As filed with the Securities and Exchange Commission on August 29, 1996
Registration No. 333-
=============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
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International Telecommunication Data Systems, Inc.
(Exact Name Of Registrant As Specified In Its Charter)
Delaware 7371 06-12959
(State or other (Primary Standard (I.R.S.
jurisdiction of Industrial Employer
incorporation or Classification Code Identification
organization) Number) No.)
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969 High Ridge Road, Suite 205, Stamford, Connecticut 06905 (203) 329-3300
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
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CHARLES L. BAKES
President and Chief Executive Officer
INTERNATIONAL TELECOMMUNICATION DATA SYSTEMS, INC.
969 High Ridge Road, Suite 205
Stamford, Connecticut 06905 (203) 329-3300
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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Copies to:
JOHN A. BURGESS, ESQ.
JOHN H. CHORY, ESQ. BARBARA L. BECKER, ESQ.
Hale and Dorr Chadbourne & Parke LLP
60 State Street 30 Rockefeller Plaza
Boston, Massachusetts 02109 New York, NY 10112
(617) 526-6000 (212) 408-5100
Approximate date of commencement of proposed sale to the public: As soon
as practicable after the effective date hereof.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities
Act of 1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the
same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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Proposed
Maximum
Aggregate Amount of
Title Of Each Class Of Offering Registration
Securities To Be Registered Price (1) Fee
- -------------------------------------- -------------- ---------------
Common Stock, $.01 par value per share $49,066,672 $16,920
(1) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(o) under the Securities Act of
1933.
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The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Commission, acting
pursuant to Section 8(a), may determine.
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Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such State.
Subject to Completion, dated , 1996
PROSPECTUS
2,666,667 Shares
[ITDS logo]
INTERNATIONAL
TELECOMMUNICATION
DATA SYSTEMS
Common Stock
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Of the 2,666,667 shares of Common Stock, par value $.01 per share, of
International Telecommunication Data Systems, Inc. ("ITDS" or the "Company"),
2,000,000 are being offered by the Company and 666,667 are being offered by
the Selling Stockholders. See "Principal and Selling Stockholders". The
Company will not receive any of the proceeds from the sale of shares of
Common Stock by the Selling Stockholders. Prior to this offering, there has
been no public market for the Common Stock. It is currently estimated that
the initial public offering price will be between $14.00 and $16.00 per
share. For factors to be considered in determining the initial public
offering price, see "Underwriting". Application has been made to have the
Common Stock approved for quotation on the Nasdaq National Market under the
symbol "ITDS".
-------------
See "Risk Factors" beginning on page 6 for a discussion of factors that
should be considered by prospective purchasers of the Common Stock offered
hereby.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
Underwriting
Discounts and Proceeds to
Price to Commissions Proceeds to Selling
Public (1) Company (2) Stockholders
Per Share $ $ $ $
Total (3) $ $ $ $
(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933. See "Underwriting".
(2) Before deducting estimated expenses of $750,000 payable by the Company.
(3) The Company and the Selling Stockholders have granted the Underwriters
30-day options to purchase up to an aggregate of 400,000 additional
shares of Common Stock on the same terms and conditions as set forth
above solely to cover over-allotments, if any. If such options are
exercised in full, the total Price to Public, Underwriting Discounts and
Commissions, Proceeds to Company and Proceeds to Selling Stockholders
will be $ , $ , $ and $ , respectively. See
"Underwriting".
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The shares of Common Stock offered by this Prospectus are offered severally
by the Underwriters subject to receipt and acceptance by them and subject to
their right to reject any order in whole or in part. It is expected that
delivery of certificates for the shares will be made at the offices of Lehman
Brothers Inc., New York, New York, on or about , 1996.
-------------
Lehman Brothers Cowen & Company
, 1996.
[Picture of Globe in night sky
Perspective of flat plane disappearing in distance]
[ITDS logo]
INTERNATIONAL
TELECOMMUNICATION
DATA SYSTEMS
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
2
[Photograph depicting ITDS facility]
[Photograph depicting use of ITDS Point of Sale product at remote location]
Provided to users as a complete package, the ITDS Point Of Sale product can
be installed at a carrier's home office, a mall kiosk, or on a remote laptop
computer -- virtually anywhere that subscribers demand sales, service and
activations.
ITDS Features:
(bullet) UNIX Platform Option
(bullet) Relational Data Bases
(bullet) Text or GUI Presentation
(bullet) CIBER Compliant
(bullet) GSM Compliant
(bullet) CORD Compliant
(bullet) Full Product Integration
[Text Representation of Chart]
Out Bound Traffic
-----------------------------------------> To Roaming
| (Fraud, Billing, Settlement Records) Partners
|
|
|
| In Bound Traffic (All Roamer Records) From Roaming
| --------------------------------------- Partners
| |
| |
| |
| V (Home & Roam
Switch DMH Call Billing Records) ITDS 10X(R) Subscriber
MTSO ----> Handler -------------------> File Server (UNIX or Intel)
| |
| |
| |
| |
|------------> Home Fraud Analysis |
(Home & Roam | |
Fraud Records) | |
| |
| |
| |
- ---------------------------------------------------------------------------
| | | | | | | | | |
SwitchLink | | CreditLink | | Payment | | 10XArchive
Provisioning | | | | | Options | | CD/ROM
| | | | | | | |
| | | Point | | | |
Debit/Threshold | | Of | |InventoryScan |
Billing | | Sale | | |
| | | | | | |
| | | | | | |
General Ledger | | | Collections | 10XWrite
Interface | | | Module | Report Writer
| | | | |
| ------ -------------------------------------
| | | | | |
| | | | | |
| | | | | |
Client Credit Credit ITDS | ACH Bank
Accounting Bureau Cards PayScan | Draft
System |
Direct
Invoice
[Photograph depicting use of ITDS Point of Sale product at Kiosk location]
Designed to reduce the amount of keystrokes by sales clerks, ITDS' fully
integrated Point Of Sale system is an intelligent sales processing system.
[Photo of Globe] INNOVATION, QUALITY, AND SERVICE EXCEEDING EXPECTATIONS
Innovation, Quality, and Service Exceeding Expectations is ITDS' corporate
mission statement. These components form the foundation upon which ITDS' staff
relies in order to meet the challenges of a diverse world-wide telecommunication
revolution.
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the Financial Statements and Notes thereto appearing
elsewhere in this Prospectus. Except as otherwise noted herein, all
information contained in this Prospectus (i) reflects the reincorporation of
the Company from a Connecticut corporation to a Delaware corporation in
September 1996, the associated changes in the Company's charter and by-laws
and the related restatement of the Company's capital stock, which relate to
the retirement of the Company's Class A and Class B Preferred Stock and have
the effect of an 800-for-1 stock split, (ii) reflects the conversion of all
outstanding shares of the Company's Series C Convertible Preferred Stock (the
"Series C Convertible Preferred Stock") to Common Stock upon the closing of
this offering, (iii) reflects the exercise of all of the outstanding warrants
of the Company (the "Warrants") into shares of Common Stock prior to the
closing of this offering (collectively, with items (i) and (ii), the
"Recapitalization"), and (iv) assumes no exercise of the Underwriters'
over-allotment options.
The Company
ITDS provides comprehensive transactional billing and management
information solutions to providers of wireless, long distance and satellite
telecommunications services. The Company uses its robust and flexible
proprietary software technology to develop billing solutions which address
customer requirements as they evolve, regardless of market segment,
geographic area or mix of network features or billing options. The Company
typically provides its services to customers under exclusive contracts with
terms ranging from three to four years, and customers are billed monthly 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. Over the past decade, the number of
cellular subscribers has increased 58% on a compound annual basis.
Deregulation and the introduction of new technologies, such as personal
communication services (PCS) and satellite communications, have spurred the
introduction of new entrants and increased competitive pressures across the
telecommunications services market. Markets that were once rigidly segmented
by service within defined geographic areas are converging into a single
telecommunications market, which includes both traditional service providers
and a variety of new participants. Because of these competitive pressures and
the proliferation of service features and pricing options within the
telecommunications services industry, the billing function is continuing to
evolve from primarily a service support function to a marketing and revenue
enhancement device used to differentiate the increasingly fungible services
offered by providers. Service providers need billing and management
information solutions which (i) enable them to differentiate themselves
quickly and efficiently in a crowded market; (ii) integrate seamlessly with
their corporate management information services; and (iii) offer flexibility
and reliability as critical components of subscriber relations, communication
and retention.
Driven by the requirements of the telecommunications services market, the
Company's revenues have increased rapidly in recent years from approximately
$3.1 million in 1993 to $6.3 million and $10.8 million in 1994 and 1995,
respectively. For the 12-month period ended June 30, 1996, recurring revenues
accounted for over 93.8% of total revenues, and 80.5% of the Company's
revenue was generated by companies which have been customers for at least one
year.
The Company's advanced ITDS 10X system 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.
The Company's software and services allow its customers to develop and
support innovative rate and feature offerings without the delay and cost
associated with reconfiguring their billing and information system; 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.
The Company's solutions are implemented for its customers by highly
experienced teams with expertise in meeting the transactional billing
requirements of telecommunications services providers. The Company's software
is installed at a customer site to interface directly with the customer's
systems and generate relevant billing and other data, as well as to support a
wide range of transactional billing and subscriber management functions. The
3
Company processes billing information generated through the use of its
software systems, eliminating the need for customers to maintain their own
"back-office" data processing operations.
The Company intends to leverage its established technology and customer
base (i) to expand sales to wireless telecommunications providers, including
larger service providers and providers of such emerging services as PCS and
satellite; (ii) to offer a complete transactional billing solution to
providers in other segments of the telecommunications services market, such
as wireline and data, Internet and other enhanced services, as well as new
entrants, such as utilities and cable companies; and (iii) to expand
internationally, where providers face the same need for comprehensive
solutions as those in the U.S. The Company intends to meet these objectives
by drawing on the expertise of its existing organization, as well as by
building a dedicated direct sales organization and developing strategic
relationships with equipment vendors and other key industry participants. The
Company believes that these efforts, coupled with the capabilities of its
existing software and the introduction of new system enhancements, will
permit significant continued growth in its target marketplaces.
The Company was incorporated as a Connecticut corporation in June 1990 and
was reincorporated in Delaware in September 1996. The Company's principal
executive office is located at 969 High Ridge Road, Suite 205, Stamford,
Connecticut 06905, and its telephone number is (203) 329-3300.
ITDS 10X, SwitchLink, CreditLink and PayScan are trademarks of ITDS. All
other trademarks or trade names referred to in this Prospectus are the
property of their respective owners.
Risk Factors
For a discussion of considerations relevant to an investment in the Common
Stock, see "Risk Factors."
The Offering
Common Stock offered by the 2,000,000 shares
Company.
Common Stock offered by the 666,667 shares
Selling Stockholders
Common Stock to be outstanding 8,165,736 shares (1)
after the offering
Use of proceeds by the Company For general corporate purposes, including
the funding of working capital and growth,
repayment of certain indebtedness and
potential acquisitions. See "Use of
Proceeds."
Nasdaq National Market symbol ITDS
- -------------
(1) Based upon the number of shares outstanding as of August 31, 1996.
Excludes 1,200,000 shares reserved for issuance under the Company's 1996
Stock Incentive Plan and 1996 Employee Stock Purchase Plan.
4
Summary Financial Information
(in thousands, except per share data)
Six Months
Year Ended December 31, Ended June 30,
------------------------ -----------------
1993 1994 1995 1995 1996
----- ----- ------ ------ -------
Statements of Operations
Data:
Revenue $3,146 $6,324 $10,821 $4,886 $7,865
Operating income 197 1,106 1,608 894 1,932
Income (loss) before
extraordinary item (1) (82) 708 826 467 994
Per common share data (2):
Income (loss) before
extraordinary item (.02) .14 .16 .09 .19
Extraordinary loss -- -- (.04) (.04) --0
----- ----- ------ ------ ------
Net income (loss) (.02) .14 .12 .05 .19
Shares used in determining
net income (loss) per
share 4,779 5,067 4,875 4,875 4,875
===== ===== ====== ====== ======
As of June 30, 1996
As of December 31, As Adjusted
1995 Actual (3)
------------------ ----- -------------
Balance Sheet Data:
Cash, cash equivalents and
short term investments $1,468 $1,372 $25,283
Working capital 1,210 2,256 26,388
Total assets 5,434 6,500 35,901
Long-term debt and capital
lease obligations 2,437 2,482 491
Stockholders' equity 1,019 1,952 28,909
- -------------
(1) In 1995, the Company experienced an extraordinary loss of $224 (net of
$158 tax benefit) in connection with the refinancing of long-term debt.
(2) Computed on the basis described in Note 1 of the Notes to Financial
Statements.
(3) Adjusted to give effect to the sale by the Company of 2,000 shares of
Common Stock offered hereby (at an assumed initial public offering price
of $15.00 per share and after deducting the estimated underwriting
discount and offering expenses) and the application of the net proceeds
therefrom. See "Use of Proceeds" and "Capitalization."
5
RISK FACTORS
In addition to the other information in this Prospectus, the following
risk factors should be considered carefully in evaluating an investment in
the Common Stock offered by this Prospectus.
Rapidly Changing Telecommunications Market
Over the last decade, the market for telecommunications services has been
characterized by rapid technological developments, evolving industry
standards, dramatic changes in the regulatory environment and frequent new
product introductions. The Company's success will depend, in large part, upon
its ability to enhance its existing products and services, and to introduce
new products and services, which will respond to these market requirements as
they evolve. To date, substantially all of the Company's revenues are
attributable to wireless customers. While the Company believes that systems
and services which it offers to address the needs of the wireless market will
also permit it to attract customers in other segments of the
telecommunications services industry, there can be no assurance that it will
be able to do so. In addition, technologies, services or standards may be
developed which could require significant changes in the Company's business
model, development of new products, or provision of additional services, at
substantial cost to the Company and which may also result in the introduction
of additional competitors into the marketplace. Furthermore, if the overall
market for telecommunications services fails to evolve and converge in the
manner contemplated by the Company or grows more slowly than anticipated, or
if the Company's products and services fail in any respect to achieve market
acceptance, there could be a material adverse effect on the Company's
business, financial condition and results of operations. The
telecommunications industry is also characterized by significant and rapid
strategic alignments. Merger or consolidation of one or more
telecommunications services providers could result in the loss to the Company
of customers or sales opportunities, and there can be no assurance that new
entrants to the market will become customers of the Company.
Management of Growth
The Company has experienced rapid growth and intends to continue to
aggressively expand its operations. The Company's total revenues have
increased from $3.1 million in 1993 to $10.8 million in 1995, and the growth
in the size and complexity of its business, as well as its customer base, has
placed and is expected to continue to place significant demands on the
Company's administrative, operational and financial personnel and systems.
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 its operations. The Company's future operating
results will depend on the ability of its officers and key employees to
manage changing business conditions and to implement and improve its
operational, financial control and reporting functions. If the Company is
unable to respond to and manage expansion of its operations, the quality of
the Company's services, its ability to retain key personnel and its business,
financial condition and results of operations could be materially adversely
affected.
In addition, the number of the Company's employees has increased from 26
as of January 1993 to 169 as of July 1996. The Company anticipates that
continued growth will require it to recruit and hire a substantial number of
new development, managerial, finance, sales and marketing support personnel.
The Company is currently in the process of establishing and hiring personnel
for its marketing and sales operations. There can be no assurance that the
Company will be successful in hiring or retaining any of the foregoing
personnel. The Company's ability to compete effectively and to manage future
growth, if any, will depend on its ability to improve operational systems and
to expand, train, motivate and manage its workforce.
New Products and Rapid Technological Change
The market for the Company's products and services is characterized by
rapid technological change. The Company believes that its future success
depends in part upon its ability to enhance its current products and services
and develop new products and services that address the increasingly complex
needs of its customers. In addition, the introduction by third parties of new
products or services could render the Company's existing products and
services obsolete or unmarketable. The Company's ability to anticipate
changes in technology and successfully develop and introduce new or enhanced
products incorporating such technology on a timely basis will be significant
factors in its ability to remain competitive. There can be no assurance that
the Company will complete on a timely or successful basis the development of
new or enhanced products or services or successfully manage transitions from
one product release to the next, that the Company will not encounter
difficulties or delays in the introduction
6
of new or enhanced products, or that defects will not be found in such new or
enhanced products after installation, resulting in a loss of, or delay in,
market acceptance. In particular, the Company is currently developing a
series of enhancements to its existing software system, including
incorporation of a Windows 95 compatible user interface, incorporation of an
Oracle relational database management system, and support of Unix based file
servers. The Company believes that these enhancements will permit the Company
to compete effectively as technology evolves and facilitate its ability to
address the requirements of larger telecommunications services providers. If
the Company is unable to introduce these new enhancements on a timely basis,
or such enhancements result in the introduction of "bugs" or other
performance impairments in the Company's systems, the Company's business,
financial condition and results of operations could be materially adversely
affected, and its ability to expand its sales activities could be
significantly limited.
Dependence on Cellular Telephone Industry
Although the Company's products have been designed to adapt to a variety
of current and future technologies, a significant majority of its revenues to
date have been generated by sales of its systems and services to service
providers in the cellular telephone industry. A decrease in the number of
cellular service subscribers served by the Company's customers could result
in lower revenues for the Company. Although the cellular market has
experienced substantial growth in the number of subscribers in the past,
there can be no assurance that such growth will be sustained. In addition,
industry reports have indicated that the average monthly bill per subscriber
has decreased in recent years. Such decreases could result in increased price
competition among billing service providers. Furthermore, any adverse
development in the cellular telephone industry could have a material adverse
effect on the business, financial condition and results of operations of the
Company. See "Business--Customers."
Reliance On Significant Customers
During the years ended December 31, 1994 and 1995, and the six months
ended June 30, 1996 revenues from The Lincoln Telephone and Telegraph Company
and its affiliated companies represented approximately 13.2%, 11.8% and 17.2%
(reflects the acquisition of Nebraska Cellular by Lincoln Telephone) of the
Company's total revenue, respectively, and the Company's three largest
customers represented 24.0% of its total revenue for the six months ended
June 30, 1996. The Company has long-term contracts with all of its
significant customers, however there can be no assurance that any such
customer will renew its contract with the Company at the end of the contract
term or may not seek to terminate its contract on the basis of alleged
contractual defaults or other grounds. Loss of all or a significant part of
the business of any of the Company's substantial customers would have a
material adverse effect on the Company's business, financial condition and
results of operations. Additionally, the acquisition by a third party of one
of the Company's substantial customers could result in the loss of that
customer and have a material adverse effect on the business, financial
condition and results of operations of the Company. See "Business--Customers"
and "Management's Discussion and Analysis of Financial Condition and Results
of Operations."
Expansion of Sales Activities
To date, the Company has sold its products and services primarily through
the efforts of its senior management. The Company's current customers, while
significant to the Company, are relatively small in comparison with many of
the national and multinational telecommunication services providers. In order
to achieve significant long-term growth in revenues and its overall strategic
goals, the Company intends to attract as customers a number of larger
telecommunications services providers. In order to do so, and to expand its
business generally, the Company believes that it must establish a dedicated
sales and marketing organization. While the Company has begun these efforts,
the Company's dedicated sales staff currently includes three persons, and it
is still in the process of hiring sales and marketing personnel. There can be
no assurance that the Company will be able to achieve anticipated expansion
of its business, attract larger telecommunications services providers as
customers or build an efficient and effective sales and marketing
organization. In the event the Company is unable to achieve any one or more
of the foregoing goals, the Company's business, financial condition and
results of operations could be materially adversely affected. See
"--Management of Growth."
Dependence on Key Personnel
The Company's performance depends substantially on the performance of its
executive officers and key employees and its long-term success will depend
upon its ability to recruit, retain and motivate highly skilled personnel.
Competition for such personnel is intense, and there can be no assurance that
the Company will be able
7
to attract, assimilate or retain highly skilled personnel in the future. The
inability to attract and retain the necessary personnel could have a material
adverse effect upon the Company's business, financial condition and results
of operations. Charles L. Bakes, the Company's President and Chief Executive
Officer, Mark D. Spitzer, the Company's Executive Vice President and Chief
Financial Officer, Lewis D. Bakes, the Company's Executive Vice President and
Chief Operating Officer, and David L. Wells the Company's Executive Vice
President and Chief Information Officer, and certain other executive officers
have been primarily responsible for the development and expansion of the
Company's business. The loss of the services of one or more of these
individuals could have a material adverse affect on the Company's business,
financial condition and results of operations. None of Messrs. C. Bakes,
Spitzer, L. Bakes or Wells is subject to employment agreements with the
Company. See "Business--Employees" and "Management."
