FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
- --------------------------------------------------------------------------------
(Mark One)
[x] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY
PERIOD ENDED MARCH 31, 1998
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION
PERIOD FROM __________________ TO __________
Commission file number 0-25194
- --------------------------------------------------------------------------------
INTERAMERICAS COMMUNICATIONS CORPORATION
--------------------------------------------------
(Exact name of registrant as specified in charter)
TEXAS 87-0464860
------------------------ -----------------------------
(State of Incorporation) (IRS Employee Identification)
2600 DOUGLAS ROAD, SUITE 501
CORAL GABLES, FLORIDA 33134
--------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number:
(305) 448-4422
Indicate by check mark whether the registrant (1) filed all reports
required by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the past 12 months (or for such shorter period
than that the registrant was required to file such reports),
Yes [x] No [ ]
and (2) has been subject to such filing requirements for the past 90 days.
Yes [x] No [ ]
State the number of shares outstanding of each of the issuer's
classes of common equity, as of May 11, 1998 - 19,084,300
NOTE: Page 1 of 16_sequentially numbered pages.
1
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INTERAMERICAS COMMUNICATIONS CORPORATION
INDEX
PART I FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
(unaudited)
Condensed Consolidated Balance Sheets - as of
March 31, 1998 (unaudited)and December 31, 1997 3
Condensed Consolidated Statements of Operations -
Three Months Ended March 31, 1998 and 1997 4
(unaudited)
Condensed Consolidated Statement of Stockholders'
Equity - Three Months Ended March 31, 1998 5
(unaudited)
Condensed Consolidated Statements of Cash Flows -
Three Months Ended March 31, 1998 and 1997 6
(unaudited)
Notes to Condensed Consolidated Financial Statements
(unaudited) 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results Of Operations 9
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
Exhibit Index 15
2
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PART I FINANCIAL INFORMATION
INTERAMERICAS COMMUNICATIONS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(THOUSANDS OF US DOLLARS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
03/31/98
(UNAUDITED) 12/31/97
ASSETS ---------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents ................................... $ 11,428 $ 12,336
Restricted cash ............................................. 54,531 61,028
Restricted investments ...................................... 20,653 20,404
Accounts receivable,net ..................................... 2,531 2,367
Prepaid expenses and other current assets ................... 779 1,208
--------- ---------
Total current assets ................................ 89,922 97,343
Restricted investments ........................................ 38,022 37,488
Telecommunications networks, net .............................. 15,030 9,348
Intangible assets, net ........................................ 10,703 10,881
Deferred financing costs ...................................... 14,766 14,971
--------- ---------
Total assets ........................................ $ 168,443 $ 170,031
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................................ $ 3,194 $ 4,023
Accrued interest ............................................ 9,047 3,797
Other accrued expenses ...................................... 916 1,709
Due to related parties ...................................... -- 263
Lease obligations, current .................................. 233 313
Other current liabilities ................................... 544 322
--------- ---------
Total current liabilities ........................... 13,934 10,427
Senior notes, net ............................................. 131,791 131,626
Lease obligations, less current portion ....................... 315 356
--------- ---------
Total liabilities ................................... 146,040 142,409
--------- ---------
Commitments and contingencies ................................. -- --
--------- ---------
Stockholders' equity
Preferred stock, $.001 par value, authorized 10,000,000
shares, none issued
Common stock, $.001 par value, authorized 50,000,000
shares, issued and outstanding as of December 31,
1997 and March 31, 1998 19,084,300 shares ............... 19 19
Additional paid in capital .................................. 26,887 26,887
Warrants .................................................... 26,737 26,737
Accumulated deficit ......................................... (31,002) (25,783)
Cumulative translation adjustments ........................... (238) (238)
--------- ---------
Total stockholders' equity .......................... 22,403 27,622
--------- ---------
Total liabilities and stockholders' equity .......... $ 168,443 $ 170,031
========= =========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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INTERAMERICAS COMMUNICATIONS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(THOUSANDS OF US DOLLARS, EXCEPT SHARE DATA)
