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Recent filings: Nov 07, 2000 (Qtrly Rpt) | Apr 16, 2001 (Annual Rpt) | May 15, 2001 (Qtrly Rpt) | Aug 14, 2001 (Qtrly Rpt)
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August 14, 2001

CYBERNET INTERNET SERVICES INTERNATIONAL INC (ZNET.OB)
Quarterly Report (SEC form 10QSB)
ITEM 2. MANAGEMENT`S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

Overview

The following table sets forth the items of the Consolidated Statements of Loss for the three month period ended June 30, 2000 and 2001, expressed as a percentage of total revenues:

June

Revenues

Total revenues increased 6.4% from Euro 9,303,000 in the three months ended June 30, 2000 to Euro 9,901,000 in the second quarter of 2001, primarily as a result of increased Internet Data Center (IDC) Services revenues. E-Business revenues decreased 91.1% from Euro 1,362,000 in the second quarter of 2000 to Euro 121,000 for the same period in 2001. Internet Data Center Service revenues increased 228.0%from Euro 805,000 to Euro 2,640,000 and Connectivity revenues were flat at Euro 7,136,000 and Euro 7,140,000 in the second quarter of 2000 and 2001 respectively.

During the second quarter of 2001 Connectivity revenues represented 72.1% of total revenues, as compared with 76.7 % in the second quarter of 2000, IDC Services revenues represented 26.7% of total revenues in the second quarter of 2001, as compared with 8.7 % in the second quarter of 2000.

The increase in revenues from IDC Services is mainly a result of expansion of our customer base, which provides us with a stream of recurring revenues.



The decrease in E-Business revenues is mostly the result of our decision to sell more pre-packed solutions that require less ad-hoc installations, and to be more selective when taking on E-Business projects in order to apply scarce human resources to the projects most likely to generate long-term relationships and generate revenues from connectivity and data center based services. In addition, the economic environment is particularly difficult, and companies have been delaying projects and investments.

Direct Cost of Services

Direct cost of services increased 3.5 % from Euro 5,949,000 in the second quarter of 2000 to Euro 6,160,000 in the second quarter of 2001. Direct cost of services consists of 1) telecommunications expenses which mainly represent the cost of transporting Internet traffic from our customers` location through a local telecommunications carrier to one of our access nodes, transit and peering costs, and the cost of leasing lines to interconnect our backbone nodes, and 2) the cost of hardware and software sold. Cybernet mainly utilizes leased lines for its backbone network, and to connect its network to its major customers` premises. This increase is largely due to non recurring charges related to our voice business.

Direct cost of services as a percentage of revenues decreased from 63.9 % in the second quarter of 2000 to 62.2 % in the second quarter of 2001.

Network Operations

Network operations costs increased 20.7% from Euro 1,742,000 in the second quarter of 2000 to Euro 2,103,000 in the second quarter of 2001. Network operations mainly consist of 1) the personnel costs of technical and operational staff and related overhead, 2) the rental of premises solely or primarily used by technical staff, including premises used to generate our co-location services revenues and 3) consulting expenses in the area of network and software development. Network operations costs, as a percentage of revenues increased from 18.7% in the second quarter of 2000 to 21.2% in the second quarter of 2001. This increase mainly due to some adjustments made in the second quarter 2000. Network Operation cost is almost flat over the last three quarters. The increase compared with second quarter of 2000 is explained by the need to employ more qualified people to support our business.

We had 84 Network Operation personnel on June 30, 2001 compared to approximately 106 at June 30, 2000.

General and Administrative Expenses

General and administrative expenses decreased 37.1% from Euro 5,025,000 in the second quarter of 2000 to Euro 3,160,000 in the second quarter of 2001. General and administrative expenses consist principally of salaries and other personnel costs for our administrative staff, office rent, and external legal and accounting advisory costs. As a percentage of revenues, general and administrative expenses decreased from 54.0% in the second quarter of 2000 to 31.9% in the second quarter of 2001. The reduction reflects synergies achieved, integrating subsidiaries and cost control measures instituted during the last 12 months.

We had 48 General and Administrative personnel on June 30, 2001 compared to approximately 87 at June 30, 2000.

Sales and Marketing Expenses

Sales and marketing expenses decreased by 30.1% from Euro 4,038,000 in the second quarter of 2000 to Euro 2,824,000 in the second quarter of 2001. Sales and marketing expenses consist principally of salaries of our sales force and marketing personnel and advertising and communication expenditures.

As a percentage of revenues, our sales and marketing expenses decreased from 43.4% in the second quarter of 2000 to 28.5% in the second quarter of 2001.

