VERSATEL TELECOM INTERNATIONAL N V, 6-K, 2000-08-14

VERSATEL TELECOM INTERNATIONAL N V
6-K, 2000-08-14
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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 June 30, 2000

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

Versatel Telecom International N.V.
(Exact name of Registrant as specified in its charter)

Hullenbergweg 101
1101 CL 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.

QUARTERLY REPORT ON FORM 6-K
FOR THE PERIOD ENDED
JUNE 30, 2000

INDEX
-----

PART I - FINANCIAL INFORMATION

ITEM 1. Financial Statements................................................ 2

Audited Consolidated Balance Sheet as of December 31, 1999
and Unaudited Consolidated Balance Sheet as of June 30, 2000........ 2

Unaudited Consolidated Statements of Operations for the Three
Months Ended June 30, 2000 and June 30, 1999 and for the
Six Months Ended June 30, 2000 and June 30, 1999.................... 4

Unaudited Consolidated Statement of Cash Flows For The Six
Months Ended June 30, 2000 and June 30, 1999........................ 5

Audited Consolidated Statement of Shareholders' Equity for
the Year Ended December 31, 1999 and Unaudited Consolidated Statement
of Shareholders' Equity for the Six Months Ended June 30, 2000...... 6

Notes to the Unaudited Consolidated Financial Statements............ 7

ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations...........................................11

ITEM 3. Quantitative and Qualitative Disclosures about Market Risk..........23

PART II - OTHER INFORMATION

SIGNATURES....................................................................25

<PAGE>

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly 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 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

As of January 1, 2000, we publish our financial statements in euros. 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,
and references to "euros" or "Euro" are to the currency introduced at the start
of the third stage of Economic and Monetary Union ("EMU") pursuant to the Treaty
establishing the European Economic Community, as amended by the Treaty on
European Union. Solely for the convenience of the reader, this document contains
translations of certain euro amounts into U.S. dollars at specified rates. These
translations should not be construed as representations that the euro 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. Unless otherwise indicated,
the translation of euros into U.S. dollars has been made at Euro0.95 per $1.00,
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 June
30, 2000.

<PAGE>

FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

VERSATEL TELECOM INTERNATIONAL N.V.

AUDITED CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1999 AND UNAUDITED CONSOLIDATED
BALANCE SHEET AS OF JUNE 30, 2000
(amounts in thousands)

December 31, 1999 June 30, 2000
----------------- -----------------
(unaudited)
Euro Euro US$
ASSETS

Current Assets:
Cash ..................................... 984,782 1,530,637 1,454,104
Restricted cash, current portion ......... 44,580 50,270 47,757
Accounts receivable, net ................. 13,377 50,720 48,184
Inventory, net ........................... 2,028 5,363 5,095
Unbilled revenues ........................ 13,221 14,139 13,432
Prepaid expenses and other ............... 29,594 42,028 39,927
--------- --------- ---------
Total current assets ................ 1,087,582 1,693,157 1,608,499
--------- --------- ---------

Fixed Assets:
Property, plant and equipment, net ....... 232,694 373,714 355,028
Construction in progress ................. 81,803 115,831 110,039
--------- --------- ---------
Total fixed assets .................. 314,497 489,545 465,067
--------- --------- ---------

Investments............................... -- 25,360 24,092
Restricted cash, net of current portion .. 21,469 -- --
Capitalized finance costs, net ........... 28,255 44,920 42,674
Other non-current assets ................. 14,344 14,388 13,669
Goodwill, net ............................ 196,973 252,499 239,874
--------- --------- ---------

Total assets ............................. 1,663,120 2,519,869 2,393,875
========= ========= =========

See notes to the unaudited consolidated financial statements.

2
<PAGE>

VERSATEL TELECOM INTERNATIONAL N.V.

AUDITED CONSOLIDATED BALANCE SHEET AS OF
DECEMBER 31, 1999 AND UNAUDITED CONSOLIDATED
BALANCE SHEET AS OF JUNE 30, 2000
(amounts in thousands)

December 31, 1999 June 30, 2000
----------------- -------------------
(unaudited)
Euro Euro US$

LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities:
Accounts payable ..................... 71,165 95,294 90,529
Accrued liabilities .................. 73,249 142,802 135,662
Unearned revenue ..................... 2,359 5,184 4,925
Current portion of capital lease
obligations ....................... 14,866 1,401 1,332
---------- ---------- ----------
Total current liabilities ....... 161,639 244,681 232,448
---------- ---------- ----------

Capital lease obligations, net of
current portion ................... 27,214 6,211 5,900
Long-term liabilities ................ 5,071 35,558 33,780
Long-term debt (Senior Notes and
Senior Convertible Notes) ......... 961,527 1,659,399 1,576,429
---------- ---------- ----------
Total liabilities ............... 1,155,451 1,945,849 1,848,557
---------- ---------- ----------

Shareholders' Equity:
Ordinary shares, NLG 0.05 par value .. 1,797 1,992 1,892
Additional paid-in capital ........... 743,619 988,711 939,275
Warrants ............................. 2,088 1,011 960
Accumulated deficit .................. (239,835) (417,694) (396,809)
---------- ---------- ----------
Total shareholders' equity ...... 507,669 574,020 545,318
---------- ---------- ----------

Total liabilities and shareholders'
equity ............................ 1,663,120 2,519,869 2,393,875
========== ========== ==========

See notes to the unaudited consolidated financial statements.

3
<PAGE>

VERSATEL TELECOM INTERNATIONAL N.V.

