<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the quarterly period ended June 30, 1999.
or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
Commission File Number: 0-26661
VOYAGER.NET, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 38-3431501
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
4660 S HAGADORN RD SUITE 320
EAST LANSING, MI 48823
(Address of principal executive offices, including zip code)
(517) 324-8940
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes No X
----- -----
As of August 10, 1999, there were 31,650,108 shares of the Registrant's Common
Stock outstanding.
<PAGE>
VOYAGER.NET, INC.
FORM 10-Q
JUNE 30, 1999
TABLE OF CONTENTS
Page Number
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Balance Sheets as of
June 30, 1999 and December 31, 1998.......................... 3
Condensed Consolidated Statements of Operations for the
three months and six months ended June 30, 1999 and 1998..... 4
Condensed Consolidated Statement of Stockholders'
Equity (Deficit) for the six months ended June 30, 1999 ..... 5
Condensed Consolidated Statements of Cash Flows for the
six months ended June 30, 1999 and 1998...................... 6
Notes to Condensed Consolidated Financial Statements.......... 7-8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................... 9-16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................. 17
Item 2. Changes in Securities......................................... 17-18
Item 4. Submission of Matters to a Vote of Security Holders........... 18-19
Item 6. Exhibits and Reports on Form 8-K.............................. 19
SIGNATURES............................................................. 20
INDEX TO EXHIBITS...................................................... 21
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VOYAGER.NET, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
----------- ------------
(unaudited)
Assets
Current assets:
<S> <C> <C>
Cash and cash equivalents.................................. $ 4,655,402 $ 2,350,292
Accounts receivable, less allowances....................... 2,188,743 950,381
Prepaid and other assets................................... 801,420 154,059
----------- -----------
Total current assets...................................... 7,645,565 3,454,732
Property and equipment, net................................ 15,799,794 9,528,372
Intangible assets, net..................................... 46,704,834 28,741,650
Note receivable............................................ 500,000 -
----------- -----------
Total assets.............................................. $70,650,193 $41,724,754
=========== ===========
<CAPTION>
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
<S> <C> <C>
Current portion of obligations under capital leases........ $ 813,721 $ 303,562
Notes payable, related party............................... 2,340,720 2,252,713
Accounts payable........................................... 1,643,381 659,351
Other liabilities.......................................... 2,886,166 855,727
Deferred revenue........................................... 9,239,348 5,625,627
------------ -----------
Total current liabilities................................. 16,923,336 9,696,980
Commitments and contingencies............................... - -
Obligations under capital leases............................ 1,830,821 751,613
Long-term debt.............................................. 55,200,000 30,000,000
Stockholders' equity (deficit):
Preferred stock, Series A, 8% cumulative, non-
voting, $.01 par value, $100 redemption value............. 8,274,819 8,274,819
Common stock, $.0001 par value............................. 1,954 1,792
Additional paid-in capital................................. 12,674,834 3,214,748
Receivable for preferred and common stock.................. (6,000,000) (666,700)
Deferred compensation...................................... 57,420 1,008,420
Accumulated deficit........................................ (18,312,991) (10,556,918)
------------ -----------
Total stockholders' equity (deficit)...................... (3,303,964) 1,276,161
Total liabilities and stockholders' equity................ $ 70,650,193 $41,724,754
============ ===========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
3
<PAGE>
VOYAGER.NET, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------- -------------------------
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Revenue:
Internet access service............................ $10,537,560 $ 1,221,442 $18,942,762 $ 2,353,216
Other.............................................. 176,339 824 290,363 4,294
----------- ----------- ----------- -----------
Total revenue....................................... 10,713,899 1,222,266 19,233,125 2,357,510
----------- ----------- ----------- -----------
Operating expenses:
Internet access service costs...................... 3,602,005 428,887 6,391,681 799,240
Sales and marketing................................ 1,229,038 224,432 2,198,069 405,014
General and administrative......................... 3,081,402 464,982 5,544,602 820,420
Depreciation and amortization...................... 5,004,953 143,552 8,531,777 269,557
Compensation charge for issuance of common
stock and stock options........................... 1,044,000 - 2,509,000 -
----------- ----------- ----------- -----------
Total operating expenses............................ 13,961,398 1,261,853 25,175,129 2,294,231
----------- ----------- ----------- -----------
Income (loss) from operations before interest
expense, net....................................... (3,247,499) (39,587) (5,942,004) 63,279
Interest expense, net............................... (1,042,556) (38,394) (1,814,069) (77,435)
----------- ----------- ----------- -----------
Net loss............................................ (4,290,055) (77,981) (7,756,073) (14,156)
Preferred stock dividends........................... (165,496) (50,000) (330,992) (100,000)
----------- ----------- ----------- -----------
Net loss applicable to common stockholders.......... $(4,455,551) $ (127,981) $(8,087,065) $ (114,156)
=========== =========== =========== ===========
Per Share Data:
Basic and diluted net loss per share applicable to
common stockholders................................ $ (0.19) $ (0.01) $ (0.35) $ (0.01)
=========== =========== =========== ===========
Weighted average common shares outstanding:
Basic and diluted................................... 23,766,309 15,021,831 23,163,442 15,010,316
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
4
<PAGE>
VOYAGER.NET, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
(unaudited)
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional
----------------------- -------------------------- Paid-in
Shares Amount Shares Amount Capital
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1999 82,748 $8,274,819 22,216,308 $ 1,792 $ 3,214,748
Issuance of common stock -- -- 1,240,000 100 7,354,900
Proceeds from preferred stock -- -- -- -- --
Exercise of stock options and
vesting of restricted stock -- -- 620,000 62 2,105,186
Deferred compensation -- -- -- -- --
Net loss -- -- -- -- --
---------- ---------- ---------- ---------- ------------
