UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
------- -------
Commission File No.: 000-25677
CYBERNET INTERNET SERVICES
INTERNATIONAL, INC.
(Exact name of Registrant as specified in its charter)
Delaware 51-0384117
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
Suite 1620 - 400 Burrard Street, Vancouver, British Columbia, Canada V6C 3A6
(Address of office)
(604) 683-5767
(Registrant's telephone number, including area code)
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. YES X NO
--- ---
Indicate the number of shares outstanding of each of the Registrant's classes of
common stock, as of the latest practicable date:
Class Outstanding at August 31, 2002
----- ------------------------------
Common Stock, $0.001 26,445,627
par value
FORWARD-LOOKING STATEMENTS
Statements in this report, to the extent they are not based on historical
events, constitute forward-looking statements. Forward-looking statements
include, without limitation, statements regarding the outlook for future
operations, forecasts of future costs and expenditures, the evaluation of market
conditions, the outcome of legal proceedings, the adequacy of reserves, or other
business plans. When used herein, such statements may use words such as "may",
"will", "expect", "believe", "plan" and similar terminology. These statements
reflect management's current expectations regarding future events and operating
performance and speak only as of the date hereof. Investors are cautioned that
forward-looking statements are subject to an inherent risk that actual results
may vary materially from those described herein. Factors that may result in
such variance, in addition to those accompanying the forward-looking statements,
include changes in international, national and local business and economic
conditions, competition, changes in interest rates, actions by competitors,
actions by government authorities, uncertainties associated with legal
proceedings, technological development, future decisions by management in
response to changing conditions and misjudgments in the course of preparing
forward-looking statements. The foregoing list of factors is not exhaustive.
PART I. FINANCIAL INFORMATION
---------------------
ITEM 1. FINANCIAL STATEMENTS
CYBERNET INTERNET SERVICES INTERNATIONAL, INC.
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2002
(UNAUDITED)
2
CYBERNET INTERNET SERVICES INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
December 31, 2001 June 30, 2002
----------------- -------------
(Euros in thousands)
ASSETS
Current Assets
Cash and cash equivalents E 2,735 E 36,126
Restricted cash 2,743 2,315
Short-term investments 149 67
Trade accounts receivable, net 8,903 3,558
Related party receivable 356 -
Other receivables 2,721 1,629
Restricted investments 10,567 4,686
Prepaid expenses 574 205
Other current assets 947 221
-------- --------
Total current assets 29,695 48,807
Long-Term Assets
Property and equipment, net 32,653 4,964
Product development costs, net 806 -
Investments in equity-method investees 2,770 400
Deferred debt issuance and other charges 6,048 4,072
-------- --------
TOTAL ASSETS E 71,972 E 58,243
======== ========
LIABILITIES
Current Liabilities
Overdrafts and short-term borrowings E 170 E -
Overdrafts and short-term borrowings, related party - 3,417
Trade accounts payable 13,155 6,108
Other accrued liabilities 11,835 16,408
Current portion long-term debt and capital lease
obligations 1,060 -
Accrued personnel costs 1,848 1,645
-------- --------
Total current liabilities 28,068 27,578
Long-Term Liabilities
Long-term debt 164,573 156,431
Capital lease obligations 435 -
-------- --------
Total liabilities 193,076 184,009
-------- --------
SHAREHOLDERS' DEFICIENCY
Common stock 25 25
Additional paid-in capital 127,718 127,718
Accumulated deficit (249,473) (253,565)
Other comprehensive income 626 56
-------- --------
Total shareholders' deficiency (121,104) (125,766)
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIENCY E 71,972 E 58,243
======== ========
The accompanying notes are an integral part of these financial statements.
