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, 2000
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 14, 2000, the number of the registrant's Common Shares of $.01 par
value outstanding was 8,289,915.
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URSUS TELECOM CORPORATION
FORM 10-Q
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION:
Page
----
Item 1: Financial Statements (Unaudited)
<S> <C>
Condensed Consolidated Balance Sheets as of
March 31, 2000 and June 30, 2000 3
Condensed Consolidated Statements of Operations for the
Three Month Periods Ended June 30, 1999 and 2000 4
Condensed Consolidated Statements of Cash Flows for the
Three Month Periods Ended June 30, 1999 and 2000 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 6: Exhibits 14
Signatures
</TABLE>
2
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ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
<TABLE>
<CAPTION>
URSUS TELECOM CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
Assets March 31, 2000 June 30, 2000
-----------------------------------
Current assets:
<S> <C> <C>
Cash and cash equivalents $5,788,839 $4,372,347
Accounts receivable, net 4,397,429 4,073,803
Prepaid expenses 321,205 337,483
Advances and notes receivable--related parties 157,475 217,475
Income tax receivable 796,748 796,748
Other current assets 13,317 117,605
-----------------------------------
Total current assets 11,475,013 9,915,461
Equipment, net 5,300,517 6,530,489
Intangible assets, net 9,579,670 19,067,950
Other assets, net 685,409 833,038
-----------------------------------
Total assets $27,040,609 $36,346,938
===================================
Liabilities and shareholders' equity
Current liabilities:
Accounts payable and accrued expenses $5,318,876 $6,539,867
Commissions payable 1,023,407 1,029,610
Deferred revenue 70,220 2,511,135
Current portion of capital lease obligations 402,464 649,354
Current portion of long-term debt 164,085 303,524
Other current liabilities 225,271 871,466
-----------------------------------
Total current liabilities 7,204,323 11,904,956
Capital lease obligations 725,024 924,741
Long term debt 239,447 218,580
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,
7,506,815 and 8,289,915 issued and outstanding at
March 31, 2000 and June 30, 2000, respectively. 75,068 82,899
Additional paid-in capital 20,980,207 27,207,970
Accumulated deficit (2,183,470) (3,992,218)
-----------------------------------
Total shareholders' equity 18,871,815 23,298,661
-----------------------------------
Total liabilities and shareholders' equity $27,040,609 $36,346,938
===================================
</TABLE>
3
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URSUS TELECOM CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months ended
June 30
1999 2000
--------------------------------------
<S> <C> <C>
Revenues $ 9,430,447 $ 8,647,789
Costs of revenues 6,322,673 5,442,735
--------------------------------------
Gross profit 3,107,774 3,205,054
Operating expenses:
Commissions 764,993 654,505
Selling, general and administrative expenses 2,424,824 3,711,529
Depreciation and amortization 398,833 645,136
--------------------------------------
Total operating expenses 3,588,650 5,011,170
--------------------------------------
Operating loss (480,876) (1,806,116)
Other income (expense):
Interest expense (34,828) (69,181)
Interest income 24,777 58,899
Write down of investment (75,390) -
Other 2,000 7,650
--------------------------------------
Total other expenses, net (83,441) (2,632)
--------------------------------------
Loss before benefit from income taxes (564,317) (1,808,748)
Benefit from income taxes (234,464) -
--------------------------------------
Net loss $ (329,853) $(1,808,748)
======================================
Net loss per common share-basic and dilutive $ (.05) $ (.23)
======================================
Weighted average shares outstanding 6,627,582 7,755,739
======================================
</TABLE>
See accompanying notes.
