EXHIBIT 99.1
RISK FACTORS
From time to time we have, and may in the future make, forward-looking
statements, based on our then-current expectations, including statements made
in Securities and Exchange Commission filings, in press releases and oral
statements. These forward-looking statements are made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995.
All forward-looking statements involve risks and uncertainties, and actual
results could differ materially from those expressed or implied in the
forward- looking statements for a variety of reasons. These reasons include,
but are not limited to, factors outlined below. We do not undertake to
update or revise our forward-looking statements publicly even if experience
or future changes make it clear that any projected results expressed or
implied therein will not be realized.
BECAUSE OUR REVENUES PRIOR TO JANUARY 1998 RESULTED FROM A BUSINESS STRATEGY
WE ARE NO LONGER PURSUING, YOU MAY HAVE DIFFICULTY EVALUATING US.
We began offering local services under our own brand name in January 1998
and began providing network services to customers since September 1999. As a
result, we can only provide limited historical operating and financial
information about our current business strategy for you to evaluate.
IF WE DO NOT SUCCESSFULLY EXECUTE OUR NEW BUSINESS STRATEGY, WE MAY BE UNABLE
TO COMPETE EFFECTIVELY.
Our business strategy is complex and requires that we successfully
complete many tasks, a number of which we must complete simultaneously. If we
are unable to effectively implement or coordinate the implementation of these
multiple tasks, we may be unable to compete effectively in our markets and
our financial results may suffer.
OUR INCURRENCE OF NEGATIVE CASH FLOWS AND OPERATING LOSSES DURING THE NEXT
SEVERAL YEARS MAY ADVERSELY AFFECT THE PRICE OF OUR COMMON STOCK.
During recent periods we have experienced substantial net losses,
operating losses and negative cash flow. Our expenses have increased
significantly, and we expect our expenses to continue to increase as we
deploy our network and implement our business plan. Accordingly, we expect
to incur significant operating losses, net losses and negative cash flow
during the next several years, which may adversely affect the price of our
common stock.
IF OUR NETWORK DOES NOT FUNCTION PROPERLY, WE WILL BE UNABLE TO PROVIDE THE
TELECOMMUNICATIONS SERVICES ON WHICH OUR FUTURE PERFORMANCE WILL IN LARGE
PART DEPEND.
Because the design of our network has not been widely deployed, we cannot
assure you that our network will provide the functionality that we expect. We
also cannot be sure that we will be able to incorporate local dial tone
capabilities into our network because this technology has not been widely
implemented. Without this capability we will not be able to provide on our
network all of our target customers' fixed line telecommunications services.
IF WE DO NOT OBTAIN INTERCONNECTION AGREEMENTS WITH OTHER CARRIERS, WE WILL
BE UNABLE TO PROVIDE ENHANCED SERVICES ON OUR NETWORK.
Negotiation of interconnection agreements with incumbent local exchange
carriers, or ILECs, can take considerable time, effort and expense, and these
agreements are subject to federal, state and local regulation. We may not be
able to effectively negotiate the necessary interconnection agreements.
Without these interconnection agreements, we will be unable to provide
enhanced connectivity to our network and local dial tone services and to
achieve the financial results we expect.
BECAUSE OF OUR LIMITED EXPERIENCE, WE MAY NOT BE ABLE TO PROPERLY OR TIMELY
DEPLOY, OPERATE AND MAINTAIN OUR NETWORK, WHICH COULD MATERIALLY ADVERSELY
AFFECT OUR FINANCIAL RESULTS.
The failure of our network equipment to operate as anticipated or the
inability of equipment suppliers to timely supply such equipment could
materially and adversely affect our financial results.
Because we have limited experience operating and maintaining
telecommunications networks, we may not be able to deploy our network
properly or do so within the time frame we expect. In addition, we may
encounter unanticipated difficulties in operating and maintaining our
network. If network implementation does not occur in a timely and effective
manner, our financial results could be adversely affected.
OUR HIGH LEVERAGE CREATES FINANCIAL AND OPERATING RISK THAT COULD LIMIT THE
GROWTH OF OUR BUSINESS.
We have a significant amount of indebtedness. As of September 30, 2000,
we had approximately $168.3 million of total indebtedness outstanding. We do
not expect to generate sufficient cash flow from operations to repay our
existing credit facilities. We have incurred substantial debt financing to fund
our business plan. Our high leverage could have important consequences to us,
including,
. limiting our ability to obtain necessary financing for future working
capital, capital expenditures, debt service, or refinancing requirements
or other purposes;
. limiting our flexibility in planning for, or reacting to, changes in our
business;
. placing us at a competitive disadvantage to competitors with less
leverage;
. increasing our vulnerability in the event of a downturn in our business
or the economy generally;
. requiring that we use a substantial portion of our cash flow from
operations for debt service and not for other purposes.
