Last10K.com

Covista Communications Inc (CVST) SEC Filing 10-Q Quarterly report for the period ending Sunday, October 31, 2004

Covista Communications Inc

CIK: 34497 Ticker: CVST

EX-99
2
ex99-1.txt
EXHIBIT 99.1




FOR IMMEDIATE RELEASE

            COVISTA COMMUNICATIONS, INC. ANNOUNCES OPERATING RESULTS
               FOR QUARTER AND NINE MONTHS ENDED OCTOBER 31, 2004

CHATTANOOGA, TN - December 10, 2004 - Covista Communications, Inc. (NASDAQ
symbol: CVST) today announced operating results for the three and nine-month
periods ended October 31, 2004.

For period ended October 31, 2004, the Company significantly improved its cash
position and overall balance sheet when compared to prior periods. As of October
31, 2004, cash on hand was $8,505,000 with zero bank debt and positive working
capital of $4,228,000. At January 31, 2004, the Company had cash on hand of
$3,797,000, bank debt of $1,326,000 and a working capital deficit of $6,088,000.
This $10,316,000 improvement in working capital is the result of proceeds
received from the previously announced sale of selected customers and assets to
PAETEC.

The Company expects to receive total cash proceeds of $14,928,000 from PAETEC,
of which $12,667,000 has been received to date. The Company has deferred the
expected net gain of $1,631,000 until future contingencies are resolved.
Operating results for the period ended October 31, 2004 reflect a net charge of
$1,505,000 to write down tangible and intangible assets related to the customers
sold to PAETEC.

For the three months ended October 31, 2004, the Company reported a loss of
$2,233,000 or $0.13 a share on revenues of $12,552,000 as compared with a loss
of $173,000 or $0.01 per share on revenues of $20,337,000 from the prior year's
fiscal period. The Company reported a loss of $5,383,000 or $0.30 per share on
revenues of $49,101,000 for the nine months ended October 31, 2004, as compared
with a loss of $1,836,000 or $0.10 per share on revenues of $65,064,000 for the
comparable period in the prior fiscal year.

John Leach, Jr., Covista's President and Chief Executive Officer, stated, "The
significant improvement in our working capital position will allow us to
accelerate our sales and marketing efforts as we continue to develop our VOIP
deployment strategy."

We are providing the following consolidated summary of operations (unaudited)
for the three and nine-month periods ended October 31, 2004 and 2003 (000's
except for per share data):

Three-Months Ended October 31 Nine-Months Ended October 31 2004 2003 2004 2003 -------------------------------------------------------------------- Revenues $12,552 $20,337 $49,101 $65,064 Operating expenses (12,966) (20,442) (52,475) (66,665) Sale of assets (1,505) -- (1,505) -- Operating loss (1,919) (105) (4,879) (1,601) Other expense, net (314) (68) (504) (235) Net loss (2,233) (173) (5,383) (1,836) Comprehensive loss $(2,233) $(173) $(5,383) $(1,836) ------------------------------------------------------------------ Basic loss per common share $(0.13) $(0.01) $(0.30) $(0.10) Diluted loss per common share $(0.13) $(0.01) $(0.30) $(0.10) Average number of common shares Basic 17,822 17,806 17,822 17,791 Diluted 17,822 17,806 17,822 17,791
About Covista: Covista is a facilities-based provider of telecommunications services with a substantial customer base, principally residential and small sized businesses. Its products and services include a broad range of voice, data and Internet solutions, including long distance and toll-free services, local dial tone and features, calling cards, frame relay, Internet access, VPN, directory assistance and teleconferencing services. Covista currently owns and operates switches in Chattanooga, Dallas and Minneapolis. Covista operates Network Operation, call center and information technology facilities in Chattanooga to monitor its switched network and to coordinate its various services. For information on becoming a Covista customer, please telephone 800-805-1000 or visit the Company's website at www.covista.com. Information relating to forward-looking statements: This press release contains historical and forward-looking statements made pursuant to the safe harbor provisions of the private securities litigation act of 1995. Investors are cautioned that forward-looking statements such as statements of the company's plans, objectives, expectations and intentions involve risks and uncertainties. The cautionary statements made in this release should be read as being applicable to all related statements wherever they appear. Statements containing terms such as "believes," "expects," "plans," "projects," "intends," "estimates," "anticipates," or similar terms, are considered to contain uncertainty and are forward-looking statements. The actual results could differ materially from those discussed. Factors that could contribute to such differences include: changes in market conditions and increased competition from other telecommunications and internet service providers; government regulations; the volatile and competitive environment for internet telephony; advances in competitive products or technologies that could reduce demand for services; availability of transmission facilities; management of rapid growth; customer concentration and attrition; the ability to successfully integrate acquired companies; the ability to successfully develop and bring new services to market; inaccurate or incomplete assumptions on the part of management; and other risks discussed in the company's SEC filings, including form 10-k and form 10-q, which can be accessed at the SEC web site at www.sec.gov. Readers of this release should understand that it is not possible to predict or identify all such risk factors. Consequently, this list should not be considered a complete statement of all potential risks or uncertainties. Covista does not assume the obligation to update any forward-looking statement, except as is required by applicable law. Contact: Frank Pazera Executive Vice President and Chief Financial Officer Covista Communications, Inc. Tel: (423) 648-9500 Fax: (423) 648-9502 E-mail: fpazera@covista.com

The following information was filed by Covista Communications Inc (CVST) on Monday, December 13, 2004 as an 8K 2.02 statement, which is an earnings press release pertaining to results of operations and financial condition. It may be helpful to assess the quality of management by comparing the information in the press release to the information in the accompanying 10-Q Quarterly Report statement of earnings and operation as management may choose to highlight particular information in the press release.

10-Q
1
a38888.txt
COVISTA COMMUNICATIONS, INC.




                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   ----------

                                    FORM 10-Q

[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
     EXCHANGE ACT OF 1934

                 For the quarterly period ended October 31, 2004

                                       OR

[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934

                          Commission File Number 0-2180

                          [COVISTA COMMUNICATIONS LOGO]

                          COVISTA COMMUNICATIONS, INC.
               (Exact name of Company as specified in its charter)

       New Jersey                                        22-1656895
       ----------                                        ----------
(State of incorporation)                    (I.R.S. Employer Identification No.)

