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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
 x   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2005
OR
o   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-32264


DSL.net, Inc.
(Exact name of registrant as specified in its charter)

Delaware
06-1510312
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification No.)

545 Long Wharf Drive
  
New Haven, Connecticut
06511
(Address of principal executive offices)
(Zip Code)

 
(203) 772-1000
(Registrant's telephone number, including area code)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 o
 

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
 
 
Yes o
No x
 
As of May 7, 2005, the registrant had 233,620,817 shares of common stock outstanding.
 

 
 


 

 

 
DSL.net, Inc.
 
INDEX
 
     
Page
     
Number
 
Part I - Financial Information
    
       
Item 1.
Consolidated Financial Statements
 
2
       
 
Consolidated Balance Sheets (unaudited) at March 31, 2005 and
   
 
December 31, 2004
  
2
       
 
Consolidated Statements of Operations (unaudited) for the three months
    
 
ended March 31, 2005 and 2004
  
3
       
 
Consolidated Statements of Cash Flows (unaudited) for the three months
   
 
ended March 31, 2005 and 2004
  
4
       
 
Notes to Consolidated Financial Statements
  
5
       
Item 2.
Management's Discussion and Analysis of Financial Condition and
    
 
Results of Operations
  
20
       
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
  
32
       
Item 4.
Controls and Procedures
  
32
       
 
Part II - Other Information
    
       
       
Item 6.
Exhibits
 
32
       
Signature
    
34
       
Exhibit Index
  
35




1

DSL.net, Inc.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per share amounts)
(unaudited)

ASSETS 
  
 
          
       
March 31,
  
December 31,
  
       
2005
  
2004
  
Current assets: 
  
 
          
Cash and cash equivalents
        
$
7,995
  
$
7,079
  
Accounts receivable (net of allowances of $753 and $874 at
                    
March 31, 2005 and December 31, 2004, respectively)
          
5,798
   
6,344
 
Inventory
          
394
   
438
 
Deferred costs
          
292
   
424
 
Prepaid expenses and other current assets
          
1,547
   
3,914
 
Total current assets
          
16,026
   
18,199
 
                     
Fixed assets, net
         
10,808
   
12,719
 
Goodwill
          
8,482
   
8,482
 
Other intangible assets, net
         
18
   
47
 
Other assets
          
1,180
   
1,415
 
Total assets
        
$
36,514
  
$
40,862
  
                     
LIABILITIES AND STOCKHOLDERS' EQUITY
                    
                     
Current liabilities:
                    
Accounts payable
        
$
3,986
  
$
5,887
  
Accrued salaries
          
869
   
730
 
Accrued liabilities
         
1,853
   
2,459
 
Deferred revenue
          
4,411
   
4,800
 
Current portion of capital leases payable
         
25
   
50
 
Total current liabilities
          
11,144
   
13,926
 
                     
Notes payable, net of discount
          
16,618
   
14,544
 
Financial instrument derivatives
         
148
   
286
 
Total liabilities
          
27,910
   
28,756
 
                     
Commitments and contingencies (Note 7)
                    
                     
Stockholders' equity :
                   
    Preferred Stock: 20,000,000 preferred shares authorized: 14,000 shares designated as Series Z, $.001 par value; 14,000 shares issued and outstanding as of March 31, 2005 and December 31, 2004; liquidation preference: $15,680 as of March 31, 2005 and December 31, 2004
          
2,630
    
2,630
  
                     
   Common stock, $.0005 par value; 800,000,000 shares authorized, 233,620,817 and 233,619,817 shares issued and outstanding as of March 31, 2005 and December 31, 2004, respectively
          
117
    
117
  
Additional paid-in capital
          
352,076
   
352,076
 
Accumulated deficit
          
(346,219
)
  
(342,717
)
Total stockholders' equity
          
8,604
   
12,106
 
                     
Total liabilities and stockholders' equity
        
$
36,514
  
$
40,862
  
                     

The accompanying notes are an integral part of these consolidated financial statements.
 
2
 
DSL.net, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except per share amounts)
(unaudited)
 
       
Three Months Ended March 31,
 
       
2005
  
2004
  
               
Revenue
        
$
15,440
  
$
17,820
  
                     
Operating expenses:
                    
Network (a)
          
10,069
   
12,199
 
Operations
         
1,765
   
3,189
 
General and administrative (a)
          
2,707
   
2,927
 
Sales and marketing
         
430
   
2,343
 
Depreciation and amortization
          
2,000
   
3,318
 
Total operating expenses
          
16,971
   
23,976
 
                     
Operating loss
          
(1,531
)
  
(6,156
)
                     
Interest (expense) income, net
          
(2,109