<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED June 30,1997
COMMISSION FILE NUMBER 000-22581
STAR TELECOMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
Delaware 77-0362681
(State or Other Jurisdiction (IRS Employer
of Incorporation or Organization) Identification Number)
223 East De La Guerra, Santa Barbara, California, 93101
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (805) 899-1962
None
(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
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 No X
----- -----
As of June 30,1997, the number of the registrant's Common Shares of $.001 par
value outstanding was 15,798,254.
<PAGE> 2
STAR TELECOMMUNICATIONS, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I - FINANCIAL INFORMATION:
Item 1: Financial Statements
Consolidated Balance Sheets As Of
December 31, 1996 And June 30, 1997 3
Consolidated Statements Of Income
For The Three And Six Month Periods
Ended June 30, 1996 And 1997 5
Consolidated Statements Of Stockholders' Equity
For The Years Ended December 31, 1994, 1995 And
1996 And For The Six Month Period Ended June 30, 1997 6
Consolidated Statements Of Cash Flows For The
Six Month Periods Ended June 30, 1996
And 1997 7
Notes To Consolidated Financial Statements 9
Item 2: Management's Discussion And Analysis Of Financial
Condition And Results Of Operations 11
PART II - OTHER INFORMATION 15
</TABLE>
2
<PAGE> 3
ITEM 1. FINANCIAL STATEMENTS
STAR TELECOMMUNICATIONS, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
(In thousands)
<TABLE>
<CAPTION>
December 31, June 30,
------------ --------
1996 1997
-------- --------
(Unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 1,719 $ 3,985
Marketable securities 1,630 16,970
Accounts receivable, net of allowance of
$5,733 at December 31, 1996 and $6,318
at June 30, 1997 22,888 34,194
Receivable from related parties 115 --
Prepaid expenses and other assets 1,729 6,104
Prepaid taxes 677 1,228
-------- --------
Total current assets 28,758 62,481
-------- --------
Property and Equipment:
Operating equipment 8,653 17,672
Leasehold improvements 4,214 4,346
Computer equipment 1,604 1,806
Furniture and fixtures 435 762
-------- --------
14,906 24,586
Less-accumulated depreciation and
amortization (1,201) (2,820)
-------- --------
Total property and equipment, net 13,705 21,766
-------- --------
Investments 153 153
Deposits 5,630 3,826
Other 428 --
-------- --------
6,211 3,979
-------- --------
========
Total assets $ 48,674 $ 88,226
======== ========
</TABLE>
See accompanying notes to the consolidated financial statements.
3
<PAGE> 4
STAR TELECOMMUNICATIONS, INC.
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
(In thousands, except for share data)
<TABLE>
<CAPTION>
December 31, June 30,
------------ --------
1996 1997
-------- --------
(Unaudited)
<S> <C> <C>
Current Liabilities:
Revolving line of credit $ 7,814 $ -
Revolving lines of credit with stockholder 26 103
Current portion of long-term debt 267 807
Current portion of capital lease obligations 827 1,186
Accounts payable 6,260 5,580
Accrued network costs 19,494 28,766
Accrued expenses 1,621 2,623
-------- --------
Total current liabilities 36,309 39,065
-------- --------
Long-Term Liabilities:
Long-term debt, net of current portion 466 3,445
Capital lease obligations, net of current portion 4,808 5,180
Deferred compensation 116 43
Deposits 88 75
-------- --------
Total long-term liabilities 5,478 8,743
-------- --------
Stockholders' Equity:
Preferred Stock $.001 par value:
Authorized - 1,367,050 shares
Issued and outstanding -
1,367,047 shares at December 31, 1996 and 1 --
none at June 30, 1997
Common Stock $.001 par value:
Authorized - 30,000,000 shares
Issued and outstanding -
10,914,396 shares at December 31,
1996 and 15,798,254 at June 30, 1997 11 16
Additional paid-in capital 13,637 44,614
Deferred compensation (118) (78)
Retained deficit (6,644) (4,134)
-------- --------
Stockholders' equity 6,887 40,418
-------- --------
Total liabilities and stockholders' equity $ 48,674 $ 88,226
======== ========
</TABLE>
See accompanying notes to the consolidated financial statements.
