UNITED STATES 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 HAVE 1934
For the quarterly period ended December 31, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________________ to _________________
Commission File # 0-15187
IFX CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 36-3399452
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
707 Skokie Blvd Ste 580, Northbrook, Illinois 60062
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(Address of principal executive offices) (Zip Code)
(847) 412-9411
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
X Yes No
--- ---
As of December 31, 2000, the issuer had outstanding 13,883,593 shares of common
stock, $.02 par value per share.
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Page 1
IFX CORPORATION AND SUBSIDIARIES
Page
----
PART I - FINANCIAL INFORMATION
Condensed consolidated balance sheets as of
December 31, 2000 (Unaudited) and June 30, 2000 3
Condensed consolidated statements of operations
for the three and six months ended December 31, 2000
(Unaudited) and 1999 (Unaudited) 4
Condensed consolidated statements of cash flows
for the six months ended December 31, 2000
(Unaudited) and 1999 (Unaudited) 5
Notes to condensed consolidated financial
statements 6
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 12
Item 3 - Quantitative and Qualitative Disclosures
about Market Risk 16
PART II - OTHER INFORMATION
Item 4 - Submission of matters to a vote of shareholders 17
Item 6 - Exhibits and reports on Form 8-K 17
(a) Exhibits
3(i).1 Certificate of Amendment of Restated
Certificate of Incorporation of IFX Corporation
27.1 Financial Data Schedule (EDGAR only)
(b) Reports on Form 8-K
SIGNATURES 18
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Page 2
PART I--FINANCIAL INFORMATION
IFX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, 2000 June 30, 2000
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(unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................................................... $ 9,449,600 $ 13,835,500
Restricted Cash......................................................................... 850,000
Receivables, net of allowance for doubtful accounts of $1,301,400 and $922,500
at December 31, 2000 and June 30, 2000, respectively................................... 2,136,600 1,208,600
Net assets of discontinued operations................................................... 810,900 952,600
Income taxes receivable................................................................. 996,000 1,632,600
Prepaid expenses........................................................................ 876,300 746,000
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Total current assets................................................................... 15,119,400 18,375,300
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PROPERTY AND EQUIPMENT, NET.............................................................. 20,602,300 15,190,300
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OTHER ASSETS:
Acquired customer base, net of accumulated amortization of $10,261,800 and $5,511,800,
at December 31, 2000 and June 30, 2000, respectively................................... 19,105,000 21,220,500
Investments............................................................................. 2,991,900 3,180,600
Foreign taxes recoverable............................................................... 1,483,900 1,422,400
Other assets............................................................................ 418,900 843,100
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Total other assets.................................................................... 23,999,700 26,666,600
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TOTAL ASSETS............................................................................. $ 59,721,400 $ 60,232,200
=============================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable........................................................................ $ 7,982,300 $ 7,036,200
Accrued expenses........................................................................ 4,119,400 3,993,500
Deferred revenues....................................................................... 658,400 361,900
Liabilities related to acquisitions..................................................... 1,703,900 1,568,000
Notes payable - current portion......................................................... 83,200
Current portion of capital lease obligations............................................ 3,759,900 1,935,300
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Total current liabilities.............................................................. 18,307,100 14,894,900
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LONG-TERM LIABILITIES:
Notes payable........................................................................... 415,200 374,700
Deferred gain on sale of investment..................................................... 4,451,900 4,451,900
Capital lease obligations, less current portion......................................... 9,338,000 9,032,500
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Total long-term liabilities............................................................ 14,205,100 13,859,100
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TOTAL LIABILITIES........................................................................ 32,512,200 28,754,000
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STOCKHOLDERS' EQUITY:
Preferred Stock, $.02 par value; 10,000,000 shares authorized, 2,030,869 and 1,210,398
issued and outstanding at December 31, 2000 and June 30, 2000, respectively............ 25,000,000 14,900,000
Common stock, $.02 par value; 50,000,000 shares authorized, 13,883,593 and 13,295,183
shares issued and outstanding at December 31, 2000 and June 30, 2000, respectively..... 277,700 265,900
Additional paid-in capital.............................................................. 73,889,600 69,833,600
Accumulated deficit..................................................................... (62,754,000) (41,059,800)
Accumulated other comprehensive income (loss)........................................... 99,900 (329,000)
Deferred compensation................................................................... (9,304,000) (12,132,500)
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TOTAL STOCKHOLDERS' EQUITY............................................................... 27,209,200 31,478,200
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY............................................... $ 59,721,400 $ 60,232,200
=============================================================================================================================
The accompanying notes are an integral part of the condensed consolidated
financial statements.
