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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-QSB
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED COMMISSION FILE NUMBER:
JUNE 30, 2000 333-49279
NEXT GENERATION NETWORK, INC.
(Exact name of small business issuer as specified in its charter)
DELAWARE 41-1670450
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
11010 PRAIRIE LAKES DRIVE, SUITE 300
MINNEAPOLIS, MINNESOTA 55344
(Address of principal executive offices)
(612) 944-7944
(Issuer's telephone number)
-------------------------
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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
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Number of shares of Common Stock outstanding as of
July 31, 2000: 8,631,481
Transitional Small Business Disclosure Format (Check one):
Yes No X
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NEXT GENERATION NETWORK, INC.
FORM 10-QSB
TABLE OF CONTENTS
Page
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Part I. Financial Information
Item 1. Financial Statements.
Balance Sheets as of June 30, 2000 and December 31, 1999 3
Statements of Operations for the Three and Six Months Ended June 30, 2000 and 1999 4
Statements of Stockholders' Equity for the Six Months Ended June 30,2000 5
Statements of Cash Flows for the Six Months Ended June 30, 2000 and 1999 6
Notes to Financial Statements 7-8
Item 2. Management's Discussion and Analysis or Plan of Operations 9-13
Part II. Other Information.
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
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Part I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NEXT GENERATION NETWORK, INC.
BALANCE SHEETS
(UNAUDITED)
JUNE 30, DECEMBER 31,
2000 1999
-------------- ------------------
ASSETS
Current Assets
Cash and cash equivalents $ 9,583,033 $ 403,435
Accounts receivable, net 2,268,544 1,511,939
Other current assets 73,754 85,284
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Total current assets 11,925,331 2,000,658
-------------- ------------------
Property and Equipment, net 16,799,244 13,473,100
Deferred Financing Costs, net 1,298,725 2,050,481
Other Assets 143,938 191,730
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$ 30,167,238 $ 17,715,969
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LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Current maturities of long-term debt $ 21,347 $ 24,949
Accounts payable 1,958,869 2,721,429
Accrued expenses (Note 3) 4,783,189 4,848,637
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Total current liabilities 6,763,405 7,595,015
-------------- ------------------
Non-current accrued site lease expense - 223,239
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Long-term Debt (Note 2) 36,948,987 49,555,649
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Mandatory Redeemable Preferred Stock
14.8% Series B, nonvoting; authorized 91,100 shares;
issued and outstanding 91,059 shares at December 31, 1999;
stated at liquidation value plus accrued dividends - 11,273,351
14.8% Series C, nonvoting; authorized 90,000 shares;
issued and outstanding 75,540 shares at December 31, 1999;
stated at liquidation value plus accrued dividends - 8,123,598
-------------- ------------------
- 19,396,949
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Stockholders' Deficit
8.25% Series A cumulative preferred stock,
nonvoting; authorized 20,000 shares; issued and
outstanding 3,060 and 6,000 shares, respectively, stated
at liquidation value, excluding cumulative unpaid dividends
of $1,072,912 and $1,980,000, respectively 1,530,000 3,000,000
Common stock, $0.01 par value; authorized 20,000,000
shares; issued and outstanding 8,631,481
and 2,662,680 shares, respectively (Note 4) 86,315 26,627
Additional paid-in capital 70,487,579 6,574,267
Accumulated deficit (85,649,048) (68,655,777)
-------------- ------------------
(13,545,154) (59,054,883)
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$ 30,167,238 $ 17,715,969
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See notes to condensed financial statements.