4
<PAGE> 5
STAR TELECOMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except for share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------- -------------------------
1996 1997 1996 1997
--------- --------- --------- ---------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues $ 42,852 $ 82,707 $ 78,519 $ 153,715
Cost of services 38,754 73,483 71,040 137,221
--------- --------- --------- ---------
Gross profit 4,098 9,224 7,479 16,494
Operating expenses:
Selling, general and
administrative expenses 2,573 6,034 4,376 10,564
Depreciation and amortization 156 897 264 1,619
--------- --------- --------- ---------
2,729 6,931 4,640 12,183
--------- --------- --------- ---------
Income from operations 1,369 2,293 2,839 4,311
--------- --------- --------- ---------
Other income (expense):
Interest income 28 53 28 74
Interest expense (109) (410) (187) (779)
Other (100) -- (100) 48
--------- --------- --------- ---------
(181) (357) (259) (657)
--------- --------- --------- ---------
Income before provision
for income taxes 1,188 1,936 2,580 3,654
--------- --------- --------- ---------
Provision for income taxes 485 858 1,029 1,144
--------- --------- --------- ---------
Net income $ 703 $ 1,078 $ 1,551 $ 2,510
========= ========= ========= =========
Net income per share (Note 3) $ 0.06 $ 0.08 $ 0.14 $ 0.19
========= ========= ========= =========
Weighted average number of
common shares outstanding (Note 3) 11,497 13,617 11,204 13,202
========= ========= ========= =========
</TABLE>
See accompanying notes to the consolidated financial statements.
5
<PAGE> 6
STAR TELECOMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
AND FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1997
(IN THOUSANDS, EXCEPT FOR SHARE DATA)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL DEFERRED RETAINED
------------------ ------------------ PAID-IN COMPEN- EARNINGS
SHARES AMOUNT SHARES AMOUNT CAPITAL SATION (DEFICIT) TOTAL
---------- ------ ---------- ------ -------- ----- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993 - $ - - $ - $ - $ - $ - $ -
Issuance of common stock - - 8,100,810 8 2 - - 10
Net loss - - - - - - (122) (122)
---------- --- ---------- --- -------- ----- ------- --------
Balance, December 31, 1994 - - 8,100,810 8 2 - (122) (112)
Issuance of common stock - - 899,190 1 102 - - 103
Conversion of debt to equity - - - - 990 - - 990
Net loss - - - - - - (568) (568)
--- ---------- --- -------- ----- ------- --------
Balance, December 31, 1995 - - 9,000,000 9 1,094 - (690) 413
Effect of termination of the
S-Corporation election - - - - (690) - 690 -
Compensation expense relating
to stock options - - - - 168 (118) - 50
Issuance of common stock - - 1,914,396 2 5,566 - - 5,568
Issuance of preferred stock 1,367,047 1 - - 7,499 - - 7,500
Net loss - - - - - - (6,644) (6,644)
---------- --- ---------- --- -------- ----- ------- --------
Balance, December 31, 1996 1,367,047 1 10,914,396 11 13,637 (118) (6,644) 6,887
Conversion of redeemable preferred
stock to common stock (1,367,047) (1) 911,358 1 - - - -
Initial public offering of common
stock - - 3,950,000 4 35,546 - - 35,550
Costs associated with initial public
offering of common stock - - - - (4,636) - - (4,636)
Exercise of stock options - - 22,500 - 67 - - 67
Compensation expense relating to
stock options - - - - - 40 - 40
Net income - - - - - - 2,510 2,510
---------- --- ---------- --- -------- ----- ------- --------
Balance, June 30, 1997
(unaudited) - - 15,798,254 $16 $ 44,614 $ (78) $(4,134) $ 40,418
========== === ========== === ======== ===== ======= ========
</TABLE>
See accompanying notes to the consolidated financial statements.
6
<PAGE> 7
STAR TELECOMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
----------------------
1996 1997
------- --------
(Unaudited)
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ 1,551 $ 2,510
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 264 1,619
Compensation expense relating to stock options - 40
Provision for doubtful accounts 1,054 2,737
Deferred income taxes (500) -
Deferred compensation 35 (73)
Decrease (increase) in assets:
Accounts receivable (6,785) (14,043)
Receivable from related parties (87) 115
Prepaid expenses and other assets (480) (4,375)
Prepaid taxes - (551)
Deposits (644) 1,804
Increase (decrease) in liabilities:
Accounts payable 8,051 (680)
Accrued network costs 2,554 9,272
Accrued expenses 380 1,002
Taxes payable 319 -
------- --------
Net cash provided by (used in)
operating activities 5,712 (623)
------- --------
Cash Flows From Investing Activities:
Capital expenditures (2,316) (3,627)
Purchases of investments, net (153) -
Marketable securities, net - (15,340)
Decrease in other long-term assets - 428
Increase (decrease) in other long-term liabilities 76 (13)
------- --------
Net cash used in investing
activities: $(2,393) $(18,552)
------- --------
</TABLE>
See accompanying notes to the consolidated financial statements.