3
CYBERNET INTERNET SERVICES INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
(UNAUDITED)
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- ----------------------
2001 2002 2001 2002
---------- ---------- ---------- ----------
(Euros in thousands, except per share data)
Revenues E 9,901 E 6,724 E 19,781 E 16,032
Costs and expenses:
Direct cost of services 6,160 4,004 11,653 8,537
Network operations 2,103 1,310 4,230 2,329
General and administrative expenses 3,160 4,744 6,541 10,223
Sales and marketing expenses 2,824 1,337 5,509 3,264
Research and development 156 - 384 -
Impairment of assets 2,556 6,645 2,556 6,645
Depreciation and amortization 5,029 2,037 9,871 4,512
--------- --------- --------- ---------
Total costs and expenses 21,988 20,077 40,744 35,510
--------- --------- --------- ---------
Operating loss (12,087) (13,353) (20,963) (19,478)
Other income and expenses:
Interest expense (6,657) (6,559) (12,433) (13,393)
Interest income 501 98 1,079 201
Gain on disposal of assets and businesses - 13,233 - 13,233
Equity in losses of equity-method investees (153) (134) (304) (269)
Foreign currency gains (losses) (4,415) 17,187 (10,674) 15,607
--------- --------- --------- ---------
Income (loss) before taxes and extraordinary
item (22,811) 10,472 (43,295) (4,099)
Income tax benefit 2,836 8 4,425 7
---------- --------- --------- ---------
Income (loss) before extraordinary item (19,975) 10,480 (38,870) (4,092)
Extraordinary item:
Gain on extinguishment of debt (net of tax) - - 4,016 -
--------- --------- --------- ---------
Net income (loss) (19,975) 10,480 (34,854) (4,092)
Accumulated deficit, beginning of period (129,712) (264,045) (114,833) (249,473)
---------- --------- --------- ---------
Accumulated deficit, end of period E(149,687) E(253,565) E(149,687) E(253,565)
========= ========= ========= =========
Earnings (loss) per share, basic:
Earnings (loss) per share before
extraordinary item E (0.77) E 0.39 E (1.50) E (0.15)
Gain on extraordinary item - - 0.15 -
--------- --------- --------- ---------
Net income (loss) per share E (0.77) E 0.39 E (1.35) E (0.15)
========= ========= ========= =========
Earnings (loss) per share, diluted:
Earnings (loss) per share before
extraordinary item E (0.77) E 0.12 E (1.50) E (0.57)
Gain on extraordinary item - - 0.15 -
--------- --------- --------- ---------
Net income (loss) per share E (0.77) E 0.12 E (1.35) E (0.57)
========= ========= ========= =========
Weighted average number of shares
outstanding (in thousands):
For basic loss (earnings) per share 25,845 26,445 25,845 26,445
========= ========= ========= =========
For diluted loss (earnings) per share 25,845 30,391 25,845 30,391
========= ========= ========= =========
The accompanying notes are an integral part of these financial statements.
4
CYBERNET INTERNET SERVICES INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended June 30,
-------------------------
2001 2002
---------- ------------
(Euros in thousands)
Cash Flows from Operating Activities:
Net loss E (34,854) E (4,092)
Adjustments to reconcile net loss to net cash used
by operations:
Deferred taxes (4,425) -
Depreciation and amortization 9,871 4,512
Equity in losses of equity-method investees 141 269
Provision for losses on accounts receivable 528 2,298
Loss on sale of short-term investment 122 -
Amortization of bond discount 1,335 1,298
Accreted interest expense on long-term debt 5,443 6,771
Impairment of assets 2,556 6,645
Gain on disposal of assets - (15,011)
Loss on disposal of businesses - 1,778
Gain on extinguishment of debt (4,016) -
Foreign currency translation loss (gain) 10,950 (14,810)
Changes in operating assets and liabilities:
Restricted cash 137 428
Trade accounts receivable 310 716
Other receivables 1,284 983
Other assets 530 21
Prepaid expenses 7 (3)
Other current assets 282 (130)
Trade accounts payable (1,949) (1,063)
Other accrued expenses and liabilities 540 4,415
Accrued personnel costs (560) 324
--------- ---------
Net cash used in operating activities (11,768) (4,651)
Cash Flows from Investing Activities:
Proceeds from sale of short-term investments 16,496 85
Proceeds from sale of restricted investments 4,192 5,368
Purchase of property and equipment (6,455) (334)
Proceeds from sale of property and equipment - 32,106
Acquisition of equity method investments (409) -
Sale of businesses, net of cash sold - (346)
Payment of deferred purchase obligations (2,034) -
--------- ---------
Net cash provided by investing activities 11,790 36,879
Cash Flows from Financing Activities:
Principal payments under capital lease obligations (278) (1,561)
Proceeds from borrowings - 3,417
Repayment of borrowings (3,430) (170)
--------- ---------
Net cash (used in) provided by financing activities (3,708) 1,686
--------- ---------
Impact of foreign exchange rate changes (77) (523)
--------- ---------
Net (decrease) increase in cash and cash equivalents (3,763) 33,391
Cash and cash equivalents at beginning of period 5,972 2,735
--------- ---------
Cash and cash equivalents at end of period E 2,209 E 36,126
========= =========
The accompanying notes are an integral part of these financial statements.