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Page 3
IFX Corporation and Subsidiaries
Condensed Consolidated Statements Of Operations
(Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
STATEMENTS OF OPERATIONS DATA: 2000 1999 2000 1999
------------ ----------- ------------ ------------
REVENUES:
Dial-up............................................. $ 1,470,800 $ 2,016,800 $ 3,788,000 $ 2,927,400
Dedicated line services............................. 1,493,100 252,100 2,285,400 431,500
Sales to related party.............................. 4,551,000 - 7,816,700 -
Web hosting and design services..................... 330,800 113,000 632,100 167,900
Other............................................... 482,400 216,100 1,296,400 289,800
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Total revenues..................................... 8,328,100 2,598,000 15,818,600 3,816,600
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COSTS AND EXPENSES:
Cost of revenues.................................... 5,386,400 1,471,300 10,313,700 2,547,900
General and administrative.......................... 7,407,300 5,173,700 14,184,200 7,641,400
Sales and marketing................................. 1,536,000 667,300 1,828,300 1,774,800
Depreciation and amortization....................... 3,953,400 1,502,500 7,430,200 2,354,900
Non-cash stock compensation......................... 1,109,800 819,900 3,789,900 1,635,300
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Total operating expenses.......................... 19,392,900 9,634,700 37,546,300 15,954,300
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Operating loss from continuing operations......... (11,064,800) (7,036,700) (21,727,700) (12,137,700)
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OTHER INCOME (EXPENSE):
Interest income..................................... 183,200 65,100 459,700 150,100
Interest expense.................................... (223,000) - (317,600) -
Loss from operations of equity investees............ - (13,500) (3,721,400) (35,500)
Other............................................... 109,900 38,100 62,600 68,200
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Total other income (expense)....................... 70,100 89,700 (3,516,700) 182,800
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Loss from continuing operations before income taxes.. (10,994,700) (6,947,000) (25,244,400) (11,954,900)
Income tax benefit................................... 213,200 550,600 1,242,500 1,427,000
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Loss from continuing operations...................... (10,781,500) (6,396,400) (24,001,900) (10,527,900)
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Income from discontinued operations, net of taxes.... 395,800 497,700 2,307,500 940,000
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Net loss........................................... $(10,385,700) $(5,898,700) $(21,694,400) $ (9,587,900)
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BASIC AND DILUTED LOSS PER SHARE:
Continuing operations............................... $(0.79) $(0.74) $(1.78) $(1.31)
Discontinued operations............................. 0.03 0.06 0.17 0.12
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Net loss........................................... $(0.76) $(0.68) $(1.61) $(1.19)
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WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic and diluted................................... 13,628,972 8,626,999 13,473,444 8,031,845
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The accompanying notes are an integral part of the condensed consolidated
financial statements.
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Page 4
IFX Corporation and Subsidiaries
Condensed Consolidated Statements Of Cash Flows
(Unaudited)
Six Months Ended December 31,
2000 1999
----------- -----------
(unaudited) (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss................................................... $(21,694,400) $(9,587,900)
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Depreciation.............................................. 2,617,500 709,200
Amortization.............................................. 4,812,700 1,645,700
Deferred taxes............................................ 0 (1,427,000)
Bad debt expense.......................................... 789,400 554,000
Non-cash stock compensation............................... 3,789,900 1,640,500
Equity in net (income) loss of equity investees........... 3,721,400 35,500
Effect of deconsolidation of Tutopia...................... (2,391,700)
Change in net assets of discontinued operations........... 141,700 3,019,800
Changes in operating asset and liabilities:
Foreign taxes recoverable.............................. (61,500) -
Receivables............................................ (1,717,400) (549,000)
Income tax receivable.................................. 636,600 -
Prepaid expenses....................................... (130,300) -
Other assets........................................... 424,200 (793,700)
Due from affiliates.................................... - 10,300
Deferred revenues...................................... 296,500 -
Accounts payable and accrued expenses.................. 987,000 2,309,200
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Cash (used) provided by operating activities............... (7,778,400) (2,433,700)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions, primarily customer base...................... (456,600) (1,865,100)
(Increase) decrease in investments, equity basis........... - 110,900
Increase (decrease) in notes receivable.................... - (6,400)
Purchases of property and equipment........................ (5,329,600) (2,185,900)
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Cash (used) provided by investing activities............... (5,786,200) (3,946,500)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds (payments) of notes payable....................... 123,700 96,900
Payment of capital lease obligation........................ (623,900) (6,100)
Restricted Cash............................................ (850,000) 0
Issuance of common stock................................... - 3,000,000
Issuance of preferred shares............................... 10,100,000
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Cash provided (used) by financing activities............... 8,749,800 3,090,800
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Effect of exchange rate changes on cash and cash equivalents 428,900 124,700
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Increase (decrease) in cash and cash equivalents........... (4,385,900) (3,164,700)
Cash and cash equivalents, beginning of period............. 13,835,500 5,482,800
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Cash and cash equivalents, end of period................... $ 9,449,600 $ 2,318,100
========================================================================================
SUPPLEMENTAL NONCASH DISCLOSURE:
Value of stock issued in conjunction $ 2,042,000 $ 4,822,400
with acquisitions ============ ===========
Acquisition of equipment through assumption $ 2,753,900 $ 2,740,500
of capital lease obligations ============ ===========
The accompanying notes are an integral part of the condensed consolidated
financial statements.
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Page 5
IFX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
(Unaudited)
1. BASIS OF PRESENTATION AND CONSOLIDATION
The accompanying condensed consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States 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, these unaudited condensed consolidated financial statements
reflect all material adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of the consolidated
financial position and consolidated results of operations for the interim
periods presented. Operating results for the interim reporting periods
presented are not necessarily indicative of the results that may be
expected for the year ending June 30, 2001. These unaudited interim
condensed consolidated financial statements should be read in conjunction
with the audited consolidated financial statements and notes thereto
included in the Company's Annual Report on Form 10-K/A for the year ended
June 30, 2000.
The condensed consolidated financial statements include the accounts
of IFX Corporation, its wholly-owned subsidiaries, and investments in which
the Company has a controlling financial interest (collectively referred to
herein as "IFX", "IFX Networks" or the "Company"). On August 31, 2000, the
Company's investment in its majority-owned subsidiary, Tutopia.com, was
reduced from approximately 85% to approximately 47%. As a result of this
reduction, the Company began accounting for Tutopia.com under the equity
method. Accordingly, the Company restated prior periods to reflect this
change in reporting entity. This restatement had no effect on the Company's
loss or loss per share as previously reported. Certain reclassifications
have been made to the prior period financial statements to conform to the
December 31, 2000 presentation.
