Prospectus Summary
This summary highlights certain important information regarding our business and this offering. You should read this entire prospectus, including the "Risk Factors" and the financial statements and all related notes, before deciding to purchase our common stock. Other than in the financial statements, all share information reflects all stock splits effected prior to the date of this prospectus, the sale of 8,226,000 shares of our common stock in our initial public offering and the conversion of all outstanding shares of preferred stock into common stock on October 12, 1999. Except as otherwise indicated, the information in this prospectus assumes the underwriters will not exercise their over-allotment option.
DSL.net
Our Business
We provide high-speed data communications and Internet access services using digital subscriber line, or DSL, technology to small and medium sized businesses. We primarily target select second and third tier cities, generally with populations of less than 900,000. Our networks enable data transport over existing copper telephone lines at speeds of up to 1.5 megabits per second. Our services, marketed under the NETgain brand name, offer customers high-speed digital connections at prices that are attractive compared to the cost and performance of alternative data communications services.
We offer our customers a single point of contact for a complete business solution that includes all of the necessary equipment and services for high- speed data communications. As of February 1, 2000, we provided service or had installed equipment in more than 140 cities. We intend to continue our expansion into a total of more than 300 cities by the end of 2000.
Our Strategy
Our objective is to become the leading provider of DSL-based services to small and medium sized businesses in second and third tier cities throughout the United States. Several DSL service providers have taken advantage of the opportunity created by the rapidly growing data communications industry by providing DSL-based services in large metropolitan areas. However, second and third tier cities remain a significant underserved market. Key elements of our strategy are to:
. be the first DSL-based service provider in select second and third tier cities throughout the United States;
. utilize our rapid deployment model and leverage our centralized network management to implement our rollout plan quickly and cost effectively;
. develop direct relationships with customers in order to better understand and serve their needs;
. establish relationships in each local market with select local and regional integrators of computer networks and systems and consultants who can help market our services and provide us with customer referrals;
. leverage our systems and network design to capitalize on the cost efficiencies of DSL technology; and . develop relationships with companies that provide complementary products and services or that can assist us in attracting our target customers.
Recent Developments
As of February 1, 2000, we provided service or had installed equipment in more than 140 cities.
On December 1, 1999, we acquired Tycho Networks, Inc., which provides Internet access, web hosting and related services throughout central coastal California. The total purchase price approximated $3.1 million, excluding transaction costs. Our results of operations include the results of Tycho Networks from December 1, 1999.
Revenue for the quarter ended December 31, 1999 was approximately $811,000. Operating loss, net loss and net loss per common share for the quarter ended December 31, 1999 were approximately $10,930,000, $9,870,000 and $0.21, respectively. EBITDA was approximately negative $9,115,000, and capital expenditures were approximately $17,226,000.
Revenue for the year ended December 31, 1999 was approximately $1,313,000. Operating loss, net loss and net loss per common share for the year ended December 31, 1999 were approximately $23,871,000, $21,988,000 and $2.05, respectively. EBITDA was approximately negative $17,918,000, and capital expenditures were approximately $33,811,000.
Our History
We were incorporated in Delaware on March 3, 1998. Our principal executive offices are located at 545 Long Wharf Drive, New Haven, Connecticut 06511, and our telephone number is (203) 772-1000. We maintain a corporate Web site at www.dsl.net. The contents of our website are not part of this prospectus.
The Offering
Common stock offered................ 5,000,000 shares Common stock to be outstanding after the offering....................... 63,382,196 shares Use of proceeds..................... To continue building our network and for working capital and other general corporate purposes. We may also use a portion of the proceeds to acquire complementary businesses. Nasdaq National Market symbol....... DSLN The shares of common stock to be outstanding after the offering exclude, as of December 31, 1999:
. 12,364,200 shares of common stock reserved for issuance under our stock option plan, of which 5,871,414 shares with a weighted average exercise price of $2.32 per share were subject to outstanding options;
. 300,000 shares of common stock reserved for issuance under our employee stock purchase plan; and . 194,556 shares of common stock issuable upon exercise of outstanding warrants with a weighted average exercise price of $0.68 per share.
Summary Financial Data You should read the following summary financial data together with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the financial statements of DSL.net and Tycho Networks, and the related notes, and the pro forma condensed combined financial information and related notes, which are included elsewhere in this prospectus. We were incorporated on March 3, 1998 and commenced operations on March 28, 1998.
The pro forma financial information below reflects each of the following items, all of which occurred after September 30, 1999:
. the issuance of 8,226,000 shares of common stock, including the issuance of shares as a result of the exercise by the underwriters of their over- allotment option, for net proceeds of approximately $56,289,000 in connection with our initial public offering;
. the exercise of warrants for 56,250 shares of Series A preferred stock on October 6, 1999 for an aggregate of $56,250;
. the conversion of our redeemable convertible preferred stock into 35,909,761 shares of common stock on October 12, 1999; and . our acquisition of Tycho Networks in December 1999 (which, for the pro forma 1998 period, includes their results of operations for the period from inception (December 22, 1997) through December 31, 1998).
The pro forma as adjusted financial information adjusts the pro forma information to give effect to the sale of 5,000,000 shares of common stock offered by us, after deducting estimated underwriting discounts and commissions and estimated offering expenses. See "Use of Proceeds."
Actual Pro Forma
Period from Period Period from
Inception from Inception Inception
(March 3, 1998) (March 3, 1998) Nine Months (March 3, 1998) Nine Months
through through Ended through Ended
December 31, September 30, September 30, December 31, September 30,
1998 1998 1999 1998 1999
(unaudited) (unaudited)
Statement of Operations Data: Revenue................ $ 31,533 $ 13,488 $ 501,665 $ 380,060 $ 1,771,127 Operating loss......... (2,785,026) (126,868) (12,941,531) (4,198,261) (15,392,138) Net loss............... (2,789,637) (127,602) (12,118,731) (4,471,839) (14,691,811) Net loss per common share................. $ (0.55) $ (0.03) $ (3.87) $ (0.87) $ (0.89) Other Data: EBITDA................. $ (356,010) $(126,868) $ (8,802,335) Capital expenditures... 290,082 32,583 16,584,906 Cash Flow Data: Used in operating activities............ $ (153,505) $(136,610) $ (5,378,393) Used in investing activities............ (290,082) (32,583) (27,112,961) Provided by financing activities............ 483,066 169,193 64,990,346
September 30, 1999 Pro Forma Actual Pro Forma As Adjusted (unaudited) Balance Sheet Data: Cash, cash equivalents and marketable securities............................ $43,066,526 $ 97,856,267 $221,253,142 Total assets........................... 62,137,988 120,354,225 243,751,100 Long-term obligations (including current portion)...................... 2,735,941 3,002,792 3,002,792 Redeemable convertible preferred stock................................. 75,016,344 -- -- Total stockholders' equity (deficit)... (20,903,938) 110,037,511 233,434,386 EBITDA, shown above under "Other Data," consists of net loss excluding net interest, taxes, depreciation of capital assets and noncash stock compensation expense. Other companies, however, may calculate it differently from us. We have provided EBITDA because it is a measure of financial performance commonly used for comparing companies in the telecommunications industry in terms of operating performance, leverage, and ability to incur and service debt. EBITDA is not a measure determined under generally accepted accounting principles. EBITDA should not be considered in isolation from, and you should not construe it as a substitute for:
. operating loss as an indicator of our operating performance, . cash flows from operating activities as a measure of liquidity, . other consolidated statement of operations or cash flows data presented in accordance with generally accepted accounting principles, or . as a measure of profitability or liquidity.