5
CYBERNET INTERNET SERVICES INTERNATIONAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR SIX MONTHS ENDED JUNE 30, 2002
1. Basis of Presentation
The accompanying interim period unaudited consolidated financial statements of
Cybernet Internet Services International, Inc. (the "Company") have been
prepared in accordance with United States generally accepted accounting
principles ("U.S. GAAP") and the rules and regulations of the U.S. Securities
and Exchange Commission relating to interim financial information. Accordingly,
they do not include all of the information required under U.S. GAAP for
financial statements for a full year. In the opinion of management, all
adjustments (consisting of normal recurring adjustments and accruals) considered
necessary for a fair presentation of the financial position and results of
operations of the Company for the periods presented have been included.
Operating results for the six months ended June 30, 2002 are not necessarily
indicative of results to be expected for the year ended December 31, 2002. For
further information, refer to the audited consolidated financial statements and
notes thereto included in the Company's annual report on Form 10-K for the year
ended December 31, 2001.
2. Going Concern
The Company has incurred significant operating losses since inception, and has
not achieved and does not expect to achieve sufficient revenues to support
future operations without additional financing. The Company is currently in the
process of identifying alternative financing sources, negotiating changes to its
debt structure and evaluating its strategic options. However, there are no
assurances that these plans can be accomplished or that they will provide
sufficient cash to fund the Company's operations in the future.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern and, accordingly, do not
include any adjustments to reflect the possible future effects on the
recoverability and classification of assets or the amounts and classification of
liabilities that may result from the outcome of these uncertainties.
3. Earnings (Loss) Per Share
Basic earnings (loss) per share is computed by dividing income (loss) available
to common shareholders by the weighted average number of shares outstanding
during the period. Diluted earnings per share takes into consideration
shares outstanding (computed under basic earnings per share) and potentially
dilutive shares. For the periods ended June 30, 2001, the computation of diluted
loss per share excludes the convertible preferred stock, convertible notes and
stock options because the inclusion of these items would have an anti-dilutive
effect.
4. Segment Information
The Company operates in one line of business, which is providing international
Internet backbone and access services and network business solutions for
corporate customers.
6
5. Comprehensive Income (Loss)
Accumulated other comprehensive income (loss) consists of unrealized gains or
losses on available-for-sale securities and translation adjustments from
consolidation. The following table sets forth the comprehensive income (loss)
for the periods ended June 30, 2001 and 2002:
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ------------------
2001 2002 2001 2002
-------- -------- -------- --------
(Euros in thousands)
Net income (loss) E(19,975) E 10,480 E(34,854) E(4,092)
Net unrealized gains (losses) on
available-for-sale securities 12 (52) 160 (46)
Unrealized gains (losses) on foreign currency
adjustments, net of tax (4) 55 33 (524)
-------- -------- -------- -------
Comprehensive income (loss) E(19,967) E 10,483 E(34,661) E(4,662)
======== ======== ======== =======
6. Disposal of Assets and of Businesses
On April 16, 2002, the Company entered into a share purchase agreement with
Westwood Corporation ("Westwood") wherein the Company sold all of the shares
of Cybernet Italia S.p.A. to Westwood in consideration for $10,000. The Company
recognized a loss of approximately Euro 1.8 million in connection with this sale
transaction.
On June 25, 2002, Cybernet Internet Dienstleistungen AG ("Cybernet AG"), a
wholly-owned subsidiary of the Company, entered into an asset purchase and
transfer agreement (the "Data Center Agreement") with Disko Leasing GmbH
("Disko"), pursuant to which Cybernet AG sold assets, equipment, furniture and
fixtures located in its data centers in Hamburg, Frankfurt and Munich, Germany
(the "Data Centers") to Disko, effective April 30, 2002. Pursuant to the Data
Center Agreement, Cybernet AG also cancelled certain lease agreements for the
Data Centers, terminated operating agreements for the Data Centers, amended
certain service agreements for the Data Centers in Frankfurt and Munich, Germany
and paid an arrangement fee to Telehouse Deutschland GmbH. The Company
recognized a gain of approximately Euro 15.0 million as a result of this sale
transaction.