Balance at June 30, 1999 82,748 $8,274,819 24,076,308 $ 1,954 $ 12,674,834
========== ========== ========== ========== ============
</TABLE>
<TABLE>
<CAPTION>
Receivable Total
For Preferred Stockholders'
and Common Deferred Accumulated Equity
Stock Compensation Deficit (Deficit)
<S> <C> <C> <C> <C>
Balance at January 1, 1999 $ (666,700) $ 1,008,420 $(10,556,918) $ 1,276,161
Issuance of common stock (6,000,000) -- -- 1,355,000
Proceeds from preferred stock 666,700 -- -- 666,700
Exercise of stock options and
vesting of restricted stock -- (1,090,000) -- 1,015,248
Deferred compensation -- 139,000 -- 139,000
Net loss -- -- (7,756,073) (7,756,073)
------------ ------------ ------------ ------------
Balance at June 30, 1999 $ (6,000,000) $ 57,420 $(18,312,991) $ (3,303,964)
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
5
<PAGE>
VOYAGER.NET, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-----------------------
1999 1998
<S> <C> <C>
Cash flows from operating activities:
Net loss.............................................................. $(7,756,073) $ (14,156)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization......................................... 8,531,777 269,556
Loss on sale of equipment............................................. 4,572 -
Compensation charge for issuance of
common stock shares and options...................................... 2,509,000 -
Changes in assets and liabilities excluding
effects of business combinations, net................................ 1,272,295 270,003
----------- ---------
Net cash provided by operating activities............................. 4,561,571 525,403
Cash flows from investing activities:
Business acquisition costs, net of cash
acquired............................................................. (23,577,768) -
Purchase of property and equipment.................................... (2,658,104) (450,789)
----------- ---------
Net cash used in investing activities................................. (26,235,872) (450,789)
Cash flows from financing activities:
Payments on capital leases............................................ (262,767) (34,282)
Advances from related party........................................... - 4,047
Loan/payments to related party........................................ (500,000) (25,521)
Payment of bank financing fees........................................ (1,124,770) -
Proceeds from issuance of debt........................................ 25,200,000 -
Proceeds from common stock issuance................................... 248 -
Proceeds from preferred stock......................................... 666,700 -
----------- ---------
Net cash provided by (used in) financing activities................... 23,979,411 (55,756)
----------- ---------
Net increase in cash and cash equivalents............................. 2,305,110 18,858
Cash and cash equivalents at beginning of
period............................................................... 2,350,292 518,791
----------- ---------
Cash and cash equivalents at end of period............................ $ 4,655,402 $ 537,649
=========== =========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
6
<PAGE>
VOYAGER.NET, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION:
These condensed consolidated financial statements of Voyager.net, Inc. and
its subsidiaries (the "Company") for the three and six months ended June 30,
1999 and 1998 and the related footnote information are unaudited and have been
prepared by the Company pursuant to the rules and regulations of the Securities
and Exchange Commission. These financial statements included herein should be
read in conjunction with the Company's audited consolidated financial statements
and the related notes to the consolidated financial statements as of and for the
year ended December 31, 1998, which are included in the Company's prospectus
filed with the Securities and Exchange Commission and dated July 20, 1999. In
management's opinion, the accompanying unaudited financial statements contain
all adjustments (consisting of normal, recurring adjustments) which management
considers necessary to present the consolidated financial position of the
Company at June 30, 1999 and the results of its operations and cash flows for
the three month and six month periods ended June 30, 1999 and 1998. Certain
information and footnote disclosures normally included in the financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations. The
results of operations for the three and six months ended June 30, 1999 are not
necessarily indicative of the results of operations expected for the year ended
December 31, 1999.
2. BUSINESS COMBINATIONS:
During the six month period ended June 30, 1999, the Company acquired certain
assets used in connection with the Internet access service business of the eight
entities listed below:
<TABLE>
<CAPTION>
COMPANY DATE
------- ----
<S> <C>
Hoosier On-Line Systems, Inc. 1/15/99
Infinite Systems, Ltd. 2/24/99
Exchange Network Services, Inc. 3/10/99
StarNet, Inc. 4/23/99
GDR Enterprises, Inc. 5/7/99
PCLink.com 6/4/99
Core Digital Communications, Inc. 6/17/99
American Information Services, Inc. 6/25/99
</TABLE>
The unaudited pro forma combined historical results, as if Hoosier On-Line
Systems, Inc., Infinite Systems, Ltd., Exchange Network Services, Inc., GDR
Enterprises, Inc., PCLink.com, and Core Digital Communications, Inc. had been
acquired at the beginning of the six months ended June 30, 1999 and 1998,
respectively, are included in the table below. Additionally, the unaudited pro
forma combined historical results, as if Freeway, Inc., EXEC-PC, Inc. and
Netlink Systems, LLC, which were acquired in 1998, had been acquired at the
beginning of the six months ended June 30, 1998 are included in the table below.
The pro forma combined historical results for CDL Corp., Internet-Michigan,
Inc., Netimation, Inc., Add, Inc., StarNet, Inc. and American Information
Services, Inc. were not deemed to be material and are not included for the six
months ended June 30, 1999 and 1998.
<TABLE>
<CAPTION>
(in thousands except per share data)
Six Months Ended June 30,
-------------------------------
1999 1998
<S> <C> <C>
Revenue $ 22,849 $ 15,273
Net loss $ (9,978) $ (8,317)
Basic and diluted loss per share $ (0.44) $ (0.56)
</TABLE>
The pro forma results above include amortization of intangibles and interest
expense on debt assumed issued to finance the acquisitions. The pro forma
results are not necessarily indicative of what actually would have occurred if
the acquisitions had been completed as of the beginning of each of the fiscal
periods presented, nor are they necessarily indicative of future consolidated
results.
7
<PAGE>
VOYAGER.NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. DEBT:
On April 13, 1999, the Company increased its revolving available credit
facility with its bank group to $70 million. The credit facility matures on
March 31, 2005. The revolving credit facility agreement allows the Company to
elect an interest rate as of any borrowing date based on either the (1) prime
rate, or (2) LIBOR, plus a margin ranging from 1.5% to 3.5% depending on the
ratio of funded debt to EBITDA. The elected rate as of June 30, 1999 is
approximately 8.25%.