4
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URSUS TELECOM CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months ended
June 30
1999 2000
-------------------------------------
Operating activities
<S> <C> <C>
Net loss $(329,853) $(1,808,748)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation and amortization 398,833 645,136
Allowance for doubtful accounts 85,982 77,830
Deferred income taxes (234,434) -
Amortization of consulting expense 29,160 132,901
Loss on the sale of investment 75,390 -
Other (2,000) -
Changes in operating assets and liabilities
net of the effects of acquisitions:
Accounts receivable 112,632 373,946
Other current assets 492,060 90,628
Accounts payable and accrued expenses 43,857 (572,358)
Other current liabilities (122,746) 25,178
-------------------------------------
Net cash provided by (used in) operating activities 548,881 (1,035,687)
Investing activities
Purchase of equipment (157,171) (214,363)
Cash provided by acquisitions net of cash purchase price - 182,824
Increase in advances to related parties (114,136) (60,000)
Increase in other assets (59,019) (71,691)
-------------------------------------
Net cash used in investing activities (330,326) (163,230)
Financing activities
Net proceeds from the sale of common stock - 8,250
Repayments on capital leases (75,851) (172,740)
Repayments of long term debt (53,085)
-------------------------------------
Net cash (used in) financing activities (75,851) (217,575)
Net change in cash and cash equivalents 142,704 (1,416,492)
Cash and cash equivalents at beginning of period 2,406,643 5,788,839
-------------------------------------
Cash and cash equivalents at end of period $2,549,347 $4,372,347
=====================================
Supplemental cash flow information
Cash paid for interest $ 34,828 $ 69,181
=====================================
Non-cash investing and financing activities
Equipment acquired for common stock $ - $ 272,250
=====================================
Equipment acquired under capital leases and other financing $ 360,709 $ 546,647
=====================================
Common stock and warrants issued for acquisitions $ - $ 5,822,393
=====================================
</TABLE>
See accompanying notes.
5
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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, 2000,
as set forth in Form 10-K of Ursus Telecom Corporation (the "Company," "Ursus"
or "UTCC"). The results for the three months ended June 30, 2000, are not
necessarily indicative of the results that may be expected for the year ending
March 31, 2001.
The condensed consolidated balance sheet at March 31, 2000 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, the Company believes that such amounts will
not have a material adverse affect on the Company's financial condition or
results of operations.
On August 19, 1999, we entered into a network agreement with Global
Crossing USA Inc. pursuant to which we will purchase a minimum of $30 million of
capacity in Global Crossing's fiber optic cable systems over a period of three
years.
(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,
--------------------------------
1999 2000
--------------------------------
<S> <C> <C>
Net loss-numerator basic computation $ (329,853) $(1,808,748)
Effect of dilutive securities-None - -
--------------------------------
Net loss as adjusted for assumed conversion-numerator diluted
computation $ (329,853) $(1,808,748)
================================
Weighted average shares-denominator basic computation 6,600,000 7,755,739
Effect of dilutive securities-stock options 27,852 -
--------------------------------
Weighted average shares as adjusted-denominator 6,627,852 7,755,739
================================
Net income (loss) per share:
Basic $ (0.05) $ (0.23)
================================
Diluted $ (0.05) $ (0.23)
================================
</TABLE>
6
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(4) SEGMENT DISCLOSURES
The Company operates in one single industry segment, the international
long distance telecommunications industry. For the quarters ended June 30, 1999
and 2000, a significant portion of the Company's revenues were derived from
traffic transmitted through its primary switch facility located in Sunrise,
Florida.
(5) RECLASSIFICATIONS
Certain previous year amounts have been reclassified to conform to the current
year presentation.
(6) ACQUISITIONS
Latin American Enterprises
On June 13, 2000, pursuant to a Stock Purchase Agreement and Merger
Agreement (collectively, the "Agreements") dated as of June 1, 2000, the
Company, through a subsidiary, acquired Latin American Enterprises and purchased
all the issued and outstanding common stock of various affiliated companies
(collectively "LAE"). Pursuant to the Agreements, the shareholders of LAE
received aggregate consideration of 450,000 shares of the Company's common
stock, $65,000 in cash and warrants to purchase an additional 200,000 shares of
the Company's common stock at an exercise price of $15.50 per share. Based upon
the closing price of the Company's common stock on June 1, 2000 and the fair
market value of the other consideration given, the aggregate consideration was
valued at approximately $4.0 million. The acquisition has an effective date of
June 1, 2000.
LAE is a provider of international long distance telecommunication
services, primarily through the sale of prepaid calling cards in airports and
other highly visible locations in the United States, Latin America and Spain.
The prepaid calling cards are distributed through manned kiosks and vending
machines. LAE supports their marketing efforts through branch offices located in
13 countries and operates a switching facility in Miami, Florida.
