-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PQAGSv+PL7bMEwJcDwZ6aR6W3cob0K+zprvh/7wwjrawOtisgZFiRKUjLcrW3cem Qbq4kyXekkLQz0EC8UD2OA== 0000927016-00-001894.txt : 20000516 0000927016-00-001894.hdr.sgml : 20000516 ACCESSION NUMBER: 0000927016-00-001894 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: VOYAGER NET INC CENTRAL INDEX KEY: 0001085634 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROCESSING & DATA PREPARATION [7374] IRS NUMBER: 383431501 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-26661 FILM NUMBER: 635333 BUSINESS ADDRESS: STREET 1: 4660 S HAGADORN RD STREET 2: STE 320 CITY: EAST LANSING STATE: MI ZIP: 48823 BUSINESS PHONE: 5173248940 MAIL ADDRESS: STREET 1: 4660 SOUTH HAGADORN RD STREET 2: STE 320 CITY: EAST LANSING STATE: MI ZIP: 48823 10-Q 1 FORM 10-Q 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 March 31, 2000. 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 X No ___ --- As of May 5, 2000, there were 31,654,758 shares of the Registrant's Common Stock outstanding. VOYAGER.NET, INC. FORM 10-Q MARCH 31, 2000 TABLE OF CONTENTS
Page Number ------ PART I. FINANCIAL INFORMATION Item 1. Condensed Consolidated Balance Sheets as of March 31, 2000 and December 31, 1999....................... 3 Condensed Consolidated Statements of Operations for the three months ended March 31, 2000 and 1999................. 4 Condensed Consolidated Statement of Stockholders' Equity for the three months ended March 31, 2000........... 5 Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2000 and 1999................. 6 Notes to Condensed Consolidated Financial Statements......... 7-9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.................................. 10-14 Item 3. Quantitative and Qualitative Disclosures About Market Risk... 14 PART II. OTHER INFORMATION Item 1. Legal Proceedings............................................ 15 Item 4. Submission of Matters to a Vote of Security Holders.......... 15 Item 6. Exhibits and Reports on Form 8-K............................. 15 SIGNATURES............................................................ 16 INDEX TO EXHIBITS..................................................... 17
2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS VOYAGER.NET, INC. CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, December 31, 2000 1999 Assets (unaudited) Current assets: Cash and cash equivalents $ 16,681,424 $ 18,062,396 Accounts receivable, less allowance 7,733,348 4,994,026 Prepaid and other assets 1,362,028 1,460,356 --------------- -------------- Total current assets 25,776,800 24,516,778 Property and equipment, net 21,826,114 21,298,456 Intangible assets, net 64,611,213 66,638,733 --------------- -------------- Total assets $ 112,214,127 $ 112,453,967 =============== ============== Liabilities and Stockholders' Equity Current liabilities: Current portion of obligations under capital leases $ 2,234,384 $ 2,049,878 Accounts payable 715,400 520,326 Other liabilities 3,657,008 3,696,845 Deferred revenue 13,379,449 11,244,633 --------------- -------------- Total current liabilities 19,986,241 17,511,682 Commitments and contingencies - - Obligations under capital leases 1,352,440 2,192,594 Long-term debt 23,750,000 19,650,000 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 in 1999 and 31,654,758 in 2000. 2,712 2,712 Additional paid-in capital 112,151,544 112,129,038 Receivables for preferred and common stock (6,366,935) (6,291,935) Notes and interest receivable, stockholder (5,699,418) (5,630,418) Deferred compensation 136,420 111,420 Accumulated deficit (33,098,877) (27,221,126) --------------- -------------- Total stockholders' equity 67,125,446 73,099,691 --------------- -------------- Total liabilities and stockholders' equity $ 112,214,127 $ 112,453,967 =============== ==============
The accompanying notes are an integral part of the condensed consolidated financial statements. 3 VOYAGER.NET, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
