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, 1999
COMMISSION FILE NUMBER: 333-46197
URSUS TELECOM CORPORATION
(Exact name of registrant as specified in its charter)
Florida 65-0398306
(State or Other Jurisdiction (IRS Employer
of Incorporation or Organization) Identification No.)
440 Sawgrass Corporate Parkway, Suite 112, Sunrise, Florida 33325
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (954-846-7887)
N/A
(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 [X] No [ ]
As of August 13, 1999, the number of the registrant's Common Shares of $.01 par
value outstanding was 6,600,000.
<PAGE>
URSUS TELECOM CORPORATION
FORM 10-Q
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION:
PAGE
Item 1: Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of
March 31, 1999 and June 30, 1999 3
Condensed Consolidated Statements of Operations for the
Three Month Periods Ended June 30, 1998 and 1999 4
Condensed Consolidated Statements of Cash Flows for the
Three Month Periods Ended June 30, 1998 and 1999 5
Notes to Condensed Consolidated Financial Statements 6
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II - OTHER INFORMATION
Item 1: Legal Proceedings 13
Item 2: Changes in Securities and Use of Proceeds 14
Item 6: Exhibits 14
Signatures
<PAGE>
ITEM 1. FINANCIAL STATEMENTS ( UNAUDITED)
URSUS TELECOM CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS March 31, 1999 June 30, 1999
----------------------------------
Current assets:
<S> <C> <C>
Cash and cash equivalents $2,406,643 $2,549,347
Accounts receivable, net 4,960,510 4,686,547
Prepaid expenses 297,828 346,192
Advances and notes receivable--related parties 10,843 124,980
Deferred taxes 401,173 627,179
Other current assets 563,615 111,670
----------------------------------
Total current assets 8,640,612 8,445,915
Equipment, net 3,677,059 3,727,704
Intangible assets, net 10,180,152 10,026,135
Investment in unconsolidated subsidiary 207,754 130,000
Other assets, net 337,005 587,033
----------------------------------
Total assets $23,042,582 22,916,787
==================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $4,787,040 $4,755,549
Commissions payable 1,066,232 1,038,778
Current portion of capital lease obligations 324,166 310,133
Current portion of notes payable - 169,180
Other current liabilities 328,493 285,935
----------------------------------
Total current liabilities 6,505,931 6,559,575
Long term portion of capital lease obligations 789,430 727,612
Long term portion of notes payable - 191,530
Deferred taxes 329,413 329,055
Other long-term obligations 133,500 133,500
Commitment and contingencies
Shareholders' equity:
Preferred stock, $.01 par value, 1,000,000 shares authorized;
1,000 shares issued and outstanding 10 10
Common stock, $.01 par value; 20,000,000 shares authorized,
6,600,000 issued and outstanding.
66,000 66,000
Additional paid-in capital 12,338,843 12,368,003
Retained earnings 2,879,455 2,549,602
----------------------------------
Total shareholders' equity 15,284,308 14,983,615
----------------------------------
Total liabilities and shareholders' equity $ 23,042,582 $22,916,787
==================================
</TABLE>
URSUS TELECOM CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
June 30
1998 1999
------------------------------------
Revenues:
<S> <C> <C>
Retail $5,928,197 $6,317,476
Wholesale 539,239 3,112,971
------------------------------------
Total revenues 6,467,436 9,430,447
Costs of revenues 4,227,869 6,322,673
------------------------------------
Gross profit 2,239,567 3,107,774
Operating expenses:
Commissions 930,674 764,993
Selling, general and administrative expenses 1,132,282 2,424,824
Depreciation and amortization 88,288 398,833
------------------------------------
Total operating expenses 2,151,244 3,588,650
------------------------------------
Operating income (loss) 88,323 (480,876)
Other income (expense):
Interest expense (10,350) (34,828)
Interest income 88,813 24,777
Write down of investment - (75,390)
Gain on sale of equipment - 2,000
------------------------------------
78,463 (83,441)
------------------------------------
Income before provision (benefit)
for income taxes 166,786 (564,317)
Provision (benefit) for income taxes 75,681 (234,464)
------------------------------------
Net income (loss) $ 91,105 $ (329,853)
====================================
Net income (loss) per common share-basic and dilutive $ .02 $ (.05)
====================================
Weighted average shares outstanding 5,708,791 6,627,582
====================================
SEE ACCOMPANYING NOTES.
