VERSATEL TELECOM INTERNATIONAL N V, 6-K, 1999-11-15

VERSATEL TELECOM INTERNATIONAL N V
6-K, 1999-11-15
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

----------------

FORM 6-K

Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934

For the quarterly period ended September 30, 1999

---------------

VERSATEL TELECOM INTERNATIONAL N.V.
(Exact name of Registrant as specified in its charter)

Paalbergweg 36
1105 BV Amsterdam-Zuidoost
The Netherlands
(Address of principal executive offices)

--------------

Indicate by check mark whether the registrant files or will file annual
reports under cover Form 20-F or Form 40-F.

Form 20-F X Form 40-F __

Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under
the Securities Exchange Act of 1934.

Yes ___ No X

If "Yes" is marked, indicate below the file number assigned to the
registrant in connection with Rule 12g3-2(b): 82- N/A

================================================================================
<PAGE>

VERSATEL TELECOM INTERNATIONAL N.V.

REPORT ON FORM 6-K FOR THE
QUARTERLY PERIOD ENDED SEPEMBER 30, 1999

INDEX

Page
----
PART I: FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS................................................. 4

Audited Consolidated Balance Sheet as of December 31, 1998 and
unaudited Consolidated Balance Sheet as of September 30, 1999........ 4

Unaudited Consolidated Statements of Operations for the Nine
Months Ended September 30, 1998 and September 30, 1999 and
for the Three Months Ended September 30, 1998 and
September 30 1999.................................................... 6

Unaudited Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 1998 and September 30, 1999.......... 7

Unaudited Consolidated Statements of Shareholders' Equity for the
Years Ended December 31, 1998, 1997 and 1996 and for the Nine
Months Ended September 30, 1999...................................... 8

Notes to the Unaudited Consolidated Financial Statements............. 9

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS..................................13

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK.................................................................25

PART II: OTHER INFORMATION....................................................26

SIGNATURES....................................................................29

<PAGE>

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

This Report on Form 6-K includes forward-looking statements. We have
based these forward- looking statements on our current expectations and
projections about future events. These forward-looking statements are subject to
risks, uncertainties, and assumptions about us, including, among other things:

o Our anticipated expansion plans for our network and growth
strategies,
o Our ability to integrate recently acquired companies,
o Our expectation of the impact of this expansion on our
revenue potential, cost basis and margins,
o Our expectation of the competitiveness of our services,
o Our intention to introduce new products and services,
o Anticipated trends and conditions in our industry,
including regulatory reform and the liberalization of
telecommunications services across Europe, and
o Our ability to compete, both nationally and
internationally.

In light of these risks, uncertainties, and assumptions, the
forward-looking events discussed in this prospectus might not occur. We
undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.

PRESENTATION OF INFORMATION

We publish our financial statements in Dutch guilders. In this
document, references to "U.S. dollars" or "$" are to United States dollars,
references to "Dutch guilders" or "NLG" are to the currency of The Netherlands.
Solely for the convenience of the reader, this document contains translations of
certain Dutch guilder amounts into U.S. dollars at specified rates. These
translations should not be construed as representations that the Dutch guilder
amounts actually represent such U.S. dollar amounts or could be converted into
U.S. dollars at the rate indicated or at any other rate. The Netherlands has
adopted the euro as of January 1, 1999. The conversion rate between the euro and
the Dutch guilder is fixed at NLG 2.20371 per Eurodollar 1.00. Unless otherwise
indicated, the translations of Dutch guilders into U.S. dollars have been made
at NLG 2.07 per $1.00, based on the noon buying rate in the City of New York for
cable transfers in euros as certified for customs purposes by the Federal
Reserve Bank of New York on September 30, 1999.

<PAGE>

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

VERSATEL TELECOM INTERNATIONAL N.V.

AUDITED CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1998 AND UNAUDITED CONSOLIDATED
BALANCE SHEET AS OF SEPTEMBER 30, 1999
(amounts in thousands)

December 31,1998 September 30, 1999
---------------- ------------------
(unaudited)
NLG NLG US$
ASSETS

Current Assets:
Cash .................................. 372,014 763,378 368,782
Restricted cash, current portion ...... 89,752 95,241 46,010
Accounts receivable, net .............. 7,902 30,179 14,579
Inventory, net ........................ 1,083 3,695 1,785
Prepaid expenses and other ............ 12,909 36,938 17,844
--------- --------- ---------
Total current assets .............. 483,660 929,431 449,000
--------- --------- ---------

Fixed Assets:
Property, plant and equipment, net .... 38,608 203,965 98,534
Construction in progress .............. 46,019 129,402 62,513
--------- --------- ---------
Total fixed assets ................ 84,627 333,367 161,047
--------- --------- ---------

Restricted cash, net of current portion . 121,804 90,573 43,755
Capitalized finance costs, net .......... 28,750 46,388 22,410
Goodwill, net ........................... 4,556 379,263 183,219
--------- --------- ---------

Total assets ............................ 723,397 1,779,022 859,431
========= ========= =========

See notes to the unaudited consolidated financial statements.

<PAGE>

VERSATEL TELECOM INTERNATIONAL N.V.

AUDITED CONSOLIDATED BALANCE SHEET AS OF
DECEMBER 31, 1998 AND UNAUDITED CONSOLIDATED
BALANCE SHEET AS OF SEPTEMBER 30, 1999
(amounts in thousands)

<TABLE>
<CAPTION>
December 31,1998 September 30, 1999
---------------- -------------------------
(unaudited)
NLG NLG US$

<S> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities:
Accounts payable .............................. 39,863 159,647 77,124
Due to related parties ........................ 806 -- --
Accrued liabilities ........................... 28,005 32,050 15,483
Unearned revenue .............................. -- 8,765 4,234
Current portion of capital lease obligations .. 71 268 130
---------- ---------- ----------
Total current liabilities ................. 68,745 200,730 96,971
---------- ---------- ----------

Capital lease obligations, net of current portion 37 -- --
Long term liabilities ........................... 670 3,184 1,538
Long term debt .................................. 688,018 1,392,229 672,575
Pension liability ............................... -- 750 362
---------- ---------- ----------
Total liabilities ......................... 757,470 1,596,893 771,446
---------- ---------- ----------

Shareholders' Equity:
Ordinary shares, NLG 0.05 par value ........... 1,949 3,209 1,550
Additional paid-in capital .................... 51,112 534,324 258,128
Warrants ...................................... 5,212 4,673 2,257
Accumulated deficit ........................... (92,346) (360,077) (173,950)
---------- ---------- ----------
Total shareholders' equity ................ (34,073) 182,129 87,985
---------- ---------- ----------

Total liabilities and shareholders' equity ...... 723,397 1,779,022 859,431
========== ========== ==========
</TABLE>

See notes to the unaudited consolidated financial statements.

<PAGE>

VERSATEL TELECOM INTERNATIONAL N.V.