Competition
The market for billing and management information systems for the
telecommunications services industry is highly competitive and the Company
expects that the high level of growth within the telecommunications services
industry will encourage new entrants, both domestically and internationally,
in the future. The Company competes with independent providers of
transactional systems and services, with the billing services of management
consulting companies and with internal billing departments of
telecommunications services providers. The Company anticipates continued
growth in competition in the telecommunications services industry and
consequently the entrance of new competitors into its market in the future.
In addition, merger or consolidation of telecommunications services providers
could result in the loss to the Company of customers or sales opportunities
to competitors.
Many of the Company's current and potential future competitors have
significantly greater financial, technical and marketing resources, generate
higher revenues and have greater name recognition than does the Company. In
addition, many of the Company's competitors have established commercial
relationships or joint ventures with major cellular and other
telecommunications services providers. As a result, the Company's competitors
may be able to adapt more quickly to new or emerging technologies and changes
in customer requirements, or to devote greater resources to the promotion and
sale of products than the Company.
Dependence on Proprietary Technology
The Company's success is dependent in part upon its proprietary software
technology. The Company relies on trademark, copyright and trade secret laws,
employee and third-party non-disclosure agreements and other methods to
protect its proprietary rights. There can be no assurance that its agreements
with employees, consultants and others who participate in the development of
its software will not be breached, that the Company will have adequate
remedies for any breach, or that the Company's trade secrets will not
otherwise become known to or independently developed by competitors.
Furthermore, there can be no assurance that the Company's efforts to protect
its rights through trademark and copyright laws will prevent the development
and design by others of products or technology similar to or competitive with
those developed by the Company. The computer technology industry is
characterized by frequent and substantial intellectual property litigation.
The Company is not aware of any patent infringement or any violation of other
proprietary rights claimed by any third party relating to the Company or the
Company's products.
The Company's success will depend in part on its continued ability to
obtain and use licensed technology that is important to certain
functionalities of its products. The inability to continue to procure or use
such technology could have a material adverse effect on the Company's
business, financial condition and results of operations. See
"Business--Proprietary Technology."
Fluctuations in Quarterly Performance
The Company's revenues and operating results may fluctuate from quarter to
quarter due to a number of factors, including the timing, size and nature of
the Company's contracts; the hiring of additional staff; seasonal variations
in cellular telephone subscriptions; the timing of the introduction and the
market acceptance of new products or product enhancements by the Company or
its competitors; changes in the Company's operating expenses; and
fluctuations in economic and financial market conditions. Fluctuations in
quarterly operating results may result in volatility in the price of the
Common Stock. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
8
Government Regulation
Currently, the Company's business is not subject to direct government
regulation; however, the Company's existing and potential customers are
subject to extensive regulation. Changes in regulation which adversely affect
the Company's existing and potential customers could have a material adverse
effect on the business, financial condition and results of operations of the
Company. See "Business--Overview of the Communications Industry Background."
Concentration of Stock Ownership
Upon completion of this offering, the present directors, executive
officers and their respective affiliates will beneficially own approximately
52.2% of the outstanding Common Stock, assuming no exercise of the
Underwriters' over allotment options and approximately 50.9% of the
outstanding Common Stock assuming full exercise of the Underwriters' over
allotment options. As a result, these stockholders will be able to exercise
significant influence over all matters requiring stockholder approval,
including the election of directors and approval of significant corporate
transactions. Such concentration of ownership may also have the effect of
delaying or preventing a change in control of the Company. See "Description
of Capital Stock--Delaware Law and Certain Charter and By-Law Provisions" and
"Principal and Selling Stockholders."
No Prior Public Market; Determination of Offering Price; Possible Volatility
of Stock Price
Prior to this offering, there has been no public market for the Common
Stock, and there can be no assurance that an active public market for the
Common Stock will develop or be sustained after this offering. The initial
offering price will be determined by negotiation between the Company and
representatives of the Underwriters based upon several factors. See
"Underwriting" for a discussion of such factors. The market price of the
Common Stock is likely to be highly volatile and could be subject to wide
fluctuations in response to quarterly variations in operating results,
announcements of technological innovations or new products by the Company or
its competitors, changes in financial estimates by securities analysts, or
other events or factors. In addition, the stock market has experienced
significant price and volume fluctuations that have particularly affected the
market price of equity securities of many high technology companies and that
often have been unrelated to the operating performance of such companies. In
the past, following periods of volatility in the market price of a company's
securities, securities class action litigation has often been instituted
against such a company. Such litigation could result in substantial costs and
a diversion of management's attention and resources, which would have a
material adverse effect on the Company's business, financial condition and
results of operations. These broad market fluctuations may adversely affect
the market price of the Common Stock. See "Underwriting."
Dilution
Investors participating in this offering will incur an immediate and
substantial dilution in the net tangible book value of the Common Stock from
the initial public offering price. See "Dilution."
Shares Eligible for Future Sale
Sales of a substantial number of shares of Common Stock in the public
market following this offering could adversely affect the market price for
the Common Stock. See "Shares Eligible for Future Sale" and "Description of
Capital Stock."
Certain Anti-Takeover Effect Provisions Affecting Stockholders
The Company's Certificate of Incorporation (the "Certificate of
Incorporation") and By-laws (the "By-laws") provide that any action required
or permitted to be taken by stockholders of the Company must be effected at a
duly called annual or special meeting of stockholders and may not be effected
by any consent in writing, and require reasonable advance notice by a
stockholder of a proposal or director nomination which such stockholder
desires to present at any annual or special meeting of stockholders. Special
meetings of stockholders may be called only by the Chairman of the Board, the
Chief Executive Officer or, if none, the President of the Company or by the
Board of Directors. The Certificate of Incorporation and By-laws provide for
a classified Board of Directors, and members of the Board of Directors may be
removed only for cause upon the affirmative vote of holders of at least
two-thirds of the shares of capital stock of the Company entitled to vote.
The Board of Directors will have the authority, without further action by the
stockholders, to fix the rights and preferences of, and issue shares of, the
Company's authorized Preferred Stock. The rights of the holders of Common
Stock will be subject to, and may
9
be adversely affected by, the rights of any holders of Preferred Stock that
may be issued in the future. The Company has no present plans to issue any
shares of the Company's Preferred Stock. In addition, the Company is subject
to the anti-takeover provisions of Section 203 of the Delaware General
Corporation Law, which prohibit the Company from engaging in a "business
combination" with an "interested stockholder" for a period of three years
after the date of the transaction in which such stockholder became an
"Interested Stockholder" unless the business combination is approved in a
prescribed manner. The application of Section 203 could have the effect of
delaying or preventing a change of control of the Company. These provisions,
and the provisions of the Certificate of Incorporation and By-laws, may have
the effect of deterring hostile takeovers or delaying or preventing changes
in control or management of the Company, including transactions in which
stockholders might otherwise receive a premium for their shares over then
current market prices. In addition, these provisions may limit the ability of
stockholders to approve transactions that they may deem to be in their best
interests. See "Description of Capital Stock--Preferred Stock" and
"--Delaware Law and Certain Charter and By-law Provisions."
10
USE OF PROCEEDS
The net proceeds to the Company from the sale of 2,000,000 shares of
Common Stock offered by the Company hereby are estimated to be $27,150,000
($29,940,000 if the Underwriters' over-allotment options are exercised in
full) assuming an initial public offering price of $15.00 per share, after
deducting the estimated underwriting discount and commission and estimated
offering expenses payable by the Company. The Company will not receive any
proceeds from the sale of shares of Common Stock by the Selling Stockholders.
The principal purposes of this offering are to increase the Company's equity
capital, create a public market for the Common Stock, increase the visibility
of the Company in the marketplace, and facilitate future access by the
Company to public equity markets.
The Company expects to use the net proceeds to the Company from this
offering to repay certain outstanding indebtedness (pursuant to two
promissory notes payable to Connecticut Innovations, Incorporated ("CII"),
promissory notes payable to former holders of the Company's Class A and Class
B Preferred Stock) and for general corporate purposes, including the funding
of working capital and growth. At July 31, 1996, the Company had outstanding
two promissory notes payable to CII; one dated December 1994, in the
principal amount of $286,394 with an annual interest rate of 10% payable in
53 monthly installments and the other dated June 1995 in the principal amount
of $1,485,000 with an annual interest rate of 14.5% with interest only
payable through July 1997 and principal and interest payable in 60 monthly
installments beginning August 1997. The promissory notes payable to the
former holders of Class A and Class B Preferred Stock were issued in
connection with the Recapitalization, are in the aggregate amount of
$825,000, are interest free and are due upon the completion of this offering.
In addition, pursuant to a Royalty Agreement dated August 16, 1991, as
amended, between the Company and CII (the "CII Agreement"), the Company will
make a one-time payment to CII of $200,000 from the net proceeds of this
offering.
The Company may seek acquisitions of businesses, products and technologies
that are complementary to those of the Company, and a portion of the net
proceeds may be used for such acquisitions. While the Company engages from
time to time in discussions with respect to potential acquisitions, the
Company has no plans, commitments or agreements with respect to any such
acquisitions as of the date of this Prospectus, and there can be no
assurances that any such acquisitions will be made. Pending such uses, the
Company intends to invest the net proceeds from this offering in short-term,
investment grade, interest-bearing instruments.
DIVIDEND POLICY
In 1994, 1995 and 1996, the Company paid cash dividends to the holders of
Class A Preferred Stock in the aggregate amounts of $22,500, $33,750 and
$36,000, respectively. During 1996, the Company will have paid cash dividends
in the aggregate amount of approximately $45,511 to the Class C Convertible
Preferred Stock prior to its conversion upon completion of this offering.
Other than as described above, the Company currently intends to retain
earnings, if any, to support the development of its business and does not
anticipate paying cash dividends for the foreseeable future. Payment of
future dividends, if any, will be at the discretion of the Company's Board of
Directors after taking into account various factors, including the Company's
earnings, financial condition, operating results and current and anticipated
cash needs as well as such economic conditions as the Board of Directors may
deem relevant.
11
CAPITALIZATION
The following table sets forth (i) the unaudited capitalization of the
Company at June 30, 1996, (ii) the unaudited pro forma capitalization which
gives effect to the Recapitalization and (iii) the unaudited pro forma as
adjusted capitalization which gives effect to the sale of 2,000,000 shares of
Common Stock offered hereby by the Company at an assumed initial public
offering price of $15.00 per share and the application of the estimated net
proceeds therefrom. This table should be read in conjunction with the
Company's Financial Statements and Notes thereto included elsewhere in this
Prospectus.
June 30, 1996
------------------------------
Pro Forma
Pro as
Forma Adjusted
Actual (1) (2)
----- ------ -----------
(in thousands)
Long-Term debt and capital lease
obligations $2,482 $3,307 $ 491
Stockholders' equity (deficit):
Class A Preferred Stock, $25,000 par
value; 50 shares authorized, 18 shares
issued and outstanding, actual; none
authorized or issued and outstanding,
pro forma and pro forma as adjusted 400 -- --
Class B Preferred Stock, $250 par value;
2,000 shares authorized, 1,500 shares
issued and outstanding, actual; none
authorized or issued and outstanding,
pro forma and pro forma as adjusted 328 -- --
Class C Convertible Preferred Stock,
$4,961.24 par value; 250 shares
authorized, 129 issued and outstanding,
actual; none issued and outstanding,
pro forma and pro forma as adjusted
(Series C Convertible Preferred Stock) 640 -- --
Preferred Stock, $.01 par value; none
authorized or issued and outstanding,
actual; 2,000,000 shares authorized,
none issued and outstanding, pro forma
and pro forma as adjusted -- -- --
Common Stock, $.01 par value; 40,000,000
shares authorized, 5,124,800 shares
issued and 4,875,200 outstanding,
actual (3); 6,165,736 shares issued and
outstanding, pro forma; 8,165,736
shares issued and outstanding, pro
forma as adjusted 51 62 82
Additional paid-in capital 62 1,026 27,956
Retained earnings 871 871 871
Treasury stock (400) -- --
------ ------ -------
Total stockholders' equity 1,952 1,959 28,909
------ ------ -------
Total capitalization $4,434 $5,266 $29,400
====== ====== =======
(1) Includes $822,959 received by the Company upon exercise of the Warrants
and the retirement of 249,600 shares held in treasury.
(2) Excludes 1,200,000 shares of Common Stock reserved for issuance pursuant
to the Company's 1996 Stock Incentive Plan and 1996 Employee Stock
Purchase Plan.
(3) After giving effect to the 800-for-1 stock split effected by the
Recapitalization.
12
DILUTION
The pro forma net tangible book value of the Company as of June 30, 1996
was $1,959,000 or $.32 per share, after giving effect to the
Recapitalization. Pro forma net tangible book value per share represents the
amount of total tangible assets of the Company reduced by the Company's total
liabilities, divided by the pro forma number of shares of Common Stock
outstanding. After giving effect to the sale by the Company of 2,000,000
shares of Common Stock offered by the Company at an assumed initial public
offering price of $15.00 per share (after deducting the estimated
underwriting discount and commission and estimated offering expenses), the
pro forma net tangible book value of the Company as of June 30, 1996 would
have been $28,909,000, or $3.54 per share. This represents an immediate
increase in pro forma net tangible book value of $3.22 per share to existing
stockholders and an immediate dilution in pro forma net tangible book value
of $11.46 per share to new investors purchasing Common Stock in this
offering. The following table illustrates this per share dilution:
Assumed initial public offering price per share $15.00
Pro forma net tangible book value per share as of June 30,
1996 $ .32
Increase per share attributable to this offering 3.22
-----
Pro forma net tangible book value per share after this
offering 3.54
-------
Dilution per share to new investors $11.46
=======
The following table sets forth on a pro forma basis as of June 30, 1996,
after giving effect to the Recapitalization, the number of shares of Common
Stock purchased from the Company, the total consideration paid to the Company
and the average price paid per share by the existing stockholders and by the
investors purchasing shares of Common Stock offered hereby (at an assumed
initial public offering price of $15.00 per share):
Shares Purchased Total Consideration
------------------ --------------------
Average
Price
Number Percent Amount Percent Per Share
-------- ------ ---------- ------ ----------
Existing
stockholders 6,165,736 75.5% $ 2,289,559 7.1% $ .37
New investors 2,000,000 24.5 30,000,000 92.9 15.00
--------- ----- ----------- ----- ------
Total 8,165,736 100.0% $32,289,559 100.0%
========= ===== =========== =====
The foregoing tables assume no exercise of the Underwriters'
over-allotment options. See "Underwriting." To the extent that any stock is
purchased or stock options granted in the future are exercised pursuant to
the Company's 1996 Employee Stock Purchase Plan and 1996 Stock Incentive
Plan, there will be further dilution to new investors. See
"Management--Executive Compensation."
13
SELECTED FINANCIAL DATA
(in thousands, except per share data)
The following selected financial information with respect to the Company's
statements of operations for the years ended December 31, 1993, 1994 and 1995
and with respect to the Company's balance sheets as of December 31, 1993,
1994 and 1995 have been derived from the Company's Financial Statements,
which have been audited by Ernst & Young LLP, independent auditors, and,
except for the balance sheet as of December 31, 1993, appear elsewhere in
this Prospectus. The selected financial information with respect to the
Company's statements of operations for the years ended December 31, 1991 and
1992 and with respect to the Company's balance sheet as of December 31, 1991
and 1992 has been derived from the Company's unaudited financial statements.
The selected financial information with respect to the Company's statements
of operations for the six months ended June 30, 1995 and 1996, and with
respect to the Company's balance sheet as of June 30, 1996 has been derived
from the Company's unaudited financial statements included elsewhere in this
Prospectus and include all adjustments, consisting only of normal recurring
adjustments, which management considers necessary for a fair presentation of
the results of such periods. Results of operations for the six months ended
June 30, 1996 are not necessarily indicative of results to be expected for
the full year. This information should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's Financial Statements and Notes thereto included
elsewhere in this Prospectus.
Six Months
Ended June
Year Ended December 31, 30,
----------------------------------- -------------
1991 1992 1993 1994 1995 1995 1996
---- ---- ---- ---- ----- ---- -----
Statements of Operations
Data:
Revenue $ 299 $1,646 $3,146 $6,324 $10,821 $4,886 $7,865
Costs and expenses:
Operating expenses 233 568 834 1,647 2,788 1,194 1,848
General,
administrative
and selling
expenses 551 1,218 1,575 2,410 4,601 2,070 2,683
Depreciation and
amortization 10 114 242 406 641 275 438
Systems development
and programming
costs 13 6 298 755 1,183 453 964
----- ----- ----- ----- ----- ----- -----
Total cost and
expenses 807 1,906 2,949 5,218 9,213 3,992 5,933
----- ----- ----- ----- ----- ----- -----
Operating income
(loss) (508) (260) 197 1,106 1,608 894 1,932
Other income 12 5 50 29 49 23 12
Interest expense (55) (210) (329) (390) (453) (236) (218)
----- ----- ----- ----- ----- ---- -----
Income (loss) before
income tax expense (551) (465) (82) 745 1,204 681 1,726
Income tax expense -- -- -- 37 378 214 732
----- ----- ----- ----- ----- --- -----
Income (loss) before
extraordinary item (551) (465) (82) 708 826 467 994
Extraordinary loss
(net of $158 tax
benefit) -- -- -- -- (224) (224) --
----- ----- ----- ----- ----- ------ ------
Net income (loss) $(551) $(465) $ (82) $ 708 $ 602 $ 243 $ 994
===== ===== ====== ===== ===== ====== ======
Per common share
data (1):
Income (loss) before
extraordinary item $(.30) $(.15) $(.02) $ .14 $ .16 $ .09 $ .19
Extraordinary loss -- -- -- -- (.04) (.04) --
Net income (loss) $(.30) $(.15) $(.02) $ .14 $ .12 $ .05 $ .19
===== ====== ===== ===== ====== ===== =======
Shares used in
determining income
(loss) per common
share 1,838 3,064 4,779 5,067 4,875 4,875 4,875
===== ===== ===== ===== ======= ===== ======
14
December 31, June 30, 1996
As
Adjusted
1991 1992 1993 1994 1995 Actual (2)
---- ---- ---- ---- ----- ----- -----------
Balance Sheet Data:
Cash, cash equivalents and
short term investments $ 251 $ 308 $ 457 $ 512 $1,468 $1,372 $25,283
Working capital 288 243 164 157 1,210 2,256 26,388
Current assets 321 671 971 1,457 3,117 4,029 27,940
Current liabilities 33 429 807 1,300 1,907 1,773 1,552
Total assets 430 1,193 1,917 2,651 5,434 6,500 35,901
Total long-term debt and
capital lease
obligations 636 1,055 1,501 1,353 2,437 2,482 491
Total stockholders' equity
(deficit) (239) (310) (503) (186) 1,019 1,952 28,909
- -------------
(1) Computed on the basis described in Note 1 of Notes to Financial
Statements.
(2) Adjusted to give effect to the Recapitalization, the sale by the Company
of Common Stock offered hereby assuming an initial public offering price
of $15.00 per share of Common Stock and the application of the net
proceeds therefrom.
15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
The Company provides comprehensive transactional billing and management
information solutions to providers of wireless, long distance and satellite
telecommunications services. The Company uses its robust and flexible
proprietary software technology to develop transactional billing and
management information solutions for its customers under exclusive contracts
with terms ranging from three to four years.
The Company derives services revenue (i) primarily from service contracts,
whereby a customer contracts with the Company to operate and maintain its
transactional billing system and (ii) to a lesser extent, from the
development of new software and enhancement of existing installed systems
together with the provision of related customer maintenance and training,
which is largely billed on a time and materials basis. Service revenue
related to the operation of customers billing systems accounted for 100%,
93.5%, 97.4% and 99.0% of total revenue for 1993, 1994 and 1995 and the six
months ended June 30, 1996, respectively. Services are generally billed
monthly and service revenue is recognized in the period in which the services
are provided.
License fees comprise the remainder of the Company's revenue and are
largely recognized upon execution of the licensing agreement at the time of
delivery of the software to the customer, provided that the Company has no
significant related obligations or collection uncertainties remaining. Where
there are significant obligations related to the development and enhancement
of the software, license fees are recorded over the expected installation
period or the term of the respective contract. As a result, the amount of
revenue realized by the Company from license fees in a particular period
depends largely on the number of product installations during that period,
and the extent to which any significant obligations are outstanding.
Driven by the requirements of the telecommunications services market, the
Company's revenue have grown rapidly in recent years, increasing from
approximately $3.1 million in 1993 to $6.3 million and $10.8 million in 1994
and 1995, respectively. For the 12-month period ended June 30, 1996,
recurring revenue accounted for over 93.8% of total revenue and 80.5% of the
Company's revenue was generated by companies which have been customers for at
least one year.