The Company accounted for the LAE acquisition using the purchase method
of accounting. Accordingly, the results of operations of LAE are included in the
consolidated results of the Company as of June 1, 2000, the date of acquisition.
Under the purchase method of accounting, the Company has preliminarily allocated
the purchase price to assets and liabilities acquired based upon their estimated
fair values as follows:
<TABLE>
<CAPTION>
<S> <C>
Current assets $ 663,079
Property and equipment, net 653,327
Intangible assets 7,782,963
Current liabilities (4,995,869)
-------------------
Total purchase price, including closing costs $ 4,103,500
===================
</TABLE>
The allocation of the purchase price is preliminary pending the fair
valuation of the acquired assets and liabilities and the appropriate useful life
of acquired intangible assets, as the Company gathers additional information.
The intangibles assets will be amortized over the useful life, not to exceed 20
years, on a straight-line basis.
Customer base acquisition
On June 1, 2000, the company acquired the retail customer base and
certain assets of a United States based carrier. The purchase price, pursuant to
the agreements, is equal to three times the gross revenue billed to the customer
base during the month of June 2000, or $1,894,000. The Company has determined
that the purchase price will be paid in the form of stock, which based on the
terms of the agreement is equal to 298,105 shares. The Company is amortizing the
customer base over the estimated run-off period of the customers, not to exceed
five years.
The Company also acquired a switch and other equipment from the seller
for approximately $95,000 in cash and 33,000 shares of the Company's common
stock valued at $271,920 based on the closing price of the Company's common
stock on June 1, 2000. These assets are being depreciated over their remaining
estimated useful lives in accordance with the Company's depreciation policy.
7
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In connection with the transaction, the Company will pay contingent
consideration of three times the excess of the average billed amounts to the
acquired customer base during the months of September, October, and November
2000, over the June billed amount, if any. The Company has the option to pay the
excess consideration, if any, in cash or common stock and is required to pay
such amounts by December 31, 2000. Such contingent consideration, if any, will
be additional purchase price when the amount is measurable and will be amortized
over the remaining useful life of the customer base.
In accordance with the agreement, the Company is required to register
50% of the initial and contingent consideration within 120 days of issuance. If
the Company is not successful in registering such shares, the Company shall
either buy back such shares at the price on the day of issuance plus interest at
5% per annum or pay interest at 1.5% per month until such registration occurs.
(7) SUBSEQUENT EVENTS
On August 3, 2000, the Company terminated its relationship with
Ameri-First Securities Capital. Under this agreement, Ameri-First was to provide
the Company with certain advisory and consulting services. The Company was
obligated to issue 100,000 warrants to purchase 100,000 shares of the Company's
common stock at exercise prices ranging from $11.40 to $16.00 per share. As
compensation for entering into the termination agreement, the Company granted
10,000 five year warrants to purchase 10,000 shares of Ursus common stock at an
exercise price of $11.40. The previous grant of 100,000 warrants to purchase
100,000 shares of Ursus common stock was cancelled.
On August 4, 2000, the Company executed a one-year agreement with
Continental Capital & Equity Corporation to provide investor relation expertise.
The agreement expires on July 31, 2001 unless termination sooner at the
Company's option after three months. The agreement provides for a monthly fee of
$10,000 plus the issuance of 100,000 warrants to purchase 100,000 shares of the
company's common stock at exercise prices ranging from $7.00 to $12.00 per
share. The warrants will be exercisable for a period of one year subsequent to
the Company's registration of such shares underlying the warrants. The Company
has agreed to register such shares if the market value of the common stock is in
excess of the exercise prices noted above within 60 days of a written request by
Continental. As additional compensation for entering into the agreement,
Continental agreed to cancel a previous grant of 105,000 warrants to purchase
105,000 shares of common stock.
8
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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 facilities-based provider of international telecommunications
services and offer a broad range of discounted international and enhanced
telecommunication services, including U.S. originated long distance service and
direct-dial international service, Internet telephony and voice over the
Internet protocol ("VOIP") typically to small and medium-sized businesses and
travelers. Our primary service is call reorigination; however, we have
increasingly been migrating calls to direct access, VOIP and other methods of
transmission. We also sell services to other carriers and resellers on a
wholesale basis in the US as well as abroad. Our retail customer base, which
includes corporations and individuals, is primarily located in Southern Africa,
Latin America, the Middle East (Lebanon and Egypt), Germany, New Zealand and
other parts of the world. We operate a switched-based digital telecommunications
network out of our primary switching hub located in Sunrise, Florida. We
installed our first switch in Sunrise, Florida, which became fully operational
in October 1993. As of March 31, 2000, we operate six NACT-STX switches with a
capacity of 8,064 ports out of our central hub in Southern Florida. On September
17, 1998, as described below, we acquired Access Authority. This acquisition
effectively tripled the number of minutes going through our switching center.