7. Deferred Debt Issuance and Other Charges
Deferred debt issuance and other charges consist principally of expenses
incurred by the Company in connection with the notes issued during 1999 and
amounts allocated to customer base and management contracts in connection with
business acquisitions. Deferred debt issuance charges are being amortized to
interest expense over the period of the maturity of the said notes. Other
deferred charges are being amortized on a straight-line basis over their useful
lives.
8. Related Party Transactions
MFC Bancorp Ltd. ("MFC") is considered a related party as MFC maintains voting
rights on behalf of two shareholders that hold approximately 26% of the
Company's outstanding shares and an executive officer and a member of MFC's
board of directors is an executive officer and a member of the Company's board
of directors. A Swiss bank affiliate of MFC provides a revolving senior secured
credit facility in an aggregate amount of Euro 7.0 million to the Company.
In April 2002,
7
the Company entered into an agreement to engage MFC to provide strategic
advisory and restructuring services. Pursuant to such agreement, MFC will be
be paid a success fee upon the completion of a successful debt restructuring
and on specified transactions, measured as a percentage of the amount of
debt restructured or transactions completed and subject to an overall cap on
total fees. In the interim, the Company pays a monthly work fee of Euro
175,000 to MFC. The agreement is terminable by either party on 30 days' prior
written notice.
9. Commitments/Leases
As at June 30, 2002, the Company had commitments under operating leases and
rental payments totaling approximately Euro 4.5 million, payable over the
18-month period ending December 31, 2003.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Cybernet Internet Services International, Inc. (the "Company" and together with
its subsidiaries "Cybernet") is an Internet service provider, providing
international Internet backbone and access services and network business
solutions for corporate customers. The following discussion and analysis of the
results of operations and financial condition of the Company for the six month
and three month periods ended June 30, 2002 should be read in conjunction
with the consolidated financial statements and related notes included elsewhere
herein.
Results Of Operations - Six Months Ended June 30, 2002
- ----------------------- -----------------------------------
The following table sets forth selected sales data for the Company for the
periods indicated:
Six Months Ended June 30,
-------------------------
2001 2002
---------- ----------
(Euros in thousands)
Revenues
Internet data center services E 5,301 E 3,811
Connectivity 13,855 11,822
E-business 625 399
-------- --------
Total revenues E 19,781 E 16,032
======== ========
In the six months ended June 30, 2002, total revenues decreased to Euro 16.0
million from Euro 19.8 million in the comparable period of 2001. The decrease in
revenues reflected lower revenues in all segments, resulting from a difficult
economic environment wherein customers have been delaying projects and
investments. For the six months ended June 30, 2002, internet data center
service ("IDC") revenues decreased to Euro 3.8 million from Euro 5.3 million in
the same period of 2001. Connectivity revenues decreased to Euro 11.8 million in
the first half of 2002 from Euro 13.9 million in the same period of 2001. Such
decreases in revenues resulted primarily from the disposition of the Company's
operations in Italy in April 2002 and the sales of assets and equipment located
in its data centers in Hamburg, Frankfurt and Munich, Germany (the "Data
Centers") effective April 30, 2002 pursuant to an asset purchase and transfer
Agreement (the "Data Center Agreement") made between the Company's wholly-owned
subsidiary, Cybernet Internet Dienstleistungen AG ("Cybernet AG"), and Disko
Leasing GmbH ("Disko") dated June 25, 2002.
Direct cost of services decreased to Euro 8.5 million in the first six months of
2002 from Euro 11.7 million in the comparable period of 2001. Direct cost of
services consists of: 1) telecommunications expenses which mainly represent the
cost of transporting Internet traffic from our customers' locations through a
local telecommunications carrier to one of our access nodes, transit and peering
costs, and the cost of leasing lines to interconnect our backbone nodes, and 2)
the cost of hardware and software sold. The Company mainly utilizes leased lines
for its backbone network, and to connect its network to its major customers'
premises.