Operating expenses are comprised primarily of the salaries and benefits of
technical service representatives, operations personnel and quality assurance
representatives and costs to produce and distribute invoices for customers.
General, administrative and selling expenses consist mainly of the
salaries and benefits of management and administrative personnel and general
office administration expenses (rent and occupancy, telephone and other
office supply costs) of the Company.
Systems development and programming costs are comprised of the salaries
and benefits of the employees involved in internal software development.
Prior to 1993, Company software was under development and all related costs
were expensed. In 1993, the Company began to capitalize certain software
developments costs in accordance with the Statement of Financial Accounting
Standards (SFAS) No. 86. Amounts capitalized are amortized over five years.
16
Results of Operations
The following table sets forth, for the periods indicated, certain
financial data as a percentage of revenue for the years ended December 31,
1993, 1994 and 1995 and the six months ended June 30, 1995 and 1996:
Six Months
Year Ended December 31, Ended June 30,
----------------------- ----------------
1993 1994 1995 1995 1996
Revenue 100.0% 100.0% 100.0% 100.0% 100.0%
Costs and expenses:
Operating expenses 26.5 26.0 25.8 24.4 23.4
General, administrative and
selling expenses 50.1 38.1 42.5 42.4 34.1
Depreciation and amortization 7.7 6.4 5.9 5.6 5.6
Systems development and
programming costs 9.4 12.0 10.9 9.3 12.3
---- ---- ---- ---- -----
Total costs and expenses 93.7 82.5 85.1 81.7 75.4
---- ---- ---- ---- -----
Operating income 6.3 17.5 14.9 18.3 24.6
Other income 1.6 0.5 0.4 0.4 0.1
Interest expense (10.5) (6.2) (4.2) (4.8) (2.8)
---- ---- ---- ---- -----
Income (loss) before income tax
expense (2.6) 11.8 11.1 13.9 21.9
Income tax expense -- 0.6 3.5 4.4 9.3
---- ---- ---- ---- -----
Income (loss) before
extraordinary item (2.6) 11.2 7.6 9.5 12.6
Extraordinary loss -- -- (2.0) (4.5) --
---- ---- ---- ---- -----
Net income (loss) (2.6)% 11.2% 5.6% 5.0% 12.6%
==== ==== ==== ==== =====
Six Months Ended June 30, 1996 Compared to Six Months Ended June 30, 1995
Revenue
Revenue increased 61.0% from $4,885,770 for the six months ended June 30,
1995, to $7,864,641 for the same period in 1996, due primarily to the
addition of new customers and the growth of revenue from existing customers.
Operating expenses
Operating expenses increased 54.8% from $1,193,880 for the six months
ended June 30, 1995, to $1,847,718 for the same period in 1996, due primarily
to the addition of personnel hired during the period to support the growth of
the Company's business. As a percentage of sales, operating expenses
decreased from 24.4% for the first six months of 1995 to 23.4% for the same
period in 1996.
General, administrative and selling expenses
General, administrative and selling expenses increased 29.6% from
$2,070,218 for the six months ended June 30, 1995, to $2,683,019 for the same
period in 1996. The increase was due primarily to increases in employment
agency fees, increases in employee benefits obligations, increases in
expenditures for trade show participation, advertising, travel, and increases
in expenditures for accounting. As a percentage of revenue, general,
administrative and selling expenses decreased from 42.4.% for the six months
ended June 30, 1995, to 34.1% for the same period in 1996, due primarily to
economies of scale and the growth of the Company's revenue. 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, but that such increases will be offset in part by decreases in
salaries and bonuses paid to senior management after this offering.
Depreciation and amortization
Depreciation and amortization increased 59.1% from $275,108 for the six
months ended June 30, 1995, to $437,708 for the same period in 1996. The
increase was due primarily to both the purchase of new equipment to
17
support the Company's growth and the investment in the development of the
Company's integrated system. As a percentage of revenue, depreciation and
amortization remained consistent at 5.6%.
Systems development and programming costs
Systems development and programming costs increased 113.0% from $452,761
for the six months ended June 30, 1995, to $964,390 for the same period in
1996, due primarily to increased programming support required by customers
and additional software features offered on the Company's integrated system.
As a percentage of revenue, systems development and programming costs
increased from 9.3% for the six months ended June 30, 1995, to 12.3% for the
same period in 1996, due to additional software features offered and under
development by the Company.
Interest expense
Interest expense decreased 7.4% from $235,906 for the six months ended
June 30, 1995, to $218,416 for the same period in 1996, due primarily to
interest cost reductions resulting from the restructuring of debt to CII.
Income tax expense
Income tax expense increased 241.9% from $214,086 for the six months ended
June 30, 1995, to $732,000 for the same period in 1996, due primarily to the
$751,285 increase in net income for the six months ended June 30, 1996 as
compared to the comparable period in 1995. The effective tax rate increased to
42.4% for the six months ended June 30, 1996 from 31.5% for the comparable
period in 1995 due primarily to debt consolidation expense benefits occurring
in 1995 which did not recur in 1996.
Extraordinary loss
On June 30, 1995, the Company refinanced existing debt with CII and
recorded an extraordinary loss of $223,696, net of $158,038 in tax benefits.
Such extraordinary loss was due to negotiated acceleration of royalty
payments in connection with the early termination of a debt agreement.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Revenue
Revenue increased 71.1% from $6,324,041 in 1994, to $10,820,815 in 1995,
due primarily to the addition of new customers and the growth of continued
revenue from existing customers.
Operating expenses
Operating expenses increased 69.3% from $1,646,852 in 1994, to $2,787,687
in 1995, due primarily to the addition of new personnel required to support
the growth of the Company's business. As a percentage of revenue, such
expenses decreased slightly from 26.0% in 1994, to 25.8% in 1995.
General, administrative and selling expenses
General, administrative and selling expenses increased 91.0% from
$2,409,683 in 1994, to $4,601,242 in 1995. As a percentage of revenue,
general, administrative and selling expenses increased from 38.1% in 1994 to
42.5% in 1995. These increases were principally due to increased salaries and
bonuses paid to the senior management of the Company, as well as additional
employment agency fees, employee benefits, and other administrative expenses
required as a result of the growth of the Company. 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, but
that such increases will be offset in part by decreases in salaries and
bonuses paid to senior management after this offering.
Depreciation and amortization
Depreciation and amortization increased 57.9% from $405,873 in 1994, to
$640,917 in 1995 primarily due to the purchase of computer equipment and the
increased spending on research and development related to the enhancement of
the Company's ITDS 10X system to support Unix based file servers and further
development of its integrated billing and management information system.
Depreciation and amortization expenses decreased as a percentage of revenue
from 6.4% in 1994 to 5.9% in 1995 primarily due to the growth in revenue.
Systems development and programming costs
Systems development and programming costs increased 56.6% from $755,387 in
1994, to $1,183,141 in 1995, primarily due to increased programming support
required by a larger customer base and additional software features
18
offered on the Company's system. As a percentage of revenue, system
development and programming costs decreased from 12.0% in 1994, to 10.9% in
1995 primarily due to the growth in revenue. In addition, in 1995 the Company
capitalized $479,316 in software development costs.
Interest expense
Interest expense increased 16.2% from $389,793 in 1994, to $452,925 in
1995, primarily due to the increase in capital leases for computer equipment
required by the Company.
Income tax expense
Income tax expense increased 933.1% from $36,666 in 1994, to $378,786 in
1995, primarily due to the fact that the Company fully utilized its net
operating loss carryforward credits in 1994. The Company's effective tax rate
was 31.5% in 1995 and 4.9% in 1994. The increase in the rate was primarily
the result of the reduction in net operating loss carryforwards.
Extraordinary loss
On June 30, 1995, the Company refinanced existing debt with CII and
recorded an extraordinary loss of $223,696, net of $158,038 in tax benefits.
Such extraordinary loss was due to negotiated acceleration of royalty
payments in connection with early termination of the debt agreement.
Year Ended December 31, 1994 Compared to Year Ended December 31, 1993
Revenue
Revenue increased 101.0% from $3,145,934 in 1993, to $6,324,041 in 1994,
due primarily to the addition of new customers and the growth of continued
revenue from existing customers.
Operating expenses
Operating expenses increased 97.4% from $834,337 in 1993, to $1,646,852 in
1994, primarily due to the addition of personnel hired during the period to
support the growth of the Company's business. As a percentage of revenue,
operating expenses decreased from 26.5% in 1993, to 26.0% in 1994, primarily
due to the growth in revenue.
General, administrative and selling expenses
General, administrative and selling expenses increased 53.0% from
$1,575,407 in 1993, to $2,409,683 in 1994. The increase was due primarily to
additional legal expenses incurred relating to a settlement of litigation and
the related purchase of a minority shareholder's Common Stock interest in the
Company; increased accounting expenses related to financial and operational
audits performed on behalf of the Company; and increased employment agency
fees, increases in employment benefit obligations, and other administrative
expenses relating to the growth of the Company. As a percentage of revenue,
general, administrative and selling expenses decreased from 50.1% in 1993 to
38.1% in 1994, reflecting economies of scale and the growth in the Company's
revenue.
Depreciation and amortization
Depreciation and amortization increased 67.7% from $241,953 in 1993, to
$405,873 in 1994, primarily due to both the purchase of equipment to support
the Company's growth and the investment in the development of the Company's
integrated system. As a percentage of revenue, depreciation and amortization
decreased from 7.7% in 1993 to 6.4% in 1994, primarily due to the growth in
revenue.
Systems development and programming costs
Systems development and programming costs increased 154.0% from $297,344
in 1993, to $755,387 in 1994, As a percentage of revenue, systems development
and programming costs increased from 9.4% in 1993, to 12.0% in 1994. These
increases were primarily due to increased programming support required by
customers and additional software features offered on the Company's
integrated system.
Interest expense
Interest expense increased 18.4% from $329,326 in 1993, to $389,793 in
1994. The increase was due primarily to the increase of capital leases for
computer equipment and an additional working capital note provided to the
Company by CII in November 1993.
19
Income tax expense
Income tax expense increased to $36,666 in 1994 and the effective tax rate
increased to 4.9% as a result of the Company being in a net loss position as
of December 31, 1993.
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 and
equipment financing.
As of June 30, 1996, the Company had $1,031,990 of cash and cash
equivalents, $340,200 in United States Treasury Notes, $2,333,856 in net
trade accounts receivable, and $2,256,059 of working capital.
In the twelve months ended December 31, 1995, the Company generated
$1,301,954 in net cash flow from operating activities and $87,445 in net cash
flow from financing activities including the sale of shares of the Class C
Convertible Preferred Stock for $640,000. The cash generated from operations
and the proceeds from such Class C Convertible Preferred Stock enabled the
Company to fund its operations, apply $479,316 to product development costs,
purchase $245,069 of investments, and make $442,804 in principal payments on
long-term debt and capital lease obligations.
At December 31, 1994, the Company had outstanding an aggregate of
$1,316,575 payable to CII under certain debt agreements dated August 16, 1991
and July 21, 1992 with face amounts of $600,000 and $350,000, respectively.
These loans required payment of principal and interest in the form of
quarterly royalty payments which were calculated based on the Company's
revenue for the period multiplied by a specified percentage rate. These loans
were structured such that they would be considered paid in full based upon
the aggregate payments (principal and interest) at specified dates. Based on
the estimated payments, the imputed interest rate approximated 25% at
December 31, 1994. On June 30, 1995, the Company refinanced these loans with
CII into one loan with a principal amount of $1,485,000 at a 14.5% interest
rate. Under the terms of this loan agreement, the Company will pay interest
of $17,944 monthly for two years and $34,940 monthly subsequent to that for
principal and interest through July 2002. Also, under the CII Agreement, the
Company will make a one-time payment to CII of $200,000 upon the completion
of this offering.
The Company also has a loan payable to CII, which was originally issued in
1993 and refinanced in December 1994. The Company intends to pay the entire
amount outstanding under the note ($286,394 as of July 31, 1996) with the
proceeds from this offering. This new note includes principal plus accrued
interest on the original loan and is payable in equal monthly installments
over 60 months and had a balance of $326,273 at December 31, 1995. In
connection with the CII loans, the Company issued two warrants to CII to
purchase an aggregate of 5.4% of the outstanding capital stock of the
Company. CII has agreed to exercise the Warrants immediately prior to this
offering, for an aggregate of 334,524 shares of Common Stock at an aggregate
purchase price of $822,959.
Substantially all assets of the Company are pledged under the various debt
agreements with CII.
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.
Recent Accounting Pronouncements
In November 1995, the FASB issued SFAS No. 123, "Accounting for
Stock-Based Compensation." SFAS No. 123 addresses the financial accounting
and reporting standards for stock-based employee compensation plans. SFAS No.
123 permits an entity to either record the effects of stock-based employee
compensation plans in the financial statements or present pro-forma
disclosures in the notes to the financial statements. In connection with the
adoption of SFAS No. 123 during 1996, the Company will elect to provide the
appropriate disclosures in the Notes to the Company's Financial Statements.
20
Quarterly Results
The following table sets forth certain unaudited quarterly financial data
for each of the four quarters in the year ended December 31, 1995 and the
first two quarters of 1996. In the opinion of the Company's management,
unaudited quarterly information has been prepared on the same basis as the
audited financial statements and includes all adjustments, consisting only of
normal recurring adjustments considered necessary for the fair presentation
of the information for the periods presented. The quarterly information
should be read in conjunction with the audited Financial Statements and Notes
thereto included elsewhere in this Prospectus. The quarterly operating
results are not necessarily indicative of results of operations for any
future period.
Three Months Ended
-----------------------------------------------------
Mar. June Sept. Dec. Mar. June
31, 30, 30, 31, 31, 30,
1995 1995 1995 1995 1996 1996
----- ----- ----- ----- ----- -------
(in thousands)
Statements of
Operations:
Revenue $2,179 $2,707 $2,958 $2,977 $3,934 $3,931
Operating expenses 584 609 809 786 921 927
General,
administrative and
selling expenses 902 1,169 1,246 1,284 1,326 1,357
Depreciation and
amortization 131 144 175 191 278 160
Systems development
and programming
costs 226 227 328 402 427 538
------ ------ ------ ------ ------ -------
1,843 2,149 2,558 2,663 2,952 2,982
------ ------ ------ ------ ------ -------
Operating income 336 558 400 314 982 949
Other income 8 15 14 13 8 5
Interest expense (126) (110) (77) (140) (109) (109)
------ ------ ------ ------ ------ -------
Income before income
tax expense 218 463 337 187 881 845
Income tax expense 68 146 106 59 322 410
------ ------ ------ ------ ------ -------
Income before
extraordinary item 150 317 231 128 559 435
Extraordinary loss -- (224) -- -- -- --
------ ------ ------ ------ ------ -------
Net income $ 150 $ 93 $ 231 $ 128 $ 559 $ 435
====== ====== ====== ====== ====== =======
Quarterly Information
The Company's quarterly operating results have fluctuated and will
continue to fluctuate from period to period. See "Risk Factors--Potential
Fluctuations in Quarterly Results."
21
BUSINESS
ITDS provides comprehensive transactional billing and management
information solutions to providers of wireless, long distance and satellite
telecommunications services. The Company 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 four 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 Communication
("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.
Industry Background
General
The U.S. telecommunications industry currently generates approximately
$200 billion in annual revenue and has experienced rapid change and greatly
increased competition in recent years. Deregulation and rapid technological
advances are resulting in convergence of previously separate segments of the
telecommunications market. Markets that were once rigidly segmented by
service within geographical areas are converging into a single, world-wide
communications market, which includes both traditional service providers and
a variety of new participants. Each segment of these converging markets is
experiencing significant growth, increased complexity in service offerings
and greater competition.
The telecommunications industry historically has been subject to
significant regulatory barriers to entry, but regulatory changes in recent
years have dramatically lowered the barriers to competition. In February
1996, the Telecommunications Act of 1996 (the "Telecommunications Act") was
enacted into law. The stated purposes of the Telecommunications Act are to
reduce regulations, promote competition and encourage the rapid employment of
new telecommunications technologies. The Telecommunications Act is expected
to increase competition in the telecommunications services market in the
United States by allowing local, long distance and cable companies to offer
competing services provided they meet specified regulatory benchmarks. Many
service providers are expected to compete by offering multiple services,
including combinations of local exchange, long distance, wireless and data
communications services to customers in single or multiple geographic markets
without the delay or limitations historically imposed by regulatory
approvals. Increasingly, each market will have a range of vendors offering
similar services, requiring innovative differentiation in services and rates.
At the same time, rapidly evolving technical changes have dramatically
increased the features and services available to subscribers. These changes
have ranged from the evolution of entirely new communications media, such as
satellite transmission, to innovative services, such as PCS, to a rapidly
evolving and growing range of
22
services and features. For example, many cellular providers are now offering
such innovative features as group ringing, which initiates a call on all of
an individual's lines (whether business, personal or mobile) and connects the
call as soon as one line is answered, and cell site sensitive billing, which,
for example, enables carriers to apply local wireline rates for calls to or
from a cellular telephone within the vicinity of the subscriber's home or
business and apply cellular rates elsewhere. Improved switching technology is
permitting local exchange telecommunications services providers to offer a
variety of new features and services to their subscribers such as call
delivery beyond the subscriber's home area, call waiting, voice mail and
others.
Internationally, privatization and deregulation are resulting in similar
increases in competition, the emergence of newly authorized
telecommunications providers, and the provision of additional features over a
variety of media. As the new markets are opened to competition, local and
emerging service providers typically compete for market share through
alliances with more established carriers, such as the local telephone
company, initially by providing access to service and then by providing
competitive prices and introducing new features and services. In addition,
technological advances and global expansion by multi-national service
carriers, and the economies of installation of cellular systems in comparison
with wireline systems, are opening markets in less developed countries to
enhanced telecommunications services and increased competition. In many
foreign countries, different technologies have been adopted for the
implementation of wireless communications. For example, the analog AMPS
standard is utilized in the United States, while GSM has widely been adopted
in the rest of the world.
Wireless Communications
The rapid changes and dramatic growth driven by these forces is especially
evident in the provision of wireless services, including cellular, paging and
PCS. The Cellular Telecommunications Industry Association ("CTIA") estimates
that the number of cellular subscribers in the United States increased from
340,000 in December 1985 to 33.7 million in December 1995. In 1995, cellular
providers generated more than $19 billion in revenue in the United States,
while paging providers generated more than $3 billion in revenue from
approximately 25 million subscribers. In addition to growth in the cellular
telephone market, the emergence of new wireless communications technologies
and services, such as PCS and satellite-based telephony, is expected to
increase the quality and capabilities of wireless communications, including,
to varying degrees, seamless roaming, increased service coverage, improved
signal quality and greater data transmission capacity.
Both existing and new service providers in other communications markets
are pursuing opportunities in the wireless industry. For example, equipment
vendors such as Motorola are involved in joint ventures to offer telephony
and paging services, while cable companies actively pursue such evolving
wireless markets as PCS. All these providers continue to experience regular
hardware and software upgrades from no less than a dozen major switching
network suppliers, as the features and technology in the wireless marketplace
continue to evolve.
While the number of cellular service subscribers in the United States has
grown substantially in recent years, the average revenue per subscriber has
declined and is expected to decrease further. The CTIA has reported that
revenue per subscriber declined 47% from 1987 to 1995. Cellular service
providers are anticipating significantly increased price competition in the
wireless telecommunications industry as providers of PCS and other services
emerge in the geographic markets previously served only by cellular carriers,
requiring them to differentiate services and adopt innovative rate tariffs.
Other Segments
Other segments of the telecommunications services industry are
experiencing similar change and convergence. Wireline providers, including
providers of local, long-distance, network access and related services,
provide services to approximately 93 million customers in the U.S.,
generating more than $174 billion in 1994. Deregulation has spurred the
creation of new entrants in both the local and long distance market and has
increased competitive pricing pressures among all providers. Regional Bell
Operating Companies (RBOCs) and long-distance providers compete with
providers of wireless services through the purchase of cellular companies and
PCS licenses, while wireline providers are pursuing opportunities in the
cable market. At the same time, utility companies are leveraging their
existing electrical and fiber optic infrastructures to provide
telecommunications services to their customers. In addition, on-line service
providers, including companies such as Prodigy, America Online and
CompuServe, have generated a large and rapidly growing market for the
provision of a range of services including electronic mail, news, and other
information, as well as home shopping and access to the Internet.