                           721 Broad Street, Suite 200
                              Chattanooga, TN 37402
               (Address of principal executive offices)(Zip Code)

                                 (423) 648-9500
                (Company's telephone number, including area code)

Indicate by check mark whether Covista Communications, Inc. ("Covista" or the
"Company")(1) has filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that Covista was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.

                                 Yes [X] No [ ]

      Indicate by check mark whether the registrant is an accelerated filer
                     (as defined in Rule 12b-2 of the Act).

                                 Yes [ ] No [X]

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.

            Class                               Outstanding at December 10, 2004
-----------------------------                   --------------------------------
Common Share, $0.05 par value                              17,822,025








                  COVISTA COMMUNICATIONS, INC. AND SUBSIDIARIES
                        THIRD QUARTER REPORT ON FORM 10-Q

                                      INDEX

PAGE No. -------- PART I - FINANCIAL INFORMATION Condensed Consolidated Balance Sheets 3 October 31, 2004 (unaudited), and January 31, 2004 Condensed Consolidated Statements of Operations for nine months ended October 31, 2004 and 2003 (unaudited) and three months ended October 31, 2004 and 2003 (unaudited) 4 Condensed Consolidated Statements of Cash Flows for the nine months ended October 31, 2004 and 2003 (unaudited) 5 Notes to Condensed Consolidated Financial Statements (unaudited) 6 - 11 Management's Discussion and Analysis of Financial Condition and Results of Operations 12 - 16 Critical Accounting Policies 17 - 20 PART II - OTHER INFORMATION Items 1-5 Not Applicable 21 Items 6 21
2 COVISTA COMMUNICATIONS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
October 31, January 31, 2004 2004 ------------ ------------ (Unaudited) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 8,504,541 $ 3,797,247 Trade accounts receivable (net of allowance of $1,156,810 and $1,350,001 at October 31, 2004 and January 31, 2004, respectively) 6,240,076 10,532,726 Receivable from PAETEC 4,162,444 -- Prepaid expenses and other current assets 704,935 867,670 ------------ ------------ Total current assets 19,611,996 15,197,643 ------------ ------------ Property and equipment, net 6,158,639 11,654,365 Deferred line installation costs, net 307,302 547,201 Intangible assets, net 2,266,667 4,774,324 Goodwill 200,000 8,205,850 Other Assets 303,401 507,449 ------------ ------------ $ 28,848,005 $ 40,886,832 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable and accrued line cost $ 5,940,183 $ 10,695,055 Other accrued liabilities 7,553,634 7,609,543 Deferred gain on sale of assets - Note H $ 875,749 -- Salaries and wages payable 126,987 396,925 Current portion of long term debt due to related party 887,600 1,258,327 Current portion of long-term debt -- 1,325,930 ------------ ------------ Total current liabilities 15,384,153 21,285,780 ------------ ------------ Other long-term liabilities -- 195,395 ------------ ------------ Long-term debt due to related party -- 573,023 ------------ ------------ COMMITMENTS and CONTINGENCIES - Note G -- -- ------------ ------------ SHAREHOLDERS' EQUITY: Common stock 967,922 967,672 Additional paid-in capital 52,931,049 52,916,949 Accumulated deficit (38,989,679) (33,606,547) Treasury stock (1,445,440) (1,445,440) ------------ ------------ Total shareholders' equity $ 13,463,852 $ 18,832,634 ------------ ------------ $ 28,848,005 $ 40,886,832 ============ ============
See notes to condensed consolidated financial statements. 3 COVISTA COMMUNICATIONS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Nine Months Ended Three Months Ended October 31, October 31, ------------------------- ------------------------- 2004 2003 2004 2003 ----------- ----------- ----------- ----------- NET REVENUE $49,100,610 $65,063,621 $12,551,640 $20,336,665 ----------- ----------- ----------- ----------- Costs and Expenses Cost of revenue (excluding depreciation and amortization) 26,564,470 35,945,036 6,636,422 10,611,692 Selling, general and administrative 22,460,192 26,185,252 5,490,130 8,376,781 Depreciation and amortization 3,064,612 4,534,607 454,032 1,453,855 Write down of assets - Note H 1,504,738 -- 1,504,738 -- Restructuring Expense 385,373 -- 385,373 -- ----------- ----------- ----------- ----------- Total costs and expenses 53,979,385 66,664,895 14,470,695 20,442,328 ----------- ----------- ----------- ----------- OPERATING LOSS (4,878,775) (1,601,274) (1,919,055) (105,663) ----------- ----------- ----------- ----------- Other Income (Expense) Early retirement of debt (307,289) -- (307,289) -- Interest income 30,649 14,280 14,891 3,868 Interest expense (227,719) (249,167) (21,682) (71,638) ----------- ----------- ----------- ----------- Total other income (expenses), net (504,359) (234,887) (314,080) (67,770) NET INCOME (LOSS) BEFORE TAXES (5,383,134) (1,836,161) (2,233,135) (173,433) Income tax (provision) benefit -- -- -- -- ----------- ----------- ----------- ----------- NET INCOME (LOSS) $(5,383,134) $(1,836,161) $(2,233,135) $ (173,433) =========== =========== =========== =========== BASIC INCOME (LOSS) PER COMMON SHARE $ (.30) $ (0.10) $ (.13) $ (0.01) ----------- ----------- ----------- ----------- DILUTED INCOME (LOSS) PER COMMON SHARE $ (.30) $ (0.10) $ (.13) $ (0.01) ----------- ----------- ----------- -----------
See notes to condensed consolidated financial statements. 4 COVISTA COMMUNICATIONS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Nine Months Ended October 31, 2004 2003 ----------- ------------ OPERATING ACTIVITIES: Net loss $(5,383,134) $(1,836,161) Depreciation and amortization 3,064,612 4,534,607 Provision for doubtful accounts 840,808 1,188,800 Changes in assets and liabilities (544,355) (4,530,361) ----------- ----------- Net cash provided by (used in) operating activities (2,022,069) (643,115) ----------- ----------- INVESTING ACTIVITIES: Proceeds from sale of assets to PAETEC 9,298,287 -- Purchase of property and equipment (210,761) (183,655) Additions to deferred line installation costs (102,817) (146,531) ----------- ----------- Net cash used in investing activities 8,984,709 (330,186) ----------- ----------- FINANCING ACTIVITIES: Note payable to related party (943,750) (943,749) Exercise of stock options 14,350 46,667 Bank borrowing, net (1,325,946) (325,088) ----------- ----------- Net cash provided by (used in) financing activities (2,255,346) (1,222,170) ----------- ----------- NET CHANGE IN CASH AND CASH EQUIVALENTS 4,707,294 (2,195,471) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 3,797,247 3,444,307 ----------- ----------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 8,504,541 $ 1,248,836 =========== =========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for: Interest $ 195,893 $ 265,559
See notes to condensed consolidated financial statements. 5 COVISTA COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE A - BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. They do not include all information and notes required by generally accepted accounting principles for complete financial statements. However, except as disclosed herein, there has been no material change from the information disclosed in the notes to the consolidated financial statements included in the Annual Report on Form 10-K of Covista Communications, Inc. and Subsidiaries (Covista) for the fiscal year ended January 31, 2004. In the opinion of management, all adjustments (consisting of normal recurring accruals only) considered necessary for a fair presentation have been included. Operating results for the three and nine-month periods ended October 31, 2004 are not necessarily indicative of the results that may be expected for the year ending January 31, 2005. Certain reclassifications have been made to conform prior years' balances to the current year presentation. Revenue Recognition We derive our revenues from long distance and local phone services. We recognize revenue from voice, data and other telecommunications-related services in the period in which subscribers use the related service. Deferred revenue represents the unearned portion of local service and features that are billed a month in advance. Deferred Line Installation Costs The Company defers charges from other common carriers related to the cost of installing telephone transmission facilities (lines). Amortization of these costs is provided using the straight-line method over the related contract life of the lines ranging from three to five years. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates. Intangible Assets Prior to the transaction with PAETEC (see Note H), intangible assets consisted of prepaid network capacity and purchased customer and agent relationships being amortized over a straight-line basis over periods varying between 10 and 120 months. The Company incurred amortization expense on intangible assets of approximately $1.3 million and $4.5 million for the nine months ended October 31, 2004, and 2003 respectively. During the quarter ended October 31, 2004, the Company recorded a charge of approximately $1.4 million against intangible assets related to restructuring as a result of the PAETEC transaction. The balance of intangible assets with a definite life was approximately $2.7 million, net of accumulated amortization of approximately $1.3 million at October 31, 2004 and approximately $4.8 million, net of accumulated amortization of approximately $4.5 million at January 31, 2004. Approximate amortization expense on intangible assets for the next 5 years and thereafter is as follows: 2005 $100,000 2006 $400,000 2007 $400,000 2008 $400,000 2009 $400,000 Thereafter $967,000