In July 1999, the Company, re-negotiated its credit facility concurrent with
its initial public offering (see note 7) for a $60 million line of credit, with
the option to extend to $70 million, on similar terms and conditions. Automatic
and permanent reductions of the maximum commitments begin June 30, 2001 and
continue until maturity.
4. EARNINGS PER SHARE:
The impact of dilutive shares is not significant. Net loss per share is
computed using the weighted average number of common shares outstanding during
the period. Inclusion of common share equivalents of 601,400 would be anti-
dilutive and have been excluded from per share calculations.
5. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
The following is the supplemental cash flow information for all periods
presented:
<TABLE>
<CAPTION>
Six months ended
June 30,
------------------------
1999 1998
<S> <C> <C>
Cash paid during the period for interest........... $ 1,359,051 $157,021
Noncash financing and investing activities:
In connection with the acquisitions described in
Note 2, liabilities were assumed as follows:
Fair value of assets acquired..................... $ 27,343,972
Business acquisition costs, net of cash
acquired......................................... $(23,577,768)
------------
Liabilities assumed................................ $ 3,766,204
============
Acquisition of equipment through capital lease..... $ 1,478,600 $306,111
Issuance of compensatory common stock and options.. $ 1,044,000 -
</TABLE>
6. STOCK-BASED COMPENSATION PLAN:
During the three months ended June 30, 1999, the Company accelerated the
vesting for its restricted stock awards resulting in an aggregate compensation
charge of $1,044,000.
7. SUBSEQUENT EVENT:
On July 20, 1999, the Company completed an initial public offering in which
it sold 7,425,000 shares of common stock at $15.00 per share resulting in net
proceeds of $100,375,000. In addition, a total of 1,575,000 shares were offered
for sale by shareholders. Upon the closing of the offering, $60,622,173 of
senior bank debt and accrued interest and fees were repaid, $8,810,059 of
preferred stock and cumulative dividends were redeemed, and $2,336,174 of
subordinated notes were repaid. The remainder of the proceeds are to be used
for general corporate purposes, including potential acquisitions, and capital
expenditures.
8
<PAGE>
ITEM 2:
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND OPERATING
RESULTS OF THE COMPANY
GENERAL
We are the largest Internet service provider focused on the Midwestern United
States. We incorporated in June 1994 and began offering Internet access to
residential and business customers in Michigan in 1995. From 1995 to 1997, we
focused on building our network infrastructure in Michigan as well as developing
the core competencies to grow our business. We funded the initial build-out of
our network and development of our operations primarily through an aggregate
$2.5 million in debt and equity capital from Horizon Cable I Limited
Partnership, Media/Communications Partners II Limited Partnership and
Media/Communications Investors Limited Partnership. In 1998, we began pursuing
an acquisition program focused on acquiring regional and local Internet service
providers throughout the Midwest. This program allowed us to expand into new
markets as well as to increase the utilization of Voyager.net-owned points of
presence network infrastructure and operations. During 1998, we acquired seven
Internet service providers in the Midwest with approximately 100,000
subscribers, including the acquisition of EXEC-PC, Inc., a consumer-based
Internet service provider located in Milwaukee, Wisconsin with 80,000
subscribers. We funded these acquisitions primarily with $4.8 million of equity
capital raised from private equity investors and through a $40.0 million
revolving credit facility with a group of banks led by Fleet National Bank. The
credit facility was increased to $70.0 million on April 13, 1999. Thus far in
1999, we have acquired an additional eight Internet service providers with
approximately 67,000 subscribers in the aggregate. We currently operate the
largest dial-up Internet network in the Midwest in terms of geographic coverage,
with approximately 165 Voyager.net-owned points of presence in Michigan,
Wisconsin, Ohio, Illinois, Indiana and Minnesota. Through a combination of
internal growth and acquisitions, we have increased our subscriber base from
approximately 17,000 subscribers at the end of December 1997 to approximately
240,000 subscribers as of June 30, 1999, including approximately 6,800 Web
hosting subscribers, more than 1000 dedicated Internet access accounts, 1,200
cable modem customers and 250 DSL subscribers.
On July 20, 1999, the Company completed an initial public offering in which
it sold 7,425,000 shares of common stock at $15.00 per share resulting in net
proceeds of $100,375,000. In addition, a total of 1,575,000 shares were offered
for sale by shareholders. Upon the closing of the offering, $60,622,173 of
senior bank debt and accrued interest and fees were repaid, $8,810,059 of
preferred stock and cumulative dividends were redeemed, and $2,336,174 of
subordinated notes were repaid. The company intends to use the remainder of the
proceeds for general corporate purposes, including potential acquisitions, and
capital expenditures.
REVENUES AND EXPENSES
Our revenues are generally composed of:
. dial-up Internet access services, which allow customers to access the
Internet through a local telephone call using standard modems in computers;
. dedicated Internet access services, which provide customers a continuous
high-speed connection to the Internet using traditional copper telephone
lines; and
. additional Web and communications services, such as Web hosting, or
maintaining customer Web sites on our servers and computers, co-location,
or providing telecommunications facilities for customer-owned Web servers
and equipment, electronic commerce, and other broadband voice and data
services.
Dial-up Internet access service revenues consist of monthly, quarterly, semi-
annual and annual prepaid subscriptions for Internet access services. We offer
dial-up Internet access to residential and small- and medium-sized business
customers. Advance collections relating to prepaid subscriptions for future
access services are recorded as deferred revenue when collected and revenue is
recognized ratably over the term of the prepaid subscription. Subscribers may
cancel their subscriptions at any time, in which case we charge the subscribers
for their subscription to the date of cancellation and refund any remaining
amounts prepaid. Cash received from prepaid subscribers is classified as
deferred revenue when received, and no cash reserves are maintained for
potential refund obligations. A majority of our residential subscribers pay
their monthly fee automatically by a pre-authorized monthly charge to their
credit cards.
