<PAGE>
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------------
FORM 10-QSB
-----------------------------------
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED COMMISSION FILE NUMBER:
MARCH 31, 1999 333-49279
NEXT GENERATION NETWORK, INC.
(Exact name of small business issuer as specified in its charter)
DELAWARE 41-1670450
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
11010 PRAIRIE LAKES DRIVE, SUITE 300
MINNEAPOLIS, MINNESOTA 55344
(Address of principal executive offices)
(612) 944-7944
(Issuer's telephone number)
-------------------------
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
--- ---
Number of shares of Common Stock outstanding as of May 10,1999: 2,662,680
Transitional Small Business Disclosure Format (Check one):
Yes No X
--- ---
- --------------------------------------------------------------------------------
<PAGE>
NEXT GENERATION NETWORK, INC.
FORM 10-QSB
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Part I. Financial Information Page
----
<S> <C> <C>
Item 1. Financial Statements.
Balance Sheets as of December 31, 1998 and March 31, 1999 . . . . . . . . . . . . . . . 3
Statements of Operations for the Three Months Ended March 31, 1998 and 1999 . . . . . . 4
Statements of Stockholders' Equity for the Three Months Ended March 31,1999 . . . . . . 5
Statements of Cash Flows for the Three Months Ended March 31, 1998 and 1999 . . . . . . 6
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7-8
Item 2. Management's Discussion and Analysis or Plan of Operations . . . . . . . . . . . .9-13
Part II. Other Information.
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . 14
</TABLE>
<PAGE>
Part I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NEXT GENERATION NETWORK, INC.
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 17,638,493 $ 24,710,213
Accounts receivable, net 551,530 468,725
Other current assets 73,857 91,159
------------ ------------
Total current assets 18,263,880 25,270,097
------------ ------------
Property and Equipment, net 11,035,067 10,517,706
Deferred Financing Costs 2,396,125 2,519,597
Other Assets 150,396 145,971
------------ ------------
$ 31,845,468 $ 38,453,371
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Current maturities of long-term debt $ 22,164 $ 21,439
Accounts payable 862,594 1,211,742
Accrued expenses (Note 3) 2,248,536 4,516,000
------------ ------------
Total current liabilities 3,133,294 5,749,181
------------ ------------
Non-current accrued site lease expense -- 207,712
------------ ------------
Long-term Debt (Note 2) 45,336,723 42,115,147
------------ ------------
Mandatory Redeemable Preferred Stock
14.8% Series B, nonvoting; authorized
91,100 shares; issued and outstanding
91,059 shares; stated at liquidation
value plus accrued dividends 10,104,261 9,748,507
14.8% Series C, nonvoting; authorized
90,000 shares; issued and outstanding
75,540 shares; stated at liquidation
value plus accrued dividends 7,280,662 7,024,323
------------ ------------
17,384,923 16,772,830
------------ ------------
Stockholders' Deficit
8.25% Series A cumulative preferred stock,
nonvoting; authorized 20,000 shares;
issued and outstanding 6,000 shares; stated
at liquidation value, excluding cumulative
unpaid dividends 3,000,000 3,000,000
Common stock, $0.01 par value; authorized
10,000,000 shares; issued and outstanding
2,662,680 shares (Note 4) 26,627 26,627
Additional paid-in capital 8,630,312 9,242,405
Accumulated deficit (45,666,411) (38,660,531)
------------ ------------
(34,009,472) (26,391,499)
------------ ------------
$ 31,845,468 $ 38,453,371
------------ ------------
------------ ------------
</TABLE>
See notes to condensed financial statements.
3
<PAGE>
NEXT GENERATION NETWORK, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1999 1998
----------- -----------
<S> <C> <C>
Revenues:
Advertising Revenue $ 958,024 $ 400,077
Less agency commissions (24,609) (3,124)
----------- -----------
Net advertising revenue 933,415 396,953
Network equipment sales -- 26,309
Network operating revenue 210 150
----------- -----------
Total revenues 933,625 423,412
----------- -----------
Costs and expenses:
Cost of network equipment sales -- 9,996
Network Operating Expenses 1,853,612 844,079
Selling Expenses 2,228,703 956,919
General and administrative expenses 2,119,164 1,295,653
----------- -----------
Total Costs and Expenses 6,201,479 3,106,647
----------- -----------
Operating loss (5,267,854) (2,683,235)
Non operating income (expense):
Interest expense (1,991,010) (843,774)
Interest income 252,984 262,713
----------- -----------
Net loss (7,005,880) (3,264,296)
Preferred stock dividends 612,093 528,677
----------- -----------
Net loss applicable to common stockholders $(7,617,973) $(3,792,973)
----------- -----------
Basic and diluted net loss per common share $ (2.86) $ (1.42)
----------- -----------
----------- -----------
Weighted average number of common shares
outstanding 2,662,680 2,662,680
----------- -----------
----------- -----------
</TABLE>
See notes to condensed financial statements.
