Exhibit 1
VOYAGER.NET, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30,
2000
------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents................................. $ 12,329,741
Accounts receivable, less allowance....................... 7,837,616
Prepaid and other assets.................................. 1,729,869
------------
Total current assets.............................. 21,897,226
Property and equipment, net................................. 25,524,813
Intangible assets, net...................................... 56,665,195
------------
Total assets...................................... $104,087,234
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of obligations under capital leases....... $ 3,157,610
Accounts payable.......................................... 805,961
Other liabilities......................................... 2,898,448
Deferred revenue.......................................... 12,269,517
------------
Total current liabilities......................... 19,131,536
Commitments and contingencies:
Obligations under capital leases............................ 2,116,236
Long-term debt.............................................. 23,750,000
Stockholders' equity:
Preferred stock, 8% cumulative, non-voting, $.01 par
value, $100 redemption value: 5,000,000 shares
authorized, none outstanding........................... --
Common stock, $.0001 par value; authorized 50,000,000
shares in 1999 and 2000; issued and outstanding
31,650,108 and 31,654,758 in 1999 and 2000,
respectively........................................... 2,712
Additional paid-in capital................................ 112,151,544
Receivables for preferred and common stock................ (6,441,935)
Notes and interest receivable, stockholder................ (5,768,418)
Deferred compensation..................................... 161,420
Accumulated deficit....................................... (41,015,861)
------------
Total stockholders' equity........................ 59,089,462
------------
Total liabilities and stockholders' equity........ $104,087,234
============
The accompanying notes are an integral part of the condensed consolidated
financial statements.
<PAGE>
VOYAGER.NET, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- --------------------------
2000 1999 2000 1999
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Revenue:
Internet access service.................. $18,444,717 $10,537,560 $ 36,484,158 $18,942,762
Other.................................... 173,064 176,339 245,901 290,363
----------- ----------- ------------ -----------
Total revenue.................... 18,617,781 10,713,899 36,730,059 19,233,125
----------- ----------- ------------ -----------
Operating expenses:
Internet access service.................. 7,398,439 3,602,005 14,628,026 6,391,681
Sales and marketing...................... 2,221,192 1,229,038 4,358,192 2,198,069
General and administrative............... 5,931,172 3,081,402 11,912,961 5,544,602
Depreciation and amortization............ 10,166,904 5,004,953 18,377,773 8,531,777
Compensation charge for issuance of
common stock and stock options........ 25,000 1,044,000 50,000 2,509,000
----------- ----------- ------------ -----------
Total operating expenses......... 25,742,707 13,961,398 49,326,952 25,175,129
----------- ----------- ------------ -----------
Loss from operations before other income
(expense)................................ (7,124,926) (3,247,499) (12,596,893) (5,942,004)
----------- ----------- ------------ -----------
Other income (expense):
Interest income.......................... 266,077 4,822 515,076 31,594
Interest expense......................... (839,873) (1,047,378) (1,453,949) (1,845,663)
Other.................................... (218,262) -- (258,969) --
----------- ----------- ------------ -----------
Total other expense.............. (792,058) (1,042,556) (1,197,842) (1,814,069)
----------- ----------- ------------ -----------
Net loss................................... (7,916,984) (4,290,055) (13,794,735) (7,756,073)
Preferred stock dividends.................. -- (165,496) -- (330,992)
----------- ----------- ------------ -----------
Net loss applicable to common
stockholders................... $(7,916,984) $(4,455,551) $(13,794,735) $(8,087,065)
=========== =========== ============ ===========
Per share data:
Basic and diluted net loss per share
applicable to common stockholders..... $ (0.25) $ (0.19) $ (0.44) $ (0.35)
=========== =========== ============ ===========
Weighted average common shares
outstanding:
Basic and diluted..................... 31,654,758 23,766,309 31,653,466 23,163,442
=========== =========== ============ ===========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
<PAGE>
VOYAGER.NET, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
RECEIVABLES
FOR
PREFERRED
COMMON STOCK ADDITIONAL AND NOTES AND
-------------------- PAID-IN COMMON INTEREST DEFERRED ACCUMULATED
SHARES AMOUNT CAPITAL STOCK RECEIVABLE COMPENSATION DEFICIT
---------- ------ ------------ ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance January 1,
2000............... 31,650,108 $2,712 $112,129,038 $(6,291,935) $(5,630,418) $111,420 $(27,221,126)
Interest on
receivables........ -- -- -- (150,000) (138,000) -- --
Exercise of stock
options............ 4,650 -- 22,506 -- -- -- --
Deferred
compensation....... -- -- -- -- -- 50,000 --
Net loss............. -- -- -- -- -- -- (13,794,735)
---------- ------ ------------ ----------- ----------- -------- ------------
Balance June 30,
2000............... 31,654,758 $2,712 $112,151,544 $(6,441,935) $(5,768,418) $161,420 $(41,015,861)
========== ====== ============ =========== =========== ======== ============
</TABLE>
TOTAL
STOCKHOLDERS'
EQUITY
-------------
Balance January 1,
2000............... $73,099,691
Interest on
receivables........ (288,000)
Exercise of stock
options............ 22,506
Deferred
compensation....... 50,000
Net loss............. (13,794,735)
-----------
Balance June 30,
2000............... $59,089,462
===========
The accompanying notes are an integral part of the condensed consolidated
financial statements.
