T NETIX INC - 10-Q Quarterly Report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		or

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarter ended September 30, 2003

Commission file number 0-25016

T-NETIX, Inc.

(Exact name of registrant as specified in its charter)


Delaware		84-1037352
(State or Other Jurisdiction of Incorporation)		(I.R.S. Employer Identification No.)

2155 Chenault Drive, Suite 410 Carrollton, Texas 75006 (Address of principal executive offices)		75006 (Zip Code)

Registrant’s telephone number, including area code:

(972) 241-1535

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 and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practical date.


Class		Outstanding at October 27, 2003

Common stock, $0.01 stated value		15,052,210

TABLE OF CONTENTS


PART I
	Item 1. Financial Statements
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 3. Quantitative and Qualitative Disclosure About Market Risk
	Item 4. Controls and Procedures
PART II OTHER INFORMATION
	Item 1. Legal Proceedings
	Item 2. Changes in Securities and Use of Proceeds
	Item 3. Defaults upon Senior Securities
	Item 4. Submission of Matters to a Vote of Security Holders
	Item 5. Other Information
	Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
INDEX TO EXHIBITS
EX-31.1 Certification of CEO - Section 302
EX-31.2 Certification of CFO - Section 302
EX-32.1 Certification of CEO - Section 906
EX-32.2 Certification of CFO - Section 906

FORM 10-Q CROSS REFERENCE INDEX


		Page

PART I FINANCIAL INFORMATION
Item 1	Condensed Financial Statements (Unaudited)		3
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations		18
Item 3	Quantitative and Qualitative Disclosure About Market Risk		29
Item 4	Controls and Procedures		29
PART II OTHER INFORMATION
Item 1	Legal Proceedings		30
Item 2	Changes in Securities and Use of Proceeds		31
Item 3	Defaults Upon Senior Securities		31
Item 4	Submission of Matters to a Vote of Security Holders		31
Item 5	Other Information		32
Item 6	Exhibits and Reports on Form 8-K		32
Signatures			33
Index to Exhibits			34

PART I


Item 1.	*Financial Statements*

INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


Condensed Consolidated Balance Sheets as of September 30, 2003 (Unaudited) and December 31, 2002			3
Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2003 and 2002 (Unaudited)			4
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2003 and 2002 (Unaudited)			5
Notes to Condensed Consolidated Financial Statements (Unaudited)			6

T-NETIX, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in Thousands, Except Per Share and Share Amounts)


			September 30,
			2003			December 31,
			(Unaudited)			2002

ASSETS
Cash and cash equivalents			$	20,837		$	6,554
Accounts receivable, net (note 2)				17,134			20,038
Prepaid expenses				1,729			1,608
Inventories				1,187			1,424

		Total current assets		40,887			29,624
Property and equipment, net (note 2)				22,731			25,342
Goodwill, net				2,245			2,245
Deferred tax asset, net				1,395			2,297
Assets held for sale				285			937
Intangible and other assets, net (note 2)				5,609			6,212

		Total assets	$	73,152		$	66,657


LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
	Accounts payable		$	10,855		$	11,070
	Accrued liabilities (note 2)			7,466			5,742
	Current portion of long-term debt (note 3)			3,565			3,694

		Total current liabilities		21,886			20,506
	Long-term debt (note 3)			16,507			19,091

		Total liabilities		38,393			39,597
Commitments and contingencies Stockholders’ equity:
	Preferred stock, $.01 stated value, 10,000,000 shares authorized; no shares issued or outstanding at September 30, 2003 and December 31, 2002, respectively			—			—
	Common stock, $.01 stated value, 70,000,000 shares authorized; 15,052,210 shares issued and outstanding at September 30, 2003 and December 31, 2002, respectively			150			150
	Additional paid-in capital			43,986			42,334
	Accumulated other comprehensive income (loss)			(105	)		—
	Accumulated deficit			(9,272	)		(15,424	)

		Total stockholders’ equity		34,759			27,060

Total liabilities and stockholders’ equity			$	73,152		$	66,657

See accompanying notes to unaudited condensed consolidated financial statements.