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 AND SEPTEMBER 30, 1998 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND SEPTEMBER 30, 1998
(amounts in thousands, except for per share amounts)

<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
---------------------------------- ----------------------------------
1998 1999 1998 1999
-------- --------------------- -------- ---------------------
NLG NLG US$ NLG NLG US$

<S> <C> <C> <C> <C> <C> <C>
OPERATING REVENUES .......................... 10,130 39,009 18,845 25,880 78,134 37,746

OPERATING EXPENSES:

Cost of Revenues, excluding depreciation .. 8,030 29,053 14,035 21,120 59,690 28,836
Selling, general and administrative ....... 15,728 43,706 21,114 30,002 119,025 57,500
Depreciation and amortization ............. 2,220 18,974 9,167 4,914 30,127 14,554
-------- -------- -------- -------- -------- --------
Total operating expenses ........... 25,978 91,733 44,316 56,036 208,842 100,890
-------- -------- -------- -------- -------- --------

Operating Loss ........................ (15,848) (52,724) (25,471) (30,156) (130,708) (63,144)

OTHER INCOME (EXPENSES):

Interest income ........................... 6,172 6,372 3,078 8,144 17,317 8,366
Interest expense--third parties ........... (15,109) (53,548) (25,869) (20,296) (103,378) (49,941)
Interest expense--related parties ......... -- -- -- (2,810) -- --
Currency exchange gains (losses), net ..... 5,087 22,750 10,991 4,747 (44,036) (21,274)
Other expense, net ........................ -- -- -- -- (4,033) (1,948)
-------- -------- -------- -------- -------- --------
Total other expense, net ........... (3,850) (24,426) (11,800) (10,215) (134,130) (64,797)
-------- -------- -------- -------- -------- --------

Loss before income taxes ........... (19,698) (77,150) (37,271) (40,371) (264,838) (127,941)

Provision for income taxes .................. -- 2,439 1,178 -- 2,893 1,398
-------- -------- -------- -------- -------- --------

Net loss ........................... (19,698) (79,589) (38,449) (40,371) (267,731) (129,339)

Net loss per share (basic and diluted)
in NLG .................................... (0.51) (1.38) (0.67) (1.32) (5.91) (2.85)

Weighted average number of shares
outstanding ................................. 38,885 57,584 57,584 30,495 45,332 45,332

</TABLE>

See notes to the unaudited consolidated financial statements.

<PAGE>
VERSATEL TELECOM INTERNATIONAL N.V.

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND SEPTEMBER 30, 1998
(amounts in thousands)

<TABLE>
<CAPTION>
Nine Months Ended September 30,
----------------------------------------
1998 1999
---------- -------------------------
NLG NLG US$

<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net loss .......................................... (40,371) (267,731) (129,339)
Adjustments to reconcile net loss to net cash used in
operating activities--
Depreciation and amortization ..................... 4,914 30,127 14,554
Amortization of finance cost ...................... -- 2,628 1,270
Deferred income ................................... (283) 307 148
Exchange loss on long-term debt and restricted cash -- 38,993 18,837
Stock option compensation expense ................. -- 27,673 13,369
Changes in other operating assets and liabilities--
Accounts receivable ............................... (4,094) (12,271) (5,928)
Inventory ......................................... (771) (2,403) (1,161)
Prepaid expenses and other ........................ (1,313) (18,699) (9,033)
Accounts payable .................................. (9,230) 43,642 21,083
Due to related parties ............................ (249) (806) (390)
Accrued liabilities ............................... 27,233 71,822 34,697
---------- ---------- ----------
Net cash used in operating activities .......... (24,104) (86,718) (41,893)
========== ========== ==========

Cash Flows from Investing Activities:
Capital expenditures .............................. (24,075) (242,171) (116,991)
Acquisition of business, net of cash acquired ..... (1,597) (405,663) (195,972)
---------- ---------- ----------
Net cash used in investing activities .......... (25,672) (647,834) (312,963)
========== ========== ==========

Cash Flows from Financing Activities:
Redemptions of capital lease obligations .......... (61) (1,006) (486)
Repayments of short term loans .................... (8,105) -- --
Proceeds from long term debt (13 1/4 Senior Notes). 422,539 -- --
Proceeds from long term debt (11 7/8 Senior Notes). -- 641,901 310,097
Restricted cash ................................... (155,369) 49,027 23,685
Capitalized finance costs ......................... (20,000) (20,266) (9,790)
Shareholder contributions ......................... 49,075 456,260 220,415
---------- ---------- ----------
Net cash provided by financing activities ...... 288,079 1,125,916 543,921
========== ========== ==========

Net increase in cash ................................... 238,303 391,364 189,065
Cash, beginning of the period ........................ 1,345 372,014 179,717
---------- ---------- ----------
Cash, end of the period ................................ 239,648 763,378 368,782

Supplemental Disclosures of Cash Flow Information:
Cash paid for--
Interest (net of amounts capitalized) ............. (217) 53,168 25,685
Income taxes ...................................... -- -- --
</TABLE>

See notes to the unaudited consolidated financial statements.

7
<PAGE>

VERSATEL TELECOM INTERNATIONAL N.V.

UNAUDITED CONSOLIDATED STATEMENTS OF SHAREHOLDERS'
EQUITY FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(amounts in thousands of Dutch guilders, except for share
and per share amounts)
<TABLE>
<CAPTION>
Number of Additional
shares Ordinary paid-in Accumulated
outstanding shares capital Warrants deficit Total
---------- ---------- ---------- ---------- ---------- ----------
NLG NLG NLG NLG NLG

<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 .......... 9,900,000 495 -- -- (616) (121)
Shareholder contributions ............. 7,920,000 396 4,604 -- -- 5,000
Net loss ............................ -- -- -- -- (4,733) (4,733)
---------- ---------- ---------- ---------- ---------- ----------
Balance at December 31, 1996 .......... 17,820,000 891 4,604 -- (5,349) 146
Shareholder contributions ............. 1,339,286 67 1,433 -- -- 1,500
Net loss ............................ -- -- -- -- (19,860) (19,860)
---------- ---------- ---------- ---------- ---------- ----------
Balance, December 31, 1997 ............ 19,159,286 958 6,037 -- (25,209) (18,214)
Shareholder contributions ............. 19,695,524 985 44,750 5,212 -- 50,947
Shares issued for acquisition ......... 130,000 6 325 -- -- 331
Net loss .............................. -- -- -- -- (67,137) 67,137)
---------- ---------- ---------- ---------- ---------- ----------
Balance, December 31, 1998 ............ 38,984,810 1,949 51,112 5,212 (92,346) (34,073)
Sale of common stock .................. 22,837,500 1,142 441,975 (539) -- 442,578
Shares issued for acquisitions ........ 425,000 21 9,345 -- -- 9,366
Stock option compensation ............. -- -- 27,673 -- -- 27,673
Stock options exercised ............... 1,940,000 97 4,220 -- -- 4,317
Net loss .............................. -- -- -- -- (267,731) (267,731)
---------- ---------- ---------- ---------- ---------- ----------
Balance, September 30, 1999 ........... 64,187,310 3,209 534,325 4,673 (360,077) 182,130
========== ========== ========== ========== ========== ==========
</TABLE>

See notes to the unaudited consolidated financial statements.

<PAGE>

VERSATEL TELECOM INTERNATIONAL N.V.

NOTES TO THE UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS

AS OF SEPTEMBER 30, 1999 AND FOR THE
THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999

1. Financial Presentation and Disclosures

In the opinion of management, the accompanying unaudited condensed
consolidated financial statements of VersaTel Telecom International N.V. and its
wholly-owned subsidiaries (the "Company") have been prepared in conformity with
US generally accepted accounting principles ("US GAAP") and contain all
adjustments (consisting only of normal recurring accruals) necessary to present
fairly the Company's consolidated financial position as of September 30, 1999,
and the results of operations for the three and nine months ended September 30,
1998 and 1999 and cash flows for the nine months ended September 30, 1998 and
1999.

Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. It is suggested that these financial
statements be read in conjunction with the Company's 1998 audited financial
statements and the notes related thereto, filed on Form 20-F. The results of
operations for the three and nine months ended September 30, 1999 may not be
indicative of the operating results for the full year.

As of September 30, 1999, the Company (directly or indirectly)
wholly-owned, except as where indicated, the following subsidiaries:

- VersaTel Telecom Europe B.V.
- VersaTel Telecom Netherlands B.V.
- VersaTel Telecom Belgium N.V.
- Bizztel Telematica B.V.
- CS Net B.V.
- CS Engineering B.V.
- Numedi Net N.V. (70% owned by the Company)
- Amstel Alpha B.V.
- SpeedPort N.V.
- Glabana U.S.A., Inc.
- 7-Klapper Beheer B.V.
- VuurWerk Internet B.V.
- VuurWerk Access B.V.
- ITinera Services N.V.
- Svianed B.V.
- Zon Netherlands B.V. (see "Subsequent Events")

All intercompany assets, liabilities and transactions have been
eliminated in consolidation.