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 2000 AND JUNE 30, 1999
AND FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND JUNE 30, 1999
(amounts in thousands, except for per share amounts)

<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------------- --------------------------------
1999 2000 1999 2000
----------- ------------------- -------- -------------------
Euro Euro US$ Euro Euro US$

<S> <C> <C> <C> <C> <C> <C>
OPERATING REVENUES ..................... 10,720 46,504 44,179 17,754 75,679 71,895

OPERATING EXPENSES:
Cost of revenues, excluding
depreciation ........................... 8,237 33,072 31,418 13,902 55,284 52,520
Selling, general and administrative ....
25,036 52,983 50,334 34,178 89,728 85,242
Depreciation and amortization........... 3,662 21,369 20,301 5,061 36,653 34,820
-------- -------- -------- -------- -------- --------
Total operating expenses .......... 36,935 107,424 102,053 53,141 181,665 172,582
-------- -------- -------- -------- -------- --------

Operating Loss .................... (26,215) (60,920) (57,874) (35,387) (105,986) (100,687)

OTHER INCOME (EXPENSES):
Foreign currency exchange gains
(losses), net .......................... (12,012) (1,251) (1,188) (30,306) (25,325) (24,059)
Interest income ........................ 2,224 14,295 13,580 4,967 23,524 22,348
Interest expense ....................... (11,769) (44,874) (42,630) (22,612) (73,172) (69,513)
Result from investments ................ -- 2,267 2,154 -- 2,267 2,154
Other expense .......................... (1,830) -- -- (1,830) -- --
-------- -------- -------- -------- -------- --------
Total other income (expenses) (23,387) (29,563) (28,084) (49,781) (72,706) (69,070)

Loss before income taxes .......... (49,602) (90,483) (85,958) (85,168) (178,692) (169,757)
-------- -------- -------- -------- -------- --------
Credit from income taxes ............... -- -- -- -- 41 39
-------- -------- -------- -------- -------- --------

Net loss before minority share .... (49,602) (90,483) (85,958) (85,168) (178,651) (169,718)

Minority share ......................... -- 425 404 -- 792 753
-------- -------- -------- -------- -------- --------

Net loss .......................... (49,602) (90,058) (85,554) (85,168) (177,859) (168,965)
======== ======== ======== ======== ======== =========
Net loss per share (basic and
diluted) ............................... (1.26) (1.05) (0.99) (2.18) (2.14) (2.04)

Weighted average number of shares
outstanding ............................ 39,223 85,996 85,996 39,105 83,016 83,016

</TABLE>
See notes to the unaudited consolidated financial statements.

4
<PAGE>

VERSATEL TELECOM INTERNATIONAL N.V.

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND JUNE 30, 1999
(amounts in thousands)

<TABLE>
<CAPTION>
Six Months Ended
----------------------------------------------
June 30, 1999 June 30, 2000
--------------- --------------------------
Euro Euro US$
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net loss ............................................ (85,375) (177,859) (168,966)
Adjustments to reconcile net loss to net cash used in
operating activities--
Depreciation and amortization ....................... 5,061 36,653 34,820
Amortization finance cost ........................... 681 3,063 2,910
Loss on disposal of fixed assets .................... -- 2,826 2,685
Deferred income ..................................... 195 2,825 2,684
Exchange loss on long-term debt and restricted cash.. 30,411 32,235 30,625
Changes in other operating assets and liabilities
Accounts receivable ................................. (2,859) (29,346) (27,879)
Inventory ........................................... (675) (3,022) (2,871)
Prepaid expenses and other .......................... (3,909) (12,589) (11,960)
Accounts payable .................................... 25,970 13,972 13,273
Due to related parties .............................. (366) -- --
Accrued liabilities ................................. 6,916 38,591 36,661
---------- ---------- ----------
Net cash by used in operating activities (23,950) (92,651) (88,018)
========== ========== ==========

Cash Flows from Investing Activities:
Capital expenditures ................................ (60,109) (177,152) (168,294)
Finance costs senior notes and convertible loans .... -- (19,728) (18,742)
Acquisition of business, net of cash acquired ....... (188,983) (93,764) (89,076)
---------- ---------- ----------
Net cash used in investing activities ............... (249,092) (290,644) (276,112)
========== ========== ==========

Cash Flows from Financing Activities:
Payments under capital lease obligations ............ (453) (34,468) (32,745)
Redemptions of short-term loans ..................... 145,663 12,534 11,907
Proceeds from long-term debt ........................ -- 25,414 24,143
Proceeds from senior notes and convertible loans .... -- 667,299 633,934
Restricted cash ..................................... 22,247 14,161 13,453
Warrants exercised .................................. -- 1,615 1,534
Proceeds exercised options .......................... -- 1,486 1,411
Shareholder contributions ........................... 16,808 241,109 229,054
---------- ---------- ----------
Net cash provided by (used in) financing activities.. 184,265 929,150 882,691
========== ========== ==========

Net Increase (Decrease) in Cash .......................... (88,775) 545,855 518,561
Cash, beginning of the period ............................ 168,813 984,782 935,543
---------- ---------- ----------
Cash, end of the period .................................. 80,038 1,530,637 1,454,104
========== ========== ==========

Supplemental Disclosures of Cash Flow Information:
Cash paid for--
Interest (net of amounts capitalized) ............. 24,127 44,934 42,687
</TABLE>

See notes to the unaudited consolidated financial statements.

5
<PAGE>

VERSATEL TELECOM INTERNATIONAL N.V.

