UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Quarterly Period Ended October 31, 1997
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number 0-27898
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IDT CORPORATION
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(Exact name of Registrant as specified in its Charter)
Delaware 22-3415036
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
294 State Street, Hackensack, New Jersey 07601
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(Address of principal executive office) (zip code)
(201) 928-1000
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(Registrant's telephone number, including area code)
Not Applicable
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(Former name, former address and former fiscal year,
if changed since last report date)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter periods that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
---- ----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Common Stock, $.01 par value 12,718,505 shares as of December 12, 1997
Class A Common Stock, $.01 par value 11,153,732 shares as of December 12,
1997
Table of Contents
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited):
Condensed Consolidated Balance Sheets as of July 31, 1997 and October
31, 1997............................................................. 3
Condensed Consolidated Statements of Operations for the three months
ended October 31, 1996 and 1997...................................... 4
Condensed Consolidated Statements of Cash Flows for the three months
ended October 31, 1996 and 1997...................................... 5
Notes to Condensed Consolidated Financial Statements................. 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................ 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.................................................... 12
Item 2. Changes in Securities................................................ 12
Item 3. Defaults upon Senior Securities...................................... 12
Item 4. Submission of Matters to a Vote of Security Holders.................. 12
Item 5. Other Information.................................................... 12
Item 6. Exhibits and Reports on Form 8-K..................................... 13
Signatures...................................................................... 14
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
IDT CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
OCTOBER 31,
1997 JULY 31, 1997
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(UNAUDITED) (NOTE 1)
ASSETS
Current assets
Cash and cash equivalents...................................................... $ 13,331,696 $ 7,674,313
Accounts receivable (net)...................................................... 24,504,349 17,128,890
Notes receivable............................................................... 805,592 1,291,403
Other current assets........................................................... 4,533,737 2,922,750
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Total current assets............................................................. 43,175,374 29,017,356
Property and equipment, net...................................................... 29,785,870 25,725,805
Goodwill, net.................................................................... 1,340,452 1,357,606
Other assets..................................................................... 2,788,647 2,436,334
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Total assets..................................................................... $ 77,090,343 $ 58,537,101
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Trade accounts payable......................................................... $ 23,516,890 $ 16,957,656
Accrued expenses............................................................... 175,258 721,142
Deferred revenue............................................................... 1,749,636 2,442,848
Notes payable-current portion.................................................. 2,067,126 1,880,939
Capital lease obligations-current portion...................................... 1,926,106 1,531,971
Other current liabilities...................................................... 537,083 595,951
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Total current liabilities...................................................... 29,972,099 24,130,507
Notes payable--long-term portion................................................. 6,480,546 5,241,088
Capital lease obligation--long-term portion...................................... 3,226,084 3,906,362
Convertible Debentures........................................................... 7,500,000 --
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Total liabilities................................................................ 47,178,729 33,277,957
Commitments and Contingencies
Stockholders' equity:
Preferred stock, $.01 par value; authorized shares-10,000,000; no shares
issued....................................................................... -- --
Common stock, $.01 par value; authorized shares-100,000,000; 12,084,832 and
10,636,000 shares issued and outstanding respectively........................ 120,895 106,360
Class A stock, $.01 par value; authorized shares-35,000,000; 10,323,367 and
11,174,330 shares issued and outstanding..................................... 103,233 111,743
Additional paid-in capital..................................................... 49,673,888 46,990,388
Accumulated deficit............................................................ (19,986,402) (21,949,347)
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Total stockholders' equity..................................................... 29,911,614 25,259,144
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Total liabilities and stockholders' equity..................................... $ 77,090,343 $ 58,537,101
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See notes to condensed consolidated financial statements.
3
IDT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED
OCTOBER 31,
----------------------------
1997 1996
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Revenues........................................................................... $ 54,750,978 $ 28,317,671
Cost and expenses:
Direct cost of revenues.......................................................... 40,861,017 18,012,801
Selling, general, and administrative............................................. 9,834,947 12,597,679
Depreciation..................................................................... 1,745,134 963,433
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Total costs and expenses......................................................... 52,441,098 31,573,913
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Income (loss) from operations...................................................... 2,309,880 (3,256,242)
Interest and other, net............................................................ (346,935) 149,599
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Net income (loss)................................................................ $ 1,962,945 $ (3,106,643)
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Net income (loss) per share........................................................ $ 0.08 ($ 0.15)
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Weighted average number of shares used in calculation of earnings per share........ 25,479,585 20,841,230
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See notes to condensed consolidated financial statements.
