SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 10549
FORM 10-Q
(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
( ) 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
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(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 July 30, 1998 the Company had outstanding 16,321,497 shares of common
stock, $.01 par value per share.
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.........11
PART II. OTHER INFORMATION:
Item 1. Legal Proceedings......................................14
Item 4. Submission of Matters to a Vote of Security Holders....14
Item 6. Exhibits and Reports on Form 8-K.......................14
BOSTON COMMUNICATIONS GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
ASSETS DECEMBER 31, JUNE 30,
1997 1998
---- ----
Current assets:
Cash and cash equivalents $ 23,601 $ 22,144
Short-term investments 10,103 6,113
Accounts receivable, net of allowance for
billing adjustments and doubtful accounts
of $ 1,304 in 1997 and $1,203 in 1998 12,445 16,069
Inventory 1,550 2,741
Deferred income taxes 1,564 1,564
Prepaid expenses and other assets 630 1,049
-------- --------
Total current assets 49,893 49,680
Property and equipment, net 38,087 37,724
Goodwill, net 4,067 3,764
Other assets 1,338 281
-------- --------
Total assets $ 93,385 $ 91,449
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,786 $ 863
Accrued expenses 7,304 9,218
Income taxes payable 466 206
Current maturities of capital lease
obligations 1,127 1,149
-------- --------
Total current liabilities 11,683 11,436
Capital lease obligations, net of current
maturities 1,598 1,014
Shareholders' equity:
Preferred Stock, par value $.01 per share,
2,000,000 shares authorized, 0 shares issued
and outstanding - -
Common Stock, voting, par value $.01 per share,
35,000,000 shares authorized, 16,273,947 and
16,317,047 shares issued in 1997 and 1998,
respectively 163 163
Additional paid-in capital 91,029 91,103
Treasury stock (46,420 shares, at cost) (372) (372)
Accumulated deficit (10,716) (11,895)
-------- --------
Total shareholders' equity 80,104 78,999
-------- --------
Total liabilities and
shareholders' equity $ 93,385 $ 91,449
======== ========
BOSTON COMMUNICATIONS GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1997 1998 1997 1998
--------- --------- -------- --------
Revenues:
Roaming services $ 8,048 $ 7,059 $15,060 $14,855
Teleservices 4,375 6,226 8,164 10,815
Prepaid wireless services 1,513 4,043 2,303 6,977
System sales 2,417 3,932 6,445 8,996
------- ------- ------- -------
16,353 21,260 31,972 41,643
Expenses:
Cost of service revenues 10,882 12,899 20,301 24,940
Cost of system revenues 1,095 2,180 3,735 4,853
Engineering, research and development 1,168 1,176 2,197 2,579
Sales and marketing 1,230 1,308 2,293 2,643
General and administrative 824 1,469 1,473 2,883
Depreciation and amortization 1,203 2,695 2,093 5,146
Impairment of long-lived assets - 698 - 698
------- ------- ------- -------
Total operating expenses 16,402 22,425 32,092 43,742
------- ------- ------- -------
Operating loss (49) (1,165) (120) (2,099)
Interest income 135 326 397 712
------- ------- ------- -------
Income(loss) before income taxes 86 (839) 277 (1,387)
Provision(benefit) for income taxes 43 - 141 (208)
------- ------- ------- -------
Net income(loss) $ 43 $ (839) $ 136 $(1,179)
======= ======= ======= =======
Basic and diluted net income (loss)
per common share $ 0.00 $ (0.05) $ 0.01 $ (0.07)
======= ======= ======= =======
Shares used in computing basic and
diluted net income (loss) per
common share 13,261 16,269 13,055 16,262
======= ======= ======= =======
BOSTON COMMUNICATIONS GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
SIX MONTHS ENDED
JUNE 30,
1997 1998
---- ----
OPERATING ACTIVITIES
Net income(loss) $ 136 $(1,179)
Adjustments to reconcile net income(loss) to net
cash used in operating activities:
Depreciation and amortization 2,092 5,146
Impairment of long-lived assets - 698
Changes in operating assets and liabilities:
Accounts receivable (3,999) (3,624)
Inventory (1,245) (1,191)
Prepaid expenses and other assets (566) (147)
Accounts payable and accrued expenses 1,471 (9)
Income taxes payable 63 (260)
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Net cash used in operations (2,048) (566)
INVESTING ACTIVITIES
Purchases of property and equipment (16,327) (4,393)
Sales of short-term investments 17,536 12,119
Purchases of short-term investments - (8,129)
-------- -------
Net cash provided by (used in) investing activities 1,209 (403)
FINANCING ACTIVITIES
Proceeds from exercise of stock options 753 74
Repayment of capital leases - (562)
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Net cash provided by(used in) financing activities 753 (488)
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Decrease in cash and cash equivalents (86) (1,457)
Cash and cash equivalents at beginning of period 923 23,601
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Cash and cash equivalents at end of period $ 837 $22,144
======== =======
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. 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 six month periods ended June 30, 1998 and 1997.