AUDITED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1999
AND FOR THE SIX MONTHS ENDED JUNE 30, 2000
UNAUDITED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(Amounts in thousands of euros, except for share and per share amounts)

<TABLE>
<CAPTION>
Number of Additional
shares Ordinary paid-in Accumulated
outstanding shares capital Warrants deficit Total
------------- ------------- -------------- ----------- --------------- ------------
Euro Euro Euro Euro Euro

<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1998 ... 38,984,810 884 23,194 2,365 (41,905) (15,462)
Shareholder contributions .... 37,380,008 848 700,906 -- -- 701,754
Shares issued for acquisition 425,000 10 4,241 -- -- 4,251
Warrants exercised ........... 495,168 11 265 (277) -- (1)
Share Options exercised ...... -- 44 1,915 -- -- 1,959
Deferred compensation ........ -- -- 12,557 -- -- 12,557
Issuance of subsidiary shares -- -- 541 -- -- 541
Net loss ..................... -- -- -- -- (197,930) (197,930)
---------- ---------- ---------- ---------- ---------- ----------
Balance, December 31, 1999 ... 79,224,986 1,797 743,619 2,088 (239,835) 507,669

Shareholders contributions ... 5,100,000 116 238,159 -- -- 238,275
Shares issued for acquisition 87,246 3 2,831 -- -- 2,834
Warrants exercised ........... 2,241,315 51 2,641 (1,077) -- 1,615
Stock options exercised ...... 1,118,114 25 1,461 -- -- 1,486
Net loss ..................... -- -- -- -- (177,859) (177,859)
---------- ---------- ---------- ---------- ---------- ----------
Balance, June 30, 2000 ....... 87,771,691 1,992 988,711 1,011 (417,694) 574,020
========== ========== ========== ========== ========== ==========
</TABLE>

See notes to the unaudited consolidated financial statements.

6
<PAGE>

VERSATEL TELECOM INTERNATIONAL N.V.

NOTES TO THE UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS

AS OF JUNE 30, 2000 AND FOR THE
THREE MONTHS ENDED JUNE 30, 1999 AND 2000
AND FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 2000

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
subsidiaries (the "Company") have been prepared in conformity with U.S.
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 June 30, 2000, and the results
of operations and cash flows for the six months ended June 30, 1999 and 2000.

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 1999 audited financial
statements and the notes related thereto, filed on Form 20-F, as amended. The
results of operations for the three and six months ended June 30, 2000 may not
be indicative of the operating results for the full year.

As of June 30, 2000, the Company (directly or indirectly) owned 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 N.V. (92% owned by the Company)
- VEW Telnet GmbH
- Versatel Deutschland Holding GmbH

<PAGE>

- Versatel Deutschland Verwaltungs GmbH
- KomTel GmbH (80% owned by the Company)
- Klavertel N.V.
- Compath N.V.
- Keys-Tone Communications N.V.
- MMDI N.V.
- Versatel Internet Group N.V.
- Versatel 3G N.V.

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

As of June 30, 2000, the Company (directly or indirectly) owned the
following investments:

- VersaPoint N.V. (50%)
- Hot Orange B.V. (9%)
- Consumerdesk B.V. (5%)

The Company holds certain investments accounted for under the equity
method. The Company accounts for an investment under the equity method if the
investment gives the Company the ability to exercise significant influence, but
not control, over an investee. Significant influence is generally deemed to
exist if the Company has an ownership interest in the voting stock of the
investee of between 20% and 50%, although other factors, such as representation
on the investee's Board of Directors and the impact of commercial arrangements,
are considered in determining whether the equity method of accounting is
appropriate.

In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities" and in June
2000 issued SFAS No. 138, "Accounting for Certain Derivative Instruments and
Certain Hedging Activities". SFAS No. 133 and 138 establish 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 the adoption of
SFAS No. 133.

<PAGE>

2. Current Events

On March 24, 2000, Versatel acquired 80% of the outstanding common
shares of KomTel GmbH from Stadtwerke Flensburg Gmbh and other shareholders for
Euro61.6 million in cash and the assumption of approximately Euro13.0 million
in existing debt. Versatel has an option to purchase the remaining 20% from
Stadtwerke Flensburg GmbH in 2002 for Euro15.4 million. Key (unaudited) figures
for KomTel as December 31, 1999 under German GAAP are: sales of Euro31.0
million, shareholders' equity of Euro3.7 million, total assets of Euro35.6
million and a loss for the financial year ended December 31, 1999 of Euro9.6
million.

On March 30, 2000, 8,500,000 of the Company's ordinary shares were sold
at Euro49 per share, of which 4,250,000 were sold by some of its shareholders,
for aggregate net proceeds to the Company, after offering expenses, of
approximately Euro198.4 million. The Company also issued Euro360 million 4%
senior convertible notes due 2005 for aggregate net proceeds, after offering
expenses of approximately Euro350.0 million. In addition, the Company issued
Euro300 million 11 1/4% senior notes due 2010 for aggregate net proceeds, after
offering expenses, of approximately Euro282.0 million. On April 2, 2000, the
Company sold an additional 850,000 ordinary shares of which 425,000 were sold by
our shareholders and raised Euro39.9 million in aggregate net proceeds, after
offering expenses, in connection with the exercise by the underwriters of their
over-allotment option in the third equity offering of March 30, 2000.

On April 19, 2000, Versatel and Northpoint Communications Group Inc.,
created VersaPoint N.V, a 50% investment accounted for under the equity method,
pursuant to a joint venture agreement, dated March 8, 2000. VersaPoint N.V. will
combine Northpoint's DSL Network deployment and operations expertise with
Versatel's established broadband local access network, DSL operations in the
Benelux and Germany, and local market and regulatory experience. Northpoint and
Versatel will equally fund VersaPoint's start-up costs and the initial capital
requirements through a Euro100 million (in aggregate) cash investment and the
contribution of certain assets. As of June 30, 2000, Versatel and Northpoint had
contributed Euro25 million each.