9
<PAGE>
Dedicated Internet access services revenues are offered on a monthly, yearly,
three-year and five-year subscription basis. We offer dedicated Internet access
services using leased dedicated telecommunication lines primarily to business
customers, with Internet access using digital subscriber lines and cable modems
offered to both residential and business customers. The revenue recognition
policies and customer cancellation practices described for the dial-up Internet
access services also apply to the dedicated access services.
We also provide a wide range of Web services such as Web hosting, co-location,
registering customer domain names and Internet addresses, and electronic
commerce. We derive recurring revenue from Web site hosting primarily on a
fixed-rate monthly basis. We charge our co-location customers monthly fees based
on the physical use of our facilities. Other services such as domain name and
Internet address registration, electronic commerce services and other consulting
services are typically offered at a fixed-rate basis or time plus materials
basis. We also provide long distance voice services offered through a reseller
relationship with IXC Communications Services, Inc. Revenue from long-distance
service is recognized when used by the customer. Payments from customers for
prepaid calling card services are recorded as deferred revenue when collected
and revenue is recognized as the prepaid subscription is used.
Internet access service costs includes costs for providing local telephone
lines into each Voyager.net-owned point of presence, costs associated with
leased lines connecting each point of presence to our two network operation
centers, costs for our connections from our network operating centers to the
Internet, billing and bad debt expense and other technical-related expenses.
Telecommunication costs include the costs of data circuits, dial-in line
expenses and connectivity fees. Billing costs include credit card processing
fees, banking fees and customer billing expenses. Internet access service costs
for Web hosting consists primarily of telecommunication costs. Internet access
service costs for other non-recurring value added services consists of licensing
fees and cost of labor and overhead performing the service. Costs for reselling
of long distance services primarily consists of third-party wholesale costs of
the products resold. Other technical-related expenses primarily consist of
maintenance contracts and domain name registration costs.
Sales and marketing costs consist of salaries and commissions for sales,
marketing and business support personnel, advertising and promotion expenses and
commissions for value added resellers. Since 1998, we have expanded our
marketing and sales efforts as we have expanded our geographic coverage,
increased our subscriber base, acquired additional businesses and introduced new
products and services. We do not defer any costs associated with obtaining or
retaining customers or entering new markets.
General and administrative expenses consist of compensation costs for business
development, finance, accounting and billing, customer and technical support and
administration personnel and occupancy costs. Since January 1998, we have hired
several members of our senior management. We are currently seeking to hire
additional personnel to support our growth.
10
<PAGE>
ACQUISITIONS
Our acquisition strategy is designed to leverage our existing network and
administrative operations to allow us to enter new markets within the Midwest,
as well as to expand our presence in existing markets, and to realize economies
of scale. Since December 31, 1998 we have acquired eight Internet service
provider businesses in the Midwest totaling approximately 67,000 subscribers.
Below is a summary of our completed acquisitions, with the number of customers
acquired at the respective date of acquisition:
<TABLE>
<CAPTION>
Number of
Company Date Location Customers
<S> <C> <C> <C>
Hoosier On-Line Systems, Inc. 1/15/99 Seymour, IN 8,000
Infinite Systems, Ltd. 2/24/99 Columbus, OH 12,500
Exchange Network Services, Inc. 3/10/99 Cleveland, OH 8,000
StarNet, Inc. 4/23/99 Chicago, IL 5,900
GDR Enterprises, Inc. 5/7/99 Dayton, OH 20,000
PCLink.com 6/4/99 Minneapolis, MN 5,500
Core Digital Communications, Inc. 6/17/99 Stevens Point, WI 4,000
American Information Services, Inc. 6/25/99 Chicago, IL 3,100
</TABLE>
Our acquisition activity has primarily been financed with $4.8 million of
equity capital from private equity investors and loans from a $40.0 million
revolving credit facility with a group of banks managed by Fleet National Bank.
We increased the overall capacity of our credit facility to $70.0 million on
April 13, 1999.
Voyager.net is currently in various levels of acquisition discussions with a
number of Internet service providers in targeted markets in the Midwest.
However, there can be no assurance that the Company will successfully complete
any of the acquisitions we are currently evaluating.
RESULTS OF OPERATIONS
The following table sets forth certain consolidated statement of operations
data for the three and six months ended June 30, 1999 and 1998 as a percentage
of revenue. This information should be read in conjunction with the Company's
consolidated financial statements and notes included in the Company's public
filings.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ------------------
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Revenue:
Internet access service...................... 98.4 % 99.9 % 98.5 % 99.8 %
Other........................................ 1.6 0.1 1.5 0.2
------ ----- ----- -----
Total revenue.................................. 100.0 % 100.0 % 100.0 % 100.0 %
------ ----- ----- -----
Operating expenses:
Internet access service costs................ 33.6 35.1 33.2 33.9
Sales and marketing.......................... 11.5 18.4 11.5 17.2
General and administrative................... 28.8 38.0 28.8 34.8
Depreciation and amortization................ 46.7 11.7 44.4 11.4
Compensation charge for issuance of common
stock and stock options..................... 9.7 0.0 13.0 0.0
------ ----- ----- -----
Total operating expenses....................... 130.3 103.2 130.9 97.3
------ ----- ----- -----
Income (loss) from operations before interest
expense, net.................................. (30.3) (3.2) (30.9) 2.7
Interest expense, net.......................... (9.7) (3.1) (9.4) (3.3)
------ ----- ----- -----
Net loss....................................... (40.0)% (6.3)% (40.3) (0.6)%
====== ===== ===== =====
EBITDA Margin.................................. 26.1 % 8.5 % 26.5 % 14.1 %
====== ===== ===== =====
</TABLE>
11
<PAGE>
THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO JUNE 30, 1998
Revenues. Total consolidated revenues increased from $1.2 million for the
three months ended June 30, 1998 to $10.7 million for the three months ended
June 30, 1999, representing an increase of 777%. The revenue growth was
primarily driven by the increase in our customer base from approximately 20,000
at June 30, 1998 to approximately 240,000 at June 30, 1999. The growth in
customers was the result of both organic growth and acquisition activity; we
experienced internal growth from our effort to provide high quality customer and
technical service and support, geographic expansion in our coverage areas and
low customer churn rates. In addition, we introduced several new service
offerings, such as digital subscriber lines and long distance telephone service,
which generated additional revenue from our customer base.
