konnte zwar einiges rauslesen, aber...
September 24, 2002
CYBERNET INTERNET SERVICES INTERNATIONAL INC (ZNETE.OB)
Quarterly Report (SEC form 10-Q)
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
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(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
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
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.
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
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.
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