Network operations costs decreased to Euro 2.3 million in the first six months
of 2002 from Euro 4.2 million in the comparable period of 2001. Network
operations mainly consist of: 1) the personnel costs of technical and
operational staff and related overhead, 2) the rental of premises solely or
primarily used by technical staff, including premises used to generate our
co-location services revenues and 3) consulting expenses in the area of network
and software development. The decrease
9
reflects a continuous effort to reorganize Cybernet's technical structure
to reduce personnel related costs. Cybernet had 33 network operations personnel
at June 30, 2002, compared to 84 at June 30, 2001.
General and administrative expenses increased to Euro 10.2 million in the first
six months of 2002 from Euro 6.5 million in the comparable period of 2001. The
increase results primarily from reserves for accounts receivable from a
principal distressed connectivity reseller in Germany and provisions for
potential litigation, business rationalization and related costs. Synergies from
integrating various operations and cost control measures instituted during the
last 12 months resulted in lower personnel and personnel related costs. General
and administrative expenses consist principally of salaries and other personnel
costs for administrative staff, rent, allowance for bad debts and external
advisory costs. Cybernet had 26 general and administrative personnel at June 30,
2002, compared to 48 at June 30, 2001.
Sales and marketing expenses decreased to Euro 3.3 million in the first six
months of 2002 from Euro 5.5 million in the comparable period of 2001. This
decrease is mainly due to Cybernet reorganizing its sales and marketing
organization. Sales and marketing expenses consist principally of salaries for
sales and marketing personnel and advertising and communication expenditures.
Cybernet had 50 sales and marketing personnel at June 30, 2002, compared to
approximately 131 at June 30, 2001.
During 2002, Cybernet continued to re-focus its activities towards its core
operations and rationalize its business. As a result, Cybernet terminated or
re-assessed various projects and initiatives, such as Voice Telephony and
Connectivity, and the Company recorded impairment losses of approximately Euro
6.6 million in the first six months of 2002. Cybernet's review of its core and
other operations is currently ongoing and may, in the future, result in the
Company reassessing the carrying value of its assets and/or providing for
associated costs and expenses.
Depreciation and amortization expenses decreased to Euro 4.5 million in the
first six months of 2002 from Euro 9.9 million in the comparable period of 2001.
This decrease reflects the nearly complete write-off on December 31, 2001 of
goodwill related to prior acquisitions.
For the six months ended June 30, 2002, the Company reported an operating loss
of Euro 19.5 million, compared to Euro 21.0 million in the comparable period of
2001.
Interest expense for the six months ended June 30, 2002 increased to Euro 13.4
million from Euro 12.4 million in the comparable period of 2001, primarily as a
result of an increase in indebtedness during the current period.
In the first half of 2002, the Company reported a net gain of Euro 13.2 million
on the disposition of assets and businesses, primarily resulting from the sale
of the Data Centers by Cybernet AG pursuant to the Data Center Agreement.
In the first six months of 2002, the Company recorded a net foreign currency
gain of Euro 15.6 million, primarily as a result of the effect of the
strengthening of the Euro versus the U.S. dollar on the Company's U.S. dollar
denominated debt. The Company reports its financial results in Euros and a
portion of its outstanding indebtedness is denominated and payable in U.S.
dollars. As the Euro fluctuates in value against the U.S. dollar, the amount of
the Company's U.S. dollar denominated debt as reported in Euros also fluctuates.
These differences are recorded as either foreign currency
10
gains or losses by the Company in any particular reporting period. Such
reported foreign currency gains or losses will fluctuate with the exchange rate
for Euros to U.S. dollars from reporting period to reporting period. In the
comparable period of 2001, the Company recorded a net foreign exchange loss
of Euro 10.7 million.
For the six months ended June 30, 2002, the Company's net loss decreased to Euro
4.1 million from Euro 34.9 million for the comparable period of 2001, primarily
as a result of the non-recurring gain resulting from the sale of the Data
Centers by Cybernet AG and a non-cash foreign currency translation gain.