3. Inventory
Inventories consisted of the following at:
December 31, June 30,
1997 1998
---- ----
Purchased parts $1,114 $2,349
Work-in-process 127 320
Finished goods 309 72
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$1,550 $2,741
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
4. 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.
5. Property and Equipment
In accordance with Financial Accounting Standards Board No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of", the Company reviews its long-lived assets for the impairment
whenever events or changes in circumstances indicate the carrying amount of
an asset may not be recoverable. If it is determined that the carrying amount
of an asset cannot be fully recovered, an impairment loss is recognized.
During the quarter ended June 30, 1998, the Company recorded an additional
impairment loss of $698,000 for equipment which had already been removed from
operations. The Company intends to sell these assets in 1998 and has adjusted
the net book value of the equipment to the estimated sales value.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS - JUNE 30, 1997 AND 1998
- ----------------------------------------------
Service and system revenues
- ---------------------------
Total revenues increased 29.9% from $16.4 million in the three months ended June
30, 1997 to $21.3 million in the three months ended June 30, 1998 and increased
30.0% from $32.0 million in the six months ended June 30, 1997 to $41.6 million
in the six months ended June 30, 1998.
Roaming service revenues decreased 12.3% or $989,000 from the three months ended
June 30, 1997 compared to the same period ended June 30, 1998 and 1.4% or
$205,000 from the six month period ended June 30, 1997 compared to 1998. The
decrease in roaming service revenues reflects the suspension of the AT&T calling
card as a billing option until AT&T completes an upgrade of their system to make
it more compatible with the Company's system. The decrease also resulted from
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 40.9% or $1.8 million and 31.7% or $2.6 million,
respectively, for the three month and six month periods ended June 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 167% or $2.5
million and 204% or $4.7 million, respectively for the three and six month
periods ended June 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 June 30, 1998, 56 C2C network switches were
deployed in various markets throughout North America compared to 33 as of June
30, 1997. These switches were processing calls for approximately 487,000 C2C
subscribers as of June 30, 1998 compared to 139,000 subscribers as of June 30,
1997.
System sales increased 62.5% or $1.5 million from the three month period ended
June 30, 1997 to the same period ended June 30, 1998 and increased 40.6% or $2.6
million from the six month period ended June 30, 1997 to the same period ended
June 30, 1998. The increases resulted primarily from the sale of systems to
continue the expansion of prepaid wireless systems throughout South America.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS - JUNE 30, 1997 AND 1998 (CONTINUED)
- ----------------------------------------------------------
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 78.4% of service revenues for the three months
ended June 30, 1997 to 74.6% of service revenues for the three months ended June
30, 1998. Cost of service revenues decreased from 79.6% of service revenues for
the six months ended June 30, 1997 to 76.4% of service revenues for the six
months ended June 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. The cost
of services 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 45.8% of
system revenues for the three months ended June 30, 1997 to 56.4% of system
revenues for the three months ended June 30, 1998. The higher margin in the
three months ended June 30, 1997 resulted from an international system sale
which yielded a favorable gross margin. Cost of system revenues decreased from
57.8% of system revenues for the six months ended June 30, 1997 to 54.4% of
system revenues for the six months ended June 30, 1998. This decrease in cost
of system revenues as a percentage of system revenues resulted from the
expansion of systems in Mexico in early 1997 at lower margins. System sales
margins can vary from period to period based on the size, type and installation
requirements of the systems 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 remained relatively
constant for the three month periods ended June 30, 1997 and 1998 and increased
$382,000 or 17.4% from the six months ended June 30, 1997 to the six months
ended June 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 $78,000 or 6.3% from the three months ended June 30, 1997 to the three
months ended June 30, 1998 and increased $350,000 or 15.3% from the six months
ended June 30, 1997 to the six months ended June 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.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS - JUNE 30, 1997 AND 1998 (CONTINUED)
- ----------------------------------------------------------
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 $645,000 or 78.3% from the three months ended
June 30, 1997 to the three months ended June 30, 1998. For the six months ended
June 30, 1998, general and administrative expenses increased $1.4 million or
93.3% 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 $1.5 million or 125% and $3.0 million or 143%,
respectively, during the three and six-month periods ended June 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 1998 due to increased capital expenditures for
telecommunications systems to support the continued expansion and enhancement of
the C2C Network along with increased capital expenditures for a leased call
center facility in Florida to support expansion of the teleservices division.
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 which had already been
removed from operations.
Interest income, net
- --------------------
Interest income increased $191,000 and $315,000, respectively, for the three and
six-month periods ended June 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 resulted from
higher cash and investment balances than in the prior year partially
attributable to greater cash generated from operating income in the three months
ended June 30, 1998.