THREE MONTHS ENDED MARCH 31,
1998 1997
(UNAUDITED) (UNAUDITED)
----------- -----------
Revenues.................................. $ 3,327 $ 324
----------- ----------
Operating expenses:
Cost of revenues........................ 2,609 316
Selling, general and administrative... 1,831 815
Depreciation and amortization......... 464 220
----------- ----------
Loss from operations...................... (1,577) (1,027)
----------- ----------
Interest expense.......................... (5,403) (215)
Interest income and other................. 1,761 18
----------- ----------
Net loss.................................. $ (5,219) $ (1,224)
=========== ==========
Net basic and diluted loss per share..... $ (.27) $ (.08)
=========== ==========
Weighted average common shares
outstanding.......... 19,084,300 16,152,518
========== ==========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
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INTERAMERICAS COMMUNICATIONS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(THOUSANDS OF US DOLLARS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL ACCRUED CUMULATIVE
----------------------- PAID-IN DISTRIBUTIONS ACCUMULATED TRANSLATION
SHARES AMOUNTS CAPITAL AND WARRANT DEFICIT ADJUSTMENT TOTAL
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1997 19,084,300 19 26,887 26,737 (25,783) (238) 27,622
Net loss (unaudited) ........ -- -- -- -- (5,219) -- (5,219)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Balances at March 31, 1998
(unaudited) ................. 19,084,300 $ 19 $ 26,887 $ 26,737 $ (31,002) $ (238) $ 22,403
========== ========== ========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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INTERAMERICAS COMMUNICATIONS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(THOUSANDS OF US DOLLARS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1998 1997
(UNAUDITED) (UNAUDITED)
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ......................................... $(5,119) $(1,224)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization expense .......... 464 220
Amortization of deferred financing costs and
original issue discounts ..................... 297 --
Capitalized interest related to network ........ (206) (132)
construction
Beneficial conversion feature .................. -- 310
Changes in assets and liabilities:
Accounts receivable .......................... (164) 84
Prepaid expenses and other current assets .... 534 (306)
Other assets ................................. (31) (111)
Accounts payable and accrued expenses ........ 3,628 (84)
Due to related parties ....................... (263) --
Other current liabilities .................... 122 241
-------- --------
Cash used in operating activities ......... (738) (1,002)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of telecommunications network ........... (5,762) (392)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from credit agreements .................. -- 2,054
Restricted cash and investments, net ............. 5,713 (350)
Payments under leasing obligations ............... (121) --
-------- --------
Cash provided by financing activities, net 5,592 1,704
-------- --------
Net increase (decrease) in cash and cash
equivalents ...................................... (908) 310
Effect of exchange rate changes on cash ............ -- (17)
Cash and cash equivalents, beginning of period ..... 12,336 723
-------- --------
Cash and cash equivalents end of period ............ $ 11,428 $ 1,016
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
6
<PAGE>
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The unaudited condensed consolidated financial statements included herein
have been prepared by the Company. The foregoing statements contain all
adjustments, consisting only of normal recurring adjustments which are, in the
opinion of the Company's management, necessary to present fairly the
consolidated financial position of the Company as of March 31, 1998 and the
consolidated results of its operations and its consolidated cash flows for the
three month periods ended March 31, 1998 and 1997.
Certain information and footnote disclosure normally included in financial
statements, prepared in accordance with generally accepted accounting
principles, have been condensed or omitted pursuant to the instructions, rules
and regulations prescribed by the Securities and Exchange Commission ("the
Commission"). Although the Company believes the disclosures provided are
adequate to make the information presented not misleading, it strongly
recommends that these condensed consolidated financial statements be read in
conjunction with the audited consolidated financial statements and the footnotes
thereto included in the Company's Annual Report on Form 10-KSB for the year
ended December 31, 1997.
NOTE 1 - TELECOMMUNICATIONS NETWORKS
Telecommunications networks are recorded at cost and are depreciated on a
straight-line method over the estimated useful lives of the related assets.