23
Traditional Transactional Billing
Transactional billing is the process of matching specific calling events
with a subscriber database. Historically, this was primarily a billing
process, used in order to generate invoices for wireless, long-distance and
local service by individual and business users. In light of the competitive
and price pressures faced by service providers, and the proliferation of
service features and pricing options within the telecommunications services
industry, the billing function is continuing to evolve from primarily a
service support function to a marketing and revenue enhancement device used
to differentiate the increasingly fungible services offered by providers.
Transactional billing is becoming an increasingly significant interface with
the subscriber, and is therefore a critical element of attracting,
communicating with, and retaining customers.
Many telecommunications services providers in the U.S. have traditionally
used transactional billing systems developed internally or through
cooperative joint ventures for operation on a provider's mainframe computer.
These "legacy" systems typically are difficult to maintain and modify, and
often do not meet the multiple and evolving needs of a service provider.
Legacy systems often cannot be integrated with other information sources
within a provider's organization, or databases outside an organization.
Introduction of changes in parameters such as price and service often
requires significant reconfiguration or reprogramming. These traditional
means of billing and monitoring service have proven inadequate to respond to
the evolving and dynamic requirements of the telecommunications services
marketplace. The enormous growth in number of subscribers, and the
proliferation and range of services offered, require highly capable, flexible
and scalable support systems, which can adequately support the size and
nature of customer offerings on a cost effective basis.
Other service providers have elected to out-source billing and management
information-related functions because of the significant level of
technological expertise and capital resources required to implement systems
successfully. In addition, many emerging telecommunications services
providers lack any transactional billing infrastructure at all. One of the
primary challenges that these newer service providers face is to bring new
services to market quickly. They typically focus their capital resources on
developing networking and switching technology and on creating marketable
services rather than on creating billing systems. These providers typically
seek to outsource the billing functions because efficient flexible billing
solutions are often too costly and time consuming to develop internally.
To survive in an increasingly competitive environment, all these providers
need solutions which
(bullet) enable them to differentiate themselves quickly and efficiently
in a crowded and highly fungible market through the development,
validation, implementation and support of innovative rate
structures and changing mixes of service and feature offerings;
(bullet) integrate seamlessly with their corporate management information
services, so that providers can use the data generated for
operational and other strategic purposes as an integral part of
their marketing and sales plans; and
(bullet) offer flexibility and reliability as critical components of
subscriber relations, communication and retention.
The ITDS Solution
The Company's solution is based upon an integrated software system that
not only provides reliable and accurate transactional billing and management
information support, but also includes the means to automate subscriber
activation, remittance processing, collections, data retrieval and reporting,
electronic funds transfer, credit management, automation of inventory
management, and data archiving on a fully-integrated basis, running in either
single or multiple telecommunications services markets, including cellular,
paging, long distance and satellite. In comparison with traditional
solutions, the Company's software and services:
(bullet) permit providers to develop, validate, implement and support rate
changes without the corresponding requirement to develop or
change support systems, reducing the time to introduce new
marketing or sales strategies;
(bullet) permit providers to introduce new features or combinations of
features, either directly or with others, on a timely basis;
(bullet) assure that providers have immediate access to multiple databases
on a fully-integrated basis, to improve marketing and sales
planning;
24
(bullet) deliver accurate, timely and useful billing information to
customers, regardless of mix or change in level of service and
rates, to facilitate customer attraction and retention; and
(bullet) improve providers' cash flows and reduce bad debt by detecting
fraud and delivering accurate and timely receivable and
collection information across systems and service offerings.
The ITDS Strategy
The Company's goal is to become a leading provider of integrated
transactional billing and management information products and services to the
converging telecommunications service industry in the United States and
internationally. Key elements of its strategy include:
(bullet) Expand Sales to Wireless Services Providers. The Company
believes that the wireless segment of the telecommunications
services market will continue to grow rapidly and will be
characterized by both increased competition and heightened
subscriber expectations. To date, the Company has built a
significant customer base among smaller and mid-sized wireless
providers. The Company intends to build upon this base by adding
additional wireless services providers, including providers of
PCS and satellite services, as well as larger telecommunications
services providers which need the same innovative, flexible
solutions that the Company has developed to meet the needs of its
existing customer base.
(bullet) Leverage Technology Features to Address Requirements of Related
Market Segments. The Company believes it is well positioned to
leverage its technology base by offering transactional billing
and management information solutions to providers in such other
telecommunications services market segments as wireline and data
transmission, Internet and other enhanced services. Expansion
into these additional sources of potential revenue will not
require commensurate investment in software development because
the Company's existing core technology already meets the more
challenging and demanding requirements of the wireless segment of
the market, while enabling the Company to offer features and
functions to meet provider requirements.
(bullet) Expand International Operations. The Company believes that the
same market pressures created by deregulation and technological
advances will increase the demand internationally for flexible
and integrated transactional billing and management information
solutions. In addition, the Company believes that the flexibility
of its system will permit it to address the requirements of
international telecommunications services providers without the
need for significant reconfiguration. For example, the Company's
system currently supports the provision of cellular services
based on GSM technology, which has been widely adopted outside
the U.S., as well as other emerging digital services. The Company
intends to pursue international opportunities by leveraging
relationships with domestic customers that may be expanding
overseas, by seeking strategic international partners, and by
selling directly abroad.
(bullet) Leverage Employee Experience. The Company's employees are
largely dedicated to the support and service of its customers,
from initial conversion and implementation of the Company's
technology, to on-going support and provision of "back-office"
services. As a result of their experience with customer
requirements and the needs of the telecommunications services
industry generally, the Company's employees are able to configure
the Company's technology to provide a focused and appropriate
solution for each customer's requirements on a timely and
cost-effective basis. The Company believes that this expertise is
an important competitive advantage which it intends to leverage
in retaining existing customers and expanding its customer base.
(bullet) Expand Direct Sales and Develop Strategic Relationships.
Historically, the Company has built its customer base primarily
through the efforts of its senior management. In order to achieve
its targeted levels of growth and build its customer base among
larger telecommunications services providers, the Company has
recently begun to invest significantly in the development of a
direct sales force and sales support organization. In recent
months, the Company has expanded its sales force as the nucleus
of this effort. The Company is also seeking to create additional
strategic distribution and marketing alliances and to enter new
markets, through relationships with hardware vendors and
equipment providers. For example, the Company works with
Hewlett-Packard to develop software systems compatible with
Hewlett-Packard hardware and serves as a reseller of
Hewlett-Packard equipment configured for the Company's software.
25
Products and Services
Core System
The Company provides its customers with integrated transactional billing
and management information solutions through the installation of its software
systems and the provision of billing services. The Company's software is
installed at a customer site to interface directly with the customer's
systems and generate relevant subscriber billing and other data, as well as
to support a wide range of transactional billing and subscriber management
functions. The Company processes the billing information through the use of
its software, eliminating the need for customers to maintain their own
"back-office" data processing operation. Customers contract for the use of
the Company's software and the provision of the Company's services on a
long-term exclusive basis, generally between three and four years, and are
billed monthly on a per-subscriber basis.
The Company's suite of ITDS integrated applications allows customers the
flexibility of rapidly changing their billing services to implement, for
example, immediate rate plan changes for access, toll usage or toll discounts
without the need for programming. Drawing on its client/server architecture,
the system can be integrated with a customer's other communication and data
systems to provide customers with the ability to obtain real-time billing
information and to generate up-to-date subscriber analysis and reports. The
ITDS 10X system does not require any customer dedicated circuits, and
customers can maintain the system along with rate tables and subscriber
databases on their local network, while utilizing the system to interface
with external databases and systems as appropriate. To further assure its
operational flexibility and usefulness, the system supports key industry
standards such as the CIBER standard for the wireless clearinghouse for AMPS
cellular systems in the U.S. and the TAP standard for international
clearinghouse for GSM cellular systems. The Company also interfaces with
major U.S. credit bureaus, the Federal Reserve system and various U.S. banks
for electronic funds transfer and credit card transactions. The ITDS 10X
system includes a complete library of billing and financial reports for
production as part of the month-end billing process. These reports provide
customers with critical transactional billing data and can be modified or
configured by customers to respond most appropriately to their specific
information requirements. The following diagram illustrates the integrated
features and interfaces of the Company's core technology:
[Chart Depicting ITDS Product Features]
Out Bound Traffic
-----------------------------------------> To Roaming
| (Fraud, Billing, Settlement Records) Partners
|
|
|
| In Bound Traffic (All Roamer Records) From Roaming
| --------------------------------------- Partners
| |
| |
| |
| V (Home & Roam
Switch DMH Call Billing Records) ITDS 10X(R) Subscriber
MTSO ----> Handler -------------------> File Server (UNIX or Intel)
| |
| |
| |
| |
|------------> Home Fraud Analysis |
(Home & Roam | |
Fraud Records) | |
| |
| |
- ---------------------------------------------------------------------------
| | | | | | | | | |
SwitchLink | | CreditLink | | Payment | | 10XArchive
Provisioning | | | | | Options | | CD/ROM
| | | | | | | |
| | | Point | | | |
Debit/Threshold | | Of | |InventoryScan |
Billing | | Sale | | |
| | | | | | |
| | | | | | |
General Ledger | | | Collections | 10XWrite
Interface | | | Module | Report Writer
| | | | |
| ------ -------------------------------------
| | | | | |
| | | | | |
| | | | | |
Client Credit Credit ITDS | ACH Bank
Accounting Bureau Cards PayScan | Draft
System |
Direct
Invoice
26
The ITDS 10X system performs each of the following transactional billing,
subscriber management and information functions, while updating relevant
customer database on a real-time basis:
On-Line Subscriber Care and Management Support--Provides end-to-end
support for all subscriber interface requirements:
Subscriber Order Entry Credit Bureau Interface
Integrated Point of Sale Transactional Credit Card Billing
Phone Number Assignment Rate & Feature Assignment
Switch Provisioning Equipment Inventory Assignment &
Interface Tracking
Lead Generation & Tracking Multiple Account Receivable Options
Automatic Clearinghouse for
Bank Draft Payments Automatic Call Credit Adjustments
Multi-tiered Security
Systems On-Line What-if Plan Selection
Automatic Notes and Multiple Search Keys at Account or
Reminders Phone Level
Message Processing and Rating--Includes the collection of raw call detail
records from the customer's switch network, and the editing, formatting,
rating and guiding of all traffic events necessary to produce subscriber
invoices, traffic reports and other call related information:
Data Collection from all Polling or Receipt of Near Real Time
Switch Types Records
Roamer In/Out Collect
Processing Up to 999 Rate Plans per Market
Error Management & Rating, Re-rating and "Pseudo Roaming"
Reporting Support
Discounts by Amount or Variable Time Periods for Air and/or
Percentage Toll
Selective or Global
Exceptions Unlimited Toll Plans On-line
Billing & Invoicing--Application of rated messages to invoices, summary
files and reports:
Multiple Bill Cycles by
Market FIFO Overdue Payment Application
Balance Forward Billing Invoice Format Options
Multiple Level Invoices Global, Group or Individual Messages
Full Lockbox Support Federal Reserve Bank Interface
Currency Conversion Language Options
International Addressing Print Fulfillment Options
Although customers can perform their own on-site cycle-end rating and bill
processing by licensing the Company's batch billing software, most customers
elect to contract with the Company to perform those functions for them at the
Company's data center. Customers transmit call detail records from their
switching network or network provider directly to the Company's data center.
In addition, the Company can extract necessary data from the customer's file
server. The Company formats, guides, rates, and taxes the call records in
accordance with the appropriate subscriber parameters and produces print
image data output and various reports. The Company's bill verification
personnel add an additional level of assurance that subscriber invoices and
management reports are accurate and timely. The Company then arranges with
third-party vendors for the printing and distribution of subscriber invoices
on a monthly basis.
In addition to the foregoing general features, the ITDS system
incorporates a modular system architecture which can support a number of
complementary applications to meet a customer's specific requirements,
including:
27
(bullet) ITDS SwitchLink: ITDS SwitchLink is a direct multi-switch
interface between ITDS 10X and all types of telecommunication
switches, including cellular, wireline, paging and voice mail
platforms. SwitchLink manages line and feature activation or
deactivation in connection with ITDS 10X service order activity.
SwitchLink automatically updates the switch data base and
maintains a log file of all orders that have been accepted or
rejected by the switch.
(bullet) ITDS CreditLink: ITDS CreditLink interfaces with several
U.S.-based credit bureaus to provide on-line credit analysis of
potential subscribers. Service providers enter name, address and
credit information to generate credit reports. By utilizing
available credit scoring tables, users may build custom scoring
algorithms.
(bullet) ITDS Collections Module: The ITDS Collections module provides
support for dedicated collections personnel. Users may define
collections thresholds and pass account extracts to the
Collections Module at any time. The system displays recent
invoices and long-term payment history on-line, automatically
generates follow-up notes and generates collections letters on
demand. The Collections Module provides users queuing options
based on user ID, amount due thresholds, time zone of each
number, or combinations thereof. In addition, automatic contact
notes are generated to create productivity reports of collections
personnel.
(bullet) ITDS PayScan: The Company can support customers' existing
remittance processing relationships through customization of the
ITDS 10X system, or can provide remittance services with ITDS
PayScan, an automated lockbox remittance processing system. ITDS
PayScan uses an easily installed scanning device to create
edited, balanced batches that may be transferred to ITDS 10X
payment files. PayScan speeds remittance processing, improves
remittance productivity and allows greater flexibility than
external bank vendors.
(bullet) ITDS InventoryScan: ITDS InventoryScan is a complete inventory
management system which allows easy bar code scanning and on-line
inventory record maintenance from the physical receipt of
equipment to entry into the ITDS inventory subsystem. All
equipment, such as phones and accessories, that are packaged with
industry standard bar code identifiers may be instantly
transferred into or out of inventory by the use of a hand-held
computer, scanner gun, and ITDS InventoryScan software.
(bullet) ITDS Report Writer: The ITDS Report Writer allows real-time data
from different sources within the system to be used to create
customized ad hoc subscriber reports. The ITDS 10X system
provides a library of over 100 types of reports which can be
accessed and modified on-site by the customer.
New Products and Enhancements
The Company continues to refine its existing software and to introduce new
enhancements to meet evolving customer requirements. Enhancements currently
under development include incorporation of a Windows 95-compatible user
interface; incorporation of an Oracle relational database management system;
and provision for the ITDS 10X system to operate with UNIX-based file
servers, in order to address the needs of larger customers on a scalable and
interoperable basis. In addition, the Company is currently developing
enhanced features for its ITDS 10X system, such as a debit/threshold billing
function and the ITDS FraudEliminator. The ITDS FraudEliminator will allow
service providers to monitor and limit usage of specific subscriber phones at
the request of a customer and is expected to significantly reduce the cost to
customers associated with fraud by detecting subscription fraud and cloning
activities through real-time collection of call detail records. See "Research
and Development."
Point of Sale System
In addition to the ITDS 10X system and related products, the Company
recently introduced a point of sale package (the "ITDS Point of Sale
System"). The ITDS Point of Sale System is a highly capable sales tool
designed to incorporate the entire sales process into a quick and convenient
on-line function. The system can be used in-store or as a mobile unit, so
that customers can market wireless products and services outside of
traditional store settings. The system enables sales clerks to quickly
process initial service applications, on-line credit checks, inventory
updates, assignment of telephone numbers, rate plan selection, invoicing and
payments. Upon credit verification, the system immediately creates an entry
in the customer's subscriber database and can activate telephone service at
the switch. In addition, because complete access to the entire ITDS 10X
database is available, walk up inquiries and account payments from existing
subscribers can be handled immediately.
28
The ITDS Point of Sale System is made available to users as a complete
package. An intelligent workstation, color monitor, hand held inventory
scanner, and full size cash drawer are installed as an integrated part of the
ITDS 10X database. All information, including categorized sales figures and
updated inventory stock levels, entered into the ITDS Point of Sale System is
available for immediate reporting and analysis.
Customer Support
The Company believes that because its solutions are critical to the
competitive success of its customers, the Company must provide a high level
of support from the time a customer converts to the Company's software and
continuing through the on-going provision of transactional billing services.
To that end, the Company assigns to each new customer a dedicated conversion
team that specializes in facilitating the transition onto the ITDS 10X system
by applying an implementation methodology which includes study of the
customer's needs, definition of relevant conversion requirements, and on-site
installation and training. This is followed up by systematic analysis of the
implementation process, live conversion and follow-up training as required to
meet the customer's requirements.
Thereafter, the Company assigns a support team including a customer
service representative and a programmer/ analyst for on-going support of the
customer's requirements, including implementation of additional functionality
if requested by the customer. In addition, the Company provides a
fully-staffed customer service department and 24-hour, 7 day a week access to
customer service representatives. Customers meet with the Company's senior
management on a monthly basis and are contacted by their support
representatives weekly. The Company also conducts focus groups and user
groups to identify ways to improve the system efficiency. This customer
service and support program allows the Company to maintain a dialogue with
its customers and to identify, anticipate and meet evolving customer needs.
To ensure its customers the highest level of accuracy in its billing
services, before each customer billing cycle, the Company conducts roundtable
"pre-run" discussions among personnel from the Company's testing, customer
service and operations departments to verify customer database integrity,
review usage price plan changes for completeness and accuracy, review any
scheduled software changes and obtain release from the customer's system
administrator for processing. The Company's quality assurance personnel then
perform an in-depth review of each completed cycle before being released to
the customer for review. Anomalies are investigated, corrected and reviewed
with the customer. Only after receiving customer approval are customer
invoices released to a third party for fulfillment processing. Quality
assurance managers invoice all pre-print orders and monitor actual invoice
printing to ensure consistent high quality and adequate inventory.
The Company's service and support activities are supplemented by the
provision of on-going training classes to customers, free of charge, to
assist customers in utilizing the system capabilities more effectively.
Typically, the Company schedules two to three such classes a month addressing
different aspects of the transactional billing and management information
service process.
In August 1996, the Company's customer service and support department
consisted of 30 persons, with an additional nine dedicated quality assurance
employees.
Sales and Marketing
The Company's strategy has been to establish and maintain long-term
customer relationships. As customers' subscriber bases grow and as customers
add systems features to their existing ITDS 10X systems, the Company
generates increased revenue. The Company's customer support programs enable
it to understand customer needs and offer strategic solutions from its suite
of integrated products and features. In addition, the flexible and scalable
architecture of the ITDS 10X core technology enables the Company to maintain
customer relationships as customers enter into additional telecommunications
markets. The Company's customers include COMSAT Mobile Communications, France
Telecom FCR, HighwayMaster Corporation, Horizon G.P., Inc., The Lincoln
Telephone and Telegraph Company, Nebraska Cellular Telephone Corporation,
Omaha Cellular Limited Partnership, Point Communications Company and TRICOM,
SA.
Although historically, the Company has achieved substantial growth with a
core marketing team of senior executives, the Company has recently begun to
establish a direct sales force as part of its overall strategy to add
additional wireless providers as customers and to expand the sales of its
systems in other segments of the telecommunications markets. The Company has
begun to develop strategic alliances with hardware and
29
telecommunication equipment product vendors, in order to expand into new
markets. For example, the Company works with Hewlett-Packard to develop
software systems compatible with Hewlett-Packard hardware. The Company also
serves as a reseller of Hewlett-Packard equipment configured for the
Company's software system. In addition, the Company has begun to seek
strategic international partners that will enable the Company to gain access
to distribution systems and complementary product offerings and to facilitate
the Company's international growth. The Company intends to continue to focus
on the development of such alliances as international deregulation and
technological changes increase demand for viable, flexible and interoperable
transactional billing and management information systems. The Company's
marketing efforts also include providing marketing newsletters to its
customers, advertising and participating in industry trade shows, seminar
lectures, and industry standards meetings.
System Development
The Company's research and development efforts are focused on enhancing
existing products and services as well as developing products, features and
services that can be integrated into the Company's core ITDS 10X technology.
The Company's Product Development Committee reviews product and service
development proposals and establishes internal guidelines for efficient
development. The Company's research and development team also works closely
with customers to perform customization of products to meet specific needs.
In addition to internal development, the Company works with its strategic
partners Hewlett Packard and Oracle to develop products compatible with their
product offerings. Currently, the Company has a number of new enhancements
under development to meet evolving customer requirements, including
incorporation of Windows 95 compatible user interface; incorporation of an
Oracle relational database management system; and provision for the ITDS 10X
system to operate with Unix based file servers.