4
<PAGE>
NEXT GENERATION NETWORK, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
(UNAUDITED)
<TABLE>
<CAPTION>
Series A
Cumulative
Preferred Stock Common Stock Additional
--------------------- -------------------- Paid-In Accumulated
Shares Amount Shares Amount Capital Deficit Total
------- ----------- ---------- -------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1998 6,000 $3,000,000 2,662,680 $26,627 $9,242,405 $(38,660,531) $(26,391,499)
Accrued dividends on mandatory
redeemable preferred stock --- --- --- --- (612,093) --- (612,093)
Net Loss --- --- --- --- --- (7,005,880) (7,005,880)
------- ----------- ---------- -------- ----------- ------------- -------------
Balance, March 31, 1999 6,000 $3,000,000 2,662,680 $26,627 $8,630,312 $(45,666,411) $(34,009,472)
------- ----------- ---------- -------- ----------- ------------- -------------
------- ----------- ---------- -------- ----------- ------------- -------------
</TABLE>
See notes to condensed financial statements.
5
<PAGE>
NEXT GENERATION NETWORK, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------------
1999 1998
------------ ------------
<S> <S> <C>
OPERATING ACTIVITIES:
Net Loss $ (7,005,880) $ (3,264,296)
Adjustments to reconcile net loss to net cash used in
operating activities:
Interest amortization and accretion on long term debt 509,154 220,926
Non cash interest on PIK Notes 1,474,590
Depreciation and amortization 572,262 241,289
Other -- 17,710
Changes in assets and liabilities:
Receivables (82,805) 197,440
Other current assets 17,302 23,595
Accounts payable (349,148) 673,903
Accrued expenses (1,108,766) (430,139)
------------ ------------
Net Cash Used In Operating Activities (5,973,291) (2,319,572)
------------ ------------
INVESTING ACTIVITIES:
Purchase of equipment and furnishings (1,089,623) (597,035)
Deposits and other assets (4,425) (8,160)
------------ ------------
Net Cash Used in Investing Activities (1,094,048) (605,195)
------------ ------------
FINANCING ACTIVITIES:
Proceeds from long-term debt -- 37,300,000
Principal payments on long-term debt and capital leases (4,381) (1,889,878)
Proceeds from issuance of warrants -- 7,700,000
Deferred financing costs -- (2,579,871)
------------ ------------
Net Cash (Used in) Provided by Financing Activities (4,381) 40,530,251
------------ ------------
Net increase (decrease) in cash and cash equivalents (7,071,720) 37,605,484
Cash and cash equivalents
Beginning 24,710,213 2,789,142
------------ ------------
Ending $ 17,638,493 $ 40,394,626
------------ ------------
------------ ------------
Supplemental Cash Flow Information
Cash payments for interest $ 7,005 $ 23,369
Non cash activities:
Increase in mandatory redeemable preferred stock and
decrease in paid-in capital from accrued dividends 612,093 528,677
Accrued interest converted to long term debt 2,841,000 --
Increase in long term debt resulting from interest accretion 385,682 178,004
</TABLE>
See notes to condensed financial statements.
6
<PAGE>
Next Generation Network, Inc.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 1. Basis of Presentation
The condensed balance sheet as of March 31, 1999, the condensed
statements of operations, condensed statement of changes in stockholders'
deficit, and condensed statements of cash flows for the three month periods
ended March 31, 1999 and 1998, have been prepared by the Company without
audit. In the opinion of management, all adjustments (consisting only of
normal recurring accruals) necessary to present fairly the consolidated
financial position, results of operations and cash flows at and for all
periods presented have been made. The operating results for the period ended
March 31, 1999, are not necessarily indicative of the operating results to be
expected for the full fiscal year.