We had 131 Sales and Marketing personnel on June 30, 2001, compared to approximately 120 on June 30, 2000.

Research and Development

Research and development expenses increased 132.8% from Euro 67,000 in the second quarter of 2000 to Euro 156,000 in the second quarter of 2001. Research and development expenses consist principally of personnel costs of employees working on product development, consulting costs and certain overhead items.



The increase is mainly due to an increased use of partners and suppliers to develop and put in place of new solutions, like the recent agreement we signed with Oracle As a percentage of revenues, research and development increased from 0.7% in the second quarter of 2000 to 1.6% in the second quarter of 2001.

We had 1 Research and Development personnel on June 30, 2001, compared to approximately 24 on June 30, 2000.

Depreciation and Amortization

Depreciation and amortization expenses increased 6.5% from Euro 4,828,000 in the second quarter of 2000 to Euro 5,140,000 in the second quarter of 2001. This increase reflects 1) increased depreciation of property and equipment purchased to build the corporate infrastructure necessary to support our anticipated growth, and 2) additional investments in our own network infrastructure and supporting systems and 3) increased amortization of goodwill related to our acquisitions. Goodwill represents the excess of the purchase price of companies we purchased over the fair value of the assets of those companies. Goodwill is amortized over 5 - 10 years.

Interest Income and Expense

Interest expense decreased 33.1% from Euro 9,949,000 in the second quarter of 2000 to Euro 6,657,000 in the second quarter of 2001 as a result of our repurchasing a majority of our 14% Senior Notes due in 2009.

Interest income decreased 74.7% from Euro 1,982,000 in the second quarter of 2000 to Euro 501,000 in the second quarter of 2001 as a result of the utilization of the proceeds from the issuance of debt securities.

In the second quarter of 2001, we incurred net foreign exchange losses of Euro 4,415,000 compared with Euro 292,000 in the second quarter of 2000, because much of our borrowings are denominated in US dollars but our principal operating currency is the Euro. We will continue to record such losses while the US dollar strengthens against the Euro.

Income Taxes

We recorded income tax benefits of Euro 2,835,000 in the second quarter of 2001 compared with Euro 3,423,000 in the second quarter of 2000 arising principally from operating losses. Although we have additional operating losses, a valuation allowance has been established to reflect the estimated amount of the tax benefit that may not be realized. The majority of the operating losses are associated with operations subject to taxation under the German tax code. We have recorded valuation allowances on all tax assets arising from operating losses generated outside of Germany since we can not make the determination that the eventual realization of these assets is more likely than not. Under the current German tax code, net operating losses may be carried forward indefinitely and used to offset our future taxable earnings.

Impairment of Long-Lived Assets

During 2000 we have re-focused our activities towards our core business. As a consequence we cut or re-assessed certain projects and initiatives, such as Voice Telephony. As a result, we recorded impairment losses of approximately Euro 2,556,000 which was recorded as "other expenses/losses" in the 2001 statement of loss.

Results of operations - six months ended June 30, 2001 compared to the six months ended June 30, 2000

Revenues

Total revenues increased 20.1% from Euro 16,466,000 in the six months to June 30, 2000 to Euro 19,781,000 in the first six months of 2001, primarily as a result of an increase of Internet Data Center Services revenues of 295.6%, from Euro 1,340,000 in the first six months of 2000 to Euro 5,301,000 for the same period in 2001. E-Business revenues decreased 68.9% from Euro 2,007,000 in the first six months of 2000 to Euro 625,000 for the same period in 2001. Connectivity revenues increased 5.6% from Euro 13,119,000 to Euro 13,855,000. For the first six months of 2001 Internet Data Center Services revenues represented 26.8% of total revenues, as compared with 8.1% in 2000. Connectivity revenues represented 70.0% of total revenues in the first six months of 2001, as compared with 79.7% in 2000.





We continue to stay focused on building recurring revenues from all areas of business and building relations with customers to provide them with best reliable and quality services, from our Internet Data Centers.

We derived Euro 12,802,000 or 64.7% of total revenues from our operations in Germany, during the six months ended June 30, 2001, compared with Euro 8,564,000 or 52.0% in the first six months of 2000. Euro 3,534,000 or 17.9% of total revenues was derived from our operations in Italy during the six months ended June 30, 2001, compared with Euro 4,508,000 or 27.4% in the first six months of 2000. We derived Euro 1,966,000 or 9.9% of total revenues from our operations in Austria during the six months ended June 30, 2001, compared with Euro 1,770,000 or 10.7% in the first six months of 2000. We derived Euro 1,479,000 or 7.4% of total revenues from our operations in Switzerland during the six months ended June 30, 2001, compared with Euro 1,624,000 or 9.9% in the first six months of 2000.

