UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
/ / TRANSISTION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission file number 000-22017
NACT TELECOMMUNICATIONS, INC.
- --------------------------------------------------------------------------------
(Exact name of Registrant as Specified in its Charter)
Delaware 87-0378662
- ---------------------------- ------------------------------------
(State or Other Jurisdiction (IRS Employer Identification Number)
of Incorporation or Organization)
191 West 5200 North, Provo, Utah 84604
- ---------------------------------------- -----------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (801) 802-3000
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: At August 14, 1998,
there were outstanding 8,133,830 shares of Common Stock, $.01 par value per
share, of the Registrant.
<PAGE>
NACT TELECOMMUNICATIONS, INC.
INDEX
PART I. FINANCIAL INFORMATION
Page Number
-----------
Item 1. Financial Statements:
Balance Sheets
June 30, 1998 and December 31, 1997 . . . . . . . . . . . . 3
Statements of Income
Three Months and Six Months Ended June 30, 1998 and 1997. . 4
Statements of Cash Flows
Six Months Ended June 30, 1998 and 1997. . . . . . . . . . 5
Notes to Financial Statements . . . . . . . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . 13
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
NACT TELECOMMUNICATIONS, INC.
Balance Sheets
(In thousands)
<TABLE>
<CAPTION>
Jun. 30, 1998 Dec. 31, 1997
(Unaudited) (Unaudited)
--------------------------------------------------
ASSETS
Current Assets:
<S> <C> <C>
Cash $11,264 $5,252
Marketable securities 3,500 7,246
Accounts receivable, less allowance for doubtful
accounts of $411 in Jun. and $631 in Dec. 10,541 9,496
Notes receivable, less allowance for doubtful
accounts of $461 in Jun. and $295 in Dec. 3,609 4,055
Intercompany receivable 1,057 0
Inventories 2,586 2,814
Prepaid expenses and other assets 436 216
Deferred tax asset - current 699 817
------------------------------------------------
Total current assets $33,692 $29,896
Fixed Assets:
Property, plant, and equipment $7,291 $6,577
Less: Accumulated depreciation (1,037) (698)
------------------------------------------------
Net fixed assets $6,254 $5,879
Notes receivable-long term $1,627 $785
Inventory-long term $225 $225
Intangibles $5,372 $5,598
Other Assets $144 $164
------------------------------------------------
Total Assets $47,314 $42,547
================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $3,252 $1,889
Accrued expenses 1,143 1,206
Current corporate tax liability 2,670 1,073
Deferred Revenue 662 790
Intercompany payable 0 1,743
------------------------------------------------
Total current liabilities $7,727 $6,701
Long Term Liabilities:
Deferred compensation liability $132 $158
Deferred tax liability 1,175 1,252
------------------------------------------------
Total long-term liabilities $1,307 $1,410
Stockholders' Equity:
Common stock, $.01 par value $81 $81
Additional paid-in-capital 28,318 28,271
Retained earnings 9,879 6,055
Unrealized appreciation on marketable securities 2 29
------------------------------------------------
Total stockholders' equity $38,280 $34,436
================================================
Total liabilities and stockholders' equity $47,314 $42,547
================================================
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
NACT TELECOMMUNICATIONS, INC.
Statements of Income
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
(Unaudited) (Unaudited)
------------------------------------------ -------------------------------------------
Jun 30, 1998 Jun 30, 1997 Jun 30, 1998 Jun 30, 1997
------------------------------------------ ------------------------------------------
Revenues:
<S> <C> <C> <C> <C>
Product sales $9,683 $5,739 $17,006 $10,812
Network carrier sales 719 1,472 2,424 2,685
-------------------------------------- -------------------------------------------
Total revenues $10,402 $7,211 $19,430 $13,497
Cost of goods sold:
Products $2,701 $1,457 $5,141 $3,229
Network carrier usage 625 1,394 2,167 2,547
Amortization of acquired intangibles 170 91 340 181
-------------------------------------- -------------------------------------------
Total cost of goods sold $3,496 $2,942 $7,648 $5,957
-------------------------------------- -------------------------------------------
Gross profit $6,906 $4,269 $11,782 $7,540
Operating expenses:
Research and development $756 $740 $1,495 $1,356
Sales and marketing 895 824 1,740 1,391
General and administrative 1,037 891 2,289 1,628
Amortization of acquired intangibles 143 143 286 286
-------------------------------------- -------------------------------------------
Total operating expenses $2,831 $2,598 $5,810 $4,661
-------------------------------------- -------------------------------------------
Income from operations $4,075 $1,671 $5,972 $2,879
Other Income, net $250 $152 $401 $274
-------------------------------------- -------------------------------------------
Income before income taxes $4,325 $1,823 $6,373 $3,153
Income taxes $1,730 $729 $2,549 $1,261
-------------------------------------- -------------------------------------------
Net income $2,595 $1,094 $3,824 $1,892
====================================== ============================================
Weighted average common and common
equivalent shares outstanding:
Basic 8,131 8,114 8,130 6,923
Diluted 8,131 8,114 8,265 6,923
Earnings per share:
Basic $0.32 $0.13 $0.47 $0.27
Diluted $0.32 $0.13 $0.46 $0.27
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
NACT TELECOMMUNICATIONS, INC.
Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1998 1997
(Unaudited) (Unaudited)
----------- --------------
Cash flows from operating activities:
<S> <C> <C>
Net income $3,824 $1,892
Adjustments to reconcile net income to net cash
Provided by (used in) operating activities:
Depreciation and amortization 1,045 508
Provision for loss on accounts and notes receivable 348 194
Provision for loss on inventory 228 0
Deferred taxes 41 10
Decrease (increase) in operating assets:
Trade accounts and notes receivable (2,076) (4,380)
Inventories (1) 216
Prepaid expenses and other assets (200) 52
Increase (decrease) in operating liabilities:
Accounts payable 1,364 (133)
Accrued expenses (63) 675
Income taxes payable 1,596 681
Inter company payable (2,800) (1,136)
Deferred revenue and deferred compensation (154) (367)
----------- --------
Net cash provided by (used in)
operating activities $3,152 ($1,788)
----------- --------
Cash flows from investing activities:
Purchase of land, property, plant and equipment ($426) ($4,428)
Proceeds from sale of marketable securities 6,219
Purchase of marketable securities (2,500) (2,240)
Capitalization of software development costs (480) (629)
----------- --------
Net cash provided by (used in)
Investing activities $2,813 ($7,297)
Cash flows from financing activities:
Proceeds from issuance of common stock $47 $18,624
Principle payments of capital lease obligations (11)
----------- --------
Net cash provided by (used in)
Financing activities $47 $18,613
----------- --------
Net (decrease) increase in cash $6,012 $9,528
Cash at beginning of period $5,252 $552
----------- --------
Cash at end of period $11,264 $10,080
=========== ========
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest $0 $21
Income taxes $911 $97
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
NACT TELECOMMUNICATIONS, INC.
Notes to financial statements
1. Basis of Presentation
The interim financial statements included herein have been prepared by NACT
Telecommunications, Inc. ("NACT" or the "Company") without audit, pursuant to
the rules and regulations of the Securities and Exchange Commission (the "SEC").
Certain information and footnote disclosures, normally included in financial
statements prepared in accordance with generally accepted accounting principles,
have been condensed or omitted pursuant to such SEC rules and regulations. These
condensed financial statements should be read in conjunction with the financial
statements and notes thereto included in the Company's September 30, 1997
audited financial statements filed as part of the Company's Annual Report on
Form 10K with the SEC in December 1997. In the opinion of management, the
condensed financial statements included herein reflect all adjustments necessary
to present fairly the financial position of the Company as of June 30, 1998 and
December 31, 1997, and the results of its operations and cash flows for the
three month and six month periods ended June 30, 1998 and 1997. The results of
operations for the interim periods are not necessarily indicative of the results
of operations for the full year.
2. Earnings Per Share
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No., 128, Earnings per Share (SFAS
128). SFAS 128 became effective for financial statements with interim and annual
periods ending after December 15, 1997. Accordingly, the Company adopted SFAS
128 for the quarter ended December 31, 1997. SFAS 128 establishes a different
method of computing earnings per common share than was previously required under
the provisions of Accounting Principles Board Opinion No. 15. SFAS 128 requires
the presentation of basic and diluted earnings per common share. Basic earnings
per common share is the amount of earnings for the period available to each
share of common stock outstanding during the reporting period. Diluted earnings
per common share is the amount of earnings for the period available to each
share of common stock outstanding during the reporting period and to each share
that would have been outstanding assuming the issuance of common shares for all
dilutive potential common shares outstanding during the period. The earnings per
common share as previously reported has been restated for all periods presented
to adopt the provisions of SFAS 128.