We have also developed 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
is running on an IBM RS/6000 server system, which incorporates a series of high
quality and client-friendly service options such as voice over the Internet, PC
to phone, phone 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. Currently the site is operating
without strong marketing support, and therefore we have not generated
significant revenues as of the filing of this form 10-Q. See discussion in
"Liquidity and Capital Resources" herein regarding the effects of theStream.com
From November 1993 until the current time, we have grown by marketing
our services through a worldwide
9
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network of independent agents and resellers which now serves in the aggregate
approximately 130,000 active registered subscribers as of March 31, 2000. Billed
minutes of traffic have increased from 26.8 million minutes in the three months
ended June 30, 1999 to 35.4 million minutes in the three months ended June 30,
2000.
On September 17, 1998, we purchased all the issued and outstanding
common stock of Access Authority Inc. ("Access") for $8 million in cash. Access
provides international long distance telecommunication services, including call
reorigination, domestic toll-free access and various value-added features to
small and medium sized businesses and individuals in over 38 countries
throughout the world. Access markets its services through an independent and
geographically dispersed sales force consisting of agents and resellers. Access
operated a switching facility in Clearwater, Florida, which has now been fully
integrated into our Sunrise, Florida facility.
We have recently expanded our reach into Latin America and Spain
through the acquisition of Latin America Enterprises ("LAE") on June 1, 2000.
LAE is provider of international long distance telecommunication services,
primarily through the sale of prepaid calling cards in airports, railroad
stations and other highly visible locations in the United States, Latin America
and Spain. The prepaid calling cards are distributed through manned kiosks and
vending machines. LAE supports the marketing efforts through branch offices and
affiliated companies located in 13 countries. LAE operates a switching facility
in Miami, Florida. We anticipate that we will consolidate the facility into our
Sunrise, Florida facility.
We have expanded our high margin retail customer subscriber base by
purchasing a customer base from a US based carrier on June 1, 2000. This
purchase also gave the Company a point of presence in Los Angeles, California,
Nigeria and Gibraltar.
Our management believes that the funds raised by our private equity
placement, which was completed on February 10, 2000 and raised net proceeds of
approximately $6.6 million will allow us to fund operations and integrate our
recent acquisitions. If we are successful in obtaining additional funding our
objectives may include:
o The acquisition of competitors, which we believe will add
additional annual revenues to our business along with synergistic
opportunities. Deregulation and increased competition in the
telecommunications industry have created a strong motivation to
rapidly gain market share in selective markets through
acquisitions.
o The acquisition of equity interests in our exclusive agents in
selected markets to further solidify the contractual relationships
with these agents and to expand our business in markets offering
favorable opportunities and returns.
o The deployment of new technologies such as IP telephony technology
to bypass today's switched telephone network by using
cost-effective packet switched networks and/or the public Internet
for the delivery of fax and voice communications. We intend to
deploy a number of servers and POP's in selected countries to
exploit the opportunities provided by IP telephony technology.
This strategy will allow for more aggressive market penetration in
selected markets, particularly in regulated markets, and a
possible reduction in transmission costs.
o The purchase of additional telecommunications equipment, including
switches, gateways and servers using financing arrangements in
order to expand our direct access, IP Network and carrier to
carrier business.
o The continued marketing and developing of our electronic commerce
("E-Commerce") internet site called "theStream.com". This site
incorporates our traditional services with new service options
such as voice over the Internet, PC to phone and other
sophisticated web-centric applications.
o The continued marketing and development of our LAE's subsidiary
activities including airport points of presence and the deployment
of additional prepaid phone card vending machines throughout the
world.
10
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Other Operating Data
The following information for the three months ended June 30, 1999 and
2000 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, 2000.