</TABLE>
URSUS TELECOM CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months ended
June 30
1998 1999
------------------------------------
OPERATING ACTIVITIES
<S> <C> <C>
Net income (loss) $ 91,105 $ (329,853)
Adjustments to reconcile net income (loss) to net
cash (used in) provided by operating activities:
Depreciation and amortization 88,288 398,832
Allowance for doubtful accounts 28,117 85,982
Deferred taxes - 234,434
Amortization of deferred stock compensation - 29,160
Gain on sale of equipment - (2,000)
Loss on the sale of investment - 75,390
Changes in operating assets and liabilities:
Accounts receivable (143,800) 112,632
Other current assets (89,266) 492,061
Accounts payable and accrued expenses (576,458) 43,857
Other current liabilities 156,250 (122,746)
------------------------------------
Net cash (used in) provided by operating activities (445,764) 548,881
INVESTING ACTIVITIES
Purchase of equipment (114,112) (157,171)
Increase in advances to related parties (42,185) (114,136)
Increase in other assets (45,683) (59,019)
------------------------------------
Net cash used in investing activities (201,980) (330,326)
FINANCING ACTIVITIES
Net proceeds from the sale of common stock 12,232,813 -
Repayments on capital leases (11,664) (75,851)
------------------------------------
Net cash provided by (used in) financing activities 12,221,149 (75,851)
Effect of foreign exchange rate changes on cash and cash
equivalents 3,110 -
------------------------------------
Net increase in cash and cash equivalents 11,576,515 142,704
Cash and cash equivalents at beginning of period 1,035,149 2,406,643
------------------------------------
Cash and cash equivalents at end of period $12,611,664 $2,549,347
====================================
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest $ 10,350 $ 34,828
====================================
NON-CASH INVESTING AND FINANCING ACTIVITIES
Receivable applied as a deposit on acquisition $ 72,988 $ -
====================================
Equipment and other financing $ - $ 360,709
====================================
SEE ACCOMPANYING NOTES.
</TABLE>
URSUS TELECOM CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(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 management's
opinion, the financial statements reflect all adjustments (of a normal and
recurring nature) which are necessary to present fairly the financial position,
results of operations, stockholders' equity and cash flows for the interim
periods. These financial statements should be read in conjunction with the
audited consolidated financial statements for the year ended March 31, 1999, as
set forth in Form 10-K of Ursus Telecom Corporation (the "Company"), ("Ursus")
or ("UTCC"). The results for the three month period ended June 30, 1999, are not
necessarily indicative of the results that may be expected for the year ending
March 31, 2000.
The condensed consolidated balance sheet at March 31, 1999 has been derived from
the audited financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements.
(2) COMMITMENTS AND CONTINGENCIES
In the ordinary course of business, the Company has disputes with carriers over
billing discrepancies. Although management has historically been successful in
resolving these disputes, there can be no assurance that ongoing disputes will
be resolved as anticipated. In the event that an ongoing dispute results in an
additional liability, we believe that such amounts will not have a material
adverse affect on the Company's financial condition or results of operations.
(3) NET INCOME PER COMMON SHARE
Following is a reconciliation of amounts used in the per share computations:
<TABLE>
<CAPTION>
Three Months Ended
June 30,
------------------------------
1998 1999
------------------------------
<S> <C> <C>
Net income (loss) -numerator basic computation $ 91,105 $( 329,853)
Effect of dilutive securities-None - -
------------------------------
Net income (loss) as adjusted for assumed conversion-numerator
diluted computation $ 91,105 $( 329,853)
==============================
Weighted average shares-denominator basic computation 5,708,791 6,600,000
Effect of dilutive securities-Stock options - 27,852
------------------------------
Weighted average shares as adjusted-denominator 5,708,791 6,627,852
==============================
Net income (loss) per share:
Basic $ 0.02 $ (0.05)
==============================
Diluted $ 0.02 $ (0.05)
==============================
</TABLE>
(4) SEGMENT DISCLOSURES
The Company operates in one single industry segment, the international long
distance telecommunications industry. For the quarters ended June 30, 1998 and
1999, substantially all of the Company's revenues were derived from traffic
transmitted through its primary switch facility located in Sunrise, Florida.