Construction, engineering, interest and labor costs directly related to the
development of the Company's networks are capitalized. The Company begins
depreciating these costs when the networks become commercially operational.
Telecommunications networks consists of:
<TABLE>
<CAPTION>
ESTIMATED
MARCH 31, DECEMBER 31, USEFUL
1998 1997 LIFE
---- ---- ----
<S> <C> <C> <C>
Telecommunications equipment ........................ $ 7,078 $ 6,547 10 to 20
Telecommunications equipment pending installation and
construction in progress ............................ 7,632 2,627 --
Office equipment and furniture ...................... 2,070 1,663 3 to 7
-------- ---------
16,780 10,837
Less: accumulated depreciation ...................... (1,750) (1,489)
-------- ---------
$ 15,030 $ 9,348
======== =========
</TABLE>
NOTE 2 - FOREIGN CURRENCY TRANSLATION
Primarily as a result of the Company's U.S. dollar denominated senior note
financing during October 1997, effective January 1, 1998 the Company's
subsidiaries have used the U.S. dollar as their functional currency. This change
did not have a significant impact on the Company's results of operations for the
three months ended March 31, 1998.
NOTE 3 - RECLASSIFICATIONS
Certain amounts in the 1997 condensed consolidated financial statements
were reclassified to conform with the 1998 presentation.
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NOTE 4 - SHAREHOLDER RIGHTS PLAN
On February 1, 1998, the Board of Directors adopted a shareholder rights plan
(the "Rights Plan") designed to assure that all of the Company's shareholders
receive fair and equal treatment in the event of any proposed takeover of the
Company. The Rights Plan helps to guard against partial tender offers,
squeeze-outs, open market accumulations and other abusive tactics to gain
control of the Company without paying an adequate and fair price in any takeover
attempt.
The Rights Plan provides for the issuance of one right for each outstanding
share of the Company's Common Stock. The current outstanding Common Stock
certificates will represent the Rights until they are exercisable and therefore
no separate certificates representing the Rights will be issued. The Rights will
separate from the Common Stock and become exercisable when a person or group
acquires, or announces that it intends to acquire, 20% or more of the
outstanding shares of the Company's Common Stock. This percentage can be reduced
to 10% if the Board deems that such ownership interest may cause a material
adverse impact on the business or prospects of the Company or its shareholders.
The Rights will expire on April 3, 2008.
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD-LOOKING STATEMENTS
Certain statements set forth herein including information with respect to
the Company's plans and strategy for its business, acquisitions and related
financings, are forward-looking statements. Such forward-looking statements are
subject to material risks, uncertainties and contingencies, many of which are
beyond control of the Company. As a result, the actual results, performance or
achievements of the Company, may be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. Given these uncertainties, investors and creditors
are cautioned not to place undue reliance on such forward-looking statements.
OVERVIEW
The Company is a next generation provider of intelligent telecommunications
services. The Company's mission statement is to be the leading services provider
of high bandwidth integrated telecommunications services to businesses and other
high volume users operating in key Latin American markets, creating great
opportunities for its customers, employees, investors and other partners.
The Company's strategy is to (i) build facilities based fiber optic and
digital switching intelligent networks; (ii) develop strategic relationships
with technology network vendors and developers of Internet-based software; and
(iii) provide end-to-end network solutions to business customers.
Today, the Company is constructing state-of-the-art fiber optic ATM networks
in Santiago, Chile and Lima, Peru. ATM is an information transfer standard that
is one of a general class of packet technologies. ATM can be used by many
different information systems, including local area networks to deliver traffic
at varying rates, permitting a mix of voice, data, video and multimedia. As of
March 31, 1998, the Company had installed approximately (i) 120 kilometers of
fiber optic cable through most of Santiago's downtown business district and the
outlying industrial and airport corridor and (ii) 230 kilometers of fiber optic
cable through the major commercial and industrial districts of Lima, and the
port city of Callao. During the second and third quarter of this year the
Company intends to substantially complete the installation of the ATM backbone
equipment in both Peru and Chile.