The Company actively participates in industry standards associations to
assure that its development efforts are in compliance with standards as they
evolve and to assure that the Company's software can be used on a fully open
and interoperable basis. For example, the Company works closely with a
variety of standards committees and working groups of CIBERNET, the standards
body of the Cellular Telephone Industry Association ("CTIA"). The Company
participates in the CIBERNET Advisory Committee, which evaluates proposed
changes to standards for wireless industry data exchange; the CIBERNET Net
Settlement Working Group, which evaluates proposed changes to the subscriber
net settlement process; and the CIBERNET Data Message Handler Working Group,
which focuses on billing aspects of the TIA IS-124 standard. In addition, the
Company participates in CTIA's International Forum for AMPS Standard, and the
Bellcore Ordering and Billing Forum.
In the years ended December 31, 1993, 1994, and 1995, the Company incurred
cash expenditures of $600,541, $1,043,989 and $1,662,457 respectively, on
systems development, of which $303,197, $288,602 and $479,316 were
capitalized as software development costs in each of such years. In July
1996, the Company employed 36 people in product and system development and
programming.
Competition
The market for billing and management information systems for the
telecommunications service industry is highly competitive and the Company
expects that the high level of growth within the telecommunications service
industry will encourage new entrants, both domestically and internationally,
in the future. The Company competes with both independent providers of
transactional systems and services and with internal billing departments of
telecommunications services providers. The Company believes its most
significant competitors in the wireless telecommunications segment are Alltel
Information Systems, Inc., Cincinnati Bell Information Systems, Inc.
("CBIS"), Computer Sciences Corp. and Electronic Data Systems, Inc. In the
future, the Company may compete in both the wireless and wireline markets
with additional companies who currently compete in market segments other than
wireless. In addition, the Company competes with several international
providers of billing and management information systems and, as the Company
continues to expand into international markets, it will compete with
additional providers abroad.
The Company believes that principal competitive factors include the
ability to provide timely products, features and services that are responsive
to evolving customer needs in an industry characterized by rapidly changing
technologies and ongoing deregulation. The Company must provide statement
accuracy, meet billing cycle deadlines, offer competitive pricing and
maintain high product and service quality. The Company believes that its
fully integrated architecture enables it to compete favorably in the
telecommunications services industry by offering
30
its customers a high degree of flexibility to quickly modify their billing
and management systems as their needs and the needs of their subscribers
change.
In addition, the Company believes that its ability to compete successfully
will depend in part on a number of factors outside its control, including the
development by others of software that is competitive with the Company's
products and services, the price at which others offer comparable products
and services, the extent of competitors' responsiveness to customer needs and
the ability of the Company's competitors to hire, retain and motivate key
personnel. Many of the Company's current and potential future competitors
have significantly greater financial, technical and marketing resources,
generate higher revenue and have greater name recognition than does the
Company. In addition, many of the Company's competitors have established
commercial relationships or joint ventures with major cellular and other
telecommunications services providers.
Proprietary Rights and Licenses
The Company relies in part on trademark, copyright and trade secret laws
to protect its proprietary rights. The Company distributes its products under
service and software license agreements which typically grant customers
non-exclusive licenses, subject to terms and conditions prohibiting
unauthorized reproduction, transfer or use. The Company believes that because
of the rapid pace of technological change in the telecommunications and
software industries, the technological expertise of its personnel, the
complexity of its system architecture and the frequency and timeliness of
product and service offerings are more significant than the legal protections
of its products. In addition, the Company enters into non-disclosure
agreements with each employee and consultant and each third-party to whom
the Company provides proprietary information. Access to the Company's core
source code is greatly restricted.
The Company licenses from third parties technology that is important to
certain functionalities of its products. The Company is not aware of any
patent infringement or any violation of other proprietary rights claimed by
any third party relating to the Company or the Company's products. See "Risk
Factors--Dependence on Proprietary Technology."
Employees
In August 1996, the Company had a total of 169 employees, of whom 30 were
engaged in customer service, 79 were engaged in systems, programming and
development, 9 in quality assurance, 25 in new customer conversions, 2 in
sales and 24 in administration and training. None of the Company's employees
are represented by labor unions. The Company believes that its employee
relations are good.
Properties
The Company leases approximately 23,000 square feet of office space in the
Stamford, Connecticut metropolitan area for its corporate headquarters,
systems and programming, client service, operations, quality assurance,
documentation and training, and administration. The Company also leases
approximately 1,200 square feet of office space in Middletown, Connecticut
for additional software development activities. The Company has entered into
a sublease agreement for 48,222 square feet of office space in Stamford,
Connecticut to which it intends to relocate its corporate headquarters and
consolidate each of its Connecticut offices on or about November 1, 1996. The
Company maintains satellite offices in College Station, Texas, Champaign,
Illinois, and Orlando, Florida for individuals engaged in product management
and sales.
Legal Proceedings
The Company is not a party to any material legal proceedings.
31
MANAGEMENT
Executive Officers and Directors
The executive officers, directors and certain additional management of the
Company are as follows:
Name Age Position
- --------------------------- --- ---------------------------------------
Directors and
Named Executive Officers
Charles L. Bakes 66 President, Chief Executive Officer and
Director
Mark D. Spitzer (1) 47 Executive Vice President, Chief Financial
Officer, Treasurer and Director
Lewis D. Bakes 38 Executive Vice President, Chief Operating
Officer, Secretary and Director
David L. Wells 48 Executive Vice President, Chief
Information Officer and Director
Barry K. Lewis 40 Senior Vice President
Stuart L. Bell (1)(2) 43 Director
Michael E. Kalogris (1)(2) 47 Director
Additional Management
James V. O'Neil 67 Senior Vice President
Peter L. Masanotti 41 Vice President and General Counsel
- -------------
(1) Member of Audit Committee.
(2) Member of Compensation Committee.
Charles L. Bakes co-founded the Company in 1990 and has served as the
Company's President since that time. In 1983, Mr. C. Bakes co-founded the
Clinton Financial Group, Inc., a broker/dealer specializing in the marketing
of private placement equity investments, where he served as a Vice President
until 1990.
Mark D. Spitzer co-founded the Company in 1990 and has served as Executive
Vice President and Chief Financial Officer since that time. In 1983, Mr.
Spitzer co-founded the Clinton Financial Group, Inc. along with Mr. C. Bakes
and served as its President until joining the Company. From 1983 to 1990, Mr.
Spitzer also served as a principal of The Clinton Companies, an investor and
developer of commercial and residential properties.
Lewis D. Bakes co-founded the Company in 1990 and has served as Executive
Vice President and Chief Operating Officer since that time. Mr. L. Bakes
served as an attorney at the law firm of Kleban & Samor P.C. from 1984 until
1987, and served as General Counsel to The Clinton Companies from 1987 to
1990.
David L. Wells co-founded the Company in 1990 and has served as Executive
Vice President and Chief Information Officer since that time. From 1985 to
1990, Mr. Wells served as President and Co-founder of Micro Communications
Technology, Inc., which specialized in development of communications software
packages.
Barry K. Lewis joined the Company in 1994, serving initially as the
Company's Vice President of the Wireless Division and later as the Senior
Vice President of the Wireless Division. From 1983 until he joined the
Company, Mr. Lewis worked for Auxton Computer Enterprise and CBIS, wireless
software billing vendors, ultimately serving as CBIS' Director of the
Wireless Division.
Stuart L. Bell has been a director of the Company since August 1996. Since
1995, he has served as Chairman of the Board of Innovative Medical Research,
Inc., a company that executes clinical trials, Assistant to the Chief
Executive Officer of CUC International, a membership services company, and as
a director of Harbinger Corporation, an electronic commerce company. From
1975 to 1995, he served as Chief Financial Officer, Treasurer and Executive
Vice President, Office of the President, of CUC International.
32
Michael E. Kalogris has been a director of the Company since August 1996.
He has served as President and Chief Executive Officer of Horizon Cellular
Group, an owner and operator of cellular telephone systems, since September
1991 and has been a director of Cruise Phone, a provider of marine
communications, using satellite and cellular communications systems since
March 1996. From May 1988 to September 1991, he served as President and Chief
Executive Officer of Metrophone, a wireless carrier in Philadelphia. Mr.
Kalogris is Secretary of the Cellular Telecommunications Industry
Association, a member of its Executive Board and Co-Chairman of its Fraud
Advisory Council.
James V. O'Neill joined the Company in 1992 and has served as Senior Vice
President since that time. Mr. O'Neill was Vice President of
Telecommunications for IMI Systems, Inc., an international consulting firm,
from 1987 until 1992. In addition, Mr. O'Neill served as an Adjunct Faculty
Member at the University of Wisconsin from 1987 until 1992, where he lectured
on subjects relating to cellular communications.
Peter L. Masanotti joined the Company in August 1996 as Vice President and
General Counsel. From 1980 until he joined the Company, Mr. Masanotti was an
attorney at the law firm Kleban & Samor, P.C., and served as that firm's
Managing Partner since 1993.
Following this offering, the Board of Directors will be divided into three
classes, each of whose members will serve for a staggered three-year term.
The Board will consist of two Class I Directors (Messrs. Kalogris and Bell),
two Class II Directors (Messrs. L. Bakes and Spitzer) and two Class III
Directors (Messrs. C. Bakes and Wells). At each annual meeting of
stockholders, a class of directors will be elected for a three-year term to
succeed the directors or director of the same class whose terms are then
expiring. The terms of the Class I Directors, Class II Directors and Class
III Directors expire upon the election and qualification of successor
directors at the annual meeting of stockholders held during the calendar
years 1997, 1998 and 1999, respectively.
Each officer serves at the discretion of the Board of Directors.
Charles L. Bakes is the father of Lewis D. Bakes.
Board Committees
The Board of Directors has a Compensation Committee and an Audit
Committee. The Compensation Committee makes recommendations concerning
salaries and incentive compensation and benefits for executive officers,
directors, employees and consultants of the Company and administers and
grants stock options pursuant to the Company's 1996 Stock Incentive Plan and
1996 Employee Stock Purchase Plan. The Audit Committee reviews the results
and scope of the audit and other services provided by the Company's
independent public accountant.
Board Compensation
All of the directors are reimbursed for expenses incurred in connection
with their attendance at Board and committee meetings. Directors are not
entitled to compensation in their capacities as directors.
Executive Compensation
The following table sets forth the compensation for the year ended
December 31, 1995 for the Company's Chief Executive Officer and its four most
highly compensated executive officers during fiscal 1995 (the Chief Executive
Officer and such other executive officers are hereinafter referred to as the
"Named Executive Officers"):
Summary Compensation Table
Annual Compensation
-----------------------------------
All Other
Name and Principal Position Salary Bonus Compensation
----------------------------- ------- ------- -------------
Charles L. Bakes $239,950 $308,825 --
Mark D. Spitzer $322,887 $294,798 --
Lewis D. Bakes $321,772 $290,913 --
David L. Wells $204,000 $120,181 --
Barry K. Lewis $115,000 $ 7,500 --
33
Employment Agreement
In June 1994, the Company entered into an employment agreement with Mr.
Lewis providing for the employment of Mr. Lewis as Vice President of Wireless
Services. The agreement terminates on July 4, 1997, unless sooner terminated
as provided therein. The agreement provides for an annual base salary of
$85,000 per year (plus performance bonuses to be determined in the sole
discretion of the Board of Directors) and an annual housing allowance of
$15,000. In addition, Mr. Lewis is entitled to certain other rights, subject
to a cap on value of $550,000, payable upon an initial public offering or
change in control in the Company. Upon the closing of this offering, the
Company intends to satisfy such rights in full by payment in cash of
$275,000, $137,500 of which will be payable immediately and $137,500 of which
will be payable within one year of the closing of this offering. In addition,
Mr. Lewis will be issued _________ shares of Common Stock, which shares shall
vest over four years in equal annual installments. The agreement also
contains a non-competition provision pursuant to which Mr. Lewis is
prohibited from competing with the Company during his employment with the
Company and for one year thereafter.
1996 Stock Incentive Plan
The Company's 1996 Stock Incentive Plan (the "1996 Incentive Plan")
permits the Company to grant options to purchase Common Stock, to make awards
of restricted Common Stock, and to issue certain other equity-related
securities of the Company ("Awards") to employees and directors of and
consultants to the Company. The total number of shares of Common Stock which
may be issued under the 1996 Incentive Plan is 1,000,000 shares. The maximum
number of shares which may be issued to any individual under the 1996
Incentive Plan is 250,000 per year. Stock options entitle the optionee to
purchase Common Stock from the Company for a specified exercise price during
a period specified in the applicable option agreement. Non-qualified stock
options may be granted at exercise prices which are above, equal to or below
the fair market value of the Common Stock. The exercise price of shares of
Common Stock subject to options qualifying as incentive stock options or
intended to qualify as performance-based compensation under Section 162(m) of
the Internal Revenue Code of 1986, as amended, may not be less than the fair
market value of the Common Stock on the date of the grant. Restricted stock
awards entitle the recipient to purchase or otherwise receive Common Stock
from the Company under terms which provide for vesting over a period of time
and forfeiture of the unvested portion of the Common Stock subject to the
award upon the termination of the recipient's employment or other
relationship with the Company. The 1996 Incentive Plan is administered by the
Compensation Committee of the Board of Directors, which will select the
persons to whom Awards are granted and determine the number of shares of
Common Stock covered by the Award, its exercise or purchase price, its
vesting schedule and (in the case of stock options) its expiration date.
Awards granted under the 1996 Incentive Plan will be generally
nontransferable. It is expected that stock options will generally become
exercisable over a four-year period and expire ten years after the date of
grant (subject to earlier termination in the event of the termination of the
optionee's employment or other relationship with the Company).
1996 Employee Stock Purchase Plan
The Company's 1996 Employee Stock Purchase Plan (the "Purchase Plan") will
take effect upon the closing of this offering. The Purchase Plan authorizes
the issuance of up to a total of 200,000 shares of Common Stock to
participating employees through a series of semiannual offerings, which are
expected to commence on each February 1 and August 1, beginning February 1,
1997. Any employee of the Company or a participating subsidiary is eligible
to participate in an offering if he or she is regularly employed by the
Company or a subsidiary for at least 30 hours a week and for more than five
months in a calendar year on the first day of the applicable offering. The
price at which employees may purchase Common Stock in an offering is 85% of
the closing price of the Common Stock on the Nasdaq National Market on the
day the offering commences or on the day the offering terminates, whichever
is lower. An employee may elect to have up to 10% of his or her qualifying
compensation withheld for the purpose of purchasing stock under the Purchase
Plan. If the total number of shares of Common Stock that would otherwise be
purchased in the offering with accumulated payroll deductions exceeds the
number of shares available during the offering, the available shares will be
allocated on a pro rata basis to participating employees.
Compensation Committee Interlocks and Insider Participation
The current members of the Company's Compensation Committee are Messrs.
Bell and Kalogris. No executive officer of the Company has served as a
director or member of the compensation committee (or other committee serving
an equivalent function) of any other entity, whose executive officers served
as a director of or member of the Compensation Committee of the Company.
34
CERTAIN TRANSACTIONS
In December 1995, the Company issued to CII, a beneficial owner of more
than 5% of the Common Stock, 129 shares of Class C Convertible Preferred
Stock at a purchase price of $4,961.24 per share. Each share of Class C
Convertible Preferred Stock converted into one share of Series C Convertible
Preferred Stock upon the merger of the Company into its Delaware subsidiary.
Each share of Series C Convertible Preferred Stock will automatically convert
into 800 shares of Common Stock upon the closing of this offering. The holder
of the shares of Common Stock issuable upon conversion of such Series C
Convertible Preferred Stock is entitled to certain registration rights with
respect thereto. See "Shares Eligible for Future Sale."
For a description of certain employment and other arrangements between the
Company and its executive officers, see "Management--Executive Compensation"
and "--Employment Agreement."
The Company believes that the securities issued in the transactions
described above were sold at their then fair market value and that the terms
of the transactions described above were no less favorable than the Company
could have obtained from unaffiliated third parties.
The Company has adopted a policy providing that all material transactions
between the Company and its officers, directors and other affiliates must (i)
be approved by a majority of the members of the Company's Board of Directors
and by a majority of the disinterested members of the Company's Board of
Directors and (ii) be on terms no less favorable to the Company than could be
obtained from unaffiliated third parties. In addition, this policy will
require that any loans by the Company to its officers, directors or other
affiliates be for bona fide business purposes only.
In connection with the Recapitalization, the Company was reincorporated in
the State of Delaware and an 800-for-1 stock split was effected. Pursuant to the
Recapitalization, the Company's treasury shares and Class A and Class B
Preferred Stock were retired, and the holders of shares of Class A and Class B
Preferred Stock were issued an aggregate of 852,812 shares of Common Stock and
promissory notes in the aggregate amount of $825,000, evidencing the Company's
obligations to repay capital. In addition, CII has agreed to exercise
immediately prior to this offering warrants to purchase the aggregate of 334,524
shares of Common Stock at an aggregate purchase price of $822,959, and, as
described above, all outstanding shares of Series C Convertible Preferred Stock
will be converted into shares of Common Stock upon consummation of this
offering.
35
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the
beneficial ownership of the Common Stock of the Company as of August 1, 1996,
after giving effect to the Recapitalization, and as adjusted to reflect the
sale of the shares of Common Stock offered hereby, by (i) each person or
entity known to the Company to own beneficially more than 5% of the Common
Stock, (ii) each of the Company's directors and Named Executive Officers,
(iii) each Selling Stockholder and (iv) all directors and executive officers
as a group.
Shares of
Shares of Common
Common Stock Stock
Beneficially Number of Beneficially
Owned Prior to Shares of Owned
the Offering Common After the
(2) Stock Offering (2)(3)
Name and Address (1) of --------------- Being ---------------
Beneficial Owner Number Percent Offered Number Percent
- -------------------------- ------ ------- --------- ------ -------
Connecticut Innovations,
Incorporated (4) 437,724 7.1% 0 437,724 5.3%
845 Brook Street
Rocky Hill, CT 06067
Charles L. Bakes (5) 1,671,756 27.1% 224,413 1,447,343 17.7%
Mark D. Spitzer (6) 1,279,756 20.8% 171,791 1,107,965 13.6%
Lewis D. Bakes (7) 1,250,600 20.3% 167,878 1,082,722 13.3%
David L. Wells (8) 719,400 11.7% 96,571 622,829 7.6%
Barry K. Lewis 0
0 -- 0 (9) --
Stuart L. Bell 0 -- 0 0 --
Michael E. Kalogris 0 -- 0 0 --
James V. O'Neill 44,800 * 6,014 38,786 *
All directors and
executive officers as a
group (7 persons) 4,921,512 79.8% 666,667 4,260,859 52.2%
- -------------
* Less than 1%
(1) The address of each person in the table other than Connecticut
Innovations, Incorporated is 969 High Ridge Road, Suite 205, Stamford,
Connecticut 06905.
(2) The number of shares beneficially owned by each stockholder is determined
under rules promulgated by the Securities and Exchange Commission, and
the information is not necessarily indicative of beneficial ownership for
any other purpose. Under such rules, beneficial ownership includes any
shares as to which the individual has sole or shared voting power or
investment power and also any shares which the individual has the right
to acquire within 60 days after August 1, 1996. The inclusion herein of
such shares, however, does not constitute an admission that the named
stockholder is a direct or indirect beneficial owner of such shares.
Unless otherwise indicated, each person or entity named in the table has
sole voting power and investment power (or shares such power with his or
her spouse) with respect to all shares of capital stock listed as owned
by such person or entity.
(3) Assumes no exercise of the Underwriters' over-allotment options.
(4) Consists of (i) 334,524 shares of Common Stock to be issued upon exercise
of the Warrants immediately prior to this offering and (ii) the
conversion of 129 shares of Series C Convertible Preferred Stock into
103,200 shares of Common Stock upon the closing of this offering, all as
contemplated by the Recapitalization.
(5) Consists of 1,663,556 shares beneficially owned by Mr. C. Bakes' wife, as
to which shares Mr. C. Bakes disclaims beneficial ownership and 8,200
shares held by Mr. C. Bakes from an aggregate of 32,800 shares
(the "Tenants in Common Shares") held by Mr. C. Bakes, Mark D. Spitzer,
David L. Wells and Lewis D. Bakes as Tenants in Common.
(6) Includes 8,200 of the Tenants in Common Shares.
(7) Consists of 1,242,400 shares beneficially owned by Mr. L. Bakes' wife, as
to which shares Mr. L. Bakes disclaims beneficial ownership, and 8,200 of
the Tenants in Common Shares.
(8) Includes 533,600 shares beneficially owned by Mr. Wells' wife, as to
which shares Mr. Wells disclaims beneficial ownership, and 8,200 of the
Tenants in Common Shares.
(9) Does not include __________ shares to be issued to Mr. Lewis after this
offering.