<PAGE>
VOYAGER.NET, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
----------------------------
2000 1999
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(13,794,735) $(7,756,073)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization............................. 18,377,773 8,531,777
Loss on disposal/sale of equipment........................ 124,878 4,572
Compensation charge for issuance of common stock and stock
options................................................ 50,000 2,509,000
Changes in assets and liabilities excluding effects of
business combinations, net............................. (3,105,198) 1,272,295
------------ ------------
Net cash provided by operating activities............ 1,652,718 4,561,571
Cash flows used in investing activities:
Business acquisition costs, net of cash acquired.......... (5,290,361) (23,577,768)
Purchase of property and equipment........................ (4,793,294) (2,658,104)
------------ ------------
Net cash used in investing activities................ (10,083,655) (26,235,872)
Cash flows provided by financing activities:
Payments on capital leases................................ (1,424,224) (262,767)
Loan/payments to related party............................ -- (500,000)
Payment of bank financing fees............................ -- (1,124,770)
Proceeds from issuance of debt............................ 4,100,000 25,200,000
Proceeds from common stock issuance....................... 22,506 248
Proceeds from preferred stock............................. -- 666,700
------------ ------------
Net cash provided by financing activities............ 2,698,282 23,979,411
------------ ------------
Net (decrease) increase in cash and cash equivalents........ (5,732,655) 2,305,110
Cash and cash equivalents at beginning of period............ 18,062,396 2,350,292
------------ ------------
Cash and cash equivalents at end of period.................. $ 12,329,741 $ 4,655,402
============ ============
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
<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,
2000 and 1999 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, 1999, which are included in the Company's Form 10-K
filed with the Securities and Exchange Commission and dated March 31, 2000. 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, 2000 and the results of its operations and cash flows for
the three and six months ended June 30, 2000 and 1999. 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, 2000 are not necessarily indicative of
the results of operations expected for the year ended December 31, 2000.
2. BUSINESS COMBINATIONS:
During the six months ended June 30, 2000, the Company acquired certain
assets used in connection with the Internet access service business of two
entities as described below:
February 11, 2000, the Company purchased assets of Valley Business
Equipment, Inc. for approximately $4,050,000. Approximately $3,910,000 was
allocated to the acquired customer base cost as a result of this transaction.
March 12, 2000, the Company purchased assets of Livingston On-Line for
approximately $325,000. Approximately $310,000 was allocated to the acquired
customer base cost as a result of this transaction.
The unaudited pro forma combined historical results, as if the entities
listed above had been acquired at the beginning of the six months ended June 30,
2000 and 1999, respectively, and if all entities acquired in 1999 had been
acquired at the beginning of 1999 are included in the table below.
<TABLE>
<CAPTION>
(IN THOUSANDS EXCEPT
PER SHARE DATA)
SIX MONTHS ENDED
JUNE 30,
--------------------
2000 1999
-------- --------
<S> <C> <C>
Revenues.................................................... $ 37,060 $ 31,223
Net loss.................................................... (13,900) (15,925)
Basic and diluted loss per share............................ (0.44) (0.70)
</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.
3. DEBT:
The Company has a revolving available credit facility with a bank group in
the amount of $60 million, with the option to extend to $70 million, on similar
terms and conditions. The credit facility matures on June 30, 2005. The
revolving credit facility agreement allows the Company to elect an interest
rate.
<PAGE>
VOYAGER.NET, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
any borrowing date based on either the (1) prime rate, or (2) LIBOR, plus a
margin ranging from 0.5% to 2.75% depending on the ratio of funded debt to
EBITDA. The elected rate as of June 30, 2000 is approximately 8.70%. 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 3,983,847 would be
antidilutive 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,
---------------------------
2000 1999
----------- ------------
<S> <C> <C>
Cash paid during the period for interest................. $ 1,731,501 $ 1,359,051
Noncash financing and investing activities:
In conjunction with the acquisitions described in Note
2, liabilities were assumed as follows:
Fair value of assets acquired....................... 5,848,698 27,343,972
Business acquisition costs, net of cash acquired.... (5,290,361) (23,577,768)
----------- ------------
Liabilities assumed...................................... $ 558,337 $ 3,766,204
=========== ============
Acquisition of equipment through capital lease........... $ 2,455,598 $ 1,478,600
Issuance of compensatory common stock and options........ $ 50,000 $ 1,044,000
</TABLE>
6. STOCK-BASED COMPENSATION PLAN:
During the six months ended June 30, 2000, the Company granted 545,381
options to purchase common stock to certain members of management, employees and
non-employees. At the grant date, all of the options granted vest in four equal
annual installments beginning January 6, 2001. The exercise price for these
options was not less than the fair market value of the Company's common stock on
the grant date. Therefore, no additional compensation expense has been
recognized in the six months ended June 30, 2000 for these options.
During the six months ended June 30, 2000, the Company recognized
compensation expense of $50,000 relating to options granted prior to January 1,
2000.
7. RECENT ACCOUNTING INTERPRETATION:
On December 3, 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin 101 ("SAB 101"), Revenue Recognition in Financial
Statements. SAB 101 summarizes some of the SEC's interpretations of the
application of generally accepted accounting principles to revenue recognition.
Revenue recognition under SAB 101 was initially effective for the Company's
first quarter 2000 financial statements. However, SAB 101B, which was released
June 26, 2000, delayed adoption of SAB 101 until no later than the fourth fiscal
quarter 2000. Changes resulting from SAB 101 require that a cumulative effect of
such changes for 1999 and prior years be recorded as an adjustment to net income
on January 1, 2000 plus adjust the statement of operations for the three months
ended in the quarter of adoption.
<PAGE>
VOYAGER.NET, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Although the Company is still in the process of reviewing SAB 101, it
believes that its revenue recognition practices are in substantial compliance
with SAB 101 for the year ending December 31, 2000 or that adoption of its
provisions would not be material to its annual or quarterly results of
operations.
8. MERGER AGREEMENT:
On March 12, 2000, the Company entered into an agreement to merge with
CoreComm Limited in a stock and cash transaction. The transaction is subject to
stockholder approval, certain regulatory approvals and other conditions.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and the Stockholders of Voyager.net, Inc.:
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, stockholders' equity (deficit)
and cash flows, present fairly, in all material respects, the financial position
of Voyager.net, Inc. and its subsidiaries (the "Company") at December 31, 1999
and 1998, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 1999, in conformity with
accounting principles generally accepted in the United States. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion expressed above.
