLES> 20,250 20,250
<ALLOWANCES> 1,289 1,289
<INVENTORY> 3,595 3,595
<CURRENT-ASSETS> 50,186 50,186
<PP&E> 37,622 37,622
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 91,699 91,699
<CURRENT-LIABILITIES> 13,197 13,197
<BONDS> 0 0
0 0
0 0
<COMMON> 163 163
<OTHER-SE> 77,567 77,567
<TOTAL-LIABILITY-AND-EQUITY> 91,699 91,699
<SALES> 21,168 62,811
<TOTAL-REVENUES> 21,168 62,811
<CGS> 15,047 44,840
<TOTAL-COSTS> 22,340 66,082
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (331) (1,043)
<INCOME-PRETAX> (841) (2,228)
<INCOME-TAX> 208 0
<INCOME-CONTINUING> (1,049) (2,228)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,049) (2,228)
<EPS-PRIMARY> (0.06) (0.14)
<EPS-DILUTED> (0.06) (0.14)
</TABLE>