Three Months Ended March 31, ------------------------------------ 2000 1999 Revenue: Internet access service $ 18,039,441 $ 8,405,202 Other 72,837 114,024 --------------- --------------- Total revenue 18,112,278 8,519,226 --------------- --------------- Operating expenses: Internet access service 7,229,587 2,789,676 Sales and marketing 2,137,000 969,031 General and administrative 5,981,789 2,463,200 Depreciation and amortization 8,210,869 3,526,824 Compensation charge for issuance of common stock and stock options 25,000 1,465,000 --------------- --------------- Total operating expenses 23,584,245 11,213,731 --------------- --------------- Loss from operations before other income (expense) (5,471,967) (2,694,505) --------------- --------------- Other income (expense): Interest income 248,999 26,773 Interest expense (614,076) (798,286) Other (40,707) - --------------- --------------- Total other expense (405,784) (771,513) --------------- --------------- Net loss (5,877,751) (3,466,018) Preferred stock dividends - (165,496) --------------- --------------- Net loss applicable to common stockholders $ (5,877,751) $ (3,631,514) =============== =============== Per share data: Basic and diluted net loss per share applicable to common stockholders $ (.19) $ (.16) =============== =============== Weighted average common shares outstanding: Basic and diluted 31,652,152 22,987,865 =============== ===============
The accompanying notes are an integral part of the condensed consolidated financial statements. 4 VOYAGER.NET, INC. CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (unaudited)
Receivable For Preferred Additional and Notes and Common Stock Paid-in Common Interest Deferred --------------------- Shares Amount Capital Stock Receivable Compensation Balance at January 1, 2000 31,650,108 $ 2,712 $ 112,129,038 $ (6,291,935) (5,630,418) $ 111,420 Interest on receivables (75,000) (69,000) Exercise of stock options 4,650 22,506 Deferred compensation 25,000 Net loss ---------- -------- -------------- -------------- -------------- ----------- Balance March 31, 2000 31,654,758 $ 2,712 $ 112,151,544 $ (6,366,935) $ (5,699,418) $ 136,420 ---------- -------- -------------- -------------- -------------- ----------- Total Stockholders' Accumulated Equity Deficit Balance at January 1, 2000 $ (27,221,126) $ 73,099,691 Interest on receivables (144,000) Exercise of stock options 22,506 Deferred compensation Net loss (5,877,751) (5,877,751) --------------- -------------- Balance March 31, 2000 $ (33,098,877) $ 67,125,446 --------------- --------------
The accompanying notes are an integral part of the condensed consolidated financial statements. 5 VOYAGER.NET, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
March 31, ------------------------------------ 2000 1999 Cash flows from operating activities: Net loss $ (5,877,751) $ (3,466,018) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 8,210,344 3,526,824 Compensation charge for issuance of common stock and stock options 25,000 1,465,000 Changes in assets and liabilities excluding effects of business combinations, net (755,158) 1,906,629 ------------- ------------- Net cash provided by operating activities 1,602,435 3,432,435 Cash flows used in investing activities: Business acquisition costs, net of cash acquired (4,796,124) (9,371,427) Purchase of property and equipment (1,654,141) (1,320,563) ------------- ------------- Net cash used in investing activities (6,450,265) (10,691,990) Cash flows provided by financing activities: Payments on capital leases (655,648) (64,219) Proceeds from issuance of debt 4,100,000 9,400,000 Proceeds from issuance of stock options 22,506 - ------------- ------------- Net cash provided by financing activities 3,466,858 9,335,781 ------------- ------------- Net (decrease) increase in cash and cash equivalents (1,380,972) 2,076,226 Cash and cash equivalents at beginning of period 18,062,396 2,350,292 ------------- ------------- Cash and cash equivalents at end of period $ 16,681,424 $ 4,426,518 ============= =============
The accompanying notes are an integral part of the condensed consolidated financial statements. 6 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 months ended March 31, 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 March 31, 2000 and the results of its operations and cash flows for the three months ended March 31, 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 months ended March 31, 2000 are not necessarily indicative of the results of operations expected for the year ended December 31, 2000. 2. Business Combinations: During the three months ended March 31, 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 three months ended March 31, 2000 and 1999, respectively, are included in the table below.