PricewaterhouseCoopers LLP
Grand Rapids, Michigan
February 10, 2000, except for Note 18,
for which the date is March 12, 2000
<PAGE>
VOYAGER.NET, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1998 1999
------------ ------------
<S> <C> <C>
ASSETS
Currents assets:
Cash and cash equivalents................................. $ 2,350,292 $ 18,062,396
Accounts receivable, less allowance for doubtful accounts
of $99,000 and $500,000 in 1998 and 1999............... 950,381 4,994,026
Prepaid and other assets.................................. 154,059 1,460,356
------------ ------------
Total current assets.............................. 3,454,732 24,516,778
Property and equipment, net................................. 9,528,372 21,298,456
Intangible assets, net...................................... 28,741,650 66,638,733
------------ ------------
Total assets...................................... $ 41,724,754 $112,453,967
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of obligations under capital leases....... $ 303,562 $ 2,049,878
Notes payable, related party.............................. 2,252,713 --
Accounts payable.......................................... 659,351 520,326
Other liabilities......................................... 855,727 3,696,845
Deferred revenue.......................................... 5,625,627 11,244,633
------------ ------------
Total current liabilities......................... 9,696,980 17,511,682
Commitments and contingencies...............................
Obligations under capital leases............................ 751,613 2,192,594
Long-term debt.............................................. 30,000,000 19,650,000
Stockholders' equity:
Preferred stock, 8% cumulative, non-voting, $.01 par
value, $100 redemption value: 100,000 shares
authorized, issued and outstanding in 1998 (includes
6,667 shares in 1998 subject to purchase), authorized
5,000,000 shares in 1999, none outstanding............. 8,274,819 --
Common stock, $.0001 par value, authorized 25,000,000
shares in 1998 and 50,000,000 shares in 1999; issued
and outstanding, 22,216,308 shares in 1998 and
31,650,108 shares in 1999.............................. 1,792 2,712
Additional paid-in capital................................ 3,214,748 112,129,038
Receivable and interest for preferred and common stock.... (666,700) (6,291,935)
Notes and interest receivable, stockholder................ -- (5,630,418)
Deferred compensation..................................... 1,008,420 111,420
Accumulated deficit....................................... (10,556,918) (27,221,126)
------------ ------------
Total stockholders' equity........................ 1,276,161 73,099,691
------------ ------------
Total liabilities and stockholders' equity........ $ 41,724,754 $112,453,967
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
VOYAGER.NET, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1997 1998 1999
---------- ----------- ------------
<S> <C> <C> <C>
Revenue:
Internet access service........................... $3,440,212 $10,588,963 $ 47,423,462
Other............................................. 14,063 133,199 1,074,173
---------- ----------- ------------
Total revenue............................. 3,454,275 10,722,162 48,497,635
---------- ----------- ------------
Operating expenses:
Internet access service........................... 1,318,163 3,607,665 15,933,377
Sales and marketing............................... 1,038,459 1,987,113 6,401,810
General and administrative........................ 1,461,720 3,405,870 14,150,924
Depreciation and amortization..................... 394,385 3,862,041 23,836,385
Compensation charge for issuance of common stock
and stock options.............................. -- 4,218,407 2,563,311
---------- ----------- ------------
Total operating expenses.................. 4,212,727 17,081,096 62,885,807
---------- ----------- ------------
Loss from operations before other income
(expenses)........................................ (758,452) (6,358,934) (14,388,172)
Other income (expense):
Interest income................................... 11,312 30,987 905,080
Interest expense.................................. (72,932) (942,766) (2,645,857)
---------- ----------- ------------
Total other expense....................... (61,620) (911,779) (1,740,777)
---------- ----------- ------------
Net loss............................................ (820,072) (7,270,713) (16,128,949)
Preferred stock dividends........................... (73,456) (348,494) (367,265)
---------- ----------- ------------
Net loss applicable to common
stockholders............................ $ (893,528) $(7,619,207) $(16,496,214)
========== =========== ============
Per Share Data:
Basic and diluted net loss per share applicable to
common stockholders............................... $ (.10) $ (.43) $ (.61)
========== =========== ============
Weighted average common shares outstanding:
Basic and diluted................................... 8,878,498 17,655,484 27,238,084
========== =========== ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
VOYAGER.NET, INC
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL
-------------------- ------------------- PAID-IN
SHARES AMOUNT SHARES AMOUNT CAPITAL
------- ---------- ---------- ------ ------------
<S> <C> <C> <C> <C> <C> >
Balance at January 1, 1997.............. 20,000 $2,000,000 5,351,840 $ 432 $ 44,374
Redemption of common stock.............. -- -- (2,341,120) (189) (44,374)
Issuance of common stock................ -- -- 11,862,235 957 3,292
Issuance of preferred stock............. 5,000 500,000 -- -- --
Net loss................................ -- -- -- -- --
------- ---------- ---------- ------ ------------
Balance at December 31, 1997............ 25,000 2,500,000 14,872,955 1,200 3,292
Conversion of notes payable to preferred
stock and issuance of preferred and
common stock.......................... 40,324 4,032,419 446,400 36 144
Issuance of preferred and common
stock................................. 15,000 1,500,000 4,664,953 376 1,505
Conversion of preferred dividends to
preferred stock....................... 2,424 242,400 -- -- --
Issuance of common stock and options.... -- -- 2,232,000 180 3,209,807
Deferred compensation................... -- -- -- -- --
Net loss................................ -- -- -- -- --
------- ---------- ---------- ------ ------------
Balance at December 31, 1998............ 82,748 8,274,819 22,216,308 1,792 3,214,748
Issuance of common stock................ -- -- 1,240,000 100 7,354,900
Issuance of notes to stockholders....... -- -- -- -- --
Proceeds from initial public offering... -- -- 7,425,000 743 99,454,156
Proceeds from preferred stock........... -- -- -- -- --
Redemption of preferred stock........... (82,748) (8,274,819) -- -- --