6 COVISTA COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Risks and Uncertainties Future results of operations involve a number of risks and uncertainties. Factors that could affect future operating results and cash flows and cause actual results to vary materially from historical results include, but are not limited to: o Changes in government policy, regulation and enforcement or adverse judicial or administrative interpretations and rulings or legislative action relating to regulations, enforcement and pricing, including, but not limited to, changes that affect continued availability of the unbundled network element platform of the local exchange carriers network and the costs associated therewith o Dependence on the availability and functionality of the networks of the incumbent local exchange carriers as they relate to the unbundled network element platform o Increased price competition in local and long distance services, including bundled services, and overall competition within the telecommunications industry. o Outcomes unfavorable to us of the FCC's rule-making process and of pending litigation with regards to the availability and pricing of various network elements and bundles thereof. Negative developments in these areas could have a material effect on the Company's business, financial condition and results of operations. Concentrations of Credit Risk The Company sells its telecommunications services and products to residential, small and medium size businesses, and wholesale customers. The Company performs ongoing credit evaluations of both its retail and wholesale customers. The Company generally does not require collateral; however, when circumstances warrant, deposits are required. Recent conditions in the telecommunications industry have given rise to an increase in potential doubtful accounts. Allowances are maintained for such potential credit losses. The Company has entered into offset arrangements with certain of its customers, which are also vendors, allowing for the ability to offset receivables against the Company's payables balance. 7 COVISTA COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE B - STOCK BASED COMPENSATION The following disclosure complies with the provisions of SFAS No. 123, as amended by SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure - an amendment of FASB Statement No. 123", and includes pro forma net loss as if the fair value based method of accounting had been applied:
Nine Months Ended October 31, 2004 2003 ------- ------- Net Loss as reported (000's) $(5,383) $(1,836) Total stock-based compensation expense determined under fair value based method for all options (000's) (489) (215) ------- ------- Pro forma net loss (000's) $(5,872) $(2,051) ======= ======= Basic Earnings Per Share: As reported $ (.30) $ (.10) Pro forma $ (.33) $ (.12) Diluted Earnings Per Share: As reported $ (.30) $ (.10) Pro forma $ (.33) $ (.12)
For purposes of pro forma disclosures under SFAS 123, the estimated fair value of the options is assumed to be amortized to expense over the options' vesting periods. The fair value of the options granted has been estimated at the various dates of the grants using the Black-Scholes option-pricing model with the following assumptions: o Fair market value based on the Company's closing Common Stock price on the date the option is granted; o Risk-free interest rate based on the weighted averaged U.S. Treasury note rates of 3.1% and 2.0% for 2004 and 2003 respectively; o Volatility based on the historical stock price over the expected term of 118% and 153% for 2004 and 2003 respectively; o No expected dividend yield based on future dividend payment plans. 8 COVISTA COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE C - EARNINGS (LOSS) PER SHARE The following table sets forth the computation of basic and diluted loss per Common Share:
Nine Months Ended October 31, Three Months Ended October 31, 2004 2003 2004 2003 ----------- ----------- ----------- ----------- Numerator: Income (loss) available to Common Shareholders used in basic and diluted income (loss) per Common Share $(5,383,134) $(1,836,161) $(2,233,135) $ (173,433) Denominator: Weighted-average number of Common Shares used in basic income (loss) earnings per Common Share 17,822,025 17,790,870 17,822,025 17,806,425 Effect of diluted securities: Common share options (1) -- -- -- -- ----------- ----------- ----------- ----------- Weighted-average number of Common Shares and diluted potential Common Shares used in diluted income (loss) per Common Share 17,822,025 17,790,870 17,822,025 17,806,425 ----------- ----------- ----------- ----------- Basic income (loss) Per Common Share $ (.30) $ (.10) $ (.13) $ (.01) ----------- ----------- ----------- ----------- Diluted income (loss) per Common Share $ (.30) $ (.10) $ (.13) $ (.01) ----------- ----------- ----------- -----------
(1) Common Shares subject to options are not included in the calculation of diluted loss per Common Share as doing so would be antidilutive due to the net loss per common share. At October 31, 2004, 723,000 Common Shares subject to options have been excluded from the calculation. NOTE D - SEGMENT REPORTING The Company sells telecommunication services to three distinct segments: residential, formerly known as KISSLD; a retail segment consisting primarily of small to medium size businesses; and a wholesale segment with sales to other telecommunications carriers. As a result of the sale of selected customers to PAETEC (discussed in Note H) the retail segment will report lower net sales for the current and subsequent quarters. In addition to direct costs, each segment is allocated a proportion of the Company's operating expenses, including utilization of its switching equipment and facilities. The allocation of expenses is based upon the minutes of use flowing through the Company's switching network. There are no intersegment sales. When specifically identified, assets are allocated to each segment. All intangible assets and goodwill have been allocated to the retail segment. Capital expenditures and other assets are allocated based on total revenue. Management evaluates performance on operating results of the three business segments. 9 COVISTA COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Summarized financial information (000's) concerning Covista's reportable segments is shown in the following table:
Residential Retail Wholesale Total ----------- ------- --------- ------- Nine Months Ended October 31, 2004 Net Sales $16,544 $30,182 $2,375 $49,101 Operating profit (loss) $ (368) $(3,989) $ (522) $(4,879) Assets $10,508 $16,325 $2,015 $28,848 Capital expenditures $ 71 $ 130 $ 10 $ 211 Nine Months Ended October 31, 2003 Net Sales $12,839 $48,682 $3,543 $65,064 Operating profit (loss) $ (480) $ (282) $ (839) $(1,601) Assets $ 5,585 $32,609 $2,049 $40,243 Capital expenditures $ 35 $ 138 $ 11 $ 184