<PAGE>

In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities". SFAS No.
133 establishes accounting and reporting standards requiring that every
derivative instrument (including certain derivative instruments embedded in
other contracts) be recorded in the balance sheet as either an asset or
liability measured as its fair value. It also requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the hedged
item in the income statement, and requires that a company must formally
document, designate, and assess the effectiveness of transactions that receive
hedge accounting.

SFAS No. 133, as amended by SFAS No. 137, is effective for fiscal years
beginning after June 15, 2000 and can not be applied retroactively. The Company
has not yet quantified the impacts of adopting SFAS No. 133 on the financial
statements and has not determined the timing of or method of our adoption of
SFAS No. 133.

2. Inventory

Inventory, consisting primarily of dialers to be installed at customer
locations and equipment related to the ADSL trial, is stated at the lower of
cost (first-in, first-out) or market value.

3. Acquisition of Svianed

The acquisition in June 1999 of Svianed was accounted for as a
purchase. Accordingly, the purchase price was allocated to the net assets
acquired based upon their estimated fair market values. The excess purchase
price over the estimated fair value of net assets acquired amounted to
approximately NLG 358 million, which has been accounted for as goodwill and is
being amortized over ten years using the straight line method. This allocation
was based on preliminary estimates and may be revised at a later date. The
accompanying consolidated statements of income reflect the operating results of
Svianed since the acquisition. Pro forma unaudited consolidated operating
results of the Company and Svianed for the nine months ended September 30, 1999
and 1998, assuming the acquisition had been made as of at the beginning of the
respective periods are summarized below (in thousands of NLG except per share
amounts):

Three Months Nine Months
Ended Ended
September 30, September 30,
--------------- --------------
1998 1999 1998 1999
---- ---- ---- ----
(unaudited) (unaudited)

Net sales....................... 24,664 39,009 66,927 105,332
Net (loss)...................... (37,936) (99,112) (95,019) (323,635)
Net loss per share.............. (0.98) (1.72) (3.12) (7.14)

These pro forma results have been prepared for comparative purposes
only and include certain adjustments such as additional amortization expense as
a result of goodwill and interest expense as a result of financing activities.
They do not purport to be indicative of the results of operations which actually
would have resulted had the combination been in effect at the beginning of the
respective periods or of future results of operations of the consolidated
entities.

<PAGE>

4. Financial Condition and Operations

For the three month period ended September 30, 1999, the Company had a
loss from operating activities of NLG 52.7 million. In addition, the Company had
an accumulated deficit of NLG 360.1 million as of September 30, 1999.

On July 28, 1999, VersaTel and certain selling shareholders completed
an initial public offering of 21.25 million ordinary shares in a dual listing on
the Amsterdam Stock Exchange and Nasdaq National Market. The offering generated
approximately Eurodollar 190 million ($200 million) in proceeds for the Company
and Eurodollar 23 million ($24 million) in proceeds for selling shareholders.
After the exercise of the underwriters' over-allotment option for 3.19 million
ordinary shares, the offering generated approximately Eurodollar 220 million
($230 million) in aggregate proceeds for the Company.

Concurrent with the initial public offering, the Company completed an
offering of Eurodollar 120 million and $180 million of 11-7/8% Senior Notes due
2009 which raised net proceeds, after transaction expenses, of Eurodollar 116.1
million and $173.9 million. Approximately $152.1 million of the net proceeds
from this offering were used to repay outstanding interim financing related to
the Svianed acquisition.

5. Commitments

Commitments in connection to the roll-out of the Company's network, not
yet recorded on the balance sheet, amount to approximately NLG 41.2 million as
of September 30, 1999.

Earn-out arrangements with the former shareholders of CS Net B.V.,
ITinera Services N.V. and SpeedPort N.V. have been agreed-upon. Any payments
resulting from this earn-out arrangement will be recorded as an adjustment to
the purchase price upon the time they become certain. No such adjustments have
yet been recorded.

6. Legal Proceeding

Cromwilld, one of the shareholders of the Company, objected to the 1998
recapitalization as described in the Company's Form 20-F (filed with the
Securities and Exchange Commission on March 30, 1999), and to the issuance of
the two tranches of units consisting of warrants and senior notes as described
in the Form 20-F, and threatened to challenge in court certain of the Company's
actions in connection therewith. In January 1999, Cromwilld filed, pursuant to
article 2:345 of the Netherlands Civil Code, a petition with the Enterprise
Chamber of the Court of Appeals in Amsterdam requesting the appointment of one
or more experts to investigate the management and affairs of the Company. In May
1999, the Enterprise Chamber denied Cromwilld's request.

On July 20, 1999, the Company entered into, along with its shareholders
and certain other parties, a Settlement Agreement with Cromwilld Limited, in
order to resolve disputes arising out of our shareholders' agreement and other
matters. The major terms of the Settlement Agreement provide for:

o the transfer of 146,988 of our ordinary shares held by Telecom
Founders B.V. to Cromwilld;

o the issuance of 200,000 shares of the Company on July 20, 1999 to
Cromwilld at a price of NLG 7.50 per ordinary share;

<PAGE>

o the ability for Cromwilld to include 1,800,000 of its ordinary
shares in initial public offering of the Company;

o certain piggyback registration rights in favor of Cromwilld that
will take effect 180 days from the date of the initial public
offering of the Company;

o the payment by us of $300,000 for Cromwilld's fees and expenses
related to the Settlement Agreement and certain other matters;

o the acknowledgment by all parties to the shareholders' agreement
of the Company that the shareholders' agreement will be
terminated concurrently with the closing of the initial public
offering of the Company;

o the withdrawal by Cromwilld of its pending legal proceedings
against the Company and its shareholders;

o Cromwilld's full cooperation with the initial public offering of
the Company; and

o the obligation of the Company's shareholders, including
Cromwilld, to procure the resignation or dismissal of Cromwilld's
nominee, Denis O'Brien, from Supervisory Board of the Company,
after the completion of the initial public offering.

As of September 30, 1999, all of the terms of the Settlement Agreement,
except with respect to certian piggyback registration rights provided to
Cromwilld (which has not yet taken effect), have been completed.

The expense related to this legal proceeding is classified as "Other
expense, net" in the income statement for the nine month period ended September
30, 1999.

7. Subsequent Events

On November 11, 1999, Free Record Shop, a music retail chain in The
Netherlands, and Radio 538, a commercial radio station in The Netherlands, each
obtained a minority interest in Zon Netherlands B.V. of 5.0% and each will
provide marketing and distribution support for Zon's products. On the same day,
Zon's legal structure was converted from a B.V. to an N.V. and its name was
changed to Zon Netherlands N.V.

<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

Overview

We are a rapidly growing, competitive network operator focused
primarily on the Benelux, which consists of The Netherlands, Belgium and
Luxembourg. Our objective is to become the leading fully integrated provider of
local access, facilities-based broadband services, including voice, data and
Internet services to our customers in this region. During the past year, we have
substantially expanded our product offering from our initial offering of long
distance voice services. We currently offer a broad portfolio of voice, data and
Internet services to our business customers and a broad range of connectivity,
termination, co-location and hosting services to other telecommunications, data
and Internet service providers.

