SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| x Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | ||
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| For the quarterly period ended March 31, 2003 | ||
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| or | ||
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| o Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | ||
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| For the transition period from _____ to _____. | ||
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| Commission File Number: 0-26739 | ||
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| ITXC CORP. | ||
| (Exact name of registrant as specified in its charter) | ||
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| Delaware |
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22-35-31960 |
| (State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
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| 750 College Road East | ||
| (Address of principal executive office, including zip code) | ||
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| (609) 750-3333 | ||
| (Registrant’s telephone number, including area code) | ||
Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.
| Yes x |
No o |
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act.)
| Yes x |
No o |
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
At April 30, 2003, there were 43,059,516 shares of Common Stock, par value $.001 per share, outstanding.
ITXC CORP.
INDEX
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Page |
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| Part I. Financial Information |
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| Item 1. Financial Statements |
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| Condensed Consolidated Balance Sheets as of March 31, 2003 (Unaudited) and December 31, 2002 |
1 |
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| 2 | |
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| 3 | |
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| Notes to Condensed Consolidated Financial Statements (Unaudited) |
4 |
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| Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
9 |
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| Item 3. Quantitative and Qualitative Disclosure About Market Risk |
18 |
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| Item 4. Controls and Procedures |
18 |
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| Part II. Other Information |
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| Item 1. Legal Proceedings |
18 |
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| 20 | |
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| Item 6. Exhibits and Reports on Form 8-K |
20 |
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| 21 | |
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| 22 |
-i-
PART I - Financial Information
ITXC CORP. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
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March 31, |
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December 31, |
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|
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(Unaudited) |
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| |
| Cash and cash equivalents |
|
$ |
9,647,449 |
|
$ |
33,027,369 |
|
| Marketable securities |
|
|
61,701,317 |
|
|
60,433,091 |
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| Accounts receivable, net |
|
|
25,320,089 |
|
|
25,332,565 |
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| Prepaid expenses and other current assets |
|
|
5,662,569 |
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5,360,291 |
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| Restricted cash |
|
|
2,231,065 |
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2,215,073 |
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|
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| Total current assets |
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104,562,489 |
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126,368,389 |
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| Property and equipment, net |
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36,214,825 |
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34,727,391 |
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| Goodwill |
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7,913,319 |
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7,913,319 |
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| Intangible assets, net |
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2,568,216 |
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|
2,689,569 |
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| Other assets |
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889,193 |
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|
871,449 |
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| Total assets |
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$ |
152,148,042 |
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$ |
172,570,117 |
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| Accounts payable and accrued liabilities |
|
$ |
31,626,168 |
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$ |
34,664,232 |
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| Other liabilities |
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629,567 |
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|
624,567 |
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| Current portion of capital lease obligations |
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1,785,639 |
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2,127,729 |
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| Total current liabilities |
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34,041,374 |
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37,416,528 |
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| Capital lease obligation, less current portion |
|
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512,494 |
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171,503 |
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| Common stock |
|
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46,851 |
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46,675 |
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| Additional paid in capital |
|
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460,161,450 |
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459,832,135 |
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| Accumulated other comprehensive income |
|
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90,755 |
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|
117,258 |
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| Accumulated deficit |
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(332,891,071 |
) |
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(315,200,171 |
) |
| Treasury stock |
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(9,813,811 |
) |
|
(9,813,811 |
) |
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| Total stockholders’ equity |
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117,594,174 |
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134,982,086 |
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| Total liabilities and stockholders’ equity |
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$ |
152,148,042 |
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$ |
172,570,117 |
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See accompanying notes.
-1-
ITXC CORP. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
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Three Months ended March 31, |
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2003 |
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2002 |
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| Total revenues |
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$ |
81,707,917 |
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$ |
57,712,134 |
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| Costs and expenses: |
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| Data communications and telecommunications (exclusive of depreciation shown separately below) |
|
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72,619,514 |
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48,604,350 |
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| Network operations (exclusive of depreciation shown separately below and exclusive of $0 and $96,263 of equity related charges included in non-cash employee compensation in 2003 and 2002, respectively) |
|
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2,498,219 |
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1,950,603 |
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| Selling, general and administrative (exclusive of depreciation shown separately below and exclusive of $0 and $601,098 of equity related charges included in non-cash employee compensation in 2003 and 2002, respectively) |
|
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18,704,116 |
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7,030,946 |
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| Depreciation |
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5,635,925 |
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5,723,131 |
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| Amortization |
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121,352 |
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6,353 |
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| Restructuring charges |
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— |
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1,078,831 |
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| Non-cash employee compensation |
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— |
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697,361 |
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| Total costs and expenses |
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99,579,126 |
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65,091,575 |
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| Loss from operations |
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(17,871,209 |
) |
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(7,379,441 |
) |
| Interest income, net |
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353,843 |
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882,704 |
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| Loss before income taxes |
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(17,517,366 |
) |
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(6,496,737 |
) |
| Income tax expense |
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173,534 |
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— |
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| Net loss |
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$ |
(17,690,900 |
) |
$ |
(6,496,737 |
) |
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| Basic and diluted net loss per share |
|
$ |
(0.41 |
) |
$ |
(0.14 |
) |
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| Weighted average shares used in computation of basic and diluted net loss per share |
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42,641,594 |
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45,911,551 |
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See accompanying notes.