Internet access service costs. Internet access service costs increased from
$429,000 for the three months ended June 30, 1998 to $3.6 million for the three
months ended June 30, 1999. Internet access service costs as a percent of
revenue declined from 35.1% for the three months ended June 30, 1998 to 33.6%
for the three months ended June 30, 1999 due to improved telecommunication
contracts and economies of scale. The increase in absolute spending for the
three months ended June 30, 1999 was primarily a result of an increase in
customers and their associated network expenses and an increase in billing
costs.
Sales and marketing. Sales and marketing expense increased from $224,000 for
the three months ended June 30, 1998 to $1.2 million for the three months ended
June 30, 1999. The increase in spending was primarily attributable to the growth
in our customer base and support functions and the expansion of our geographic
coverage area. As a percentage of revenue, sales and marketing costs decreased
from 18.4% for the three months ended June 30, 1998 to 11.5% for the three
months ended June 30, 1999. The decrease in sales and marketing expenses as a
percentage of revenues reflects lower customer acquisition costs attributable to
customer care and referral programs spread over a larger revenue base.
General and administrative. General and administrative expenses increased
from $465,000 for the three months ended June 30, 1998 to $3.1 million for the
three months ended June 30, 1999. The absolute increase in spending was due to
the growth of our business and the administrative functions necessary to support
our growth. As a percentage of revenue, general and administrative costs
decreased from 38.0% for the three months ended June 30, 1998 to 28.8% for the
three months ended June 30, 1999. The decrease on a percentage basis represents
leveraging of resources across an increased customer base.
Depreciation and amortization. Depreciation and amortization expense
increased from $144,000 for the three months ended June 30, 1998 to $5.0 million
for the three months ended June 30, 1999. This increase was primarily a result
of the amortization of intangible assets related to business acquisitions since
June 30, 1998, as well as increased capital spending for expanded network
operations and infrastructure.
Compensation charge for issuance of common stock and stock options. We
incurred a charge of $1.0 million for the three months ended June 30, 1999
related to the issuance of common stock and stock options. The amount of this
charge was based on the issuance and grant of common stock and options at
purchase and exercise prices below fair market value and a charge to reflect
vesting of previously issued common stock or options granted. We believe these
charges to be non-recurring in nature because we expect to issue all future
shares and stock options at prices which approximate market value. However, some
unvested options to purchase common stock will continue to vest over the next
four years, which will result in additional compensation expense of
approximately $200,000 in periods subsequent to June 30, 1999.
Other income (expense), net. Other expenses, net increased from $38,000 for
the three months ended June 30, 1998 to $1.0 million for the three months ended
June 30, 1999. This increase is the result of the higher average balance on our
$70.0 million line-of-credit which was used to fund acquisitions completed
during 1998 and 1999.
Net income (loss). As a result of the above, we reported net loss of
$78,000, or less than $.01 per share applicable to common stockholders, for the
three months ended June 30, 1998 as compared to net loss of $4.3 million, or
$0.19 per share applicable to common stockholders, for the three months ended
June 30, 1999.
12
<PAGE>
EBITDA. EBITDA increased from $104,000 for the three months ended June 30,
1998 to $2.8 million for the three months ended June 30, 1999. As a percentage
of revenues, EBITDA increased from 8.5% for the three months ended June 30, 1998
to 26.1% for the three months ended June 30, 1999. EBITDA represents earnings
before interest, taxes, depreciation, amortization and non-recurring, non-cash
compensation charges. EBITDA is provided because it is a measure commonly used
by investors to analyze and compare companies on the basis of operating
performance. EBITDA is not a measurement of financial performance under
generally accepted accounting principles and should not be construed as a
substitute for operating income, net income or cash flows from operating
activities for purposes of analyzing our operating performance, financial
position and cash flows. EBITDA, as calculated by Voyager.net, is not
necessarily comparable with similarly titled measures for other companies.
Six Months Ended June 30, 1999 Compared to June 30, 1998
Revenues. Total consolidated revenues increased from $2.4 million for the
six months ended June 30, 1998 to $19.2 million for the six months ended June
30, 1999, representing an increase of 716%. The revenue growth was primarily
driven by the increase in our customer base from approximately 20,000 at June
30, 1998 to approximately 240,000 at June 30, 1999. The growth in customers was
primarily the result of our acquisitions. We also experienced strong internal
growth from our effort to provide high quality customer and technical service
and support, geographic expansion in our coverage areas and low customer churn
rates. In addition, we introduced several new service offerings, such as digital
subscriber lines and long distance telephone service, which generated additional
revenue from our customer base.
Internet access service costs. Internet access service costs increased from
$0.8 million for the six months ended June 30, 1998 to $6.4 million for the six
months ended June 30, 1999. Internet access service costs as a percent of
revenue decreased from 33.9% for the six months ended June 30, 1998 to 33.2% for
the six months ended June 30, 1999 due to improved telecommunication contracts
and economies of scale. The increase in absolute spending for the six months
ended June 30, 1999 was primarily a result of an increase in customers and their
associated network expenses and an increase in billing costs.
Sales and marketing. Sales and marketing expense increased from $405,000 for
the six months ended June 30, 1998 to $2.2 million for the six months ended June
30, 1999. The increase in spending was attributable to the growth in our
customer base and support functions and the expansion of our geographic coverage
area. As a percentage of revenue, sales and marketing costs decreased from 17.2%
for the six months ended June 30, 1998 to 11.5% for the six months ended June
30, 1999. The decrease in sales and marketing expenses as a percentage of
revenue reflects lower customer acquisition costs attributable to customer care
and referral programs spread over a larger revenue base.