The following table sets forth certain operating data as a percentage of
revenues for the periods indicated:
<TABLE>
<CAPTION>
Three Months ended
June 30,
1999 2000
---- ----
<S> <C> <C>
Revenues........................................................................... 100.0% 100.0%
Cost of revenues................................................................... 67.0 62.9
Gross profit....................................................................... 33.0 37.1
Operating expenses:
Commission...................................................................... 8.1 7.6
Selling, general and administrative............................................. 25.7 42.9
Depreciation and amortization................................................... 4.2 7.5
Total operating expenses........................................................... 38.0 58.0
Operating loss..................................................................... (5.0) (20.9)
Other (expense) income............................................................. (0.9) (0.0)
Loss before income taxes........................................................... (5.9) (20.9)
Net loss........................................................................... (3.5) (20.9)
</TABLE>
Results of Operations
Revenues. Revenues decreased $0.8 million (8.3%) from $9.4 million for the three
months ended June 30, 1999 to $8.6 million for the three months ended June 30,
2000. The revenue decrease is primarily attributable to an industry wide
decrease in revenues per minute as exemplified by the decline in revenue per
minute of approximately 31.4% incurred by us for the three months ended June 30,
2000 as compared to the three months ended June 30, 1999. Minutes of billable
traffic for the three months ended June 30, 2000 increased by 32.0% to 35.4
million minutes compared to 26.8 million minutes for the same period last year.
The increase in billable minutes came primarily from our reseller retail
traffic, which increased by approximately 59.3% from approximately 12.0 million
minutes to approximately 19.1 million minutes. The direct retail traffic
generated primarily through our network of exclusive agents grew by
approximately 9.8 % from approximately 14.8 million minutes to 16.2 million
minutes. The decrease in revenue per minute is consistent with our entry into
the more mature European markets, the ongoing deregulation process and open
market policy in our core markets of Latin America and with our increased
wholesale sales, which traditionally generate lower revenue per minute. In
addition, we made a conscious decision to exit or gradually leave high risk, but
historically high margin markets like Russia, Lebanon and Ecuador, which
impacted our revenue sources.
Cost of Revenues. Cost of revenues decreased $0.9 million (13.9%), from $6.3
million for the three months ended June 30, 1999 to $5.4 million for the three
months ended June 30, 2000. Cost of revenues as a percentage of sales decreased
from 67.0% to 62.9%. As a percentage of sales the decrease is attributable to
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 approximately $97,000 (3.1%) from $3.1
million for the three months ended June 30, 1999 to $3.2 million for the three
months ended June 30, 2000. As a percentage of revenue, gross profit increased
from 33.0% during the three months ended June 30, 1999 to 37.1% for the three
months ended June 30, 2000. The increase was caused by improved margins
attributable to costs for carrier usage declining faster than declining revenues
per minute. In addition, as of June 1, 2000, our acquisition of LAE has
contributed to our improved margins. This improvement was offset by the 8.3%
decrease in revenues.
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Operating Expenses. Operating expenses increased $1.4 million (39.6%) from $3.6
million for the three months ended June 30, 1999 to $5.0 million for the three
months ended June 30, 2000. As a percentage of revenues, selling, general and
administrative expenses including commissions increased from 33.8% to 50.5%. The
increase was due primarily to the expansion in personnel and overhead expenses
associated with the continued expansion of our switching and operational
facilities, the development of theStream.com and the costs in migrating traffic
to Internet protocol (IP) telephony, in addition to costs associated with our
effort to accelerate our worldwide marketing efforts and expand our VOIP and
direct access carrier to carrier service capabilities. Commissions decreased
14.4% during the period from $0.8 million to $0.7 million reflecting decreased
direct retail revenue and an increase in wholesale revenues, which traditionally
demand less commission payouts.
Depreciation and amortization. Depreciation and Amortization expense increased
approximately $0.2 million (61.8%) from approximately $0.4 million for the three
months ended June 30, 1999 to approximately $0.6 for the three months ended June
30, 2000 primarily as a result of the expansion of our infrastructure in
connection with our internet and VOIP projects and the ongoing deployment of our
IP network. The increase is attributable to new switches, servers and gateways,
upgrades to existing switches, the purchase of additional computer equipment and
software, leasehold improvements, internal use of software and the amortization
of acquisitions.