Basic earnings per share is computed based on the weighted average number of
common shares outstanding during the three month and six month periods ended
June 30, 1998 and 1997. Diluted earnings per share for the three month and six
month periods ended June 30, 1998 and 1997 is computed considering the dilutive
effect of stock options, and is not materially different from the basic earnings
per share calculations.
3. Stock Plan
In connection with entering into a stock purchase agreement with the Company
(the"NACT Stock Purchase Agreement"), on January 2, 1998 relating to the
purchase by World Access, Inc. ("WAI") of approximately 63% of Company's
outstanding common stock ("NACT Stock Purchase"), WAI entered into option
exchange agreements (the "Option Exchange Agreements") with the holders of
options to purchase an aggregate of 1,034,032 shares of NACT Common Stock (the
"Exchanged Options") representing approximately 99% of all the then-outstanding
options to acquire NACT Common Stock. Pursuant to the Option Exchange
Agreements, upon consummation of the NACT Stock Purchase, each Exchanged Option
was assumed by WAI and now constitutes an option to acquire, on the same terms
and conditions as were applicable under such Exchanged Option, a number of
shares of WAI Common Stock equal to (i) the product of the number of shares of
NACT Common Stock subject to such Exchanged Option (ii) multiplied by 0.8390
6
<PAGE>
with an exercise price per share equal to (i) the aggregate exercise price for
such shares of NACT Common Stock deemed to be purchasable pursuant to such
option; provided, however that none of Exchanged Options will be incentive stock
options under Section 422 of the Code and all such options are now exercisable.
As a result of the consummation of the NACT Stock Purchase Agreement on February
27, 1998, these options will become exercisable for shares of WAI Common Stock
on a one-for-one basis.
4. Inventories
Inventories are as follows (in thousands):
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
---------------------------------------------
<S> <C> <C>
Raw materials $1,578 $1,577
Work-in-process 576 587
Finished goods 432 189
Refurbished inventory held for sale 0 461
=============================================
$2,586 $2,814
=============================================
Inventory-long term $225 $225
=============================================
</TABLE>
5. Property and Equipment
Property and equipment are as follows (in thousands):
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
-------------------------------------
<S> <C> <C>
Furniture and equipment $314 $311
Computer equipment 1,014 900
Switch and testing equipment 1,748 1,165
Land 563 563
Building 3,652 3,638
-------------------------------
7,291 6,577
Less accumulated depreciation and amortization 1,037 698
===============================
$6,254 $5,879
==============================
</TABLE>
6. Comprehensive Income
The Company adopted Statement of Financial Accounting Standards No. 130 ("SFAS
130"), "Reporting Comprehensive Income", effective January 1, 1998. SFAS 130
establishes for reporting and display of comprehensive income and its components
in financial statements. The components of the Company's comprehensive income
are as follows:
Six months ended June 30,
1998 1997
---- ----
Net income $ 3,824 $ 1,892
Change in unrealized gain on marketable securities (27) 0
------- -------
Comprehensive income $ 3,797 $ 1,892
======= =======
7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
This report contains forward-looking statements that involve risks and
uncertainties. The actual future results of the Company could differ materially
from those statements. Factors that could cause or contribute to such
differences include, but are not limited to, uncertainties regarding market
acceptance of new products and product enhancements, delays in the introduction
of new products or enhancements, size and timing of individual orders,
competition and pricing in the software industry, general economic conditions in
the Company's geographic markets, seasonality of revenues, litigation involving
the Company, and the management of the Company's growth. These financial
statements should be read in conjunction with the Company's audited financial
statements for the year ended September 30, 1997, as included in the Company's
Annual Report on Form 10-K.
