8/21/01 (WhatTheyThink.com) EDITOR’s NOTE - Late yesterday, we were informed that WAM!NET had filed their 10-Q required by the SEC. Last week, the company delayed the filing siting activities around their Solicitation of Consent and fund raising efforts. Below are highlights of the filing. Keep in mind that most filings err to the side of extreme caution. We have selected portions of "fact and key interest to the print and graphic arts community." The company appears to be on the fast track of closing $115 million in financing from Cerbus Capital Management with a 35% interest rate. The below sheds light on how important the next few weeks will be for WAM!NET. Winstar Deal In August 2001, the Company and Winstar entered into a settlement agreement. The settlement provides, among other things, that (1) the Company pay Winstar $1 million upon the signing of the settlement agreement and an additional $4 million on the closing of the senior secured discounted debt and equity financing arrangement between the Company and Cerberus Capital Management, L.P. and or its affiliates and designees (Cerberus), (2) the Company issued to Winstar a secured senior note in the principal amount of $7.5 million at the closing of the Cerberus Financing, which note would bear interest at the rate of 12.75% per annum with monthly principal and interest payments beginning in January 2003 and terminating in January 2006 (3) the Company would return certain network equipment (primarily radios) to Winstar, relinquish various circuits and other network assets and move out of various collocation sites on a prescribed schedule, (4) the parties would execute mutual releases, and (5) Winstar would relinquish a number of its rights, including the right to designate directors of the Company. The Company believes that it will recognize a gain of approximately $11.9 million in the third quarter of 2001. The settlement agreement with Winstar will be subject to the approval of bankruptcy court having jurisdiction over Winstar. Number of Customers As of June 30, 2001, we had approximately 2,000 customer points-of-presence consisting of dedicated CPOP devices and local bandwidth connectivity. Of these, about 95 have WAM!NET storage services that customers access through the CPOP. In addition, we had over 15,000 users of our Internet and dial-up services globally. Revenues Total revenue for the three months ended June 30, 2001 was $13.4 million compared to $9.0 million for the three months ended June 30, 2000, an increase of $4.4 million or 48.8%. Total revenue for the six months ended June 30, 2001 was $29.0 million compared to $16.9 million for the six months ended June 30, 2000, an increase of $12.1 million or 71.3%. Net service revenue was $12.4 million for the three months ended June 30, 2001 compared to $7.3 million for the three months ended June 30, 2000, an increase of $5.1 million or 70.8%. Net service revenue was $26.7 million for the six months ended June 30, 2001 compared to $13.5 million for the six months ended June 30, 2000, an increase of $13.2 million or 98.1%. We recognized $4.3 million and $8.6 million for the three and six month periods ended June 30, 2001 from government service revenue primarily related to the NMCI contract with EDS. The remaining increase relates to our expanded service offerings introduced in first quarter 2000 and the acquisition of is.com, a professional service company, in November 2000. Revenues from software and hardware sales for the three months ended June 30, 2001 and 2000 were $1.0 million and $1.7 million, respectively. Revenues from software and hardware sales for the six months ended June 30, 2001 and 2000 were $2.3 million and $3.5 million, respectively. The decrease in software and hardware sales is the direct result of our shifting from sales of 4-Sight software and hardware as stand-alone products to sales of service contracts, partially offset by software purchases associated with ISDN Tracked Service agreements. Losses Since Inception Since inception, we have incurred net losses and experienced negative cash flow from operating activities. Net losses since inception have resulted in an accumulated deficit of $607.3 million as of June 30,2001. Management expects to continue to operate at a net loss and experience negative cash flow from operating activities through the end of this current fiscal year. At June 30, 2001, our cash resources and available borrowings are insufficient to fund operations for the next 12 months without raising additional debt and/or equity capital. These factors raise substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability and classification of reported asset amounts or the amount or classification of liabilities, which might result from the outcome of this uncertainty. The Cerbus Arrangement Management is currently in the process of negotiating a $115 million senior secured discounted debt and equity financing arrangement between the Company and Cerberus Capital Management, L.P. and or its affiliates and designees, expected to close in third quarter 2001. However, there is no assurance that such funds will be available or available on terms acceptable to the Company. If the Company is not successful in obtaining additional funding, it may not be able to continue as a going concern. The report of our independent auditors on our consolidated financial statements for the fiscal year ended December 31, 2000 includes an explanatory paragraph, which states that the recurring losses from operations, working capital deficiency, net capital deficiency and limited liquid resources raise substantial doubt about our ability to continue as a going concern. The Quebecor/Time Factor During the year ended December 31, 2000, EDS, Time and Quebecor World, Inc. were our largest customers, representing 8.4%, 1.8% and 2.5%, respectively, of our total revenue. Although Time and Quebecor World do not individually represent a significant percentage of our revenue, both companies have developed important workflow chains of vendors, suppliers and customers who use our network. If either Time or Quebecor World were to significantly reduce or terminate (at the end of their current service contract or otherwise) their use of our network and services, their workflow partners might do the same, and our business, financial condition and results of operations could be materially adversely affected. About WAM!NET WAM!NET is a global provider of information technology and digital media solutions. WAM!NET's services, which include managed network, data storage, hosting and application services, are delivered in a utility-like model via the company's highly integrated IT platform, enabling commercial and government customers to access the combination of IT services they need on a transactional basis. In doing so, customers are united with their community of interest, which collaborates to specify, create, print, store, broadcast and distribute content within WAM!NET's online, secure digital environment.