FORM 10QSB
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 September 30, 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
- - - - ------------------------------------------------------------------------------
FIRSTCOM 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
INTERAMERICAS COMMUNICATIONS CORPORATION
(Former name, former address and fiscal year, if changed since last report)
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 November 13, 1998 - 19,084,300
NOTE: Page 1 of 17 sequentially numbered pages.
1
<PAGE>
FIRSTCOM CORPORATION
INDEX
PART I FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
(unaudited)
Condensed Consolidated Balance Sheets - as of
September 30, 1998 (unaudited)and December 31, 1997 3
Condensed Consolidated Statements of Operations -
Nine Months and Three Months Ended September 30, 1998 and 1997
(unaudited) 4
Condensed Consolidated Statement of Stockholders'
Equity - Nine Months Ended September 30, 1998
(unaudited) 5
Condensed Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 1998 and 1997
(unaudited) 6
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 15
Signatures 16
Exhibit Index 17
2
<PAGE>
PART I FINANCIAL INFORMATION
<TABLE>
<CAPTION>
FIRSTCOM CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(THOUSANDS OF US DOLLARS, EXCEPT SHARE DATA)
09/30/98 12/31/97
(UNAUDITED) (As Restated)
ASSETS ----------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents ...............................$ 9,435 $ 14,936
Restricted cash ......................................... 31,960 61,028
Restricted investments .................................. 20,431 20,404
Accounts receivable,net ................................. 3,071 2,367
Prepaid expenses and other current assets ............... 967 1,208
----------- -------------
Total current assets ............................ 65,864 99,943
Restricted investments .................................... 29,157 37,488
Telecommunications networks, net .......................... 38,435 9,348
Intangible assets, net .................................... 14,605 15,186
Deferred financing costs .................................. 14,747 14,971
----------- -------------
Total assets ....................................$ 162,808 $ 176,936
=========== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ........................................$ 5,972 $ 4,023
Convertible Debentures................................... -- 1,550
Accrued interest ........................................ 8,925 3,925
Other accrued expenses .................................. 1,522 2,631
Due to related parties .................................. -- 263
Lease obligations, current .............................. 155 313
Other current liabilities ............................... 923 322
----------- -------------
Total current liabilities ....................... 17,497 13,027
Senior notes, net ......................................... 132,147 131,626
Lease obligations, less current portion ................... 268 356
----------- -------------
Total liabilities ............................... 149,912 145,009
----------- -------------
Commitments and contingencies ............................. -- --
----------- -------------
Stockholders' equity
Preferred stock, $.001 par value, authorized 10,000,000
shares, none issued
Common stock, $.001 par value, authorized 50,000,000
shares, issued and outstanding as of December 31,
1997 and June 30, 1998 19,084,300 shares ............ 19 19
Additional paid in capital .............................. 31,562 31,562
Warrants ................................................ 26,737 26,737
Accumulated deficit ..................................... (44,578) (26,153)
Cumulative translation adjustments ...................... (238) (238)
----------- ------------
13,502 31,927
Shareholder loans ....................................... (606) --
----------- ------------
Total stockholders' equity ...................... 12,896 31,927
----------- ------------
Total liabilities and stockholders' equity ......$ 162,808 $ 176,936
=========== =============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
FIRSTCOM CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(THOUSANDS OF US DOLLARS, EXCEPT SHARE DATA)
NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1998 1997
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
(as restated) (as restated)
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
Revenues.................................. $ 10,651 $ 853 $ 3,836 $ 268
------------ ------------- ------------ -------------
Operating expenses:
Cost of revenues........................ 8,491 942 2,984 274
Selling, general and administrative..... 7,975 3,011 3,435 1,257
Non-cash compensation and
Consulting -- 4,640 -- 4,640
Depreciation and amortization........... 1,612 834 512 285
------------ ------------- ------------ -------------
Loss from operations...................... (7,427) (8,574) (3,095) (6,188)
------------ ------------- ------------ -------------
Interest expense.......................... (15,284) (1,543) (4,632) (1,012)
Interest income and other................. 4,286 48 1,027 15
------------ ------------- ------------ -------------
Net loss.................................. $ (18,425) $ (10,069) $ (6,700) $ (7,185)
============ ============= ============ =============
Net basic and diluted loss per share...... $ (0.97) $ (0.20) $ (0.35) $ (0.34)
============ ============= ============ =============
Weighted average common shares
outstanding............................... 19,084,300 16,123,074 19,084,300 16,064,184
============ ============= ============ =============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
FIRSTCOM CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(THOUSANDS OF US DOLLARS, EXCEPT SHARE DATA)