Results of Operations
The following table sets forth certain statement of operations data presented as
a percentage of revenues, for the period indicated:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------------------------ ------------------------------------------
Jun 30, 1998 Jun 30, 1997 Jun 30, 1998 Jun 30, 1997
------------------------------------------ -----------------------------------------
(Unaudited)
Revenues:
<S> <C> <C> <C> <C>
Product sales 93.1% 79.6% 87.5% 80.1%
Network carrier sales 6.9% 20.4% 12.5% 19.9%
---------------------------------- --------------------------------------------
Total revenues 100.0% 100.0% 100.0% 100.0%
Cost of goods sold:
Products 26.0% 20.2% 26.5% 23.9%
Network carrier usage 6.0% 19.3% 11.2% 18.9%
Amortization of acquired intangibles 1.6% 1.3% 1.7% 1.3%
---------------------------------- --------------------------------------------
Total cost of goods sold 33.6% 40.8% 39.4% 44.1%
---------------------------------- --------------------------------------------
Gross profit 66.4% 59.2% 60.6% 55.9%
Operating expenses:
Research and development 7.3% 10.3% 7.7% 10.1%
Sales and marketing 8.6% 11.4% 8.9% 10.3%
General and administrative 10.0% 12.3% 11.8% 12.1%
Amortization of acquired intangibles 1.4% 2.0% 1.5% 2.1%
---------------------------------- --------------------------------------------
Total operating expenses 27.3% 36.0% 29.9% 34.6%
---------------------------------- --------------------------------------------
Income from operations 39.1% 23.2% 30.7% 21.3%
Other Income (expense): 2.4% 2.1% 2.1% 2.0%
---------------------------------- --------------------------------------------
Income before income taxes 41.5% 25.3% 32.8% 23.3%
Income taxes 16.6% 10.1% 13.1% 9.3%
---------------------------------- --------------------------------------------
Net income 24.9% 15.2% 19.7% 14.0%
================================== ============================================
</TABLE>
8
<PAGE>
Total Revenues. The Company's revenues increased 44.3% from $7.2 million for the
three months ended June 30, 1997 to $10.4 million in the equivalent 1998
quarter. Product sales, which includes switching application and billing
systems, software, consulting, and factory support, increased 68.7% from $5.7
million for the three months ended June 30, 1997 to $9.7 million in the
equivalent 1998 quarter primarily due to sales of larger port capacity STX
switches and NTS billing systems to new and existing customers and STX
application system upgrades to existing customers. Network carrier sales
decreased 51.2% from $1.5 million for the three months ended June 30, 1997 to
$0.7 million in the equivalent 1998 quarter primarily due to one customer moving
a substantial portion of network carrier traffic to another carrier.
The Company's revenues increased 44.0% from $13.5 million for the six months
ended June 30, 1997 to $19.4 million in the equivalent 1998 period. Product
sales, which includes switching application and billing systems, software,
consulting, and factory support, increased 57.3% from $10.8 million for the six
months ended June 30, 1997 to $17.0 million in the equivalent 1998 period. The
increase results primarily from sales of larger port capacity STX switches and
NTS billing systems to new and existing customers and STX application system
upgrades to existing customers. Network carrier sales decreased 9.7% from $2.7
million for the six months ended June 30, 1997 to $2.4 million in the equivalent
1998 period primarily due to one customer moving a substantial portion of
network carrier traffic to another carrier.
Gross Profit.
Product Sales. The Company's gross profit increased 61.8% from $4.3 million for
the three months ended June 30, 1997 to $6.9 million in the equivalent 1998
quarter due to an increase in product sales resulting from sales of the higher
margin, larger port capacity STX switches and lower manufacturing costs per
unit. Gross profit on product sales as a percent of product sales was 74.6% and
72.1% for the three months ended June 30, 1997 and 1998, respectively.
The Company's gross profit increased 56.3% from $7.6 million for the six months
ended June 30, 1997 to $11.8 million in the equivalent 1998 period due to an
increase in product sales resulting from sales of the higher margin, larger port
capacity STX switches and lower manufacturing costs per unit. Gross profit on
product sales as a percent of product sales was 70.1% and 69.8% for the six
months ended June 30, 1997 and 1998, respectively.
Network Carrier Sales. The Company's gross profit increased 20.5% from $78,000
for the three months ended June 30, 1997 to $94,000 in the equivalent 1998
quarter, primarily due to lower network carrier rates paid by the Company. Gross
profit on network carrier sales as a percent of network carrier sales was 5.3%
and 13.1% for the three months ended June 30, 1997 and 1998, respectively.