(5) COMPREHENSIVE INCOME (LOSS)
The Company has adopted the provisions of SFAS 130, "REPORTING COMPREHENSIVE
INCOME" (SFAS 130) in 1998 which is required for fiscal years beginning after
December 15, 1997. The Statement requires the presentation of comprehensive
income and its components in the financial statements and the accumulated
balance of other comprehensive income separately from retained earnings and
additional paid in capital in the equity section of the balance sheet. The
adoption of SFAS 130 has no impact on the Company's net income or stockholders'
equity. The only component of other comprehensive income reflected in the
Company's balance sheet is foreign currency translation adjustments.
The following is a summary of the components of comprehensive income (loss):
Three Months Ended
June 30,
---------------------------
1998 1999
---------------------------
Net income (loss) $ 91,105 $ (329,853)
Other comprehensive income (loss) net of tax
foreign currency translation (2,764) -
----------------------------
Comprehensive income (loss) $ 88,341 $ (329,853)
=============================
(6) RECLASSIFICATIONS
Certain previous year amounts have been reclassified to conform to the current
year presentation.
(7) NOTES PAYABLE
On June 25, 1999, the Company entered into a finance agreement with IBM Credit
Corporation to finance certain computer hardware and software. The aggregate
purchase price was approximately $276,285, which is being financed over a period
of three years with interest rates of 7.75% and 8.75% for the hardware and
software portions, respectively. At June 30, 1999, the balance due under this
agreement was $276,285 with $84,756 representing the current portion. Pursuant
to the agreement, interest and principle is payable monthly and the notes are
secured by the equipment.
(8) EQUITY
On April 30, 1999 the Board of Directors granted 154,000 stock purchase warrants
(the "Warrants). Pursuant to agreements with the Company, Joseph Charles and
Associates was granted (1) Warrants to purchase 50,000 shares of common stock,
as a retainer to obtain acquisition financing and (2) Warrants to purchase 4,000
shares of common stock for participation in Ursus Board of Directors meetings.
Continental Capital and Equity Corporation ("Continental") was granted Warrants
to purchase 100,000 shares of common stock in return for providing public
relation expertise to Ursus. The Warrants granted to Joseph Charles and
Associates expire on July 1, 2004 and have an exercise price of $5.00 per share.
The Warrants granted to Continental are exercisable for a period of one year
from the date that the Securities and Exchange Commission declares as effective
an S-3 filing to register the common shares underlying these Warrants. The
Warrants granted to Continental have various exercise prices ranging from $6.00
to $10.00 per share. The Company uses the Black-Scholes option pricing model to
determine the fair value of the Warrants granted. The fair value of the Warrants
granted during the three months ended June 30, 1999 was approximately $29,000
and is included in selling, general and administrative expenses on the
accompanying statement of operations.
At June 30, 1999, the Company had a total of 304,000 Warrants outstanding with a
weighted average exercise price of $11.27 per share as follows:
Warrants Exercise Price Expiration Date
-----------------------------------------------------------------
150,000 $15.20 May 18, 2003
54,000 $5.00 July 1, 2004
20,000 $6.00 See above
20,000 $8.00 See above
60,000 $10.00 See above
-------
304,000
=======
(9) SUBSEQUENT EVENT
WRITE DOWN OF INVESTMENT IN URSUS TELECOM FRANCE
On July 29, 1999, the Company's subsidiary Ursus Telecom France signed a letter
of intent to sell the joint venture for approximately 2.6 million French Francs
or approximately $425,000. The final selling price is subject to due diligence
by the buyer. The sale will result in an estimated loss of approximately
$75,000. Acccordingly, a $75,000 write down of the Company's investment has been
included in the June 30, 1999 statement of operations. Further, the Company has
agreed to buy a switch from the joint venture, which has an estimated fair
market value of $120,000 in exchange for amounts owed to the Company from the
joint venture, which as of July 31, 1999 was approximately $112,000.
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 operational matters, the inclusion of forward-looking
statements in this report should not be regarded as a representation by us or
any other person that the objectives or plans of Ursus will be achieved or that
any of the operating expectations will be realized. The 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
customer rates per minute; (ii) foreign currency fluctuations; (iii) termination
of certain service agreements or inability to enter into additional service
agreements; (iv) inaccuracies in 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) obsolescence of and changes in telecommunications switching and
access equipment; and (xii) concentration of credit risk. The foregoing review
of the important factors should not be considered as exhaustive. Ursus
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 DISCUSSION OF THE FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF
URSUS SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL STATEMENTS AND THE
RELATED NOTES AND OTHER INFORMATION REGARDING URSUS INCLUDED ELSEWHERE IN THIS
FORM 10-Q.