Results of Operations - Three Months Ended June 30, 2002
- ----------------------- -------------------------------------
The following table sets forth selected sales data for the Company for the
periods indicated:
Three Months Ended June 30,
---------------------------
2001 2002
---------- ----------
(Euros in thousands)
Revenues
Internet data center services E 2,640 E 1,102
Connectivity 7,140 5,338
E-business 121 284
------- -------
Total revenues E 9,901 E 6,724
======= =======
Total revenues decreased to Euro 6.7 million in the three months ended June 30,
2002 from Euro 9.9 million in the second quarter of 2001, primarily as a result
of lower IDC and Connectivity revenues, resulting from a difficult economic
environment wherein customers have been delaying projects and investments. For
the quarter ended June 30, 2002, IDC revenues decreased to Euro 1.1 million
from Euro 2.6 million in the comparable period of 2001. Connectivity revenues
decreased to Euro 5.3 million in the quarter ended June 30, 2002 from Euro
7.1 million in the comparable period of 2001. Connectivity revenues decreased
principally due to a decrease in the number of customers as a result of
competitive conditions and the disposition of the Company's Italian operations.
Direct cost of services decreased to Euro 4.0 million in the second quarter of
2002 from Euro 6.2 million in the second quarter of 2001. The decrease reflects
a continuous effort by the Company to reorganize and rationalize its network.
Network operations costs decreased to Euro 1.3 million in the second quarter of
2002 from Euro 2.1 million in the second quarter of 2001. The decrease reflects
a continuous effort by the Company to reorganize its technical structure and
reduce personnel related costs.
General and administrative expenses increased to Euro 4.7 million in the second
quarter of 2002 from Euro 3.2 million in the second quarter of 2001. The
increase resulted primarily from reserves for accounts receivable from a
principal distressed connectivity reseller in Germany, as well as provisions for
litigation, business rationalization and related expenses.
Sales and marketing expenses decreased to Euro 1.3 million in the second quarter
of 2002 from Euro 2.8 million in the second quarter of 2001. Depreciation and
amortization expenses decreased to Euro 2.0 million in the second quarter of
2002 from Euro 5.0 million in the second quarter of 2001.
In the second quarter of 2002, the Company reported an operating loss of Euro
13.4 million, compared to Euro 12.1 million for the same period of 2001.
11
Interest expense was Euro 6.6 million in the second quarter of 2002, compared to
Euro 6.7 million in the second quarter of 2001.
During the second quarter of 2002, the Company recorded a net gain of Euro 13.2
million on the disposition of assets primarily resulting from the sale of the
Data Centers by Cybernet AG pursuant to the Data Center Agreement.
In the second quarter of 2002, the Company reported a net foreign currency
translation gain of Euro 17.2 million, compared to a net loss of Euro 4.4
million in the second quarter of 2001, primarily reflecting the effect of the
strengthening of the Euro versus the U.S. dollar on the Company's U.S. dollar
denominated debt.
During the second quarter of 2002, the Company reported net income of Euro 10.5
million, compared to a net loss of Euro 20.0 million for the comparable period
of 2001, primarily as a result of a non-recurring gain resulting from the sale
of the Data Centers by Cybernet AG and a non-cash foreign currency translation
gain.
Liquidity and Capital Resources
- ----------------------------------
Operating activities used cash of Euro 4.7 million in the first six months of
2002, compared to Euro 11.8 million in the comparable period in 2001. This
reflected lower losses and decreased expenditures in all major areas of the
Company.
For the first six months of 2002, investing activities generated cash of Euro
36.9 million, compared to Euro 11.8 million in the comparable period in 2001.
The increase in cash resulted primarily from the disposition of the Data Centers
by Cybernet AG pursuant to the terms of the Data Center Agreement, as well as
the sale of investments, partially offset by the cash outflows for the purchases
of property and equipment. Expenditures for property and equipment consisted
principally of the fit-out of POP's and data facilities, the purchases of
computer hardware and software and other expenditures related to the maintenance
of the Company's Internet backbone and equipment.
For the first six months of 2002, financing activities provided cash of Euro 1.7
million. The increase in cash generated from financing activities represents the
net proceeds of approximately Euro 3.2 million from borrowings partially offset
by the cash outflows for the early termination of one leasing contract in the
amount of Euro 1.6 million. In the comparable period in 2001, financing
activities used cash of Euro 3.7 million.
On July 1, 2002, the Company paid the semi-annual interest payment of Euro 4.7
million on its outstanding senior convertible notes due 2009 from restricted
investments deposited in its interest escrow account. As a result, the interest
escrow account for such notes has been fully disbursed.