The Company's gross profit increased 86.2% from $138,000 for the six months
ended June 30, 1997 to $257,000 in the equivalent 1998 period primarily due to
lower network carrier rates paid by the Company. Gross profit on network carrier
sales as a percent of network carrier sales was 5.1% and 10.6% for the six
months ended June 30, 1997 and 1998, respectively.
Research and Development. The Company's research and development expenses
increased 2.2% from $740,000 for the three months ended June 30, 1997 to
$756,000 in the equivalent 1998 quarter primarily due to an increase in
expenditures for planning, design, and completion of several hardware and
software research and development projects designed to enhance the STX switching
platform and upgrade the NTS billing system to a new hardware and software
platform. Capitalized software development costs were $212,000 and $271,000 for
the three months ended June 30, 1997 and 1998, respectively.
The Company's research and development expenses increased 10.3% from $1.4
million for the six months ended June 30, 1997 to $1.5 million in the equivalent
1998 period primarily due to an increase in personnel and other expenditures for
9
<PAGE>
planning, design, and completion of several hardware and software research and
development projects designed to enhance the STX switching platform and upgrade
the NTS billing system to a new hardware and software platform. Capitalized
software development costs were $629,000 and $480,000 for the six months ended
June 30, 1997 and 1998, respectively.
Sales and Marketing. The Company's sales and marketing expenses increased 8.6%
from $824,000 for the three months ended June 30, 1997 to $895,000 in the
equivalent 1998 quarter primarily due to increased advertising and trade show
expenditures, and increased commissions paid as a result of the increase in
product sales.
The Company's sales and marketing expenses increased 25.1% from $1.4 million for
the six months ended June 30, 1997 to $1.7 million in the equivalent 1998 period
primarily due to the hiring of additional senior sales personnel, international
marketing and selling efforts, increased advertising and trade show
expenditures, and increased commissions paid as a result of the increase in
product sales.
General and Administrative. The Company's general and administrative expenses
increased 16.4% from $891,000 for the three months ended June 30, 1997 to
$1,037,000 in the equivalent 1998 quarter primarily due to increased legal
expenses related to the patent infringement lawsuit.
The Company's general and administrative expenses increased 40.6% from $1.6
million for the six months ended June 30, 1997 to $2.3 million in the equivalent
1998 period primarily due to increased legal expenses related to the patent
infringement lawsuit, accounting, and investment banking expenses related to the
WAI Stock Purchase Agreement with GST USA, Inc. ("GST USA") and the Merger
Agreement with the Company's minority shareholders.
Amortization of Acquired Intangibles. The Company has included amortization of
acquired intangibles as a component of both cost of sales and operating
expenses. These intangibles arose as a result of the acquisition of the Company
by GST USA through a series of purchases of newly issued shares and shares owned
by former stockholders of the Company. Such purchases occurred from September
1993 through December 1994. GST USA accounted for the acquisition using the
purchase method of accounting. The excess of the purchase price over the fair
value of the assets acquired, was assigned by GST USA as product support
contracts, software development costs and goodwill. In accordance with
requirements of the SEC, these amounts have been included in the balance sheets
of the Company with related amortization recorded in cost of goods sold and
other operating expenses. Product support contracts and software development
costs are being amortized over a five year straight-line period. Goodwill is
being amortized over a 20 year straight-line period. In addition, the Company
acquired the customer list of its Eastern Europe network carrier customer in
September 1997. This customer list was recorded on the Company's books at the
lower of fair market value or cost as an intangible asset, and is being
amortized to cost of sales over a three-year period.
Income Taxes. The Company's effective tax rate for the six months ended June 30,
1998 was 40.0%. This is higher than the respective statutory federal and state
tax rates due to amortization of goodwill. This higher effective tax rate is
expected to continue during the amortization period of the acquired goodwill
from GST USA.
Fluctuations in quarterly operating results. Operating results have in the past
and may in the future fluctuate due to factors such as the timing of new product
introductions by the Company and its competitors, delays in new product
introductions by the Company, market acceptance of new or enhanced versions of
the Company's products, changes in the product or customer mix, changes in the
level of operating expenses, competitive pricing pressures, the gain or loss of
significant customers, increased research and development and sales and
marketing expenses associated with new product introductions and economic
conditions in general and in the Company's industry. Due to the high unit price
and long lead times associated with revenues derived from equipment orders, the
Company's financial results may fluctuate significantly depending upon the time
10
<PAGE>
of the actual shipment of such orders. All of the above factors are difficult
for the Company to forecast, and these or other factors can materially adversely
affect the Company's business, financial condition and results of operations for
one quarter or a series of quarters. The Company's expense levels are based in
part on its expectations regarding future sales and are fixed in the short term
to a large extent. Therefore, the Company may be unable to adjust spending in a
timely manner to compensate for any unexpected shortfall in sales. Any
significant decline in demand relative to the Company's expectations or any
material delay of customer orders could have a material adverse effect on the
Company's business, financial condition and results of operations.