4
IDT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED
OCTOBER 31,
----------------------------
1997 1996
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Cash provided by (used in) operating activities................................... $ 33,291 ($4,820,559)
INVESTING ACTIVITIES
Payment for purchase of Yovelle, net of cash acquired............................. -- 376,843
Proceeds from the sale of short-term investments.................................. -- (757,108)
Payment for the purchase of ICS assets............................................ -- (2,250,000)
Receipt of payment on advance..................................................... -- 1,500,000
Purchase of property and equipment................................................ (4,598,802) (4,122,656)
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Net cash used in investing activities............................................. (4,598,802) (5,252,921)
FINANCING ACTIVITIES
Proceeds from Convertible Debentures.............................................. 7,500,000 --
Proceeds from notes payable....................................................... 810,247 4,750,000
Exercise of stock options......................................................... 2,689,525 --
Repayment of capital lease obligations............................................ (261,818) (4,753)
Repayment of notes payable........................................................ (515,060) (374,286)
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Net cash provided by financing activities......................................... 10,222,894 4,370,961
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Net increase (decrease) in cash & cash equivalents................................ 5,657,383 (5,702,519)
Cash & cash equivalents at beginning of period.................................... 7,674,313 14,893,756
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Cash & cash equivalents, end of period............................................ $ 13,331,696 $ 9,191,237
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid..................................................................... $ 504,100 $ 48,410
Income taxes paid................................................................. -- --
See notes to condensed consolidated financial statements.
5
IDT CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
IDT Corporation and subsidiaries (collectively "the Company") have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three months ended October 31, 1997 are
not necessarily indicative of the results that may be expected for the year
ending July 31, 1998. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's Annual
Report on Form 10-K, as amended, for the year ended July 31, 1997 as filed with
the Securities and Exchange Commission.
NOTE 2--PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
OCTOBER 31,
1997 JULY 31, 1997
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Equipment........................................................................ $ 29,761,239 $ 24,945,687
Computer software................................................................ 5,182,397 4,618,931
Leasehold improvements........................................................... 1,351,414 1,115,822
Furniture and fixtures........................................................... 1,447,524 1,365,140
Property and improvements........................................................ 112,569 109,525
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37,855,143 32,155,105
Less: Accumulated depreciation and amortization.................................. (8,069,273) (6,429,300)
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$ 29,785,870 $ 25,725,805
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NOTE 3--LOANS PAYABLE, CAPITAL LEASE OBLIGATIONS AND CONVERTIBLE DEBENTURES.
During the three months ended October 31, 1997, the Company borrowed
approximately $810,000 with an interest bearing note collateralized by certain
aequipment owned by the Company with a forty-eight month term.
The Company also entered into various capital lease arrangements during the
three months ended October 31, 1997 to acquire computer and communications
related equipment totaling approximately $1.1 million with terms ranging from
thirty-six months to sixty months and collaterized by the equipment.
During the three months ended October 31, 1997, the Company entered into a
Securities Purchase Agreement (the "Agreement") with a group of institutional
investors (the "Investors") pursuant to which the Investors purchased
Convertible Debentures totaling $7,500,000 (the "Debentures"). The Debentures
carry an interest rate of 3.00% per annum.
The Debentures, including the principal amount and all unpaid accrued
interest, are convertible into the Company's Common Stock at the option of the
Investors at a conversion price equal to the lower of $15.16 per share or the
lowest closing price on any one trading day during the twelve consecutive
trading day period preceding the date that notice of conversion is given to the
Company. Any principal
6
amount or unpaid accrued interest outstanding on September 5, 2000 will be
automatically converted into shares of the Company's Common Stock.
NOTE 4--LEGAL PROCEEDINGS AND CONTINGENCIES
On December 29, 1995, Surfers Unlimited, L.L.C. filed a breach of contract
action in the New Jersey Superior Court. The suit names a subsidiary of the
Company as defendant and seeks damages in an unspecified amount for interference
with prospective business advantages, breach of contract and improper use of
confidential and proprietary information. The Company has filed a counterclaim.
