MPOWER HOLDING CORP - 10-Q Quarterly Report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission File Number 0-32941

Mpower Holding Corporation

(Exact name of registrant as specified in its charter)

DELAWARE		52-2232143
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

175 Sully's Trail, Suite 300

Pittsford, NY 14534

(Address of principal executive offices, including Zip Code)

(585) 218-6550

(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 x NO o

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

YES x NO o

The number of shares outstanding of the issuer's common stock, as of May 3, 2005:

Common stock (par value $0.001 per common share)....91,431,807 shares outstanding

MPOWER HOLDING CORPORATION

INDEX

		Page No.
PART I -	FINANCIAL INFORMATION

Item 1.	Condensed Consolidated Financial Statements (Unaudited)
	Consolidated Balance Sheets - as of March 31, 2005 and December 31, 2004	3
	Consolidated Statements of Operations - for the three months ended March 31, 2005 and 2004	4
	Consolidated Statements of Cash Flows - for the three months ended March 31, 2005 and 2004	5
	Condensed Notes to Unaudited Interim Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	26
Item 4.	Controls and Procedures	26

PART II -	OTHER INFORMATION
Item 1.	Legal Proceedings	27
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	27
Item 6.	Exhibits	28
SIGNATURES		29

PART I - FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements (Unaudited)

MPOWER HOLDING CORPORATION

CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS, EXCEPT PREFERRED AND COMMON SHARE AND PER COMMON SHARE AMOUNTS)

(UNAUDITED)

	March 31,			December 31,
	2005			2004
ASSETS
Current assets:
Cash and cash equivalents	$	27,631		$	27,327
Investments available-for-sale		9,874			8,064
Accounts receivable, less allowance for doubtful accounts of $1,387 and $1,375 at March 31, 2005 and December 31, 2004, respectively		13,247			10,140
Other receivables		5,061			3,164
Prepaid expenses and other current assets		3,124			3,060
Total current assets		58,937			51,755
Property and equipment, net		61,524			33,012
Long-term restricted cash and cash equivalents		9,545			9,515
Long-term investments available-for-sale		260			2,041
Goodwill		5,301			—
Intangibles, net of accumulated amortization of $12,499 and $11,072 at March 31, 2005 and December 31, 2004, respectively		6,360			4,367
Other long-term assets		3,062			4,274
Total assets	$	144,989		$	104,964


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current maturities of capital lease obligations	$	378		$	—
Accounts payable		17,530			20,462
Accrued sales tax payable		2,536			2,190
Accrued bonus		741			2,508
Deferred revenue		6,491			5,059
Accrued other expenses		14,008			11,756
Total current liabilities		41,684			41,975
Long-term capital lease obligations		19,031			—
Other long-term liabilities		2,177			1,833
Total liabilities		62,892			43,808
Commitments and contingencies
Stockholders’ equity:
Preferred stock, 49,900,000 shares authorized but unissued at March 31, 2005 and December 31, 2004		—			—
Series A preferred stock, 100,000 shares authorized but unissued at March 31, 2005 and December 31, 2004		—			—
Common stock, $0.001 par value, 1,000,000,000 shares authorized, 91,427,745 and 78,570,772 shares issued and outstanding at March 31, 2005 and December 31, 2004, respectively		91			79
Additional paid-in capital		121,138			104,054
Accumulated deficit		(39,132	)		(42,977	)
Total stockholders’ equity		82,097			61,156
Total liabilities and stockholders’ equity	$	144,989		$	104,964

See accompanying condensed notes to unaudited interim consolidated financial statements.

MPOWER HOLDING CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(IN THOUSANDS, EXCEPT COMMON SHARE AND PER COMMON SHARE AMOUNTS)

(UNAUDITED)

	Three Months Ended March 31,	Three Months Ended March 31,
	2005	2004
Operating revenues:
Telecommunication services	$47,726	$37,153
Operating expenses:
Cost of operating revenues (exclusive of depreciation and amortization shown separately below of $3,512 and $1,939 for the three months ended March 31, 2005 and 2004, respectively)	21,835	16,388
Selling, general and administrative (exclusive of depreciation and amortization shown separately below of $2,089 and $1,962 for the three months ended March 31, 2005 and 2004, respectively)	22,730	17,588
Gain on sale of assets, net	(9)	(198)
Depreciation and amortization	5,601	3,901
	50,157	37,679
Loss from operations	(2,431)	(526)
Other income (expense):
Interest income	183	88
Interest expense	(1,167)	(66)
Other income	7,292	—
Income (loss) from continuing operations	3,877	(504)
Discontinued operations:
(Loss) income from discontinued operations	(32)	241
Net income (loss)	$3,845	$(263)

Basic and diluted income (loss) per common share:
Income (loss) from continuing operations	$0.04	$(0.01)
(Loss) income from discontinued operations	—	0.01
Net income (loss)	$0.04	$—

Basic weighted average common shares outstanding	91,331,930	78,321,851

Diluted weighted average common shares outstanding	102,111,366	78,321,851

See accompanying condensed notes to unaudited interim consolidated financial statements.

MPOWER HOLDING CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

(UNAUDITED)

	Three Months Ended	Three Months Ended
	March 31, 2005	March 31, 2004
Cash flows from operating activities:
Net income (loss)	$3,845	$(263)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	5,601	3,901
Gain on disposal of assets from discontinued operations	—	(50)
Gain on sale of assets, net	(9)	(198)
Bad debt expense	451	457
Amortization of investment premiums	37	—
Stock-based compensation expense	—	39
Agent selling expense - warrants	122	—
Changes in assets and liabilities:
(Increase) decrease in accounts receivable	(2,028)	1,423
(Increase) decrease in other receivables	(4,276)	1,008
(Increase) decrease in prepaid expenses and other current assets	(9)	1,528
Decrease (increase) in other long-term assets	80	(282)
Increase (decrease) in accounts payable	467	(4,596)
Decrease in accrued sales tax payable	(159)	(69)
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