NOTE E - INCOME TAXES For the fiscal year ended January 31, 2004, Covista established a valuation allowance against its net deferred tax asset due to the uncertainty of realizing certain tax credits and loss carryforwards. In the quarter ended October 31, 2004, Covista continued this accounting treatment and recorded a full valuation allowance against the net tax benefit arising from the quarter's net operating loss. The result is that the net deferred tax asset of approximately $3,078,000 is fully offset by the valuation allowance and as such, does not appear as an asset on the balance sheet. It will be reflected in the Company's balance sheet when the net deferred tax asset can be utilized in future periods or when management's assessment is substantially changed. NOTE F - LONG TERM DEBT Effective April 16, 2003, Covista executed a revolving credit and security agreement with Capital Source Finance, LLC. This credit facility provided the Company with an $8 million loan, based on eligible accounts receivable. This thirty-six month facility allowed the Company to borrow funds based on a portion of eligible customer accounts receivable at the Prime Rate plus 2.00% with a floor of 6.25%. Interest, unused line and collateral management fees were payable monthly in arrears. The loan was secured by all of the Company's assets. This facility was paid in full and terminated on August 19, 2004 as the result of the PAETEC transaction, further discussed in Note H. The Company recorded early termination expense of approximately $307,000 related to this payoff. On June 17, 2002, Covista entered into a term loan agreement with a major bank. The initial principal amount of this note was $3,775,000, payable in 36 monthly installments at a fixed interest rate of 4.495% for the first year and converting to 2% over LIBOR on June 17, 2003 and thereafter or 3.1%. Effective June 17, 2003, Covista's Chairman of the Board re-paid the bank in full and assumed the remaining balance of this loan under the identical terms and conditions. This note is secured by certain of the Company's switching equipment. The balance on this facility was approximately $888,000 at October 31, 2004, all of which is classified as current. 10 COVISTA COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE G - COMMITMENTS AND CONTINGENCIES The Company is involved in various legal and administrative actions arising in the normal course of business. While the resolution of any such actions may have an impact on the financial results for the period in which it is resolved, management believes that the ultimate disposition of these matters will not have a material adverse effect upon its consolidated results of operations, cash flows or financial position. The company has also committed to purchase $12 million of services from PAETEC as a result of the transaction described in Note H. NOTE H - PAETEC TRANSACTION On May 25, 2004, the Company signed a definitive agreement to sell selected commercial customers, switches and related facilities to PAETEC Communications, Inc., a Fairport, New York based competitive local exchange carrier. The long distance customer portion of this transaction, representing approximately 90% of the total purchase price was closed on August 17, 2004. The local customer portion of this transaction, representing approximately 10% of the total purchase price is scheduled to close on December 31, 2004. PAETEC is currently managing these selected local customers under the terms of a separate agreement, until closing. Covista has also executed an agreement to purchase $12 million of services from PAETEC over 24 months. This Wholesale Service Agreement allows the Company to procure services at market competitive rates and the Company anticipates that it should fully utilize the commitment during the term. The Company anticipates receiving total cash proceeds of approximately $14.9 million from PAETEC. The net book value of the long-lived, tangible and intangible assets sold in the transaction was approximately $13.3 million. As a result, the pre-tax gain on the transaction will be approximately $1.6 million, all of which has been deferred as of October 31, 2004. As of October 31, 2004, the Company has received approximately $9.3 million. The remaining balance due is approximately $5.6 million, of which approximately $3.4 million was received subsequent to October 31, 2004. The final payment is due on May 17, 2005, and the amount is subject to final adjustment based on the performance of the customer base. A portion of the final payment will be used to repurchase shares of Common Stock from the former Chief Operating Officer of the Company. Regardless of the amount of that final payment, the Company is obligated to purchase a minimum of $250,000 worth of Common Stock from this former employee at $2.00 per share. Any repurchased shares will be recorded at cost as Treasury stock. PAETEC has hired the majority of former Company employees responsible for servicing the associated customers and has assumed leases for existing switch facilities in New York and Philadelphia as well as office locations in Bensalem, PA and Paramus, NJ. The Company incurred approximately $385,000 of restructuring charges related to employee severance and other costs associated with the consolidation of back office functions and other management initiatives. 11 ITEM 2 COVISTA COMMUNICATIONS, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT OF OPERATIONS SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS: Certain matters discussed in this Quarterly Report on Form 10-Q are "forward-looking statements" intended to qualify for the safe harbor from liability provided by the Private Securities Litigation Reform Act of 1995. These forward-looking statements generally can be identified as such because the context of the statement will include words such as Covista "believes", "anticipates", "expects", or words of similar import. Similarly, statements, which describe Covista's future plans, objectives or goals, are also forward-looking statements. Such forward-looking statements are subject to certain risks and uncertainties, which are described in, close proximity to such statements and which could cause actual results to differ materially from those anticipated as of the date of this Report. Shareholders, potential investors and other readers are urged to consider these factors in evaluating the forward-looking statements and are cautioned not to place undue reliance upon such forward-looking statements. The forward-looking statements included herein are made only as of the date of this Report and Covista undertakes no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances, except as required under applicable laws. Overview We offer a bundle of long distance and local phone services to residential and small business customers in the United States. Our current business strategy is to build a large, profitable base of bundled phone service customers using the wholesale operating platforms of the incumbent local telephone companies, then migrate customers to our own networking platform, and further increase our revenues and profitability by offering new products and services to these customers. As a result of significant changes to the FCC rules that require incumbent local telephone companies to provide unbundled network elements to us (discussed under "Other Matters", below), the wholesale rates that we are charged in order to provide our services will most likely increase significantly in 2005 and over time. These cost increases will likely lead to increases in our product pricing and may inhibit our ability to add new customers as well as retain current customers. The FCC has established interim rules that make unbundled network elements available to us on a grandfathered basis until March 2005 and we currently plan to continue to market our services and to build our base of bundled customers through such date. However, in the event that either the FCC's final rules provide for an earlier date where our pricing from the incumbent local telephone companies significantly increases, as contemplated in the interim rules, or we have knowledge regarding such an increase in price, we expect to reduce our efforts to increase subscriber growth and focus on markets with potential for deployment of our own network facilities. Results of Operations Net revenue was approximately $49,101,000 for the first nine months of the current fiscal year, a decrease of approximately $15,963,000 or 25% as compared to the approximately $65,064,000 recorded in the first nine months of the prior fiscal year. Net revenue for the third quarter of the current fiscal year were approximately $12,552,000, a decrease of approximately $7,785,000 or 38% as compared to the approximately $20,337,000 recorded in the third quarter of the prior fiscal year. The overall decrease is primarily related to intense competitive pressure in the retail segment combined with planned reductions in wholesale revenue and the recently completed sale of selected customers to PAETEC as discussed further in Note H. 12 ITEM 2 COVISTA COMMUNICATIONS, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT OF OPERATIONS Residential revenue for the