OVERVIEW
We are a provider of international telecommunications services and offer a broad
range of discounted international and enhanced telecommunication services,
including United States originated long distance service and direct-dial
international service, typically to small and medium-sized businesses and
travelers. We have expanded our geographic coverage in Europe, Japan, Central
and South America through our acquisition of Access Authority Inc. ("Access") in
September 1998. We intend to continue to capitalize on the increased demand for
high-quality international telecommunications services resulting from the
globalization of the world's economies and the worldwide trend toward
telecommunications deregulation.
Our primary service is call reorigination, however, we have increasingly been
migrating calls to direct access. The Company also provides service to other
carriers and resellers. The Company's retail customer base, which includes
corporations and individuals, is primarily located in South Africa, Latin
America, the Middle East (Lebanon and Egypt), France, Germany, Japan and New
Zealand. We operate a switched-based digital telecommunications network out of
our primary switching hub located in Sunrise, Florida.
We are also developing an e-commerce site known as thestream.com. Our goal for
thestream.com is to become a leading communications portal on the Internet and a
one-stop e-commerce shop for global telecommunications services. The site will
run on an IBM RS/6000 server system, which is expected to incorporate a series
of high quality and client- friendly service options such as: voice over the
Internet (VOIP), PC to phone and other sophisticated web-centric applications.
The site is anticipated to facilitate access to a host of value-added
telecommunications products and services.
OTHER OPERATING DATA
The following information for the three months ended June 30, 1998 and 1999 is
provided for informational purposes and should be read in conjunction with the
unaudited Consolidated Financial Statements and Notes provided herein and the
Consolidated Financial Statements presented with the Company's annual Form 10-K
for the year ended March 31, 1999.
The following table sets forth certain operating data as a percentage of
revenues for the periods indicated:
THREE MONTHS ENDED
JUNE 30,
1998 1999
Revenues.......................................... 100.0% 100.0%
Cost of revenues.................................. 65.4 67.0
Gross profit...................................... 34.6 33.0
Operating expenses:
Commission..................................... 14.4 8.1
Selling, general and administrative............ 17.5 25.7
Depreciation and amortization.................. 1.4 4.2
Total operating expenses.......................... 33.2 38.0
Operating income( loss)........................... 1.4 (5.0)
Other (expense) income............................ 1.2 (0.9)
Income (loss) before income taxes................. 2.6 (5.9)
Net income (loss)................................. 1.4 (3.5)
EBITDA(1)......................................... 2.7 (1.6)
- ------------------
(1) As used herein "EBITDA" consists of earnings before interest, income
taxes, depreciation and amortization. EBITDA is a measure commonly used in the
telecommunications industry to analyze companies on the basis of operating
performance. EBITDA is not a measure of financial performance under generally
accepted accounting principles, is not necessarily comparable to similarly
titled measures of other companies and should not be considered as an
alternative to net income as a measure of performance nor as a alternative to
cash flow as a measure of liquidity.
<PAGE>
RESULTS OF OPERATIONS
REVENUES. Revenues increased $2.9 million (44.6%) from $6.5 million for the
three months ended June 30, 1998 to $9.4 million for the three months ended June
30, 1999. The revenue attributable to the Access acquisition amounted to $5.8
million for the three months ended June 30, 1999. Our consolidated company had a
19.0 million minute increase during this period over the same period last year.
Access contributed 21.5 million of the total minutes to the consolidated Company
during the quarter. Revenue per minute declined from $0.83 per minute to $0.35
per minute over this period resulting from the lower per minute rates generated
by Access and an industry wide decrease in revenues per minute. The decrease in
revenue per minute is consistent with our entry into the more mature markets of
Germany and Japan and with increased wholesale sales, which traditionally
generate lower revenue per minute.
COST OF REVENUES. Cost of revenues increased $2.0 million (47.6%), from $4.2
million for the three months ended June 30, 1998 to $6.3 million for the three
months ended June 30, 1999. Cost of revenues as a percentage of sales increased
from 65.4% to 67.0%. This increase in our costs is directly attributable to the
increased revenue associated with the acquisition of Access. We have been able
to hold costs down as a percentage of revenue despite a 522% increase in
wholesale sales, which typically generate lower margins and thus a higher cost
for every revenue dollar. We have accomplished this primarily as a result of
declining carrier cost per minute, aggressive negotiation with carriers, volume
discounts and the use of advanced least cost routing techniques.