The suit is currently in the discovery phase.
In January 1997, six former employees alleging employment discrimination
commenced a suit in New Jersey entitled INNELLA, ET AL V. IDT CORP., ET AL. The
suit claims that the Company has made hiring and promotion decisions based on
religious background. The case is in the early stages of discovery.
In June 1997, an uncertified class-action suit was brought against the
Company in New York. The suit concerns advertisements no longer in use by IDT,
and advertising practices that were voluntarily terminated by the Company
following a prior investigation by the Attorneys General of several states. The
case is in the preliminary stages of discovery.
In September 1997, DigiTEC 2000, Inc. ("DigiTEC") filed a complaint against
the company alleging that in connection with its sale of prepaid calling cards,
the Company tortiously interfered with a business relationship between DigiTEC
and two codefendants, CG Com, Inc. and Carlos Gomez. DigiTEC has filed a motion
for preliminary injunction that would bar the Company from selling its prepaid
calling cards through these co-defendants. The court denied DigiTEC's motion and
the case is currently in preliminary stages of discovery.
The Company filed a lawsuit against Mr. Glen Miller in August 1997 based
upon various matters arising out of Mr. Miller's employment with IDT. Mr. Miller
answered the complaint and filed a counterclaim against IDT for breach of his
employment contract and breach of the covenant of good faith and fair dealing.
Mr. Miller also filed a third-party complaint against Howard Balter, who is the
Chief Operating Officer of IDT, and Jonathan Rand, IDT's former Director of
Human Resources, for fraudulent conduct and misrepresentation.
The Company is subject to other legal proceedings and claims which have
arisen in the ordinary course of its business and have not been finally
adjudicated. Although there can be no assurances in this regard, in the opinion
of the Company's management, such proceedings, as well as the aforementioned
actions, will not have a material adverse effect on results of operations, cash
flows or the financial condition of the Company.
NOTE 5--SUBSEQUENT EVENTS
In November 1997, the Company finalized its purchase of all the issued and
outstanding stock of Rock Enterprises, Inc., a telecom engineering firm owned by
an employee of the Company, in exchange for 625,000 shares of the Company's
Common Stock, of which 312,500 shares were issued at closing. The remaining
shares will be issued over several years. The acquisition will be accounted for
using the purchase method of accounting for business combinations.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following information should be read in conjunction with the
accompanying condensed consolidated financial statements and the associated
notes thereto of this Quarterly Report, and the audited consolidated financial
statements and the notes thereto and Management's Discussion and Analysis of
Financial Condition and Results of Operations of the Company contained in the
Company's Annual Report on Form 10-K, as amended, for the year ended July 31,
1997, as filed with the Securities and Exchange Commission.
OVERVIEW
IDT Corporation ("IDT" or the "Company") is an international
telecommunications company which offers a broad range of integrated and
competitively priced long-distance telephone, Internet access and Internet
telephony services in the U.S. and abroad.
The Company entered the international call reorigination business in 1990 to
capitalize on the opportunity created by the spread between U.S. and
foreign-originated international long-distance telephone rates. IDT leveraged
the expertise derived from, and calling volume generated by, its call
reorigination business to enter the domestic long-distance business in late
1993, by reselling long-distance telecommunications services of other carriers
to IDT's domestic customers. As a value-added service for its domestic
long-distance customers, the Company began offering Internet access in early
1994, eventually offering dial-up and dedicated Internet access to individuals
and to businesses as stand-alone services. In 1995, IDT began reselling to other
long-distance carriers access to the favorable telephone rates and special
tariffs the Company receives because of the calling volume generated by its call
reorigination customers. In August 1996, IDT entered the Internet telephony
market with its introduction of Net2Phone.