General and administrative. General and administrative expenses increased
from $0.8 million for the six months ended June 30, 1998 to $5.5 million for the
six months ended June 30, 1999. The absolute increase in spending was due to the
growth of our business and the administrative functions necessary to support our
growth. As a percentage of revenue, general and administrative costs decreased
from 34.8% for the six months ended June 30, 1998 to 28.8% for the six months
ended June 30, 1999. The decrease on a percentage basis represents leveraging of
resources across an increased customer base.
Depreciation and amortization. Depreciation and amortization expense
increased from $269,000 for the six months ended June 30, 1998 to $8.5 million
for the six months ended June 30, 1999. This increase was primarily a result of
the amortization of intangible assets related to acquiring our customer base
since June 30, 1998, as well as increased capital spending for expanded network
operations and infrastructure.
Compensation charge for issuance of common stock and stock options. We
incurred a charge of $2.5 million for the six months ended June 30, 1999 related
to the issuance of common stock and stock options. The amount of this charge was
based on the issuance and grant of common stock and options at purchase and
exercise prices below fair market value and a charge to reflect vesting of
previously issued common stock or options granted. We believe these charges to
be non-recurring in nature because we expect to issue all future shares and
stock options at prices which approximate market value. However, some unvested
options to purchase common stock will continue to vest over the next four years,
which will result in additional compensation expense of approximately $200,000
in periods subsequent to June 30, 1999.
Other income (expense), net. Other expenses, net increased from $77,000 for
the six months ended June 30, 1998 to $1.8 million for the six months ended June
30, 1999. This increase is the result of the higher average balance on our $70.0
million line-of-credit which was used to fund acquisitions completed during 1998
and 1999.
13
<PAGE>
Net income (loss). As a result of the above, we reported net loss of
$14,000, or less than $.01 per share applicable to common stockholders, for the
six months ended June 30, 1998 as compared to net loss of $7.8 million, or $0.35
per share applicable to common stockholders, for the six months ended June 30,
1999.
EBITDA (as defined). EBITDA increased from $333,000 for the six months ended
June 30, 1998 to $5.1 million for the six months ended June 30, 1999. As a
percentage of revenues, EBITDA increased from 14.0% for the six months ended
June 30, 1998 to 26.5% for the six months ended June 30, 1999.
LIQUIDITY AND CAPITAL RESOURCES
Our principal capital and liquidity needs historically have related to funding
the cash portion of our acquisitions, our sales and marketing activities, the
development and expansion of our network infrastructure, the establishment of
our customer service and support operations and general working capital needs.
Our capital needs were initially met in 1996 and 1997 by loan advances from
Horizon Cable I Limited Partnership and private placements of our securities to
our principal stockholders, as further described below. As we grew our
operations during 1998, we received capital from other sources, including cash
provided by operating activities, proceeds from the issuance of debt and notes
payable and through private placements of our securities, as further described
below.
Net cash provided by operating activities was $4.6 million for the six months
ended June 30, 1999, compared to net cash provided by operating activities of
$0.5 for the six months ended June 30, 1998. The primary sources of cash from
operating activities for the six months ended June 30, 1999 were increases in
the net change of assets and liabilities, excluding effects of business
combinations, of $1.3 million, $8.5 million in depreciation and amortization and
a $2.5 million compensation charge for issuance of common shares and options.
These sources were partially offset by the $7.8 million net loss.
Net cash used in investing activities was $26.2 million for the six months
ended June 30, 1999, compared to net cash used in investing activities of $0.5
million for the six months ended June 30, 1998. Cash used in investing
activities for the six months ended June 30, 1999 consisted of $23.6 million to
acquire eight Internet service provider businesses and $2.7 million for the
purchase of capital equipment. Cash used in investing activities for the six
months ended June 30, 1998 primarily relates to the purchase of capital
equipment.
Net cash provided by financing activities was $24.0 million for the six months
ended June 30, 1999, compared to net cash used in financing activities of
$56,000 for the six months ended June 30, 1998. The primary sources of cash from
financing activities for the six months ended June 30, 1999 were net borrowings
of $25.2 million under our revolving credit facility.
In September 1998, we entered into a $40.0 million revolving credit facility
with a bank group led by Fleet National Bank. On April 13, 1999, we increased
our availability under our credit facility to $70.0 million on similar terms and
conditions. At June 30,1999, $55.2 million was outstanding. Interest is payable
quarterly with the first payment on December 31, 1998. The bank agreements allow
us to elect an interest rate as of any borrowing date of either the (1) prime
rate or (2) LIBOR, plus a margin ranging from 1.5% to 3.5% depending upon our
funded debt to EBITDA ratio. The elected rate as of June 30, 1999 was
approximately 8.25%. In July 1999, we re-negotiated our credit facility
concurrent with our initial public offering for a $60 million line of credit,
with the option to extend to $70 million, on similar terms and conditions.
Automatic and permanent reductions of the maximum commitments begin June 30,
2001 and continue until maturity.
14
<PAGE>
On July 20, 1999, the Company completed an initial public offering in which it
sold 7,425,000 shares of common stock at $15.00 per share. In addition, a total
of 1,575,000 shares were offered for sale by shareholders. Upon the closing of
the offering, $60,622,173 of senior bank debt and accrued interest and fees were
repaid, $8,810,059 of preferred stock and cumulative dividends were redeemed,
and $2,336,174 of subordinated notes were repaid. The Company intends to use the
remainder of the proceeds for general corporate purposes, including potential
acquisitions, and capital expenditures.
YEAR 2000 COMPLIANCE
Introduction. The term "year 2000 issue" is generally used to describe the
various computer and other problems that may result from the improper processing
of dates and date-sensitive calculations as the year 2000 approaches and is
reached. These problems arise from hardware and software unable to distinguish
dates in the "2000s" from dates in the "1900s" and from other sources such
as the use of special codes and conventions in software that use a date field.