Certain information and footnote disclosures normally included in
financial statements in accordance with generally accepted accounting
principles have been condensed or omitted.
Effective January 1, 1999 the Company adopted Statement of Position
(SOP) 98-1 Accounting for Costs of Computer Software Developed or Obtained
for Internal Use. During the quarter ended March 31, 1999 the Company did not
incur any significant amount of capitalizable internal use software costs.
Note 2. Long Term Debt
Long-term debt: A summary of long-term debt is as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
---------------------------
<S> <C> <C>
12% Senior Secured PIK Notes due February 2003 (net of
$6,265,875 and $6,606,331 of unamortized discount attributed to
warrants issued in connection with PIK Notes.) $44,016,125 $40,834,669
10.1% to 18.8% capital leases, due in varying monthly installments
to August 2001, secured by equipment. 50,824 55,205
Noninterest-bearing note payable, discounted at 15%, total of
$700,000 payable based on certain cash flows, if any, with
balance due December 2001, secured by equipment 477,520 460,260
Noninterest-bearing note payable, discounted at 15%, total of
$1,500,000 payable August 2003, plus 10% of certain net
revenues, if any, secured by equipment 814,418 786,452
---------------------------
45,358,887 42,136,586
Less current maturities 22,164 21,439
---------------------------
$45,336,723 $42,115,147
---------------------------
---------------------------
</TABLE>
In February 1999 the Company issued additional Notes in payment of
$2,841,000 of accrued interest on the aforementioned PIK Notes.
The long term debt excluding capital lease obligations and assuming full
accretion of the related discounts is payable as follows: $700,000 in 2001
and $51,782,000 in 2003.
7
<PAGE>
Next Generation Network, Inc.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 3. Accrued Expenses
The components of accrued expenses are as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
---------------------------
<S> <C> <C>
Site agreement fees $ 981,629 $1,807,422
Interest 1,005,640 2,372,050
Compensation 179,832 207,952
Other 81,435 128,576
--------------------------
$2,248,536 $4,516,000
--------------------------
--------------------------
</TABLE>
Note 4. Events Subsequent to December 31, 1998
The Company amended its Certificate of Incorporation to increase the
number of authorized shares of common stock of the Company to 10,000,000
shares, and split the outstanding common stock of the Company on a ten for
one basis, effective April 26, 1999. The effect of the stock split has been
retroactively reflected in the financial statements for all periods presented.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS.
FORWARD-LOOKING STATEMENTS
THE FORWARD-LOOKING STATEMENTS IN THIS REPORT INVOLVE KNOWN AND UNKNOWN RISKS,
UNCERTAINTIES AND OTHER IMPORTANT FACTORS THAT COULD CAUSE THE ACTUAL RESULTS,
PERFORMANCE OR ACHIEVEMENTS OF THE COMPANY, OR INDUSTRY RESULTS, TO DIFFER
MATERIALLY FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR
IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. SUCH RISKS, UNCERTAINTIES AND OTHER
IMPORTANT FACTORS INCLUDE, AMONG OTHERS: ADVERTISING RATES; THE ABILITY TO
SECURE ADVERTISING CONTRACTS; THE ABILITY TO SECURE NEW SITES FOR NGN DISPLAYS;
THE LOSS OF KEY EXISTING SITE AGREEMENTS; CHANGES IN THE POLITICAL AND
REGULATORY CLIMATE; OUT-OF-HOME ADVERTISING INDUSTRY TRENDS; COMPETITION;
CHANGES IN BUSINESS STRATEGY OR DEVELOPMENT PLANS; AVAILABILITY OF QUALIFIED
PERSONNEL; CHANGES IN, OR THE FAILURE OR INABILITY TO COMPLY WITH, GOVERNMENT
REGULATIONS; AND OTHER FACTORS REFERENCED IN THIS REPORT.
INTRODUCTION
OVERVIEW
The Company was founded in 1990 and thereafter focused its efforts on,
among other things, the development of its electronic out-of-home advertising
network known as NGN - Next Generation Network by developing and improving
the NGN technology. At the same time, the Company concentrated its efforts on
securing site agreements for the placement of its color video monitors ("NGN
Displays") as well as recruiting local sales personnel and opening local
sales offices in its initially developed Designated Market Areas ("DMAs").
