EXHIBIT 99.1
RISK FACTORS
From time to time we have made, and may in the future make, forward-
looking statements, based on our then-current expectations, including
statements made in Securities and Exchange Commission filings, in press
releases and oral statements. These forward-looking statements are made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. All forward-looking statements involve risks and
uncertainties, and actual results could differ materially from those
expressed or implied in the forward- looking statements for a variety of
reasons. These reasons include, but are not limited to, factors outlined
below. We do not undertake to update or revise our forward-looking
statements publicly even if experience or future changes make it clear that
any projected results expressed or implied therein will not be realized.
BECAUSE OUR REVENUES PRIOR TO JANUARY 1998 RESULTED FROM A BUSINESS STRATEGY
WE ARE NO LONGER PURSUING, YOU MAY HAVE DIFFICULTY EVALUATING US.
We terminated our agency relationship with Bell Atlantic in December 1998
and we no longer receive agency revenues. We only began offering local
services under our own brand name in January 1998 and have only begun
testing our network with some customers in May of 1999. As a result, we
can only provide limited historical operating and financial information
about our current business strategy for you to evaluate.
IF WE DO NOT SUCCESSFULLY EXECUTE OUR NEW BUSINESS STRATEGY, WE MAY BE
UNABLE TO COMPETE EFFECTIVELY.
Our business strategy is complex and requires that we successfully
complete many tasks, a number of which we must complete simultaneously. If
we are unable to effectively implement or coordinate the implementation of
these multiple tasks, we may be unable to compete effectively in our markets
and our financial results may suffer.
OUR INCURRENCE OF NEGATIVE CASH FLOWS AND OPERATING LOSSES DURING THE NEXT
SEVERAL YEARS MAY ADVERSELY AFFECT THE PRICE OF OUR COMMON STOCK.
During recent periods we have experienced substantial net losses,
operating losses and negative cash flow. Our expenses have increased
significantly, and we expect our expenses to continue to increase as we
deploy our network and implement our business plan. Accordingly, we expect
to incur significant operating losses, net losses and negative cash flow
during the next several years, which may adversely affect the price of our
common stock.
IF OUR NETWORK DOES NOT FUNCTION PROPERLY, WE WILL BE UNABLE TO PROVIDE THE
TELECOMMUNICATIONS SERVICES ON WHICH OUR FUTURE PERFORMANCE WILL IN LARGE
PART DEPEND.
Because the design of our network has not been widely deployed, we cannot
assure you that our network will provide the functionality that we expect.
We also cannot be sure that we will be able to incorporate local dial tone
capabilities into our network because this technology has not been widely
implemented. Without this capability we will not be able to provide on our
network all of our target customers' fixed line telecommunications services.
IF WE DO NOT OBTAIN INTERCONNECTION AGREEMENTS WITH OTHER CARRIERS, WE WILL
BE UNABLE TO PROVIDE ENHANCED SERVICES ON OUR NETWORK.
Negotiation of interconnection agreements with incumbent local exchange
carriers can take considerable time, effort and expense, and these
agreements are subject to federal, state and local regulation. We may not be
able to effectively negotiate the necessary interconnection agreements.
Without these interconnection agreements, we will be unable to provide
enhanced connectivity to our network and local dial tone services and to
achieve the financial results we expect.
BECAUSE OF OUR LIMITED EXPERIENCE, WE MAY NOT BE ABLE TO PROPERLY OR TIMELY
DEPLOY, OPERATE AND MAINTAIN OUR NETWORK, WHICH COULD MATERIALLY ADVERSELY
AFFECT OUR FINANCIAL RESULTS.
We have engaged a network services integrator to design, engineer and
manage the build out 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 to timely supply such equipment could materially and
adversely affect our financial results.
We are still deploying the initial phase of our network and not currently
providing any commercial services over our network. Because we have
limited experience operating and maintaining telecommunications networks, we
may not be able to deploy our network properly or do so within the time
frame we expect. In addition, once the network is deployed, we may encounter
unanticipated difficulties in operating and maintaining it. If we do not
implement our network on time and in an effective manner, our financial
results could be adversely affected.
OUR HIGH LEVERAGE CREATES FINANCIAL AND OPERATING RISK THAT COULD LIMIT THE
GROWTH OF OUR BUSINESS.
We have a significant amount of indebtedness. As of June 30, 1999, we had
approximately $86.2 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 debt service and not for other purposes.
WE WILL NEED TO REFINANCE OUR EXISTING INDEBTEDNESS WHEN DUE, AND WE MAY BE
UNABLE TO DO SO.
We do not expect to generate sufficient cash flow from operations to
repay our existing credit and vendor facilities. We will need to refinance
this indebtedness when it comes due. We cannot assure you that we will be
able to refinance any of our indebtedness on reasonable terms, or at all.
If we are unable to refinance all or some of our indebtedness, we may need
to sell assets, delay capital expenditures or sell additional capital stock.
We cannot assure you that we will be able to do so.