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NEXT GENERATION NETWORK, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------- -----------------------------
2000 1999 2000 1999
------------ ------------ ------------ --------------
Revenues:
Advertising Revenue $ 2,618,364 $ 1,152,259 $ 4,947,632 $ 2,110,283
Less agency commissions (27,046) (34,817) (73,698) (59,426)
------------ ------------ ------------ --------------
Net advertising revenue 2,591,318 1,117,442 4,873,934 2,050,857
Network operating revenue 210 210 420 420
------------ ------------ ------------ --------------
Total revenues 2,591,528 1,117,652 4,874,354 2,051,277
------------ ------------ ------------ --------------
Costs and expenses:
Network operating expenses 2,155,819 1,601,519 4,286,499 2,988,954
Selling Expenses 3,179,180 2,202,290 6,307,579 4,430,992
General and administrative expenses 2,548,957 1,215,065 4,315,397 2,404,353
Corporate overhead 876,400 783,751 1,805,208 1,607,544
Depreciation and amortization 1,029,685 634,565 1,948,316 1,206,827
------------ ------------ ------------ --------------
9,790,041 6,437,190 18,662,999 12,638,670
------------ ------------ ------------ --------------
Operating loss (7,198,513) (5,319,538) (13,788,645) (10,587,393)
Non operating income (expense):
Interest expense (1,576,453) (2,030,386) (3,554,346) (4,021,395)
Interest income 207,880 175,754 434,764 428,738
Other expense (14,824) (8,453) (85,044) (8,453)
------------ ------------ ------------ --------------
Net loss (8,581,910) (7,182,623) (16,993,271) (14,188,503)
Preferred stock dividends 63,112 765,575 272,832 1,377,668
------------ ------------ ------------ --------------
Net loss applicable to common stockholders $(8,645,022) $(7,948,198) $(17,266,103) $ (15,566,171)
------------ ------------ ------------ --------------
Basic and diluted net loss per common share $ (1.01) $ (2.99) $ (2.29) $ (5.85)
------------ ------------ ------------ --------------
Weighted average number of common shares outstanding 8,562,076 2,662,680 7,527,172 2,662,680
============ ============ ============ ==============
See notes to condensed financial statements.
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NEXT GENERATION NETWORK, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
(UNAUDITED)
Series A
Cumulative Additional
Preferred Stock Common Stock Paid-In Accumulated
Shares Amount Shares Amount Capital Deficit Total
----------- ---------- ---------- ----------- ------------ -------------- -------------
Balance, December 31, 1999 6,000 $3,000,000 2,662,680 $26,627 $ 6,574,267 $(68,655,777) $(59,054,883)
Issuance of common stock
at $10 per share, net of
expenses of $466,321 --- --- 3,025,017 30,250 29,753,599 --- 29,783,849
Exchange of Series A
Preferred Stock for
common stock (2,940) (1,470,000) 180,388 1,804 1,468,196 --- ---
Exchange of Mandatory
Redeemable Preferred
Stock for common stock --- --- 2,546,353 25,464 19.581,206 --- 19,606,670
Exercise of stock
options --- --- 16,060 161 1,445 --- 1,606
Exercise of warrants 200,983 2,009 219,576 221,585
Repurchase of PIK Notes
at a substantial
discount from carrying
value from related party --- --- --- --- 13,125,421 --- 13,125,421
Accrued dividends on
mandatory redeemable
preferred stock --- --- --- --- (209,720) --- (209,720)
Compensation element of
stock options forfeited --- --- --- --- (26,411) --- (26,411)
Net Loss --- --- --- --- --- (16,993,271) (16,993,271)
-------- ---------- ---------- ---------- ----------- ------------ ------------
Balance, June 30, 2000 3,060 $1,530,000 8,631,481 $86,315 $70,487,579 $(85,649,048) $(13,545,154)
======== ========== ========== ========== =========== ============ ============
See notes to condensed financial statements.