36
DESCRIPTION OF CAPITAL STOCK
Upon completion of this offering, the Company will be authorized to issue
40,000,000 shares of Common Stock, $.01 par value per share, of which
8,165,736 shares will be issued and outstanding, and 2,000,000 of
undesignated Preferred Stock, $.01 par value per share, of which no shares
will be issued and outstanding.
Common Stock
Upon the closing of this offering, the Company's Certificate of
Incorporation ("Certificate of Incorporation") will authorize the issuance of
up to 40,000,000 shares of Common Stock, $.01 par value per share. Holders of
Common Stock are entitled to one vote for each share held on all matters
submitted to a vote of stockholders and do not have cumulative voting rights.
Accordingly, holders of a majority of the shares of Common Stock entitled to
vote in any election of directors may elect all of the directors standing for
election. Holders of Common Stock are entitled to receive ratably such
dividends, if any, as may be declared by the Board of Directors out of funds
legally available therefor, subject to any preferential dividend rights of
outstanding Preferred Stock. Upon the liquidation, dissolution or winding up
of the Company, the holders of Common Stock are entitled to receive ratably
the net assets of the Company available after the payment of all debts and
other liabilities and subject to the prior rights of any outstanding
Preferred Stock. Holders of Common Stock have no preemptive, subscription,
redemption or conversion rights. The outstanding shares of Common Stock are,
and the shares offered by the Company in this offering will be, when issued
and paid for, fully paid and nonassessable. The rights, preferences and
privileges of holders of Common Stock are subject to, and may be adversely
affected by, the rights of the holders of shares of any class of Preferred
Stock which the Company may designate and issue in the future. Certain
holders of Common Stock have the right to require the Company to effect the
registration of their shares of Common Stock in certain circumstances. See
"Shares Eligible for Future Sale."
Preferred Stock
Upon the closing of this offering, the Certificate of Incorporation will
authorize the issuance of up to 2,000,000 shares of Preferred Stock, $.01 par
value per share. Under the terms of the Certificate of Incorporation, the
Board of Directors is authorized, subject to any limitations prescribed by
law, without stockholder approval, to issue such shares of Preferred Stock in
one or more class. Each such class of Preferred Stock shall have such rights,
preferences, privileges and restrictions, including voting rights, dividend
rights, conversion rights, redemption privileges and liquidation preferences,
as shall be determined by the Board of Directors.
The purpose of authorizing the Board of Directors to issue Preferred Stock
and determine its rights and preferences is to eliminate delays associated
with a stockholder vote on specific issuances. The issuance of Preferred
Stock, while providing desirable flexibility in connection with possible
acquisitions and other corporate purposes, could have the effect of making it
more difficult for a third party to acquire, or of discouraging a third party
from acquiring, a majority of the outstanding voting stock of the Company.
The Company has no present plans to issue any shares of Preferred Stock.
Delaware Law and Certain Charter and By-Law Provisions
The Company is subject to the provisions of Section 203 of the General
Corporation Law of Delaware. Section 203 prohibits a publicly-held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless the business
combination is approved in a prescribed manner. A "business combination"
includes mergers, asset sales and other transactions resulting in a financial
benefit to the interested stockholder. Subject to certain exceptions, an
"interested stockholder" is a person who, together with affiliates and
associates, owns, or within three years did own, 15% or more of the
corporation's voting stock.
The Certificate of Incorporation provides for the division of the Board of
Directors into three classes as nearly equal in size as possible with
staggered three-year terms. See "Management." In addition, the Certificate of
Incorporation provides that directors may be removed only for cause by the
affirmative vote of the holders of two-thirds of the shares of capital stock
of the corporation entitled to vote. Under the Certificate of Incorporation,
any vacancy on the Board of Directors, however occurring, including a vacancy
resulting from an enlargement of the Board, may only be filled by vote of a
majority of the directors then in office. The classification of the Board of
Directors and the limitations on the removal of directors and filling of
vacancies could have the effect of making it more difficult for a third party
to acquire, or of discouraging a third party from acquiring, control of the
Company.
37
The Certificate of Incorporation also provides that, after the closing of
this offering, any action required or permitted to be taken by the
stockholders of the Company at an annual meeting or special meeting of
stockholders may only be taken if it is properly brought before such meeting
and may not be taken by written action in lieu of a meeting. The Certificate
of Incorporation further provides that special meetings of the stockholders
may only be called by the Chairman of the Board of Directors, the Chief
Executive Officer or, if none, the President of the Company or by the Board
of Directors. Under the Company's By-Laws, in order for any matter to be
considered "properly brought" before a meeting, a stockholder must comply
with certain requirements regarding advance notice to the Company. The
foregoing provisions could have the effect of delaying until the next
stockholders meeting stockholder actions which are favored by the holders of
a majority of the outstanding voting securities of the Company. These
provisions may also discourage another person or entity from making a tender
offer for the Company's Common Stock, because such person or entity, even if
it acquired a majority of the outstanding voting securities of the Company,
would be able to take action as a stockholder (such as electing new directors
or approving a merger) only at a duly called stockholders meeting, and not by
written consent.
The General Corporation Law of Delaware provides generally that the
affirmative vote of a majority of the shares entitled to vote on any matter
is required to amend a corporation's certificate of incorporation or by-laws,
unless a corporation's certificate of incorporation or by-laws, as the case
may be, requires a greater percentage. The Certificate of Incorporation and
the By-Laws require the affirmative vote of the holders of at least 75% of
the shares of capital stock of the Company issued and outstanding and
entitled to vote to amend or repeal any of the provisions described in the
prior two paragraphs.
The Certificate of Incorporation contains certain provisions permitted
under the General Corporation Law of Delaware relating to the liability of
directors. The provisions eliminate a director's liability for monetary
damages for a breach of fiduciary duty, except in certain circumstances
involving wrongful acts, such as the breach of a director's duty of loyalty
or acts or omissions which involve intentional misconduct or a knowing
violation of law. Further, the Certificate of Incorporation contains
provisions to indemnify the Company's directors and officers to the fullest
extent permitted by the General Corporation Law of Delaware. The Company
believes that these provisions will assist the Company in attracting and
retaining qualified individuals to serve as directors.
Transfer Agent and Registrar
The transfer agent and registrar for the Common Stock is American Stock
Transfer & Trust Company.
38
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, based upon the number of shares
outstanding at June 30, 1996, there will be 8,165,736 shares of Common Stock
of the Company outstanding. Of these shares, the 2,666,667 shares sold in
this offering will be freely tradeable without restriction or further
registration under the Securities Act of 1933, as amended (the "Securities
Act"), except that any shares purchased by "affiliates" of the Company, as
that term is defined in Rule 144 ("Rule 144") under the Securities Act
("Affiliates"), may generally only be sold in compliance with the limitations
of Rule 144 described below.
The remaining 5,499,069 shares of Common Stock are deemed "Restricted
Shares" as defined under Rule 144. Restricted Shares may be sold in the
public market only if registered or if they qualify for an exemption from
registration under Rules 144, 144(k) or 701 promulgated under the Securities
Act, which rules are summarized below. Subject to the lock-up agreements
described below and the provisions of Rule 144, 144(k) and 701, additional
shares will be available for sale in the public market (subject in the case
of shares held by affiliates to compliance with certain volume restrictions)
as follows (i) 761,700 shares will be available for immediate sale in the
public market on the date of the Prospectus, (ii) 4,266,045 shares will be
eligible for resale 90 days after the date of this Prospectus; and (iii)
471,324 shares will be eligible for sale upon expiration of their respective
two-year holding periods.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned Restricted Shares for
at least two years (and, with respect to non-affiliates of the Company, a
person who has beneficially owned Restricted Securities at least two years
and less than three years), will be entitled to sell in any three-month
period a number of shares that does not exceed the greater of (i) 1% of the
then outstanding shares of the Company's Common Stock (approximately 81,654
shares immediately after the offering) or (ii) the average weekly trading
volume of the Company's Common Stock in the Nasdaq Stock Market during the
four calendar weeks immediately preceding the date on which notice of the
sale is filed with the Securities and Exchange Commission. Such sales
pursuant to Rule 144 are subject to certain requirements relating to manner
of sale, notice and availability of current public information about the
Company. A person (or persons whose shares are aggregated) who is not deemed
to have been an Affiliate of the Company at any time during the 90 days
immediately preceding the sale and who has beneficially owned Restricted
Shares for at least three years is entitled to sell such shares pursuant to
Rule 144(k) without regard to the limitations described above. The Securities
and Exchange Commission has recently proposed to reduce the two-and
three-year holding periods under Rule 144 to one and two years, respectively.
If enacted, such modification will have a material effect on the timing of
when certain shares of Common Stock become eligible for resale.
Rule 701 promulgated under the Securities Act provides that shares of
Common Stock acquired pursuant to written plans such as the 1996 Stock
Incentive Plan may be resold by persons other than Affiliates, beginning 90
days after the date of this Prospectus, subject only to the manner of sale
provisions of Rule 144, and by Affiliates, beginning 90 days after the date
of this Prospectus, subject to all provisions of Rule 144 except its two-year
minimum holding period.
The Company has agreed, subject to certain exceptions, not to offer, sell
or otherwise dispose of any shares of Common Stock for a period of 180 days
after the date of this Prospectus, except that the Company may issue, and
grant options to purchase, shares of Common Stock under the 1996 Stock
Incentive Plan and the 1996 Employee Stock Purchase Plan. In addition, the
Company may issue shares of Common Stock in connection with any acquisition
of another company if the terms of such issuance provide that such Common
Stock shall not be resold prior to the expiration of the 180 day period
referenced in the preceding sentence.
The Company anticipates that prior to this offering, all of the security
holders of the Company will have agreed pursuant to Lock-Up Agreements,
subject to certain limited exceptions, not to offer, sell or otherwise
dispose of any shares of Common Stock beneficially owned by them for a period
of 180 days after the date of this Prospectus, 75% of such shares for a
period of 270 days after the date of this Prospectus and 40% of such shares
for a period of 365 days after the date of this Prospectus.
The Company intends to file registration statements on Form S-8 under the
Securities Act to register all shares of Common Stock issuable under the 1996
Stock Incentive Plan and the 1996 Employee Stock Purchase Plan. The
registration statements are expected to be filed shortly after the effective
date of the Registration Statement of which this Prospectus is a part and
will be effective upon filing. Shares issued upon the exercise of stock
options after
39
the effective date of the Form S-8 registration statements will be eligible
for resale in the public market without restriction, subject to Rule 144
limitations applicable to Affiliates and the Lock-up Agreements noted above.
In connection with the issuance and sale of the Warrants and the Class C
Convertible Preferred Stock to CII, the Company granted rights with respect
to the registration of shares under the Securities Act (the "Registration
Rights") to CII. Under the terms of the Registration Rights, if the Company
proposes to register any of its securities under the Securities Act either
for its own account or for the account of a security holder exercising
registration rights (including CII), CII is entitled, with respect to 437,724
shares of Common Stock, to notice of such registration and is entitled to
include such shares of Common Stock in the registration. In addition, CII
will be entitled, with respect to 103,200 of such shares, to demand up to two
registrations, the expenses of which will be borne by the Company. The
Registration Rights are subject to certain conditions and limitations, among
them the right of the underwriters of a registered offering to limit the
number of shares included in such registration.
Prior to this offering, there has been no public market for the Common
Stock of the Company, and no prediction can be made as to the effect, if any,
that market sales of shares of Common Stock or the availability of shares for
sale will have on the market price of the Common Stock prevailing from time
to time. Nevertheless, sales of significant numbers of shares of the Common
Stock in the public market could adversely affect the market price of the
Common Stock and could impair the Company's future ability to raise capital
through an offering of its equity securities.
40
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
form of which is filed as an exhibit to the Registration Statement of which
this Prospectus forms a part, the Company and the Selling Stockholders have
agreed to sell to each of the Underwriters named below, and each of such
Underwriters, for whom Lehman Brothers Inc. and Cowen & Company are acting as
representatives (the "Representatives"), has severally agreed to purchase
from the Company and the Selling Stockholders, the respective number of
shares of Common Stock set forth opposite its name below:
Number of
Shares of
Common
Underwriters Stock
- -------------------- ----------------
Lehman Brothers Inc.
Cowen & Company
---------------
Total 2,666,667
===============
The Underwriting Agreement provides that the obligations of the
Underwriters to purchase the shares of Common Stock are subject to certain
conditions, and that if any of the foregoing shares of Common Stock are
purchased by the Underwriters pursuant to the Underwriting Agreement, then
all of the shares of Common Stock agreed to be purchased by the Underwriters
pursuant to the Underwriting Agreement must be so purchased.
The Company and the Selling Stockholders have been advised that the
Underwriters propose to offer the shares of Common Stock in part directly to
the public at the initial public offering price set forth on the cover page
of this Prospectus, and in part to certain selected dealers (who may include
the Underwriters) at such public offering price less a selling concession not
in excess of $ per share. The Underwriters may allow, and such dealers
may reallow, a concession not in excess of $ per share to certain
brokers and dealers. After this offering, the public offering price, the
concession to selected dealers and the reallowance may be changed by the
Underwriters.
The Company and the Selling Stockholders have granted to the Underwriters
options to purchase up to an aggregate of 200,000 and 200,000 additional
shares of Common Stock, respectively, at the public offering price, less the
aggregate underwriting discounts and commissions shown on the cover page of
this Prospectus, exercisable solely to cover over-allotments, if any. Such
options may be exercised at any time until 30 days after the date of the
Underwriting Agreement. To the extent that either option is exercised, the
Underwriters will be committed, subject to certain conditions, to purchase a
number of additional shares of Common Stock proportionate to such
Underwriter's initial commitment as indicated in the preceding table and the
Company and such Selling Stockholders will be obligated, pursuant to such
over-allotment options to sell such shares of Common Stock to the
Underwriters.
The Company has agreed that, without the prior written consent of Lehman
Brothers, Inc., it will not, subject to certain limited exceptions, directly
or indirectly, offer, sell or otherwise dispose of any shares of Common
Stock, or any securities convertible into or exchangeable or exercisable for
any such shares, for 180 days after the date of this Prospectus. The Company
anticipates that prior to this offering all of the security holders of the
Company will agree that, without the prior written consent of Lehman
Brothers, Inc., they will not, subject to certain limited exceptions,
directly or indirectly, offer, sell or otherwise dispose of (i) any shares of
Common Stock or any securities convertible into or exchangeable or
exercisable for any such shares for a period of 180 days after the date of
this Prospectus, (ii) 75% of such shares or securities for a period of 270
days after the date of this Prospectus and (iii) 40% of such shares or
securities for a period of 365 days after the date of this Prospectus.
41
Prior to this offering, there has been no public market for the shares of
Common Stock. The initial public offering price will be negotiated among the
Company and the Representatives. Among the factors to be considered in
determining the initial public offering price of the Common Stock, in
addition to prevailing market conditions, will be the Company's historical
performance and capital structure, estimates of the business potential and
earnings prospects of the Company, an overall assessment of the Company, an
assessment of the Company's management and the consideration of the above
factors in relation to market valuation of companies in related businesses.
The Company has applied for quotation of its Common Stock on the Nasdaq
National Market under the symbol "ITDS".
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933 and to contribute, under certain circumstances, to
payments that the Underwriters may be required to make in respect thereof.
Any offers in Canada will be made only pursuant to an exemption from the
requirements to file a prospectus in the relevant province of Canada in which
such offer is made.
Purchasers of the Common Stock offered hereby may be required to pay stamp
taxes and other charges in accordance with the laws and practices of the
country of purchase in addition to the offering price set forth on the cover
page hereof.
The Representatives have informed the Company that they do not intend to
confirm sales of Common Stock offered hereby to any accounts over which they
exercise discretionary authority.
LEGAL MATTERS
The validity of the shares of Common Stock offered by the Company hereby
will be passed upon for the Company by Hale and Dorr, Boston, Massachusetts,
and for the Underwriters by Chadbourne & Parke LLP, New York, New York.
EXPERTS
The financial statements of the Company at December 31, 1995 and 1994, and
for each of the three years in the period ended December 31, 1995, appearing
in this Prospectus and Registration Statement have been audited by Ernst &
Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein and in the Registration Statement, and are
included in reliance upon such report given upon the authority of such firm
as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C. 20549, a Registration Statement (which term
shall include all amendments, exhibits and schedules thereto) on Form S-1
under the Securities Act with respect to the shares of Common Stock offered
hereby. This Prospectus, which constitutes a part of the Registration
Statement, does not contain all of the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission, to which Registration Statement
reference is hereby made. Statements made in this Prospectus as to the
contents of any contract, agreement or other document referred to are not
necessarily complete. With respect to each such contract, agreement or other
document filed as an exhibit to the Registration Statement, reference is made
to the exhibit for a more complete description of the matter involved, and
each such statement shall be deemed qualified in its entirety by such
reference. The Registration Statement and the exhibits thereto may be
inspected and copied at prescribed rates at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.C., Washington, D.C. 20549 and at the regional offices of the Commission
located at Seven World Trade Center, 13th Floor, New York, New York 10048 and
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. In addition,
the Company is required to file electronic versions of these documents with
the Commission through the Commission's Electronic Data Gathering, Analysis
and Retrieval (EDGAR) system. The Commission maintains a World Wide Web site
at http://www.sec.gov that contains reports, proxy and information statements
and other information regarding registrants that file electronically with the
Commission.
42
As a result of this offering, the Company will become subject to the
information and reporting requirements of the Securities Exchange Act of
1934, as amended, and in accordance therewith will file periodic reports,
proxy statements and other information with the Securities and Exchange
Commission. The Company intends to furnish to its stockholders annual reports
containing audited financial information for each fiscal year of the Company
and unaudited quarterly reports for the first three quarters of each fiscal
year of the Company.
43
INTERNATIONAL TELECOMMUNICATION DATA SYSTEMS, INC.
INDEX TO FINANCIAL STATEMENTS
Page
-------
Report of Independent Auditors F-2
Financial Statements
Balance Sheets as of December 31, 1994 and 1995 and June 30,
1996 (unaudited) F-3
Statements of Operations for the years ended December 31, 1993,
1994 and 1995 and the six months ended June 30, 1995 and 1996
(unaudited) F-5
Statements of Stockholders' Equity (Deficiency) for the years
ended December 31, 1993, 1994 and 1995 and the six months
ended June 30, 1996 (unaudited) F-6
Statements of Cash Flows for the years ended December 31, 1993,
1994 and 1995 and the six months ended June 30, 1995 and 1996
(unaudited) F-7
Notes to Financial Statements F-8
F-1
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
International Telecommunication Data Systems, Inc.
We have audited the accompanying balance sheets of International
Telecommunication Data Systems, Inc. as of December 31, 1995 and 1994, and
the related statements of operations, stockholders' equity (deficiency) and
cash flows for each of the years in the three year period ended December 31,
1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of International
Telecommunication Data Systems, Inc. at December 31, 1995 and 1994, and the
results of its operations and its cash flows for each of the years in the
three year period ended December 31, 1995, in conformity with generally
accepted accounting principles.
Stamford, Connecticut
March 15, 1996, except for Note 10,
as to which the date is ________________, 1996
The foregoing report is in the form that will be signed upon the
recapitalization described in Note 10 to the financial statements.
/s/ ERNST & YOUNG LLP
Stamford, Connecticut
August 29, 1996
F-2
INTERNATIONAL TELECOMMUNICATION DATA SYSTEMS, INC.
BALANCE SHEETS
December 31, June 30,
----------------------
1994 1995 1996
--------- --------- -----------
(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 412,250 $1,172,692 $1,031,990
Short-term investments (Note 2) 99,286 295,069 340,200
Accounts receivable 891,178 1,348,787 2,333,856
Prepaid expenses 43,564 279,942 279,478
Deferred income taxes 10,605 20,256 43,000
---------- ---------- ----------
Total current assets 1,456,883 3,116,746 4,028,524
Property and equipment:
Computers, including leased
property under capital leases of
$392,058, $1,275,366 and
$1,592,431, respectively 931,760 1,642,697 1,959,762
Furniture and fixtures, including
leased property under capital
leases of $33,119 90,015 90,015 90,015
Trade booth 37,809 37,809 37,809
Equipment, including leased
property under capital leases of
$20,882 in 1995 and $53,508 in
June 30, 1996 7,466 29,933 62,558
Leasehold improvements 27,026 27,026 27,026
---------- ---------- ----------
1,094,076 1,827,480 2,177,170
Less: accumulated depreciation and
amortization 499,537 709,911 997,173
---------- ---------- ----------
594,539 1,117,569 1,179,997
Other assets:
Product development costs--at
cost, net of accumulated
amortization of $119,818,
$286,110 and $410,324,
respectively 471,981 785,005 1,002,839
Other 127,795 185,563 189,775
Deferred income taxes -- 228,823 99,000
---------- ---------- ----------
599,776 1,199,391 1,291,614
---------- ---------- ----------
Total assets $2,651,198 $5,433,706 $6,500,135
========== ========== ==========
See accompanying notes.