Payment of preferred stock dividends.... -- -- -- -- --
Exercise of stock options and vesting of
restricted stock...................... -- -- 768,800 77 2,105,234
Deferred compensation................... -- -- -- -- --
Net loss................................ -- -- -- -- --
------- ---------- ---------- ------ ------------
Balance at December 31, 1999............ -- $ -- 31,650,108 $2,712 $112,129,038
======= ========== ========== ====== ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
VOYAGER.NET, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) -- (CONTINUED)
<TABLE>
<CAPTION>
RECEIVABLE
FOR
PREFERRED TOTAL
AND NOTES AND STOCKHOLDERS'
COMMON INTEREST DEFERRED ACCUMULATED EQUITY
STOCK RECEIVABLE COMPENSATION DEFICIT (DEFICIT)
----------- ----------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1997... $ -- $ -- $ -- $ (2,193,296) $ (148,490)
Redemption of common stock... -- -- -- (30,437) (75,000)
Issuance of common stock..... -- -- -- -- 4,249
Issuance of preferred
stock...................... -- -- -- -- 500,000
Net loss..................... -- -- -- (820,072) (820,072)
----------- ----------- ----------- ------------ ------------
Balance at December 31,
1997....................... -- -- -- (3,043,805) (539,313)
Conversion of notes payable
to preferred stock and
issuance of preferred and
common stock............... (666,700) -- -- -- 3,365,899
Issuance of preferred and
common stock............... -- -- -- -- 1,501,881
Conversion of preferred
dividends to preferred
stock...................... -- -- -- (242,400) --
Issuance of common stock and
options.................... -- -- -- -- 3,209,987
Deferred compensation........ -- -- 1,008,420 -- 1,008,420
Net loss..................... -- -- -- (7,270,713) (7,270,713)
----------- ----------- ----------- ------------ ------------
Balance at December 31,
1998....................... (666,700) -- 1,008,420 (10,556,918) 1,276,161
Issuance of common stock..... (6,291,935) -- -- -- 1,063,065
Issuance of notes to
stockholders............... -- (5,630,418) -- -- (5,630,418)
Proceeds from initial public
offering................... -- -- -- -- 99,454,899
Proceeds from preferred
stock...................... 666,700 -- -- -- 666,700
Redemption of preferred
stock...................... -- -- -- -- (8,274,819)
Payment of preferred stock
dividends.................. -- -- -- (535,259) (535,259)
Exercise of stock options and
vesting of restricted
stock...................... -- -- (1,090,000) -- 1,015,311
Deferred compensation........ -- -- 193,000 -- 193,000
Net loss..................... -- -- -- (16,128,949) (16,128,949)
----------- ----------- ----------- ------------ ------------
Balance at December 31,
1999....................... $(6,291,935) $(5,630,418) $ 111,420 $(27,221,126) $ 73,099,691
=========== =========== =========== ============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
VOYAGER.NET, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------
1997 1998 1999
---------- ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss......................................... $ (820,072) $ (7,270,713) $(16,128,949)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization................. 394,385 3,862,041 23,836,385
Interest on stockholder notes and
receivable.................................. -- -- (422,353)
(Gain) loss on sale of equipment.............. (7,071) 5,952 --
Compensation charge for issuance of common
stock and stock options..................... -- 4,218,407 2,563,311
Changes in assets and liabilities excluding
effects of business combinations:
Accounts receivable......................... (28,199) (513,909) (3,292,112)
Prepaids and other assets................... (24,251) (104,990) (1,939,885)
Accounts payable............................ (237,551) 512,591 (329,443)
Accrued expenses............................ 137,486 831,577 2,708,626
Deferred revenue............................ 187,203 1,160,698 (468,851)
---------- ------------ ------------
Net cash provided by (used in) operating
activities............................. (398,070) 2,701,654 6,526,729
Cash flows used in investing activities:
Business acquisition costs, net of cash
acquired...................................... -- (32,850,289) (55,630,048)
Purchase of property and equipment............... (661,312) (1,514,323) (5,032,682)
Proceeds from the sale of equipment.............. 87,282 28,248 --
---------- ------------ ------------
Net cash used in investing activities.... (574,030) (34,336,364) (60,662,730)
Cash flows provided by financing activities:
Payments on capital leases....................... (54,216) (54,565) (2,122,110)
Proceeds from notes payable...................... -- 2,800,000 --
Proceeds from common stock....................... 4,249 2,061 311
Proceeds from preferred stock.................... 500,000 2,065,719 666,700
Redemption of common stock....................... (75,000) -- --
Advances from related party...................... 1,127,777 4,047 --
Payments to related party........................ (15,000) (25,521) --
Issuance of loan to stockholder.................. -- -- (5,500,000)
Payment of bank financing fees................... -- (1,325,530) (1,474,770)
Proceeds from issuance of debt................... -- 30,000,000 49,850,000
Payment of preferred stock dividends............. -- -- (535,259)
Payment of debt.................................. -- -- (60,200,000)
Proceeds from initial public offering............ -- -- 101,925,743
Payment of initial public offering expenses...... -- -- (2,470,844)
Redemption of preferred stock.................... -- -- (8,274,819)
Payment of note payable.......................... -- -- (2,016,847)
---------- ------------ ------------
Net cash provided by financing
activities............................. 1,487,810 33,466,211 69,848,105
---------- ------------ ------------
Net increase in cash............................... 515,710 1,831,501 15,712,104
Cash and cash equivalents at beginning of year..... 3,081 518,791 2,350,292
---------- ------------ ------------
Cash and cash equivalents at end of year........... $ 518,791 $ 2,350,292 $ 18,062,396
========== ============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
VOYAGER.NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and basis of presentation
Voyager.net, Inc. (the "Company ") owns 100% of Voyager Information
Networks, Inc., which was incorporated in the State of Michigan in 1994.
Voyager.net was incorporated in 1998 in the State of Delaware under the name
Voyager Holdings, Inc. The Company's name was changed to Voyager.net, Inc. on
April 29, 1999. The Company provides full service access to the Internet for
corporate and residential users in Michigan, Illinois, Indiana, Minnesota, Ohio
and Wisconsin.