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NEXT GENERATION NETWORK, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30,
---------------------------------
2000 1999
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OPERATING ACTIVITIES:
Net Loss $ (16,993,271) $ (14,188,503)
Adjustments to reconcile net loss to net cash used in
operating activities:
Accretion of long term debt discounts 715,422 778,878
Non cash interest on PIK Notes 2,605,367 2,983,050
Amortization of deferred financing costs 227,598 250,180
Depreciation and amortization 1,948,316 1,206,827
Compensation element of stock options (forfeited) (26,411) (36,976)
Loss from equity method investee 32,824 ---
Other 52,220 8,453
Changes in assets and liabilities:
Receivables (704,192) (355,537)
Other current assets 11,530 28,274
Accounts payable (762,560) (320,028)
Accrued expenses 455,946 (360,180)
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Net Cash Used In Operating Activities (12,437,211) (10,005,562)
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INVESTING ACTIVITIES:
Purchase of equipment and furnishings (5,323,319) (2,283,043)
Deposits and other assets (42,758) 3,299
Proceeds from sale of property and equipment 1,950 5,207
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Net Cash Used in Investing Activities (5,364,127) (2,274,537)
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FINANCING ACTIVITIES:
Proceeds from common stock sales and option exercise 30,007,042 ---
Redeem PIK Notes (2,927,579) ---
Deferred financing costs (87,842) ---
Principal payments on long-term debt and capital leases (10,685) (10,315)
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Net Cash (Used in) Provided by Financing Activities 26,980,936 (10,315)
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Net increase (decrease) in cash and cash equivalents 9,179,598 (12,290,414)
Cash and cash equivalents
Beginning 403,435 24,710,213
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Ending $ 9,583,033 $ 12,419,799
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Supplemental Cash Flow Information
Cash payments for interest $ 5,960 $ 9,288
Non cash activities:
Increase in mandatory redeemable preferred stock and
decrease in paid-in capital from accrued dividends 209,720 1,253,918
Accrued interest converted to long term debt 3,194,000 2,841,000
Increase in long term debt resulting from interest accretion 715,422 778,878
Exchange of preferred stock for common stock 21,076,669 ---
Additional paid-in capital resulting from PIK Note redemption 13,125,421 ---
See notes to condensed financial statements.
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Next Generation Network, Inc.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. Basis of Presentation
The condensed balance sheet as of June 30, 2000, the condensed statements
of operations for the three and six month periods ended June 30, 2000 and 1999,
condensed statement of changes in stockholders' deficit for the six months ended
June 30, 2000, and condensed statements of cash flows for the six month periods
ended June 30, 2000 and 1999, have been prepared by the Company without audit.
In the opinion of management, all adjustments (consisting only of normal
recurring accruals) necessary to present fairly the consolidated financial
position, results of operations and cash flows at and for all periods presented
have been made. The operating results for the period ended June 30, 2000, are
not necessarily indicative of the operating results to be expected for the full
fiscal year.
Certain information and footnote disclosures normally included in financial
statements in accordance with generally accepted accounting principles have been
condensed or omitted.
Note 2. Long Term Debt
Long-term debt: A summary of long-term debt is as follows:
June 30, December 31,
2000 1999
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12% Senior Secured PIK Notes due February 2003 (net of $2,987,373 and
$5,181,775 of unamortized discount attributed to warrants
issued in connection with PIK Notes.) $35,408,627 $48,112,225
Noninterest-bearing note payable, discounted at 15%, total of
$700,000 payable based on certain cash flows, if any, with
balance due December 2001, secured by equipment 568,997 529,300
Noninterest-bearing note payable, discounted at 15%, total of
$1,500,000 payable August 2003, plus 10% of certain net
revenues, if any, secured by equipment 969,630 905,308
Other debt - capital lease obligations 23,080 33,765
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36,970,334 49,580,598
Less current maturities 21,347 24,949
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$36,948,987 $49,555,649
============ ============
In February 2000 the Company issued additional Notes in payment of
$3,194,000 of accrued interest on the aforementioned PIK Notes.
The long term debt excluding capital lease obligations and assuming
full accretion of the related discounts is payable as follows: $700,000 in 2001
and $39,896,000 in 2003.
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Next Generation Network, Inc.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 3. Accrued Expenses
The components of accrued expenses are as follows:
June 30, December 31,
2000 1999
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Site agreement fees $2,108,952 $1,382,091
Interest 1,920,312 2,664,945
Compensation 494,903 561,032
Legal fees 49,693 167,000
Other 209,329 73,569
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$4,783,189 $4,848,637
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Note 4. Events Subsequent to December 31, 1999
SALE OF COMMON STOCK: During the second quarter of 2000, 180 shares of
the Company's Series A Cumulative Preferred stock together with accumulated
unpaid dividends thereon were converted into 11,042 shares of Company common
stock.