Liquidity and Capital Resources. The Company currently finances its operations,
and normal reoccurring capital expenditures through cash flow from operations
and its current cash and short-term investment balances. For the six months
ended June 30, 1998, operating activities provided cash of $3.2 million.
As of June 30, 1998, the Company had cash, cash equivalents and marketable
securities totaling $14.8 million an increase of $2.3 million from December 31,
1997 primarily due to an increase in cash flow from operations.
The Company maintains an unsecured bank line of credit expiring in February 1999
that provides borrowings up to $1.0 million at the bank's prime rate plus one
point. There were no outstanding draws under the line of credit as of June 30,
1998.
The company acts as a guarantor on financing of some customer transactions
executed under repurchase agreements with two financial institutions. In
accordance with the terms of one of the repurchase agreements, the company
maintains a $6.0 million unrestricted cash balance. As of June 30, 1998, the
Company was contingently liable under these repurchase agreements for
approximately $7.6 million.
The Company believes that the June 30, 1998 cash and marketable securities
balances, anticipated cash flows from operations and its line of credit will
satisfy the Company's working capital and capital expenditure requirements for
at least the next twelve months. However, there can be no assurance that the
Company will not be required to seek additional capital sooner or, if so
required, that adequate capital will be available on terms acceptable to the
Company, or at all.
Year 2000 Compliance. The Company currently sells the NTS 1000 billing system
which will require upgrading by the year 2000 due to its existing limitation of
using only two digits to identify the year in the date field. The Company is
planning release of its new billing system, the NTS 2000, by the first calendar
quarter of 1999, which overcomes the two digit limitation currently experienced
on the NTS 1000. Furthermore, the Company is in the process of modifying the NTS
1000 software to overcome the two digit limitation. This modification of the NTS
1000 software is anticipated to be completed by the first calendar quarter in
1999. The company anticipates the majority of customers will upgrade to the NTS
2000. No assurance can be made that any of the Company's customers will upgrade
to the NTS 2000 or that the modification to the NTS 1000 software will be
successful or completed on time. In the event that a significant number of the
Company's customers do not upgrade to the NTS 2000 or the NTS 1000 software
modification is not successful, the Company may incur expenses and potential
loss of ongoing service revenues.
The Company is in the process of evaluating its computer systems to determine
what modifications (if any) are necessary to make such systems compatible with
the year 2000 requirements. However, because many of the Company's computer
systems have been put into service within the last several years, the Company
does not expect any such modifications to have a material adverse effect on the
Company's financial position or results of operations. There can be no
11
<PAGE>
assurance, however, that the computer systems of other companies on which the
Company's systems rely will be timely modified, or that a failure to modify such
systems by another company, or modifications that are incompatible with the
Company's systems, would not have a material adverse effect on the Company.
12
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27: Financial Data Schedule
(b) Reports on Form 8-K
None
13
<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.
Date: August 14, 1998
NACT TELECOMMUNICATIONS, INC.
(Registrant)
/S/ A. Lindsay Wallace
-------------------------------------
A. Lindsay Wallace
President and Chief Executive Officer
/S/ Eric F. Gurr
-------------------------------------
Eric F. Gurr
Chief Financial Officer
14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 11,264,000
<SECURITIES> 3,500,000
<RECEIVABLES> 16,649,000
<ALLOWANCES> (872,000)
<INVENTORY> 2,811,000
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<TOTAL-ASSETS> 47,314,000
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<COMMON> 81,000
0
0
<OTHER-SE> 38,199,000
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<SALES> 10,402,000
<TOTAL-REVENUES> 10,402,000
<CGS> 3,496,000
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<INCOME-TAX> 1,730,000
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<NET-INCOME> 2,595,000
<EPS-PRIMARY> 0.32
<EPS-DILUTED> 0.32
</TABLE>