These problems could result in a system failure or miscalculations causing
disruptions of operations, including among other things, a temporary inability
to process transactions, send invoices or engage in other normal business
activities. The year 2000 issue may pose additional problems due to the fact the
year 2000 is a leap year and some computers and programs may fail to recognize
the extra day.
Our State of Readiness. We have undertaken an assessment of our
vulnerability to the year 2000 issue with respect to our software, equipment,
and other information systems. We based this assessment upon a review of our
network and software, communications with our software vendors,
telecommunications providers and third-party suppliers. To date, we have not
experienced any problems with year 2000 issues with either third-party or
internal systems. Our year 2000 readiness program is supervised by our executive
committee and we review our year 2000 program on a monthly basis.
Our overall year 2000 readiness program consists of the following steps:
. developing a complete inventory of our hardware and software and assessing
whether each specific piece of equipment or software is year 2000
compliant;
. contacting all of our major equipment vendors to ensure that the equipment
or software purchase has been tested and verified as year 2000 compliant;
. testing all of our internal equipment and software to ensure that it is
year 2000 compliant;
. upgrading, repairing, or replacing all internal or purchase equipment or
software to ensure that it is year 2000 compliant; and
. developing contingency plans to address potential year 2000 problems which
are not directly in our control or have not previously been tested or
repaired.
Specific areas in our year 2000 program which have been completed:
. upgrading our internal customer care system which includes our billing,
technical support, and customer support modules and which is now year 2000
compliant;
. contacting our major equipment providers, including Oracle, Cisco, Gateway,
3Com, and Sun Microsystems, and receiving disclosure statements that all of
the equipment or software purchased from these vendors is year 2000
compliant; and
. replacing all modems, servers and other telecommunications equipment which
had been tested and reviewed as non-year 2000 compliant.
15
<PAGE>
Contingency Plans for Year 2000 problems. For the equipment and software
which is directly in our control, we have started the development of various
contingency plans for year 2000 problems. We do rely, however, on equipment
purchased by third-party vendors, over which we have no control. We have and
will continue to take the necessary steps in order to assure that the equipment
purchased from third-party vendors is year 2000 compliant. We expect to complete
all of our year 2000 testing by October 1, 1999.
Cost to Address Year 2000 Issues. Our historical costs to assess our year
2000 readiness have been negligible. We are not currently able to estimate the
final aggregate cost of addressing the year 2000 issue because funds may be
required as a result of future findings. We do not expect these costs to have an
adverse effect on our business and financial results.
Risks Presented by Year 2000 Issues. We are still in the process of
evaluating potential disruptions or complications that might result from year
2000-related problems. Our failure to correct a material year 2000 problem could
result in a complete failure or degradation of the performance of our network or
other systems, including the disruption of operations and normal business
activities. Presently, however, we believe that the most reasonably likely worst
case scenario related to the year 2000 issue is associated with third-party
services and products. Specifically, Voyager.net is heavily dependent on a
significant number of third-party vendors to provide both network services,
telecommunications lines and equipment. A significant year 2000-related
disruption of the services provided to us by third-party vendors could cause
customers to consider seeking alternate Internet access providers or cause an
unmanageable burden on customer service and technical support, which in turn
could materially and adversely affect our results of operations, liquidity and
financial condition. We are not presently aware of any vendor-related year 2000
issue that is likely to result in such a disruption. Furthermore, Voyager.net's
business depends on the continued operation of, and widespread access to, the
Internet. To the extent the year 2000 issue disrupts the normal operation of the
Internet, our results of operations, liquidity and financial condition could be
materially and adversely affected. Although there is inherent uncertainty in the
year 2000 issue, we expect that as we progress with our year 2000 readiness
plan, the level of uncertainty about the impact of the year 2000 issue on us
will be reduced and we should be better positioned to identify the nature and
extent of material risk to us as a result of any year 2000 disruptions.
FORWARD-LOOKING STATEMENTS
This discussion contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995, that involve substantial risks
and uncertainties. You can identify these statements by forward-looking words
such as "may," "will," "expect," "anticipate," "believe," "estimate"
and "continue" or similar words. You should read statements that contain these
words carefully because they discuss our future expectations, contain
projections of our future results of operations or of our financial condition or
state other "forward-looking" information. We believe that it is important to
communicate our future expectations to our investors. However, there may be
events in the future that we are not able to accurately predict or control.
16
<PAGE>
PART II. OTHER INFORMATION.
Item 1. Legal Proceedings
The Company, from time to time, may be involved in various claims and
legal proceedings arising in the ordinary course of business. The
Company is not currently a party to any such claims or proceedings
which, if decided adversely to the Company, would either individually or
in the aggregate have material adverse effect on the Company's business,
financial condition or results of operation.
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
(a) On June 20, 1999, the Company effected a 1.24-for-1 stock split
with respect to its Common Stock. Further an amendment to the
Company's certificate of incorporation was approved by the
Company's Board of Directors on June 10, 1999 and by its
stockholders on July 16, 1999 establishing a classified Board of
Directors and effecting certain other changes as described in
Item 4(c) below, affecting the rights of the holders of the
Company's Common Stock.
(b) Not applicable
(c) Not applicable
(d) The Company completed is initial public offering (the "IPO") in
July 1999. The IPO was made pursuant to a Registration Statement
on Form S-1, originally filed with the Securities and Exchange
Commission on May 6, 1999, as amended (Commission File No.
333-77917), which was declared effective on July 20, 1999. The
IPO commenced on July 21, 1999 and terminated shortly thereafter
upon the sale into the public market of all registered shares of
Common Stock.
The shares of Common Stock sold in the IPO were offered for sale
by a syndicate of underwriters represented by Donaldson, Lufkin &
Jenrette Securities Corporation, First Union Capital Markets
Corp., CIBC World Markets Corp, and DLJdirect Inc.
The Company registered an aggregate of 10,350,000 shares of
Common Stock (including 1,350,000 shares issuable upon the
exercise of the underwriters' overallotment option) in the IPO
at a per share price of $15.00, for an aggregate offering price
of $155,250,000. As of the date of the filing of this report,
9,000,000 shares registered have been sold at an aggregate
offering price of $135,000,000. Of the 9,000,000 shares sold in
the IPO, 7,425,000 shares were registered for the Company's
account.