COMMON STOCK ADDITIONAL ACCRUED CUMULATIVE
----------------------- PAID-IN DISTRIBUTIONS ACCUMULATED TRANSLATION SHAREHOLDER
SHARES AMOUNTS CAPITAL AND WARRANT DEFICIT ADJUSTMENT LOANS TOTAL
---------- ---------- ---------- ---------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1997
(as restated).................19,084,300 19 31,562 26,737 (26,153) (238) -- 31,927
Shareholder loans .............. -- -- -- -- -- -- (606) (606)
Net loss (unaudited) ........... -- -- -- -- (18,425) -- -- (18,425)
---------- ---------- ---------- ---------- ---------- ---------- --------- ----------
Balances at September 30, 1998
(unaudited) ....................19,084,300 $ 19 $ 31,562 $ 26,737 $ (44,578) $ (238) $ (606) $ 12,896
========== ========== ========== ========== ========== ========== ========= ==========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
FIRSTCOM CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(THOUSANDS OF US DOLLARS, EXCEPT SHARE DATA)
NINE MONTHS ENDED SEPTEMBER 30,
1998 1997
(UNAUDITED) (UNAUDITED)
(as restated)
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ......................................... $ (18,425) $ (10,069)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization expense .......... 1,612 834
Amortization of deferred financing costs and
original issue discounts ..................... 932 91
Accretion of discount on restricted
Investments................................... (2,197) --
Capitalized interest related to network ........ (1,605) (600)
Construction
Non-cash compensation and consulting
Expenses...................................... -- 4,640
Financial assistance exchanged for common
Stock........................................... -- 852
Beneficial conversion feature .................. -- 810
Changes in assets and liabilities:
Accounts receivable .......................... (704) 37
Prepaid expenses and other current assets .... 242 (120)
Other assets ................................. (319) 9
Accounts payable and accrued expenses ........ 5,840 297
Due to related parties ....................... (263) (130)
Other current liabilities .................... 619 (86)
------------ ------------
Cash used in operating activities ......... (14,268) (3,435)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of telecommunications network ........... (28,381) (1,855)
Use of restricted cash............................ 29,067 --
------------ ------------
Cash used in investing activities ........ 686 (1,855)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on convertible debentures ............... (1,550) --
Use of restricted investments .................... 10,500 --
Shareholder loans ................................ (606) --
Net proceeds from notes payable and
Bridge notes...................................... -- 950
Proceeds from bank line of credit, net of
Restricted bank deposits.......................... -- 343
Proceeds from convertible debentures ............. -- 3,500
Deferred financing costs.......................... -- (474)
(Payments under) proceeds from leasing obligations (263) 147
------------ ------------
Cash provided by financing activities, net 8,081 4,940
------------ ------------
Net decrease in cash and cash
equivalents ...................................... (5,501) (350)
Effect of exchange rate changes on cash ............ -- (74)
Cash and cash equivalents, beginning of period ..... 14,936 723
------------ ------------
Cash and cash equivalents end of period ............ $ 9,435 $ 299
============ ============
</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 September 30, 1998 and the
consolidated results of its operations and its consolidated cash flows for the
three and nine month periods ended September 30, 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.
AMENDED QUARTERLY FINANCIAL INFORMATION
During August 1998, the Company restated its financial statements to
reflect the effect of revising the price per share of Company common stock
issued in connection with the May 1996 acquisition of FirstCom Peru (formerly
Resetel) from $2.25 to $5.99 per share. The revised price per share is based on
the average closing price of the Company's common stock for the period of 14
days before and after the date the terms of the acquisition were announced. The
previously recorded purchase price was based on the Company's March 1996 private
placement. The effect of the change in price per share increased the reported
purchase price from approximately $2,800 to $7,500.
Because of the restatement related to FirstCom Peru, the Company also
amended certain financial information as reported on its March 31, 1998 and
September 30, 1997 Form 10-QSB. A summary of the original and amended
unaudited financial information and a description of the related impact of the
Company's statement of operations follows:
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
MARCH 31, SEPTEMBER 30,
1998 1997
------------- ----------
<S> <C> <C>
Revenues ................................. $ 3,327 $ 853
Loss from Operations ..................... (1,636) (8,574)
Net loss, as amended ..................... $ (5,278) (10,069)
============ ==========
Net basic and diluted loss per
share, as amended ....................... $ (0.28) $ (0.61)
============ ==========
General and administrative
expenses
Depreciation expense
Interest expense
Amortization expenses .................... 59(a) 176(a)
------------- ----------
Net loss, as originally reported.......... $ (5,219) $(9,893)
============ ==========
Net basic and diluted loss per
share, as originally reported ........... $ (0.27) $(0.61)
============ ==========
<FN>
(a) Reflects the effect of the FirstCom Peru purchase price described in the
introductory language to the table above.