On June 9, 2000, Versatel acquired 100% of the outstanding common
shares of Klavertel N.V. and its wholly owned subsidiaries Compath N.V. and
Keys-tone N.V. from @Value B.V. and other shareholders for Euro 1.4 million in
cash and 87,246 newly issued shares of Versatel. The cash component of the
purchase price has been placed in escrow and Versatel has the option, on
November 15, 2000, to issue additional shares to the former shareholders of
Klavertel N.V. upon repayment to Versatel of the Euro 1.4 million placed in
escrow. Sales for Compath and Keys-tone as of December 31, 1999 are Euro 4.2
million.

3. Foreign Currency Transactions

The Company's reporting currency is the euro. Transactions involving
other currencies are converted into euro using the exchange rates which are in
effect at the time of the transactions.

At the balance sheet date, monetary assets and liabilities which are
denominated in other currencies are adjusted to reflect the current exchange
rates. Gains or losses resulting from foreign currency re-measurements are
reflected in the accompanying statements of operations.

<PAGE>

For the six months ended June 30, 2000 an exchange loss of Euro 30.1
million was realized on the long-term debt (13 1/4% senior notes and 11 7/8%
senior notes, denominated in U.S. dollars). In the same period, an exchange gain
was realized on the cash, partly denominated in U.S. dollars, to an amount of
Euro 1.7 million and on the restricted cash, fully denominated in U.S. dollars,
a gain was realized to an amount of Euro 4.8 million.

4. Financial Condition and Operations

For the six months period ended June 30, 2000, the Company had a loss
of Euro177.9 million. In addition, the Company had an accumulated deficit of
Euro417.7 million as of June 30, 2000.

Although the Company expects to incur operating losses and net losses
for the foreseeable future as it incurs additional costs associated with the
development and expansion of the Company's network, the expansion of its
marketing and sales organization and the introduction of new telecommunications
services, it has a positive working capital of Euro1,448.5 million at June 30,
2000, which should enable it to continue its operations through June 30, 2001.
The Company expects to raise additional funds in 2000 through public or private
financings or from financial institutions.

5. Commitments

Commitments, mainly in connection to the roll-out of the Company's
network and the lease agreement relating to the new principal executive offices
of the Company, not yet recorded on the balance sheet, amount to approximately
Euro82 million as of June 30, 2000.

The Company has earn-out arrangements with the former shareholders of
Zeven-Klapper Beheer B.V. and ITinera Services N.V. Any payments resulting from
these earn-out arrangements will be recorded as adjustments to the purchase
price upon the time they become certain. No such adjustments have been recorded
yet.

6. Subsequent Events

In July 2000, the Company participated in the Dutch UMTS auction. The
Company withdrew from the auction after it received a letter from Telfort
(another auction participant) threatening legal action if Versatel continued the
auction process after an undefined level of bidding was exceeded. The Company
has petitioned against several decisions taken by the government during the
auction process and is currently awaiting a response from the government. As of
the date of filing, no formal legal action has been taken by Telfort.

On August 4, 2000, the Company sold Amstel Alpha B.V. and its wholly
owned subsidiary SpeedPort N.V. to Conxion Corporation, USA for $10 million
in cash.

<PAGE>

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

Overview

We are a rapidly growing, competitive communications network operator
in our target market of the Benelux and northwest Germany. We are a leading
alternative to the former monopoly telecommunications carriers in these regions.
Our objective is to become the leading fully integrated provider of local
access, facilities-based broadband services, including voice, data and Internet
services, to customers in our target market. We provide high-quality,
competitively priced telecommunications, data and Internet services to four
targeted market segments:

o Business Services -- small and medium-sized businesses located
throughout our target market.

o Local Access Services -- high bandwidth users within our
target market located near to and who may be directly
connected with our network.

o Data Services -- high bandwidth data customers with multiple
sites throughout our target market.

o Carrier Services -- other telecommunications, data and
Internet service providers.

Our growth to date has been driven by the continued increase in the
number of customers we serve and the expansion of our products and services
offering to include data and Internet services. We have increased our customer
base both through organic growth and through acquisitions, such as our
acquisitions of Svianed B.V., which increased our ability to provide data
services, and VEW Telnet GmbH and KomTel GmbH, which established our presence in
Germany. We anticipate that net losses also will continue to increase due to
increasing selling, general and administrative costs related to the expansion of
our business, the short-term leasing of access capacity, higher borrowing costs
and increased depreciation and amortization costs resulting from the continuing
build-out of our network. Currency fluctuations between the euro and the U.S.
dollar also may have an adverse impact on our net income.

During the second quarter of 2000 we made the following announcements:

o On June 30, 2000, we announced that, subject to shareholder
approval, Mr Raj Raithatha, the current Chief Financial
Officer (CFO), will take over the Chief Executive Officer
(CEO) position from Gary Mesch after a planned transition
period ending in October 2000. Subject to shareholder
approval, Gary Mesch will join the Supervisory Board and
assume the (non-executive) Chairman's position in October,
replacing the current Chairman Leo van Doorne. Mr Van Doorne
will remain a member of the Supervisory Board.

o On June 22, 2000, we announced the opening of our new data
center in Amsterdam and the completion of our first Carrier
Ring in the Amsterdam region.