All significant intercompany transactions have been eliminated in
consolidation.
IFX has created an extensive pan-regional Internet platform as a
leading provider of Internet-based network products and services throughout
Latin America. IFX's Internet operations are based in Miami, Florida. The
IFX network currently covers over 57 cities in 14 countries: Argentina,
Bolivia, Brazil, Chile, Colombia, El Salvador, Honduras, Guatemala, Mexico,
Nicaragua, Panama, Uruguay, Venezuela and the United States.
Long-Lived Assets
In the event that facts and circumstances indicate that the costs of
assets may be impaired, an evaluation of the recoverability is performed.
If an evaluation is required, the estimated future undiscounted cash flow
associated with the asset is compared to the asset's carrying amount to
determine if a write-down to market value is required. The Company
evaluates the possible impairment of long-lived assets by reviewing cash
flows generated on a country-by-country basis, which is consistent with the
way the Company's segments are reported. The Company does not believe that
any impairment has occurred at December 31, 2000.
Comprehensive Income
During the three months ended December 31, 2000 and 1999 the Company's
comprehensive loss was $10.3 million and $5.8 million, respectively,
compared with net loss of $10.4 million and $5.9 million, respectively.
During the six months ended December 31, 2000 and 1999 the Company's
comprehensive loss was $21.6 million and $9.6 million, respectively,
compared with net loss of $21.7 million and $9.5 million, respectively. The
primary difference between comprehensive and net loss was due to foreign
currency translation adjustments.
Liquidity Assessment
Management expects to use existing cash and cash-equivalents together
with operating cash flows from the earn-out payments and revenues derived
from services provided to Tutopia to fund the Company's operations. Due
primarily to slower than anticipated reductions in general and
administrative expenses and slower dedicated-line revenue growth than
anticipated, IFX will need to raise additional funds for expansion and/or
working capital purposes prior to the end of calendar year 2001. IFX may
issue debt or make equity offerings in the future, depending on prevailing
market conditions. Management is not certain whether the Company will be
able to raise sufficient funds on acceptable terms, or at all. The
Company's inability to raise sufficient funds could have a material adverse
affect IFX's ability to meet its expansion plans, capitalized lease
obligations, and other obligations and IFX will have to postpone most of
the Company's expansion goals and capital expenditures until financing is
obtained. Cash needs will also be affected by whether Tutopia is able to
fulfill its obligations to make cash payments under network services
agreement with IFX.
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Page 6
Computation of Earnings or Loss per Common Share
Basic earnings per share are computed using the weighted average
number of common shares outstanding during the period. Diluted earnings per
common share is calculated based upon the sum of the weighted average
number of shares outstanding and the weighted average number of potentially
dilutive securities which consist of stock options and common shares
issuable upon the conversion of Preferred Stock. Approximately 4.3 million
and 1.0 million of potentially dilutive securities have been excluded from
the calculation of diluted loss per share from continuing operations for
the six months ended December 31, 2000 and 1999, respectively, since their
effect would have been anti-dilutive.
2. DISCONTINUED OPERATIONS
Income from discontinued operations primarily consists of amounts
earned, net of related expenses, based on the financial performance of
entities divested prior to July 1, 1999. Such amounts are expected to
continue, depending upon the financial performance of the divested
entities, through the Company's fiscal year ending June 30, 2002. In
September 2000, the Company sold for $2.4 million a preference share which
entitled the Company to future earn-out payments from one of the divested
entities.
The information set forth in the remaining Notes to Condensed
Consolidated Financial Statements relates to continuing operations unless
otherwise specified.
3. RECENT DEVELOPMENTS
Speedcom Wireless International Corporation. In July 2000, the Company
entered into a $1.2 million lease agreement with Speedcom, a wireless
equipment provider. Under the terms of the agreement, IFX will lease up to
$1.2 million of wireless equipment from Speedcom to develop the Company's
network in Latin America. As of December 31, 2000, IFX has leased
approximately $0.7 million of equipment under this agreement.
Network Appliance. In September 2000, IFX entered into a $1.4 million
lease agreement with Network Appliance, a storage and caching provider.
Under the terms of the agreement, IFX has the option to lease up to $1.4
million of storage and caching equipment from Network Appliance.
UBS Capital Americas III, L.P., $25 million investment in IFX. On June
15, 2000, IFX received a $14.9 million round of private equity financing
led by UBS Capital Americas III, L.P. ("UBS Capital Americas"). An
additional $10.1 million was received on July 17, 2000, from a group lead
by UBS Capital Americas. In exchange, IFX issued in total 2,030,869 Series
A Preferred Shares. Each Series A Preferred Share is currently exchangeable
for 1 share of IFX common stock. The proceeds will be used in part to
further the integration of IFX's information systems infrastructure, to
increase marketing activities and to expand the Company's direct sales
force to service the corporate market in Latin America. In addition, IFX
plans to use the proceeds to increase the number of company-owned POPs in
Latin America as well as broaden its value-added service offerings to its
growing corporate base.
UBS Capital Americas III, L.P. led a $20 million investment in
Tutopia. On August 31, 2000, Tutopia received $20 million of private equity
financing from a group led by UBS Capital Americas. An entity controlled by
Mr. Lee Casty, a former significant shareholder of the Company,
participated in this group, and accounted for approximately $4.9 million of
the group's investment. Following this financing, IFX owns approximately
47% of the outstanding stock of Tutopia. UBS Capital Americas and its
affiliates which purchased Tutopia Series A Preferred Stock have the right
to appoint a majority of Tutopia's directors, the entity controlled by Mr.