In Chile the Company operates three wholly owned subsidiaries, FirstCom
Networks (formally operated by the Company under the names of Hewster Servicios
Intermedios, S.A. and Hewster S.A.), FirstCom Long Distance (formally Iusatel
Chile S.A. which was acquired by the Company on December 17, 1997) and Visat
S.A. ("Visat").
FirstCom Networks currently provides businesses in Santiago with high
quality voice and data communications services on a private line basis,
including local area network interconnections, remote terminal access, PBX to
PBX connections, remote printing capabilities and high speed access to the
Internet through arrangements with a Chilean based ISP. In addition, FirstCom
Networks provides its customers with local and wide area network design,
engineering, installation, systems' integration and support services. FirstCom
Long Distance provides domestic and international long distance services.
FirstCom Long Distance's long distance traffic is switched and transported, in
part, through its own gateway switch and satellite earth station, as well as
through interconnections with other Chilean long distance carriers. Visat holds
a government concession to provide intermediate telecommunications services,
including the installation and operation of a network of 12 satellite earth
stations and a switch throughout Chile, which allows the Company to transmit
satellite communications.
In Peru, the Company operates as a wholly owned subsidiary, Red de Servicios
Empresariales de Telecomunicaciones, S.A. ("Resetel"). Upon completion of its
fiber optic network, Resetel intends to aggressively provide multinational,
national and local businesses a broad array of high quality data, video and
voice communication services, including LAN interconnection, frame relay, remote
terminal access and dedicated channels for access to the Internet, on a private
line basis. Resetel intends to expand its existing service offerings to provide
local public switched telephony service upon liberalization of Peru's
telecommunications markets and expiration of Telefonica del Peru's exclusive
concession to provide public switched local and long distance telephony
services, which is scheduled to occur in July 1999.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997
DURING DECEMBER 1997 THE COMPANY ACQUIRED FIRSTCOM LONG DISTANCE S.A. (FORMERLY
IUSATEL CHILE S.A.). THE COMPANY'S COMPARATIVE OPERATING RESULTS DURING THE
FIRST QUARTER OF 1998 WAS SIGNIFICANTLY IMPACTED BY THIS ACQUISITION AS
DISCUSSED IN MORE DETAIL BELOW. DURING THE NEXT SIX MONTHS THE COMPANY INTENDS
TO CONTINUE TO BUILD-OUT ITS FIBER OPTIC NETWORKS IN PERU AND CHILE AND PLANS TO
WIRE MANY OF THE BUILDINGS THAT INCLUDE THE COMPANY'S TARGETED
9
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CUSTOMERS. DURING THE FOURTH QUARTER OF 1998, THE COMPANY BELIEVES IT WILL BEGIN
TO SHOW MARKED INCREASES IN REVENUES GENERATED FROM NETWORK SERVICES.
REVENUES. The Company's revenues are derived primarily from its operations in
Chile. During the first quarter of 1998 FirstCom Long Distance contributed
approximately 89% of total revenues. The Company expects revenues to increase
over the next few years due to the completion of the Company's ATM fiber optic
networks and the related expansion of its operations in Peru and Chile.
The Company's revenues were $3,327,000 for the three months ended March 31,
1998 as compared to $324,000 for the three months ended March 31, 1997 and
$277,000 for the three months ended December 31, 1997. This increase during the
first quarter of 1998 was due to the acquisition of FirstCom Long Distance.
FirstCom Long Distance generated revenues during the first quarter of
approximately $3.0 million through the sale of approximately 9.2 million minutes
resulting in an average revenue per minute of approximately $.32. Network
revenue during the first quarter of 1998 of $327,000 consisted primarily of
equipment sales and system integration services.