In May 2000, warrants issued in connection with the 12% Senior Secured
PIK Notes to purchase 169,983 shares of common stock at a price of $.01 per
share were exercised.
STOCK OPTIONS: In May 2000 the Board of Directors granted options to
acquire 140,480 shares at an exercise price of $10.00 per share to Company
employees under its 2000 Stock Incentive Plan. As of June 30, 2000, options to
purchase 1,697,480 shares were outstanding, of which 23,480 were exercisable.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS.
FORWARD-LOOKING STATEMENTS
The forward-looking statements in this report involve known and unknown
risks, uncertainties and other important factors that could cause the actual
results, performance or achievements of the Company, or industry results, to
differ materially from any future results, performance or achievements expressed
or implied by such forward-looking statements. Such risks, uncertainties and
other important factors include, among others: advertising rates; the ability to
secure advertising contracts; the ability to secure new sites for E*billboards;
the loss of key existing site agreements; changes in the political and
regulatory climate; out-of-home advertising industry trends; competition;
changes in business strategy or development plans; availability of qualified
personnel; changes in, or the failure or inability to comply with, government
regulations; and other factors referenced in this report.
GENERAL
We are the leader in the emerging digital out-of-home media industry.
We are currently implementing a rapid build-out of the world's largest network
of digital video advertising displays, which we call E*billboards. Since our
inception, we have developed our proprietary technology platform to deliver
digital advertising and other media across our growing network of E*billboards
in the U.S.
We have organized our network rollout strategy on a market by market
basis, concentrating on major U.S. advertising markets. As of June 30, 2000, we
have installed E*billboards at 5,933 sites and we have secured long-term site
rights covering approximately 5,000 additional sites that are pending
installation. The historic build-out of our network is illustrated in the
following table.
INSTALLED E*BILLBOARD SITES
DMA DEC. 31, MARCH 31, JUNE 30, DEC 31, MARCH 31, JUNE 30,
RANK MARKET(1) 1998 1999 1999 1999 2000 2000
- ------- ------------------------ -------- -------- -------- -------- ---------- --------
1 New York 447 633 882 1,317 1,482 1,699
2 Los Angeles 490 490 500 578 596 605
3 Chicago 71 120 130 172 218 242
4 Philadelphia 247 269 286 307 327 365
5 San Francisco 197 198 202 245 300 344
6 Boston 179 177 189 241 259 272
7 Dallas 263 280 281 306 320 335
8 Washington DC 510 507 509 519 517 523
12 Seattle 41
14 Tampa 141 150 158 165 168 168
16 Miami 86 91 88 117 130 137
18 Denver 116
20 Sacramento 62 62 62 64 67 69
22 Orlando 243 248 251 257 259 257
24 Baltimore 202 203 204 204 201 209
26 San Diego 133 134 140 157 162 163
40 Norfolk 238 241 240 237 238 239
44 West Palm Beach 63 64 65 67 72 84
50 Providence 12 13
60 Austin 34
83 Ft. Myers 46 51 51 54 55 57
Developmental Markets(2) 12 16 16 24 16 21
-- -- -- -- -- --
Total Sites 3,630 3,934 4,254 5,031 5,399 5,933
===== ===== ===== ===== ===== =====
(1) In contiguous markets, such as Washington, D.C. and Baltimore,
San Francisco and Sacramento, Miami and West Palm Beach and
Tampa and Ft. Myers, we have a single sales office that supports
both markets.
(2) Developmental markets consist of markets in which we have
installed 10 or less E*billboards.
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Our current geographic expansion is primarily focused on the 25 largest
U.S. markets and major international cities including Paris, Sydney and London.