Revenue recognition
The Company recognizes revenue for dial-up Internet access services,
dedicated Internet access services and value-added Web services when the
services are provided. Dial-up and dedicated Internet access service plans range
from one month to one year. Value-added Web services are sold on a monthly
basis. Advance collections relating to future access services are recorded as
deferred revenue and recognized as revenue when earned.
Cash equivalents
The Company considers all highly liquid investments purchased with an
initial maturity of three months or less to be cash equivalents.
Property and equipment
Property and equipment are stated at cost and depreciated over their
estimated useful lives using the straight-line method. Equipment acquired under
capital leases is depreciated over the related lease terms or the estimated
productive useful lives, depending on the criteria met in determining the
qualification as a capital lease. Costs of repair and maintenance are charged to
expense as incurred.
Intangible assets
Intangible assets consist primarily of the cost of the acquired customer
base. The acquired customer base is amortized using the straight-line method
over 3 years based on the estimated customer churn rate. Bank financing fees,
included in intangible assets, are being amortized on a straight-line basis over
the term of the related debt. Other intangible assets are amortized over a 10
year period. Impairments, if any, are measured based upon discounted cash flow
analyses and are recognized in operating results in the period in which the
impairment in value is determined.
Advertising costs
Advertising costs are expensed as incurred. Advertising expense of
approximately $372,000, $185,000 and $1,174,000 was charged to operations in
1997, 1998 and 1999, respectively.
Financial instruments
The Company's financial instruments, as defined by Statement of Financial
Accounting Standards ("SFAS") No. 107 "Disclosures About Fair Value of Financial
Instruments," consist of cash, notes payable and long-term debt. The Company's
estimate of the fair value of these financial instruments approximates their
carrying amounts at December 31, 1998 and 1999.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
<PAGE>
VOYAGER.NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Income taxes
A current tax liability or asset is recognized for the estimated taxes
payable or refundable on tax returns for the year. Deferred tax liabilities or
assets are recognized for the estimated future tax effects of temporary
differences between financial and tax accounting.
2. BUSINESS COMBINATIONS
In 1998 and 1999, the Company acquired certain assets used in connection
with the Internet access service business as follows:
<TABLE>
<CAPTION>
PURCHASE
ACQUISITION DATE ACQUIRED ASSETS PRICE
---------------- ------------------------------------------------------------ -----------
<S> <C> <C>
1998:
July 1 CDL Corp.................................................... $ 69,000
July 1 Internet-Michigan, Inc. .................................... 215,000
July 31 Freeway, Inc. .............................................. 3,991,000
September 23 EXEC-PC, Inc. .............................................. 24,815,000
October 2 Netimation, Inc. ........................................... 318,000
October 2 NetLink Systems, L.L.C. .................................... 3,428,000
November 20 Add, Inc. .................................................. 14,000
-----------
$32,850,000
===========
1999:
January 15 Hoosier On-Line Systems, Inc. .............................. $ 2,347,000
February 24 Infinite Systems, Ltd. ..................................... 3,100,000
March 10 Exchange Network Services, Inc. ............................ 3,531,000
April 23 StarNet, Inc. .............................................. 2,013,000
May 7 GDR Enterprises, Inc. ...................................... 9,125,000
June 4 Edgeware, Inc. d/b/a PCLink.com............................. 1,922,000
June 17 Core Digital Communications, Inc. .......................... 1,320,000
June 25 American Information Services, Inc. ........................ 1,206,000
September 2 Data Management Consultants, Inc. .......................... 2,073,000
September 8 Net Direct.................................................. 4,519,000
September 14 Raex........................................................ 4,370,000
September 21 Internet Connection Services, LLC........................... 708,000
September 22 MichWeb, Inc. .............................................. 521,000
October 4 ComNet, LLC................................................. 8,886,000
October 7 TDI Internet Services, Inc. ................................ 1,831,000
October 7 Choice Dot Net, LLC......................................... 1,765,000
November 9 Internet Illinois........................................... 1,811,000
December 10 Wholesale ISP............................................... 4,693,000
-----------
$55,741,000
===========
</TABLE>
The aforementioned acquisitions were accounted for using the purchase
method of accounting. The operations of the entities are included in the income
statement of Voyager.net from the acquisition date forward. For each
acquisition, the excess of cost of the acquired assets less liabilities assumed
resulted in a substantial portion of the purchase price being allocated to the
acquired customer base (see Note 4).
<PAGE>
VOYAGER.NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The unaudited pro forma combined historical results for the year of
acquisition and the preceding year, as if the entities listed above had been
acquired at the beginning of the year ended December 31, 1997, 1998 or 1999,
respectively, are included in the table below. The pro forma combined historical
results for CDL Corp., Internet-Michigan, Inc., Netimation, Inc., Add, Inc.,
StarNet, Inc., American Information Services, Inc. and Internet Connection
Services, LLC were not deemed to be material and are not included for the year
ended December 31, 1997, 1998 and 1999.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C> >
Revenue............................................ $ 14,120 $ 43,296 $ 62,858
Net Loss........................................... (12,590) (37,656) (24,918)
Basic and diluted net loss per share............... (1.43) (2.13) (0.91)
</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 acquisition had been completed as of the beginning of each of
the fiscal periods presented, nor are they necessarily indicative of future
consolidated results.
3. PROPERTY AND EQUIPMENT
Cost of property and equipment and depreciable lives are summarized as
follows:
<TABLE>
<CAPTION>
DEPRECIABLE
1998 1999 LIFE-YEARS
----------- ----------- -----------
<S> <C> <C> <C>
Computer equipment........................... $ 8,461,789 $18,649,572 5
Office equipment............................. 230,009 1,293,331 7
Furniture and fixtures....................... 96,559 776,886 5-7
Software..................................... 389,863 862,403 3-5
Equipment acquired under capital lease....... 1,178,525 5,365,475 5
Vehicles..................................... 32,807 32,807 5
Building improvements........................ 860,526 1,386,534 7-10
----------- -----------
11,250,078 28,367,008
Less accumulated depreciation................ (1,721,706) (7,068,552)
----------- -----------
Property and equipment, net.................. $ 9,528,372 $21,298,456
=========== ===========
</TABLE>
<PAGE>
VOYAGER.NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Depreciation expense of approximately $393,000, $842,000 and $4,992,000 was
charged to operations in 1997, 1998 and 1999, respectively.