On June 30, 2002, working capital, defined as the excess of current assets
over current liabilities, was Euro 21.2 million, compared to Euro 1.6 million at
December 31, 2001.
Net accounts receivable as at June 30, 2002 decreased to Euro 3.6 million from
Euro 8.9 million as at December 31, 2001. Cash and cash equivalents amounted to
Euro 36.1 million and Euro 2.7 million at June 30, 2002 and December 31, 2001,
respectively. At June 30, 2002, the Company had approximately Euro 4.7 million
of restricted investments held in escrow. This amount was invested
12
in U.S. treasury securities and was used to pay interest on the Company's
senior convertible notes in July 2002.
In March 2002, the Company was granted a revolving senior secured credit
facility from a Swiss Bank, a related party, that matures in March 2003 for
maximum borrowings of Euro 7.0 million. The Company is obligated to borrow in
three tranches and each tranche is dependent upon certain conditions. The credit
facility bears interest at a rate of 14% per annum and is secured by
substantially all of the Company's assets excluding restricted cash and
investments. The amount drawn and outstanding under the credit facility as
of June 30, 2002 was Euro 3.4 million. There can be no assurance that the
Company will receive further advances under the credit facility or that the
Company will have sufficient funds to continue its current operations in the
future. The Company may need to obtain additional financing in the future and
there can be no assurance that the Company will be successful in obtaining such
financing.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Reference is made to the Company's annual report on Form 10-K for the year ended
December 31, 2001 for information concerning market risk. The Company is of the
opinion that there have been no material changes in market risk since December
31, 2001.
13
PART II. OTHER INFORMATION
-----------------
ITEM 1. LEGAL PROCEEDINGS
The Company is subject to routine litigation incidental to its business and is
named from time to time as a defendant in various legal actions. Reference is
made to the Company's annual report on Form 10-K for the year ended December 31,
2001 for information concerning legal proceedings.
In view of the inherent difficulty of predicting the outcome of such matters,
particularly in cases in which damages are sought, the Company cannot state what
the eventual outcome of pending matters will be. The Company is contesting the
allegations made in each pending matter and while it believes, based upon its
current knowledge, that the outcome of such matters will not have a material
adverse effect on the Company's consolidated financial position, such matters
may be material to the Company's operating results for a particular period.
ITEM 5. OTHER INFORMATION
The Company's board of directors was realigned to be comprised of three
directors, being Michael Smith, Slobodan Andjic and Jong Dal Lee.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
99.1 - Certification of Periodic Report
(b) Reports on Form 8-K
The Company filed the following reports on Form 8-K in the three
months ended June 30, 2002 and in July 2002:
Form 8-K dated April 3, 2002:
Item 2. Acquisition or Disposition of Assets
Form 8-K dated April 19, 2002:
Item 2. Acquisition or Disposition of Assets
Item 7. Financial Statements and Exhibits
Form 8-K/A dated April 30, 2002:
Item 7. Financial Statements and Exhibits
Form 8-K dated May 2, 2002:
Item 2. Acquisition or Disposition of Assets
14
Form 8-K dated May 13, 2002:
Item 4. Changes in Registrant's Certifying Accountant
Item 7. Financial Statements and Exhibits
Form 8-K dated May 21, 2002:
Item 2. Acquisition or Disposition of Assets
Form 8-K dated June 19, 2002:
Item 2. Acquisition or Disposition of Assets
Form 8-K dated June 27, 2002:
Item 2. Acquisition or Disposition of Assets
Item 7. Financial Statements and Exhibits
Form 8-K/A dated July 10, 2002:
Item 7. Financial Statements and Exhibits
Form 8-K dated July 22, 2002:
Item 5. Other Events and Regulation FD Disclosure
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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.
CYBERNET INTERNET SERVICES INTERNATIONAL, INC.
Date: September 19, 2002 By: /s/ Michael J. Smith
-------------------------------------------
Michael J. Smith
Chief Executive Officer and Chief
Financial Officer
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CERTIFICATION OF PERIODIC REPORT
I, Michael J. Smith, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Cybernet Internet
Services International, Inc. (the "Registrant");
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
Registrant as of, and for, the periods presented in this quarterly report.
Date: September 19, 2002
/s/ Michael J. Smith
-------------------------------------------
Michael J. Smith
Chief Executive Officer and
Chief Financial Officer
17