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 SEPTEMBER 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 November 29, 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 NINE MONTHS ENDED SEPTEMBER 30, 2002
(UNAUDITED)
2
CYBERNET INTERNET SERVICES INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
December 31, September 30,
2001 2002
------------ -------------
(Euros in thousands)
ASSETS
Current Assets
Cash and cash equivalents E 2,735 E 23,793
Restricted cash 2,743 1,815
Short-term investments 149 68
Trade accounts receivable, net 8,903 3,707
Related party receivable 356 -
Other receivables 2,721 1,966
Restricted investments 10,567 -
Prepaid expenses 574 368
Other current assets 947 319
----------- -----------
Total current assets 29,695 32,036
Long-Term Assets
Property and equipment, net 32,653 2,319
Product development costs, net 806 -
Investments in equity-method investees 2,770 283
Deferred debt issuance and other charges 6,048 3,851
----------- -----------
TOTAL ASSETS E 71,972 E 38,489
=========== ===========
LIABILITIES
Current Liabilities
Overdrafts and short-term borrowings E 170 E -
Trade accounts payable 13,155 3,587
Other accrued liabilities 11,835 10,830
Current portion long-term debt and capital lease obligations 1,060 -
Accrued personnel costs 1,848 1,998
----------- -----------
Total current liabilities 28,068 16,415
Long-Term Liabilities
Long-term debt 164,573 161,619
Capital lease obligations 435 -
----------- -----------
Total liabilities 193,076 178,034
----------- -----------
SHAREHOLDERS' DEFICIENCY
Common stock 25 25
Additional paid-in capital 127,718 127,718
Accumulated deficit (249,473) (267,331)
Other comprehensive income 626 43
----------- -----------
Total shareholders' deficiency (121,104) (139,545)
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIENCY E 71,972 E 38,489
=========== ===========
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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------- ----------------------
2001 2002 2001 2002
--------- -------- ---------- ---------
(Euros in thousands, except per share data)
Revenues E 9,879 E 5,155 E 9,661 E 21,186
Costs and expenses:
Direct cost of services 5,601 3,449 17,255 11,985
Network operations 1,695 1,138 5,925 3,468
General and administrative expenses 3,149 5,089 9,690 15,312
Sales and marketing expenses 2,692 1,149 8,201 4,414
Research and development 344 - 728 -
Impairment of assets - 1,021 - 7,665
Depreciation and amortization 6,384 1,127 16,255 5,639
--------- -------- ---------- ---------
Total costs and expenses 19,865 12,973 58,054 48,483
--------- -------- ---------- ---------
Operating loss (9,986) (7,818) (28,393) (27,297)
Other income and expenses:
Interest expense (6,668) (6,326) (19,101) (19,718)
Interest income 272 746 1,351 948
Gain (loss) on disposal of assets and businesses - 1,173 (2,556) 14,406
Equity in losses of equity-method investees (671) (117) (975) (386)
Foreign currency gains (losses) 8,158 (1,422) (2,516) 14,184
--------- -------- ---------- ---------
Loss before taxes and extraordinary item (8,895) (13,764) (52,190) (17,863)
Income tax benefit (expense) 1,880 (2) 6,306 5
--------- -------- ---------- ---------
Loss before extraordinary item (7,015) (13,766) (45,884) (17,858)
Extraordinary item:
Gain on extinguishment of debt (net of tax) 592 - 4,607 -
--------- --------- --------- ---------
Net loss (6,423) (13,766) (41,277) (17,858)
Accumulated deficit, beginning of period (149,687) (253,565) (114,833) (249,473)
--------- --------- --------- ---------
Accumulated deficit, end of period E(156,110) E(267,331) E(156,110) E(267,331)
========= ========= ========= =========
Loss per share, basic and diluted:
Loss before extraordinary item E (0.27) E (0.52) E (1.78) E (0.68)
Gain on extraordinary item 0.02 - 0.18 -
--------- --------- --------- ---------
Net loss per share E (0.25) E (0.52) E (1.60) E (0.68)
========= ========= ========= =========
Weighted average number of shares
outstanding (in thousands) 25,846 26,445 25,846 26,445
========= ========= ========= =========
The accompanying notes are an integral part of these financial statements.
4
CYBERNET INTERNET SERVICES INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------- ---------------------
2001 2002 2001 2002
-------- -------- -------- --------
(Euros in thousands)
Net loss E (6,423) E(13,766) E(41,277) E(17,858)
Net unrealized gains on available-for-sale
securities 160 106 297 60
Unrealized gains (losses) on foreign currency
adjustments, net of tax (31) (117) 25 (641)
-------- -------- -------- --------
Comprehensive loss E (6,294) E(13,777) E(40,955) E(18,439)
======== ======== ======== ========
The accompanying notes are an integral part of these financial statements.