We generate revenues principally through the sale of advertising on our
network. E*billboards present repeating sequences, or loops, of advertising and
programming. As currently configured, the loops consist of twelve ten-second
advertising slots and six to eight six-second programming slots, which currently
provide our network with more than 70,000 advertising slots available for sale
on a daily basis. We charge a fixed daily rate for advertising slots which
averages approximately $4.00. Advertising rates are based upon the availability
of space on the network for the desired location, the size and demographic
makeup of the market served by the E*billboards and the availability of
alternative advertising media in the area. Most advertising contracts are
short-term, typically for periods of one to three months, and are with local and
regional advertisers. As the number and geographic diversity of our sites
increases, we believe we will be able to attract more national advertisers to
our network, thereby increasing the contribution of national advertising revenue
to our total advertising revenue in the future.
We recognize advertising revenues at the time the advertisement appears
on our network. We bill advertisers monthly for contracts that exceed one month
in length, and on the first day of the month during which the advertisement
appears on our network for contracts for shorter periods. When advertising
agencies are involved, they deduct a commission, which typically is 15% of gross
revenue, and remit only the net amount to us. Revenue also includes barter
transactions, which represent the exchange of E*billboard advertising for goods
or services, which is recognized at estimated fair value of the products or
services received. During the first six months of 2000, barter revenue
represented less than 10% of total revenue and was used primarily in connection
with a national advertising campaign for E*billboards.
Installation costs for a new site include the cost of acquiring
hardware and the cost to install the equipment, which are capitalized and
depreciated over five years. The fully installed average per site cost for a
typical site with a single E*billboard is approximately $2,500. At some sites,
more than one E*billboard is installed; at those sites, we may receive higher
advertising rates.
Network operating expenses are costs associated with the daily
operation, maintenance and depreciation of E*billboards, as well as the site
agreement fees paid to site owners. Most network operating expenses generally
increase proportionally with the number of installed sites. On a site by site
basis, telecommunication and maintenance costs remain relatively fixed,
averaging approximately $60 per month. Accordingly, we expect that these
telecommunication and maintenance expenses as a percentage of advertising
revenues will decrease as our advertising revenues increase. In addition, site
agreements generally provide the site operator with a percentage of the
advertising revenues (typically 10% per site) derived from the E*billboards at
the particular site. Some site agreements provide for a minimum annual site fee.
Based on the number of E*billboards installed on June 30, 2000, we are committed
to minimum site agreement fees of approximately $3.5 million annually through
2003. We incur network operating expenses in connection with the E*billboards
prior to generating revenues from the sites.
Selling expenses include all costs associated with operating our sales
offices. The majority of these expenses are related to compensation and related
benefits for sales personnel. We pay our sales personnel fixed salaries and
sales commissions. During the second quarter of
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2000 and 1999, the commission portion of the compensation was 10.4% and 13.8% of
net revenues, respectively. For the six months ended June 30, 2000 and 1999,
commissions were 12.4% and 14.3% of net revenues, respectively.
General and administrative expenses include rent for our headquarters
and compensation and related benefits for personnel involved in corporate
development, field operations, network operations, marketing, creative services,
management information systems and accounting.
Corporate overhead includes compensation and related benefits for
senior management and administrative personnel, legal, accounting and other
professional fees, travel, insurance and telecommunications.
Costs of acquiring hardware and installing it in new sites are
capitalized and depreciated over five years. Other equipment and furnishings are
depreciated over their estimated useful lives of three to seven years. Leasehold
improvements are amortized over the terms of the respective leases.
RESULTS OF OPERATIONS
Net Revenues. Net revenues increased to approximately $2.6 million for
the second quarter of 2000 compared to $1.1 million for the same quarter of 1999
and were $4.9 million for the six months ended June 30, 2000 compared to $2.1
million for the same period of 1999. The increase was attributable to an
increase in the average number of sites operating during the periods (which
increased 38% during the three and six month periods ended June 30, 2000
compared to the average sites during the comparable 1999 periods) and increased
occupancy levels of advertising slots sold (which increased 86% and 87% during
the three and six months ended June 30, 2000 compared to the comparable 1999
periods).