Casty has the right to appoint one director of Tutopia, and IFX has the
right to appoint one director of Tutopia. Prior to the UBS-led investment,
Tutopia represented one of the Company's two major business lines. IFX has
entered into an agreement with Tutopia to be the provider of Internet
connectivity services to Tutopia for a period of three years. Either IFX or
Tutopia can renew the interconnectivity agreement for a fourth year. After
that agreement terminates, there can be no assurances that the Company will
be the sole supplier of Internet connectivity services to Tutopia.
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Page 7
Inktomi Agreement. In September 2000, IFX entered into a $0.5 million
agreement with Inktomi, a software caching management company. Under the
terms of the agreement, IFX will purchase the Inktomi software caching
solution to improve the Company's bandwidth utilization and quality of
service.
IBM Global Financing. In November 2000, the Company entered into an
agreement with IBM Global Financing, providing the Company financing for
approximately $2.0 million of IBM equipment and services. As a result of
entering into the agreement, the Company obtained an irrevocable letter of
credit which required the Company to place approximately $0.6 million in
restricted cash.
Nortel Networks Agreement. In October 2000, the Company entered into
an agreement with Nortel Networks (CALA), Inc., providing the Company with
the option to lease up to $5.0 million of Nortel networking equipment,
software and consulting services. The equipment will be used to continue to
expand the Company's network. As a result of entering into the agreement,
the Company was required to place approximately $.25 million in restricted
cash.
CrossKeys Agreement. In November 2000, the Company entered into an
agreement with CrossKeys to purchase CrossKey's Dyband software for
approximately $0.4 million. CrossKeys provides bandwidth management
software and services.
4. TUTOPIA.COM
As discussed in Note 1, during September 2000, the Company's ownership
interest in Tutopia.com was reduced from approximately 85% to approximately
47% and, as a result, the Company began accounting for its investment in
Tutopia under the equity method. During the three-month period ended
December 31, 2000 and the six-month period ended December 31, 2000, IFX
derived approximately 54.6% and 49.4%, respectively, of its revenue from
Tutopia. As of December 31, 2000, IFX has accounts receivable from Tutopia
in the amount of $319,200.
The operating results of Tutopia.com are as follows:
Three months ended December 31, Six months ended December 31,
2000 1999 2000 1999
Unaudited Unaudited Unaudited Unaudited
------------------------------- -----------------------------
Revenues $ 169,200 $ -- $ 260,100 $ --
Cost of revenues 5,295,900 9,622,000
---------- -----------
Gross loss 5,126,700 -- 9,361,900 --
Net loss $7,116,200 $ -- $14,067,000 $ --
Selected financial information from the Tutopia's Balance Sheet is as
follows:
December 31, 2000
Unaudited
-----------------
Current assets $ 9,655,300
Total assets $11,353,200
Current liabilities $ 1,844,500
Total liabilities $ 1,844,500
Stockholder's Equity $ 9,508,700
-----------------
The Company accounts for its investment in Tutopia under the equity method
of accounting, and generally recognizes gains and losses from the Tutopia
investment based on its percentage ownership interest. Through the period
ended September 30, 2000, IFX has recognized losses from Tutopia to the
full extent of its investment in Tutopia and has not recognized losses in
excess of its investment in Tutopia.
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Page 8
5. SEGMENT REPORTIING
The Company is structured primarily around the geographic markets it
serves and operates reportable segments in Argentina, Bolivia, Brazil,
Chile, Mexico, United States and Venezuela. All of the segments provide
Internet-related network services. The Company evaluates performance based
on results of operations before income taxes excluding interest income and
expense, income (loss) from investees accounted for under the equity
method, and gains or losses from securities and other investments. During
the three-month period ended December 31, 2000 and the six month period
ending December 31, 2000, the Company derived approximately 54.6% and
49.4%, respectively, of its revenue from Tutopia.com, Inc.
Selected unaudited financial information for the three months ended
December 31, 2000 and 1999 by segment is presented below:
Three months ended December 31, 2000 Three months ended December 31, 1999
------------------------------------------------- ------------------------------------------------------
Revenues Loss from Total Assets Revenues Loss from continuing Total Assets
continuing operations before
operations before income taxes
income taxes
------------------------------------------------- ------------------------------------------------------
Brazil $1,219,900 $ (1,596,100) $22,585,100 $ 899,600 $ (340,900) $12,594,400
Chile 1,029,900 (142,100) 7,285,600 395,000 (632,600) 2,506,500
Mexico 1,157,700 (749,700) 8,620,100 421,000 (137,400) 4,207,700
Venezuela 678,900 (671,900) 3,774,500 470,500 (364,800) 1,706,500
Bolivia 341,700 (263,800) 1,767,400 125,100 (132,300) 1,385,700
Argentina 1,191,800 (223,800) 2,248,800 19,500 (468,400) 497,000
United States 1,277,800 (6,454,300) 6,027,900 - (4,452,600) 8,557,800
All Other 1,430,400 (893,000) 7,412,000 267,300 (418,000) $ 3,203,100
------------------------------------------------- ------------------------------------------------------
Total $8,328,100 $(10,994,700) $59,721,400 $2,598,000 $(6,947,000) $34,658,700
================================================= ======================================================
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Page 9
Selected unaudited financial information for the six months ended
December 31, 2000 and 1999 by segment is presented below:
Six months ended December 31, 2000 Six months ended December 31, 1999
---------------------------------------------------- ----------------------------------------------------
Revenues Loss from Total Assets Revenues Loss from continuing Total Assets
continuing operations before
operations before income taxes
income taxes
---------------------------------------------------- ----------------------------------------------------
Brazil $ 2,615,700 $ (3,242,600) $22,585,100 $1,008,000 $ (538,400) $12,594,400
Chile 1,822,300 (336,800) 7,285,600 805,700 (1,228,000) 2,506,500
Mexico 1,619,000 (1,878,600) 8,620,100 689,900 (336,700) 4,207,700
Venezuela 1,177,700 (986,600) 3,774,500 733,100 (468,100) 1,706,500
Bolivia 667,400 (401,200) 1,767,400 226,600 (259,000) 1,385,700
Argentina 1,293,200 (1,159,500) 2,248,800 19,500 (705,500) 497,000
United States 4,584,300 (15,113,300) 6,027,900 - (7,786,200) 8,557,800
All Other 2,039,000 (2,123,800) 7,412,000 333,800 (633,000) 3,203,100
------------------------------------------------- ------------------------------------------------------
Total $15,818,600 $(25,244,400) $59,721,400 $3,816,600 $(11,954,900) $34,658,700
======================================================================= ======================================================
6. STOCKHOLDERS' EQUITY
During the three months ended December 31, 2000, the Company issued
approximately 515,000 shares of common stock. As of December 31, 2000,
there were approximately 3,900,000 shares of the Company's common stock
reserved for stock options and warrants, and an option excercisable for
210,000 shares had been issued in order to terminate a certain agreement
with Spinway. There are 2,030,869 shares of Preferred Stock issued and
outstanding.