We are building a high bandwidth network throughout the Benelux to
directly connect to our customers and we are extending our network to connect to
certain key international destinations. As of September 30, 1999, our
construction passed 23 city centers, 18 business parks and 13,059 buildings. On
September 28, 1999, we announced the completion of our STM-64 (SDH) fiber optic
Randstad Ring. The Randstad Ring spans approximately 440 km and connects the
cities of Amsterdam, Utrecht, Den Bosch, Breda, Rotterdam, Den Haag and Haarlem.
This ring completes the Randstad portion of the fiber optic ring that has been
operational since July, 1999 and replaces a portion of the leased circuit that
completed the initial Amsterdam-Antwerp ring. An additional 40 km of the Benelux
network is operational connecting the Randstad ring to Antwerp. We intend to
complete our international rings connecting the Benelux network, London and
Paris and connecting the Benelux network, Frankfurt, Dusseldorf and Paris by
December 1999. We have completed our international connection from the Benelux
network to London and to Frankfurt. We currently have both a Nortel Networks DMS
100 digital circuit switch and a Cisco Systems data switch in each of Amsterdam,
Rotterdam and Antwerp. We expect to have an additional Nortel DMS switch and an
additional Cisco Systems data switch installed in Brussels, in 2000. The Nortel
DMS switches enable us to deliver voice and ISDN telecommunications services and
the Cisco data switches allow us to support multiple data communications
protocols including ATM, IP (Internet Protocol), IPX (Novell), Frame Relay and
others.

Through our acquisitions in the second quarter of 1999 of Svianed B.V.,
the third largest provider of data services in The Netherlands in terms of
revenues, and SpeedPort N.V., VuurWerk Internet B.V. and ITinera Services N.V.,
each of which provides co-location, hosting and international Internet services
to business customers and other Internet service providers, we believe we will
be able to significantly accelerate the deployment of our broadband data
services product offerings.

On August 19, 1999, we established Zon Netherlands B.V., a new Internet
Service Provider (ISP) that offers free Internet access to customers in The
Netherlands. On November 11, 1999, Free Record Shop, a music retail chain in The
Netherlands, and Radio 538, a commercial radio station in The Netherlands, each
obtained a minority interest in Zon of 5.0% and each will provide marketing and
distribution support for Zon's products. On the same day, Zon's legal structure
was converted from a B.V. to an N.V. and its name was changed to Zon Netherlands
N.V. Zon has added more than 140,000 subscribers in the first seven weeks of
operation.

Revenues

Historically, our revenues were derived primarily from the provision of
long distance telecommunications services in The Netherlands and more recently
in Belgium. VersaTel's customer base predominately consists of small- and
medium-sized businesses and to a lesser extent residential customers.

<PAGE>

With the acquisition of Svianed, we started to generate revenues from data
services from larger-sized customers. We also provide carrier services to other
telecommunications, data and Internet service providers.

Until our acquisition of Svianed, our revenues had been derived
primarily from minutes of telecommunications traffic billed. The percentage of
our revenues that consist of fixed monthly fees has increased substantially as a
result of our acquisition of Svianed. We expect this percentage to further
increase as we continue to deploy our network and expand our data and Internet
service offerings. The following table sets forth the total revenues and
billable minutes of use for voice services attributable to our operations for
the nine months ended September 30, 1998 and September 30, 1999 as well as our
total number of customers for voice services, based on the number of invoices
issued, as of September 30, 1998 and September 30, 1999. However, as a result of
our recent acquisitions, our number of customers, including data and Internet
customers, is more than 20,000 as of September 30, 1999.

Fiscal Years Ended Nine Months Ended
December 31, September 30,
------------------- -------------------
1997 1998 1998 1999
------- ------- ------- -------
Customers:
Voice services
Business .............. 1,828 5,649 4,434 9,738
Residential ........... 230 1,234 1,074 1,565
Carrier Services ...... 1 4 3 18
------- ------- ------- -------
Total ............ 2,059 6,887 5,511 11,321

(NLG in thousands)
Revenues:
Voice services
Business .............. 16,948 34,472 22,917 48,180
Residential ........... 11 386 233 638
Carrier Services ...... 1,937 3,806 2,730 6,226
Data services ............. -- -- -- 16,977
Internet services ......... -- 897 -- 6,113
------- ------- ------- -------
Total ............ 18,896 39,561 25,880 78,134

(in thousands)
Billable minutes:
Voice services
Business .............. 21,469 102,980 61,650 192,014
Residential ........... 42 1,817 1,022 3,613
Carrier Services ...... 1,850 16,806 10,644 46,678
Internet (Zon) ............ -- -- -- 13,305
------- ------- ------- -------
Total ............ 23,361 121,603 73,316 255,610

In 1997, all VersaTel's revenues were generated in The Netherlands. In
October 1998, VersaTel started generating revenues in Belgium. The geographical
composition of our revenues for the fiscal years ended December 31, 1997 and
December 31, 1998 and for nine months ended September 30, 1998 and September 30,
1999 was as follows:

14
<PAGE>

Fiscal Years Ended Nine Months Ended
December 31, September 30,
------------------- -------------------
1997 1998 1998 1999
------- ------- ------- -------
(NLG in thousands)
The Netherlands ........ 18,896 39,324 25,880 73,419
Belgium ................ -- 237 -- 4,715
------ ------ ------ ------
Total ............. 18,896 39,561 25,880 78,134

Historically, small- to medium-sized businesses generate the majority
of VersaTel's revenues. We have also derived increasing amounts of revenue from
providing services, including switched voice and co-location services, to other
telecommunications, data and Internet service providers. As a result of our
acquisition of Svianed, we derive a substantial portion of our revenues from
providing data and Internet services to larger customers. We have changed our
approach to reaching residential customers by offering carrier select hosting
services to switchless resellers, who themselves target the residential market.
We believe that this approach is a more cost-effective way of reaching
residential customers. As our network expands and as we have available capacity,
we intend to increase our marketing efforts in the carrier services segment to
increase the use of our network and to capture revenues and margins from markets
we do not target directly.

Our revenues, which are derived both from minutes of telecommunications
traffic billed and fixed fees, are allocated to the period in which the traffic
or fees have occurred. The percentage of our revenues attributable to fixed fees
has increased recently, principally as a result of the Svianed acquisition. In
addition, through our own number ranges in The Netherlands and Belgium, through
number portability in The Netherlands and through Zon, we generate revenues from
terminating minutes. We generally price our telecommunications services at a
discount to the local monopoly telecommunications service providers, which are
commonly known as PTTs, and expect to continue this pricing strategy as we
expand our operations. In general, PTTs have been reducing their rates over the
last several years. As a result, we have experienced and expect to continue to
experience declining revenues per minute. KPN Telecom N.V. reduced its prices
per minute of telecommunications traffic billed in May and July 1998 and most
recently in January 1999 and May 1999 with reductions of approximately 10.0%,
15.0%, 10.0% and 20.0%, respectively, which are expected to have an adverse
impact on margins in the near term. In Belgium, Belgacom introduced several
discount programs for selected customer groups, which discounts were
subsequently matched by VersaTel. Additionally, we expect to increase our
national billable minutes, which are priced at lower rates than international
minutes. As national and wholesale billable minutes increase as a percentage of
total billable minutes, average revenue per billable minute will further
decline. However, due to technological improvements, liberalization of the
European telecommunications market and increased available transmission
capacity, both from third parties and as we build out our network, we expect
costs per minute to decline as well. Management believes that the decline of per
minute prices will outpace the decline in per minute costs in the remainder of
1999, resulting in downward pressure on operating margins. Management believes
that over the long term, this trend will reverse and operating margins will
thereby improve; however, there can be no assurances that this will occur. If
reductions in costs do not in fact outpace reductions in revenues, VersaTel may
experience a substantial reduction in its margins on calls which, absent a
significant increase in billable minutes of traffic carried or increased charges
for other services, would have a material adverse effect on our business and
financial results. In addition, the introduction of the euro may lead to a
greater transparency for prices in the European telecommunications market, which
may lead to further competition and price decreases.