COST OF REVENUES. The Company's cost of revenues is derived primarily from
its operations in Chile. Costs of revenues include both the cost of services
provided and the cost of equipment sold. During the first quarter of 1998 cost
of revenues relate principally to FirstCom Long Distance and include access
charges paid to local exchange carriers and transmission payments to other
carriers. Costs of revenues also include payments for rights of way related to
the Company's fiber optic networks. The Company anticipates that the cost of
revenues will increase with the expansion of its operations.
The Company's cost of revenues was $2,609,000 for the three months ended
March 31, 1998 as compared to $316,000 for the three months ended March 31, 1997
and $261,000 for the three months ended December 31, 1997. This increase was
attributable to the acquisition of FirstCom Long Distance.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses consist principally of salaries, wages and related
liabilities, professional fees related to legal, recruiting and accounting,
advertising and marketing costs, and travel. The Company expects selling,
general and administrative expenses to increase over time as it continues to
expand its operations.
The Company's selling, general and administrative expenses were $1,831,000 for
the three months ended March 31, 1998 as compared to $815,000 for the three
months ended March 31, 1997 and $2,254,000 for the three months ended December
31, 1997. This increase was primarily attributable to the acquisition of
FirstCom Long Distance. At March 31, 1998 the Company had approximately 150
employees compared to 130 employees at December 31, 1997. The Company expects to
increase the number of its employees during the second and third quarters of
this year.
DEPRECIATION AND AMORTIZATION. The Company depreciates its telecommunications
networks and intangible assets on a straight line basis over their estimated
useful lives. The Company believes that depreciation and amortization expense
will continue to increase with the expansion of its operations.
The Company's depreciation and amortization expenses were $464,000 for the
three months ended March 31, 1998 as compared to $220,000 for the three months
ended March 31, 1997 and $309,000 for the three months ended December 31, 1997.
This increase was primarily attributable to an increase in depreciation and
amortization expense related to certain assets purchased in the acquisition of
FirstCom Long Distance.
INTEREST EXPENSE. The Company currently incurs interest expense on the
outstanding Senior Notes and capital leases. Interest expense has been reduced
for amounts capitalized related to the Company's construction of its fiber optic
networks. Interest costs reported with respect to the Company's Senior Notes
include amortization of (i) deferred financing costs and (ii) original issue
discounts related to detachable warrants.
The Company's interest expense was $5,403,000 for the three months ended
March 31, 1998 as compared to $215,000 for the three months ended March 31, 1997
and $4,391,000 for the three months ended December 31, 1997. This increase was
due to a full quarter of financing costs related to the Senior Notes that were
issued on October 21, 1997. Of the total interest costs incurred by the Company
for the three months ended March 31, 1998 and 1997,
10
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$206,000 and $132,000, respectively, of such costs were capitalized in
connection with the Company's construction of its fiber optic network in Lima,
Peru.
INTEREST INCOME AND OTHER. The Company currently earns interest income on
cash and cash equivalents, restricted cash, and restricted investments.
The Company's interest income and other was $1,761,000 for the three months
ended March 31, 1998 as compared to $18,000 for the three months ended March 31,
1997 and $1,267,000 for the three months ended December 31 1997. This increase
was primarily attributable to an entire quarter of interest income earned on the
Company's restricted cash and investments.
INCOME TAXES. The Company is subject to federal, state and foreign income
taxes but has incurred no liability for such taxes due to net operating losses
incurred. Under certain circumstances, these net operating losses could be used
to offset future taxable income. The Company's net deferred tax assets, which
result primarily from the future benefit of these net operating losses, are
fully offset by a valuation allowance for the same amount because of the
uncertainty surrounding the future realization of these net operating loss
carryforwards. However, as the Company expands its fiber optic networks in Chile
and Peru, the Company expects to generate taxable income. Certain tax benefits
could expire prior to the time the Company generates taxable income.
