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 MARCH 31, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO ___________
Commission file number 0-21519
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International Telecommunication Data Systems, Inc.
--------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 06-1295986
- -------------------------------------------------------------------------- ----------------------------------------------
(State or other jurisdiction of incorporation or organization) (I.R.S. employer identification no.)
225 High Ridge Road, Stamford, CT 06905
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(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code (203) 329-3300
--------------
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.
Class Outstanding at May 5, 1997
- ------------------------------ -----------------------------------------
Common Stock, $.01 par value 8,486,941 shares
<PAGE>
International Telecommunication Data Systems, Inc.
and Subsidiary
Form 10-Q
Index
Part I. Financial Information Page No.
Item 1. Financial Statements (unaudited)
Consolidated balance sheets--March 31, 1997 and December 31, 1996...........1
Consolidated statements of operations--three months
ended March 31, 1997 and 1996............................................3
Consolidated statements of cash flows--three months ended
March 31, 1997 and 1996..................................................4
Notes to Consolidated financial statements..................................5
Item 2. Management's Discussion and Analysis of Financial Condition,
Results of Operations, and Certain Factors That May Affect
Future Results.................................................................7
Part II. Other Information
Item 1. Legal Proceedings....................................................10
Item 2. Changes in Securities................................................10
Item 3. Defaults Upon Senior Securities......................................10
Item 4. Submission of Matters to a Vote of Security Holders..................10
Item 5. Other Information....................................................10
Item 6. Exhibits and Reports on Form 8-K.....................................10
Signatures...........................................................11
<PAGE>
Part I. Financial Information
Item 1. Financial Statements
International Telecommunication Data Systems, Inc. and Subsidiary
Consolidated Balance Sheets
<TABLE>
<CAPTION>
March 31 December 31
1997 1996
---------------------------------------
(Unaudited) (See Note)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 1,771,582 $ 4,138,575
Accounts receivable, net of allowances for doubtful accounts of $50,000 and
52,370 respectively 3,534,711 3,232,967
Securities available for sale, at estimated market value 27,850,127 25,023,454
Prepaid expenses, including income taxes in 1997 and 1996 821,173 1,503,209
Short-term investments 49,978 -
Deferred income taxes 49,000 44,000
---------------------------------------
Total current assets 34,076,571 33,942,205
Property and equipment
Computers, including leased property under capital leases of $1,217,050 and
$1,863,103, respectively 3,776,401 2,986,056
Furniture and fixtures, including leased property under capital leases of $33,119
in 1997 and 1996 446,535 446,535
Trade booth 214,390 98,854
Equipment, including leased property under capital leases of $53,508 in 1997 and
1996 152,996 152,996
Leasehold improvements 589,479 589,479
---------------------------------------
5,179,801 4,273,920
Less: accumulated depreciation and amortization 1,563,155 1,328,228
---------------------------------------
3,616,646 2,945,692
Other assets:
Product development costs-at cost, net of accumulated amortization of $689,828 and
$586,215, respectively 1,524,758 1,343,727
Other 318,203 165,913
---------------------------------------
1,842,961 1,509,640
---------------------------------------
Total assets $39,536,178 $38,397,537
=======================================
</TABLE>
See notes to financial statements.
1
<PAGE>
<TABLE>
<CAPTION>
March 31 December 31
1997 1996
---------------------------------------
(Unaudited) (See Note)
<S> <C> <C>
Liabilities and stockholders' equity Current liabilities:
Accounts payable $ 1,162,594 $ 685,739
Accrued expenses and income taxes payable 1,208,367 765,713
Accrued compensation 239,702 272,059
Current portion of accrued rent liability 41,059 41,059
Current maturities of capital lease obligations 371,547 538,238
---------------------------------------
Total current liabilities 3,023,269 2,302,808
Accrued rent liability 60,375 70,639
Capital lease obligations 269,796 878,432
Deferred income taxes 515,578 407,000
Other 21,240
Commitments and contingencies --
Stockholders' equity
Preferred stock, $.01 par value; 2,000,000 shares authorized, none issued -
Common Stock, $.01 par value; 40,000,000 shares authorized, 8,436,941 and
8,436,504 -- --
shares issued and outstanding at March 31, 1997 and
December 31, 1996, respectively 84,369 84,365
Additional paid-in capital 43,520,677 43,472,324
Retained deficit (7,740,091) (8,802,298)
Unrealized loss on securities available for sale (197,795) (36,973)
---------------------------------------
Total stockholders' equity 35,667,160 34,717,478
---------------------------------------
Total liabilities and stockholders' equity $39,536,178 $38,397,537
=======================================
</TABLE>
Note: The balance sheet at December 31, 1996 has been derived from the
audited financial statements at that date but does not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements.