Revenues from the Company's telecommunications operations are derived
primarily from the following activities: (i) international long-distance call
reorigination services; (ii) sale and resale of long-distance minutes to other
long-distance carriers; (iii) marketing to individuals and businesses of
domestic long-distance services provided by WorldCom; (iv) marketing to
individuals and businesses of prepaid calling cards; and (v) marketing of the
Company's proprietary Internet telephony services (Net2Phone and Net2Phone
Direct) to businesses and individuals. Beginning in Fiscal 1997, the Company's
focus has increasingly shifted towards its international telecommunications
operations and away from its Internet access service. Revenues from the
Company's Internet operations are derived from providing Internet access
services to individuals and businesses.
The Company's ability to achieve revenue growth and profitability is
dependent upon its ability to acquire and retain customers. The Company's
ability to improve operating margins will also depend in part on its ability to
retain its customers. There can be no assurances that the Company's investments
in telecommunications infrastructure, customer support capabilities and software
releases will improve customer retention. The Company's strategies and
commitments have required substantial up-front expenditures for additional
personnel, marketing, facilities, infrastructure, product development and
capital equipment and have and may continue to be adversely affected by
short-term operating results. There can be no assurance that revenues will
continue to grow or that the Company will, in the future, sustain profitability
or achieve positive cash flow from operations on either a quarterly or an annual
basis.
THREE MONTHS ENDED OCTOBER 31, 1997 COMPARED TO THREE MONTHS ENDED OCTOBER 31,
1996
RESULTS OF OPERATIONS
REVENUES. Revenues increased 93% from approximately $28.3 million for the
three months ended October 31, 1996 to approximately $54.8 million for the three
months ended October 31, 1997. Revenues from the Company's telecommunications
operations increased 164% from approximately $18.1 million for
8
the three months ended October 31, 1996 to approximately $47.8 million for the
three months ended October 31, 1997. Revenues from the Company's Internet
operations decreased 52% from approximately $10.1 million for the three months
ended October 31, 1996 to approximately $4.9 million for the three months ended
October 31, 1997. Revenues from the Company's Internet telephony (Net2Phone)
operations increased almost twenty-six fold from approximately $79,000 for the
three months ended October 31, 1996 to approximately $2.1 million for the three
months ended October 31, 1997.
The increase in telecommunications revenues was due primarily to a 186%
increase in rebilled long-distance minutes, from 33.5 million minutes to
approximately 111.5 million minutes. This increase was due to the addition of
wholesale carrier clients and the introduction of the Company's prepaid calling
cards. The addition of wholesale carrier clients resulted in an increase in
carrier-to-carrier services revenues of 268%, from approximately $9.7 million
for the three months ended October 31, 1996 to approximately $35.8 million for
the three months ended October 31, 1997. As a percentage of telecommunications
revenues and overall revenues, carrier-to-carrier services revenues increased
from approximately 53.6% to 74.8%, and 34.3% to 65.3%, respectively. Prepaid
calling card revenues increased approximately two hundred and thirty-five fold,
from approximately $23,000 for the three months ended October 31, 1996, to
approximately $5.4 million for the three months ended October 31, 1997.
As a percentage of total revenues, prepaid calling card revenues increased
from 0.1% for the three months ended October 31, 1996 to 9.8% for the three
months ended October 31, 1997. As a percentage of total revenues, Internet
revenues decreased from approximately 35.8% for the three months ended October
31, 1996 to approximately 8.9% for the three months ended October 31, 1997. This
decrease was due to the substantial increase in telecommunications revenues as a
percentage of total revenues as well as an actual dollar decrease in Internet
revenues due to a decrease in total dial-up subscribers. Internet telephony
revenues as a percentage of total revenues increased from 0.3% for the three
months ended October 31, 1996 to 3.8% for the three months ended October 31,
1997. The increase in Internet telephony revenues was primarily due to an
increase in billed minute usage, as well as revenues on the sale of equipment of
$720,000 for the three months ended October 31, 1997 compared to $0 for the
three months ended October 31, 1996.