7. ACCRUED LIABILITIES ON ACQUISITIONS
On most of IFX's acquisitions, the Company pays a certain amount of
the purchase price at the closing ("first payment") and another amount 60
to 360 days after closing ("second payment"). The amounts owed by IFX to
the Internet Service Providers ("ISP's") it has acquired are classified as
liabilities related to acquisitions. As of December 31, 2000 and June 30,
2000, IFX had accrued liabilities on acquisitions of approximately $1.7
million and $1.6 million, respectively. In general, the amounts are payable
in cash or common stock of the Company at the fair market value on the date
the obligation is settled.
8. INCOME TAX PROVISION
For the three and six months ended December 31, 2000, the Company
recorded a tax benefit of approximately $0.2 million and approximately $1.2
million, respectively, from its continuing operations compared to a benefit
of $0.6 million and $1.4 million for the three and six months ended
December 31, 1999, respectively. For the three and six months ended
December 31, 2000, the Company recorded a tax provision of approximately
$0.2 million and approximately $1.2 million, respectively, from its
discontinued operations compared to a tax provision of approximately $0.3
million and approximately $0.5 million, respectively, for the corresponding
period in the prior year. Operating losses which could not be utilized to
recover prior year tax liabilities have been fully provided for with a
valuation allowance at June 30, 2000.
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9. LITIGATION
The Company is a defendant in, and may be threatened with, various legal
proceedings arising from its regular business activities. Management, after
consultation with legal counsel, is of the opinion that the ultimate
liability, if any, resulting from any pending action or proceedings should
not have a material effect on the financial position or results of
operations of the Company. In addition, certain of the Company's
discontinued operations are involved in litigation that may impact the
Company in the event of an unfavorable outcome. The Company believes that
any loss that may be incurred should not have a material effect on the
Company's financial position or results of operations.
10. SUBSEQUENT EVENTS
In January 2001 the Company entered into an agreement with Speedcom Finance
to increase the Company's $1.2 million lease line to $2 million, providing
the Company financing for the purchase of wireless networking equipment
from Speedcom Wireless Corporation. The agreement required the Company to
obtain an irrevocable letter of credit which caused the Company to place
approximately $0.6 million in restricted cash.
In January 2001 the Company acquired the dial-up user base of
Empreendimentos e Participacoes B4 S.A., located in Sao Paulo, Brazil.
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ITEM 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations
The Company's statement of position and results of operations include the
accounts of IFX Corporation, its wholly-owned subsidiaries, and investments in
which the Company has a controlling financial interest (collectively referred to
herein as "IFX", "IFX Networks" or the "Company"). The Company's June 30, 2000
balance sheet has been restated to exclude the balances of Tutopia.com
("Tutopia"). On August 31, 2000, the Company's ownership interest in Tutopia
was reduced to approximately 47% and, as a result, the Company did not
consolidate Tutopia at December 31, 2000 and now accounts for this investment
under the equity method. In addition, the Company's income from discontinued
operations primarily consists of amounts earned, based on the financial
performance of entities divested prior to July 1, 1999, net of related expenses
incurred. Such revenues are expected to continue, depending upon the financial
performance of the divested entities, through the Company's fiscal year ending
June 30, 2002. In September 2000, the Company sold for $2.4 million a
preference share which had entitled the Company to future earn-out payments from
one of the divested entities.
Except for the historical information contained herein, the following discussion
and analysis contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
discussed here. Factors that could cause or contribute to such differences
include, but are not limited to, those discussed in this section, and those
discussed in the Company's Form 10-K/A for the year ended June 30, 2000. The
information provided below should be read in conjunction with the audited
consolidated financial statements and notes thereto included in the Company's
Annual Report on Form 10-K/A for the year ended June 30, 2000.