(in thousands except per share data) Three Months Ended March 31, ---------------------------- 2000 1999 Revenue $ 18,442 $ 15,137 Net loss (5,983) (7,965) Basic and diluted loss per share (0.19) (0.35)
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 VOYAGER.NET, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 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 as of 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 March 31, 2000 is approximately 8.54%. 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 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:
Three Months Ended March 31, ------------------------------- 2000 1999 Cash paid during the period for interest $ 891,628 $ 1,097,716 Noncash financing and investing activities: In conjunction with the acquisitions described in Note 2, liabilities were assumed as follows: Fair value of assets acquired $ 5,237,985 $ 9,967,818 Business acquisition costs, net of cash acquired (4,796,124) (9,371,427) ------------- ------------ Liabilities assumed $ 441,861 $ 596,391 ============= ============ Acquisition of equipment through capital lease $ - $ 373,534 Issuance of compensatory common stock and options $ 25,000 $ 1,465,000
8 VOYAGER.NET, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 6. Stock-Based Compensation Plan: During the three months ended March 31, 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 three months ended March 31, 2000 for these options. During the three months ended March 31, 2000, the Company recognized compensation expense of $25,000 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 101A, which was released March 24, 2000, delayed adoption of SAB 101 until the second 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 March 31, 2000. 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. 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview Voyager.net, Inc. ("Voyager.net" or the "Company") is the largest Internet communications company focused on the Midwestern United States with approximately 368,000 subscribers as of March 31, 2000. Voyager.net provides high-speed data communications services and Internet access to residential and business subscribers. Services include broadband digital subscriber line, or DSL, dedicated business connectivity, cable modem access, dial-up Internet access, Web-hosting, electronic commerce, server co-location and long distance phone services. We operate the largest dial-up Internet network in the Midwest in terms of geographic coverage, with approximately 200 Voyager.net-owned points of presence in Michigan, Wisconsin, Ohio, Illinois, Indiana and Minnesota. Voyager.net has competitive local exchange carrier, or CLEC, status in Michigan, Ohio, and Wisconsin. On March 12, 2000, Voyager.net, CoreComm Limited ("CoreComm") and CoreComm Group Sub I, a wholly-owned subsidiary of CoreComm ("Sub"), entered into an Agreement and Plan of Merger (the "Merger Agreement"). Pursuant to the Merger Agreement, Sub will merge with and into Voyager.net, with Voyager.net surviving the merger as a wholly-owned subsidiary of CoreComm (the "Merger"). Under the terms of the Merger Agreement, each outstanding share of Voyager common stock (except for shares held by Voyager, CoreComm or Sub or any of their respective subsidiaries, and those dissenting stockholders who exercise and perfect their appraisal rights) will be converted into the right to receive a cash payment of $3.00 and .292 shares of CoreComm common stock. Under the Merger Agreement's collar provisions, the shares of CoreComm common stock to be issued by CoreComm in the Merger will be adjusted based on the average closing price of CoreComm's stock price during a specified period prior to closing. Our Board of Directors has approved the Merger Agreement and the transactions contemplated thereby, including the Merger. Consummation of the transactions, including the Merger, is subject to the approval of the Company's stockholders, certain regulatory approvals and other conditions. Holders of over a majority of the voting shares of the Company have entered into an agreement with CoreComm to vote in favor of the Merger, the Merger Agreement and the transactions contemplated by the Merger Agreement. We cannot assure you that the transactions contemplated by the Merger Agreement will be consummated. 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 101A, which was released March 24, 2000, delayed adoption of SAB 101 until the second 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 March 31, 2000. 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. 10 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, 1999 we have acquired two Internet service provider businesses in the Midwest totaling approximately 12,200 subscribers. Below is a summary of our completed acquisitions, with the number of customers acquired at the respective date of acquisition:
Company Date Location Customers - ----------------------------------------------------------------- Valley Business Equipment Feb. 2000 Oshkosh, WI 11,000 Livingston Online Mar. 2000 Howell, MI 1,200
Results of Operations The following table sets forth certain consolidated statement of operations data for the three months ended March 31, 2000 and 1999. This information should be read in conjunction with the Company's consolidated financial statements and notes.