Direct Cost of Services

Direct cost of services increased 10.5 % from Euro 10,546,000 in the first six months of 2000 to Euro 11,653,000 in the first six months of 2001. Direct cost of services consists of 1) telecommunications expenses which mainly represent the cost of transporting Internet traffic from our customers` location through a local telecommunications carrier to one of our access nodes, transit and peering costs, and the cost of leasing lines to interconnect our backbone nodes, and 2) the cost of hardware and software sold. Cybernet mainly utilizes leased lines for its backbone network, and to connect its network to its major customers` premises. Direct cost of services as a percentage of revenues decreased from 64.0 % in the first six months of 2000 to 58.9 % in the first six months of 2001. This is explained by synergies achieved during last 12 months, integrating and optimizing resources.

Network Operations

Network operations costs increased 12.0% from Euro 3,779,000 in the first six months of 2000 to Euro 4,230,000 in the first six months of 2001. Network operations mainly consist of 1) the personnel costs of technical and operational staff and related overhead, 2) the rental of premises solely or primarily used by technical staff, including premises used to generate our co-location services revenues and 3) consulting expenses in the area of network and software development. Network operations costs, as a percentage of revenues fell from 22.9% in the first six months of 2000 to 21.4 % in the first six months of 2001.

General and Administrative Expenses

General and administrative expenses decreased 43.1% from Euro 11,488,000 in the first six months of 2000 to Euro 6,541,000 in the first six months of 2001. General and administrative expenses consist principally of salaries and other personnel costs for our administrative staff, office rent, and external legal and accounting advisory costs. As a percentage of revenues, general and administrative expenses decreased from 69.8% in the first six months of 2000 to 33.1% in the first six months of 2001. The reduction reflects synergies obtained integrating subsidiaries and cost control measures instituted during the last 12 months.

Sales and Marketing Expenses

Sales and marketing expenses decreased by 25.7% from Euro 7,417,000 in the first six months of 2000 to Euro 5,509,000 in the first six months of 2001. Sales and marketing expenses consist principally of salaries of our sales force and marketing personnel and advertising and communication expenditures.

As a percentage of revenues, our sales and marketing expenses decreased from 45.0% in the first six months of 2000 to 27.8 % in the first six months of 2001.

Research and Development

Research and development expenses decreased of 45.2% from Euro 710,000 in the first six months of 2000 to Euro 384,000 in the first six months of 2001. Research and development expenses consist principally of personnel costs of employees working on product development, consulting costs and certain overhead items. The decrease is mainly due to the availability of more products from partners and suppliers, minimizing the need for in-house development. As a percentage of revenues, research and development decreased from 4.3% in the first six months of 2000 to 1.9% in the first six months of 2001.





Depreciation and Amortization

Depreciation and amortization expenses increased 10.7% from Euro 9,120,000 in the first six months of 2000 to Euro 10,096,000 in the first six months of 2001. This increase reflects 1) increased depreciation of property and equipment purchased to build the corporate infrastructure necessary to support our anticipated growth, and 2) additional investments in our own network infrastructure and supporting systems and 3) increased amortization of goodwill related to our acquisitions. Goodwill represents the excess of the purchase price of companies we purchased over the fair value of the assets of those companies. Goodwill is amortized over 5 - 10 years.

Interest Income and Expense

Interest expense decreased 34.4% from Euro 18,940,000 in the first six months of 2000 to Euro 12,433,000 in the first six months of 2001. Interest expenses decreased as a result of our repurchasing a majority of our 14% Senior Notes due in 2009.

Interest income decreased 67.6% from Euro 3,327,000 in the first six months of 2000 to Euro 1,079,000 in the first six months of 2001 as a result of the utilization of the proceeds from the issuance of debt securities.

In the first six months of 2001, we incurred net foreign exchange losses of Euro 10,675,000 compared with Euro 5,275,000 in the first six months of 2000, because much of our borrowings are denominated in US dollars but our principal operating currency is the Euro. We will continue to record such losses while the US dollar strengthens against the Euro.

Income Taxes

We recorded income tax benefits of Euro 4,425,000 in the first six months of 2001 compared with Euro 6,394,000 in the first six months of 2000 arising principally from operating losses. Although we have additional operating losses, a valuation allowance has been established to reflect the estimated amount of the tax benefit that may not be realized. The majority of the operating losses are associated with operations subject to taxation under the German tax code. We have recorded valuation allowances on all tax assets arising from operating losses generated outside of Germany since we can not make the determination that the eventual realization of these assets is more likely than not. Under the current German tax code, net operating losses may be carried forward indefinitely and used to offset our future taxable earnings.