RESULTS OF OPERATIONS
Revenues
The companies that IFX has acquired generally had both business and consumer
customers at the time of acquisition. IFX intends to increase the customer base
and revenues by marketing Internet access and value-added services to business
users in the Company's markets. Management expects the number of business
customers to grow more rapidly than the number of consumer customers and revenue
from the sale of our value-added services will increase more rapidly than
revenue from the sale of dial-up Internet access services. As a result,
management believes the Company's current customer and revenue mix is not an
indication of the Company's future customer and revenue mix. The Company
provides Internet access service to customers under contracts that typically
range from one month for dial-up access services to one year or more for
dedicated access services. Although the majority of dial-up subscribers
continue to pay their subscription at the end of the subscription month,
following the introduction of our Portal software, new dial-up access customers
will pay their subscription fees in advance. IFX currently offer only a premium
dial-up Internet access service for a single fee although customers that were on
various rate plans have been allowed to continue those plans. The Company
intends to encourage these users to migrate to the Company's premium dial-up
plan. If a significant number of users migrate to free Internet access
services, revenues from dial-up subscribers will decrease. All of the Company's
access revenues are recognized as they are earned.
IFX also derives revenues from providing wholesale Internet access to businesses
that resell such access on a branded or private label basis. Fees for wholesale
access are generally billed on a monthly basis after services are rendered.
Wholesale access customers are billed on either a per port basis or a per hour
basis. Revenues from our wholesale Internet access services are recognized in
the period in which the services are provided.
The Company's revenues from value-added Internet services come from web hosting,
domain name registration and co-location services. Services such as web hosting
and co-location services are sold on a monthly subscription basis and are paid
for in advance. The Company's domain name registration service is billed
through a one-time fee. These revenues are recognized in the period in which
the services are provided.
Internet access charges and fees for value-added services vary among the
countries in which we do business, depending on competition, economic and
regulatory environments and other market factors. In some markets, IFX has
reduced prices, especially for access services, as a result of competitive
pressure. Management expects that these pressures will continue in the
Company's markets as the demand for, and supply of, Internet services continue
to grow. The period-to-period comparisons of our results of operations set
forth below include the results of operations from acquisitions that were made
during the applicable period. Results of operations from acquisitions completed
during a period have been included from the time of the closing of each
acquisition.
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Revenues from continuing operations increased to $8.3 million for the three
months ended December 31, 2000, from $2.6 million for the three months ended
December 31, 1999. Revenues from continuing operations increased to $15.8
million for the six months ended December 31, 2000, from $3.8 million for the
six months ended December 31, 1999. The increase in revenues was primarily
related to the Company's acquisitions completed during fiscal 2000 and expansion
of its user base resulting from the growth in value added services such as
dedicated access and from wholesale access sold to Tutopia. During the three
months ended December 31, 2000 and during the six months ended December 31,
2000, the Company recognized approximately $4.6 million and $7.8 million,
respectively, in revenue from Tutopia for network access fees, which represented
approximately 50% of the Company's total revenues. At the current time, without
a capital infusion in the near future, there is a significant risk that Tutopia
will not be able to fulfill its obligations to IFX. There can be no certainty
that Tutopia will be able to raise funds on any terms. The failure of Tutopia
to raise funds could have a material adverse effect on the revenues of IFX.
Three Months Ended December 31,
-------------------------------
2000 1999 % Increase
(Decrease)
-------------------------------------------
Dial-up $1,470,800 $2,016,800 (27.1)%
Dedicated line services 1,493,100 252,100 492.3%
Sales to related party 4,551,000 - n/a
Web hosting and design services 330,800 113,000 192.7%
Other 482,400 216,100 123.2%
-------------------------------------------
Total $8,328,100 $2,598,000 220.6%
===========================================
Six Months Ended December 31,
-----------------------------
2000 1999 % Increase
-----------------------------------------
Dial-up $ 3,788,000 $2,927,400 29.4%
Dedicated line services 2,285,400 431,500 429.6%
Sales to related party 7,816,700 - n/a
Web hosting and design services 632,100 167,900 276.5%
Other 1,296,400 289,800 347.3%
-----------------------------------------
Total $15,818,600 $3,816,600 314.5%
=========================================
Costs of Revenues
The Company's costs of revenues from providing Internet services are incurred to
carry customer traffic to and over the Internet. IFX leases lines that connect
the Company's POPs to IFX's national hubs. Payments are made to other network
providers for transit that allow the Company to transmit customers' information
to or from the Internet over the providers' networks. IFX has other recurring
telecommunications costs which include the cost of local telephone lines
customers use to reach the Company's POPs and access IFX Network's services, and
satellite bandwidth costs to connect the national hubs to the Internet backbone.
Management expects operating costs from providing Internet services to increase
as capacity to meet customer demand increases. Management expects that costs of
revenues will decline as a percentage of revenue through the expansion of
Company owned network facilities. Management also expects some costs to decline
as wireless technology usage expands and the telecommunication markets in Latin
America deregulate.
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Cost of revenues increased to $5.4 million for the three months ended December
31, 2000 from $1.5 million for the three months ended December 31, 1999. Cost
of revenues increased to $10.3 million for the six months ended December 31,
2000 from $2.5 million for the six months ended December 31, 1999. The increase
was primarily related to the Company's network expansion to accommodate the
growth in the user base, especially for Tutopia and for dedicated access.
General and Administrative Expenses
The Company's general and administrative expenses are comprised primarily of
compensation costs. Compensation costs include salaries and related benefits,
and bonuses. Other general and administrative expenses include the costs of
travel, rent, utilities, insurance and professional fees. Management expects
general and administrative expenses to increase as IFX Networks continues to
grow to meet demands of its customers.
General and administrative expenses increased to $7.4 million for the three
months ended December 31, 2000 from $5.2 million for the three months ended
December 31, 1999. General and administrative expenses increased to $14.2
million for the six months ended December 31, 2000 from $7.6 million for the six
months ended December 31, 1999. The increase in general and administrative
expenses is primarily attributable to the increase in payroll resulting from the
increased support of the Company's expansion in Latin America.