4. INTANGIBLE ASSETS
Intangible assets consist of the following:
1998 1999
----------- ------------
Acquired customer base........................... $30,127,837 $ 85,311,158
Bank financing fees.............................. 1,348,182 2,625,563
Other............................................ 237,658 299,864
----------- ------------
31,713,677 88,236,585
Less accumulated amortization.................... (2,972,027) (21,597,852)
----------- ------------
Intangible assets, net........................... $28,741,650 $ 66,638,733
=========== ============
<PAGE>
VOYAGER.NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. CAPITAL LEASES
The Company leases computer equipment under capital leases expiring in
various years through the year 2002. The assets under capital leases are
recorded at the lower of the present value of the minimum lease payments or the
fair value of the asset. The net book value of these assets as of December 31,
1998 and 1999 was $982,222 and $4,319,370, respectively. Depreciation of assets
under capital leases is included in depreciation expense.
Future minimum lease payments under capital leases as of December 31, 1999
are as follows:
2000........................................................ $ 2,355,280
2001........................................................ 2,015,212
2002........................................................ 341,263
-----------
Total minimum lease payments................................ 4,711,755
Less amount representing interest........................... (469,283)
-----------
Present value of net minimum lease payments................. $ 4,242,472
Less current portion........................................ (2,049,878)
-----------
Long-term portion of obligations under capital leases....... $ 2,192,594
===========
6. RELATED PARTY TRANSACTIONS
The notes payable, related party, represent principal and interest payable
on demand to Horizon Cable I Limited Partnership, an entity under common
management. Interest on the notes was at rates of 10.5 percent in 1997, 8.0 and
8.5 percent in 1998 and in 1999. Concurrent with the Company's initial public
offering, these notes, including accumulated interest, were paid in the amount
of $2,336,174.
On July 31, 1998, the Company issued to a majority stockholder $2,800,000
in notes payable at interest of 8 percent per annum. These notes, along with
$32,526 of accrued interest and cash in the amount of $533,333, were converted
into 33,657 shares of preferred stock for $100 per share and 446,400 shares of
common stock for $1,881.
7. OTHER LIABILITIES
Other liabilities consist of the following:
1998 1999
-------- ----------
Accrued payroll and related expenses................. $272,654 $ 983,197
Accrued expenses..................................... 465,732 2,697,350
Other................................................ 117,341 16,298
-------- ----------
$855,727 $3,696,845
======== ==========
8. DEBT
In July 1999, the Company re-negotiated its revolving available credit
facility with its bank group concurrent with its initial public offering (see
Note 11) for a $60 million line of credit, with the option to extend to $70
million on similar terms and conditions. The credit facility matures on
September 30, 2005. At December 31, 1999, $19,650,000 was outstanding under the
credit facility. Interest is payable quarterly through maturity. 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 1.0% to 2.75% depending on the ratio of funded debt to EBITDA. The
elected rate as of December 31,
<PAGE>
VOYAGER.NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1999 is approximately 9.0% with an effective weighted average rate of
approximately 8.6% and 8.4% at December 31, 1998 and 1999, respectively.
Commitment fees on the unused credit facility are 0.5%. Automatic and permanent
reductions of the maximum commitments begin April 2001 and continue until
maturity. Based on the balance as of December 31, 1999, the scheduled permanent
reductions of long-term debt are as follows:
YEAR
----
2000 $ --
2001.................................................... 982,500
2002.................................................... 2,456,250
2003.................................................... 4,421,250
2004.................................................... 6,263,438
Thereafter.............................................. 5,526,562
-----------
$19,650,000
===========
The revolving credit facility is collateralized by all of the Company's
tangible and intangible personal property and fixtures as well as substantially
all of the issued and outstanding equity securities of the Company.
The revolving credit facility is subject to an agreement that contains,
among other provisions, certain financial covenants. These financial covenants
include maintenance of a minimum fixed charges ratio, a total interest coverage
ratio, and a leverage ratio.
9. INCOME TAXES
The Company's effective tax rate varies from the statutory rate as follows:
<TABLE>
<CAPTION>
1997 1998 1999
----- ----- -----
<S> <C> <C> <C>
Statutory rate.............................................. 35.0% 35.0% 35.0%
Effect of graduated tax rate................................ (1.0) (1.0) (1.0)
Change in valuation allowance............................... (34.0) (34.0) (34.0)
----- ----- -----
0.0% 0.0% 0.0%
===== ===== =====
</TABLE>
Based on the Company's current financial status, realization of the
Company's deferred tax assets does not meet the "more likely than not" criteria
under SFAS No. 109 and accordingly a valuation allowance for the entire deferred
tax asset amount has been recorded. The components of the net deferred tax asset
(liability) and the related valuation allowance are as follows:
<TABLE>
<CAPTION>
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Net operating loss carryforward............. $ 1,055,000 $ 2,750,000 $ 1,700,000
Intangible assets........................... -- 755,000 5,900,000
Fixed assets................................ 18,000 13,000 (800,000)
----------- ----------- -----------
Deferred tax assets......................... 1,073,000 3,518,000 6,800,000
Valuation allowance......................... (1,073,000) (3,518,000) (6,800,000)
----------- ----------- -----------
Net deferred tax assets..................... $ -- $ -- $ --
=========== =========== ===========
</TABLE>
Net operating loss ("NOL") carryforwards expire in years 2013 through 2018.
NOLs totaled $3,102,000, $5,500,000 and $5,000,000 at December 31, 1997, 1998
and 1999, respectively.