WE MAY BE UNABLE TO OBTAIN THE ADDITIONAL CAPITAL WE WILL REQUIRE TO FUND
OUR OPERATIONS AND FINANCE OUR GROWTH ON ACCEPTABLE TERMS OR AT ALL, WHICH
COULD CAUSE US TO DELAY OR ABANDON OUR DEVELOPMENT AND EXPANSION PLANS.
We will need significant additional capital to fund our business plan.
We have satisfied part of this need by our recent public offering of common
stock and plan to seek additional financing as soon as practicable. We
cannot assure you that capital will be available to us when we need it or at
all. If we are unable to obtain capital when we need it, we may delay or
abandon our development and expansion plans. That could have a material
adverse effect on our business and financial condition.
OUR MARKET IS HIGHLY COMPETITIVE, AND WE MAY NOT BE ABLE TO COMPETE
EFFECTIVELY, ESPECIALLY AGAINST ESTABLISHED COMPETITORS WITH GREATER
FINANCIAL RESOURCES AND MORE EXPERIENCE.
We operate in a highly competitive environment. We have no significant
market share in any market in which we operate. We will face substantial and
growing competition from a variety of data transport, data networking,
telephony service and integrated telecommunications service providers. We
also expect that the incumbent local exchange carriers ultimately will be
able to provide the range of services we currently offer. Many of our
competitors are larger and better capitalized than we are, are incumbent
providers with long-standing customer relationships, and have greater name
recognition. We may not be able to compete effectively against our
competitors.
OUR INFORMATION SYSTEMS MAY NOT PRODUCE ACCURATE AND PROMPT BILLS WHICH
COULD CAUSE A LOSS OR DELAY IN THE COLLECTION OF REVENUE AND COULD ADVERSELY
AFFECT OUR RELATIONS WITH OUR CUSTOMERS.
We depend on our information systems to bill our customers accurately and
promptly. Because of the deployment of our network and our expansion plans,
we are continuing to upgrade our information systems. Our failure to
identify all of our information and processing needs or to adequately
upgrade our information systems could delay our collection efforts, cause us
to lose revenue and adversely affect our relations with our customers.
WE MAY NOT RECEIVE TIMELY AND ACCURATE CALL DATA RECORDS FROM OUR SUPPLIERS
WHICH COULD CAUSE A LOSS OR DELAY IN THE COLLECTION OF REVENUE AND COULD
ADVERSELY AFFECT OUR RELATIONS WITH OUR SUPPLIERS.
Our billing and collection activities are dependent upon our suppliers
providing us with accurate call data records. If we do not receive accurate
call data records in a timely manner, our collection efforts could suffer
and we could lose revenue. In addition, we pay our suppliers according to
our calculation of the charges based upon invoices and computer tape records
provided by these suppliers. Disputes may arise between us and our suppliers
because these records may not always reflect current rates and volumes. If
we do not pay disputed amounts, a supplier may consider us to be in arrears
in our payments until the amount in dispute is resolved, which could
adversely affect our relations with our suppliers.
WE DEPEND ON THE NETWORKS AND SERVICES OF THIRD PARTY PROVIDERS TO SERVE OUR
CUSTOMERS AND OUR RELATIONSHIPS WITH OUR CUSTOMERS COULD BE ADVERSELY
AFFECTED BY FAILURES IN THOSE NETWORKS AND SERVICES.
We depend almost entirely on other carriers for the switching and
transmission of our customer traffic. After we complete deploying our
network, we will still rely to some extent on others for switching and
transmission of customer traffic. We cannot be sure that any third party
switching or transmission facilities will be available when needed or on
acceptable terms.
Although we can exercise direct control of the customer care and support
we provide, most of the services we currently offer are provided by others.
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 relationships with our customers.
INCREASES IN CUSTOMER ATTRITION RATES COULD ADVERSELY AFFECT OUR OPERATING
RESULTS.
Our customers may not continue to purchase local, long distance, data or
other services from us. Because we have been selling voice and data
telecommunications under our own brand name for a short time, our customer
attrition rate is difficult to evaluate. We could lose customers as a result
of national advertising campaigns, telemarketing programs and customer
incentives provided by major competitors as well as for other reasons not in
our control as well as a result of our own performance. Increases in
customer attrition rates could have a material adverse effect on our results
of operations.
WE MAY BE UNABLE TO EFFECTIVELY MANAGE OUR GROWTH, WHICH COULD MATERIALLY
ADVERSELY AFFECT ALL ASPECTS OF OUR BUSINESS.
We are pursuing a business plan that will result in rapid growth and
expansion of our operations if we are successful. This rapid growth would
place significant additional demands upon our current management and other
resources. Our success will depend on our ability to manage our growth. To
accomplish this we will have to train, motivate and manage an increasing
number of employees. Our failure to manage growth effectively could have a
material adverse effect on our business, results of operations and financial
condition.
WE MAY BE UNABLE TO RETAIN OR REPLACE OUR SENIOR MANAGEMENT OR HIRE AND
RETAIN OTHER HIGHLY SKILLED PERSONNEL UPON WHICH OUR SUCCESS WILL DEPEND.