F-3
INTERNATIONAL TELECOMMUNICATION DATA SYSTEMS, INC.
BALANCE SHEETS--Continued
December 31, June 30,
----------------------
1994 1995 1996
--------- --------- ----------
(unaudited)
Liabilities and stockholders'
equity (deficiency)
Current liabilities:
Accounts payable $ 384,886 $ 256,001 $ 347,395
Accrued expenses 126,916 386,137 345,221
Accrued compensation 45,592 693,386 440,900
Current portion of accrued rent
liability 17,365 26,401 27,597
Current maturities of notes
payable 75,821 77,198 36,527
Current maturities of long-term
debt (Note 3) 524,920 69,240 66,982
Current maturities of capital
lease obligations (Note 6) 124,702 398,261 507,843
---------- ---------- ----------
Total current liabilities 1,300,202 1,906,624 1,772,465
Accrued rent liability 79,694 53,293 45,850
Notes payable 77,378 -- --
Long-term debt (Note 3) 1,181,126 1,742,033 1,710,252
Capital lease obligations (Note 6) 172,279 695,028 772,087
Deferred income taxes 10,605 -- --
Deferred revenue -- -- 200,000
Other 16,184 17,694 47,842
Commitments and contingencies
(Note 7) -- -- --
Stockholders' equity (deficiency)
(Notes 4 and 10)
Preferred Stock--Class A (net of
issuance costs)
$25,000 par value, noncumulative,
nonvoting
50 shares authorized, 18 shares
outstanding 400,400 400,400 400,400
Preferred Stock--Class B (net of
issuance costs)
$250 par value, noncumulative,
nonvoting
2,000 shares authorized, 1,500
shares outstanding 327,600 327,600 327,600
Preferred Stock--Class C
$4,961 par value, cumulative,
nonvoting
250 shares authorized, 129 shares
outstanding -- 640,000 640,000
Preferred Stock, $.01 par value;
2,000,000 shares
authorized, none issued -- -- --
Common Stock, $.01 par value;
40,000,000 shares
authorized, 5,124,800 shares
issued, 4,875,200
shares outstanding 51,248 51,248 51,248
Additional paid-in capital 61,862 61,862 61,862
Retained earnings (deficit) (627,350) (62,046) 870,559
Treasury stock (400,030) (400,030) (400,030)
---------- ---------- ----------
Total stockholders' equity
(deficiency) (186,270) 1,019,034 1,951,639
---------- ---------- ----------
Total liabilities and stockholders'
equity (deficiency) $2,651,198 $5,433,706 $6,500,135
========== ========== ==========
See accompanying notes.
F-4
INTERNATIONAL TELECOMMUNICATION DATA SYSTEMS, INC.
STATEMENTS OF OPERATIONS
Six months ended June
Year ended December 31, 30,
------------------------------------ ------------------------
1993 1994 1995 1995 1996
--------- --------- ---------- --------- -----------
(unaudited) (unaudited)
Revenue $3,145,934 $6,324,041 $10,820,815 $4,885,770 $7,864,641
Costs and expenses:
Operating expenses 834,337 1,646,852 2,787,687 1,193,880 1,847,718
General, administrative
and selling expenses 1,575,407 2,409,683 4,601,242 2,070,218 2,683,019
Depreciation and
amortization 241,953 405,873 640,917 275,108 437,708
Systems development and
programming costs 297,344 755,387 1,183,141 452,761 964,390
---------- ---------- ---------- ---------- ----------
Total costs and
expenses 2,949,041 5,217,795 9,212,987 3,991,967 5,932,835
---------- ---------- ---------- ---------- ----------
Operating income 196,893 1,106,246 1,607,828 893,803 1,931,806
Other income 50,852 28,413 49,477 22,805 12,815
Interest expense (329,326) (389,793) (452,925) (235,906) (218,416)
---------- ---------- ---------- ---------- ----------
Income (loss) before
income tax expense (81,581) 744,866 1,204,380 680,702 1,726,205
Income tax expense -- 36,666 378,786 214,086 732,000
---------- ---------- ---------- ---------- ----------
Income (loss) before
extraordinary item (81,581) 708,200 825,594 466,616 994,205
Extraordinary loss (net of
$158,038 tax benefit) -- -- (223,696) (223,696) --
---------- ---------- ----------- ---------- ----------
Net income (loss) $ (81,581) $ 708,200 $ 601,898 $ 242,920 $ 994,205
========== ========== =========== ========== ==========
Income (loss) per common
share:
Income (loss) before
extraordinary item $ (.02) $ .14 $ .16 $ .09 $ .19
Extraordinary loss -- -- (.04) (.04) --
---------- ---------- ----------- ---------- ----------
Net income (loss) $ (.02) $ .14 $ .12 $ .05 $ .19
========== ========== =========== ========== ==========
Shares used in computing
income (loss) per common
share 4,779,267 5,067,293 4,875,200 4,875,200 4,875,200
========== ========== =========== ========== ==========
See accompanying notes.
F-5
INTERNATIONAL TELECOMMUNICATION DATA SYSTEMS, INC.
Statements of Stockholders' Equity (Deficiency)
(Information for the six months ended June 30, 1996 is unaudited)
Preferred Stock
--------------------------------------------------------------------------
Class A Class B Class C
----------------------- ---------------------- ----------------------
Number $25,000 Number $250 Number $4,961
of Shares Par of Shares Par of Shares Par
Outstanding Value Outstanding Value Outstanding Value
----------- -------- ------------ ------- ----------- -------
Balance at December 31,
1992 18 $400,400 1,500 $327,600 0 $ --
Issuance of common
stock
Distribution of stock
to officers
Net loss
Preferred stock
dividends
-------- -------- --------- -------- --------- --------
Balance at December 31,
1993 18 400,400 1,500 327,600 0
Issuance of common
stock
Net income
Preferred stock
dividends
Purchase of treasury
stock
-------- -------- --------- -------- --------- --------
Balance at December 31,
1994 18 400,400 1,500 327,600 0 --
Issuance of preferred
stock 129 640,000
Net income
Preferred stock
dividends
-------- -------- --------- -------- --------- --------
Balance at December 31,
1995 18 400,400 1,500 327,600 129 640,000
Net income
Preferred stock
dividends
-------- -------- --------- -------- --------- --------
Balance at June 30, 1996 18 $400,400 1,500 $327,600 129 $640,000
======== ======== ========= ======== ========= ========
Common Stock
Treasury
Number Additional Stock Retained
of Shares Par Paid-in at Earnings
Outstanding Value Capital Cost (Deficit)
----------- ------ ---------- --------- -------------
Balance at December
31, 1992 3,259,200 $32,592 $14,968 $ -- $(1,220,219)
Issuance of common
stock 32,000 320 280
Distribution of
stock to officers 1,800,000 18,000 16,185
Net loss (81,581)
Preferred stock
dividends (11,250)
----------- ------- ---------- ---------- -------------
Balance at December
31, 1993 5,091,200 50,912 31,433 -- (1,313,050)
Issuance of common
stock 33,600 336 30,429
Net income 708,200
Preferred stock
dividends (22,500)
Purchase of
treasury stock (249,600) (400,030)
----------- ------- ---------- ---------- -------------
Balance at December
31, 1994 4,875,200 51,248 61,862 (400,030) (627,350)
Issuance of
preferred stock
Net income 601,898
Preferred stock
dividends (36,594)
----------- ------- ---------- ---------- -------------
Balance at December
31, 1995 4,875,200 51,248 61,862 (400,030) (62,046)
Net income 994,205
Preferred stock
dividends (61,600)
----------- ------- ---------- ---------- -------------
Balance at June 30,
1996 4,875,200 $51,248 $61,862 $(400,030) $ 870,559
=========== ======= ========== ========== =============
See accompanying notes.
F-6
INTERNATIONAL TELECOMMUNICATION DATA SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
Six months ended June
Year ended December 31, 30,
------------------------------ ---------------------
1993 1994 1995 1995 1996
------- ------- ------- ------- ----------
(unaudited) (unaudited)
Operating activities
Income (loss) before
extraordinary loss $ (81,581) $ 708,200 $ 825,594 $ 466,616 $ 994,205
Adjustments to reconcile
income (loss)
before extraordinary loss to
net cash
provided by operating
activities:
Depreciation and
amortization 241,953 405,873 640,917 275,108 437,708
Distribution of stock to
officers 34,185 -- -- -- --
Compensation paid in Common
Stock -- 30,135 -- -- --
Deferred interest expense 321,215 342,032 -- -- (400)
Loss (gain) on disposal of
equipment (5,237) 14,705 (245) -- --
Deferred income taxes -- -- (93,960) -- 107,079
Change in operating assets
and liabilities:
Accounts receivable (140,159) (429,785) (457,609) (526,481) (985,069)
Prepaid expenses (25,028) 8,300 (236,378) (85,780) 464
Accounts payable and
accrued expenses 241,293 93,574 781,049 598,441 (202,008)
Deferred revenue -- -- -- -- 200,000
Other assets and
liabilities, net 32,891 (13,310) (157,414) (138,681) (68,143)
--------- ---------- ---------- --------- ----------
Net cash provided by
operating activities 619,532 1,159,724 1,301,954 589,223 483,836
Investing activities
Capital expenditures (226,812) (144,624) (17,358) (15,735) --
Proceeds from sale of
equipment 23,000 -- 13,500 -- 400
Purchases of securities (50,152) -- -- -- --
Purchase of investments (99,216) (200,000) (245,069) (238,749) (295,130)
Proceeds from maturities of
investments -- 200,000 99,286 100,000 250,000
Product development costs (303,197) (288,602) (479,316) (230,817) (342,048)
--------- ---------- ---------- --------- ----------
Net cash used for investing
activities (656,377) (433,226) (628,957) (385,301) (386,778)
Financing activities
Principal payments on
long-term debt (150,374) (292,668) (276,507) (104,923) (34,039)
Proceeds from long-term debt 362,500 -- -- -- --
Principal payments on notes
payable (65,483) (18,672) (76,001) (37,193) (40,671)
Principal payments on capital
lease obligations (49,104) (98,590) (166,297) (67,784) (163,050)
Proceeds from sale of common
stock 600 630 -- -- --
Proceeds from sale of
Preferred Stock -- -- 640,000 -- --
Preferred stock dividends
paid (11,250) (22,500) (33,750) (11,250) --
Purchase of treasury stock -- (240,000) -- -- --
--------- ---------- ---------- --------- ----------
Net cash provided by (used
for) financing
activities 86,889 (671,800) 87,445 (221,150) (237,760)
Net change in cash and cash
equivalents 50,044 54,698 760,442 (17,228) (140,702)
Cash and cash equivalents at
beginning of period 307,508 357,552 412,250 412,250 1,172,692
--------- ---------- ---------- --------- ----------
Cash and cash equivalents at
end of period $ 357,552 $ 412,250 $1,172,692 $ 395,022 $1,031,990
========= ========== ========== ========= ===========
Supplemental disclosures of
cash flow information:
Cash paid during the period
for interest $ 182,889 $ 335,731 $ 447,241 $ 221,429 $ 218,416
Supplemental disclosure of noncash financing activities:
Capital lease obligations totaling $960,059, $234,512 and $140,820 in the
years ended December 31, 1995, 1994 and 1993, and $349,692 and $382,396 in
the six months ended June 30, 1996 and 1995, respectively, were incurred for
the acquisition of new equipment.
In 1994, notes payable totaling $175,000 with a present value of $160,030
were issued when the Company repurchased common stock.
See accompanying notes.
F-7
INTERNATIONAL TELECOMMUNICATION DATA SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
(Information as of June 30, 1996 and for the
six months ended June 30, 1995 and 1996 is unaudited)
1. BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Description of Business
The Company provides comprehensive transactional billing and management
information solutions to providers of wireless, long distance and satellite
telecommunications services. These solutions are built upon a flexible
proprietary software technology to address customer requirements as they
evolve, regardless of market segment, geographic area or mix of network
features or billing options. The Company typically provides its services to
customers under exclusive contracts with terms ranging from three to four
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.
Basis of Presentation
Property and equipment are carried at cost, less accumulated depreciation
computed using the straight-line method over the estimated useful lives of
the assets.
In 1992, the Company acquired certain software, which is carried at cost,
less accumulated amortization computed using the straight-line method based
on an estimated life of five years.
The Company has capitalized software development costs incurred in the
development of software used in its product and service line. The capitalized
costs include salaries and related payroll costs incurred in the development
activities. Software development costs are carried at cost less accumulated
amortization computed on the straight-line method over an estimated useful
life of five years. During the years ended December 31, 1995, 1994 and 1993,
$166,292, $90,682 and $30,319, respectively, of capitalized software
development costs were amortized.
Revenues and costs associated with the recurring process of providing
billing and other service/software solutions functions are recognized at the
time services are performed. Revenues and costs associated with the licensing
and installation of software are recognized upon execution of the licensing
agreement over the delivery/ installation period of the software.
In 1995, the FASB issued Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of." The Statement, which has been adopted in 1996,
requires companies to investigate potential impairments of long-lived assets,
certain identifiable intangibles, and associated goodwill on an exception
basis, when there is evidence that events or changes in circumstances have
made recovery of an asset's carrying value unlikely. The adoption of
Statement No. 121 has not had a material effect on the Company's financial
position or results of operations.
The Financial Accounting Standards Board has issued SFAS No. 123,
"Accounting for Stock Based Compensation," which is effective for the
Company's December 31, 1996 year end. SFAS No. 123 allows an entity to
continue the application of the accounting prescribed by APB No. 25, however,
pro forma footnote disclosures of net income and earnings per share, as if
SFAS No. 123 had been applied, are required. The Company intends to continue
its current accounting under APB No. 25 and provide the required pro forma
footnote disclosures commencing with its fiscal 1996 year end financial
statements.
Net income (loss) per share of common stock, after preferred stock
dividends of $11,250, $22,500 and $36,594 in the years ended December 31,
1993, 1994 and 1995, respectively, and $11,250 and $61,600 in the six month
periods ended June 30, 1995 and 1996, respectively, is calculated using the
weighted average number of shares of common stock outstanding and common
stock equivalents, if dilutive, and reflects the 800-for-1 stock split
referred to in Note 10. In accordance with the provisions of Accounting
Principles Board Opinion No. 15, common stock equivalents applicable to
primary earnings per share calculations, and shares applicable to fully
diluted
F-8
INTERNATIONAL TELECOMMUNICATION DATA SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information as of June 30, 1996 and for the
six months ended June 30, 1995 and 1996 is unaudited)
1. BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
earnings per share calculations have been excluded from such calculations
because they result in dilution of less than 3% for all periods presented.
Supplemental earnings per share, assuming, at the beginning of the
respective periods, the exercise of the warrants, the redemption and
conversion of all outstanding preferred stock, and the sale of common stock,
the proceeds of which would be used for debt retirement, as described in Note
10, are as follows:
Six months
Year ended ended
December 31,
1995 June 30, 1996
-------------- ---------------
Income before extraordinary item $ .17 $.17
Extraordinary item (.04) --
------------ -------------
Net income $ .13 $.17
============ =============
The statements of operations for the six months ended June 30, 1995 and
1996, and balance sheet as of June 30, 1996 are unaudited and include all
adjustments, consisting only of normal recurring adjustments, which
management considers necessary for a fair presentation of the results of such
periods. Results of operations for the six months ended June 30, 1996 are not
necessarily indicative of results to be expected for the full year.
Cash Equivalents
The Company considers all highly liquid debt instruments with a maturity
of three months or less when purchased to be cash equivalents.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts and disclosures reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Major Customers
The Company markets its services through a core team of senior executives
and is in the process of developing a direct sales force.
Three customers accounted for approximately 23%, 27% and 29% of the
Company's total revenues in 1995, 1994 and 1993, respectively. Credit losses
have not been significant.
2. INVESTMENTS
Short-term investments, recorded at cost plus accrued interest
(approximates market), consist of United States Treasury Bills and United
States Treasury Notes, maturing within 180 days. These investments are
included in other assets. The investments are classified as held to maturity
as the Company has the ability and intent to hold all investments to
maturity. The income from these investments is included in other income.
3. DEBT
At December 31, 1994, the Company had an aggregate of $1,316,575 payable
to Connecticut Innovations Incorporated ("CII") under certain debt agreements
dated August 16, 1991 and July 21, 1992 with face amounts of $600,000 and
$350,000, respectively. These loans required payment of principal and
interest in the form of quarterly royalty payments which were calculated
based on revenues for the period by a specified percentage rate. These loans
were structured such that they would be considered paid in full based upon
the aggregate payments (principal and interest) at specified dates. Based on
the estimated payments, the imputed interest rate approximated
F-9
INTERNATIONAL TELECOMMUNICATION DATA SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information as of June 30, 1996 and for the
six months ended June 30, 1995 and 1996 is unaudited)
3. DEBT (Continued)
25% at December 31, 1994. On June 30, 1995, the Company consolidated these
loans with CII into one loan with a principal amount of $1,485,000 at a 14.5%
interest rate. Under the terms of this loan agreement, the Company will pay
interest of $17,944 monthly for two years and $34,940 monthly subsequent to
that for principal and interest through July 2002. Also see Note 8. The
Company believes that the outstanding balance of this note approximates fair
value because of its repayment terms.
The Company also has a loan payable to CII, originally issued in 1993 for
$350,000 at a 10% interest rate, which was refinanced in December 1994 with a
$389,472, 10% interest bearing note. This note includes principal plus
accrued interest on the original loan. The new note is payable in equal
monthly installments over 60 months and has a balance of $326,273 at December
31, 1995 and $292,234 at June 30, 1996, respectively. As additional
consideration for the refinancing of this loan, the Company issued the lender
warrants to purchase 2% of the outstanding Common Stock of the Company at an
exercise price of $385,000 - currently 116,193 shares. CII also currently
holds warrants, issued in connection with a previous transaction, to
purchase 218,331 shares of Common Stock (subject to adjustment) at an
aggregate exercise price of $437,959. The warrants became exercisable
immediately and expire on January 1, 2002. The outstanding loan balance
approximates fair value.
In addition, pursuant to the August 16, 1991 debt agreement, as amended,
between the Company and CII, the Company is obligated to make a one-time payment
to CII of $200,000 upon (i) the closing of an initial public offering, (ii) the
sale of the Company through merger, sale of assets or otherwise or (iii) the
exclusive or semi-exclusive licensing agreement for the sale of any product of
the Company.
In 1994, the Company issued notes payable of $175,000 with no stated
interest. Interest of 9% has been imputed on these notes. Certain of these
notes are guaranteed by certain officers and stockholders of the Company. The
remaining balance of these notes of $77,198 is payable in 1996.
Substantially all assets of the Company are pledged under the various debt
agreements.
Maturities of long-term debt are as follows as of December 31, 1995:
1996 $ 69,240
1997 164,185
1998 316,765
1999 361,587
2000 308,927
Thereafter 590,569
----------
$1,811,273
==========
4. CAPITAL STOCK
All share and per share amounts have been adjusted to reflect the increase
in authorized shares of Common Stock and to give effect to the 800-for-1
split of the Common Stock, described in Note 10.
Each share of outstanding Class A Preferred Stock is entitled to a
noncumulative dividend equal to 10% of the Class A par value, and a priority
return of its par value, plus .5% of any proceeds generated from a
liquidating distribution, or .5% of the then outstanding common stock
(exclusive of shares issuable upon exercise of certain warrants) immediately
prior to a public offering.
Each 100 shares outstanding of Class B Preferred Stock is entitled to a
noncumulative dividend equal to 10% of the Class B par value, and a priority
return of its par value, plus .375% of any proceeds generated from a
liquidating distribution, or .375% of the then outstanding common stock
(exclusive of shares issuable upon exercise of certain warrants) immediately
prior to a public offering. The Class B shares are subordinate to the Class A
Preferred shares with respect to dividends, capital transactions and
liquidating distributions.
F-10
INTERNATIONAL TELECOMMUNICATION DATA SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information as of June 30, 1996 and for the
six months ended June 30, 1995 and 1996 is unaudited)
4. CAPITAL STOCK (Continued)
The Class C Preferred Stock is junior to Class A and B with regard to
liquidation and dividend preference, is entitled to an 8% cumulative dividend
and is convertible into ITDS Common Stock at any time at the option of the
holder on an 800-for-one basis. The stock may be put to the Company upon the
occurrence of certain events at a price to be determined at the put date as
defined in the agreement. In addition, the holders of the Class C Preferred
Stock can demand registration of the stock in certain circumstances.