<PAGE>

o On June 9, 2000, we acquired 100% of the outstanding common
shares of Compath N.V., a wholesale carrier concentrating on
the voice market in Belgium. Compath will be integrated into
Versatel's Carrier Service Division and operate as Versatel
Carrier Services Belgium, providing Versatel with a strong
customer base in the Belgian carrier services market.

o On May 30, 2000, we launched Sonne, a flat-fee Internet
Service Provider (ISP) in Germany, attracting over 30,000
users in the first six weeks of operation.

o On April 19, 2000, VersaPoint N.V. was formed, pursuant to a
joint venture agreement dated March 8, 2000 with Northpoint
Communications Group, Inc. VersaPoint intends to rapidly
deploy DSL equipment and sell DSL services on a wholesale
basis to Internet Service Providers and communications
companies initially in The Netherlands and Germany. VersaPoint
intends to expand its operations into other Western European
markets as countries continue to force former monopoly service
providers to unbundle their network elements. VersaPoint
launched its services in The Netherlands on June 6, 2000 and
in Germany on August 10, 2000.

Revenues

Historically, our revenues were derived primarily from minutes of long
distance telecommunications services billed to small- and medium-sized
businesses and to a lesser extent residential customers. Initially, our revenues
were generated in The Netherlands and later Belgium. Over the course of the past
year the composition of our customer base, service offering and geographical
focus has changed substantially as a result of the further development of our
network, acquisitions (Svianed, VEW Telnet and KomTel) and the expansion of our
product offering. As a result, we have significantly increased the portion of
our revenues generated from fixed monthly fees, expanded our geographical focus
to include northwest Germany and expanded our customer base to include larger
customers. We have started to generate revenues from larger customers, such as
the GAK Group, which represented 10.7% of our revenues for the six months ended
June 30, 2000. Also, for the six months ended June 30, 2000, 49.3% of our
revenues were generated from the provision of data and Internet services. 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. However, with the recent acquisition of
KomTel we have increased our residential customer base substantially. 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.

The following table sets forth the total number of customers for
telephony services, based on the number of invoices issued, for the fiscal years
ended December 31, 1998 and December 31, 1999 and for the six months ended June
30, 1999 and June 30, 2000. As a result of our recent acquisitions, our total
number of business customers, including data and Internet customers is more than
42,500 as of June 30, 2000.

<PAGE>

</TABLE>

The following table sets forth the total revenues attributable to our
operations for the fiscal years ended December 31, 1998 and December 31, 1999
and for the six months ended June 30, 1999 and June 30, 2000.

Fiscal Years Ended Six Months Ended
December 31, June 30,
-------------------------- -------------------------
1998 1999 1999 2000
--------- ---------- -------- --------
(euros in thousands)
<S> <C> <C> <C> <C>
Revenues
Business customers
Telephony........................... 15,643 31,695 13,153 31,780
Data................................ -- 14,109 1,979 12,412
Internet............................ 407 4,942 1,079 15,887
Residential customers
Telephony........................... 175 405 223 3,277
Internet............................ -- 286 -- 2,447
Wholesale customers
Telephony........................... 1,727 5,194 1,320 3,287
Data................................ -- 1,907 -- 3,219
Other............................... -- -- -- 3,370
--------- ---------- -------- --------
Total............................ 17,952 58,538 17,754 75,679
</TABLE>

Until October 1998, all our revenues were generated in The Netherlands. In
October 1998, we started generating revenues in Belgium and in December 1999, we
started generating revenues in Germany. The geographical composition of our
revenues for the fiscal years ended December 31, 1998 and December 31, 1999 and
for the six months ended June 30, 1999 and June 30, 2000 was as follows:

<PAGE>

<TABLE>
<CAPTION>
Fiscal Years Ended Six Months Ended
December 31, June 30,
-------------------------- -------------------------
1998 1999 1999 2000
--------- ---------- -------- --------
(euros in thousands)
<S> <C> <C> <C> <C>
The Netherlands............................. 17,844 52,323 16,685 45,562
Belgium ............................... 108 4,417 1,069 8,744
Germany..................................... -- 1,798 -- 21,373
--------- -------- -------- --------
Total.................................. 17,952 58,538 17,754 75,679

</TABLE>

Our revenues, which are derived from minutes of communications traffic
billed, fixed broadband fees and subscription fees, are allocated to the period
in which the traffic has terminated or fees have been generated. The percentage
of our revenues attributable to fixed fees has increased, 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 Internet traffic generated by Zon and Sonne, our Internet service
providers in The Netherlands and Germany, which form a part of our Internet
division, Versatel Internet, we generate revenues from terminating minutes. We
generally price our communications services at a discount to the local PTTs and
expect to continue this pricing strategy as we expand our operations. In
general, prices for communications services have decreased over the last several
years, both for voice traffic as well as for bandwidth for data and Internet.
This trend has accelerated as the number of traffic minutes attributable to
internet traffic generated by Zon and Sonne has increased. In The Netherlands,
KPN Telecom N.V. reduced its prices per minute of telecommunications traffic
billed in January 1999, May 1999, October 1999, January 2000, April 2000 and,
most recently, July 2000, which reductions are expected to have an adverse
impact on margins in the near term as we have responded by reducing our prices.
In Belgium, Belgacom introduced several discount programs for selected customer
groups, which we subsequently matched. Germany has experienced similar levels of
price reductions. Additionally, we expect to increase our national billable
minutes, which are priced at lower rates than international minutes. As national
and wholesale billable minutes and minutes attributable to termination of our
Internet traffic 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 out-pace the decline in per
minute costs in the near term, 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 out-pace reductions
in revenues, we may experience a substantial reduction in our 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
has made pricing more transparent in the European telecommunications market,
which may lead to further competition and price decreases.

<PAGE>

Cost of Revenues

Our costs of revenues are comprised of origination costs, network costs
and termination costs and are 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 us.