7
<PAGE> 8
STAR TELECOMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
----------------------
1996 1997
------- --------
(Unaudited)
<S> <C> <C>
Cash Flows From Financing Activities:
Borrowings under lines of credit $ 2,130 $ 33,946
Repayments under lines of credit (330) (41,760)
Borrowings under lines of credit
with stockholder 17 500
Repayments under lines of credit
with stockholder (926) (423)
Repayments under long-term debt - (332)
Payments under capital lease obligation (99) (1,471)
Issuance of common stock 1,500 30,981
------- --------
Net cash provided by
financing activities 2,292 21,441
------- --------
Increase in cash and cash equivalents 5,611 2,266
Cash and cash equivalents,
beginning of period 164 1,719
------- --------
Cash and cash equivalents,
end of period $ 5,775 $ 3,985
======= ========
</TABLE>
See accompanying notes to the consolidated financial statements.
8
<PAGE> 9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) GENERAL
The financial statements included herein are unaudited and have been prepared in
accordance with generally accepted accounting principles for interim financial
reporting and Securities Exchange Commission ("SEC") regulations. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. In the opinion of
management, the financial statements reflect all adjustments (of a normal and
recurring nature) which are necessary to present fairly the financial position,
results of operations and cash flows for the interim periods. These financial
statements should be read in conjunction with the audited financial statements
for the year ended December 31, 1996, and the unaudited financial statements for
the quarter ended March 31, 1997, each as set forth in the Registration
Statement on Form S-1 of STAR Telecommunications, Inc. ("STAR" or the "Company")
Registration No. 333-21325, which was declared effective by the SEC on June 12,
1997. The results for the three and six month periods ended June 30, 1997 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 1997.
(2) BUSINESS AND PURPOSE
Star is an international long distance service provider offering low cost
switched voice services on a wholesale basis primarily to U. S.-based long
distance carriers. Star provides international long distance service to over 275
foreign countries through a flexible network of resale arrangements with long
distance providers, various foreign termination relationships, international
gateway switches and leased and owned transmission facilities.
(3) NET INCOME PER COMMON SHARE
Net income per common share for the three and six month periods ended June 30,
1996 and 1997 is based on the weighted average number of common shares
outstanding giving effect of the conversion of the preferred stock (Note 4). Per
share information was computed pursuant to the rules of the SEC, which require
that common shares issued by the Company during the twelve months immediately
preceding the Company's initial public offering plus the number of shares
issuable pursuant to the grant of options issued during the same period, be
included in the calculation of the shares outstanding using the treasury stock
method from the beginning of all periods presented.
The following schedule summarizes the information used to compute weighted
average number of common shares outstanding at June 30, 1996 and 1997 (in
thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ------------------
1996 1997 1996 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
Weighted number of common shares
outstanding 10,463 11,748 10,170 11,334
Effect of stock options 956 958 956 957
Conversion of preferred stock 78 911 78 911
------ ------ ------ ------
Weighted average number of common shares
used to compute net income per share 11,497 13,617 11,204 13,202
====== ====== ====== ======
</TABLE>
9
<PAGE> 10
(4) SIGNIFICANT EVENTS
In June 1997, the Company completed an initial public offering of 4,600,000
shares of common stock of which 3,950,000 were sold by the Company and 650,000
shares were sold by certain selling shareholders. The net proceeds to the
Company (after deducting underwriting discounts and offering expenses) from the
sale of the shares was approximately $30.9 million. The Company used $14.2
million of the net proceeds to repay indebtedness. The Company intends to use
the remaining proceeds to finance the expansion of its international network
facilities, to invest in direct termination arrangements, strategic alliances or
acquisitions and for working capital and general corporate purposes. In
connection with the initial public offering, all outstanding preferred shares
were converted to common shares at a rate of three preferred shares to two
common shares.
(5) COMMITMENTS
The Company is obligated under various service agreements with long distance
carriers to pay minimum usage charges of approximately $22,919,000 for the six
month period between July 1, 1997 and December 31, 1997, and $26,424,000 and
$5,006,000 for the twelve months ending December 31, 1998 and 1999,
respectively. The Company anticipates exceeding the minimum usage volume with
these vendors.
