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Round 3: WAM!NET Slashes Staff, Promises Again that Funding is Around the Corner

Press release from the issuing company

6/23/01 Updated 6/24/01 (WhatTheyThink.com) Sources have confirmed that Minnesota based Wam!Net has once again cut staff. The company will layoff 130 employees reducing staff to around 350 employees. The move comes after the company terminated 105 positions in April and also sent 10% of their work force home last fall. WAM!NET is a service provider focused on the media industry. They provide digital data transport, storage and management services and workflow solutions to the publishing, printing, advertising, entertainment and related media business. Wam!Net has been on a “fund raising tour since the beginning of the year to secure capital that will carry the company until 2002.” Targets of these funds have included any company that “potentially has money, no matter what industry they are in.” One source familiar with Wam!Net’s fund raising activities said these meetings have included several leading companies in the graphic arts industry. Company executives have said Wam!Net will become cash flow positive by the end of the year. The comments around this announcement mirror those made in April. Sources say the company is communicating the staff reduction as a “continuation of a process already started to cut expenses.” The company also hopes the move will make Wam!Net more attractive to potential investors and lenders. The company has already compiled losses of $500 million since inception and sources say any chance at new funding will “most likely be a loan with a very unattractive interest rate.” Because the story broke on the weekend, we were unable to reach company executives who normally speak on the record. However two sources said Wam!Net will focus mostly on their government contracts for revenue. The contracts, landed last year with EDS, mandate Wam!Net to install networks on 300 military bases. Three Wam!Net customers account for 13% of the company’s sales - Quebecor World, EDS and Time. EDS is Wam!Net’s top customer with 8% of the company’s revenue while Quebecor and Time combine for almost 5%. Wam!Net has indicated that Time and Quebecor are extremely important over and above sales represented by the two companies. Workflow chains of vendors, suppliers and customers who use the network because of Time and Quebecor also generate significant sales. Wam!Net clearly has formidable challenges ahead. While Wam!Net was able to secure $160 million last year in funding, they have been less successful in 2001. The company went on the defensive earlier this year when their accounting firm stated Wam!Net did not have enough cash to remain in business after 2001. Officials said the issue was blown out of proportion. Tim Elliot, head of Marketing at Wam!Net told WhatTheyThink.com in April that the statement was “derived from standard accounting boilerplate.” However, Wam!Net again specifically emphasized the statement by their auditors in their most recent filing in May. WamNet secured a $30 million line of credit in February of this year and has already used almost half. The company pulled their plans to go public and key investors WorldCom and Silicon Graphics have written off their investments. Another investor, Winstar, has already filed for bankruptcy protection. Wam!Net lost $73 million in the first quarter of this year. At this pace, the company will lose more money than last year’s loss of $187 million. Wam!Net needs cash soon or sources say there will be “more cutbacks by the end of summer or worse.”