5
CYBERNET INTERNET SERVICES INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
2001 2002
---------- ----------
(Euros in thousands)
Cash Flows from Operating Activities:
Net loss E (41,277) E (17,858)
Adjustments to reconcile net loss to net cash used by operations:
Deferred taxes (6,306) -
Depreciation and amortization 16,732 5,639
Equity in losses of equity-method investees 498 386
Provision for losses on accounts receivable 1,002 1,885
Loss on sale of short-term investment 266 -
Amortization of bond discount 2,044 1,889
Accreted interest expense on long-term debt 8,697 10,087
Impairment of assets 2,556 7,665
Gain on disposal of assets - (15,011)
Loss on disposal of businesses - 938
Gain on extinguishment of debt (4,608) -
Foreign currency translation loss (gain) 4,247 (13,864)
Changes in operating assets and liabilities:
Restricted cash - 928
Trade accounts receivable (92) 684
Other receivables 1,481 766
Other assets 330 78
Prepaid expenses 478 (491)
Other current assets - 57
Trade accounts payable (511) (3,454)
Other accrued expenses and liabilities (4,446) (490)
Accrued personnel costs (523) 794
---------- ----------
Net cash used in operating activities (19,432) (19,372)
Cash Flows from Investing Activities:
Proceeds from sale of short-term investments 21,238 79
Proceeds from sale of restricted investments 10,194 10,067
Purchase of property and equipment (8,408) (418)
Proceeds from sale of property and equipment - 32,106
Acquisition of equity method investments (409) -
Sale of businesses, net of cash sold - 541
Payment of deferred purchase obligations (2,034) -
---------- ----------
Net cash provided by investing activities 20,581 42,375
Cash Flows from Financing Activities:
Principal payments under capital lease obligations (397) (1,561)
Repayment of borrowings (3,626) (170)
---------- ----------
Net cash used in financing activities (4,023) (1,731)
---------- ----------
Impact of foreign exchange rate changes 27 (214)
---------- ----------
Net (decrease) increase in cash and cash equivalents (2,847) 21,058
Cash and cash equivalents at beginning of period 8,763 2,735
---------- ----------
Cash and cash equivalents at end of period E 5,916 E 23,793
========== ==========
The accompanying notes are an integral part of these financial statements.
6
CYBERNET INTERNET SERVICES INTERNATIONAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR NINE MONTHS ENDED SEPTEMBER 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 nine months ended September 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. Certain reclassifications have been
made to the prior period financial statements to conform to the current period
presentation.
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 September 30, 2001 and 2002, 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.
7
5. DISPOSAL OF ASSETS AND 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 E1.8 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 E15.0 million as a result of this sale
transaction.
In the quarter ended September 30, 2002, the Company completed asset
dispositions for total sales proceeds of approximately E0.7 million.
6. 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.
7. 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 E7.0 million to the Company. In April
2002, the Company entered into an agreement to engage MFC to provide strategic
advisory and restructuring services. Pursuant to such agreement, MFC will 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 E175,000 in
advance to MFC. The agreement is terminable by either party on 30 days' prior
written notice.
8. COMMITMENTS/LEASES
As at September 30, 2002, the Company had commitments under operating leases and
rental payments totaling approximately E3.3 million, payable over the 15-month
period ending December 31, 2003.
8
9. SUBSEQUENT EVENTS
In November 2002, Cybernet AG entered into an asset purchase and transfer
agreement with PSINet GmbH and PSINet Data Center Germany GmbH (collectively
"PSINet") pursuant to which it agreed, subject to various conditions customary
for agreements of this nature, to transfer to PSINet certain assets including
customer contracts. The Company currently expects closing to occur in the last
quarter of 2002 or early 2003.
The Company has entered into a letter of intent to acquire a controlling
interest and invest in an electronic commerce business in Asia. The acquisition
of such interest is subject to conditions customary for this type of
transaction, including satisfactory due diligence and the entering into of
definitive agreements.
9
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. The following
discussion and analysis of the results of operations and financial condition of
the Company for the nine month and three month periods ended September 30, 2002
should be read in conjunction with the consolidated financial statements and
related notes included elsewhere herein and in the Company's latest annual
report on Form 10-K for the year ended December 31, 2001.
RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 2002 (UNAUDITED)
The following table sets forth selected sales data for the Company for the
periods indicated:
NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------
2001 2002
--------- ---------
(Euros in thousands)
Revenues
Internet data center services E 7,595 E 4,298
Connectivity 21,173 16,474
E-business 893 414
-------- --------
Total revenues E 29,661 E 21,186
======== ========
In the nine months ended September 30, 2002, revenues decreased to E21.2 million
from E29.7 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 delayed projects and investments, and the
rationalization of Cybernet's operations. For the nine months ended September
30, 2002, internet data center service ("IDC") revenues decreased to E4.3
million from E7.6 million in the same period of 2001. Connectivity revenues
decreased to E16.5 million in the current period from E21.2 million in the same
period of 2001. Such decreases in revenues resulted primarily from the
disposition of certain assets as part of Cybernet's rationalization, including
its Italian operations in April 2002 and assets and equipment at three data
centers (the "Data Centers") in Germany 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 dated June 25, 2002.
Direct cost of services decreased to E12.0 million in the first nine months of
2002 from E17.3 million in the comparable period of 2001 primarily as a result
of lower revenues. 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 E3.5 million in the first nine months of
2002 from E5.9 million in the comparable period of 2001. Network operations
costs 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 co-location services
10
revenues, and 3) consulting expenses in the area of network and software
development. The decrease reflects a continuous effort to reorganize Cybernet's
technical structure and reduce personnel costs.
General and administrative expenses increased to E15.3 million in the first nine
months of 2002 from E9.7 million in the comparable period of 2001. The increase
results primarily from reserves for accounts receivable from a principal
distressed connectivity reseller in Germany, the early termination of tenancy
agreements, legal and professional costs, and business rationalization and
related costs. Synergies from integrating various operations and cost control
measures 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. Sales and marketing expenses decreased to E4.4 million in the
first nine months of 2002 from E8.2 million in the comparable period of 2001.
During 2002, Cybernet continued to re-focus its activities towards its core
operations and rationalize its assets and operations. As at September 30, 2002,
Cybernet had approximately 76 employees. As a result, Cybernet terminated or
re-assessed various projects and initiatives and the Company recorded impairment
losses of approximately E7.7 million in the first nine 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 additional costs and expenses.
Depreciation and amortization expenses decreased to E5.6 million in the first
nine months of 2002 from E16.3 million in the comparable period of 2001. This
decrease reflects the write-off on December 31, 2001 of almost all goodwill
related to prior acquisitions.
For the nine months ended September 30, 2002, the Company reported an operating
loss of E27.3 million, compared to E28.4 million in the comparable period of
2001.
Interest expense for the nine months ended September 30, 2002 increased to E19.7
million from E19.1 million in the comparable period of 2001, primarily as a
result of an increase in indebtedness during the current period.
In the first nine months of 2002, the Company had a net gain of E14.4 million on
the disposal of assets, primarily resulting from the sale of the Data Centers by
Cybernet AG pursuant to the Data Center Agreement.
In the first nine months of 2002, the Company reported a net foreign currency
gain of E14.2 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 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 currency loss of E2.5 million.
11
For the nine months ended September 30, 2002, the Company's net loss decreased
to E17.9 million from E41.3 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 foreign currency gain.
RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30, 2002 (UNAUDITED)
The following table sets forth selected sales data for the Company for the
periods indicated:
THREE MONTHS ENDED
SEPTEMBER 30,
------------------------
2001 2002
-------- --------
(Euros in thousands)
Revenues
Internet data center services E 2,294 E 488
Connectivity 7,317 4,652
E-business 268 15
-------- --------
Total revenues E 9,879 E 5,155
======== ========
Total revenues decreased to E5.2 million in the three months ended September 30,
2002 from E9.9 million in the third quarter of 2001, primarily as a result of
lower IDC and connectivity revenues, resulting from a difficult economic
environment wherein customers have delayed projects and investments, and the
rationalization of Cybernet's operations. For the quarter ended September 30,
2002, IDC revenues decreased to E0.5 million from E2.3 million in the comparable
period in 2001. Connectivity revenues decreased to E4.7 million in the quarter
ended September 30, 2002 from E7.3 million in the comparable period in 2001.
Connectivity revenues decreased principally due to a decrease in the number of
customers as a result of competitive conditions and the disposition of certain
operations.
Direct cost of services decreased to E3.4 million in the third quarter of 2002
from E5.6 million in the third quarter of 2001. The decrease reflects a
continuous effort by the Company to reorganize and rationalize its network.
Network operations costs decreased to E1.1 million in the third quarter of 2002
from E1.7 million in the third quarter of 2001. The decrease reflects a
continuous effort by the Company to reorganize its technical structure and
reduce personnel costs.
General and administrative expenses increased to E5.1 million in the third
quarter of 2002 from E3.1 million in the third quarter of 2001. The increase
resulted primarily from the early termination of tenancy agreements, legal and
professional costs, and business rationalization and related expenses.
Sales and marketing expenses decreased to E1.1 million in the third quarter of
2002 from E2.7 million in the third quarter of 2001. Depreciation and
amortization expenses decreased to E1.1 million in the third quarter of 2002
from E6.4 million in the third quarter of 2001.