Impairment of Long-Lived Assets

During 2000 we have re-focused our activities towards our core business. As a consequence we cut or re-assessed certain projects and initiatives, such as Voice Telephony. As a result, we recorded impairment losses of approximately Euro 2,556,000 which was recorded as "other expenses/losses" in the 2001 statement of loss.

Extraordinary Items

During the first six months of 2001, the Company repurchased its 14% Senior Notes, due 2009, with face value of $9.6 Million (Euro 10.3 Million). Following these purchases the face value of the remaining outstanding 14% Senior Notes, due 2009, was $67.8 Million (approximately Euro 77.1 Million). The notes were purchased by the Company for an average of 30.2 % of face value.

The amount shown as an extraordinary item represents the difference between the amount paid for the Senior Notes and the carrying value on the balance sheet, net of associated costs.

Liquidity and Capital Resources

Cash Flow

Operating activities used cash of Euro 11,905,000 in the first six months of 2001 compared to Euro 34,996,000 for the comparable period in 2000. This is principally the result of lower losses and decreased expenditure in all areas of the Company.

For the first six months of 2001 investing activities generated cash of Euro 11,790,000 compared to Euro 17,745,000 for the comparable period in 2000. This increase in cash generated from investing activities





represents the net proceeds from the sale of short-term investments, partially offset by the cash outflows for the purchases of property and equipment. Expenditures for property and equipment consisted principally of the fit-out of POP`s and data facilities, the purchases of computer hardware and software and other expenditures related to the maintenance of our Internet backbone and equipment.

For the first six months of 2001, net cash used by financing activities was Euro 3,708,000 compared to the provision of Euro 277,000 in the same period in 2000. The cash was used in the first six months of 2001 to repurchase part of the outstanding Senior Notes as detailed under extraordinary items above.

Working Capital

On June 30, 2001 our working capital, defined as the excess of our current assets over our current liabilities, was Euro 22,955,000 as compared Euro 36,067,000 at December 31, 2000.

Our net accounts receivable as of June 30, 2001, was Euro 12,102,000 compared to Euro 12,939,000 as at December 31, 2000. We have taken steps to improve the timely collection of receivables and we are confident that the situation will improve.

Cash and cash equivalents amounted to Euro 4,864,000 at June 30, 2001 compared to Euro 8,763,000 at December 31, 2000.

We had various short-term investments denominated in Euro totaling Euro 9,976,000 at June 30, 2001. In addition, at June 30, 2001 we had approximately Euro 16,462,000 of Restricted investments held in escrow, to meet the next three semi-annual interest payments on our 14% Senior Notes. This amount is invested in US treasury securities.

Credit Arrangements

As of June 30, 2001 we had short-term unsecured overdraft facilities under which we and our subsidiaries could borrow up to Euro 913,000. These facilities are denominated in Italian Lire (in the amount of Euro 841,000) and Austrian Schilling (in the amount of Euro 72,000). The interest rates fluctuate based upon current lending rates. The weighted average borrowing rate on these facilities was 8.75% as June 2001. In addition, certain of our banks provide overdraft protection exceeding the limits specified in these agreements. As of June 30, 2001, we and our subsidiaries had used Euro 366,037 of these facilities. In addition, at June 30, 2001 we had long-term capitalized lease obligations of Euro 838,000.

Capital Expenditures

For the six months ended June 30, 2001, capital expenditures totaled approximately Euro 6,455,000. We funded these capital expenditures primarily from net cash provided by financing activities. Our investments in the first six months of 2001 included: (i) investments in our backbone infrastructure and equipment (ii) investments in data facilities and data center premises and (iii) investments in other equipment.

We believe that our cash and cash equivalents will provide adequate liquidity to fund our normal operating activities over the next six to nine months. We base this upon our estimates of revenues and expenses during that period and the cash and cash equivalents which we now have available. If our estimates of revenues or expenses do not prove to be accurate we would not have sufficient liquidity to fund our normal operating activities for this full period. We are also attempting to identify alternative financing sources and to negotiate changes to our current debt structure. There is no assurance that we will be successful in securing alternative financing or restructuring our current debt.




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Recent filings: Nov 07, 2000 (Qtrly Rpt) | Apr 16, 2001 (Annual Rpt) | May 15, 2001 (Qtrly Rpt) | Aug 14, 2001 (Qtrly Rpt)
More filings for ZNET.OB available from EDGAR Online | Get a Free Trial to EDGAR Online Premium
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Habe die Zahlen raus gelassen, da sonst noch länger.

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AJ

[margit50]

Die hatten wir schon heute morgen.
Morgen kommen die II.Q Zahlen.