The operating revenues of the Company presently are derived from the
sale of advertising on NGN. The Company's primary operating expenses are for
NGN Display operating costs and employee compensation. Advertising rates are
based upon the availability of space on the network for the location targeted
by the advertiser, the size and demographic makeup of the market served by
the NGN Displays and the availability of alternative advertising media in the
market area. Most advertising contracts are short-term. Most of the Company's
annual gross revenues are generated from local advertising, and the remainder
represents national advertising, both of which primarily are sold directly by
the Company's own sales personnel.
The following table presents the number of NGN installations in their
respective markets as of March 31, 1999, December 31, 1998, and March 31,
1998, respectively:
<TABLE>
<CAPTION>
Market: March 31, 1999 December 31, 1998 March 31, 1998
-------------------------------------------------------
<S> <C> <C> <C>
Washington, D.C. 507 510 505
Dallas-Ft. Worth, TX 280 263 226
Tampa-Clearwater-St. Petersburg, FL 150 141 135
Miami, FL 91 86 86
Orlando, FL 248 243 238
Baltimore, MD 203 202 204
Norfolk, VA 241 238 237
West Palm Beach, FL 64 63 63
Ft. Myers, FL 51 46 45
New York, NY 633 447 -
9
<PAGE>
Los Angeles, CA 490 490 -
Philadelphia, PA 269 247 -
San Francisco, CA 198 197 -
Boston, MA 177 179 21
Chicago, IL 120 71 -
San Diego, CA 134 133 -
Sacramento, CA 62 62 -
Other 16 12 15
-------------------------------------------------------
Total 3,934 3,630 1,775
-------------------------------------------------------
-------------------------------------------------------
</TABLE>
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED
MARCH 31, 1998
Net revenues for the three months ended March 31, 1999 were $934,000, an
increase of $511,000, or 121% compared to $423,000 for the three months ended
March 31, 1998. The increase was attributable to the opening of additional
local sales offices and the increase in the number of installed NGN Displays.
For the three months ended March 31,1998, the Company had equipment sales and
network operating revenues from site owners of $26,000. Barter revenue was
$18,000 and $85,000 during the first quarter of 1999 and 1998, respectively,
and is included in advertising revenue.
Costs and expenses for the three months ended March 31, 1999 were $6.2
million, an increase of $3.1 million, or 100%, compared to $3.1 million for
the three months ended March 31, 1998.
Network operating expenses increased $1.0 million, or 120%, due
primarily to the increase in the number of NGN Display installations of
2,159, or 122%. Major components of network operating expenses for the
quarters ended March 31 include local and long distance telephone service
($510,000 in 1999 and $229,000 in 1998), depreciation ($466,000 in 1999 and
$199,000 in 1998), maintenance ($121,000 in 1999 and $49,000 in 1998), and
site agreement expense ($756,000 in 1999 and $367,000 in 1998) related to the
NGN Displays. Site agreements generally provide the site operator with a
percentage of the advertising revenues derived by the Company from the NGN
Display at the particular site. The Company accrues monthly site agreement
expenses which are the greater of the computed amount based on a percentage
of revenue, or where applicable, the appropriate portion of an annual
minimum. At March 31, 1999, in connection with the aforementioned
arrangements, the Company was committed to certain minimum site agreement
fees of approximately $3,043,000 annually through the year 2003, based on NGN
Displays installed as of March 31, 1999. On a per location basis most network
operating expenses are fixed. Accordingly, the Company expects that such
expenses as a percentage of advertising revenues will decrease as the
Company's advertising revenues increase. The Company incurs operating
expenses in connection with the NGN Displays prior to generating revenues
from the Displays. Currently, network operating expenses exceed advertising
revenues due to the Company's limited operating history.
Selling expenses increased to $2.2 million during the first quarter of
1999 compared to $1.0 million during the comparable period of 1998 as the
result of the addition of sales staff (86 at March 31,1999 compared to 41 at
March 31, 1998) and the opening of additional regional sales offices to
support the 122% increase in NGN Display installations as noted above.