LIQUIDITY AND CAPITAL RESOURCES
On October 27, 1997, the Company consummated a Senior Note Offering of
150,000 Units consisting of an aggregate of $150.0 million aggregate principal
amount of 14% Senior Notes due October 27, 2007 (the "Senior Notes") and
5,250,000 Unit Warrants to purchase 5,250,000 shares of Common Stock of the
Company at an exercise price of $4.40 per share. In addition, UBS Securities
LLC, the initial purchaser of the Units in the Senior Note Offering, was granted
2,250,000 warrants to acquire 2,250,000 shares of Common Stock of the Company at
an exercise price of $4.40 per share.
Approximately $57 million of the proceeds were invested in an escrow fund
(referred to herein on the Company's balance sheet as "Restricted Investments")
for payment of interest on the Senior Notes through October 27, 2000. Under
certain circumstances, Restricted Investments may be used for repayment of
principal of the Senior Notes. Restricted investments will be reduced by $10.5
million on April 27 and October 27 during 1998, 1999 and 2000 to pay interest on
the Senior Notes. Approximately $62 million of the proceeds were deposited in an
account controlled by a trustee (referred to on the Company's balance sheet as
"Restricted Cash") for payment of Permitted Expenditures, as defined in the
Indenture.
The ability of the Company to make scheduled payments with respect to its
indebtedness, including interest on the Senior Notes after October 27, 2000,
will depend upon, among other things, (i) its ability to implement its business
plan, and to expand its operations and to successfully develop its customer base
in its target markets, (ii) the ability of the Company's subsidiaries to remit
cash to the Company in a timely manner and (iii) the future operating
performance of the Company's and its subsidiaries. Each of these factors is, to
a large extent, subject to economic, financial, competitive, regulatory and
other factors, many of which are beyond the Company's control. The Company
expects that it will continue to generate cash losses for the foreseeable
future. The Company has deposited in escrow funds representing interest payments
with respect to the Senior Notes through October 2000. However, no assurance can
be given that the Company will be successful in developing and maintaining a
level of cash flow from operations sufficient to permit it to pay the principal
of, and the interest on the Senior Notes after such time, or with respect to its
other indebtedness. If the Company is unable to generate sufficient cash flow
from operations to service its indebtedness, including the Senior Notes, it may
have to modify its growth plans, restructure or refinance its indebtedness or
seek additional capital. There can be no assurance that (i) any of these
strategies can be effected on satisfactory terms, if at all, in light of the
Company's high leverage or (ii) any such strategy would yield sufficient
proceeds to service the Company's indebtedness, including the Senior Notes. Any
failure by the Company to satisfy its obligations with respect to the Senior
Notes at maturity or prior thereto would constitute a default under the
indenture and could cause a default under other agreements governing current or
future indebtedness of the Company.
Substantially all of the Company's assets are held by its subsidiaries and
substantially all of the Company's sales are derived from operations of such
subsidiaries. Future acquisitions may be made through present or future
subsidiaries of the Company. Accordingly, the Company's ability to pay the
principal of, and interest and liquidated damages, if any, when due, on the
Senior Notes is dependent upon the earnings of its subsidiaries and the
distribution of sufficient funds from its subsidiaries the Company's
subsidiaries will have no obligation, contingent or otherwise, to make funds
available to the Company for payment of the principal of, and interest and
liquidated damages on, if any, the Senior Notes. In addition, the ability of the
Company's subsidiaries to make such funds available to the Company may be
restricted by the terms of such subsidiaries' current and future indebtedness,
the availability of such funds and the applicable laws of the jurisdictions
under which such subsidiaries are organized. Furthermore, the Company's
subsidiaries will be permitted under the terms of the indenture to incur
indebtedness that may severely restrict or prohibit the making of distributions,
the payment of dividends or the making of loans by such subsidiaries to the
Company. The failure of the Company's subsidiaries to pay dividends or otherwise
make funds available to the Company could have a material adverse effect upon
the Company's ability to satisfy its debt service requirements including its
ability to make payments on the Senior Notes.
At March 31, 1998 the Company had $124.6 million of cash and cash
equivalents, restricted cash and restricted investments. The Company believes
its current cash balances should be sufficient to satisfy the Company's
liquidity needs through the end of 1999; however, there can be no assurance that
the Company will have sufficient resources to meet its subsequent liquidity
requirements.