Over the past year we have experienced a significant decrease in
origination costs and we expect that these origination costs will continue to
decrease, although at a more moderate level. In addition, as we continue to
build 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 build out 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 have
primarily consisted of the cost of leased lines as well as Internet uplink
costs. Over time, we expect a reduction in the cost of our leased lines as
traffic is shifted onto our owned network. 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. This shift of
traffic, however, has not occurred as rapidly as we had originally anticipated
due to our focus on expanding our network to connect new customers and central
office locations to generate new revenues. This has negatively impacted our
operating margins in recent periods. We expect depreciation and amortization
costs to increase due to depreciation of the VEW Telnet and Komtel network and
the continuing build out of our backbone network.

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 no longer pay for national termination costs on
that route and 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: (a) the incremental build out of our
network, which will increase the number of carriers with which we interconnect,
(b) the increase of minutes we originate, which should lead to higher volume
discounts available to us, (c) more

<PAGE>

rigorous implementation of the European Community directives requiring
cost-based termination rates and leased line rates and (d) 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.

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 the development of
new products and the expansion into new regions such as northwest Germany and
into complementary businesses such as Versatel Internet.

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

We capitalize and depreciate our fixed assets, including switching and
transmission equipment, routers, fiber optic cable and rights of use, over
periods ranging from two to 30 years. In addition, we capitalize and amortize
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. In particular, our acquisition of Svianed and our more recent
acquisitions of VEW Telnet and KomTel will significantly increase our goodwill
amortization charges in future periods. Increased capital expenditures will
adversely affect our future operating results due to increased depreciation
charges and interest expense.

Foreign Exchange

We have substantial U.S. dollar denominated assets and liabilities and
our revenues are generated and costs incurred in certain other currencies,
primarily the Dutch guilder, Belgian franc and German mark. We are therefore
exposed to fluctuations in the U.S. dollar and other currencies, which may
result in foreign exchange gains and/or losses. The Netherlands, Belgium and
Germany have all adopted the euro, and as a result, we are no longer exposed to
any fluctuations between the Dutch guilder, Belgian franc and the German mark. A
number of equipment purchases and consultancy activities are billed to us in
currencies other than Dutch guilders, Belgian franc or German mark.

<PAGE>

Results of Operations

For the three months ended June 30, 2000 compared to the three months
ended June 30, 1999

Revenues increased by Euro35.8 million to Euro46.5 million for the
three months ended June 30, 2000 from Euro10.7 million for the three months
ended June 30, 1999, representing an increase of 333.8%. The growth in revenues
resulted primarily from the addition of new customers, the introduction of data
and Internet services in The Netherlands, Belgium and Germany, the acquisitions
of Svianed, VEW Telnet and KomTel and an increase in wholesale traffic. Included
in the revenues for the three months ended June 30, 2000 are the revenues of
Svianed (acquired June 1, 1999) of Euro6.6 million and the revenues of VEW
Telnet (acquired December 1, 1999) of Euro6.8 million and the revenues of
KomTel (acquired March 24, 2000) of Euro9.3 million and a one time strategic
sale of excess duct capacity of Euro3.4 million. Revenues for the three months
ended June 30, 2000 as compared to the same period in 1999 were negatively
impacted by frequent price reductions resulting from competitive pressures.

The number of business customers for telephony services increased by
15,307 to 23,576 as of June 30, 2000 from 8,269 as of June 30, 1999. As a result
of our recent acquisitions, however, our total number of business customers,
including data and Internet customers increased to more than 42,500 as of June
30, 2000. As of June 30, 2000, Zon, our Internet Service Provider in The
Netherlands has generated more than 600,000 subscribers. In addition, Sonne, our
new flat fee Internet Service Provider in Germany, has registered more than
30,000 subscribers in the first six weeks of operation.

Cost of revenues increased by Euro24.9 million to Euro33.1 million
for the three months ended June 30, 2000 from Euro8.2 million for the three
months ended June 30, 1999, primarily reflecting an increase in billable
minutes, increasing interconnect capacity and short-term network capacity
requirements (leased lines) in Belgium, Internet uplinks and international
leased lines to London and Frankfurt. Leased line costs also increased as a
result of using leased lines to connect customers directly to our backbone
network as demand for our services exceeded our ability to build out these
customer connections without unreasonable delay to the customer. We also
experienced delays in migrating Svianed traffic from leased lines to our
backbone network. Finally, our cost of revenues also has increased as Dutch
mobile operators have instituted call-blocking to prevent lower cost
international rerouting alternatives to the relatively expensive termination
costs for fixed-to-mobile calls.

Selling, general and administrative expenses increased by Euro28.0
million to Euro53.0 million for the three months ended June 30, 2000 from
Euro25.0 million for the three months ended June 30, 1999, representing an
111.6% increase. This primarily resulted from 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 and additional expenses as a result of the
acquisitions of Svianed, VEW Telnet and Komtel.

Depreciation and amortization expenses increased by Euro17.7 million
to Euro21.4 million for the three months ended June 30, 2000 from Euro3.7
million for the three months ended June 30, 1999. This increase was primarily
related to capital expenditures incurred in connection with the

<PAGE>

expansion of our network, an increase in the number of buildings connected and
an increase in the number of dialers installed due to customer growth and the
purchase of computer equipment and office furniture for our new headquarters and
datacenter and the amortization of goodwill of Euro3.9 million, Euro0.7 million
and Euro1.7 million as a result the acquisitions of Svianed, VEW Telnet and
Komtel, respectively.

Currency exchange losses, net, decreased by Euro10.7 million to a loss
of Euro1.3 million for the three months ended June 30, 2000 from a loss of
Euro12.0 million for the three months ended June 30, 1999 due to losses on our
U.S. dollar denominated liabilities resulting from the appreciation of the U.S.
dollar against the euro.