-2-
ITXC CORP. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
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Three months ended March 31, |
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2003 |
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2002 |
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| Operating activities |
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| Net loss |
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$ |
(17,690,900 |
) |
$ |
(6,496,737 |
) |
| Adjustments to reconcile net loss to net cash used in operating activities: |
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| Depreciation |
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5,635,925 |
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5,723,131 |
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| Amortization of intangibles |
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121,352 |
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6,353 |
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| Provision for doubtful accounts |
|
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8,847,268 |
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|
499,453 |
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| Realized loss (gain) on sale of investments |
|
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42,807 |
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(47,440 |
) |
| Amortization of original issue discounts |
|
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38,837 |
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(32,530 |
) |
| Non-cash restructuring charges |
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— |
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559,912 |
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| Amortization of non-cash deferred employee compensation |
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— |
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|
697,361 |
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| Changes in operating assets and liabilities: |
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| Increase in accounts receivable |
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(8,834,792 |
) |
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(5,573,987 |
) |
| Increase in prepaid expenses and other assets |
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(320,022 |
) |
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(560,280 |
) |
| (Decrease) increase in accounts payable and accrued expenses |
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(3,038,064 |
) |
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2,052,973 |
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| Increase (decrease) in other liabilities |
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5,000 |
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(30,000 |
) |
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| Net cash used in operating activities |
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(15,192,589 |
) |
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(3,201,791 |
) |
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| Investing activities |
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| Purchase of property and equipment |
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(6,402,099 |
) |
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(6,267,284 |
) |
| Increase in restricted cash |
|
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(15,992 |
) |
|
— |
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| Purchase of available for sale securities |
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(29,289,054 |
) |
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(32,206,424 |
) |
| Sale of available for sale securities |
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18,312,126 |
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13,334,478 |
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| Maturities of available for sale securities |
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9,600,000 |
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23,394,996 |
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| Net cash used in investing activities |
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(7,795,019 |
) |
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(1,744,234 |
) |
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| Financing activities |
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| Repayment of capital lease obligations |
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(722,359 |
) |
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(847,777 |
) |
| Proceeds from exercise of stock options |
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68,564 |
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174,362 |
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| Proceeds from issuance of common stock related to employee stock purchase plan |
|
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260,928 |
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325,071 |
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| Repayment of equipment line of credit |
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— |
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(143,599 |
) |
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| Net cash used in financing activities |
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(392,867 |
) |
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(491,943 |
) |
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|
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| Effect of exchange rate fluctuations on cash |
|
|
555 |
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(240,390 |
) |
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| Decrease in cash |
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(23,379,920 |
) |
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(5,678,358 |
) |
| Cash and cash equivalents at beginning of period |
|
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33,027,369 |
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53,193,357 |
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|
|
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| Cash and cash equivalents at end of period |
|
$ |
9,647,449 |
|
$ |
47,514,999 |
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See accompanying notes.
-3-
ITXC CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The March 31, 2003 and 2002 financial statements have been prepared by ITXC Corp. (the “Company” or “ITXC”) and are unaudited. In the opinion of the Company’s management, all adjustments (consisting solely of normal recurring adjustments) necessary to present fairly the Company’s consolidated financial position, results of operations and cash flows for the interim periods have been made. Certain information and footnote disclosures required under accounting principles generally accepted in the United States have been condensed or omitted from the consolidated financial statements and notes thereto presented herein pursuant to the rules and regulations of the Securities and Exchange Commission. The condensed consolidated financial statements and notes thereto presented herein should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2002 and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2002 filed with the Securities and Exchange Commission. The results of operations for the three months ended March 31, 2003 are not necessarily indicative of the results to be expected for any other interim period or the entire fiscal year.
The consolidated financial statements include the accounts of ITXC Corp. and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
2. Comprehensive Income
The components of comprehensive loss for the three-month periods ended March 31, 2003 and 2002 were as follows:
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Three Months ended March 31, |
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2003 |
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2002 |
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| Net loss |
|
$ |
(17,690,900 |
) |
$ |
(6,496,737 |
) |
| Other comprehensive income: |
|
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|
|
|
|
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| Unrealized holding losses arising during period |
|
|
(27,058 |
) |
|
(422,116 |
) |
| Foreign currency translation adjustments |
|
|
555 |
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(240,390 |
) |
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|
|
|
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| Comprehensive loss |
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$ |
(17,717,403 |
) |
$ |
(7,159,243 |
) |
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|
|
|
|
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3. Stock-Based Compensation
The Company accounts for employee stock-based compensation in accordance with Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees,” using an intrinsic value approach to measure compensation expense, if any. Appropriate disclosures using a fair value based method, as provided by Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”), as amended by Statement of Financial Accounting Standards No. 148, “Accounting for Stock-Based Compensation - Transition and Disclosure”, are also reflected in these notes to the financial statements. The Company has not issued any options other than to employees and directors and certain consultants who are full time occupied in the Company’s activities.
-4-
The following table summarizes relevant information as to reported results under the Company’s intrinsic value method of accounting for stock options, with supplemental information as if the fair value recognition provisions of SFAS No. 123 had been applied for the three-month periods ended March 31, 2003 and 2002:
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Three Months ended March 31, |
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2003 |
|
2002 |
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|
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|
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| Net loss applicable to common stockholders |
|
$ |
(17,690,900 |
) |
$ |
(6,496,737 |
) |
| Add: stock-based compensation, as reported pursuant to APB 25 |
|
|
— |
|
|
697,361 |
|