DIRECT COST OF REVENUES. Direct cost of revenues consists primarily of the
costs paid to carriers for the transmission and termination of switched minutes
through IDT's facilities, and to a lesser extent, fees paid to alliance
partners, leased circuits and network costs, local access costs, Internet
connectivity costs, switch maintenance costs, and online network processing
costs. The Company's direct cost of revenues increased by 127%, from
approximately $18.0 million in the three months ended October 31, 1996 to
approximately $40.9 million in the three months ended October 31, 1997. As a
percentage of revenues, these costs increased from 63.6% in the three months
ended October 31, 1996 to 74.6% in the three months ended October 31, 1997. The
increase in absolute dollars is primarily due to increases in underlying carrier
costs as the Company's telecommunications minutes of use, and associated
revenue, grew substantially. On a percentage basis, the increase in direct costs
reflects the increased percentage that carrier services revenues bears to total
revenues. Direct costs related to carrier services revenues are higher than
direct costs related to Internet, Internet telephony, prepaid calling cards and
call reorigination revenues. The Company expects that direct cost of revenues
will continue to increase in both absolute dollar and percentage terms as the
Company expands its telecommunications base and adds additional wholesale
carrier clients.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
costs decreased 22%, from approximately $12.6 million in the three months
ended October 31, 1996 to approximately $9.8 million in the three months
ended October 31, 1997. As a percentage of revenues, these costs decreased
from 44.5% in the three months ended October 31, 1996 to 18.0% in the three
months ended October 31, 1997. The decrease in these costs in dollar terms
and as a percentage of total revenues was due primarily to the shift of focus
of the Internet's marketing efforts from aggressive mass marketing to new
reseller programs which entail significantly lower selling costs.
Additionally, the increase in carrier-to-carrier services revenues relative
to overall revenues had the effect of reducing the percentage of selling,
general and administrative costs to total revenues, since selling, general
and administrative costs related to carrier-
9
to-carrier services revenues are lower on a relative basis. The Company
anticipates that selling, general and administrative costs in dollar terms
will increase as the Company implements its growth strategy and will increase
as a percentage of total revenues due to the growth in its prepaid calling
card division, which entails significantly higher selling costs relative to
carrier-to-carrier service revenues.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization costs
increased 81%, from approximately $963,000 in the three months ended October 31,
1996 to approximately $1,745,000 in the three months ended October 31, 1997. As
a percentage of revenues, these costs decreased from 3.4% in the three months
ended October 31, 1996 to 3.2% in the three months ended October 31, 1997. These
costs increased in absolute terms primarily as a result of the Company's higher
fixed asset base during the three months ended October 31, 1997 compared to the
three months ended October 31, 1996 due to the Company's efforts to expand its
telecommunications network infrastructure, enhance its Internet network and
expand its facilities. The Company anticipates that depreciation and
amortization costs will continue to increase as the Company continues to
implement its growth strategy.
INCOME (LOSS) FROM OPERATIONS. Income from operations for the
telecommunications segment increased to approximately $3.2 million in the three
months ended October 31, 1997 from approximately $621,000 in the three months
ended October 31, 1996. As a percentage of telecommunication revenues, income
from operations for the telecommunications segment increased to 6.7% in the
three months ended October 31, 1997 from approximately 3.4% in the three months
ended October 31, 1996. The increase both in dollars and as a percentage
resulted principally from increased revenue generated by the increase in the
Company's client base and the expansion of its operations.
Loss from operations for the Internet access portion of the Company's
business decreased to approximately $1.5 million in the three months ended
October 31, 1997 from approximately $3.2 million in the three months ended
October 31, 1996. The decreased loss of the Internet access segment is largely
due to the refocusing of the Company's marketing efforts from aggressive mass
marketing to new reseller programs. Income generated from the operations of the
Net2Phone division increased to approximately $647,000 for the three months
ended October 31, 1997, compared to a loss of approximately $632,000 for the
three months ended October 31, 1996. This change is due to the substantial
increase in Net2Phone revenues since the product's introduction to the market in
July 1996, and the sale of equipment in the three months ended October 31, 1997.
INCOME TAXES. The Company records income taxes in accordance with Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109"). The Company did not record an income tax benefit in the three months
ended October 31, 1996 or 1997, as the realization of available tax losses was
not probable.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has satisfied its cash requirements principally
through a combination of cash flow from operations, sales of equity securities
and borrowings from third parties (including certain of its stockholders). In
September 1997, the Company completed a $7.5 million private placement of 3%
convertible debentures with a group of institutional investors, which are
convertible into shares of the Company's Common Stock. The Company also received
approximately $2.7 million on the exercise of stock options in the three months
ended October 31, 1997. As of October 31, 1997, the Company had cash and cash
equivalents of $13.3 million and working capital of approximately $13.2 million.