Sales and Marketing
Sales and marketing expenses consist primarily of advertising costs,
distribution costs and related production costs. Sales and marketing expenses
increased to $1.5 million for the three months ended December 31, 2000 from $0.7
million for the three months ended December 31, 1999. For the six months ended
December 31, 2000 and the six months ended December 31, 1999, sales and
marketing expenses were $1.8 million and $1.8 million, respectively.
Depreciation and amortization
A large component of depreciation and amortization expense consist of the
acquired customer base. The value of the acquired customer base is amortized
over three years using the straight-line method as a result of the allocation of
the price paid to acquire a company that was in excess of the value of its
tangible assets. IFX also recognizes depreciation expense that is primarily
related to telecommunications equipment, computers and network infrastructure.
These assets are depreciated over their useful lives that typically range from
three to ten years. Depreciation expense will increase as the Company expands
its network infrastructure.
Depreciation and amortization expenses increased to $4.0 million for the three
months ended December 31, 2000 from $1.5 million for the three months ended
December 31, 1999. Depreciation and amortization expense increased to $7.4
million for the six months ended December 31, 2000 from $2.4 million for the six
months ended December 31, 1999. The increase in depreciation for the six
months ended December 31, 2000 is attributable to the increase in fixed assets,
capitalized software and capital leases of approximately $20.5 million from the
same period of fiscal 2000. The increase in amortization expense is due to
approximately $29.4 million of acquired customer base due to acquisitions the
Company completed in Latin America during fiscal years 2000 and 1999.
Non-Cash Stock-Based Compensation Expense
For the three months ended December 31, 2000, IFX recorded non-cash stock
compensation expense of approximately $1.1 million compared to $0.8 million for
the three months ended December 31, 1999. For the six months ended December 31,
2000, IFX recorded non-cash stock compensation expense of approximately $3.8
million compared to $1.6 million for the six months ended December 31, 1999.
The increase is attributable predominantly to the current-year amortization
related to the issuance of additional employee option grants during the prior
year. Also, as of December 31, 2000, the Company reflected as a reduction of
Stockholders Equity approximately $9.3 million of deferred compensation, which
will be amortized in future years over the vesting period of the individual
options (generally 3 years).
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Other Income (Expense)
Interest income increased to $183,200 for the three months ended December 31,
2000 from $65,100 for the three months ended December 31, 1999. Interest income
increased to $459,700 for the six months ended December 31, 2000 from $150,100
for the six months ended December 31, 1999. Interest income increased as the
result of increased cash and cash equivalents attributable to equity funding
received by the Company in June and July 2000.
Interest expense increased to $223,000 from $0 for the three months ended
December 31, 2000 and 1999, respectively. Interest expense increased to
$317,600 from $0 for the six months ended December 31, 2000 and 1999,
respectively. The increase is a result of the increase in borrowings under
capital lease agreements.
No loss from operations of equity investees was realized for the three months
ended December 31, 2000 as compared to $13,500 for the three months ended
December 31, 1999. Loss from operations of equity investees increased to
$3,721,400 from a loss of $35,500 for the six months ended December 31, 2000 and
1999, respectively. The increase is related to the treatment of Tutopia as an
equity investee rather than as a consolidated subsidiary as further discussed in
the Company's Quarterly Report on Form 10-Q for the quarterly period ended
September 30, 2000. The Company accounts for its investment in Tutopia under the
equity method of accounting, and generally recognizes gain and losses from the
Tutopia investment based on its percentage ownership interest. Through the
period ended September 30, 2000, IFX has recognized losses from Tutopia to the
full extent of its investment in Tutopia and has not recognized losses in excess
of its investment in Tutopia.
Income from discontinued operations, net
For the three months ended December 31, 2000, the Company earned approximately
$0.4 million from its discontinued operations, compared to $0.5 million earned
for the three months ended December 31, 1999. For the six months ended December
31, 2000, the Company earned approximately $2.3 million from its discontinued
operations, compared to $0.9 million earned for the six months ended December
31, 1999. Net income from discontinued operations increased $1.4 million for the
first six months of fiscal 2001 from the same period in fiscal 2000. The
increase is the result from the sale of a preference share for $2.4 million
during September, 2000 that entitled the Company to future earn-out payments
from one of the divested entities.
Net loss and loss per share
As a result of the factors discussed above, IFX's loss from continuing
operations for the three months ended December 31, 2000 was approximately $10.8
million, or $(0.79) per share, compared to a net loss of $6.4 million, or
$(0.74) per share, for the three months ended December 31, 1999. The loss of
$10.8 million includes non-cash charges of $5.1 million related to depreciation,
amortization, stock compensation, and loss from operations of equity investees.
Including discontinued operations, the Company lost $10.4 million, or $(0.76)
per share, compared to a net loss of $5.9 million, or $(0.68) per share, for the
three months ended December 31, 1999.
As a result of the factors discussed above, IFX's loss from continuing
operations for the six months ended December 31, 2000 was approximately $24.0
million, or $1.78 per share, compared to a net loss of $10.5 million, or $1.31
per share, for the six months ended December 31, 1999. The loss of $24.0
million includes non-cash charges of $14.9 million related to depreciation,
amortization, stock compensation, and loss from operations of equity investees.
Including discontinued operations, the Company lost $21.7 million, or $1.61 per
share, compared to a net loss of $9.6 million, or $1.19 per share, for the six
months ended December 31, 1999.