We believe that our continued success will depend upon the abilities and
continued efforts of our management, particularly members of our senior
management team. The loss of the services of any of these individuals could
have a material adverse effect on our business, results of operations and
financial condition. Our success will also depend upon our ability to
identify, hire and retain additional highly skilled sales, service and
technical personnel. Demand for qualified personnel with telecommunications
experience is high and competition for their services is intense. If we
cannot attract and retain the additional employees we need, we will be
unable to successfully implement our business strategy.
CHANGES TO THE REGULATIONS APPLICABLE TO OUR BUSINESS COULD INCREASE OUR
COSTS AND LIMIT OUR OPERATIONS.
We are subject to federal, state, and local regulation of our local, long
distance, and data services as described under "Business-Government
Regulation." The outcome of the various administrative proceedings at the
federal and state level and litigation in federal and state courts relating
to this regulation as well as federal and state legislation may increase our
costs, increase competition and limit our operations.
RAPID TECHNOLOGICAL CHANGES IN THE TELECOMMUNICATIONS INDUSTRY COULD RENDER
OUR SERVICES OR NETWORK OBSOLETE FASTER THAN WE EXPECT OR REQUIRE US TO
SPEND MORE THAN WE CURRENTLY ANTICIPATE.
The telecommunications industry is subject to rapid and significant
changes in technology. Any changes could render our services or network
obsolete, require us to spend than we anticipate or have a material adverse
effect on our operating results and financial condition. Advances in
technology could also lead to more entities becoming our direct competitors.
Because of this rapid change, our long-term success will increasingly
depend on our ability to offer advanced services and to anticipate or adapt
to these changes, such as evolving industry standards. We cannot be sure
that:
. we will be able to offer the services our customers require;
. our services will not be economically or technically outmoded by current
or
future competitive technologies;
. our network or our information systems will not become obsolete;
. we will have sufficient resources to develop or acquire new technologies
or
introduce new services that we need to effectively compete; or
. our cost of providing service will decline as rapidly as the costs of our
competitors.
OUR SYSTEMS AND NETWORK, AND THE SYSTEMS OF OUR SUPPLIERS, MAY NOT PROPERLY
PROCESS DATE INFORMATION AFTER DECEMBER 31, 1999, WHICH COULD INCREASE OUR
COSTS, DISRUPT OUR BUSINESS AND ADVERSELY AFFECT OUR RELATIONS WITH OUR
CUSTOMERS.
As discussed in "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Year 2000 Compliance," failure of our
systems and network to adequately process year 2000 information 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. If we or the companies that provide us services or with whom
our systems interconnect fail to successfully identify and remediate Year
2000 problems, our service and operations may be disrupted. These problems
could increase our costs and adversely affect our relations with our
customers and business.
WE MAY PURSUE ACQUISITIONS WHICH COULD DISRUPT OUR BUSINESS AND MAY NOT
YIELD THE BENEFITS WE EXPECT.
We may pursue strategic acquisitions as we expand. Acquisitions may
disrupt our business because we may:
. experience difficulties integrating acquired operations and personnel
into
our operations;
. divert resources and management time;
. be unable to maintain uniform standards, controls, procedures and
policies
. enter markets or businesses in which we have little or no experience; and
. find that the acquired business does not perform as we expected.
OUR EXISTING PRINCIPAL STOCKHOLDERS, EXECUTIVE OFFICERS AND DIRECTORS
CONTROL A SUBSTANTIAL AMOUNT OF OUR VOTING SHARES AND WILL BE ABLE TO
SIGNIFICANTLY INFLUENCE ANY MATTER REQUIRING SHAREHOLDER APPROVAL.
Our officers and directors and parties related to them now control
approximately 36% of the voting power of our outstanding capital stock.
Robert J. Fabbricatore, our Chairman and Chief Executive Officer, controls
approximately 18% of our voting power. Therefore, the officers and directors
are 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.
FLUCTUATIONS IN OUR OPERATING RESULTS COULD ADVERSELY AFFECT THE PRICE OF
OUR COMMON STOCK.
Our annual and quarterly revenue and results could fluctuate as a result
of a number of factors, including:
. variations in the rate of timing of customer orders,
. variations in our provisioning of new customer services,
. the speed at which we expand our network and market presence,
. the rate at which customers cancel services, or churn,
. costs of third party services purchased by us, and
. competitive factors, including pricing and demand for competing services.
Also, our revenue and results may not meet the expectations of securities
analysts and our stockholders. As a result of fluctuations or a failure to
meet expectations, the price of our common stock could be materially
adversely affected.
OUR STOCK PRICE IS LIKELY TO BE VOLATILE.
The trading price of our common stock is likely to be volatile. The stock
market in general, and the market for technology and telecommunications
companies in particular, has experienced extreme volatility. This volatility
has often been unrelated to the operating performance of particular
companies. Other factors that could cause the market price of our common
stock to fluctuate substantially include:
. announcements of developments related to our business, or that of our
competitors, our industry group or our customers;
. fluctuations in our results of operations;
. hiring or departure of key personnel;
. a shortfall in our results compared to analysts' expectations and changes
in analysts' recommendations or projections;
. sales of substantial amounts of our equity securities into the
marketplace;
. regulatory developments affecting the telecommunications industry or data
services; and
. general conditions in the telecommunications industry or the economy as a
whole.