<PAGE>
VOYAGER.NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. RETIREMENT SAVINGS PLAN
In 1997, the Company established a retirement savings 401(k) plan for all
employees. The Company can make discretionary matching contributions to the
plan. Contributions to the plan totaled approximately $7,300, $15,000 and
$53,000 in 1997, 1998 and 1999, respectively.
11. EQUITY TRANSACTIONS
On July 21, 1999, the Company completed its initial public offering in
which it sold 7,425,000 shares of common stock at $15.00 per share resulting in
net proceeds of $99,454,899. In addition, a total of 1,575,000 shares were
offered for sale by the stockholders. Upon the closing of the offering,
$60,622,173 of senior bank debt and accrued interest and fees were repaid,
$8,810,078 of preferred stock and cumulative dividends were redeemed, and
$2,336,174 of subordinated notes and accrued interest were repaid. The remainder
of the proceeds were used for general corporate purposes, including acquisitions
and capital expenditures.
On January 11, 1999, the Company issued to a member of management and the
Chairman of the Board, an aggregate 1,240,000 shares of common stock at $4.84
per share in exchange for promissory notes receivable in the aggregate amount of
$6,000,000 which are due January 11, 2003 and have an interest rate of 5% per
annum compounded annually. The notes are collateralized by a pledge of the
related shares of common stock and are a recourse obligation to these
individuals in the amount of 25% of the outstanding principal and 100% of the
accrued interest.
In April 1999, the Company loaned a member of senior management $500,000.
It is payable in three years and accrues interest at 5% per year. The loan is
uncollateralized and the Company has full recourse against the borrower.
Additionally, in July 1999, the Company loaned $5 million to the same
individual. It is due in 2003 and accrues interest at 5% per year. The loan is
collateralized by a pledge of 416,667 shares of common stock and is a recourse
obligation of the borrower in the amount of 25% of the outstanding principal and
100% of the accrued interest on the loan.
In May 1999, the Company sold an aggregate 6,667 shares of series A
preferred stock to certain shareholders pursuant to the exercise of an option to
purchase shares of series A preferred stock in the stock purchase agreement, for
an aggregate purchase price of $666,700.
On September 23, 1998, the Company issued 33,657 shares of preferred stock
at $100 per share and 446,400 shares of common stock in exchange for $2,800,000
notes payable to its majority stockholders along with $32,566 in accrued
interest and $533,513 in cash. Also on September 23, 1998, the Company converted
accumulated preferred stock dividends in the amount of $242,400 through
September 23, 1998 into 2,424 shares of preferred stock at $100 per share.
On June 24, 1999, July 6, 1998 and August 22, 1997, the Board of Directors
declared a stock split of 1.24 for 1, a 20 for 1 and a 100 for 1, respectively.
All references to the number of common shares and per share amounts in the
consolidated financial statements and related footnotes have been restated to
reflect the effect of these stock splits for all periods presented.
12. STOCK-BASED COMPENSATION PLAN
In 1998, a Stock Option and Incentive Plan (the "Plan") was established.
The Plan provides for the ability to issue Stock Options (either Incentive Stock
Options or Non-Qualified Stock Options), Stock Appreciation Rights, Restricted
Stock Awards, Deferred Stock Awards, Unrestricted Stock Awards, Performance
Share Awards and Dividend Equivalent Rights. As of December 31, 1999, there were
4,816,160 options to purchase common stock authorized with 1,626,658 options
available for issuance.
<PAGE>
VOYAGER.NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Plan provides for the granting of options to officers, employees,
consultants, members of the Board of Directors and other key persons for
purchase of the Company's common shares. The Plan is administered by the Board
of Directors. No option can be for a term of more than ten years from the grant
date. The option price and the vesting provisions are determined by the Board of
Directors at the time of the grant.
Stock option activity under the Plan during the year ended December 31,
1998 and 1999 (there were no stock options granted during 1997) are as follows:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER AVERAGE
OF EXERCISE
OPTIONS PRICE
--------- --------
<S> <C> <C>
Outstanding at January 1, 1998.............................. -- --
Granted..................................................... 768,800 $ .0004
Exercised, forfeited and expired............................ -- --
--------- --------
Outstanding at December 31, 1998............................ 768,800 .0004
--------- --------
Granted..................................................... 3,297,980 13.431
Exercised................................................... 768,800 .0004
Forfeited................................................... -- --
Expired..................................................... 101,894 14.6609
--------- --------
Outstanding at December 31, 1999............................ 3,196,086 $13.3992
========= ========
Exercisable at December 31, 1999............................ 558,000 $ 15.00
========= ========
</TABLE>
The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," and related interpretations, in accounting for
its stock and stock options issued to employees. During 1998, the Company
granted 768,800 options to purchase common stock to certain members of
management of which 582,800 options were fully vested and the remaining 186,000
options became fully vested in January 1999. During 1999, the Company granted
3,297,980 options to purchase common stock; 3,130,580 were granted at market
prices and 167,400 were granted at $4.84 per share which was less than market
price. The weighted-average remaining contractual life of the options
outstanding at December 31, 1999 is in approximately 10 years. During 1998, the
Company issued 2,232,000 shares of restricted common stock to certain members of
management for a nominal amount; 496,000 of which were subject to certain
vesting provisions at December 31, 1998 through October 2002. During 1999, the
Company issued an aggregate of 1,240,000 shares of restricted common stock at
$4.84 per share to a member of management and the Chairman of the Board. Certain
of these shares were subject to vesting through 2003. Prior to the Company's
initial public offering, all shares of the unvested restricted common stock were
accelerated and became 100% fully vested. The weighted average fair value at
issuance for the restricted common stock and options were $1.77 and $6.16 per
share at December 31, 1998 and 1999, respectively. Accordingly, the Company
recorded compensation expense of $4,218,407 and $2,563,311 for the years ended
December 31, 1998 and 1999, respectively.