Interest income increased by approximately Euro12.1 million to
Euro14.3 million for the three months ended June 30, 2000 from Euro2.2 million
for the three months ended June 30, 1999. This increase was primarily related to
our positive cash balance as a result of the high yield offerings in May and
November of 1998, the high yield offering in July 1999, the initial public
offering in July 1999, the equity offering and the convertible notes offering in
December 1999 and the high yield offering, equity offering and the convertible
notes offering in March 2000.

Interest expense increased by Euro33.1 million to Euro44.9 million
for the three months ended June 30, 2000 from Euro11.8 million for the three
months ended June 30, 1999. This increase is primarily related to the accrual of
interest expense on the notes issued in the high yield offerings in 1998, 1999
and 2000 and the convertible notes offerings in 1999 and 2000.

Result from investments amounted to Euro2.3 million for the three
months ended June 30, 2000. No result from investments were incurred for the
three months ended June 30, 1999. The result relates to the book gain of the
sale of our interest in Telebel GmbH, Germany and the application of the equity
accounting method of our investment in VersaPoint.

Other expense amounted to Euro1.8 million for the three months ended
June 30, 1999. No other expense was incurred during the three months ended June
30, 2000. This expense was related to a settlement agreement of one of the
shareholders of Versatel and related legal expenses.

For the six months ended June 30, 2000 compared to the six months ended
June 30, 1999

Revenues increased by Euro57.9 million to Euro75.7 million for the
six months ended June 30, 2000 from Euro17.8 million for the six months ended
June 30, 1999, representing an increase of 326.3%. The growth in revenues
resulted primarily from the addition of new customers, the introduction of data
and Internet services in The Netherlands, Belgium and Germany, the acquisitions
of Svianed, VEW Telnet and KomTel and an increase in wholesale traffic. Included
in the revenues for the six months ended June 30, 2000 are the revenues of
Svianed (acquired June 1, 1999) of Euro13.2 million and the revenues of VEW
Telnet (acquired December 1, 1999) of Euro12.1 million and the revenues for
KomTel (acquired March 24, 2000) of Euro9.3 million. Revenues for the six
months ended June 30, 2000 as compared to the same period in 1999 were
negatively impacted by frequent price reductions resulting from competitive
pressures.

The number of business customers for telephony services increased by
15,307 to 23,576 as of June 30, 2000 from 8,269 as of June 30, 1999. As a result
of our recent acquisitions,

<PAGE>

however, our total number of business customers, including data and Internet
customers, increased to more than 42,500 as of June 30, 2000. As of June 30,
2000, Zon, our Internet Service Provider in The Netherlands has generated more
than 600,000 subscribers. In addition, Sonne, our new flat fee Internet Service
Provider in Germany, has registered more than 30,000 subscribers in the first
six weeks of operation.

Cost of revenues increased by Euro41.4 million to Euro55.3 million
for the six months ended June 30, 2000 from Euro13.9 million for the six months
ended June 30, 1999, primarily reflecting an increase in billable minutes,
increasing interconnect capacity and short-term network capacity requirements
(leased lines) in Belgium, Internet uplinks and international leased lines to
London and Frankfurt. Leased line costs also increased as a result of using
leased lines to connect customers directly to our backbone network as demand for
our services exceeded our ability to build out these customer connections
without unreasonable delay to the customer. We also experienced delays in
migrating Svianed traffic from leased lines to our backbone network. Finally,
our cost of revenues also has increased as Dutch mobile operators have
instituted call-blocking to prevent lower cost international rerouting
alternatives to the relatively expensive termination costs for fixed-to-mobile
calls.

Selling, general and administrative expenses increased by Euro55.5
million to Euro89.7 million for the six months ended June 30, 2000 from
Euro34.2 million for the six months ended June 30, 1999, representing an 162.5%
increase. This primarily resulted from 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 and additional expenses as a result of the
acquisitions of Svianed, VEW Telnet and KomTel.

Depreciation and amortization expenses increased by Euro31.6 million
to Euro36.7 million for the six months ended June 30, 2000 from Euro5.1
million for the six months ended June 30, 1999. This increase was primarily
related to capital expenditures incurred in connection with the expansion of our
network, an increase in the number of buildings connected and an increase in the
number of dialers installed due to customer growth and the purchase of computer
equipment and office furniture for our new headquarters and datacenter and the
amortization of goodwill of Euro7.9 million, Euro1.5 million and Euro17
million as a result the acquisitions of Svianed, VEW Telnet and KomTel
respectively.

Currency exchange losses, net, decreased by Euro5.0 million to a loss
of Euro25.3 million for the six months ended June 30, 2000 from a loss of
Euro30.3 million for the six months ended June 30, 1999 due to losses on our
U.S. dollar denominated liabilities resulting from the appreciation of the U.S.
dollar against the euro.

Interest income increased by approximately Euro18.5 million to
Euro23.5 million for the six months ended June 30, 2000 from Euro5.0 million
for the six months ended June 30, 1999. This increase was primarily related to
our positive cash balance as a result of the high yield offerings in May and
November of 1998, the high yield offering in July 1999, the initial public
offering, the equity offering and the convertible notes offering in December
1999 and the high yield offering, equity offering and the convertible notes
offering in March 2000.

<PAGE>

Interest expense increased by Euro50.6 million to Euro73.2 million
for the six months ended June 30, 2000 from Euro22.6 million for the six months
ended June 30, 1999. This increase is primarily related to the accrual of
interest expense on the notes issued in the high yield offerings in 1998, 1999
and 2000 and the convertible notes offerings in 1999 and 2000.