Cost of Revenues

<PAGE>

Our cost of revenues derived from telecommunications services is
comprised of origination costs, certain network costs and termination costs and
is both fixed and variable. Origination costs represent the cost of carrying
traffic from the customer to our network. Origination charges for calls
transported to our network are variable and are incurred on a per minute basis,
including the call set-up charges. Origination charges for business and
residential customers are charged by the PTTs to VersaTel.

We have experienced a significant decrease in origination costs and
expect that these will continue to decrease significantly over time due to
competition and regulatory orders. In July 1998, the Netherlands regulatory
authority Onafhankelijke Post en Telecommunicatie Autoriteit ("OPTA"), ruled
that origination and termination charges be reduced by 55% and 30%,
respectively. These reductions have been upheld by OPTA in 1999 during an appeal
by KPN. VersaTel expects that the interconnection charges will continue to
decrease, although at a more moderate rate. In addition, as we continue to build
out our network, we intend to connect directly as many business customers as
economically feasible to the network, thereby eliminating origination charges
for these customers. These decreases would be offset to some extent by
amortization and depreciation charges associated with the construction of our
network. There can be no assurance that the trend in decreasing access costs
will continue. As a result, if origination costs do not continue to decrease,
anticipated decreases in revenues per minute would cause us to experience a
decline in gross margins per billable minute which would have a material adverse
effect on our business and financial performance.

Network costs represent the cost of transporting traffic between our
switches and points of interconnection and consist of depreciation and
amortization costs and the cost of leased lines. To date, our network costs and
Svianed's network costs have primarily consisted of the cost of leased lines as
well as, in the case of Svianed, Internet uplink costs. In the near term,
Svianed's network costs, primarily consisting of the costs of lines leased from
KPN Telecom, will increase our fixed costs as a percentage of cost of revenues.
However, as we continue to build out our network, we expect depreciation and
amortization costs to increase. We expect this increase to be off-set, at least
partially, by a reduction in the cost of leased lines. In addition, as we
provision Svianed's traffic onto our network, we will experience a significant
reduction in the cost of leased lines currently attributable to Svianed.
Depreciation and amortization costs are not included in cost of revenues. As a
result, network costs as a percentage of cost of revenues will decline. See
"--Depreciation and Amortization."

Termination costs are the per minute costs associated with using
carriers to carry a call from the point of interconnection to the final
destination. Through least-cost routing, our switches direct calls to the most
cost-efficient carrier for the required destination. As we build out our network
to new points of interconnection, we expect to be able to reduce average
termination costs per minute. For example, since we established a direct link
from Amsterdam to Rotterdam, we will no longer pay for national termination
costs on that route and will only pay local and regional termination costs from
the point of interconnection in Rotterdam to the final destination in that city.
We also believe that per minute termination costs will continue to decrease due
to several additional factors, including: (1) the incremental build out of our
network, which will increase the number of carriers with which we interconnect;
(2) the increase of minutes originated by VersaTel, which should lead to higher
volume discounts available to VersaTel; (3) more rigorous implementation of the
European Commission directives requiring cost-based termination rates and leased
line rates; and (4) the emergence of new telecommunication service providers and
the construction of new transmission facilities, which should result in
increased competition. There can be no assurance, however, that the trend of
decreasing termination costs will continue.

<PAGE>

Selling, General and Administrative Expenses

Selling, general and administrative expenses are comprised primarily of
salaries, employee benefits, office and administrative expenses, professional
and consulting fees and marketing costs. These expenses have increased as we
have developed and expanded our workforce, and they are expected to continue to
increase as we expand and establish new operations. Selling, general and
administrative expenses as a percentage of revenue will continue to vary from
period to period as a result of start-up costs relating to expansion into new
regions.

We have grown substantially since our inception and we intend to
continue to grow by adding more sales, marketing and customer support staff and
by establishing additional sales offices. This growth involves substantial
training and start-up costs, a large portion of which will be reflected as fixed
costs and will be recorded as selling, general and administrative charges.
Accordingly, our results of operations will vary depending on the timing and
speed of our expansion strategy and, during a period of rapid expansion,
selling, general and administrative expenses will be relatively higher than
during more stable periods of growth.

Depreciation and Amortization

VersaTel capitalizes and depreciates its fixed assets, including
switching equipment, routers and fiber optic cable, over periods ranging from
two to 25 years. In addition, VersaTel capitalizes and amortizes the cost of
installing dialers at customer sites. The development of our network will
require large capital expenditures and larger depreciation charges in the
future. Increased capital expenditures will adversely affect our future
operating results due to increased depreciation charges and interest expense.

Foreign Exchange

VersaTel has substantial U.S. dollar denominated assets and liabilities
and its revenues are generated and costs incurred in other currencies, primarily
the Dutch guilder. VersaTel is therefore exposed to fluctuations in the U.S.
dollar and other currencies, which may result in foreign exchange gains and/or
losses. As both The Netherlands and Belgium have adopted the euro, VersaTel will
no longer be exposed to any fluctuations between the Dutch guilder and the
Belgian franc. A number of equipment purchases and consultancy activities are
billed to VersaTel in currencies other than Dutch guilders. VersaTel from time
to time hedges a portion of its foreign currency risk in order to lock into a
rate for a given time.

Results of Operations

For the three months ended September 30, 1999 compared to the three months ended
September 30, 1998

Revenues increased by NLG 28.9 million to NLG 39.0 million for the
three months ended September 30, 1999 from NLG 10.1 million for the three months
ended September 30, 1998, representing an increase of 285.1%. The growth in
revenues resulted primarily from the acquisition of Svianed, the addition of new
customers, the introduction of national long distance, data and Internet
services in The Netherlands, the introduction of national and international long
distance services in Belgium and an increase in wholesale traffic. Revenues for
the three months ended September 30, 1999 as compared to the same period in 1998
were negatively impacted by general price reductions initiated by KPN Telecom in
July 1998, January 1999 and, most recently, in May 1999 of approximately 15%,
10% and 20% respectively. VersaTel responded to these price reductions by
reducing its own prices. In Belgium, Belgacom introduced several discount
programs for selected customer groups, which discounts were subsequently matched
by VersaTel.

<PAGE>

Billable minutes of use for voice services increased by 60.3 million to
94.3 million for the three months ended September 30, 1999 from 34.0 million for
the three months ended September 30, 1998, representing an increase of 177.1%.
The number of customers for voice services increased by 5,810 to 11,321 as of
September 30, 1999 from 5,511 as of September 30, 1998. However, as a result of
our recent acquisitions, our number of customers, including data and Internet
customers, is more than 20,000 as of September 30, 1999.

Cost of revenues increased by NLG 21.1 million to NLG 29.1 million for
the three months ended September 30, 1999 from NLG 8.0 million for the three
months ended September 30, 1998, primarily as a result of increased cost for
leased lines as a result of the Svianed acquisition, an increase in billable
minutes, increasing interconnect capacity, short-term network capacity
requirements (leased lines) in Belgium, Internet uplink costs and costs for
international leased lines to London and Frankfurt.

Selling, general and administrative expenses increased by NLG 28.0
million to NLG 43.7 million for the three months ended September 30, 1999 from
NLG 15.7 million for the three months ended September 30, 1998, representing a
177.9% increase. The increase was primarily a result of an increase in the cost
of staff (including temporary personnel and consultants) in the areas of network
operations, customer service, sales and marketing, installation services,
accounting personnel, additional facilities cost, expenses related to the
expansion of our Belgium operations, additional expenses as a result of the
acquisitions of CS Net, Vuurwerk, SpeedPort, Svianed and ITinera and start up
expenses related to the establishment of Zon.