See notes to financial statements.
2
<PAGE>
International Telecommunication Data Systems, Inc.
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
March 31
1997 1996
---------------------------------
<S> <C> <C>
Revenue $5,270,367 $3,933,843
Costs and expenses:
Operating expenses 1,320,530 920,752
General, administrative and selling expenses 1,541,058 1,326,113
Depreciation and amortization 346,491 206,027
Systems development and programming costs 623,686 427,629
---------------------------------
Total costs and expenses 3,831,765 2,880,521
---------------------------------
Operating income 1,438,602 1,053,322
Other income 413,663 7,789
Interest expense (48,857) (108,587)
---------------------------------
Income before income tax expense 1,803,408 952,524
Income tax expense 741,201 403,965
---------------------------------
Net income $1,062,207 $ 548,559
=================================
Income per common share:
Net income $ .13 $ .09
=================================
Shares used in computing income per common share 8,436,693 6,194,171
=================================
</TABLE>
See notes to financial statements.
3
<PAGE>
International Telecommunication Data Systems, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three months ended March 31
1997 1996
-----------------------------------
<S> <C> <C>
Operating activities
Net income $ 1,062,207 $ 548,559
Adjustments to reconcile net income cash provided by operating activities:
Depreciation and amortization 346,491 206,027
Deferred taxes 103,578 (2,737)
Stock option compensation expense 21,000 --
Change in operating assets and liabilities:
Accounts receivable (301,744) (911,295)
Prepaid expenses 333,841 4,619
Deferred revenue --
Accounts payable, accrued expenses and accrued compensation 887,153 (231,022)
Other assets and liabilities, net (170,507) (29,654)
-----------------------------------
Net cash provided by (used for) operating activities 2,282,019 (415,503)
Investing activities
Capital expenditures (1,551,932) --
Purchased securities available for sale (2,987,496) --
Purchase of investments (1,783) (3,517)
Proceeds from maturities of investments 300,000 --
Product development costs (284,644) (168,592)
-----------------------------------
Net cash used for investing activities (4,525,855) (172,109)
Financing activities
Principal payments on long-term debt and notes payable -- (34,079)
Principal payments on capital lease obligations (129,275) (90,496)
Proceeds from sale of common stock 6,118 --
-----------------------------------
Net cash used for financing activities (123,157) (124,575)
Net decrease in cash and cash equivalents (2,366,993) (712,187)
Cash and cash equivalents at beginning of period 4,138,575 1,172,692
-----------------------------------
Cash and cash equivalents at end of period $1,771,582 $ 460,505
===================================
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 48,857 $ 108,587
Cash paid during the period for taxes $ 154,205 $ 100,080
Supplemental disclosure of noncash financing activities:
Capital lease obligations totaling $161,274 in the three months ended March 31, 1996 were incurred for the acquisition of new
equipment.
</TABLE>
See notes to financial statements.
4
<PAGE>
International Telecommunication Data Systems, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(Unaudited)
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulations S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three month period ended March 31, 1997
are not necessarily indicative of the results that may be expected for the year
ended December 31, 1997. For further information, refer to the financial
statements and footnotes thereto included in the International Telecommunication
Data Systems, Inc. (the "Company" or "ITDS") Annual Report on Form 10K for the
year ended December 31, 1996.
Consolidation:
The consolidated financial statement include the accounts of the Company and its
wholly-owned subsidiary. All significant intercompany accounts and transactions
have been eliminated.
On February 28, 1997, the Company announced it signed a five year contract with
MCOMCAST to provide service bureau billing services from ITDS' data processing
facility to be located in Sao Paulo, Brazil. Under the term of the agreement
ITDS LTDA, a Brazilian limited liability corporation and wholly owned subsidiary
of ITDS, will install the 10X billing and customer care management information
systems at MCOMCAST's facility in Sao Paulo, Brazil. The ITDS data center,
staffed with ITDS LTDA employees, will be responsible for the production and
execution of all message processing and billing functions for MCOMCAST.