In 1994, an officer of the Company exercised an option to acquire 33,600
shares of common stock for $630. Compensation expense of $30,135 was
recognized for the difference between the exercise price and estimated fair
market value of the shares.
5. DEFERRED COMPENSATION
The Company has a deferred compensation plan for certain nonshareholder
key employees. The deferred compensation is based upon the award of
performance units, the value of which is related to the financial performance
of the Company. The performance units vest incrementally over a ten year
period from the date of grant or vest 100% upon a public offering. At
December 31, 1995, unvested performance units with value of $51,150 were
outstanding.
In addition, in accordance with the terms of his employment agreement, an
employee will become entitled, only in the event of a change in control or a
public offering of the Company's Common Stock, to certain rights, limited to
an amount not to exceed $550,000.
6. CAPITALIZED LEASE OBLIGATIONS
The Company leases computer equipment and office furniture under capital
leases expiring in various years through 1999. The assets and liabilities
under capital leases are recorded at the lower of the present value of the
minimum lease payments or the fair value of the asset. Depreciation of assets
under capital leases is included in depreciation expense.
Maturities of capital lease obligations are as follows as of December 31,
1995:
1996 $ 537,677
1997 465,813
1998 223,058
1999 53,886
----------
Total lease obligations 1,280,434
Less: amount representing interest 187,145
----------
Present value of minimum lease payments $1,093,289
==========
7. COMMITMENTS AND CONTINGENCIES
The Company leases its Connecticut office facilities under noncancelable
operating leases expiring in July 1996 and April 1999. Under the terms of the
leases there will be a rental increase in 1996. The Company recognizes rental
expense on a straight line basis over the term of the lease. Rent expense was
$330,914, $221,225 and $173,796 for the years ended December 31, 1995, 1994
and 1993, respectively.
Minimum future rental payments due under such leases as of December 31,
1995 are as follows:
1996 $242,072
1997 199,628
1998 199,628
1999 49,907
--------
$691,235
========
F-11
INTERNATIONAL TELECOMMUNICATION DATA SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information as of June 30, 1996 and for the
six months ended June 30, 1995 and 1996 is unaudited)
7. COMMITMENTS AND CONTINGENCIES (Continued)
In addition, the Company leases office facilities in Florida and Texas
under separate operating leases expiring in 1995 with options to renew. Rent
expense for these leases was $2,160 and $2,090 for the years ended December
31, 1995 and 1994, respectively. The Florida facility lease expired in August
1995 and was not renewed.
The Company is also obligated to pay utilities and property taxes above
the landlords' base year costs.
The Company rents office furniture from an entity owned by certain
stockholders of the Company. The agreement calls for a monthly rental amount
of $2,266 and can be canceled at any time. Total rental expense under the
agreement for both 1995 and 1994 was $27,192 and $27,000 in 1993.
The Company is not a party to any material legal proceedings.
8. EXTRAORDINARY ITEM
As described in Note 3, on June 30, 1995 the Company refinanced existing
debt with CII. In doing so, the Company recorded an extraordinary loss of
$223,696 net of a $158,038 tax benefit. Such extraordinary loss was due to
negotiated acceleration of royalty payments due to early termination of the
debt agreement.
9. INCOME TAXES
Significant components of income tax expense (benefit) before
extraordinary item are as follows:
December 31,
----------------- June 30,
1994 1995 1996
---- ---- ---------
(Unaudited)
Current:
Federal $28,828 $344,360 $458,000
State 7,838 128,386 167,000
------- -------- --------
36,666 472,746 625,000
------- -------- --------
Deferred:
Federal -- (62,640) 78,000
State -- (31,320) 29,000
------ -------- --------
-- (93,960) 107,000
------ -------- --------
Total tax expense $36,666 $378,786 $732,000
======= ======== ========
A reconciliation of applicable federal statutory rate to the Company's
effective tax (benefit) rate from income before tax expense and extraordinary
item follows:
1993 1994 1995
----- ----- -------
Statutory rate (34.0)% 34.0% 34.0%
State income taxes, net of
federal income tax benefit 0.7 5.3
Debt consolidation expenses (10.1)
Net operating loss carryforwards 34.0 (41.9)
Alternative minimum tax 2.5
Nondeductible interest expense 6.4
Other, net 3.2 2.3
---- ---- -----
--% 4.9% 31.5%
==== ==== =====
F-12
INTERNATIONAL TELECOMMUNICATION DATA SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information as of June 30, 1996 and for the
six months ended June 30, 1995 and 1996 is unaudited)
9. INCOME TAXES (Continued)
Significant components of the Company's deferred tax assets and
liabilities are as follows:
December 31
--------------------
1994 1995
------- ---------
Deferred tax liabilities:
Software development costs $251,515 $443,709
Capitalized leases 72,259 173,026
-------- --------
Total deferred tax liabilities 323,774 616,735
-------- --------
Deferred tax assets:
Deferred charges 41,251 33,013
Depreciation and amortization 136,892 323,010
Accrued compensation 31,216 26,408
AMT credit carryforward 18,748
Interest 120,046 483,383
Other 3,613
-------- -------
Total deferred tax assets 351,766 865,814
-------- -------
Deferred:
Net deferred tax asset before valuation allowance 27,992 249,079
Valuation allowance for deferred tax assets 27,992
-------- --------
Net deferred tax asset $ -- $249,079
======== ========
10. SUBSEQUENT EVENTS
In connection with a proposed Initial Public Offering (IPO) of the
Company's Common Stock, 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 estimated proceeds from the sale of the
Company's Common Stock to be sold in the IPO will be used to retire
substantially all of the Company's outstanding debt. In addition, the
Company's Class A and B Preferred Stock were retired and the holders of such
shares were issued an aggregate of 852,812 post-split shares of the Company's
Common Stock and promissory notes in the aggregate amount of $825,000,
evidencing the Company's obligations to repay capital. Further, CII has
agreed to exercise outstanding warrants to purchase 334,524 post-split shares
of the Company's Common Stock at an aggregate purchase price of $822,959, and
will convert all outstanding shares of Series C Preferred Stock into such
Common Stock.
The Company's 1996 Stock Incentive Plan and 1996 Employee Stock Purchase
Plan will take effect upon the closing of the IPO. A total of 1,200,000
common shares have been authorized for issuance under these plans.
On June 11, 1996, the Company entered into a noncancellable lease expiring
on August 31, 2000 for 48,222 square feet of office space in Stamford,
Connecticut. Minimum future rental payments due under such lease are $723,330
per year.
F-13
[Inside Back cover of Prospectus]
[Picture of Globe with ITDS Family of Products]
ITDS 10X
CORD Compliant SwitchLink
GSM/PCS
Compliant CreditLink
10XArchive [Photo of Globe] InventoryScan
10XWrite General Ledger
Report Writer [ITDS logo] Interface
INTERNATIONAL
Debit/Threshold TELECOMMUNICATION Collections
Billing DATA SYSTEMS Module
PayScan Point Of Sale
ITDS provides comprehensive transactional billing and management
information solutions to providers of wireless, long distance and satellite
telecommunications services. The Company uses its robust and flexible
proprietary software technology to develop billing solutions which address
customer requirements as they evolve, regardless of market segment,
geographic area or mix of network features or billing options.
=========================================================
No dealer, salesperson or other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus, and, if given or made, such information or representations must
not be relied upon as having been authorized by the Company, any of the
Selling Stockholders or any of the Underwriters. This Prospectus does not
constitute an offer to sell or the solicitation of an offer to buy any
securities other than the securities to which it relates or an offer to sell
or the solicitation of an offer to buy such securities in any circumstances
in which such offer or solicitation is unlawful. Neither the delivery of this
Prospectus nor any sale made hereunder shall, under any circumstances, create
any implication that there has been no change in the affairs of the Company
since the date hereof or that the information contained herein is correct as
of any time subsequent to its date.
-------------
TABLE OF CONTENTS
Page
-----
Prospectus Summary 3
Risk Factors 6
Use of Proceeds 11
Dividend Policy 11
Capitalization 12
Dilution 13
Selected Financial
Data 14
Management's
Discussion and
Analysis of
Financial
Condition and
Results of
Operations 16
Business 22
Management 32
Certain Transactions 35
Principal and
Selling
Stockholders 36
Description of
Capital Stock 37
Shares Eligible for
Future Sale 39
Underwriting 41
Legal Matters 42
Experts 42
Additional
Information 42
Index to Financial
Statements F-1
Until , 1996 (25 days after the date of this Prospectus), all dealers
effecting transactions in the Common Stock, whether or not participating in
this distribution, may be required to deliver a Prospectus. This is in
addition to the obligation of dealers to deliver a Prospectus when acting as
Underwriters and with respect to their unsold allotments or subscriptions.
2,666,667 Shares
[ITDS logo]
INTERNATIONAL
TELECOMMUNICATION
DATA SYSTEMS
Common Stock
-------------
PROSPECTUS
, 1996
-------------
Lehman Brothers
Cowen & Company
=========================================================
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth an estimate (except for the SEC
registration fee and NASD filing fee) of the fees and expenses, all of which
will be borne by the Registrant, in connection with the sale and distribution
of the securities being registered, other than the underwriting discounts and
commissions.
SEC Registration Fee $16,920
NASD Filing Fee 5,407
Nasdaq National Market Listing Fee *
Blue Sky Fees and Expenses *
Transfer Agent and Registrar Fees *
Accounting Fees and Expenses *
Legal Fees and Expenses *
Printing, Engraving and Mailing Expenses *
Miscellaneous *
Total $ *
======
- -------------
* To be provided by amendment.
Item 14. Indemnification of Directors and Officers
Article SEVENTH of the Registrant's Certificate of Incorporation (the
"Certificate of Incorporation") provides that no director of the Registrant
shall be personally liable for any monetary damages for any breach of
fiduciary duty as a director, except to the extent that the Delaware General
Corporation Law prohibits the elimination or limitation of liability of
directors for breach of fiduciary duty.
Article EIGHTH of the Registrant's Certificate of Incorporation provides
that a director or officer of the Registrant (a) shall be indemnified by the
Registrant against all expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement incurred in connection with any litigation or
other legal proceeding (other than an action by or in the right of the
Registrant) brought against him by virtue of his position as a director or
officer of the Registrant if he acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
Registrant, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful and (b) shall be
indemnified by the Registrant against all expenses (including attorneys'
fees) and amounts paid in settlement incurred in connection with any action
by or in the right of the Registrant brought against him by virtue of his
position as a director or officer of the Registrant if he acted in good faith
and in a manner he reasonably believed to be in, or not opposed to, the best
interests of the Registrant, except that no indemnification shall be made
with respect to any matter as to which such person shall have been adjudged
to be liable to the Registrant, unless a court determines that, despite such
adjudication but in view of all of the circumstances, he is entitled to
indemnification of such expenses. Notwithstanding the foregoing, to the
extent that a director or officer has been successful, on the merits or
otherwise, including, without limitation, the dismissal of an action without
prejudice, he is required to be indemnified by the Registrant against all
expenses (including attorneys' fees) incurred in connection therewith.
Expenses shall be advanced to a Director or officer at his request, provided
that he undertakes to repay the amount advanced if it is ultimately
determined that he is not entitled to indemnification for such expenses.
Indemnification is required to be made unless the Registrant determines
that the applicable standard of conduct required for indemnification has not
been met. In the event of a determination by the Registrant that the director
or officer did not meet the applicable standard of conduct required for
indemnification, or if the Registrant fails to make an indemnification
payment within 60 days after such payment is claimed by such person, such
person is permitted to petition the court to make an independent
determination as to whether such person is entitled to indemnification. As a
condition precedent to the right of indemnification, the director or officer
must give the Registrant notice of the action for which indemnity is sought
and the Registrant has the right to participate in such action or assume the
defense thereof.
II-1
Article EIGHTH of the Registrant's Certificate of Incorporation further
provides that the indemnification provided therein is not exclusive, and
provides that in the event that the Delaware General Corporation Law is
amended to expand the indemnification permitted to directors or officers the
Registrant must indemnify those persons to the fullest extent permitted by
such law as so amended.
Section 145 of the Delaware General Corporation Law provides that a
corporation has the power to indemnify a director, officer, employee or agent
of the corporation and certain other persons serving at the request of the
corporation in related capacities against amounts paid and expenses incurred
in connection with an action or proceeding to which he is or is threatened to
be made a party by reason of such position, if such person shall have acted
in good faith and in a manner he reasonably believed to be in or not opposed
to the best interests of the corporation, and, in any criminal proceeding, if
such person had no reasonable cause to believe his conduct was unlawful;
provided that, in the case of actions brought by or in the right of the
corporation, no indemnification shall be made with respect to any matter as
to which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the adjudicating court determines that
such indemnification is proper under the circumstances.
Under the Underwriting Agreement, the Underwriters are obligated, under
certain circumstances, to indemnify directors and officers of the Registrant
against certain liabilities, including liabilities under the Securities Act.
Reference is made to the form of Underwriting Agreement filed as Exhibit 1
hereto.
Item 15. Recent Sales of Unregistered Securities
Set forth in chronological order below is information regarding the number
of shares of Common Stock and Preferred Stock issued by the Registrant since
July 30, 1993. Also included is the consideration, if any, received by the
Registrant for such shares, and information relating to the section of the
Securities Act of 1933, as amended (the "Securities Act"), or rule of the
Securities and Exchange Commission under which exemption from registration
was claimed. No sale of securities involved the use of an underwriter and no
commissions were paid in connection with the sales of any securities. The
following descriptions give effect to the Recapitalization.
In December 1993, the Company cancelled and retired 18 shares of "old"
Preferred Stock of the Company (representing all of the then outstanding
shares of "old" Preferred Stock) and issued an aggregate of 18 shares of
Class A Preferred Stock of the Company in the names of and in the amounts
formerly held by each former holder of "old" Preferred Stock. The holders of
Class A Preferred Stock paid no consideration to the Company other than the
cancellation of the respective shares of "old" Preferred Stock formerly held
by them. As part of the Recapitalization, the 18 shares of Class A Preferred
Stock were converted into an aggregate of 524,808 shares of Common Stock and
promissory notes in the aggregate amount of $450,000 for no consideration
other than the cancellation of the Class A Preferred Stock.
In December 1993, the Company cancelled and retired 1,500 shares of "old"
Class B Preferred Stock of the Company (representing all of the then
outstanding shares of "old" Class B Preferred Stock) and issued an aggregate
of 1,500 shares of "new" Class B Preferred Stock of the Company in the names
of and in the amounts formerly held by each former holder of "old" Class B
Preferred Stock. The holders of "new" Class B Preferred Stock paid no
consideration other than the cancellation of the respective shares of "old"
Class B Preferred Stock formerly held by them. As part of the
Recapitalization, the 1,500 shares of Class B Preferred Stock were converted
into an aggregate of 328,004 shares of Common Stock and promissory notes in
the aggregate amount of $375,000 for no additional consideration other than
the cancellation of the Class B Preferred Stock.
In 1993 the Company issued a note payable to Connecticut Innovations Inc.
("CII") in the amount of $350,000, which was refinanced in December 1994 for
a note in the principal amount of $389,472, bearing 10% interest.
In March 1993, the Board of Directors issued the following shares of
Common Stock as bonuses: 460,800 shares to Mark D. Spitzer, 410,400 shares to
Lewis D. Bakes, 656,800 shares to Charles L. Bakes and 272,000 shares to
David L. Wells.
In 1994, the Company issued an interest-free note payable to a former
stockholder in the amount of $150,000 as part of the settlement of
litigation.
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On December 29, 1994, the Company issued to CII a warrant (the "1994
Warrant") in connection with the issuance by the Company of the promissory
note in the amount of $389,500. The 1994 Warrant is exercisable for 116,193
shares of Common Stock (subject to adjustment) at a price of $3.31345 per
share (subject to adjustment).
On December 29, 1994, the Company issued a substitute warrant originally
issued to CII on July 21, 1992 (the "Substitute 1992 Warrant"). The
Substitute 1992 Warrant may be exercised by CII for 218,331 shares of Common
Stock (subject to adjustment) at an exercise price of $2.00594 per share
(subject to adjustment).
On December 30, 1994, the Company issued 33,600 shares of Common Stock to
James V. O'Neill in consideration of services performed by Mr. O'Neill during
the years ended December 31, 1993 and 1994.
On December 11, 1995, the Company issued to CII 129 shares of Class C
Convertible Preferred Stock at a purchase price of $4,961.24 per share.
The shares of capital stock and securities issued in the above
transactions were offered and sold in reliance upon the exemption from
registration under Section 4(2) of the Securities Act or Regulation D or Rule
701 promulgated under the Securities Act, relative to sales by an issuer not
involving a public offering.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
EXHIBIT
NUMBER DESCRIPTION
- --------- -----------------------------------------------------------
1* Form of Underwriting Agreement.
2* Agreement and Plan of Merger, dated September , 1996
between the Registrant and International
Telecommunications Data Systems, Inc. a Connecticut
corporation.
3.1 Certificate of Incorporation of the Registrant.
3.2 By-Laws of the Registrant.
4.1 Specimen Certificate for shares of Common Stock, $.01 par
value, of the Registrant.
5* Opinion of Hale and Dorr with respect to validity of the
securities being offered.
10.1 Form of 1996 Equity Incentive Plan.
10.2 1996 Employee Stock Purchase Plan.
10.3* Employment Agreement between the Registrant and Barry K.
Lewis, dated as of June 1994.
10.4* Stock Purchase Agreement dated December 11, 1995 between
the Registrant and Connecticut Innovations, Incorporated
relating to Class C Convertible Preferred Stock.
10.5* Lease between the Company and 969 Associates, dated
December 1990.
10.6 Sublease dated June 11, 1996 between the Registrant and
Learning International, relating to 225 High Ridge Road,
Stamford, Connecticut.
10.7 Form of CII Warrant.
11* Computation of income per Common Share.
23.1* Consent of Hale and Dorr (included in Exhibit 5).
23.2 Consent of Ernst & Young LLP.
24 Power of Attorney (included on page II-6).
27 Financial Data Schedule.
- -------------
* To be filed by amendment.
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(b) Financial Statement Schedules
All schedules have been omitted because they are not required or because
the required information is given in the Financial Statements or Notes
thereto.
Item 17. Undertakings
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions contained in the Certificate of
Incorporation and By-Laws of the Registrant and the laws of the State of
Delaware, or otherwise, the Registrant has been advised that in the opinion
of the Securities and Exchange Commission such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
The undersigned Registrant hereby undertakes to provide to the
Underwriters at the closing specified in the Underwriting Agreement
certificates in such denominations and registered in such names as required
by the Underwriters to permit prompt delivery to each purchaser. The
undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant has duly caused this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Boston, Commonwealth of Massachusetts, on this 29 day of August, 1996.
INTERNATIONAL TELECOMMUNICATION
DATA SYSTEMS, INC.
By: /s/ Charles L. Bakes
Charles L. Bakes
President
POWER OF ATTORNEY AND SIGNATURES
We, the undersigned officers and directors of International
Telecommunication Data Systems, Inc., hereby severally constitute and appoint
Charles L. Bakes, Mark D. Spitzer and John A. Burgess, and each of them
singly, our true and lawful attorneys with full power to them, and each of
them singly, to sign for us and in our names in the capacities indicated
below, the Registration Statement on Form S-1 filed herewith and any and all
pre-effective and post-effect amendments to said Registration Statement, and
any subsequent Registration Statement for the same offering which may be
filed under Rule 462(b) and generally to do all such things in our names and
on our behalf in our capacities as officers and directors to enable
International Telecommunication Data Systems, Inc. to comply with the
provisions of the Securities Act of 1933, as amended, and all requirements of
the Securities and Exchange Commission, hereby ratifying and confirming our
signatures as they may be signed by our said attorneys, or any of them, to
said Registration Statement and any and all amendments thereto or to any
subsequent Registration Statement for the same offering which may be filed
under Rule 462(b).
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
Signature Title Date
- -------------------------- ------------------------ ----------------------
President, Chief
Executive Officer
and Director
/s/ Charles L. Bakes (Principal Executive
Charles L. Bakes Officer) August 29, 1996
Chief Financial
Officer (Principal
Financial and
/s/ Mark D. Spitzer Accounting Officer)
Mark D. Spitzer and Director August 29, 1996
/s/ Lewis D. Bakes
Lewis D. Bakes Director August 29, 1996
/s/ David L. Wells
David L. Wells Director August 29, 1996
/s/ Stuart L. Bell
Stuart L. Bell Director August 29, 1996
/s/ Michael E. Kalogris
Michael E. Kalogris Director August 29, 1996
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