Provision for income taxes
- --------------------------
The Company's effective income tax benefit for the three and six-month periods
ended June 30, 1998 was 0% and 15%, respectively. As a result of non-deductible
goodwill amortization, the income tax rate may be significantly higher than
statutory income tax rates in the foreseeable future.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS - JUNE 30, 1997 AND 1998 (CONTINUED)
- ----------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
At June 30, 1998 the Company had cash, cash equivalents and short-term
investments of $28.3 million as compared to $33.7 million at December 31, 1997.
Net cash used in operating activities for the six months ended June 30, 1998 was
$566,000 and resulted from an increase in accounts receivable and inventory
offset by increased depreciation expense. Accounts receivable increased $3.6
million primarily due to increased revenues from prepaid wireless services,
teleservices and systems 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 $5.1 million resulting from greater
capital investment made in the Company's C2C network.
Net cash used in investing activities was $403,000 for the six months ended June
30, 1998. Purchases of telecommunications systems equipment and software of
$4.4 million were made primarily to support the expansion of the Company's C2C
network. These purchases were offset by net proceeds of $4.0 million from sales
of short-term investments. The Company anticipates that over the next 12
months, additional capital investments will continue to be made to support
service enhancements and additional switches to support the C2C network.
Net cash used in financing activities for the six months ended June 30, 1998 was
$488,000 and consisted principally of capital lease payments.
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.
The Company has begun to review its computer systems for Year 2000 compliance
and has designed a plan to test whether their systems will conform to Year 2000
requirements. The Company is expensing all costs associated with these system
changes and does not anticipate that these costs will have a material impact on
its financial position or results of operations. 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.
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 income tax rates significantly higher than statutory income
tax rates. 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 two quarters of
1998, primarily due to expenses associated with the development 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, personnel changes 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.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
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 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. In addition the development of better fraud
controls implemented by the carriers could decrease the demand for the Company's
roaming and other 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.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
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 single vendors, which 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.
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.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On November 20, 1997, AT&T Wireless Services (AWS) sent a letter to
the Company 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 by Ronald A. Katz Technology
Licensing, L.P. and MCI Telecommunications Corporation against AT&T
Corp. in the United States District Court for the Eastern District of
Pennsylvania. The letter asserts that Count 13 of the complaint, which
relates in part to prepaid wireless service, gives rise to an
obligation on the part of the Company to indemnify AWS with respect to
that count. The amount in question is undetermined. The suit against
AT&T Corp. was filed on July 8, 1997. The contract between the Company
and AWS pursuant to which the Company presently provides prepaid
services to AWS, and upon which AWS's claim for indemnification is
based, was not executed until October 15, 1997. For this and other
reasons, the Company believes that the claim is without merit. No
legal action has been brought against the Company; however the Company
was served on April 2, 1998 with a subpoena seeking a deposition of a
Company representative and production of documents. The Company filed
a response and objections to the subpoena in May and is in the process
of producing documents in connection with the response.
PART II. OTHER INFORMATION (Continued)
Item 4. Submission of Matters to a Vote of Security Holders
The Company held the 1998 Annual Meeting of Shareholders (the "Annual
Meeting") on May 21, 1998. At the Annual Meeting, the following
actions were taken:
1. The shareholders elected Jerrold D. Adams, Paul R. Gudonis, and
Frederic E. von Mering as Class II Directors of the Company to
serve 3 year terms. The table below outlines the voting results:
Number of Shares/Votes
----------------------
For Against
--- -------
Jerrold D. Adams 14,781,084 146,890
Paul R. Gudonis 14,780,984 146,990
Frederick E. von Mering 14,754,345 173,629
2. The shareholders ratified the appointment of Ernst & Young LLP as
the Company's independent auditors by a vote of 14,884,175 shares
of Common Stock for, 13,315 shares of Common Stock against and
30,484 shares of Common Stock abstained.
3. The shareholders ratified and approved the adoption of the
Company's 1998 Stock Incentive Plan by a vote of 13,005,692 shares
of Common Stock for, 1,846,894 shares of Common Stock against and
75,388 shares of Common Stock abstained.
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
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: August 13, 1998 By: /s/ Fritz von Mering
--------------------
Fritz von Mering
Vice President, Finance
and Administration (Principal
Financial and Accounting
Officer and Duly Authorized
Officer)
BOSTON COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1998
INDEX TO EXHIBITS
-----------------
Exhibit No. Description
- ----------- -----------
*10.43 Agreement dated May 15, 1998 between the
Company and ICT Group, Inc.
*10.44 Agreement dated May 4, 1998 between the
Company and Smartalk Teleservices, Inc.
27 Financial Data Schedule
* Confidential treatment requested as to certain portions