GROSS PROFIT. Gross profit increased $0.9 million (38.8%) from $2.2 million for
the three months ended June 30, 1998 to $3.1 million for the three months ended
June 30, 1999. As a percentage of revenue, gross profit decreased 1.6% from
34.6% during the three months ended June 30, 1998 to 33.0% for the three months
ended June 30, 1999. Gross profit increased due to the Access acquisition, but
decreased as a percentage of revenue as result of the increase in wholesale
revenue generated by Access. The decreased margins were offset by a reduction in
carrier costs as a percentage of revenue because the number of minutes the
Company purchased tripled and thereby increased the Company's volume- based
carrier discounts. For the three months ended June 30, 1999 as compared to the
three months ended June 30, 1998 average cost per minute has decreased 57.4% or
an average of $0.31 per minute.
OPERATING EXPENSES. Operating expenses increased $1.4 million (66.8%) from $2.2
million for the three months ended June 30, 1998 to $3.6 million for the three
months ended June 30, 1999. The increase was due primarily to the acquisition of
Access which added $1.5 million in operating expenses during the quarter. As a
percentage of revenues, selling, general and administrative expenses increased
46.9% from 17.5% to 25.7%. The Company has aggressively expanded its personnel
and infrastructure in anticipation of increased traffic and revenues through the
implementation of its expansion plans. The Company expects that operating
expenses as a percentage of revenue will decrease with the further integration
of the operations of Access and other potential acquisitions.
Depreciation and amortization expense increased approximately $310,000 (351.7%)
from approximately $88,000 for the three months ended June 30, 1998 to
approximately $399,000 for the three months ended June 30, 1999 as a result of
expansion of the Company's infrastructure in connection with its expansion
plans. In addition, the acquisition of Access increased the amount of
depreciable fixed assets and resulted in approximately $134,000 in amortization
expense on the intangibles.
OPERATING INCOME (LOSS). Operating income (loss) decreased from $88,000 in
income for the three months ended June 30, 1998 to a loss of approximately
$481,000 for the three months ended June 30, 1999 primarily as a result of a
114.2% increase in selling, general and administrative expenses and a 351.7%
increase in depreciation as described above.
NET INCOME (LOSS). As a result of all of the foregoing factors, particularly a
66.8% increase in operating expenses, and in light of the Company's strategic
decision to increase its gross revenues and market share through price
reductions, the Company's results decreased approximately $421,000 from net
income of approximately $91,000 of income for the three months ended June 30,
1998 to a loss of approximately $330,000 for the three months ended June 30,
1999. Net income has also been impacted by the sale of our subsidiary in France,
which amounted to approximately $75,000 for the three months ended June 30,
1999.
EBITDA. EBITDA decreased approximately $332,000 from approximately 177,000 for
the three months ended June 30, 1998, to a EBITDA loss of approximately $155,000
for the three months ended June 30, 1999, as a result of the foregoing factors.
LIQUIDITY AND CAPITAL RESOURCES
The Company's capital requirements consist of capital expenditures in connection
with the acquisition and maintenance of switching capacity, the continued
development of thestream.com and working capital requirements. Historically, the
Company's capital requirements have been met primarily through funds provided by
operations, term loans funded or guaranteed by its majority shareholder, capital
leases and vendor financing agreements.
Net cash provided by operating activities was approximately $549,000 for the
three months ended June 30, 1999 as compared to net cash used in operating
activities of $446,000 for the same period last year. The net cash provided by
operating activities in the first quarter ended June 30, 1999 increased as a
result of improved timing of vendor payment to coincide with collections from
customers.
Net cash used in investing activities was approximately $330,000 for the three
months ended June 30, 1999 and approximately $202,000 for the three months ended
June 30, 1998 reflecting an increase caused by equipment purchases for our web
site development and advances made to our Chief Executive Officer and President.
Net cash used in financing activities was approximately $76,000 for the three
months ended June 30, 1999 which reflects lease payments. For the three months
ended June 30, 1998 cash provided by financing activities was $12.2 million
which reflects the result of the Company's initial public offering, which after
the expenses of such offering accounted for an increase in cash of approximately
$11.6 million. As of June 30, 1999 approximately $1.5 million of the proceeds
remain.