Depreciation and amortization expenses increased by NLG 16.8 million to
NLG 19.0 million for the three months ended September 30, 1999 from NLG 2.2
million for the three months ended September 30, 1998. This increase primarily
resulted from capital expenditures incurred in connection with the expansion of
the network, including the expansion of the Nortel DMS-100 switch in Amsterdam
and the deployment of a Nortel DMS 100 switch in Antwerp and Rotterdam as well
as from the purchase of additional IT-equipment for new customer support
systems, an increase in the number of dialers, the purchase of computer
equipment and office furniture for new employees, as well as amortization of
goodwill of NLG 8.7 million as result of the acquisition of Svianed.

Interest income increased by approximately NLG 0.2 million to NLG 6.4
million for the three months ended September 30, 1999 from NLG 6.2 million for
the three months ended September 30, 1998. This increase was primarily related
to VersaTel's increased positive cash balance as a result of our offering of
units consisting of warrants and senior dollar notes in November 1998 (the
"Second High Yield Offering") and our offering of senior dollar notes and senior
euro notes in July 1999 (the "Third High Yield Offering") concurrently with the
initial public offering of our shares as part of the Equity Offering (as defined
below).

Interest expense increased by NLG 38.4 million to NLG 53.5 million for
the three months ended September 30, 1999 from NLG 15.1 million for the three
months ended September 30, 1998. This increase is primarily related to the
increased accrual of interest expenses as a result of the notes issued in the
Second High Yield Offering and the Third High Yield Offering.

Currency exchange gains, net, increased by NLG 17.7 million to NLG 22.8
million for the three months ended September 30, 1999 from NLG 5.1 million for
the three months ended September 30, 1998 as a result of a net gain of
VersaTel's U.S. dollar denominated assets and liabilities on the balance sheet.

<PAGE>

For the nine months ended September 30, 1999 compared to the nine months ended
September 30, 1998

Revenues increased by NLG 52.2 million to NLG 78.1 million for the nine
months ended September 30, 1999 from NLG 25.9 million for the nine months ended
September 30, 1998, representing an increase of 201.9%. The growth in revenues
resulted primarily from the addition of new customers, the introduction of
national long distance, data and Internet services in The Netherlands, the
acquisition of Svianed, the introduction of national and international long
distance services in Belgium and an increase in wholesale traffic. Included in
the revenues for the nine months ended September 30, 1999 are the revenues of
Svianed, from the date of the acquisition (June 11, 1999), of NLG 23.5 million.
Revenues for the nine months ended September 30, 1999, as compared to the same
period in 1998, were negatively impacted by general price reductions initiated
by KPN Telecom in May 1998, July 1998 and, most recently, January 1999 and May
1999 of approximately 10%, 15%, 10% and 20% respectively. VersaTel responded to
these price reductions by reducing its own prices. In Belgium, Belgacom
introduced several discount programs for selected customer groups, which
discounts were subsequently matched by VersaTel.

Billable minutes of use for voice services increased by 169.0 million
to 242.3 million for the nine months ended September 30, 1999 from 73.3 million
for the nine months ended September 30, 1998, representing an increase of
230.5%. The number of customers increased by 5,810 to 11,321 as of September 30,
1999 from 5,511 as of September 30, 1998. However, as a result of our recent
acquisitions, our number of customers, including data and Internet customers, is
more than 20,000 as of September 30, 1999.

Cost of revenues increased by NLG 38.6 million to NLG 59.7 million for
the nine months ended September 30, 1999 from NLG 21.1 million for the nine
months ended September 30, 1998, primarily as a result of an increase in
billable minutes, increasing interconnect capacity, short-term network capacity
requirements (leased lines) in Belgium, Internet uplink and international leased
lines to London and Frankfurt. The acquisition of Svianed added NLG 9.8 million
to the cost of revenue for the period.

Selling, general and administrative expenses increased by NLG 89.0
million to NLG 119.0 million for the nine months ended September 30, 1999 from
NLG 30.0 million for the nine months ended September 30, 1998, representing a
296.7% increase. The increase was partially due to a one-time, non-cash charge
of NLG 27.7 million during the second quarter of 1999 related to a revaluation
of employee stock options. Excluding this one-time charge the selling, general
and administrative expenses increased by NLG 61.3 million to NLG 91.3 million,
representing an increase of 204.4%, primarily as a result of an increase in the
cost of staff (including temporary personnel and consultants) in the areas of
network operations, customer service, sales and marketing, installation
services, accounting personnel, additional facilities cost, expenses related to
the expansion of our Belgium operations, additional expenses as a result of the
acquisitions of CS Net, Vuurwerk, SpeedPort, Svianed and ITinera and start-up
expenses related to our creation of Zon.

Depreciation and amortization expenses increased by NLG 25.2 million to
NLG 30.1 million for the nine months ended September 30, 1999 from NLG 4.9
million for the nine months ended September 30, 1998. This increase primarily
resulted from capital expenditures incurred in connection with the expansion of
the network, including the expansion of the Nortel DMS-100 switch in Amsterdam
and the deployment of a Nortel DMS 100 switch in Antwerp and Rotterdam as well
as from the purchase of additional IT-equipment for new customer support
systems, an increase in the number of dialers, the purchase of computer
equipment and office furniture for new employees as well as amortization of
goodwill of NLG 11.6 million as a result of the acquisition of Svianed.

Interest income increased by approximately NLG 9.2 million to NLG 17.3
million for the nine months ended September 30, 1999 from NLG 8.1 million for
the nine months ended September 30, 1998.

<PAGE>

This increase was primarily related to VersaTel's positive cash balance as a
result of our offering of units consisting of warrant and senior notes in May
1998 (the "First High Yield Offering"), the Second High Yield Offering, the
Third High Yield Offering and the Equity Offering.

Interest expense increased by NLG 80.3 million to NLG 103.4 million for
the nine months ended September 30, 1999 from NLG 23.1 million for the nine
months ended September 30, 1998. This increase is primarily related to the
accrual of interest expense on the notes issued in the First High Yield
Offering, the Second High Yield Offering and the Third High Yield Offering.

Currency exchange losses, net, increased by NLG 48.7 million to NLG
44.0 million for the nine months ended September 30, 1999 from a net gain of NLG
4.7 million for the nine months ended September 30, 1998 as a result of a net
loss of VersaTel's U.S. dollar denominated assets and liabilities on the balance
sheet.

Other expenses amounted to NLG 4.0 million for the nine months ended
September 30, 1999. No other expenses were incurred for the nine month period
ended June 30, 1998. These expenses relate to a settlement agreement with one of
the shareholders of VersaTel and related legal expenses.

Liquidity and Capital Resources

We have incurred significant operating losses and negative cash flows
as a result of the development of our business and network. Prior to the First
High Yield Offering, VersaTel had financed its growth primarily through equity
and subordinated loans from its shareholders. In May 1998, VersaTel issued notes
and warrants in the First High Yield Offering and raised net proceeds, after
transaction expenses, of $216.2 million, $80.6 million of which was invested in
U.S. government securities placed in escrow to fund the first six interest
payments on the notes issued in the First High Yield Offering. In December 1998,
VersaTel issued notes and warrants in the Second High Yield Offering and raised
net proceeds, after transaction expenses, of $139.5 million, $45.7 million of
which was invested in U.S. government securities placed in escrow to fund the
first five interest payments on the notes issued in the Second High Yield
Offering.