(6) STATEMENTS OF CASH FLOWS
During the six month periods ended June 30, 1996 and 1997, cash paid for
interest was $162,000 and $818,000, respectively. For the same periods, cash
paid for income taxes amounted to $1,210,000 and $1,695,000, respectively.
Non-cash investing and financing activities are as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
---------------------------
1996 1997
---------- ----------
<S> <C> <C>
Equipment purchased through
notes and capital leases $ 779,000 $6,053,000
========== ==========
</TABLE>
(7) SUBSEQUENT EVENTS
On July 10, 1997 the Company began operating a Nortel DMS 100E international
gateway switch in London, which will enable calls originated in the UK to be
terminated on the Company's network. The Company expects that the switch will
begin contributing to revenues in the third quarter of 1997.
On August 7, 1997, the Company entered into a commitment with Sanwa Bank,
California for a $25 million, 2 year revolving line of credit. The facility
which has certain financial and non-financial covenants, will be secured by
substantially all of the assets of the Company and will be used to support
letters of credit and for working capital and general corporate purposes.
10
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Quarterly Report on Form 10-Q contains certain forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking
statements are statements other than historical information or statements of
current condition. Some forward looking statements may be identified by use of
such terms as "believes", "anticipates", "intends", or "expects". These
forward-looking statements relate to the plans, objectives and expectations of
the Company for future operations. In light of the risks and uncertainties
inherent in all such projected operation matters, the inclusion of
forward-looking statements in this report should not be regarded as a
representation by the Company or any other person that the objectives or plans
of the Company will be achieved or that any of the Company's operating
expectations will be realized. The Company's revenues and results of operations
are difficult to forecast and could differ materially from those projected in
the forward-looking statements contained in this report as a result of numerous
factors including among others, the following: (i) changes in international
settlement rates; (ii) foreign currency fluctuations; (iii) termination of
certain service agreements or inablility to enter into additional service
agreements; (iv) inaccuracies in the Company's forecast of traffic growth; (v)
changes in or developments under domestic or foreign laws, regulations,
licensing requirements or telecommunications standards; (vi) foreign political
or economic instability; (vii) changes in the availability of transmission
facilities; (viii) loss of the services of key officers; (ix) loss of a customer
which provides significant revenues to the Company; (x) highly competitive
market conditions in the industry, (xi) concentration of credit risk. The
foregoing review of the important factors should not be considered as
exhaustive; the Company undertakes no obligation to release publicly the results
of any future revisions it may make to forward-looking statements to reflect
events or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
The following table sets forth income statement data as a percentage of revenues
for the periods indicated.
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
-------------------- -------------------
1996 1997 1996 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenues 100.0% 100.0% 100.0% 100.0%
Cost of services 90.4 88.8 90.5 89.3
------ ------ ------ ------
Gross profit 9.6 11.2 9.5 10.7
Operating expenses:
Selling, general & administrative 6.0 7.3 5.6 6.9
Depreciation & amortization 0.4 1.1 0.3 1.1
------ ------ ------ ------
6.4 8.4 5.9 8.0
------ ------ ------ ------
Income from operations 3.2 2.8 3.6 2.7
------ ------ ------ ------
Other income (expense):
Interest income .00 0.0 0.0 0.1
Interest expense (0.3) (0.5) (0.2) (0.5)
Other (0.2) 0.0 (0.1) 0.0
------ ------ ------ ------
(0.5) (0.5) (0.3) (0.4)
Income before provision for income taxes 2.7 2.3 3.3 2.3
------ ------ ------ ------
Provision for income taxes 1.1 1.0 1.3 0.7
====== ====== ====== ======
Net income 1.6% 1.3% 2.0% 1.6%
====== ====== ====== ======
</TABLE>
11
<PAGE> 12
Three Months Ended June 30, 1997 Compared to Three Months Ended June 30, 1996.
Revenues: Revenues increased 93.0% to $82.7 million in the second quarter of
1997 from $42.9 million in the second quarter of 1996, with minutes of use
increasing 81.3% to 188.7 million in the second quarter of 1997, as compared to
104.1 million minutes of use in the comparable quarter of the year prior. The
increase in revenue resulted from an increase in new customers, increased usage
by existing customers and a higher average customer rate per minute. The average
customer rate per minute rose due to price increases in selected countries as
well as terminating country mix of traffic patterns.