The operating results of this entity have not been significant.
2. Initial Public Offering
The Company completed an initial public offering ("IPO") of its common stock in
October 1996. The Company sold 2 million shares at an initial public offering
price of $16 per share, resulting in proceeds to the Company of approximately
$29.8 million, after deducting underwriting commissions and discounts. In
addition, on November 18, 1996 the Company received approximately $3.0 million,
net of underwriting commissions and discounts, upon the exercise of the
underwriters' over-allotment option to purchase 200,000 shares of Common Stock
from the Company in connection with the IPO.
In connection with the IPO, the Company's Certificate of Incorporation
authorized the issuance of up to 40,000,000 shares of Common Stock, $.01 par
value per share and the issuance of up to 2,000,000 shares of Preferred Stock,
$.01 par value per share. Pursuant to a recapitalization the Company was
reincorporated in the State of Delaware and an 800-for-1 split of its Common
Stock was effected.
A portion of the proceeds from the sale of the Company's Common Stock sold in
the IPO was used to retire substantially all of the Company's outstanding debt.
In addition, the Company's Class A and B Preferred Stock was retired and the
holders of such shares were issued an aggregate of 852,812 post-split shares of
the Company's Common Stock and paid an aggregate amount of $825,000. The
distribution of the 852,812 shares of the Company's Common Stock valued at $12
per share, for an aggregate of $10,233,744, resulted in a one-time, noncash
charge to retained earnings and a corresponding increase to additional
paid-in-capital. Further, immediately prior to the IPO, Connecticut Innovations
Incorporated ("CII") exercised outstanding warrants to purchase 334,524
post-split shares of the Company's Common Stock at an aggregate purchase price
of $822,959. In addition, upon the closing of the IPO all of the outstanding
shares of Series C Preferred Stock of the Company (all of which were held by
CII) converted into an aggregate of 103,200 shares of Common Stock.
5
<PAGE>
International Telecommunication Data Systems, Inc. and Subsidiary
Notes to Consolidated Financial Statements
3. Income Tax
Income tax provisions for interim periods are based on estimated effective
annual income tax rates. The Company recognizes deferred tax assets and
liabilities for the expected future tax consequences of temporary differences
between tax bases and financial reporting bases of assets and liabilities.
The differences between the effective tax rate and the federal statutory rate is
primarily a result of state income taxes.
4. Earnings Per Share
Earnings per share are based on the weighted average number of shares
outstanding and common stock equivalents during the respective periods,
including the assumed net shares issuable upon exercise of stock options when
dilutive. Common and common equivalent shares issued during the year prior to
the IPO at prices below the IPO price are included in the calculations, using
the treasury stock method, as if they were outstanding for all periods
presented.
The weighted average shares for the three ended March 31, 1996 were based on the
equivalent weighted average shares as though the recapitalization discussed in
Note 2 occurred prior to that date.
5. Subsequent Event
The Company completed an offering of 1,000,000 shares of its common stock in
April 1997. Of the 1,000,000 shares of common stock, par value $.01 per share,
the Company offered 50,000 shares and 950,000 were offered by selling
stockholders. The Company received $327,000 after deducting offering expenses.
ITDS did not receive any proceeds from the sale of shares by the selling
stockholders.
For further details see the Company's Registration Statement on Form S-1
(Registration No. 333-22567) declared effective by the SEC on March 27, 1997.
6
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition, Results of
Operations, and Certain Factors that May Affect Future Results
ITDS provides comprehensive transactional billing and management information
solutions to providers of wireless, long distance and satellite
telecommunications services. The Company, founded in 1990, uses its robust and
flexible proprietary software technology to develop billing solutions which
address customer requirements as they evolve, regardless of the market segment,
geographic area or mix of network features and billing options. The Company
provides its services to customers under exclusive contracts with terms
typically ranging from three to five years and bills customers monthly,
typically on a per-subscriber basis. As a result, substantially all of the
Company's revenue is recurring in nature, and increases as a provider's
subscriber base grows.