Network Operating Expenses. Network operating expenses increased to
approximately $2.2 million for the second quarter of 2000 compared to $1.6
million for the same quarter of 1999 and were $4.3 million for the six months
ended June 30, 2000 compared to $3.0 million for the same period of 1999. The
increase was due primarily to the increase in the average number of installed
E*billboard sites, which increased 38% from 1999 to 2000. Major components of
network operating expenses for the respective periods are:
3 months ended 3 months ended 6 months ended 6 months ended
June 30, 2000 June 30, 1999 June 30, 2000 June 30, 1999
-------------- -------------- -------------- --------------
Site agreement expense $1,018,000 $842,000 $2,086,000 $1,599,000
Telecommunications expense 879,000 566,000 1,666,000 1,076,000
Maintenance expense 259,000 193,000 535,000 315,000
Selling Expenses. Selling expenses increased to approximately $3.2
million for the second quarter of 2000 compared to $2.2 million for the same
quarter of 1999 and were $6.3 million for the six months ended June 30, 2000
compared to $4.4 million for the same period of 1999. The increase resulted
primarily from increased compensation costs due to the addition of sales staff
(average 2000 headcount of 105 and 100 for the three and six months ended June
30, 2000 compared to an average of 83 and 84 for the comparable 1999 periods)
and increased
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commissions due to increased sales, additional training and travel costs for a
company wide sales conference, employment fees and increased graphic production
costs.
General and Administrative Expenses. General and administrative
expenses increased to approximately $2.5 million for the second quarter of 2000
compared to $1.2 million for the same quarter of 1999 and were $4.3 million for
the six months ended June 30, 2000 compared to $2.4 million for the same period
of 1999. The increase was primarily attributable to employee compensation and
related costs, the largest component of general and administrative expense,
which increased to $1.3 million and $2.4 million during the three and six months
ended June 30, 2000 compared to $782,000 and $1.5 million during the comparable
1999 periods. The compensation increases were due to increased corporate
development staff to assist in securing additional venues plus additional
administrative staff in marketing and accounting. Research and development costs
decreased to $41,000 and $82,000 during the three and six month periods ended
June 30, 2000 compared to $71,000 and $143,000 during the comparable 1999
periods. The decrease in research and development costs was due to the
substantial completion of our network technology platform during 1999. We
capitalized $345,000 and $454,000 of software costs developed or obtained for
internal use during the three and six months periods ended June 30, 2000. There
were no significant capitalizable internal use software costs in the three and
six months ended June 30, 1999.
Corporate Overhead. Corporate overhead increased to approximately
$876,000 for the second quarter of 2000 compared to $784,000 for the same
quarter of 1999 and was $1.8 million for the six months ended June 30, 2000
compared to $1.6 million for the same period of 1999. The increase in the second
quarter was primarily due to increased compensation costs offset by reductions
in legal and professional fees and reduced travel costs. The increase for the
six months ended June 30, 2000 compared to the 1999 period was primarily due to
increased compensation, legal and professional, and employment fees and a
reduction in travel costs.
Depreciation and Amortization. Depreciation and amortization increased
to approximately $1.0 million for the second quarter of 2000 compared to
$635,000 for the same quarter of 1999 and was $1.9 million for the six months
ended June 30, 2000 compared to $1.2 million for the same period of 1999.
Depreciation expense relating to our E*billboard equipment was $793,000 for the
second quarter of 2000 compared to $514,000 for the same quarter of 1999 and was
$1.5 million for the six months ended June 30, 2000 compared to $1.0 million for
the same period of 1999.
Operating Loss. As a result of the above factors, operating loss
increased to approximately $7.2 million for the second quarter of 2000 compared
to $5.3 million for the same quarter of 1999 and was $13.8 million for the six
months ended June 30, 2000 compared to $10.6 million for the same period of 1999
Net Interest Expense. Net interest expense decreased to approximately
$1.4 million for the second quarter of 2000 compared to $1.9 million for the
same quarter of 1999 and was $3.1 million for the six months ended June 30, 2000
compared to $3.6 million for the same period of 1999. The reduction in interest
was primarily due to the repurchase of $18.1 million face amount of PIK Notes in
February 2000.