Operating loss. Operating loss increased from $0.5 million for the three months
ended June 30, 1999 to a loss of approximately $1.8 million for the three months
ended June 30, 2000, primarily as a result of a 39.6% increase in operating
expenses as described above.
Net loss. As a result of all of the foregoing factors, and in light of our
strategic decision to increase our market share through price reductions coupled
with the ongoing existing competitive market pressure on revenues per minute and
as a result of the increased expenses in personnel, back-office, switch
operations in combination with our effort in accelerating our presence in the
Internet protocol (IP) and Voice over the Internet (VOIP) markets as well as the
continued development of theStream.com our net loss increased approximately $1.5
million from $0.3 million in the three months ended June 30, 1999 to $1.8
million for three months ended June 30, 2000.
Liquidity and Capital Resources
Our capital requirements consist of capital expenditures in connection
with the acquisition and maintenance of switching capacity and circuits, the
continued development of theStream.com and working capital requirements.
Historically, our capital requirements have been met primarily through funds
provided by operations, term loans funded or guaranteed by our majority
shareholder, capital leases and vendor financing agreements and the sale of
common stock.
Net cash provided by operating activities was approximately $0.5
million for the three months ended June 30, 1999 as compared to net cash used in
operating activities of $1.0 million for the three months ended June 30, 2000.
Cash flow from operations was impacted by a $1.5 million increase in our net
loss offset.
Net cash used in investing activities was approximately $163,000 for
the three months ended June 30, 2000 compared with approximately $330,000 for
the three months ended June 30, 1999 reflecting an increase caused by equipment
purchases offset by the cash we received as a result of our acquisition of Latin
American Enterprises.
Net cash used in financing activities was approximately $218,000 for
the three months ended June 30, 2000 as compared to $76,000 for the three months
ended June 30, 1999. The increase was caused by increased capital lease and long
term debt payments as result of additional financing incurred by the Company.
On February 10, 2000 we agreed to sell $7 million in stock to a group
of private institutional investors. The net proceeds to the Company from the
sale after deducting expenses were approximately $6.6 million.
We expect that the remaining proceeds from the sale of common stock and
any internally generated funds will provide sufficient capital for us to fund
operations through the rest of the fiscal year. Based on our current business
model, we will be actively seeking new sources of equity or other financing to
support our increased capital requirements due to the continued development of
theStream.com and the ongoing development and migration to Internet protocol
(IP) / VOIP
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telephony. There are no guarantees that sufficient funding will occur in time to
fulfill our business model. If there is any delay in obtaining this additional
financing we will implement our contingency plans, which could affect our future
growth. The amount of our 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 our 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 from the sale of common stock, together with
internally generated funds or other financing, prove to be insufficient to fund
our growth and operations, then some or all of our development and expansion
plans could be delayed or abandoned.
In order to fund potential acquisition and network expansion
opportunities, we have and will continue to seek financing arrangements with
vendors or other financial institutions. Other future sources of capital for us
could include public and private debt, including high yield debt offerings,
public and private equity financing, stand by lines of credit and leasing
facilities. There can be no assurance that any such sources of financing will be
available to us in the future or, if available, that they could be obtained on
terms acceptable to the Company. While such financing may provide us additional
capital resources that may be used to implement its business plan, the
incurrence of indebtedness could impose risks, covenants and restrictions on us
that may affect the Company in a number of ways, including the following: (i) a
significant portion of our 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 us 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) our
degree of indebtedness and leverage may render us more vulnerable to a downturn
in our business or in the telecommunications or Internet industry or the economy
generally. In addition, equity financing will increase dilution and thus affect
earnings per share to our common shareholders.
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.
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 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
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and a declaratory judgment. Alley counter-claimed for breach of contract and
quantum merit, 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 6. Exhibits and Reports on Form 8-K.
(a) Exhibit 27.1 - Financial Data Schedule
(b) Reports on Form 8-K -
(i) Current Report on Form 8-K filed on June 21, 2000 with regards
to the consummation of the acquisition of Latin American
Enterprises.
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SIGNATURES
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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 14, 2000
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EXHIBIT INDEX
Exhibit
Number
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27* Financial Data Schedule
* Filed herewith.