In recent years, the telecommunications services industry has experienced rapid
growth and dramatic change, ranging from the introduction of such new
technologies as cellular, PCS and satellite communications, to new features and
services, in a wide variety of combinations and at a great diversity of prices.
The Company's systems are designed to respond to the dynamic requirements of
this market for cost-effective transactional billing solutions by drawing on the
Company's core technology, which does not require significant reconfiguration or
customization to be applied across market segments, geographic areas and
customer types. The Company's software currently supports both of the two
predominant cellular telecommunications protocols, Advanced Mobil Phone Systems
("AMPS"), an analog service predominant in the U.S., and the Global System for
Mobile Communications ("GSM"), an international digital service, as well as
other emerging digital standards.
The Company's advanced billing and management information system, ITDS 10X,
forms the foundation for its integrated suite of applications that provide not
only subscriber billing and service support, but also the means to automate
subscriber activation, remittance processing, collections, data retrieval and
reporting, electronic funds transfer, credit management, inventory management
and data archiving. Its modular system architecture permits providers to draw on
those features and functions most appropriate to their specific requirements in
a fully-integrated software solution. The Company's software and services allow
its customers to address the demands of a rapidly evolving marketplace by
enabling them to develop and support innovative rate and feature offerings
without the delay and cost associated with reconfiguring their billing and
information systems; to identify and respond to subscriber demands through
analysis of billing and subscriber databases; to reduce costs with accurate and
timely receivables information; and to manage the subscriber relationship in a
comprehensive and cost-effective manner.
Revenue. Revenue increased by 34.0% to $5,270,367 in the first quarter of 1997
from $3,933,843 in the first quarter of 1996. The increases were due primarily
to the addition of new customers and the growth of continued revenue from
existing customers.
Operating Expenses. Operating expenses increased 43.4% from $920,752 in the
first quarter of 1996 to $1,320,530 for the three months ended March 31, 1997.
These increases were primarily due to the growth in revenue.
7
<PAGE>
General, Administrative and Selling Expenses. During the first 3 months of 1997,
general, administrative and selling expenses increased 16.2% or $214,945 from
$1,326,113 for the three months ended March 31, 1996 to $1,541,058 in the
comparable period in 1997. The increases were in office expenses of $141,860,
employee compensation and benefits, including employment agency fees, of
$128,760, outside consultation of $111,091, rent expense of $48,895 and other
administrative expenses resulting from the growth of the Company. These expenses
were partially offset by decreases in salaries and bonuses paid to senior
management of approximately $351,216.
The Company expects that its general, administrative and selling expenses will
increase as it continues to expand its direct sales force and its marketing
activities.
Depreciation and Amortization. Depreciation and amortization increased 68.2%
from $206,027 in the first quarter of 1996 to $346,491 in the first quarter of
1997. This increase was primarily due to the purchase of computer equipment and
the increased spending on software development related to the enhancement of the
Company's ITDS 10X system to support Unix based file servers and the further
development of its integrated billing and management information system.
Systems Development and Programming Costs. Systems development and programming
costs increased 45.85% from $427,629 for the three months ended March 31, 1996
to $623,686 in the respective 1997 period. As a percentage of revenue, systems
development and programming costs increased from 10.9% for the three months
ended March 31, 1996 to 11.8% for the same period in 1997. These increases were
due primarily to increased programming support required by customers and
additional software features offered on the Company's integrated system. These
increases were primarily due to increased program support required by
customers and additional software features offered on the Company's integrated
system.
Interest Expense. Interest expense decreased 55.0% from $108,587 for the first
quarter of 1996 to $48,857 in the first quarter of 1997. This decrease was the
result of lower overall debt and capital lease balances in 1997.
Income Tax Expense. The effective tax rate decreased to 41.1% for the three
months ended March 31, 1997 from 42.4% for the comparable period in 1996. This
decrease was due primarily to the elimination of non-deductible expenses.
Liquidity and Capital Resources
The Company has financed its operations to date primarily through private
placements of debt and equity securities, cash generated from operations,
equipment financing leases and the receipt of the proceeds from the IPO.
As of March 31, 1997, the Company had $1,771,582 of cash and cash equivalents,
$27,850,127 in securities available for sale, $49,978 in short-term investments,
$3,534,711 in net trade accounts receivable, and $31,053,302 of working capital.