WE MAY BE UNABLE TO OBTAIN THE ADDITIONAL CAPITAL WE WILL REQUIRE TO FUND OUR
OPERATIONS AND FINANCE OUR GROWTH ON ACCEPTABLE TERMS OR AT ALL, WHICH COULD
CAUSE US TO DELAY OR ABANDON OUR DEVELOPMENT AND EXPANSION PLANS.
We will need significant additional capital to expand our business plan.
We cannot assure you that capital will be available to us when we need it or
at all. If we are unable to obtain capital when we need it, we may delay or
abandon our expansion plans. That could have a material adverse effect on our
business and financial condition.
OUR MARKET IS HIGHLY COMPETITIVE, AND WE MAY NOT BE ABLE TO COMPETE
EFFECTIVELY, ESPECIALLY AGAINST ESTABLISHED COMPETITORS WITH GREATER
FINANCIAL RESOURCES AND MORE EXPERIENCE.
We operate in a highly competitive environment. We have no significant
market share in any market in which we operate. We will face substantial and
growing competition from a variety of data transport, data networking,
telephony service and integrated telecommunications service providers. We
also expect that the incumbent local exchange carriers ultimately will be
able to provide the range of services we currently offer. Many of our
competitors are larger and better capitalized than we are, are incumbent
providers with long-standing customer relationships, and have greater name
recognition. We may not be able to compete effectively against our
competitors.
OUR INFORMATION SYSTEMS MAY NOT PRODUCE ACCURATE AND PROMPT BILLS WHICH COULD
CAUSE A LOSS OR DELAY IN THE COLLECTION OF REVENUE AND COULD ADVERSELY AFFECT
OUR RELATIONS WITH OUR CUSTOMERS.
We depend on our information systems to bill our customers accurately and
promptly. Because of the deployment of our network and our expansion plans,
we are continuing to upgrade our information systems. Our failure to
identify all of our information and processing needs or to adequately upgrade
our information systems could delay our collection efforts, cause us to lose
revenue and adversely affect our relations with our customers.
WE MAY NOT RECEIVE TIMELY AND ACCURATE CALL DATA RECORDS FROM OUR SUPPLIERS
WHICH COULD CAUSE A LOSS OR DELAY IN THE COLLECTION OF REVENUE AND COULD
ADVERSELY AFFECT OUR RELATIONS WITH OUR SUPPLIERS.
Our billing and collection activities are dependent upon our suppliers
providing us with accurate call data records. If we do not receive accurate
call data records in a timely manner, our collection efforts could suffer and
we could lose revenue. In addition, we pay our suppliers according to our
calculation of the charges based upon invoices and computer tape records
provided by these suppliers. Disputes may arise between us and our suppliers
because these records may not always reflect current rates and volumes. If we
do not pay disputed amounts, a supplier may consider us to be in arrears in
our payments until the amount in dispute is resolved, which could adversely
affect our relations with our suppliers.
WE DEPEND ON THE NETWORKS AND SERVICES OF THIRD PARTY PROVIDERS TO SERVE OUR
CUSTOMERS AND OUR RELATIONSHIPS WITH OUR CUSTOMERS COULD BE ADVERSELY
AFFECTED BY FAILURES IN THOSE NETWORKS AND SERVICES.
We depend on other carriers for the switching and transmission of our
customer traffic. After we complete deploying our network, we will still rely
to some extent on others for switching and transmission of customer traffic.
We cannot be sure that any third party switching or transmission facilities
will be available when needed or on acceptable terms.
Although we can exercise direct control of the customer care and support
we provide, most of the services we currently offer are provided by others.
The availability of these services are subject to work stoppages, lack of
available facilities, physical damage, power loss, capacity limitations,
software defects, breaches of security and other factors which
may cause interruptions in service or reduced capacity for our customers.
These problems, although not within our control, could adversely affect
customer confidence and damage our relationships with our customers.
INCREASES IN CUSTOMER ATTRITION RATES COULD ADVERSELY AFFECT OUR OPERATING
RESULTS.
Our customers may not continue to purchase local, long distance, data or
other services from us. Because we have been selling voice and data
telecommunications under our own brand name for a short time, our customer
attrition rate is difficult to evaluate. We could lose customers as a result
of national advertising campaigns, telemarketing programs and customer
incentives provided by major competitors as well as for other reasons not in
our control as well as a result of our own performance. Increases in customer
attrition rates could have a material adverse effect on our results of
operations.
WE MAY BE UNABLE TO EFFECTIVELY MANAGE OUR GROWTH, WHICH COULD MATERIALLY
ADVERSELY AFFECT ALL ASPECTS OF OUR BUSINESS.
We are pursuing a business plan that will result in rapid growth and
expansion of our operations if we are successful. This rapid growth would
place significant additional demands upon our current management and other
resources. Our success will depend on our ability to manage our growth. To
accomplish this we will have to train, motivate and manage an increasing
number of employees. Our failure to manage growth effectively could have a
material adverse effect on our business, results of operations and financial
condition.