Gross Margin: Gross profit increased to $9.2 million in the second quarter of
1997 from $4.1 million in the second quarter of 1996. Gross margin improved to
11.2% from 9.6% reflecting the negotiation of lower rates on routes with
significant traffic as well as lower costs on direct termination arrangements in
selected countries.
Selling, General and Administrative: Selling, general and administrative
expenses increased 134.5% to $6.0 million during the second quarter of 1997 from
$2.6 million in the comparable quarter one year earlier, and increased as a
percentage of revenue to 7.3% from 6.0% in the prior period. Selling, general
and administrative expenses increased between periods as the Company continues
to increase its employee base and incurs payroll, employee benefits, commissions
and related expenses. Operating expenses associated with expanding transmission
and switch facilities also increased in support of the Company's growing
telecommunications network. Bad debt expense increased as a percentage of
revenues to 2.0% from 1.5%.
Depreciation: Depreciation increased to $897,000 in the second quarter of 1997
from $156,000 in the second quarter of 1996. Depreciation increased as a result
of the Company's continued expansion of its transmission network, leasehold
improvements associated with the Los Angeles, New York and London switching
facilities and switch site buildout.
Other Income (Expense): Other expense, net, increased to $357,000 in the second
quarter of 1997 from $181,000 in the first quarter of 1996. This increase is
primarily due to $410,000 in interest expense incurred under the bank line of
credit, and various debt obligations. This increase was offset by $53,000 in
interest income.
Provision for Income Taxes: The Company's provision for income taxes increased
to $858,000 in the second quarter of 1997 from $485,000 in the second quarter of
1996 reflecting the growth in pre-tax earnings.
Six Months Ended June 30, 1997 Compared to Six Months Ended June 30, 1996.
Revenues: Revenues increased 95.8% to $153.7 million in the first half of 1997
from $78.5 million in the first half of 1996. Minutes of use increased to 361.2
million in the first half of 1997 from 189.5 million in the first half of 1996.
The increase was primarily the result of both increased sales to existing
customers and to an increase in the number of wholesale carrier customers.
Gross Margin: Gross profit increased to $16.5 million in the first half of 1997
from $7.5 million in the first half of 1996. Gross margin improved to 10.7% from
9.5% , reflecting the negotiation of lower rates on routes with significant
traffic and the benefit of the Company's lower cost direct termination
arrangements.
Selling, General and Administrative: Selling, general and administrative
expenses increased 141.4% to $10.6 million during the first half of 1997 from
$4.4 million in the comparable period one year earlier, and increased as a
percentage of revenue to 6.9% from 5.6% in the prior period. Selling, general
and administrative expenses increased between periods as the Company continues
to increase its employee base and incurs payroll, employee benefits, commissions
and related expenses. Operating expenses associated
12
<PAGE> 13
with expanding transmission and switch facilities also increased in support of
the Company's growing telecommunications network. Bad debt expense increased as
a percentage of revenues to 1.8% from 1.3%.
Depreciation: Depreciation increased to $1.6 million in the first half of 1997
from $264,000 for the first half of 1996. Depreciation increased as a result of
the Company's continued expansion of its transmission network and the switching
facilities located in Los Angeles, New York and London.
Other Income (Expense): Other expense, net, increased to $657,000 in the first
half of 1997 from $259,000 in the first half of 1996. This increase is primarily
due to $779,000 in interest expense incurred in 1997 under the bank line of
credit, and various debt obligations. This increase was offset by $74,000 in
interest income and $48,000 gain on the sale of short term investments and cash
equivalents from funds raised in private placements of equity securities during
1996.
Provision for Income Taxes: The Company's provision for income taxes increased
to $1.1 million in the first half of 1997 from $1.0 million in the first half of
1996. The effective tax rate decreased to 31.3% in the first half of 1997 from
39.9% in the year prior reflecting the write-off of a customer accounts
receivable. The Company fully reserved the net deferred tax asset of $2.5
million at June 30, 1997 as the Company has not yet had a full year of
profitable operations.
13
<PAGE> 14
LIQUIDITY AND CAPITAL RESOURCES
On June 12, 1997, the Company completed an initial public offering of 4,600,000
of common stock of which 3,950,000 were sold by the Company and 650,000 shares
were sold by certain selling shareholders. The net proceeds to the Company were
approximately $30.9 million. Prior to the initial public offering, the Company
funded its business primarily through funds advanced from an officer of the
Company, bank debt and the private sale of equity.