Employee compensation and related costs are the major component of selling
expenses and amounted to $1,535,000 in the 1999 quarter and $573,000 in the
comparable period in 1998. First quarter general and administrative expenses
increased approximately $824,000 in 1999 compared to 1998. First quarter
employee
10
<PAGE>
compensation and related costs, the largest component of general and
administrative expense, increased to $1,189,000 in 1999 compared to $735,000
in 1998 due to the additional administrative staff in computer operations and
graphic creation to support the sales offices and larger installed network,
increased corporate development staff to assist in securing additional
venues, and increased training costs. Other major increases were for
increased rent associated with the relocation of the Company's corporate
headquarters ($145,000 in 1999 and $59,000 in 1998), increases in travel
costs due to the expanded business ($147,000 in 1999 and $60,000 in 1998),
and additional legal, accounting, and other professional fees ($154,000 in
1999 and $79,000 in 1998). Research and development costs decreased to
$72,000 in the first quarter of 1999, compared to $80,000 for the same period
in 1998. There were no significant capitalizable internal use software costs
in the three months ended March 31, 1999.
Interest expense for 1999 was $1,991,000 compared to $844,000 in 1998
due to the issuance of $45.0 million of 12% Senior Secured PIK notes (the
Notes) in February 1998. Interest income due to investing the unused proceeds
from the Notes was $253,000 in 1999 and $263,000 in 1998.
The net loss for the quarter ended March 31, 1999 increased to $7.0
million, from $3.3 million in the quarter ended March 31,1998, primarily as a
result of the items discussed above. The Company expects to incur additional
costs to install additional NGN Displays and for operating costs to expand
NGN. As a result, the Company expects to incur a net loss for 1999 and
expects to continue to operate at a loss for the foreseeable future.
LIQUIDITY AND CAPITAL RESOURCES
Through March 31, 1999, the Company's primary source of liquidity has
been proceeds from the sale of equity and debt securities.
As of March 31, 1999, total cash and cash equivalents was $17.6 million
compared to $24.7 million as of December 31, 1998. The decrease in cash was a
result of $6.0 million of cash used in operating activities and $1.1 million
of cash used in investing activities (primarily for capital expenditures
related to expansion of the NGN network including Display purchases and
installation costs). The Company's increasing sales volume has and will
require additional cash to fund increased receivable levels. In addition,
during the quarter ended March 31, 1999 the Company paid approximately $1.8
million of accrued obligations to site operators relative to site agreements.
The increase in cash during the first quarter of 1998 was a result of
financing activities, including $40.5 million of net cash provided by the
sale of 12% Senior Secured PIK Notes and warrants after offering expenses and
repayment of long term debt offset by $2.3 million used in operating
activities (due to the loss from operations) and $0.6 million of cash used in
investing activities (primarily for capital expenditures to expand the
Company's NGN network).
Interest on the Notes is payable on February 1 and August 1 of each
year, commencing August 1, 1998. Interest on the Notes is payable either in
cash or additional Notes, at the option of the Company through August 1,
2000, and thereafter is payable in cash. Accordingly, the Company will not be
required to make cash interest payments on the Notes until the February 1,
2001 interest payment date. Additional Notes were issued in the amount of
$2,841,000 for the interest payment due February 1, 1999. The Company expects
to pay interest through August 1, 2000, by issuing additional Notes, which
would increase the original $45 million principal amount of the Notes to
approximately $60.2 million.
The Company anticipates that its $17.7 million of cash and operating
cash flow will be sufficient to finance the operating requirements of the
Company and anticipated capital expenditures through 1999. However, if
advertising revenues do not increase as anticipated or operating expenses are
higher
11
<PAGE>
than anticipated, the Company may need to raise additional capital. There can
be no assurance that the additional funds will be available, or if available,
will be available on terms acceptable to the Company.
The Company does not believe it has any significant risk related to
interest rate fluctuation since it has only fixed rate debt.
YEAR 2000
BACKGROUND, ISSUES AND STATE OF READINESS
The Company's overall goal is to be Y2K ready. To accomplish this goal,
the Company has been addressing the issue with respect to both its
information technology (IT) and non-IT systems, as well as its business
relationships with key third parties. To be ready, the Company needs to
evaluate the Y2K issues and fix any problems it can so that all of its
systems and relationships will be suitable for continued use into and beyond
the Year 2000.
The Company began addressing the Year 2000 issue in 1998 by establishing
a Y2K team (the "Team") comprised of individuals from the following
disciplines: technical support, software development, database
administration, networking, and management. To deal with Y2K the Team is
using a multi-step approach, including assessment, remediation and testing,
and contingency planning. The Company began by assessing its major internal
software systems that were susceptible to systems failure or processing
errors as a result of the Y2K issue. This assessment is currently in the
discovery phase. There are two discovery methods being exercised at this
time: 1) A manual check and double check of all internally generated
databases, scripts, and compiled applications; and 2) An automated check of
commercial, shareware and freeware applications in addition to the documents
generated for or by those applications.