Three Months Ended March 31, ------------------ 2000 1999 Revenue: Internet access service........................... $18,039 $ 8,405 Other............................................. 73 114 ------- ------- Total revenue...................................... 18,112 8,519 ------- ------- Operating expenses: Internet access service costs..................... 7,229 2,790 Sales and marketing............................... 2,137 969 General and administrative........................ 5,982 2,463 Depreciation and amortization..................... 8,211 3,527 Compensation charge for issuance of common stock and stock options.......................... 25 1,465 ------- ------- Total operating expenses........................... 23,584 11,214 ------- ------- Loss from operations before other expense, net..... (5,472) (2,695) Other expense, net................................. (406) (771) ------- ------- Net loss........................................... (5,878) (3,466) ======= ======= EBITDA Margin...................................... 15.3% 27.0% ======= =======
11 Three Months Ended March 31, 2000 Compared to March 31, 1999 Revenues. Total consolidated revenues increased from $8.5 million for the three months ended March 31, 1999 to $18.1 million for the three months ended March 31, 2000, representing an increase of 113%. The revenue growth was primarily driven by the increase in our customer base from approximately 188,000 at March 31, 1999 to approximately 368,000 at March 31, 2000. The growth in customers was the result of both internal 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. Internet access service costs. Internet access service costs increased from $2.8 million for the three months ended March 31, 1999 to $7.2 million for the three months ended March 31, 2000. Internet access service costs as a percent of revenue increased from 33% for the three months ended March 31, 1999 to 40% for the three months ended March 31, 2000 due to investments in our network infrastructure and call centers. The increase in spending quarter over quarter 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 $1.0 million for the three months ended March 31, 1999 to $2.1 million for the three months ended March 31, 2000. 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 percent of revenue, sales and marketing costs remained relatively constant at approximately 11.7% for the three months ended March 31, 1999 and 2000. General and administrative. General and administrative expenses increased from $2.5 million for the three months ended March 31, 1999 to $6.0 million for the three months ended March 31, 2000. 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 increased from 29% for the three months ended March 31, 1999 to 33% for the three months ended March 31, 2000 due to additional recurring expenses as a result of our initial public offering on July 21, 1999. Additional expenses are a result of additional staff requirements as a result of our growth from March 31, 1999 to March 31, 2000. Depreciation and amortization. Depreciation and amortization expense increased from $3.5 million for the three months ended March 31, 1999 to $8.2 million for the three months ended March 31, 2000. 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 $25,000 for the three months ended March 31, 2000 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 $91,000 in periods subsequent to March 31, 2000. Other expenses, net. Other expenses, net decreased from $771,000 for the three months ended March 31, 1999 to $434,000 for the three months ended March 31, 2000. This decrease is the net result of interest income on notes receivable from related parties offset by a higher average balance on our line-of-credit which was used to fund acquisitions completed during 1998 and 1999. Net loss. As a result of the above, we reported net loss of $3.6 million, or $.16 per share applicable to common stockholders, for the three months ended March 31, 1999 as compared to net loss of $5.9 million, or $0.19 per share applicable to common stockholders, for the three months ended March 31, 2000. 12 EBITDA. EBITDA increased from $2.3 million for the three months ended March 31, 1999 to $2.8 million for the three months ended March 31, 2000. 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. 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 have historically been met through receipts from our prepaid customer base and additional capital from outside sources, including vendor capital leases, and the use of a $60.0 million revolving credit facility with a bank group led by Fleet National Bank. On July 21, 1999, the Company completed its initial public offering in which it raised net proceeds of approximately $99.5 million. Upon closing of the offering, $60.6 million of senior bank debt and accrued interest and fees were repaid, $8.8 million of preferred stock and cumulative dividends were redeemed, and $2.3 million of subordinated notes and accrued interest were repaid. Since the initial public offering, the Company has used all of the remaining proceeds for general corporate purposes, acquisitions and capital expenditures. Net cash provided by operating activities was $1.6 million for the three months ended March 31, 2000, compared to net cash provided by operating activities of $3.4 million for the three months ended March 31, 1999. The primary sources of cash from operating activities for the three months ended March 31, 2000 were $8.2 million in depreciation and amortization and a $1.7 million increase in deferred revenue. These sources were partially offset by a $5.9 million net loss and a $2.7 million decrease in accounts receivable. Net cash used in investing activities was $6.5 million for the three months ended March 31, 2000, compared to net cash used in investing activities of $10.7 million for the three months ended March 31, 1999. Net cash used in investing activities for the three months ended March 31, 2000 consisted of $4.8 million to acquire two Internet service provider businesses and $1.7 million for the purchase of capital equipment. Cash used in investing activities for the three months ended March 31, 1999 related to acquisition activity and the purchase of capital equipment. Net cash provided by financing activities was $3.5 million for the three months ended March 31, 2000, compared to net cash provided by financing activities of $9.3 million for the three months ended March 31, 1999. The primary sources of cash from financing activities for the three months ended March 31, 2000 was the use of proceeds from our revolving credit facility and payments on capital leases. Voyager.net believes that available cash on hand, amounts available under the credit facility, additional capital financing arrangements and cash flow from operations will be sufficient to meet Voyager.net's capital requirements for the next twelve months. Our capital requirements depend on numerous factors including market acceptance or our services, our ability to maintain and expand our customer base, the rate of expansion of our infrastructure, the roll out of our DSL plan which we expect will be available in selected Midwest cities at the end of the third quarter 2000 and other factors. Year 2000 Compliance. Many currently installed computer systems and software products are coded to accept only two digit entries in the date code field. These date code fields need to accept four digit entries to distinguish "Year 2000" dates from earlier dates. Confusion of dates may bring about system failures or miscalculations causing disruptions of operations; including, among other things, a temporary inability to process transactions, send invoices or engage in similar business activities. The Year 2000 issue affects virtually all companies and all organizations. We rely on third party telecommunications and information systems equipment and software that may not be Year 2000 compliant to provide our services. Our efforts to address Year 2000 issues prior to January 1, 2000, included conducting an audit of our own systems and of our third-party suppliers as to assessment, we developed and implemented a remediation plan with respect to third -party software, computer technology and services that may fail to be Year 2000 compliant. 13 Costs incurred to date related to Year 2000 issues have not been material, nor do we expect to incur additional material costs related to Year 2000 issues. We are continuing to evaluate potential disruptions or compliance that might result in the future from Year 2000 related problems; although at this time, we have not identified any specific business functions that are likely to suffer material disruption as a result of Year 2000 related events. Due to the unique and pervasive nature of the year 2000 issue, however, it is not possible to anticipate each of the wide variety of Year 2000 events that might arise, particularly outside of the Company, which might have a material adverse impact on our business, financial condition and results of operations. We presently believe that the most reasonably likely worst case scenario related to the Year 2000 issue is associated with third-party services and products, specifically our network, telecommunications lines and equipment. The disruption to or failure of our internal computer systems or of third-party equipment or software to operate without Year 2000 complications could result in the interruption or failure of our services, could require us to incur significant unanticipated expenses to remedy any problems, could expose us to claims for losses incurred by our users due to Year 2000 complications and could cause customers to seek alternative Internet service providers. The defense of any claims, whether with or without merit, could require us to incur substantial costs and would divert management's time and attention, which could have an adverse effect on our business and operating results. In addition, we are subject to external forces that might generally affect industry and commerce, such as utility company Year 2000 compliance failures and related service interruptions. Forward-Looking Statements This Management's Discussion and Analysis of Financial Condition and Results of Operations contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 that are subject to future events, risks and uncertainties that could cause actual results to differ materially from those expressed or implied. These statements can sometimes be identified by our use of forward-looking words such as "may," "will," "anticipate," "estimate," "expect," or "intend." Important factors that either individually or in the aggregate could cause actual results to differ materially from those expressed include, without limitation, (1) the risk that the merger of Voyager.net and CoreComm Limited will not be consummated, (2) Voyager.net's ability to provide superior customer care, (3) the success of its growth strategy, (4) its ability to integrate acquisitions successfully, (5) increasing competition from regional and national Internet service providers and (6) general economic conditions. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS We believe our exposure to market rate fluctuations on our investments is nominal due to the short-term nature of these investments. We have no material future earnings or cash flow exposures with respect to our outstanding capital leases, which are all at fixed rates. To the extent we have borrowings outstanding under our credit facility, we would have market risk relating to those amounts because the interest rates under the credit facility are variable. At present, we have no plans to enter into any hedging arrangements with respect to those borrowings. 14 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 its business. The Company is not currently a party to any such claims or proceedings which, if decided adversely to the Company, would likely either individually or in the aggregate have a material adverse effect on the Company's business, financial condition or results of operations. ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a. Exhibits: The following exhibits are filed as a part of this report: 2.1** Agreement and Plan of Merger, dated as of March 12, 2000, among CoreComm Limited, CoreComm Group Sub I, Inc. and Voyager.net, Inc. 3.4*** Second Amended and Restated Certificate of Incorporation of Voyager.net, Inc. 3.5*** Amended and Restated By-Laws of Voyager.net, Inc. 10.1** Voting Agreement, dated as of March 12, 2000, among CoreComm Limited and the Shareholders identified therein. 27.1* Financial Data Schedule. 99.1** Press Release, issued March 13, 2000, announcing execution of a definitive agreement to merge with CoreComm Limited. b. Reports on Form 8-K: See the Company's Report on Form 8-K filed March 17, 2000 (File No. 000- 26661). __________________________ * Filed herewith. ** Incorporated herein by reference to the Company's Report on Form 8-K (File No. 000-26661). *** Incorporated herein by reference to the Company's Registration Statement on Form S-8 (File No. 333-84987). 15 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. VOYAGER.NET, INC. Date: May 15, 2000 /s/ Christopher P. Torto ---------------------------------- Christopher P. Torto President, Chief Executive Officer and Director Date: May 15, 2000 /s/ James M. Militello ---------------------------------- James M. Militello Vice President of Finance and Assistant Treasurer (Principal Financial Officer) 16 EXHIBIT INDEX -------------
Exhibit Number Description Page No. ------ ----------- -------- 2.1** Agreement and Plan of Merger, dated as of March 12, 2000, among CoreComm Limited, CoreComm Group Sub I, Inc. and Voyager.net, Inc. 3.4*** Second Amended and Restated Certificate of Incorporation of Voyager.net, Inc. 3.5*** Amended and Restated By-Laws of Voyager.net, Inc. 10.1** Voting Agreement, dated as of March 12, 2000, among CoreComm Limited and the Shareholders identified therein. 27.1* Financial Data Schedule. 99.1** Press Release, issued March 13, 2000, announcing execution of a definitive agreement to merge with CoreComm Limited
__________________________ * Filed herewith. ** Incorporated herein by reference to the Company's Report on Form 8-K (File No. 000-26661). *** Incorporated herein by reference to the Company's Registration Statement on Form S-8 (File No. 333-84987). 17 EX-27.1 2 FINANCIAL DATA SCHEDULE
5 3-MOS DEC-31-2000 JAN-01-2000 MAR-31-2000 16,681 0 8,419 686 0 25,777 30,445 8,619 112,214 19,986 0 0 0 3 67,122 112,214 18,039 18,112 0 23,584 0 0 406 0 0 (5,878) 0 0 0 (5,878) (0.19) (0.19)
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