The Company expects that the remaining proceeds from the offering, together with
internally generated funds, will provide sufficient funds for the Company to
expand its business as planned and to fund anticipated growth for the next 12 to
16 months. However, the amount of the Company's future capital requirements will
depend upon many factors, including performance of the Company's business, the
rate and manner in which it expands, staffing levels and customer growth, as
well as other factors not within the Company's control, including competitive
conditions and regulatory or other government actions. If the Company's plans or
assumptions change or prove to be inaccurate or the net proceeds of the
Offering, together with internally generated funds or other financing, prove to
be insufficient to fund the Company's growth and operations, then some or all of
the Company's development and expansion plans could be delayed or abandoned, or
the Company may be required to seek additional funds earlier than anticipated.
In order to provide flexibility for potential acquisition and network expansion
opportunities, the Company has and will continue to seek financing arrangements
with vendors or other financial institutions. Other future sources of capital
for the Company could include public and private debt, including high yield debt
offerings, equity financing and lease lines. There can be no assurance that any
such sources of financing will be available to the Company in the future or, if
available, that they could be obtained on terms acceptable to the Company. While
such a financing may provide the Company additional capital resources that may
be used to implement its business plan, the incurrence of indebtedness could
impose risks, covenants and restrictions on the Company that may affect the
Company in a number of ways, including the following: (i) a significant portion
of the Company's cash flow from operations may be required for the repayment of
interest and principal payments arising from the financing, with such cash flow
not being available for other purposes; (ii) such a financing could impose
covenants and restrictions on the Company that may limit its flexibility in
planning for, or reacting to, changes in its business or that could restrict its
ability to redeem stock, incur additional indebtedness, sell assets and
consummate mergers, consolidations, investments and acquisitions; and (iii) the
Company's degree of indebtedness and leverage may render it more vulnerable to a
downturn in its business or in the telecommunications industry or the economy
generally.
SEASONALITY
The Company has historically experienced, and expects to continue to experience,
a decrease in the use of its services in the months of August and December due
to the closing of many businesses for holidays in Europe and the United States
during those months.
RISKS ASSOCIATED WITH THE YEAR 2000
OVERVIEW
We are currently in the final stages of evaluating whether we will
encounter any problems related to the Year 2000. The impact of the Year 2000,
which has been widely reported in the media, could cause malfunctions in certain
software and databases that use date sensitive processing relating to the Year
2000 and beyond. We have completed an evaluation of all our systems and found
that most of the computer systems, software and database which are proprietary
to Ursus are Year 2000 ready. We have also begun to evaluate third party
business entities with which we are engaged in business or for which we provide
services, to determine if there will be any unexpected interruptions. We have
requested representations from these third parties as to whether or not they
anticipate any difficulties in addressing Year 2000 problems and, if so, whether
or not we would be adversely affected by any of such problems. Our management
expects to have this process completed by the end of the third quarter of 1999.
We have obtained representations from the manufacturer of the telephony
switches that they are Year 2000 ready. As these switches are critical to us,
they have been tested internally and found to be Year 2000 ready. Our billing
system, which was scheduled for an upgrade for operational reasons will be
upgraded to a Year 2000 ready version in the second quarter of fiscal 1999 at
minimal cost to us. We have received assurances from other software and
equipment manufactures that their hardware and software are Year 2000 ready.
COSTS
Our management has determined that costs to correct any problems
encountered with the Year 2000 will be immaterial. However, until such time as
the third parties with which we conduct business respond to us, the full impact
of the Year 2000 is not known. As a result, the impact on our business, results
of operations and financial condition cannot be assessed with certainty.
RISKS
We believe that we will complete our goal of 100% readiness prior to
December 31, 1999. Consequently, we do not believe that the Year 2000 problem
will have a material adverse effect on our business, cash flows, or results of
operations. However, if we do not achieve readiness prior to December 31, 1999,
if management's plan fails to identify and remedy all critical Year 2000
problems or if major suppliers or customers experience material Year 2000
problems, our results of operations or financial condition could be materially
and adversely affected.