The Company generated $5.7 million in net cash from operating activities during
the first six months of 1996 as a result of net income plus depreciation and
amortization and the provision for doubtful accounts bolstered by increases in
both accounts payable and accrued network costs. Offsetting cash generated by
operations were increases in accounts receivable, prepaid expenses and other
assets, deposits, and deferred income taxes. The Company's investing activities
used cash of approximately $2.4 million during the first six months of 1996,
primarily resulting from capital expenditures. The Company's financing
activities provided cash of approximately $2.3 million primarily from
borrowings under various lines of credit and the sale of common stock, offset
by repayment under various lines of credit.
The Company used net cash from operating activities of approximately $623,000 in
the first six months of 1997, primarily as a result of an increase in accounts
receivable, prepaid expenses and other assets and a decrease in accounts
payable. The uses of cash from operating activities were offset by net income
plus depreciation and amortization, and the provision for doubtful accounts, an
increase in accrued network costs and accrued expenses and a decrease in
deposits. The Company's investing activities used cash of approximately $18.6
million during the first six months of 1997, primarily resulting from capital
expenditures and investing the net proceeds of the initial public offering in
marketable securities. The Company's financing activities provided net cash of
approximately $21.4 million which includes the net proceeds from the initial
public offering of common stock of approximately $30.9 million, and borrowings
under various lines of credit offset by repayments under various lines of
credit.
As of December 31, 1996 and June 30, 1997 the Company had cash and cash
equivalents of approximately $1.7 million and $4.0 million, respectively, and a
working capital deficit of approximately $7.6 million as of December 31, 1996
and working capital surplus of $23.4 million as of June 30, 1997. As of June 30,
1997 the Company had approximately $6.4 million outstanding for capital leases
relating primarily to the Company's switching equipment.
The Company used approximately $14.2 million of the net proceeds from the
initial public offering to repay indebtedness. The Company anticipates making
capital expenditures of approximately $40.0 million over the next 12 months to
expand the Company's global network. The Company believes that the remaining
proceeds from the initial public offering, cash generated from operations as
well as funding under its bank line of credit to meet its capital requirements
and, as appropriate, capital lease financing will be sufficient to satisfy the
Company's liquidity needs over the next 12 months.
14
<PAGE> 15
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On May 14, 1997, the Company was granted summary judgment on
Communication Telesystems International's ("CTS") First Amended
Complaint claim of $6.0 million for damages for an alleged breach of
contract. As a result, on June 16, 1997 the Company has dismissed its
related claim seeking $2.0 million in damages for an alleged breach of
two contracts by CTS.
ITEM 2. CHANGES IN SECURITIES
Securities sold during the period which were not registered under the
Securities Act include sales of 10,000 common shares at $3.00 per share
on May 8, 1997, and 10,000 common shares at $3.00 per share on June 9,
1997 to two former members of the board of directors in conjunction
with the exercise of options granted to them as board members.
15
<PAGE> 16
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.
STAR TELECOMMUNICATIONS, INC.
Dated: August 13, 1997
By: /s/ Christopher E. Edgecomb
------------------------------------------
Christopher E. Edgecomb
Chief Executive Officer and Director
(Duly Authorized Officer)
By: /s/ Kelly D. Enos
------------------------------------------
Kelly D. Enos
Chief Financial Officer
(Principal Financial & Accounting
Officer)
16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED BALANCE SHEETS, THE CONSOLIDATED STATEMENTS OF
INCOME, CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY, AND CONSOLIDATED
STATEMENTS OF CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
SCHEDULES
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 3,985
<SECURITIES> 16,970
<RECEIVABLES> 40,512
<ALLOWANCES> (6,318)
<INVENTORY> 0
<CURRENT-ASSETS> 62,481
<PP&E> 24,586
<DEPRECIATION> (2,820)
<TOTAL-ASSETS> 88,226
<CURRENT-LIABILITIES> 39,065
<BONDS> 10,618
0
0
<COMMON> 16
<OTHER-SE> 40,402
<TOTAL-LIABILITY-AND-EQUITY> 88,226
<SALES> 153,715
<TOTAL-REVENUES> 153,715
<CGS> 137,221
<TOTAL-COSTS> 12,183
<OTHER-EXPENSES> 48
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 779
<INCOME-PRETAX> 3,654
<INCOME-TAX> 1,144
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,510
<EPS-PRIMARY> .19
<EPS-DILUTED> .19
</TABLE>