FINANCIAL CONDITION
Liquidity and Capital Resources
For the six months ended December 31, 2000, cash used by ongoing and
discontinued operations was approximately $7.8 million compared to cash used by
ongoing and discontinued operations of $2.4 million for the six months ended
December 31, 1999. The majority of cash provided in the six
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months ended December 31, 2000 is primarily attributed to Internet operations
and the earn-out payments related to discontinued operations. The cash used in
operations is mainly related to the connectivity expenses of our network,
operating leases, payroll and advertising. In addition, the Company invests cash
not needed for operations at any of its subsidiaries in short-term investments
such as U.S. Government obligations and overnight time deposits. As of December
31, 2000, the Company held approximately $10.3 million in cash and equivalents.
For the six months ended December 31, 2000, cash used in investing activities
was approximately $5.8 million compared to cash used in investing activities of
$3.9 million for the same period in 1999. Cash used in investing activities was
related to the purchase of property and equipment of approximately $5.3 million.
For the six months ended December 31, 2000, cash provided by financing
activities was approximately $8.7 million compared to cash provided by financing
activities of $3.1 million for the six months ended December 31, 1999.
Management expects to use existing cash and cash-equivalents together with
operating cash flows from the earn-out payments and revenues derived from
services provided to Tutopia to fund the Company's operations. Due primarily to
slower than anticipated reductions in general and administrative expenses and
slower dedicated-line revenue growth than anticipated, IFX will need to raise
additional funds for expansion and/or working capital purposes prior to the end
of calendar year 2001. IFX may issue debt or make equity offerings in the
future, depending on prevailing market conditions. Management is not certain
whether the Company will be able to raise sufficient funds on acceptable on
terms, or at all. The Company's inability to raise sufficient funds could have a
material affect on IFX's ability to meet its expansion plans, capitalized lease
obligations, and other obligations and IFX will have to postpone most of the
Company's expansion goals and capital expenditures until financing is obtained.
Cash needs will also be affected by whether Tutopia is able to fulfill its
obligations to make cash payments under its network services agreement with IFX.
Forward-Looking Statements
The statements contained herein that are not historical facts are
"forward-looking statements" (within the meaning of the Private Securities
Litigation Reform Act of 1995). The safe harbor provisions provided in Section
27A of the Securities Act of 1933, as amended (the "Securities Act"), and
Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), apply to forward-looking statements the Company makes. These statements
can be identified by the use of forward-looking terminology such as "believes,"
"expects," "may," "will," "should," or "anticipates" or the negative thereof or
other variations thereon or comparable terminology, or by discussions of
strategy that involve risks and uncertainties. The Company wishes to caution you
that these forward-looking statements addressing the timing, costs and scope of
the Company's acquisition of, or investments in, existing or future ISPs, the
revenue and profitability levels of the ISPs in which the Company invests, the
anticipated reduction in operating costs resulting from the integration and
optimization of those ISPs, and other matters contained herein regarding matters
that are not historical facts, are only predictions. The Company can give no
assurance that the future results indicated, whether expressed or implied, will
be achieved. These projections and other forward-looking statements are based
upon a variety of assumptions relating to the Company's business, which,
although the Company considered reasonable, may not be realized. Because of the
number and uncertainties of the assumptions underlying the Company's projections
and forward-looking statements, some of the assumptions may not materialize and
unanticipated events and circumstances may occur subsequent to the date of this
report. These forward-looking statements are based on current expectations, and
the Company assumes no obligation to update this information. The inclusion of
projections and other forward-looking statements should not be regarded as a
representation by the Company or any person that these estimates and projections
will be realized, actual results may vary materially.
Item 3. - Quantitative and Qualitative Disclosures about Market Risk
Exchange Rate and Inflation Risk
The Company's continuing operations are focused primarily in Latin America,
subjecting the Company to certain political, economic and commercial risks and
uncertainty not typically found in the U.S. The Company's exposure to market
risk is directly related to its role as a Latin American network company and its
primary market risk exposure relates to foreign exchange rate risk. Foreign
exchange rate risk arises from the possibility that changes in foreign currency
exchange rates will adversely impact the value of the Company's revenues,
assets, liabilities and/or equity. When the Company operates in a foreign
country, the value of the local currency will probably fluctuate. This
fluctuation can cause the Company to gain or lose on the translation to US
Dollars.
Interest Rate Risk
The Company's short-term investments are classified as cash and cash
equivalents with original maturities of three month or less. Therefore, changes
in the market's interest rates should not affect the value of the investments as
recorded by IFX.
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PART II - OTHER INFORMATION
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS
On October 10, 2000, an amendment to IFX's Certificate of Incorporation
was approved by written consent of 78.6% of the holders of the Common
Stock and all of the holders of the Series A Convertible Preferred
Stock of IFX. The amendment changed certain terms of the Certificate of
Designation for the Series A Convertible Preferred Stock. The changes
were made to permit IFX to issue additional shares of Common Stock as
options to employees and as payments in connection with acquisitions
without triggering the anti-dilution provisions of the Certificate of
Designation.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3(i).1 Certificate of Amendment of Restated Certificate of Incorporation of
IFX Corporation.
27.1 Financial Data Schedule (EDGAR only)
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the quarter
ended December, 31, 2000.
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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.
IFX CORPORATION
- -------------------------------------------------------------------------
(Registrant)
Dated: February 14, 2001 By: /S/ MICHAEL SHALOM
-------------------------
Michael Shalom
Chief Executive Officer
Dated: February 14, 2001 By: /S/ JOSE LEIMAN
-----------------------
Jose Leiman
Chief Financial Officer
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