In the third quarter of 2002, the Company reported an operating loss of E7.8
million, compared to an operating loss of E10.0 million for the same period of
2001.
Interest expense was E6.3 million in the third quarter of 2002, compared to E6.7
million in the third quarter of 2001.
12
In the third quarter of 2002, the Company reported a net foreign currency loss
of E1.4 million, compared to a net gain of E8.2 million in the third quarter of
2001, primarily reflecting the effect of the weakening in the current quarter of
the Euro versus the U.S. dollar on the Company's U.S. dollar denominated debt.
During the third quarter of 2002, the Company reported a net loss of E13.8
million which includes a net foreign currency loss of E1.4 million, compared to
a net loss of E6.4 million for the comparable period of 2001 which included a
net foreign currency gain of E8.2 million.
LIQUIDITY AND CAPITAL RESOURCES
Operating activities used cash of E19.4 million in the first nine months of 2002
and 2001. A decrease in trade accounts receivable in the first nine months of
2002 provided cash of E0.7 million, compared to an increase in the same using
cash of E0.1 million in the first nine months of 2001. An increase in other
receivables in the first nine months of 2002 provided cash of E0.8 million,
compared to E1.5 million in the first nine months of 2001. An increase in
restricted cash provided cash of E0.9 million in the first nine months of 2002.
A decrease in trade accounts payable in the first nine months of 2002 used cash
of E3.5 million, compared to E0.5 million in the comparative period of 2001. A
decrease in other accrued expenses and liabilities used cash of E0.5 million in
the first nine months of 2002, compared to E4.4 million in the comparative
period of 2001. An increase in accrued personnel costs provided cash of E0.8
million in the current period, compared to a decrease in the same using cash of
E0.5 million in the comparative period of 2001.
For the first nine months of 2002, investing activities provided cash of E42.4
million, compared to E20.6 million in the comparable period in 2001. The
increase in cash resulted primarily from the disposition of the Data Centers by
Cybernet AG as well as the sale of investments.
For the first nine months of 2002, financing activities used cash of E1.7
million, primarily as a result of the early termination of leasing contracts. In
the comparable period in 2001, financing activities used cash of E4.0 million,
primarily as a result of the repayment of borrowings.
On July 1, 2002, the Company paid the semi-annual interest payment of E4.7
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 September 30, 2002, working capital, defined as the excess of current assets
over current liabilities, was E15.6 million, compared to E1.6 million at
December 31, 2001.
Net trade accounts receivable as at September 30, 2002 decreased to E3.7 million
from E8.9 million as at December 31, 2001. Cash and cash equivalents amounted to
E23.8 million and E2.7 million at September 30, 2002 and December 31, 2001,
respectively. At September 30, 2002, the Company had approximately E1.8 million
of restricted cash. This amount was held as a deposit for outstanding guarantees
and for other purposes.
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 E7.0 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
13
drawn and outstanding under the credit facility as of September 30, 2002 was
nil. 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.
ITEM 4. DISCLOSURE CONTROLS AND PROCEDURES
Within 90 days prior to the date of this report, the Company carried out an
evaluation, under the supervision and with the participation of its principal
executive officer and principal financial officer, of the effectiveness of the
design and operation of its disclosure controls and procedures. Based on this
evaluation, the Company's principal executive officer and principal financial
officer concluded that the Company's disclosure controls and procedures are
effective in timely alerting him to material information required to be included
in the Company's periodic reports filed with the U.S. Securities and Exchange
Commission. It should be noted that the design of any system of controls is
based in part upon certain assumptions about the likelihood of certain events,
and there can be no assurance that any design will succeed in achieving its
stated goals under all future conditions, regardless of how remote. In
addition, the Company reviewed its internal controls, and there have been no
significant changes in such internal controls or in other factors that could
significantly affect those controls subsequent to the date of their last
evaluation.
14
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 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 September 30, 2002:
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
15
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: November 29, 2002 By: /s/ Michael J. Smith
---------------------------------
Michael J. Smith
Chief Executive Officer and Chief
Financial Officer
16
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;
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;
4. The Registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the Registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the Registrant, including its consolidated
subsidiaries, is made known to us by others with those entities,
particularly during the period in which this quarterly report is
being prepared;
b) evaluated the effectiveness of the Registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The Registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the Registrant's auditors and the audit committee
of the Registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Registrant's ability to
record, process, summarize and report financial data and have
identified for the Registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Registrant's internal
controls; and
6. The Registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: November 29, 2002
/s/ Michael J. Smith
------------------------------
Michael J. Smith
Chief Executive Officer and
Chief Financial Officer
17
EXHIBIT 99.1