Net Loss. As a result of the above factors, the net loss increased to
approximately $8.6 million for the second quarter of 2000 compared to $7.2
million for the same quarter of 1999 and was $17.0 million for the six months
ended June 30, 2000 compared to $14.2 million for the same period of 1999.
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The Company expects to incur additional costs to install additional
E*billboards and for operating costs to expand NGN. As a result, the Company
expects to incur a net loss for 2000 and expects to continue to operate at a
loss for the foreseeable future.
LIQUIDITY AND CAPITAL RESOURCES
Through June 30, 2000, our primary source of liquidity has been
proceeds from the sale of equity and debt securities.
As of June 30, 2000, total cash and cash equivalents were $9.6 million
compared to $403,000 as of December 31, 1999. The increase in cash was a result
of $12.4 million of cash used in operating activities (due primarily to the loss
from operations) and $5.4 million of cash used in investing activities
(primarily for capital expenditures related to the expansion of our network)
offset by $27.0 million of cash provided by financing activities. The financing
activities included net proceeds from the sale of common stock to a subsidiary
of United Technologies Corporation less the repurchase of senior secured notes.
On February 25, 2000, we purchased $18.1 million aggregate face amount
of senior secured notes from a note holder for $2.9 million, leaving an
aggregate face amount of senior secured notes outstanding of $38.4 million. On
August 1, 2000 we issued additional Notes in payment of $2,298,000 of accrued
interest on the PIK Notes. Beginning on February 1, 2001, our semi-annual cash
interest requirements on the PIK Notes will be approximately $2.4 million until
the notes mature on February 1, 2003.
Our primary uses of cash are capital expenditures for E*billboards and
for our working capital requirements. We anticipate capital expenditures of at
least $30 million related to the purchase and installation of our E*billboards
over the next two years. To the extent we are successful at securing more sites
than anticipated, our capital expenditures and working capital requirements
could be significantly larger than anticipated. Our cash flow is dependent on
our ability to increase advertising revenues and is subject to financial,
economic and other factors, some of which are beyond our control. We will need
to raise additional capital to satisfy our obligations and to attain our current
business plan. We cannot assure you that the additional funds will be available,
or if available, will be available on terms acceptable to us.
SEASONALITY
Our business is in a growth phase as we continue to expand our
footprint. Consequently, we have not experienced any material seasonal factors
which have affected our advertising revenues to date. We do expect, however,
that seasonal revenue fluctuations caused by variations in advertising
expenditures by local, regional and national advertisers, may effect our
revenues in the future as we achieve a larger installed base of E*billboard
sites.
MARKET RISK AND IMPACT OF INFLATION
We do not believe we have any significant risk related to interest rate
fluctuations since we have only fixed rate debt. We believe that inflation has
not had a material impact on our results of operations for the three and six
month periods ended June 30, 2000 and 1999. We cannot assure you that future
inflation will not have an adverse impact on our operating results and financial
condition.
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PART II. OTHER INFORMATION
ITEM 5. Other Information.
David Pecker, one of our directors, is affiliated with American Media
Operations, Inc. For the three and six month periods ended June 30, 2000, we
recognized revenues of $199,988 from American Media.
ITEM 6. Exhibits and Reports on Form 8-K:
a) Exhibits
27.1 Financial Data Schedule
b) Reports on Form 8-K
None
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on behalf by the undersigned, thereto duly
authorized.
NEXT GENERATION NETWORK, INC.
Date: August 14, 2000 By: /s/ Thomas M. Pugliese
--------------------------------
Thomas M. Pugliese
Chief Executive Officer
Date: August 14, 2000 By: /s/ Michael R. Robinson
--------------------------------
Michael R. Robinson
Chief Financial Officer
(principal financial officer)
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