In July 1999, VersaTel issued Eurodollar 120,000,000 11-7/8% Senior
Euro Notes due 2009 and $180,000,000 11-7/8% Senior Dollar Notes due 2009 in the
Third High Yield Offering and raised net proceeds, after transaction expenses,
of Eurodollar 116.1 million and $173.9 million, $152.1 million of which was used
to repay certain interim loans, obtained to acquire Svianed. Concurrently with
the Third High Yield Offering, VersaTel and a number of selling shareholders
sold 21,250,000 ordinary shares in the form of Shares and American Depositary
Shares ("ADSs") in an initial public offering (the "Equity Offering"). In August
1999, VersaTel sold an additional 3,187,500 ordinary shares in connection with
an over-allotment option granted to the underwriters in the Equity Offering.
VersaTel raised aggregate net proceeds, after transaction expenses, of
Eurodollar 174.5 million and $35.5 million, in the Equity Offering. The Shares
have been listed on the Amsterdam Stock Exchange under the symbol "VRSA" and the
ADSs have been listed on the NASDAQ National Market under the Symbol "VRSA".

VersaTel has used a significant amount of the net proceeds of these
offerings to make capital expenditures related to the expansion and development
of its network, to acquire various companies, to fund operating losses and for
other general corporate purposes.

To date, VersaTel has made limited use of bank facilities and capital
lease financing. In May 1999, VersaTel reached an agreement with Nortel,
pursuant to which Nortel will extend vendor financing to VersaTel of up to
Eurodollar 45.4 million (approximately NLG 100.0 million) to be used to finance
the purchase of

<PAGE>

equipment from Nortel. To date, no amounts have been drawn under this facility.
VersaTel may seek to raise senior secured debt financing in the future to fund
the expansion of its network and for general corporate purposes.

Although we currently maintain significant cash balances, we will
require additional capital to continue funding the expansion and development of
our network, including the expansion of local access infrastructure. Also, we
are continually re-evaluating our business objectives and are considering
further expansions of our services and the acceleration of our network
construction. We expect that the net proceeds of the Equity Offering and the
Third High Yield Offering, combined with the Nortel Facility and the remaining
proceeds from the First High Yield Offering and the Second High Yield Offering
and together with other available financings and cash flows from operations,
will provide us with sufficient capital to fund planned capital expenditures and
anticipated losses for the next 18 months. We expect to raise additional funds
through public or private financings or from financial institutions.

We will be required to meet our debt service obligations on the notes
issued in the Third High Yield Offering out of cash reserves and net cash flow
beginning January 15, 2000. In addition, starting November 15, 2001, our funds
that have been placed in escrow to cover interest payments on the notes issued
in the First High Yield Offering and the Second High Yield Offering will have
been exhausted. As a result, we will need to increase substantially our net cash
flow in order to meet our debt service obligations.

The general rate of inflation has been low in the Benelux in recent
years. We do not expect that inflationary pressures in the future, if any, will
have a material effect on our results of operations or financial condition.

Net cash used in operating activities was NLG 86.7 million for the nine
months ended September 30, 1999 compared to NLG 24.1 million for the nine months
ended September 30, 1998. This increase was primarily the result of an increase
in operating losses incurred during the first nine months of 1999.

Net cash used in investing activities was NLG 647.8 million in the nine
months ended September 30, 1999 and NLG 25.7 million in the nine months ended
September 30, 1998. This increase was the result of the acquisitions we
completed during the second quarter of 1999, as well as ongoing capital
expenditures to expand our network and operations.

Net cash provided by financing activities was NLG 1,125.9 million the
nine months ended September 30, 1999 and NLG 288.1 million in the nine months
ended September 30, 1998. This increase was primarily the result of the Equity
Offering and the Third High Yield Offering.

Risks Associated with the Year 2000

The Year 2000 issue is the result of computer programs using two digits
rather than four to define the applicable year. Because of this programming
convention, software, hardware or firmware may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in system failures,
miscalculations or errors causing disruptions of operations or other business
problems, including, among others, a temporary inability to process
transactions, send invoices, or engage in similar normal business activities.

<PAGE>

The Year 2000 and VersaTel's Readiness

We have initiated a formal Year 2000 project and recruited an
experienced Year 2000 project manager. We are undertaking a comprehensive
program to address the Year 2000 issue with respect to the following:

o our information technology systems,

o the telephony switching network (including equipment installed at
customers' premises),

o our non-information technology systems (including buildings,
plant, equipment, and other infrastructure systems that may
contain embedded microcontroller technology),

o the systems of our major vendors (insofar as they relate to our
business), and

o our customers.

This program involves 4 "Steps": (1) a wide ranging assessment of Year
2000 problems that might affect VersaTel; (2) the development and implementation
of remedies to address discovered problems; (3) the testing of our systems where
necessary; and (4) an analysis of the most likely worst case scenario and the
preparation of contingency plans. Steps 1, 2 and 3 of this program have been
completed. Contingency plans will be in place by the end of November.

Steps 1-2: Assessment of Year 2000 Issues, Development and Implementation of
Remedies

The Information Technology Systems. VersaTel has recently replaced all
of its existing operating support systems for billing, customer care and
mediation. In selecting the new operating support systems, VersaTel received
guarantees of Year 2000 compliance from its manufacturers. VersaTel has checked
all its custom designed software for Year 2000 compliance.

VersaTel uses Windows 95 and Windows NT 4.0 as its operating systems.
VersaTel expects to upgrade all of its Windows 95 operating systems to Windows
98, which is Year 2000 compliant, by the end of November 1999. VersaTel expects
to install the latest service pack for its NT 4.0 operating system, which is
Year 2000 compliant, by the end of November 1999. VersaTel does not presently
use any other desktop or server operating systems.

The Telephony Switching Network. VersaTel has consulted with Nortel,
the manufacturer of its DMS 100 telephony switches and transport layer, and
believes that Nortel's equipment is Year 2000 compliant. VersaTel has requested
a guarantee from Nortel regarding this compliance. We have requested a similar
guarantee from Cisco Systems, our supplier of router switches and certain other
equipment.

The Non-Information Technology Systems. VersaTel's office buildings
have the following embedded systems: monitor alarms (intrusion and sensors),
personnel registration plus floor access, fire alarm, climate control and
electrical power maintenance (generators). VersaTel's facilities management team
has investigated whether the embedded systems are Year 2000 compliant and
upgraded where necessary.

Major Vendors' Systems. VersaTel is asking all of its major vendors to
demonstrate their approach to the Year 2000 problem and to give guarantees that
the millennium will not interrupt their services to VersaTel. VersaTel is
informing its vendors that Year 2000 compliance in their services and products
is an

<PAGE>

essential element of the existing business relationship. The managers
responsible for each vendor relationship are asking for these guarantees and the
response to date has been positive. VersaTel is now formalizing these requests,
sending letters, and compiling a list of vendors' responses.

Customers' Systems. VersaTel's customer services department intends to
discuss with customers the Year 2000 issue, including whether or not such
customer is Year 2000 compliant and to suggest to customers that, where this
issue has not been resolved, the customer seek advice. We can give no assurances
that VersaTel's customers will either take such advice or be Year 2000 compliant
on a timely basis.

Step 3: Testing of VersaTel's Systems

As VersaTel has tested its various systems and processes and believes
them to be Year 2000 compliant, it no longer plans to conduct a full operational
test of its entire business. VersaTel may, however, continue to test various
systems and processes through the remainder of the year, both on its own and
together with certain customers.

Step 4: Most Likely Worst Case Scenario

VersaTel believes that the most likely worst effect of the Year 2000
issue would be the inability of customers to complete calls. Nortel, the
manufacturer of VersaTel's switches, has conducted extensive Year 2000 tests
with the EURO-8 software and has informed VersaTel that it believes VersaTel's
switches are Year 2000 compliant. VersaTel has requested a guarantee from Nortel
regarding this compliance. We have requested a similar guarantee from Cisco
Systems, our supplier of router switches and certain other equipment.

If VersaTel's Year 2000 compliant billing system fails to function
correctly, VersaTel believes that bills could still be distributed by modifying
the call detail record's timestamp to reflect a pre-Year 2000 date.