nine-month period was approximately $16,544,000, an increase of approximately $3,706,000 or 29% over the same period from the prior year. For the three-month period ended October 31, 2004, Residential revenue was approximately $6,309,000, an increase of approximately $2,059,000 or 48% versus the comparative quarter in the last fiscal year. The current year increase in the Residential segment is primarily attributed the launch of local service. Approximately $5,888,000 of the nine month total was for local services versus $109,000 for the comparative period from the prior year. Approximately $2,922,000 of local service revenue was earned in the quarter ended October 31, 2004. The total minutes sold for Residential for the nine-month period ended October 31, 2004 were approximately 217,994,000, a decrease of approximately 4,605,000 or 2%, versus the comparative period in the last fiscal year. Residential minutes sold for the three-month period ended October 31, 2004, were approximately 74,648,000, an increase of approximately 1,972,000 or 3% versus the comparative quarter in the last fiscal year. Retail revenue for the nine-month period was approximately $30,181,000, a decrease of approximately $18,501,000 or 38% versus the prior year to date total. For the quarter ended October 31, 2004, retail revenue was approximately $5,773,000, a decrease of approximately $9,278,000 or 62% versus the comparative quarter in the last fiscal year. Retail minutes sold in the nine-month period ended October 31, 2004 were approximately 431,744,000 minutes, a decrease of approximately 287,298,000 minutes or 40%, versus the comparative period in the last fiscal year. Retail minutes sold in the quarter ended October 31, 2004 were approximately 62,519,000, a decrease of approximately 160,083,000 or 72% versus the prior fiscal year. The current year decrease in the retail segment is primarily attributed to intense competitive pressure from other providers, especially those which have the ability to bundle local dial tone with traditional long distance offerings. While the Company has recently launched local services to the retail segment in certain markets, the Company has experienced significant loss of former retail customers, which have taken advantage of competitive providers bundled service offerings. The Company does not foresee this intensely competitive climate abating in the near future. During the quarter ended October 31, 2004, the Company closed a transaction in which it sold the majority of its retail customer base, as discussed further in Note H. Wholesale revenue for the nine-month period was approximately $2,375,000, including carrier access billing revenue of approximately $577,000, an overall decrease of approximately $1,168,000 or 33% versus the prior year to date total. For the quarter ended October 31, 2004, wholesale revenue was approximately $836,000, including carrier access billing revenue of approximately $185,000, an overall decrease of approximately $201,000 or 19% versus the comparative quarter in the last fiscal year. The Company plans to maintain nominal wholesale volume in the future, based on network capacity and gross margin opportunities, while balancing any possible financial exposure related to un-collectible balances. Cost of revenue for the current nine-month period ended October 31, 2004 was approximately $26,564,000, a decrease of approximately $9,381,000 or 26%. These changes were in line relative to 25% decrease in net revenues for the nine-month period. 13 ITEM 2 COVISTA COMMUNICATIONS, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT OF OPERATIONS Cost of revenue for the three-month period ended October 31, 2004, was approximately $6,636,000, a decrease of approximately $3,975,000 or 37%. These changes were in line relative to the 38% decrease in revenues in the third quarter. We structure and price our products in order to maintain network and line costs as a percentage of revenue at certain targeted levels. There are several factors that could cause our network and line costs as a percentage of revenue to increase in the future, including without limitation: o Determinations by the FCC, courts or state commission(s) that make unbundled local switching and/or combinations of unbundled network elements effectively unavailable to us in some or all of our geographic service areas, requiring us to provide services in these areas through other means, including local service resale agreements with incumbent local telephone companies, network elements purchased from the Regional Bell Operating Companies at "just and reasonable" rates under Section 271 of the Act and the switching facilities of other non-incumbent carriers, in any case, at significantly increased costs or to provide services over our own switching facilities, if we were able to deploy them. The U.S. Court of Appeals for the District of Columbia, on March 2, 2004, issued an order that reversed the FCC's Triennial Review Order in part and remanded to the FCC with instructions to revise the Order in material ways which may make unbundled local switching and/or combinations of unbundled network elements effectively unavailable to us in some or all of our geographic service areas. o Adverse changes to the current pricing methodology mandated by the FCC for use in establishing the prices charged to us by incumbent local telephone companies for the use of their unbundled network elements. The FCC's 2003 Triennial Review Order, which was reversed in part and remanded to the FCC with instructions to revise the Order in material ways, clarified several aspects of these pricing principles related to depreciation, fill factors (i.e. network utilization) and cost of capital, which could enable incumbent local telephone companies to increase the prices for unbundled network elements. In addition, the FCC released a Notice of Proposed Rulemaking on December 15, 2003, which initiated a proceeding to consider making additional changes to its unbundled network element pricing methodology, including reforms that would base prices more on the actual network costs incurred by incumbent local telephone companies than on the hypothetical network costs that would be incurred when the most efficient technology is used. These changes could result in material increases in prices charged to us for unbundled network elements. o Determinations by state commissions to increase prices for unbundled network elements in ongoing state cost dockets. Selling, general and administrative expenses for the nine-month period were approximately $22,460,000, a decrease of approximately $3,725,000 or 14%. This decrease is primarily due to payroll reduction of approximately $944,000 as a result of fewer employees, commission decreases of approximately $2,815,000 due to less commissionable revenue; advertising expense increases of approximately $1,847,000 attributable to the launch of our local product in selected markets; reduction in bad debt expense of approximately $429,000 due to improved receivable collections; reduced equipment rent of approximately $170,000; decreased billing cost of approximately $417,000 due to more efficient billing operations; and other general cost reductions of approximately $797,000. For the quarter ended October 31, 2004, selling, general and administrative expense was approximately $5,490,000, a decrease of approximately $2,887,000, or 34% versus the comparative quarter in the last fiscal year. For the three-month period ended October 31, 2004, this reduction was comprised primarily of payroll reductions of approximately $1,065,000 as a result of fewer employees; commission decreases of approximately $1,257,000 due to less commissionable revenue; increased advertising expense of approximately $301,000; and net decreases in other categories of approximately $866,000. 