CONTINGENCY PLANS
We have begun to develop appropriate contingency plans to mitigate, to the
extent possible, any significant Year 2000 noncompliance, if any. We expect to
complete our contingency plans by September 30, 1999. If we are required to
implement our contingency plans, the cost of Year 2000 readiness may be greater
than the amount referenced above and there can be no assurance that these plans
will be adequate.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our primary market risk exposure relates to changes in foreign currency exchange
rates and to changes in interest rates. Although the Company's functional
currency is the United States Dollar, a significant portion of our revenue is
derived from sales outside the United States. In the future, the Company expects
to continue to derive a significant portion of its revenue outside the United
States, and changes in foreign currency exchange rates may have a significant
effect on the Company's ability to operate competitively in those countries. The
Company historically has not engaged in hedging transactions. Our financial
instruments consisting of lease obligations and notes payable have fixed
interest rates and are short term and therefore are not sensitive to market
changes in interest rates. Potential increases in interest rates could increase
borrowing costs and could have a material impact on our financial performance.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Access is involved as plaintiff and defendant in a legal action, as
described below, which is incident to its business. Our management does not
believe that this action will have a material impact on our financial condition.
In February 1998, Access filed an action against Edwin Alley, d/b/a
Phone Anywhere ("Alley") in the United States District Court for the Middle
District of Florida claiming that Alley, a former sales agent for Access,
breached his agency agreement with Access, wrongfully diverted customers and
business to Access's competitors, misappropriated Access's trade secrets,
breached fiduciary and other duties owed to Access and engaged in unfair
competition. Access seeks compensatory damages, injunctive relief and a
declaratory judgment. Alley counter-claimed for breach of contract and quantum
meruit, seeking damages and injunctive relief to enjoin the Access from
soliciting or providing services to customers located by him. Discovery is
proceeding on Access's claims. Alley has moved for summary judgment on
jurisdictional grounds and Access is responding to the motion.
Subsequent to the filing of Access's federal action, Alley commenced
an action against Access in the Circuit Court of the Sixth Judicial Circuit,
Pinellas County, Florida. In that action, Alley asserts essentially the same
claims and seeks the same relief as in his federal counterclaim. Access has
answered the complaint, denying the material allegations in the pleading, and
has asserted counterclaims against Alley based largely on the claims it asserted
in the federal proceeding commenced by it. The Pinellas County proceeding has
been stayed pending disposition of the federal action.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Effective Date of the Company's Registration Statement: May 12, 1998
Commission File Number: 333-46197
Net proceeds to Ursus from the offering, after deducting the total expenses of
such offering, were approximately $11.7 million. In connection with the
acquisition of Access, we utilized $8.1 million, representing the purchase price
plus the costs of the transaction. In addition, we have utilized approximately
$0.3 million for the Starcom acquisition and $1.8 million for working capital
purposes. Consequently, approximately $1.5 million of the net proceeds of such
offering remain as of June 30, 1999.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibit 27.1 - Financial Data Schedule
(b) Reports on Form 8-K --There were no reports on Form 8-K filed by the Company
during the three months ended June 30, 1999.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
URSUS TELECOM CORPORATION
By: /S/ JOHANNES SEEFRIED
-------------------------
Johannes S. Seefried
Chief Financial Officer
and authorized officer of registrant
Dated: AUGUST 13, 1999
EXHIBIT INDEX
EXHIBIT
NUMBER
27* Financial Data Schedule
* Filed herewith.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-30-1999
<PERIOD-START> APR-1-1999
<PERIOD-END> JUN-30-1999
<CASH> 2,549,347
<SECURITIES> 0
<RECEIVABLES> 5,122,582
<ALLOWANCES> (436,035)
<INVENTORY> 0
<CURRENT-ASSETS> 8,445,915
<PP&E> 5,825,985
<DEPRECIATION> (2,098,281)
<TOTAL-ASSETS> 22,916,787
<CURRENT-LIABILITIES> 6,559,575
<BONDS> 0
0
10
<COMMON> 66,000
<OTHER-SE> 14,917,606
<TOTAL-LIABILITY-AND-EQUITY> 22,916,787
<SALES> 0
<TOTAL-REVENUES> 9,430,447
<CGS> 0
<TOTAL-COSTS> 6,322,672
<OTHER-EXPENSES> 3,104,835
<LOSS-PROVISION> 85,982
<INTEREST-EXPENSE> 34,828
<INCOME-PRETAX> (480,876)
<INCOME-TAX> (234,464)
<INCOME-CONTINUING> (329,853)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (329,853)
<EPS-BASIC> (0.05)
<EPS-DILUTED> (0.05)
</TABLE>