The ability of VersaTel's customer care team to supply quality service
would be significantly affected if the operating support systems were not
available. Service provisioning, additional services and the development of new
customers could not continue effectively if the automated provisioning systems
were to fail. VersaTel is asking for certificates from the manufacturers of
these systems stating that they are Year 2000 compliant.

VersaTel's ability to collect revenues depends upon certain financial
institutions' computer systems, because approximately 50% of its retail
customers pay by way of direct debit facilities. VersaTel is seeking assurances
from these financial institutions that they are Year 2000 compliant.

VersaTel believes that it is unlikely that any of the above situations
will occur due to the assurances of Year 2000 compliance that it expects to
receive from its vendors, software and systems programmers, customers and
financial institutions. In the event that one or more of the situations should
occur, VersaTel would attempt to rectify the problem with the appropriate
entities. However, we can give no assurance that VersaTel will be successful in
obtaining valid assurances or guarantees, that the Year 2000 issue will not have
a material adverse effect on VersaTel, that any Year 2000 effects will be
resolved or that VersaTel will be reimbursed for any additional expenditure
under any of the assurances or guarantees that it expects to obtain or
otherwise.

<PAGE>

Costs Related to the Year 2000 Issue

To date, VersaTel has incurred approximately NLG 800,000 in costs
(including costs incurred by Svianed) for its Year 2000 readiness program. A
substantial portion of costs for the Year 2000 issue will be included in the
replacement of the current generation of operating support systems. VersaTel is
replacing these systems to support its business growth and not specifically to
remedy the Year 2000 problem. VersaTel expects to incur additional specific Year
2000 readiness charges that are estimated to be less than NLG 1.0 million.

The Year 2000 and Svianed's Readiness

Svianed has undertaken a number of measures to ensure that its business
will not be affected as a result of the Year 2000 issue. In 1997, Svianed
appointed a project leader and made an assessment of all systems and equipment
that could potentially be affected by the Year 2000 issue. The initial focus was
to ensure that the services provided by Svianed to its customers would not be
interrupted as a result of the Year 2000 issue. The next phase was to ensure
that Svianed's management control systems would not be affected by the Year 2000
issue. Starting in mid-1997, Svianed has obtained for all its purchases of
hardware and software guarantees as to their Year 2000 compliance. In addition,
the installed base of Cisco routers and Newbridge ATM and Frame Relay switches
have been confirmed by their suppliers to be Year 2000 compliant.

Svianed relies on leased lines from KPN Telecom for the provision of
its services. Svianed understands, based on information it has received from KPN
Telecom, that KPN Telecom has commenced a Year 2000 risk analysis and has
established a remediation plan intended to ensure that KPN Telecom will be Year
2000 compliant. Svianed has received a written confirmation from KPN Telecom
that it will maximize its effort to be Year 2000 compliant. However, Svianed has
not received any guarantee from KPN Telecom as to its Year 2000 compliance, and
we can give no assurance that Svianed's network will not experience any
interruptions as a result of any failure by KPN Telecom to be Year 2000
compliant.

The most likely worst case scenario for Svianed would be a disruption
of its network management system.

<PAGE>

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our financial department manages our funding, liquidity and exposure to
foreign exchange rate risks. It is our policy not to enter into any transactions
of a speculative nature.

Our debt obligations that are denominated in U.S. dollars expose us to
risks associated with changes in the exchange rates between the U.S. dollar and
the Dutch guilder and Belgian franc (which currencies are now both pegged to the
euro) in which our revenues are denominated. However, in conjunction with the
First High Yield Offering and the Second High Yield Offering, we have placed in
escrow and pledged for the benefit of the holders of the notes issued in the
First High Yield Offering and the Second High Yield Offering U.S. government
securities sufficient to pay interest due on the notes issued in the First High
Yield Offering and the Second High Yield Offering until and including the
scheduled interest payment on May 15, 2001.

The notes issued in the First High Yield Offering and the Second High
Yield Offering will mature on May 15, 2008 and the notes issued in the Third
High Yield Offering will mature on July 15, 2009. VersaTel is not required to
make any mandatory redemptions (other than an offer to repurchase these notes
upon a change in control of VersaTel) prior to maturity of the notes. Since the
interest rate on each of the notes issued in the First High Yield Offering, the
Second High Yield Offering and Third High Yield Offering is fixed, we have
limited our exposure to risks due to fluctuations of interest rates. At
September 30, 1999 the fair value of the notes issued in the First High Yield
Offering, the Second High Yield Offering and the Third High Yield Offering was
approximately $655.6 million.

The costs and expenses relating to the construction of our network and
the development of our sales and marketing resources will largely be in Dutch
guilders, Belgian francs and, increasingly, euros. Therefore, the construction
of our network and the development of our sales and marketing resources will
also be subject to currency exchange rate fluctuations as we exchange the
proceeds from the Third High Yield Offering, the Equity Offering and the
remaining proceeds from the First High Yield Offering and the Second High Yield
Offering, to pay our construction costs. However, as of September 30, 1999 we
had exchanged all but $50.1 million of the proceeds from these offerings into
Dutch guilders. Prior to the application of the net proceeds from these
offerings, such funds have been invested in short-term investment grade
securities. VersaTel from time to time hedges a portion of its foreign currency
risk in order to lock into a rate for a given time. In addition, we will become
subject to greater foreign exchange fluctuations as we expand our operations
outside The Netherlands and receive more revenues denominated in currencies
other than Dutch guilders, although the introduction of the euro has largely
eliminated these risks as all three Benelux countries have adopted the euro as
their legal currency.

<PAGE>

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We have filed complaints in the past with the European Commission, OPTA
and the Minister of Transport and Waterways of The Netherlands as part of our
regulatory strategy. We also make routine filings with the regulatory agencies
and governmental authorities in the countries in which we operate or intend to
operate.

VersaTel is from time to time involved in routine litigation in the
ordinary course of business. We believe that no currently pending litigation to
which VersaTel is a party will have a material adverse effect on our financial
position or results of operations.

On July 20, 1999, VersaTel entered into, along with its shareholders
and certain other parties, a Settlement Agreement with Cromwilld Limited, in
order to resolve disputes arising out of our shareholders' agreement and other
matters. The major terms of the Settlement Agreement provide for:

o the transfer of 146,988 ordinary shares of VersaTel held by Telecom
Founders B.V. to Cromwilld;

o the issuance of 200,000 ordinary shares of VersaTel on July 20, 1999
to Cromwilld at a price of NLG 7.50 per ordinary share;

o the ability for Cromwilld to include 1,800,000 of its ordinary
shares in the Equity Offering;

o certain piggyback registration rights in favor of Cromwilld that
will take effect 180 days from the date of the Equity Offering;

o the payment by us of $300,000 for Cromwilld's fees and expenses
related to the Settlement Agreement and certain other matters;

o the acknowledgment by all parties to the shareholders' agreement of
VersaTel that the shareholders' agreement will be terminated
concurrently with the closing of the Equity Offering;

o the withdrawal by Cromwilld of its pending legal proceedings against
VersaTel and its shareholders;

o Cromwilld's full cooperation with the Equity Offering; and

o the obligation of VersaTel's shareholders, including Cromwilld, to
procure the resignation or dismissal of Cromwilld's nominee, Denis
O'Brien, from Supervisory Board of VersaTel after the completion of
the Equity Offering.

Mr. O'Brien has since resigned from the Supervisory Board of VersaTel.

<PAGE>

ITEM 2. CHANGES IN SECURITIES

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

None.

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, on November 15, 1999.

VERSATEL TELECOM INTERNATIONAL N.V.

By: /s/ R. Gary Mesch
--------------------------------
R. Gary Mesch
Managing Director

By: /s/ Raj Raithatha
--------------------------------
Raj Raithatha
Chief Financial Officer