14 ITEM 2 COVISTA COMMUNICATIONS, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT OF OPERATIONS As a result of the PAETEC transaction previously discussed, the Company has recorded a pre-tax charge of approximately $1,505,000 during the quarter ended October 31, 2004. In addition, as previously discussed, the Company recorded a pre-tax restructuring charge of approximately $385,000 during the quarter ended October 31, 2004. For the reasons described above, the operating loss for the nine-month period ended October 31, 2004 was approximately $4,879,000, an increase of approximately $3,278,000 from the nine-month period ended October 31, 2003. The operating loss for the three-month period ended October 31, 2004 was approximately $1,919,000, an increase of approximately $1,813,000 over the prior year's three-month period ended October 31, 2003. Basic and diluted loss per Common Share was $.25 per share for the current nine-month period ended October 31, 2004 as compared to $.10 loss per share for the nine-months ended October 31, 2003. Basic and diluted loss per Common Share was $.08 per share for the current three-month period ended October 31, 2004, as compared to a $.01 loss per Common Share for the three-months ended October 31, 2003. Liquidity and Capital Resources At October 31, 2004, Covista had a positive working capital of approximately $4,228,000, an increase of approximately $10,316,000 as compared to January 31, 2004. The ratio of current assets to current liabilities at October 31, 2004 was 1.27:1, as compared to the ratio of .71:1 at January 31, 2004. During the quarter ended October 31, 2004, the Company completed a transaction to sell the majority of its commercial customer base. At October 31, 2004, the buyer has paid approximately $9.3 million and is obligated to pay an additional approximately $5.6 million, of which approximately $3.4 million has been received subsequent to October 31, 2004. The final payment is due on May 17, 2005, subject to final adjustment. The Company has deferred to portion of overall gain related to the contingent future payment. In the opinion of management, cash flow from operations as well as cash received as a result of the transaction described above will be sufficient to meet the operating and capital needs of the Company for at least the next twelve months. Capital Expenditures Capital expenditures for the nine-month period ended October 31, 2004 were approximately $211,000. Capital expenditures for the remainder of Fiscal 2005 are estimated not to exceed approximately $100,000 and are expected to be funded from cash on hand and operations. Prepaid Network Capacity In July 2001, Covista purchased 2.8 billion DS-0 channel miles of telecommunications network capacity from an unaffiliated party. The unaffiliated party has recently emerged from Chapter 11 reorganization and, as of the date of this report, is continuing to perform under the agreement and, therefore, management does not believe that this asset is impaired. As of the date hereof, Covista has used approximately 496 million DS-0 channel miles of telecommunications network capacity against the 2.8 billion DS-0 total prepaid network capacity, of which $400,000 has been classified as a current asset, based on anticipated usage in the next 12 months and the remainder of the prepaid capacity amount of approximately $2,667,000 is included in intangible assets. 15 ITEM 2 COVISTA COMMUNICATIONS, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT OF OPERATIONS Accounts Receivable and Credit Risk Accounts receivable subjects Covista to the potential for credit risk with customers in the retail and wholesale segments. To reduce credit risk, Covista performs ongoing evaluations of its customers' financial condition and, except in situations where the risk warrants it, Covista does not require a deposit or other collateral. Accounts receivable of approximately $6,240,000, net of the reserve for un-collectible accounts totaling approximately $1,157,000, represents approximately 22% of the total assets of Covista. No one customer accounts for greater than one percent of the total revenues. In the wholesale segment, which contains Covista's largest customers, Covista has been able to reduce credit risk by using reciprocal arrangements with certain customers, which are also Covista's suppliers, to offset outstanding receivables. Covista has historically maintained a better than three percent ratio of bad debts to revenues. For the nine-month period ended October 31, 2004, this ratio was approximately 2%. Covista also measures accounts receivable turnover (as measured in days sales outstanding). For the periods ended October 31, 2004 and 2003, days sales outstanding were 29 days and 50 days, respectively. The decrease between periods is primarily the result of retaining a higher share of customers that pay via credit card, after the sale of selected customers to PAETEC, as previously discussed. Related Party Transactions Jay J. Miller, a Director of Covista, has provided various legal services for Covista in Fiscal 2004. In the third quarter, Covista accrued approximately $25,000 to Mr. Miller for services rendered. As of October 31, 2004, Covista owed Mr. Miller approximately $36,000. On June 17, 2002, Covista entered into a term loan agreement with a major bank. The initial principal amount of this note was $3,775,000, payable in 36 monthly installments at a fixed interest rate of 4.495% for the first year and converting to 2% over LIBOR on June 17, 2003 and thereafter or 3.1%. Effective June 17, 2003, Covista's Chairman of the Board paid the bank in full and assumed the remaining balance of this loan under the identical terms and conditions. This note is secured by certain of the Company's switching equipment. The balance on this facility was $888,000 at October 31, 2004, all of which is classified as current. 16 COVISTA COMMUNICATIONS, INC. AND SUBSIDIARIES CRITICAL ACCOUNTING POLICIES Nature of Operations Covista Communications, Inc. ("Covista"), and its wholly-owned subsidiaries (collectively, the "Company") operates as a switch based resale common carrier providing domestic and international long distance and local telecommunications service to customers throughout the United States. Prior to the Capsule acquisition, the Company's principal customers were primarily businesses and other common carriers. On September 15, 2000, the Company changed its name from Total-Tel USA Communications, Inc. to Covista Communications, Inc. On February 8, 2002, Covista completed the acquisition of Capsule Communications, Inc. As a result, Capsule became a wholly owned subsidiary of Covista. Capsule is a switch-based interexchange carrier providing long distance telephone communications services primarily to small and medium-size business customers as well as residential accounts. The results of Capsule's operations have been included in the Company's statement of operations since the acquisition date. Revenue Recognition We derive our revenues from long distance and local phone services. We recognize revenue from voice, data and other telecommunications-related services in the period in which subscribers use the related service. Deferred revenue represents the unearned portion of local service and features that are billed a month in advance. Property and Equipment Property and equipment are stated at cost. Depreciation and amortization is being provided by use of the straight-line method over the estimated useful lives of the related assets. Leasehold improvements are amortized over the shorter of the term of the lease or the useful lives of the asset. The estimated useful lives of the principal classes of assets and respective carrying amounts are as follows:
Useful Life October 31, 2004 Classification in Years (Unaudited) January 31, 2004 ---------------------------------------------- ----------- ---------------- ---------------- Machinery and equipment 5-10 $ 7,901,580 $ 22,390,711 Office furniture, fixtures and equipment 5-10 1,971,700 4,780,968 Vehicles 3-5 -- 41,812 Leasehold improvements 2-10 475,082 1,612,300 Computer equipment and software 5-7 4,166,645 10,418,781 Machinery and equipment in progress -- 2,579,733 2,512,255 ------------ ------------ 17,094,740 41,756,827 Less accumulated depreciation and amortization (10,936,101) (30,102,462) ------------ ------------ $ 6,158,639 $ 11,654,365 ============ ============