The Company generated cash flow from operating activities of
approximately $33,000 during the three months ended October 31, 1997,
compared to a negative cash flow from operating activities of approximately
$4.8 million during the three months ended October 31, 1996. The improvement
in the Company's operating cash flows was primarily due to the increase in
net income. Cash flow from operations varies significantly from quarter to
quarter, depending upon the timing of operating cash receipts and payments
and payment terms of accounts receivable and accounts payable. Accounts and
10
commissions receivable (net of allowances) were approximately $12.6 million
and $24.5 million at October 31, 1996 and 1997, respectively. Accounts
receivable and accounts payable have increased period to period as the
Company's businesses have grown.
The Company's capital expenditures decreased from approximately $9.0 million
in the three months ended October 31, 1996 to approximately $5.7 million in the
three months ended October 31, 1997, as the Company significantly curtailed the
expansion of its Internet network. Capital expenditures for the three months
ended October 31, 1997 primarily consisted of purchases of equipment to support
expansion of the Company's domestic and international telecommunications network
infrastructure and facilities. The Company financed a large portion of its
capital expenditures in the three months ended October 31, 1997 through capital
leases. Payments on purchases of fixed assets increased from approximately $4.1
million in the three months ended October 31, 1996 to approximately $4.6 million
in the three months ended October 31, 1997. The Company is upgrading and
expanding its existing domestic and international telecommunications network.
The Company experiences intense competition in both its telecommunications
and Internet access businesses. If additional competition leads to significant
price reductions, cash flows from operations would be materially adversely
affected.
Where appropriate, the Company intends to make strategic acquisitions to
increase its telecommunications and Internet customer base. From time to time,
the Company evaluates potential acquisitions of companies, technologies,
products and customer accounts that complement its business.
The Company believes that cash on hand, together with cash flow from its
operating activities and cash available from its private placement of
convertible subordinated debentures and from its existing lines of credit, will
be sufficient to fund the Company's existing operations at least through fiscal
1998.
The Company intends to continue its strategy of rapid growth, primarily
through the expansion of its domestic and international networks, as well as by
pursuing other growth opportunities, such as acquisitions of complementary
entities or businesses. The Company is currently reviewing various alternatives
for obtaining additional financing to fund this strategy. The proceeds from any
such financings are expected to be used to expand the Company's operations, fund
the Company's growth and to enable the Company to undertake additional strategic
initiatives. There can be no assurance that the Company will be able to raise
additional capital on acceptable terms or at all. If the Company is unable to
obtain such additional capital, the Company may have to curtail its expansion of
operations, growth and other strategic initiatives, which could adversely affect
the Company's business, financial condition and results of operations and its
ability to compete.
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS
- ---------------------------------------------------------
The statements contained in this Report on Form 10-Q that are not purely
historical, are forward looking statements within the meaning of Section 27A
of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934, including statements containing words "believes," "anticipates"
"expects" and similar expressions. Forward looking statements include the
Company's liquidity, anticipated cash needs and availability, and anticipated
expense levels under the heading "Management's Discussion and Analysis of
Financial Condition and Results of Operations." All forward looking
statements included in this document are based on information available to
the Company on the date of this Report, and the Company assumes no obligation
to update any such forward looking statement. It is important to note that
the Company's actual results could differ materially from those expressed or
implied in such forward looking statements. Among the factors that could
cause actual results to differ materially are the Company's recent entry into
new telecommunications markets and new service offerings, the intense
competition in the markets in which the Company operates and the domination
of many markets by large industry participants, the Company's dependence on
others to support or provide many of its services, technological change and
uncertainty, regulatory developments and the Company's ability to manage its
anticipated growth. Given these uncertainties, investors are cautioned not to
place undue
11
reliance on such statements. Please consult the risk factors set forth in the
Company's Annual Report on Form 10-K for the year ended July 31, 1997 as well
as those factors listed from time to time in the Company's other reports
filed with the Securities and Exchange Commission pursuant to the Securities
Act of 1933 and the Securities Exchange Act of 1934.
12
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Incorporated by reference from Part I, Item 1, Financial Statements, Note 4
captioned "Legal Proceedings and Contingencies."