<PAGE>
VOYAGER.NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Under SFAS No. 123, "Accounting for Stock-Based Compensation" (SFAS 123),
compensation cost is measured at the grant date based on the value of the award
and is recognized over the service (or vesting) period. Under SFAS 123, the
Company's net loss and loss per share for the years ended December 31, 1998 and
1999 would have been adjusted to the pro forma amounts indicated in the
following table:
<TABLE>
<CAPTION>
1998 1999
----------- ------------
<S> <C> <C>
Net loss applicable to common stockholders:
As reported............................................ $(7,619,207) $(16,496,215)
Pro forma.............................................. $(8,737,394) $(26,346,231)
Loss per share:
As reported:
Basic and diluted................................... $ (.43) $ (.61)
Pro forma:
Basic and diluted................................... $ (.49) $ (.97)
</TABLE>
The fair value of each option granted was estimated on the date of grant
using the Black-Scholes option pricing model with the following assumptions:
<TABLE>
<CAPTION>
1998 1999
------- -------
<S> <C> <C>
Risk free rate.............................................. 5.7% 4.6%
Expected dividends.......................................... -- --
Expected life............................................... 5 years 4 years
Volatility assumption....................................... 76% 75%
</TABLE>
13. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
----------------------------------------
1997 1998 1999
--------- ----------- ------------
<S> <C> <C> <C>
Net loss.................................... $(820,072) $(7,270,713) $(16,128,949)
Less preferred stock dividends.............. (73,456) (348,494) (367,265)
--------- ----------- ------------
Net loss applicable to common
stockholders.............................. $(893,528) $(7,619,207) $(16,496,214)
--------- ----------- ------------
Basic and diluted weighted average common
shares outstanding........................ 8,878,498 17,655,484 27,238,084
========= =========== ============
Basic and diluted net loss per share
applicable to common stockholders......... $ (.10) $ (.43) $ (.61)
========= =========== ============
</TABLE>
Net loss per share is computed using the weighted average number of common
shares outstanding during the period. Inclusion of common share equivalents
would be anti-dilutive and have been excluded from the per share calculations
for 1999. The impact of dilutive shares was not significant for 1997 and 1998.
<PAGE>
VOYAGER.NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
The following is the supplemental cash flow information for all periods
presented:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
--------------------------------------
1997 1998 1999
-------- ------------ ------------
<S> <C> <C> <C>
Cash paid during the year for interest.......... $ 7,604 $ 632,027 $ 2,718,404
Noncash financing and investing activities:
In connection with the acquisitions described
in Note 2, liabilities were assumed as
follows:
Fair value of assets acquired.............. -- 37,890,628 60,721,084
Business acquisition costs, net of cash
acquired................................. -- (32,850,289) (55,630,048)
-------- ------------ ------------
Liabilities assumed............................. -- $ 5,040,339 $ 5,091,036
======== ============ ============
Acquisition of equipment through capital
lease......................................... $159,974 $ 951,117 $ 4,861,250
Conversion of note payable and accumulated
dividends to preferred stock.................. $ -- $ 3,042,400 $ --
Issuance of compensatory common stock and
options....................................... $ -- $ 4,218,407 $ 2,563,311
Issuance of common stock in exchange for
promissory notes.............................. $ -- $ -- $ --
</TABLE>
15. COMMITMENTS AND CONTINGENCIES
The Company leases office facilities, point of presence locations, certain
network equipment and vehicles under operating lease agreements that expire in
the years 2000, 2001, 2002, 2003, 2004 and 2007. The following is a schedule of
future minimum rental payments under these leases:
YEAR
----
2000..................................................... $1,004,738
2001..................................................... 813,663
2002..................................................... 768,092
2003..................................................... 673,190
2004..................................................... 380,748
Thereafter............................................... 922,703
----------
$4,563,134
==========
In addition to these leases, the Company also leases point of presence
locations under lease terms of less than one year.
Rent expense under all operating leases of approximately $103,000, $190,000
and $760,000 was charged to operations in 1997, 1998 and 1999, respectively.
16. SEGMENT REPORTING
The Company has a single operating segment, Internet access services. The
Company has no organizational structure dictated by product lines, geography or
customer type. Sales are substantially derived from one service line, Internet
access service, and are residential and business customers in the Midwestern
United States. The Company evaluates performance based on profit or loss from
operations before interest, income taxes, depreciation and amortization and
non-recurring, non-cash compensation charges.
<PAGE>
VOYAGER.NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
17. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
-----------------------------------------------------
1999
-----------------------------------------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Total revenue............................... $ 8,519,226 $10,713,899 $12,904,996 $16,359,514
Loss from operations before other income
(expense)................................. (2,694,505) (3,247,499) (3,169,243) (5,276,925)
Net loss.................................... (3,466,018) (4,290,055) (3,357,604) (5,015,272)
Basic and diluted net loss per share
applicable to common stockholders......... $ (.16) $ (.19) $ (.11) $ (.16)
Weighted average common shares outstanding,
basic and diluted......................... 22,987,865 23,776,309 30,084,336 31,650,108
</TABLE>
<TABLE>
<CAPTION>
1998
-----------------------------------------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Total revenue............................... $ 1,135,244 $ 1,222,266 $ 2,045,296 $ 6,319,356
Income (loss) from operations before other
income (expense).......................... 102,866 (39,587) (944,947) (5,477,266)
Net income (loss)........................... 63,825 (77,981) (1,040,681) (6,215,876)
Basic and diluted net loss per share
applicable to common stockholders......... $ -- $ (.01) $ (.06) $ (.29)
Weighted average common shares outstanding,
basic and diluted......................... 14,998,673 15,021,831 18,255,050 22,210,920
</TABLE>
18. SUBSEQUENT EVENTS (UNAUDITED)
On February 11, 2000, the Company purchased assets from Valley Business
Equipment, Inc. for approximately $4,100,000 of which approximately $3,700,000
was remitted to Valley Business Equipment, Inc. and the remainder was deposited
in an escrow account. Approximately $4,000,000 was allocated to the acquired
customer base cost as a result of this transaction.
On March 12, 2000, the Company entered into an agreement to merge with
CoreComm Limited in a stock and cash transaction. The transaction is subject to
stockholder approval, certain regulatory approvals and other conditions.