Deferred Line Installation Costs The Company defers charges from other common carriers related to the cost of installing telephone transmission facilities (lines). Amortization of these costs is provided using the straight-line method over the related contract life of the lines ranging from three to five years. Intangible Assets Intangible assets consist of prepaid network capacity and purchased customer and agent relationships being amortized over a straight-line basis over periods varying between 10 and 120 months. 17 COVISTA COMMUNICATIONS, INC. AND SUBSIDIARIES CRITICAL ACCOUNTING POLICIES Goodwill Goodwill consists of the excess purchase price over the fair value of identifiable net assets of acquired businesses. Goodwill added subsequent to January 1, 2002 is not being amortized in accordance to SFAS 142. The carrying value of goodwill is evaluated for impairment on an annual basis. Management also reviews goodwill for impairment whenever events or changes in circumstances indicate that the carrying amount of goodwill may be impaired. As a result of the PAETEC transaction discussed further in Note H, the Company recorded a Goodwill charge of approximately $8 million during the quarter ended October 31, 2004. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates. Vendor Disputes The Company records disputed line cost expenses in accordance with FASB Statement No. 5, "Accounting for Contingencies". Billings from line cost vendors are compared to the Company's engineering and operations data, with differences filed with the vendors as a disputed billing. Disputed line cost billings are recorded by the Company at the estimated liability due based upon the Company's historical experience in settling similar disputes. Actual settlement of disputes may differ from original estimates. Management adjusts the dispute reserve each month. The net reserve for dispute losses at October 31, 2004 and 2003 was approximately $2.3 million and $2.2 million respectively and is included in accounts payable and accrued line cost. Risks and Uncertainties Future results of operations involve a number of risks and uncertainties. Factors that could affect future operating results and cash flows and cause actual results to vary materially from historical results include, but are not limited to: o Changes in government policy, regulation and enforcement or adverse judicial or administrative interpretations and rulings or legislative action relating to regulations, enforcement and pricing, including, but not limited to, changes that affect continued availability of the unbundled network element platform of the local exchange carriers network and the costs associated therewith o Dependence on the availability and functionality of the networks of the incumbent local exchange carriers as they relate to the unbundled network element platform o Increased price competition in local and long distance services, including bundled services, and overall competition within the telecommunications industry. Negative developments in these areas could have a material adverse effect on the Company's business, financial condition and results of operations. 18 COVISTA COMMUNICATIONS, INC. AND SUBSIDIARIES CRITICAL ACCOUNTING POLICIES Concentrations of Credit Risk The Company sells its telecommunications services and products primarily to small to medium size businesses, residential and wholesale customers. The Company performs ongoing credit evaluations of both its retail and wholesale customers. The Company generally does not require collateral; however, when circumstances warrant, deposits are required. Recent conditions in the telecommunications industry have given rise to an increase in potential doubtful accounts. Allowances are maintained for such potential credit losses. The Company has entered into offset arrangements with certain of its customers which are also vendors, allowing for the ability to offset receivables against the Company's payables balance. Market Risk Market risk represents the risk of changes in value of a financial instrument, derivative or non-derivative, caused by fluctuations in interest rates, foreign exchange rates and equity prices. As Covista holds no marketable securities at October 31, 2004, the exposure to interest rate risk relating to marketable securities no longer exists. Covista does not hold any derivatives related to its interest rate exposure. Covista also maintains long-term debt at fixed rates. Due to the nature and amounts of Covista's note payable, an immediate 10% change in interest rates would not have a material effect in Covista's results of operations over the next fiscal year. Covista's exposure to adverse changes in foreign exchange rates is also immaterial to the consolidated statements as a whole. Cash and Cash Equivalents The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Cash and cash equivalents consist of cash on hand, demand deposits and money market accounts. Other Matters Our provision of telecommunications services is subject to government regulation. Recent changes in these regulations are likely to have a material adverse effect on us. Our local telecommunications services are provided almost exclusively through the use of unbundled network elements purchased from incumbent local telephone companies, and it is primarily the availability of unbundled network elements priced by regulators at cost-based rates that has enabled us to price our local telecommunications services competitively. FCC rules that were in effect until June 15, 2004 required incumbent local telephone companies to provide an unbundled network element platform, that includes all of the network elements required by a competitor to provide a competitive retail local telecommunications service, in most geographic areas. Through the use of unbundled network element platforms of the incumbent local telephone company, we have been able to provide retail local telecommunications services entirely through the use of the incumbent local telephone companies' facilities at substantially lower prices than those available for resale through total service resale agreements. However, on March 2, 2004, the U.S. Court of Appeals for the District of Columbia reversed the FCC order that promulgated the rules requiring incumbent local telephone companies to provide unbundled network elements in important respects. Among other things, the Court ruled that the FCC had improperly determined that the ability of competitive local telephone carriers such as Covista was impaired nationwide without access to the local switching and high capacity transport unbundled network elements, and that the FCC had erroneously delegated decision-making authority over where particular unbundled network elements must be provided to state commissions. Accordingly, the Court of Appeals vacated important portions of the FCC's orders relating to the provision of unbundled network elements effective as of June 15, 2004, including the portions that required incumbent local telephone carriers to provide critical components of the unbundled network element platform. 19 COVISTA COMMUNICATIONS, INC. AND SUBSIDIARIES CRITICAL ACCOUNTING POLICIES In response to the Court's decision, the FCC adopted interim rules that grandfathered competitive carriers, such as we are, and enabled us to continue until March 2005 to order all unbundled network elements that were available to us under interconnection agreements that were in effect as of June 15, 2004. After that date, we will not be able to order any of the unbundled networks elements vacated by the Court unless the FCC adopts replacement rules creating such a right. The FCC is also currently considering whether to require the incumbent local telephone companies to continue providing to competitive carriers the local switching, high capacity loop and high capacity dedicated transport elements. We cannot predict whether the FCC will complete work on the proceeding prior to the expiration of its interim rules in March 2005, or if so, whether the FCC will promulgate rules that would entitle us to continue ordering the network elements that we currently use. Should the unbundled network element platform become effectively unavailable to us due to this judicial ruling or otherwise, we would be unable to offer our telecommunications services as we have done in the past and would instead be required to serve customers through total service resale agreements with the incumbent local telephone companies, through the use of our own network facilities, by migrating customers onto the networks of other facilities-based competitive local telephone companies or, perhaps, by purchasing critical unbundled network elements at presumably higher "just and reasonable" rates pursuant to Section 271 of the Act. As a result, our cost of service could rise substantially and our plans for a service roll-out for use of our own network facilities could be delayed substantially or derailed entirely. This would have a material adverse effect on our business, prospects, operating margins, results of operations, cash flows and financial condition. 20 COVISTA COMMUNICATIONS, INC. AND SUBSIDIARIES PART II - OTHER INFORMATION ITEMS 1 - 5 Not applicable ITEM 6 Exhibits and Reports on Form 8K 8K - Dated September 10, 2004, Press Release Regarding Second Quarter Results 21 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 by the undersigned thereunto duly authorized. COVISTA COMMUNICATIONS, INC. (Registrant) Date: December 10, 2004 By: /s/ A. John Leach, Jr. ------------------------------------- A. John Leach, Jr. President and Chief Executive Officer Date: December 10, 2004 By: /s/ Frank J. Pazera ------------------------------------- Executive Vice President, Chief Financial Officer and Principal Accounting Officer 22