Net cash decreased by $2,366,993 for the three months ended March 31, 1997. This
decrease is principally a result of purchases of securities available for sale,
capital expenditures and an increase in accounts receivable, product development
costs and principal payments on capital lease obligations. Offsetting these uses
of funds were increases in depreciation and amortization, accounts payable,
accrued expenses, and proceeds from the maturities of investments.
The Company has an available line of credit, dated September 19, 1996, from
First Union Bank in the amount of $250,000 under which no amounts are currently
outstanding under this line. In conjunction with such line of credit, the
Company has granted to First Union a security interest in substantially all of
its assets other than intellectual property.
8
<PAGE>
The Company believes that its existing capital resources are adequate to meet
its cash requirements for the foreseeable future. There can be no assurance,
however, that changes in the Company's plans or other events affecting the
Company's operations will not result in accelerated or unexpected expenditures.
The Company may seek additional funding through public or private financing.
There can be no assurance, however, that additional financing will be available
from any of these sources or will be available on terms acceptable to the
Company.
To date, inflation has not had a significant impact on the Company's operations.
Certain Factors That May Affect Future Results
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share," which
changes the methodology of calculating earnings per share. SFAS No. 128 requires
a disclosure of diluted earnings per share regardless of its difference from
basic earnings per share. The Company plans to adopt SFAS No. 128 in December
1997. Early adoption is not permitted. The Company does not expect the adoption
of SFAS No. 128 to have a material effect on the financial statements.
This quarterly report contains forward-looking statements that involve risks and
uncertainties. 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, changes in the telecommunication market, the Company's
ability to retain existing customers and attract new customers, the Company's
continuing ability to develop products that are responsive to the evolving needs
of its customers, increased competition, changes in operating expenses, changes
in government regulation of the Company's clients and general economic factors.
The Company's quarterly operating results may fluctuate from quarter to quarter
depending on various factors, including the impact of significant start-up costs
associated with initiating the delivery of contracted services to new clients,
the hiring of additional staff, new product development and other expenses,
introduction of new products by competitors, pricing pressures, the evolving and
unpredictable nature of the markets in which the Company's products and services
are sold and general economic conditions.
The market for the Company's products and services is highly competitive, and
competition is increasing as additional market opportunities arise.
Reference is made to the more detailed discussion of the risks associated with
the Company's business contained under the heading "Risk Factors" in the
Company's Registration Statement on Form S-1 (Registration No. 333-22567)
declared effective by the SEC on March 27, 1997.
9
<PAGE>
Part II: Other Information
Item 1.
Legal Proceedings
The Company is not a party to any material legal proceedings.
Item 2.
Changes in Securities
None
Item 3.
Defaults Upon Senior Securities
None.
Item 4.
Submission of Matters to a Vote of Security Holders
None
Item 5.
Other Information
None.
Item 6.
Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27.01 Financial Data Schedule
(b) Reports on Form 8-K
None.
10
<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.
International Telecommunication
Data Systems, Inc.
------------------------------------------------------
(Registrant)
By /s/ Mark D. Spitzer
------------------------------------------------------
Mark D. Spitzer
Executive Vice President
(Chief Financial Officer)
11
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 1,771,582
<SECURITIES> 27,900,105
<RECEIVABLES> 3,534,711
<ALLOWANCES> 50,000
<INVENTORY> 0
<CURRENT-ASSETS> 34,076,571
<PP&E> 5,179,801
<DEPRECIATION> 1,563,155
<TOTAL-ASSETS> 39,536,178
<CURRENT-LIABILITIES> 3,023,269
<BONDS> 0
0
0
<COMMON> 84,369
<OTHER-SE> 35,582,791
<TOTAL-LIABILITY-AND-EQUITY> 39,536,178
<SALES> 0
<TOTAL-REVENUES> 5,270,367
<CGS> 0
<TOTAL-COSTS> 1,320,530
<OTHER-EXPENSES> 2,511,235
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 48,857
<INCOME-PRETAX> 1,803,408
<INCOME-TAX> 741,201
<INCOME-CONTINUING> 1,062,207
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,062,207
<EPS-PRIMARY> .13
<EPS-DILUTED> .13
</TABLE>