</TABLE>
<PAGE>
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 , labor costs and import and value added
taxes 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
SEPTEMBER 30, DECEMBER 31, USEFUL
1998 1997 LIFE
------------ ----------- ---------------
<S> <C> <C> <C>
Telecommunications equipment ........................ $ 12,242 $ 6,547 10 to 20 years
Telecommunications equipment pending installation and
construction in progress ............................ 25,300 2,627 --
Office equipment, furniture and vehicles ............ 3,100 1,663 3 to 7
------------ -----------
40,642 10,837
Less: accumulated depreciation ...................... (2,207) (1,489)
------------ -----------
$ 38,435 $ 9,348
============ ===========
</TABLE>
NOTE 2 - FOREIGN CURRENCY TRANSLATION
Primarily as a result of the Company's (1) U.S. dollar denominated senior
note financing during October 1997 and (2) acquisition of FirstCom Long Distance
during December 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 nine and three
months ended September 30, 1998.
NOTE 3 - RECLASSIFICATIONS
Certain amounts in the 1997 condensed consolidated financial statements
were reclassified to conform with the 1998 presentation.
7
<PAGE>
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.
NOTE 5 - SHAREHOLDER LOANS
During April 1998 the Company loaned certain officers $606 related to
federal and state income tax liabilities arising from shares of the Company's
common stock granted to such officers during 1997. The loans are collateralized
by 336,600 shares of the Company's common stock.
8
<PAGE>
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'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.
The fiber optic cable installed in (i) Santiago runs through the downtown
business district and the outlying industrial and airport corridor and (ii) Lima
runs through the major commercial and industrial districts of Lima, and the port
city of Callao. A summary of key metrics as of and for the nine months ended
September 30, 1998 follows:
<TABLE>
<CAPTION>
CHILE PERU TOTAL
------ ------ ------
<S> <C> <C> <C>
NETWORK INSTALLATION
ROUTE KILOMETERS . . . . . . . 120 671 791
------ ------ ------
FIBER KILOMETERS . . . . . . . 1,577 21,985 23,562
------ ------ ------
ATM NODES INSTALLED. . . . . . 4 - 4
------ ------ ------
BUILDINGS WIRED. . . . . . . . 2 - 2
------ ------ ------
LONG DISTANCE SWITCHES . . . . 3 - 3
------ ------ ------
NETWORK CONSTRUCTION IN PROCESS
ATM NODES (OC 12). . . . . . . 3 5 8
------ ------ ------
ATM NODES (OC 3) . . . . . . . - 18 18
------ ------ ------
ACCESS ROUTERS . . . . . . . . 47 120 167
------ ------ ------
BUILDINGS PERMITS OUTSTANDING. 14 - 14
------ ------ ------
OPERATING INDICATORS
EMPLOYEES. . . . . . . . . . . 128 102 236
------ ------ ------
LONG DISTANCE MINUTES (000'S). 32,659 - 32,659
------ ------ ------
DATA PORTS SOLD. . . . . . . . 332 47 379
- - - -------------------------------- ------ ------ ------
</TABLE>
In Chile the Company operates through 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 through a wholly owned subsidiary, FirstCom
Peru S.A. (formerly Resetel). Upon completion of its fiber optic network,
FirstCom Peru intends to 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. As a result of the
accelerated 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 effective August 1, 1998, FirstCom Peru
intends to aggressively expand its existing service offerings to provide public
switched telephony.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER
30, 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 NINE MONTHS OF 1998 WERE SIGNIFICANTLY IMPACTED BY THIS ACQUISITION
AS DISCUSSED IN MORE DETAIL BELOW.
REVENUES. The Company's revenues are derived primarily from its operations
in Chile. During the first nine months of 1998 FirstCom Long Distance
contributed approximately 92% 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 $10,651,000 for the nine months ended September
30, 1998 as compared to $853,000 for the nine months ended September 30, 1997.
This increase during 1998 was due to the acquisition of FirstCom Long Distance.
FirstCom Long Distance generated revenues during 1998 of approximately $9.8
million through the sale of approximately 32.6 million minutes resulting in an
average revenue per minute of approximately $0.30. FirstCom Network's revenue
during 1998 of $730,000 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 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 $8,491,000 for the nine months ended
September 30, 1998 as compared to $942,000 for the nine months ended September
30, 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 $7,975,000
for the nine months ended September 30, 1998 as compared to $3,011,000 for the
nine months ended September 30, 1997. This increase was primarily attributable
to the acquisition of FirstCom Long Distance and the hiring of additional
personnel related to the anticipated growth of the Peruvian and Chilean
operations. At September 30, 1998 the Company had approximately 236 employees
compared to 130 employees at December 31, 1997. The Company expects to continue
to increase the number of its employees during the fourth quarter of this year.