To accelerate its growth rate and to finance the launch or build-out of
additional markets, the Company will consider obtaining financing from various
sources, including vendor financing provided by equipment suppliers, project
financing from commercial banks and international agencies, bank lines of credit
and the sale of equity and debt securities. To the extent that the Company or
any of its subsidiaries issues debt, its leverage and debt service obligations
will increase. There can be no assurance that the Company will be able to raise
such capital on satisfactory terms, if at all. In addition, the Indenture
related to the Senior Notes will limit the ability of the Company and its
subsidiaries to incur additional indebtedness.
As part of its business strategy, the Company intends to continue to
evaluate potential acquisitions, joint ventures and strategic alliances in
companies that own existing networks or companies that provide services that
complement the Company's existing businesses. The Company continues to consider
potential acquisitions from time to time. New sources of capital such as credit
facilities and other borrowings, and additional debt and equity issuances, may
be used to fund such acquisitions and similar strategic investments.
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Net cash used in operating activities for the three months ended March 31,
1998 was $738,000. This amount represented cash used to fund the Company's net
loss for the period offset, in part, by an increase in accrued interest on the
Senior Notes.
Net cash used in investing activities for the three months ended March 31,
1998 was $5,762,000. This amount primarily represented the Company's continued
build-out of its fiber-optic network in Peru. The growth of the Company's fiber
networks was evidenced as route kilometers and fiber kilometers increased from
approximately 215 and 6,100km, respectively as of December 31, 1997 to
approximately 350km and 12,200km, respectively, as of March 31, 1998. The
Company anticipates continued growth of fiber and route kilometers through 1998
as well as significant capital expenditures during the remainder of 1998.
Net cash provided by financing activities for the three months ended March
31, 1998 was $5,592,000. This amount principally represented the use of
restricted cash to finance Permitted Expenditures.
12
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PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The exhibits listed below are filed as part of this Report.
EXHIBIT DESCRIPTION
------- -----------
27 Financial Data Schedule for the three months
ended March 31, 1998
(b) Reports on Form 8-K.
(i) During the first quarter of 1998 and preceeding the filing of
this form 10-QSB, the Company filed the following report on
Form 8-K:
January 5, 1998 - The Company filed a report on Form 8-K to
announce the completion of the acquisition of Iusatel Chile S.A.
and to include the related press release made by the Company.
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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 be the
undersigned, thereunto duly authorized.
INTERAMERICAS COMMUNICATIONS CORPORATION
/s/ PATRICIO E. NORTHLAND 5/15/98
- ------------------------------------------------------------- -------
Patricio E. Northland Date
Chairman of the Board, President, and Chief Executive Officer
(Principal Executive Officer)
/s/ DOUGLAS G. GEIB II 5/15/98
- ------------------------------------------------------------ -------
Douglas G. Geib II Date
Chief Financial Officer
(Principal Financial Officer)
14
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
27 Financial Data Schedule for the three
months ended March 31, 1998
15
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-1-1998
<PERIOD-END> MAR-31-1998
<CASH> 65,959
<SECURITIES> 58,675
<RECEIVABLES> 2,531
<ALLOWANCES> 90
<INVENTORY> 0
<CURRENT-ASSETS> 89,922
<PP&E> 16,780
<DEPRECIATION> (1,750)
<TOTAL-ASSETS> 168,443
<CURRENT-LIABILITIES> 13,934
<BONDS> 131,791
0
0
<COMMON> 19
<OTHER-SE> 22,384
<TOTAL-LIABILITY-AND-EQUITY> 168,443
<SALES> 3,327
<TOTAL-REVENUES> 3,327
<CGS> 2,609
<TOTAL-COSTS> 4,904
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,403
<INCOME-PRETAX> (5,219)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,219)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,219)
<EPS-PRIMARY> (0.27)
<EPS-DILUTED> 0
</TABLE>