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ------------- -----------------------------------------------------------------------------------------------
3.01(1) Restated Certificate of Incorporation of the Registrant.
3.02(1) By-laws of the Registrant.
4.01(2) Form of Debenture between the Registrant, RGC International Investors, LDC, Pangaea Fund Ltd.,
Special Situations Private Equity Fund, L.P. and Halifax Fund L.P.
4.02(2) Securities Purchase Agreement among the Registrant, RGC International Investors, LDC, Pangaea
Fund Ltd., Special Situations Private Equity Fund, L.P. and Halifax Fund L.P.
4.03(2) Registration Rights Agreement among the Registrant, RGC International Investors, LDC, Pangaea
Fund Ltd., Special Situations Private Equity Fund, L.P. and Halifax Fund L.P.
10.01(3) Employment Agreement between the Registrant and Howard S. Jonas
10.02(3) Employment Agreement between the Registrant and Howard S. Balter
10.04(4) Amended and Restated 1996 Stock Option and Incentive Plan of IDT Corporation.
10.05(5) Network Service Provider Agreement between Netscape Communications Corporation and the
Registrant.
10.06(3) Marketing Service and Independent Contractor Services Agreement between Lermer Overseas
Telecommunications, Inc. and the Registrant.
10.07(6) Rebiller Service Agreement between WorldCom, Inc. (formerly LDDS Communications, Inc.) and the
Registrant.
10.08(7) Form of Registration Rights Agreement between certain stockholders and the Company.
10.09(1) Lease of 294 State Street.
10.11(8) Form of Registration Rights Agreement between Howard S. Jonas and the Registrant.
10.12(9) Employment Agreement between the Registrant and James Courter.
10.13(5) Access Agreement between PSINet Inc. and the Registrant.
10.14(5) Restated Sales Agreement between International Computer Systems, Inc. and the Registrant.
10.15(4) Form of Stock Option Agreement under the 1996 Stock Option and Incentive Plan.
10.19(10) Warrants (No. 1 and No. 2) for the Purchase of Common Stock between the Registrant and Prime
Leasing, Inc.
10.20(10) Stock Purchase Agreement between the Registrant and Mr. David Turock.
10.21(11) Agreement between Mr. Cliff Sobel and the Registrant.
10.22(10) Employment Agreement between the Registrant and Mr. Hal Brecher.
27.01* Financial Data Schedule.
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* filed herewith
(1) incorporated by reference to form S-1 filed February 21, 1996 file No.
333-00204
(2) incorporated by reference to form 8-K filed September 19, 1997
(3) incorporated by reference to form S-1 filed January 9, 1996 file No.
333-00204
(4) incorporated by reference to form S-8 filed January 14, 1996 file No.
333-19727
(5) incorporated by reference to form 10-K for the fiscal year ended July 31,
1996 filed October 29, as amended November 21, 1996 file No. 000-27898
(6) incorporated by reference to form S-1 filed January 22, 1996 file No.
333-00204
(7) incorporated by reference to form S-1 filed March 8, 1996 file No. 333-00204
(8) incorporated by reference to form S-1 filed December 27, 1996 file No.
333-18901
(9) incorporated by reference to form S-1 filed March 14, 1996 file No.
333-00204
(10) incorporated by reference to form 10-K for the fiscal year ended July 31,
1997 filed October 29, 1997
(11) incorporated by reference to form 10-K/A for the fiscal year ended July 31,
1997, filed December 4, 1997
(b) Reports on Form 8-K. A Report on Form 8-K was filed with the Commission
on September 19, 1997, relating to the sale of certain Debentures.
14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
IDT CORPORATION
December 15, 1997 By: /s/ Howard S. Jonas
- ---------------- --------------------------
Date Howard S. Jonas
Chairman of the Board
and Chief Executive Officer
(Principal Executive Officer)
December 15, 1997 By: /s/ Howard Balter
- ---------------- --------------------------
Date Howard Balter
Chief Operating Officer and
Director
(Principal Financial Officer)
December 15, 1997 By: /s/ Stephen R. Brown
- ---------------- --------------------------
Date Stephen R. Brown
Chief Financial Officer
(Principal Accounting Officer)