NON CASH COMPENSATION AND CONSULTING This expense of $4,640,000 during
September 1997, was directly attributable to the intrinsic value of shares of
Common Stock and stock options issued to certain officers and former directors
of the Company. There were no such transactions or expenses during 1998.
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 $1,612,000 for
the nine months ended September 30, 1998 as compared to $834,000 for the nine
months ended September 30, 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 $15,284,000 for the nine months ended
September 30, 1998 as compared to $1,543,000 for the nine months ended September
30, 1997. This increase was due to the Senior Notes that were issued on October
21, 1997. Of the total interest costs incurred by the Company for the nine
months ended September 30, 1998 and 1997,
10
<PAGE>
$1,605,000 and $600,000, 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 $4,286,000 for the nine months
ended September 30, 1998 as compared to $48,000 for the nine months ended
September 30, 1997. This increase was primarily attributable to 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.
THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1997
11
<PAGE>
REVENUES. The Company's revenues were $3,836,000 for the three months ended
September 30, 1998 as compared to $268,000 for the three months ended September
30, 1997. This increase during the third quarter of 1998 was due to the
acquisition of FirstCom Long Distance. FirstCom Long Distance generated revenues
during the third quarter of 1998 of approximately $3.6 million through the sale
of approximately 12.7 million minutes resulting in an average revenue per minute
of approximately $0.28. FirstCom Network's revenue during the third quarter of
1998 of $189,000 consisted primarily of equipment sales, data transmission and
system integration services.
COST OF REVENUES. The Company's cost of revenues was $2,984,000 for the
three months ended September 30, 1998 as compared to $274,000 for the three
months ended September 30, 1997. This increase was attributable to the
acquisition of FirstCom Long Distance.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. The Company's selling,
general and administrative expenses were $3,435,000 for the three months ended
September 30, 1998 as compared to $1,257,000 for the three months ended
September 30, 1997. This increase was primarily attributable to the acquisition
of FirstCom Long Distance. At September 30, 1998 the Company had approximately
236 employees compared to 190 employees at June 30, 1998.
NON CASH COMPENSATION AND CONSULTING This expense of $4,640,000 during
September 1997, was directly attributable to the intrinsic value of shares of
Common Stock and stock options issued to certain officers and former directors
of the Company. There were no such transactions or expenses during 1998.
DEPRECIATION AND AMORTIZATION. The Company's depreciation and amortization
expenses were $512,000 for the three months ended September 30, 1998 as compared
to $285,000 for the three months ended September 30, 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's interest expense was $4,632,000 for the
three months ended September 30, 1998 as compared to $1,012,000 for the three
months ended September 30, 1997. This increase was due to 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 September 30,
1998 and 1997,
12
<PAGE>
$962,000 and $100,000, 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's interest income and other was
$1,027,000 for the three months ended September 30, 1998 as compared to $15,000
for the three months ended September 30, 1997. This increase was primarily
attributable to 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 September 30, 1998 the Company had approximately $91.0 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.
13
<PAGE>
Net cash used in operating activities for the nine months ended September
30, 1998 was $14,268,000. 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 nine months ended September
30, 1998 was $686,000. This amount primarily represented the Company's continued
build-out of its fiber-optic network in Peru offset by the use of restricted
cash to fund such build-out. The growth of the Company's fiber networks was
evidenced as route kilometers and fiber kilometers increased from approximately
600km and 18,000km, respectively as of June 30, 1998 to approximately 790km and
23,600km, respectively, as of September 30, 1998. The Company anticipates
significant capital expenditures during the remainder of 1998.
Net cash provided by financing activities for the nine months ended
September 30, 1998 was $8,081,000. This amount principally represented the use
of restricted investments to make interest payments on the Senior Notes.
14
<PAGE>
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 nine months
ended September 30, 1998
(b) Reports on Form 8-K
(i) Preceding the filing of this Form 10QSB, on November 13, 1998 the
Company filed a report on Form 8-K for purposes of disclosing that the
Company had (a) changed its certifying accountant from Pricewaterhouse
Coopers LLP to Ernst & Young LLP and (b) changed its corporate name
from "InterAmericas Communications Corporation" to "FirstCom
Corporation"
15
<PAGE>
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.
FIRSTCOM CORPORATION
/s/ PATRICIO E. NORTHLAND 11/16/98
- - - ----------------------------------------------------------------- -------
Patricio E. Northland Date
Chairman of the Board, President, and Chief Executive Officer
(Principal Executive Officer)
/s/ DOUGLAS G. GEIB II 11/16/98
- - - - --------------------------------------------------------------- -------
Douglas G. Geib II Date
Chief Financial Officer
(Principal Financial Officer)
16
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- - - - ------- -----------
27 Financial Data Schedule for the nine
months ended September 30, 1998
17
<PAGE>
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
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