View differences made from one quarter to another to evaluate Covista Communications Inc's financial trajectory

Compare SEC Filings Year-over-Year (YoY) and Quarter-over-Quarter (QoQ)
Sample 10-K Year-over-Year (YoY) Comparison

Compare this 10-Q Quarterly Report to its predecessor by reading our highlights to see what text and tables were  removed  ,   added    and   changed   by Covista Communications Inc.

Continue

Assess how Covista Communications Inc's management team is paid from their Annual Proxy

Definitive Proxy Statement (Form DEF 14A)
Screenshot example of actual Proxy Statement

Covista Communications Inc's Definitive Proxy Statement (Form DEF 14A) filed after their 2004 10-K Annual Report includes:

  • Voting Procedures
  • Board Members
  • Executive Team
  • Salaries, Bonuses, Perks
  • Peers / Competitors

Continue

Tools
Ticker: CVST
CIK: 34497
Form Type: 10-Q Quarterly Report
Accession Number: 0000950117-04-004427
Submitted to the SEC: Mon Dec 13 2004 5:05:06 PM EST
Accepted by the SEC: Mon Dec 13 2004
Period: Sunday, October 31, 2004
Industry: Telephone Communications No Radiotelephone

External Resources:
Stock Quote
Social Media

Bookmark the Permalink:
https://last10k.com/sec-filings/cvst/0000950117-04-004427.htm