T-NETIX, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in Thousands, Except Per Share Amounts)

(Unaudited)



				Three Months						Nine Months
				Ended						Ended
				September 30,						September 30,

				2003			2002			2003			2002

Revenue:
	Telecommunication services			$	12,542		$	14,222		$	38,847		$	44,719
	Direct call provisioning				12,781			12,736			43,235			34,954
	Equipment sales and other				2,579			4,710			6,913			8,127

			Total revenue		27,902			31,668			88,995			87,800
Operating costs and expenses:
	Operating costs (exclusive of depreciation and amortization shown separately below)
		Telecommunications services			5,078			6,270			15,056			17,142
		Direct call provisioning, exclusive of bad debt expense			9,804			8,623			29,958			23,638
		Direct call provisioning — bad debt expense			2,409			3,503			10,017			9,570
		Cost of equipment sold and other			1,266			939			2,888			2,532

			Total operating costs		18,557			19,335			57,919			52,882

			Gross margin		9,345			12,333			31,076			34,918
	Selling, general and administrative				6,522			6,649			17,449			17,288
	Research and development				995			799			2,648			2,320
	Impairment of assets held for sale				653			—			653			—
	Depreciation and amortization				2,918			3,267			8,884			8,678

			Total operating costs and expenses		29,645			30,050			87,553			81,168

			Operating income (loss)		(1,743	)		1,618			1,442			6,632
Patent litigation settlement, net of expenses					11,549			(205	)		9,935			(1,501	)
Interest and other expenses, net					(802	)		(897	)		(2,627	)		(1,823	)
Gain on sale of assets					254			—			286			36

Income from continuing operations before income taxes					9,258			516			9,036			3,344
Income tax expense					(2,726	)		—			(2,884	)		(180	)

	Net income from continuing operations				6,532			516			6,152			3,164
Net loss from discontinued operations					—			(182	)		—			(615	)
Gain on sale of discontinued operations					—			308			—			308

Income (loss) from discontinued operations					—			126			—			(307	)

Net income applicable to common shareholders				$	6,532		$	642		$	6,152		$	2,857

	Income per common share from continuing operations
		Basic		$	0.43		$	0.03		$	0.41		$	0.21

		Diluted		$	0.43		$	0.03		$	0.40		$	0.21

	Income (loss) per common share from discontinued operations
		Basic		$	—		$	0.01		$	—		$	(0.02	)

		Diluted		$	—		$	0.01		$	—		$	(0.02	)

	Income per common share applicable to common shareholders
		Basic		$	0.43		$	0.04		$	0.41		$	0.19

		Diluted		$	0.43		$	0.04		$	0.40		$	0.19

	Shares used in computing net income (loss) per common share
		Basic			15,052			15,049			15,052			15,038

		Diluted			15,347			15,359			15,293			15,434

See accompanying notes to unaudited condensed consolidated financial statements.

T-NETIX, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in Thousands, Except Per Share and Share Amounts)

(Unaudited)



					Nine Months Ended
					September 30,

					2003			2002

Cash flows from operating activities:
	Net income from continuing operations				$	6,152		$	3,164
	Adjustments to reconcile net income (loss) to net cash provided by operating activities from continuing operations:
		Depreciation and amortization				8,884			8,678
		Impairment of assets held for sale				653			—
		Bad debt expense				10,047			9,663
		Deferred taxes				2,554			—
		Gain on the sale of assets				(286	)		(344	)
		Equity income from unconsolidated subsidiary				(22	)		—
		Accretion of discount on subordinated promissory note				62			—
		Changes in operating assets and liabilities:
			Accounts receivable			(7,143	)		(14,671	)
			Prepaid expenses			(121	)		(1,102	)
			Inventories			237			(190	)
			Intangibles and other assets			530			(668	)
			Loss on write-down of investments			—			158
			Accounts payable			(215	)		(1,631	)
			Accrued liabilities			1,620			3,515

				Cash provided by operating activities of continuing operations		22,952			6,572

Cash used in investing activities:
	Purchase of property and equipment					(5,613	)		(5,029	)
	Proceeds from sale of assets					532			638
	Investment in unconsolidated subsidiaries					(812	)		—
	Other investing activities					—			(325	)

				Cash used in investing activities of continuing operations		(5,893	)		(4,716	)

Cash flows from financing activities:
	Net payments on line of credit					—			(1,849	)
	Payments on senior secured term note					(2,625	)

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents