EXHIBIT 99
RISK FACTORS
From time to time the Company has made, and may in the future make,
forward-looking statements, based on its then-current expectations, including
statements made in Securities and Exchange Commission filings, in press releases
and oral statements. These forward-looking statements are made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
All forward-looking statements involve risks and uncertainties, and actual
results could differ materially from those expressed or implied in the forward-
looking statements for a variety of reasons. These reasons include, but are not
limited to, factors outlined below. The Company does not undertake to update or
revise its forward-looking statements publicly even if experience or future
changes make it clear that any projected results expressed or implied therein
will not be realized.
Our prospects are difficult to evaluate because most of our revenues prior to
January 1998 resulted from a business strategy we are no longer pursuing.
Although we have sold integrated telecommunications services for over 15
years, we only began offering local services under our own brand name in January
1998. We sold local telephone services as an agent for Bell Atlantic until
December 1997. Because at that time we terminated our agency relationship with
Bell Atlantic, we no longer receive agency revenues. Therefore, we can only
provide you limited historical operating and financial information about our
current business strategy for you to evaluate.
We expect to incur negative cash flows and operating losses for a significant
period of time.
For the fiscal year ended March 31, 1999, we incurred operating losses of
approximately $48.6 million, net losses of approximately $52.0 million and
negative cash flow from operating and investing activities of approximately
$39.5 million. Our expenses have increased significantly, and we expect our
expenses to continue to increase as we deploy our network and implement our
business plan. Accordingly, we expect to incur significant operating losses, net
losses and negative cash flow during the next several years. We cannot assure
you that we will achieve and sustain profitability or positive net cash flow.
We cannot assure you that we will successfully execute our strategy.
If we fail to execute our strategy in a timely or effective manner we may
be unable to successfully compete in our markets. Our business strategy is
complex and requires that we successfully complete many tasks, a number of which
we must complete simultaneously, including:
. deploying, operating and maintaining our network;
. attracting and retaining customers, management and key employees;
. expanding our sales presence in existing and new markets;
. developing and providing enhanced data services; and
. ultimately, incorporating local dial tone into our network.
If we are unable to effectively implement or coordinate the implementation
of these multiple tasks effectively, our business is likely to suffer.
Implementing a facilities-based strategy is subject to technological and other
uncertainties.
The design of our network has not been widely deployed. The network may not
provide the functionality that we expect. We also cannot be sure that we will be
able to incorporate local dial tone capabilities into our network, and without
this capability we will not be able to provide on our network all of our target
customers' fixed line telecommunications services. Our ability to provide
enhanced connectivity to our network and to provide local dial tone services
will require the negotiation of interconnection agreements with incumbent local
exchange carriers. This can take considerable time, effort and expense, and
these agreements are subject to federal, state and local regulation. We may not
be able to effectively negotiate necessary interconnection agreements. Also, we
cannot be sure that our customers will choose to purchase any or all of their
telecommunications services over our network.
We may not properly or timely deploy, operate and maintain our own network.
Currently we are not providing any commercial services over our network. We
are still deploying the initial phase of our network and we have limited
experience operating and maintaining telecommunications networks. We cannot
assure you that we will effectively deploy, operate or maintain our network. We
may not be able to deploy our network within the time frame we expect, and once
the network is deployed we may encounter unanticipated difficulties in operating
and maintaining it.
Our high leverage creates financial and operating risk that could limit the
growth of our business.
We have a significant amount of indebtedness. As of March 31, 1999, we had
approximately $66.9 million of total indebtedness outstanding. We expect to seek
substantial additional debt financing to fund our business plan. Our high
leverage could have important consequences to us, including,
. limiting our ability to obtain necessary financing for future working
capital, capital expenditures, debt service requirements or other purposes;
. limiting our flexibility in planning for, or reacting to, changes in our
business;
. placing us at a competitive disadvantage to competitors with less
leverage;
. increasing our vulnerability in the event of a downturn in our business or
the economy generally;
. requiring that we use a substantial portion of our cash flow from
operations for the payment of principal and interest on our indebtedness
and not for other purposes.
We will need to refinance our existing indebtedness and may not generate
sufficient cash flow from operations to pay future indebtedness.
We expect we will not generate sufficient cash flow from operations to
repay our existing credit and vendor facilities, and it is likely that we will
need to refinance this indebtedness when it comes due. Also, we cannot assure
you that our business will generate sufficient cash flow from operations or that
alternative sources of cash flow will be available to us in amounts sufficient
to pay other future indebtedness or to fund our other needs. We will need to
generate cash in the future to make scheduled payments on and refinance our
indebtedness and to fund planned capital expenditures, operating losses and our
other needs. Our ability to generate cash will greatly depend on:
. our completing the buildout of our network timely and cost-effectively;
. the acceptance by the market of, and the demand for, our services; and
. our future operating performance.
Each of these elements may be affected by various factors that we cannot
control, including industry, general economic, financial, competitive,
legislative, regulatory and other factors. If we cannot generate sufficient cash
flow from operations, we may need to refinance all or some of our indebtedness,
sell assets, delay capital expenditures or sell additional capital stock. If we
sell additional capital stock, your interest in us will be diluted. We cannot
assure you that we will be able to refinance any of our indebtedness on
reasonable terms, or at all. We also cannot assure you that we will be able to
effect any other needed action on satisfactory terms, or at all.
We may be unable to obtain the additional capital we will require to fund our
operations and finance our growth on terms acceptable to us or at all.
We will need significant additional capital to fund our business plan. CTC
Communications has filed a registration statement for a public offering of up to
2,875,000 shares of its common stock. We cannot assure you we will successfully
complete that offering. Even if we complete that stock offering, we expect to
seek additional financing to further fund our business plan as soon as
practicable. The timing of these efforts will depend on market conditions. We
cannot assure you that additional funding will be available to us when we need
it or at all. If we are unable to obtain financing when we need it, we may delay
or abandon our development and expansion plans. That could have a material
adverse effect on our business, results of operations and financial condition.
The actual timing and amount of our capital requirements may be materially
affected by various factors, including the timing and actual cost of the
network, the timing and cost of our expansion into new markets, the extent of
competition and pricing of telecommunications services by others in our markets,
the demand by customers for our services, technological change and potential
acquisitions.
Our market is highly competitive, and we may not be able to compete effectively;
many of our competitors have greater resources and more experience.
We operate in a highly competitive environment. We have no significant
market share in any market in which we operate. We will face substantial and
growing competition from a variety of data transport, data networking and
telephony service providers. We will face competition for the provision of
integrated telecommunications services as well for the individual service
components that comprise our integrated services. The number of competitors able
to provide integrated telecommunication services has increased as a result of
regulatory changes and industry consolidation. We expect that the incumbent
local exchange carriers ultimately will also be able to provide integrated
services. Many of our competitors are larger and better capitalized than we are.
Also, many of our competitors are incumbent providers with long standing
relationships with their customers and greater name recognition.
The failure of our information systems to produce accurate and prompt billing
and to process customer orders could materially adversely affect our business.
The accurate and prompt billing of our customers is essential to our
operations and future profitability. The deployment of our network will place
additional demands on our information systems. We are continuing to upgrade our
information systems, but we cannot assure you that our information systems will
perform how we expect. Also, if our business grows as we plan, we cannot assure
you that our information systems will be sufficient to provide us with accurate
and efficient billing and other necessary processing capabilities. We may not
identify all of our information and processing needs (including issues related
to the Year 2000), and the upgrade we are implementing may encounter unexpected
difficulties. We cannot assure you that our ongoing information systems upgrade
will not cause disruption in our information systems or that the upgraded system
will continue to provide us with the necessary functionality. Any of these
could materially adversely affect our business, results of operations and
financial condition.
If we do not receive timely and accurate call data records from our suppliers,
our billing and collection activities could be adversely affected.
Our billing and collection activities are dependent upon our suppliers
providing us accurate call data records. If we do not receive accurate call data
records in a timely manner, our business, results of operations and financial
condition could be materially adversely affected. In addition, we pay our
suppliers according to our calculation of the charges based upon invoices and
computer tape records provided by these suppliers. Disputes may arise between us
and our suppliers because these records may not always reflect current rates and
volumes. If we do
not pay disputed amounts, a supplier may consider us to be in arrears in our
payments until the amount in dispute is resolved. We cannot assure you that
disputes with suppliers will not arise or that such disputes will be resolved in
our favor.
Our ability to serve our customers depends upon the reliability of the networks,
services and equipment of third party providers.
We only began testing our network with customers in May 1999. We depend
almost entirely on facilities-based carriers for the switching and transmission
of customer traffic. After we complete deploying our network, we will still rely
to some extent on others for switching and transmission of customer traffic. We
will also rely on others for fiber optic backbone transmission facilities,
including Level 3 and NorthEast Optic Network, for our network. We cannot be
sure that any third party switching or transmission facilities will be available
when needed or on acceptable terms.
Although we can exercise direct control of the customer care and support we
provide, most of the services we currently offer are provided by others. These
services are subject to physical damage, power loss, capacity limitations,
software defects, breaches of security and other factors which may cause
interruptions in service or reduced capacity for our customers. These problems,
although not within our control, could adversely affect customer confidence and
damage our reputation.
We have engaged a network services integrator to design, engineer and
manage the buildout of our network in our existing markets. If the network
integrator is not able to perform these functions, we may experience delays or
additional costs in providing services and building the network. The failure of
our network equipment to operate as anticipated or the inability of equipment
suppliers, including Cisco, to timely supply such equipment could materially and
adversely affect our business, results of operations and financial condition.
Our operating results could be adversely affected by increases in customer
attrition rates.
We cannot assure you that our customers will continue to purchase local,
long distance, data or other services from us. Because we have been operating as
an integrated communications provider for a short time, our customer attrition
rate is difficult to evaluate. We could lose customers as a result of national
advertising campaigns, telemarketing programs and customer incentives provided
by major competitors as well as for other reasons not in our control. Increases
in customer attrition rates could have a material adverse effect on our
business, results of operations and financial condition.
If we fail to manage our growth, our business could be impaired.
We are pursuing a business plan that will result in rapid growth and
expansion of our operations if we are successful. This rapid growth would place
significant additional demands upon our current management and other resources.
Our success will depend on our ability to manage our growth. To accomplish this
we will have to train, motivate and manage an increasing number of employees. We
will also need to continually enhance our information systems. Our failure to
manage growth effectively could have a material adverse effect on our business,
results of operations and financial condition.
Our success will depend on a limited number of key personnel who could be
difficult to replace as well as on our ability to hire other skilled personnel.
We believe that our continued success will depend upon the abilities and
continued efforts of our management, particularly members of our senior
management team. The loss of the services of any of these individuals could have
a material adverse effect on our business, results of operations and financial
condition. Our success will also depend upon our ability to identify, hire and
retain additional highly skilled sales, service and technical personnel. Demand
for qualified personnel with telecommunications experience is high and
competition for their services is intense. We cannot be sure that we will be
able to attract and retain the additional employees we need to implement our
business strategy. Our inability to hire and retain such personnel could have a
material adverse effect on our business, results of operations and financial
condition.
Changes to the regulations applicable to our business could increase our costs
and limit our operations.
We are subject to federal, state, and local regulation of our local, long
distance, and data services. With the passage of the Telecommunications Act in
1996, the regulation of our services has been subject to numerous administrative
proceedings at the federal and state level, litigation in federal and state
courts, and legislation in federal and state legislatures. We cannot predict the
outcome of the various proceedings, litigation, and legislation or whether and
to what extent they may adversely affect our business or operations. We believe
the current trend toward relaxed regulatory oversight and competition will
benefit us. Our competitors, however, may benefit from this trend to a greater
extent than we will. If that occurs, our business may be adversely affected.
Rapid technological changes in the telecommunications industry could render our
services obsolete faster than we expect or could require us to spend more to
develop our network than we currently anticipate.
The telecommunications industry is subject to rapid and significant changes
in technology. We cannot predict the effect that changes in technology will
have on our business. Any changes could have a material adverse effect on our
business, operating results and financial condition. Advances in technology
could lead to more entities becoming facilities-based integrated communications
providers. We believe that our long-term success will increasingly depend on
our ability to offer advanced services and to anticipate or adapt to evolving
industry standards. We cannot be sure that:
. we will be able to offer the services our customers require;
. our services will not be economically or technically outmoded by current
or future competitive technologies;
. our network or our information systems will not become obsolete;
. we will have sufficient resources to develop or acquire new technologies
or introduce new services that we need to effectively compete; or
. the cost of the network will decline as rapidly as the costs of our
competitors' infrastructures.
We may incur significant costs and our business could suffer if our systems and
network, or the systems of our suppliers and vendors, do not properly process
date information after December 31, 1999.
Currently, many computer systems and software products are coded to accept
only two digit, rather than four digit, entries in the date code field. Date-
sensitive software or hardware coded in this manner may not be able to
distinguish a year that begins with a "20" instead of a "19," and programs
that perform arithmetic operations, make comparisons or sort date fields may not
yield correct results with the input of a Year 2000 date. This Year 2000 problem
could cause miscalculations or system failures that could affect our operations.
We cannot assure you that we have successfully identified all Year 2000 problems
with our information systems and network. We also cannot assure you that we will
be able to implement any necessary corrective actions in a timely manner. Our
failure to successfully identify and remediate Year 2000 problems in critical
systems could have a material adverse effect on our business, results of
operations and financial condition. Also, if the systems of other companies that
provide us services or with whom our systems interconnect are not Year 2000
compliant, our business, operating results and financial condition could be
materially adversely affected. The Year 2000 issue is discussed at greater
length in "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Year 2000 Compliance."
We may pursue acquisitions which would create risks to our business.
We may pursue strategic acquisitions as we expand. We currently have no
definitive agreement with respect to any acquisition. Acquisitions may increase
our risks because we may:
. experience difficulties integrating acquired operations and personnel into
our operations;
. disrupt our ongoing business;
. divert resources and management time;
. be unable to maintain uniform standards, controls, procedures and
policies; and
. enter markets or businesses in which we have little or no experience.
We cannot assure you that we will be able to obtain any additional
financing needed to finance potential acquisitions. If we do make any
acquisition, the acquired business might not perform as we expected.
Our existing principal stockholders, executive officers and directors control a
substantial amount of our voting shares and will be able to significantly
influence any matter requiring shareholder approval.
Our officers and directors and parties related to them will control
approximately 46% of the voting power of our outstanding capital stock. Robert
J. Fabbricatore, our Chairman and Chief Executive Officer, will control
approximately 26% of our outstanding voting capital stock. Therefore, the
officers and directors will be able to significantly influence any matter
requiring shareholder approval. In addition, Mr. Fabbricatore and some of his
affiliates have agreed to vote shares they control to elect to our board up to
two persons designated by the holders of a majority of our Series A preferred
stock.
We may default under our credit facilities if stockholders exercise appraisal
rights or if we do not consummate the holding company reorganization.
If we consummate the reorganization, all of our stockholders will have
appraisal rights under Massachusetts law. Also, CTC Communications has filed a
registration statement for a public offering of up to 2,875,000 shares of its
common stock. If any of our existing or new stockholders exercise their
appraisal rights, CTC Communications Group would be required by law to pay them
in cash the appraised value of their shares. Our senior secured credit facility
with Goldman Sachs and Fleet requires us to consummate the reorganization but
prohibits us from making payments to stockholders who exercise appraisal rights.
Our vendor facility with Cisco Capital also prohibits these payments. If any
stockholders are entitled to appraisal rights after the special meeting, we may
ask our lenders to waive their requirement that we consummate the reorganization
or to permit us to make any required payments to stockholders. We cannot
predict whether stockholders will exercise appraisal rights, the amount of any
payment which could be required to be made and, on what, if any, terms we could
obtain needed consents. If we default under our credit facilities, our lenders
could require us to repay their loans. We cannot assure you that we will be
able to refinance their loans on reasonable terms, or at all.
Fluctuations in our operating results could adversely affect the price of our
common stock.
Our annual and quarterly revenue and results may fluctuate as a result of a
number of factors, including:
. variations in the rate of timing of customer orders,
. variations in our provisioning of new customer services,
. the speed at which we expand our network and market presence,
. the rate at which customers cancel services, or churn,
. costs of third party services purchased by us, and
. competitive factors, including pricing and demand for competing services.
Also, our revenue and results may not meet the expectations of securities
analysts and our stockholders. As a result of such fluctuations or such failure
to meet expectations, the price of our common stock could be materially
adversely affected.
Our stock price is likely to be volatile.
The trading price of our common stock is likely to be volatile. The stock
market in general, and the market for technology and telecommunications
companies in particular, has experienced extreme volatility. This volatility has
often been unrelated to the operating performance of particular companies. Other
factors that could cause the market price of our common stock to fluctuate
substantially include:
. announcements of developments related to our business, or that of our
competitors, our industry group or our customers;
. fluctuations in our results of operations;
. hiring or departure of key personnel;
. a shortfall in our results compared to analysts' expectations and changes
in analysts' recommendations or projections;
. sales of substantial amounts of our equity securities into the
marketplace;