Result from investments amounted to Euro2.3 million for the six months
ended June 30, 2000. No result from investments were incurred for the six months
ended June 30, 1999. The result relates to the book gain of the sale of our
interest in Telebel GmbH, Germany and the application of the equity accounting
method of our investment in VersaPoint.

Other expense amounted to Euro1.8 million for the six months ended
June 30, 1999. No other expense was incurred during the six months ended June
30, 2000. This expense was related to a settlement agreement of 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 May 1998,
we financed our growth primarily through equity and subordinated loans from its
shareholders. In May 1998, we issued units consisting of $225 million principal
aggregate amount of 13 1/4% senior notes due 2008 and warrants to purchase
3,000,000 (as adjusted for a two-for-one stock split in April 1999) of our
ordinary shares ("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,
we issued units consisting of $150 million principal aggregate amount of 13 1/4%
senior notes due 2008 and warrants to purchase 2,000,100 (as adjusted for a
two-for-one stock split in April 1999) of our ordinary shares (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, we issued Euro120 million 11 7/8% Senior Euro Notes due
2009 and $180 million 11 7/8% Senior Dollar Notes due 2009 (the "Third High
Yield Offering") and raised net proceeds, after transaction expenses, of
Euro116.1 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, along with a number of selling shareholders, we sold
21,250,000 ordinary shares in the form of shares and American Depositary Shares
("ADSs") in an initial public offering (the "Initial Public Offering"). In
August 1999, we sold an additional 3,187,500 ordinary shares in connection with
an over-allotment option granted to the underwriters in the Initial Public
Offering. We raised aggregate net proceeds, after transaction expenses, of
Euro174.5 million and $35.5 million, in the Initial Public Offering. The shares
are listed on the Amsterdam Stock Exchange under the symbol "VRSA" and the ADSs
are quoted on the Nasdaq National Market under the symbol "VRSA".

In December 1999, we issued and sold 15,000,000 ordinary shares (the
"Second Equity Offering") for aggregate net proceeds, after offering expenses,
of approximately Euro506.6 million and Euro300 million of 4% senior
convertible notes due 2004 in a private placement to institutional

<PAGE>

investors (the "First Convertible Notes"). With respect to the First Convertible
Notes, we raised aggregate net proceeds, after offering expenses, of
approximately Euro292.5 million.

We have used a significant amount of the net proceeds of the High Yield
Offerings, the Equity Offerings and the offerings of Convertible Notes 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, we have made limited use of bank facilities and capital lease
financing. We 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 may
require additional capital to continue funding the expansion and development of
our network and service offerings. In addition to continuing the build out of
our network, we expect that we will need additional capital to expand our local
access network, invest in Internet activities, fund our investment in VersaPoint
N.V. and the fiber transmission related to the digital subscriber line (or DSL)
roll-out, as well as for acquisitions. In addition, we anticipate that we may
want to participate in auctions for UMTS wireless licenses in our target market,
other than The Netherlands where we were unable to obtain such license.

The proceeds from the three offerings in March 2000, combined with our
existing cash balances, 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 at least the next 12 to 18 months. We
expect that we will need to raise substantial additional funds through public or
private financings or from financial institutions.

We are required to meet our debt service obligations on the notes
issued in the Third High Yield Offering and the Fourth High Yield Offering and
the Convertible Notes out of cash reserves and net cash flow. 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 Netherlands, Belgium,
Luxembourg and Germany 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 Euro92.7 million for the six
month period ended June 30, 2000 compared to net cash provided by operating
activities of Euro24.0 million for the six month period ended June 30, 1999.
This increase was primarily the result of an increase in operating losses, the
increase in depreciation of our operational network assets and the increase in
accounts receivable as a result of increased revenues.

Net cash used in investing activities was Euro290.6 million in the six
month period ended June 30, 2000 compared to Euro249.1 million in the six month
period ended June 30, 1999. This increase was the result of the acquisition of
KomTel, ongoing capital expenditures to expand our

<PAGE>

network and operations as well as the finance cost incurred in the first quarter
as a result of the Fourth High Yield Offering, the Third Equity Offering and the
Second Convertible Notes.

Net cash provided by financing activities was Euro929.2 million the
six month period ended June 30, 2000 compared to Euro184.3 million during the
six month period ended June 30, 1999. This increase was primarily the result of
the Fourth High Yield Offering, the Third Equity Offering and the Second
Convertible Notes.

<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, Belgian franc and German marks (which currencies are now
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. The notes issued in the Third High
Yield Offering will mature on July 15, 2009. The notes issued in the Fourth High
Yield Offering will mature on March 30, 2010. The First Convertible Notes will
mature on December 17, 2004 and the Second Convertible Notes will mature on
March 30, 2005. Unless previously redeemed or converted, we are 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 these notes. Since
the interest rate on each of the notes issued in the High Yield Offerings is
fixed and the effective interest rate on the First Convertible Notes and the
Second Convertible Notes increases at fixed increments, we have limited our
exposure to risks due to fluctuations of interest rates. At June 30, 2000, the
fair value of the notes issued in the High Yield Offerings was approximately
Euro928.4 million and the fair value of our Convertible Notes was approximately
Euro683.3 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, German marks 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 remaining proceeds from our dollar denominated
offerings to pay our construction costs. However, as of June 30, 2000, we had
exchanged all but $37.2 million of the proceeds from these offerings into Dutch
guilders or euros. 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 may become
subject to greater foreign exchange fluctuations as we continue to 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 and Germany 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.

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

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 August 14, 2000.

Versatel Telecom International N.V.

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

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