The remaining estimated time to complete the aforementioned project is
approximately 60 man days of effort, distributed across the Team. A trial run
or preliminary screening of software and hardware making up 10% of the
Company's systems yielded no business critical issues. The Team's Y2K efforts
have also included assessment of "embedded" systems (such as building
security, telephone systems and elevator systems).
As part of the assessment phase, the Team members have also been working
with vendors of business critical hardware and software to identify any Y2K
compliance issues. The Team has gathered many certificates and/or statements
of compliance. Physical statements are filed by vendor and by product.
Electronic or online statements of compliance or references to statements of
compliance are being stored in a Y2K assessment database. This activity has
and will continue to include statements from business critical and
non-business critical vendors. In addition, the Team has received
communications from its significant third party vendors and service providers
stating that they are generally on target to become Year 2000 compliant in
1999 if they have not already done so. The Company cannot predict the outcome
of other companies' remediation efforts and there can be no assurance that
those third party vendors and service providers will complete their Y2K
compliant projects in a timely manner and that failure to do so would not
have an adverse impact on the Company's business.
YEAR 2000 COSTS
The Company is actively working on its Y2K compliance plan which is
scheduled to be substantially complete by June 30, 1999. Through March 31,
1999, the Company has incurred and
12
<PAGE>
expensed less than $10,000 on matters directly related to addressing Y2K
issues and does not expect to spend more than an additional $20,000 in
connection with becoming Year 2000 compliant. The remaining costs will be
expensed as incurred over the remainder of 1999. The cost of the project and
the date on which the Company plans to complete Year 2000 assessment and
modifications are based on the Team's best estimates, which were derived
utilizing numerous assumptions of future events including the availability of
certain resources, third parties' Year 2000 readiness and other factors.
RISK ASSESSMENT AND CONTINGENCY PLANS
At this point in time the Company's topic of greatest concern relative
to Y2K is the potential failure or partial failure of the national phone
network. In event of such a failure, the Company's NGN field units would
continue to run based on resident information. This type of event could
affect some long-term advertising contracts. There is also some probability
of the need to make refunds or to make-good any missed advertising due to
missed updates or uploads that would otherwise have happened during a phone
network outage. Complete or partial failure of the national phone network
could have a material adverse impact on the Company's results of operations,
financial condition and cash flows if it lasted for an extended period of
time.
The Company is developing a formal contingency plan so that the
Company's critical business processes can be expected to continue to function
on January 1, 2000 and beyond. The Company's contingency plans will be
structured to address both remediation of systems and their components and
overall business operating risks. These plans are intended to mitigate both
internal risks as well as potential risks with third parties, and will likely
include identifying and securing alternative suppliers. The Company also
intends to have its contingency plans substantially finalized by June 1999.
13
<PAGE>
PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K:
a) Exhibits
27.1 Financial Data Schedule
b) Reports on Form 8-K
None
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on behalf by the undersigned, thereto duly
authorized.
NEXT GENERATION NETWORK, INC.
Date: May 14, 1999 By: /s/ Thomas M. Pugliese
---------------------------------------------
Thomas M. Pugliese
Chief Executive Officer
Date: May 14, 1999 By: /s/ Michael J. Kolthoff
---------------------------------------------
Michael J. Kolthoff
Treasurer and Assistant Secretary
(principal Financial and accounting officer)
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 17,638,493
<SECURITIES> 0
<RECEIVABLES> 673,794
<ALLOWANCES> (122,264)
<INVENTORY> 0
<CURRENT-ASSETS> 18,263,880
<PP&E> 14,366,953
<DEPRECIATION> (3,331,886)
<TOTAL-ASSETS> 31,845,468
<CURRENT-LIABILITIES> 3,133,294
<BONDS> 45,336,723
17,384,923
3,000,000
<COMMON> 26,627
<OTHER-SE> (37,036,099)
<TOTAL-LIABILITY-AND-EQUITY> 31,845,468
<SALES> 0
<TOTAL-REVENUES> 933,625
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</TABLE>