WE MAY BE UNABLE TO RETAIN OR REPLACE OUR SENIOR MANAGEMENT OR HIRE AND
RETAIN OTHER HIGHLY SKILLED PERSONNEL UPON WHICH OUR SUCCESS WILL DEPEND.
We believe that our continued success will depend upon the abilities and
continued efforts of our management, particularly members of our senior
management team. The loss of the services of any of these individuals could
have a material adverse effect on our business, results of operations and
financial condition. Our success will also depend upon our ability to
identify, hire and retain additional highly skilled sales, service and
technical personnel. Demand for qualified personnel with telecommunications
experience is high and competition for their services is intense. If we
cannot attract and retain the additional employees we need, we will be unable
to successfully implement our business strategy.
CHANGES TO THE REGULATIONS APPLICABLE TO OUR BUSINESS COULD INCREASE OUR
COSTS AND LIMIT OUR OPERATIONS.
We are subject to federal, state, and local regulation of our local, long
distance, and data services. The outcome of the various administrative
proceedings at the federal and state level and litigation in federal and
state courts relating to this regulation as well as federal and state
legislation may increase our costs, increase competition and limit our
operations.
RAPID TECHNOLOGICAL CHANGES IN THE TELECOMMUNICATIONS INDUSTRY COULD RENDER
OUR SERVICES OR NETWORK OBSOLETE FASTER THAN WE EXPECT OR REQUIRE US TO SPEND
MORE THAN WE CURRENTLY ANTICIPATE.
The telecommunications industry is subject to rapid and significant
changes in technology. Any changes could render our services or network
obsolete, require us to spend more than we anticipate or have a material
adverse effect on our operating results and financial condition. Advances in
technology could also lead to more entities becoming our direct competitors.
Because of this rapid change, our long-term success will increasingly depend
on our ability to offer advanced services and to anticipate or adapt to these
changes, such as evolving industry standards. We cannot be sure that:
. we will be able to offer the services our customers require;
. our services will not be economically or technically outmoded by current
or future competitive technologies;
. our network or our information systems will not become obsolete;
. we will have sufficient resources to develop or acquire new technologies
or introduce new services that we need to effectively compete; or
. our cost of providing service will decline as rapidly as the costs of our
competitors.
WE MAY PURSUE ACQUISITIONS WHICH COULD DISRUPT OUR BUSINESS AND MAY NOT YIELD
THE BENEFITS WE EXPECT.
We may pursue strategic acquisitions as we expand. Acquisitions may
disrupt our business because we may:
. experience difficulties integrating acquired operations and personnel
into our operations;
. divert resources and management time;
. be unable to maintain uniform standards, controls, procedures and
policies
. enter markets or businesses in which we have little or no experience; and
. find that the acquired business does not perform as we expected.
OUR EXISTING PRINCIPAL STOCKHOLDERS, EXECUTIVE OFFICERS AND DIRECTORS CONTROL
A SUBSTANTIAL AMOUNT OF OUR VOTING SHARES AND WILL BE ABLE TO SIGNIFICANTLY
INFLUENCE ANY MATTER REQUIRING SHAREHOLDER APPROVAL.
Our officers and directors and parties related to them now control
approximately 35.1% of the voting power of our outstanding capital stock.
Robert J. Fabbricatore, our Chairman and Chief Executive Officer, controls
approximately 13.4% of our voting power. Therefore, the officers and
directors are able to significantly influence any matter requiring
shareholder approval.
FLUCTUATIONS IN OUR OPERATING RESULTS COULD ADVERSELY AFFECT THE PRICE OF OUR
COMMON STOCK.
Our annual and quarterly revenue and results could fluctuate as a result
of a number of factors, including:
. variations in the rate of timing of customer orders,
. variations in our provisioning of new customer services,
. the speed at which we expand our network and market presence,
. the rate at which customers cancel services, or churn,
. costs of third party services purchased by us, and
. competitive factors, including pricing and demand for competing services.
Also, our revenue and results may not meet the expectations of securities
analysts and our stockholders. As a result of fluctuations or a failure to
meet expectations, the price of our common stock could be materially
adversely affected.
OUR STOCK PRICE IS LIKELY TO BE VOLATILE.
The trading price of our common stock is likely to be volatile. The stock
market in general, and the market for technology and telecommunications
companies in particular, has experienced extreme volatility. This volatility
has often been unrelated to the operating performance of particular
companies. Other factors that could cause the market price of our common
stock to fluctuate substantially include:
. announcements of developments related to our business, or that of our
competitors, our industry group or our customers;
. fluctuations in our results of operations;
. hiring or departure of key personnel;
. a shortfall in our results compared to analysts' expectations and changes
in analysts' recommendations or projections;
. sales of substantial amounts of our equity securities into the
marketplace;
. regulatory developments affecting the telecommunications industry or data
services; and
. general conditions in the telecommunications industry or the economy as a
whole.