The Company incurred the following expenses in connection with
IPO:
Underwriting discounts and commissions........ $ 9.45 million
Other expenses................................ 1.55 million
--------------
Total expenses................................ $11.00 million
17
<PAGE>
After deducting the expenses set forth above, the Company
received $100,375,000 in net proceeds from IPO. The Company used
approximately (a) $60.6 million of the proceeds to repay
borrowings under the Company's then existing senior credit
facility with Fleet National Bank, including fees and accrued and
unpaid interest, (b) $2.3 million to repay subordinated notes and
(c) $8.8 million to redeem all of the outstanding shares of the
Company's Series A Preferred Stock in July 1998. Glenn Friedly, a
director of the Company, received proceeds from the redemption of
the Series A Preferred Stock, as did Media/Communications
Partners II Limited Partnership and Media/Communications
Investors Limited Partnership. Each of John Hayes and Christopher
Gaffney, directors of the Company, is a member of the general
partner of each of these funds. Messrs. Hayes and Gaffney
disclaim beneficial ownership of all such shares of Series A
Preferred Stock and proceeds of such redemption except to the
extent of his pecuniary interest in the shares held by
Media/Communications Investors Limited Partnership.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The stockholders of the Company voted by written consent in lieu
of a special and annual meeting effective July 16, 1999 (the
"Written Consent.")
(b) As described in paragraph (c) below, on July 16, 1999, the
Company's stockholders approved the Amended and Restated
Certificate of Incorporation including designation of the
Company's current directors, John G. Hayes, Glenn R. Friedly,
Christopher S. Gaffney, Gerald H. Taylor and Christopher P.
Torto, under a classified board arrangement.
(c) Pursuant to the Written Consent, the Company's stockholders
approved the Amended and Restated Certificate of Incorporation
and the Second Amended and Restated Certificate of Incorporation
and approved amendments to the Company's 1998 Stock Option and
Incentive Plan (the "Plan"). The votes for these proposals were
as follows:
<TABLE>
<CAPTION>
Class Outstanding For
<S> <C> <C> <C>
1. Approval of Amended Series A 82,748 82,748
and Restated Certificate Preferred
of Incorporation/Second
Amended and Restated Common 19,416,380 19,416,380
Certificate of
Incorporation
2. Amendments to the Plan Series A 82,748 82,748
Preferred 19,416,380 19,416,380
</TABLE>
18
<PAGE>
By adopting the Amended and Restated Certification of Incorporation,
the stockholders approved the classification of the current Board of
Directors as follows:
Class I Term Expires at Annual Meeting of Stockholders held in
2000:
Christopher P. Torto
Gerald H. Taylor
Class II Term Expires at Annual Meeting of Stockholders held in
2001:
Christopher S. Gaffney
Class III Term Expires at Annual Meeting of Stockholders held in
2002:
John G. Hayes
Glenn R. Friedly
The above described Amended and Restated Certificate of
Incorporation became effective in connection with the IPO and, among
other things: (i) provides for the classification of directors as
described above; (ii) increases the number of shares of Common Stock
authorized to 50,000,000; (iii) prohibits action by stockholders by
written consent; (iv) provides that amendments to the Amended and
Restated Certificate of Incorporation shall require, in some
instances, 66 2/3% of the outstanding shares entitled to vote with
respect to such amendment.
(d) Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
Exhibit Number Description of Exhibit
27.1 Financial Data Schedule
B. Reports on Form 8-K
None
19
<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.
September 3, 1999 /s/ Dennis Stepaniak
- ----------------- -------------------------------------
Dennis Stepaniak
Senior Vice President, Chief Financial Officer and
Treasurer
(Principal Financial Officer)
20
<PAGE>
EXHIBIT INDEX
Exhibit Number Description of Exhibit
3.4 ** Second Amended and Restated Articles of
Organization of Voyager.net, Inc.
3.5 ** Amended and Restated By-laws of Voyager.net, Inc.
10.2 *** First Amendment to Credit Agreement dated April 13,
1999 by and among the Company, the Agent and the
lenders identified therein
10.7 *** Reseller Agreement dated April 13, 1999 by and
among the Company and Millennium Digital Media
Systems, L.L.C.
10.23 *** Promissory Note made by Osvaldo deFaria in favor
of the Company
10.24 *** Promissory Note made by Glenn Friedly in favor
of the Company
10.25 *** Promissory Note dated April 13, 1999 made by
Christopher Torto in favor of the Company
10.31 *** Promissory Note dated July, 1999 made by
Christopher Torto in favor of the Company
27.1 * Financial Data Schedule
99.1 ** Voyager.net, Inc. Amended and Restated 1998 Stock
Option and Incentive Plan
* Filed herewith.
** Incorporated herein by reference to the Company's Registration Statement on
Form S-8 (File No. 333-84987).
*** Incorporated herein by reference to the Company's Registration Statement on
Form S-1 (File No. 333-77917).
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM VOYAGER.NET,
INC. FORM 10-Q FOR THE PERIOD ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 4,655
<SECURITIES> 0
<RECEIVABLES> 2,494
<ALLOWANCES> 305
<INVENTORY> 0
<CURRENT-ASSETS> 7,646
<PP&E> 19,312
<DEPRECIATION> 3,512
<TOTAL-ASSETS> 70,650
<CURRENT-LIABILITIES> 16,923
<BONDS> 57,031
0
8,275
<COMMON> 2
<OTHER-SE> (11,581)
<TOTAL-LIABILITY-AND-EQUITY> 70,650
<SALES> 18,943
<TOTAL-REVENUES> 19,233
<CGS> 0
<TOTAL-COSTS> 25,175
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,814
<INCOME-PRETAX> (7,756)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,756)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,756)
<EPS-BASIC> (0.35)
<EPS-DILUTED> (0.35)
</TABLE>
