x
|
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
¨
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
Delaware
|
|
91-2145721
|
(State
or other jurisdiction of
incorporation
or organization)
|
|
(I.R.S.
Employer
Identification
No.)
|
|
|
|
250
Williams Street
Atlanta,
GA 30303
|
|
30303
|
(Address
of principal executive offices)
|
|
(Zip
Code)
|
Title
of Each Class
|
|
Name
of Exchange on Which Registered
|
Common
Stock, $0.001 par value
|
|
American
Stock Exchange
|
Large
accelerated filer o
|
Accelerated
filer x
|
Non-accelerated
filer o
|
Internap
operated
|
Operated
under third-party agreements
|
|||
Seattle
|
New
York
|
Philadelphia
|
Tokyo1
|
|
Boston
|
San
Jose
|
Denver
|
Miami
|
|
Houston
|
Washington
DC
|
San
Diego
|
Phoenix
|
|
New
York
|
Los
Angeles
|
San
Francisco
|
Hong
Kong
|
|
Atlanta
|
Boston
|
Dallas
|
Singapore
|
|
Chicago
|
London
|
Sydney
|
·
|
network
service providers that provide connectivity services, including AT&T,
Sprint, Verizon (formally MCI), Level 3 Communications, Global Crossing
Telecommunications, Savvis and Verio;
|
· |
providers
of specific applications or solutions, such as content distribution,
security or storage such as AKAMAI, Limelight Networks, VitalStream,
Mirror Image Internet, Symantec Corporation, Network Appliance and
Virtela
Communications;
|
|
·
|
human
error;
|
|
·
|
physical
or electronic security breaches;
|
|
·
|
fire,
earthquake, flood and other natural disasters;
|
|
·
|
water
damage;
|
|
·
|
fiber
cuts;
|
|
·
|
power
loss;
|
|
·
|
sabotage
and vandalism; and
|
|
·
|
failure
of business partners who provide our resale products.
|
·
|
the
possibility that we may not be able to successfully integrate the
operations, personnel, technologies, products and services of the
acquired
companies in a timely and efficient
manner;
|
·
|
challenges
in establishing and maintaining relationships with foreign customers
as
well as foreign Internet network service providers and local vendors,
including data center and local network
operators;
|
·
|
challenges
in staffing and managing network operations centers and network access
points across disparate geographic
areas;
|
|
|||||||
Year
Ended December 31, 2005:
|
High
|
Low
|
|||||
Fourth
Quarter
|
$
|
0.51
|
$
|
0.37
|
|||
Third
Quarter
|
0.57
|
0.44
|
|||||
Second
Quarter
|
0.60
|
0.42
|
|||||
First
Quarter
|
0.94
|
0.52
|
|||||
Year
Ended December 31, 2004:
|
High
|
Low
|
|||||
Fourth
Quarter
|
$
|
1.04
|
$
|
0.50
|
|||
Third
Quarter
|
1.22
|
0.52
|
|||||
Second
Quarter
|
1.96
|
1.05
|
|||||
First
Quarter
|
2.71
|
1.47
|
Year
Ended December 31,
|
||||||||||||||||||||
2005
|
2004
|
2003
|
2002
|
2001
|
||||||||||||||||
(in
thousands, except per share data)
|
||||||||||||||||||||
Consolidated
Statement of Operations Data:
|
|
|
|
|
|
|||||||||||||||
Revenue
|
$
|
153,717
|
$
|
144,546
|
$
|
138,580
|
$
|
132,487
|
$
|
117,404
|
||||||||||
Costs
and expense:
|
||||||||||||||||||||
Direct
cost of revenue, exclusive of depreciation and amortization, shown
below
|
81,958
|
76,990
|
78,200
|
85,734
|
101,545
|
|||||||||||||||
Customer
support
|
10,670
|
10,180
|
9,483
|
12,913
|
21,480
|
|||||||||||||||
Product
development
|
4,864
|
6,412
|
6,982
|
7,447
|
12,233
|
|||||||||||||||
Sales
and marketing
|
25,864
|
23,411
|
21,491
|
21,641
|
38,151
|
|||||||||||||||
General
and administrative
|
20,096
|
24,772
|
16,711
|
20,907
|
44,787
|
|||||||||||||||
Depreciation
and amortization
|
14,737
|
15,461
|
33,869
|
49,659
|
48,576
|
|||||||||||||||
Amortization
of goodwill (1)
and other intangible assets
|
577
|
579
|
3,352
|
5,626
|
38,116
|
|||||||||||||||
Amortization
of deferred stock compensation
|
60
|
--
|
390
|
260
|
4,217
|
|||||||||||||||
Pre-acquisition
liability adjustment
|
--
|
--
|
(1,313
|
)
|
--
|
--
|
||||||||||||||
Lease
termination expense
|
--
|
--
|
--
|
804
|
--
|
|||||||||||||||
Restructuring
cost (benefit) (2)
|
44
|
3,644
|
1,084
|
(2,857
|
)
|
62,974
|
||||||||||||||
Impairment
of goodwill and other intangible assets (3)
|
--
|
--
|
--
|
--
|
195,986
|
|||||||||||||||
(Gain)
loss on sales and retirements of property and equipment
|
(19
|
)
|
|
(3
|
)
|
(53
|
)
|
3,722
|
2,802
|
|||||||||||
Total
operating costs and expense
|
158,851
|
161,446
|
170,196
|
205,856
|
570,867
|
|||||||||||||||
Loss
from operations
|
(5,134
|
)
|
|
(16,900
|
)
|
(31,616
|
)
|
(73,369
|
)
|
(453,463
|
)
|
|||||||||
Other
(income) expense
|
(170
|
)
|
|
1,162
|
2,985
|
2,299
|
26,465
|
|||||||||||||
Net
loss
|
(4,964
|
)
|
|
(18,062
|
)
|
(34,601
|
)
|
(75,668
|
)
|
(479,928
|
)
|
|||||||||
Less
deemed dividend related to beneficial
conversion
feature (4)
|
--
|
--
|
(34,576
|
)
|
--
|
--
|
||||||||||||||
|
||||||||||||||||||||
Net
loss attributable to common stockholders
|
$
|
(4,964
|
)
|
|
$
|
(18,062
|
)
|
$
|
(69,177
|
)
|
$
|
(75,668
|
)
|
$
|
(479,928
|
)
|
||||
Basic
and diluted net loss per share
|
$
|
(0.01
|
)
|
|
$
|
(0.06
|
)
|
$
|
(0.40
|
)
|
$
|
(0.49
|
)
|
$
|
(3.19
|
)
|
||||
|
||||||||||||||||||||
Weighted
average shares used in computing
basic
and diluted net loss per share (4)
|
339,387
|
287,315
|
174,602
|
155,545
|
150,328
|
|
|
As
of December 31,
|
|
|||||||||||||
|
|
2005
|
|
2004
|
|
2003
|
2002
|
2001
|
|
|||||||
|
|
(in
thousands)
|
|
|||||||||||||
Consolidated
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash,
cash equivalents and short-term
marketable
investments
|
|
$
|
40,494
|
|
$
|
45,985
|
$
|
18,885
|
$
|
25,219
|
$
|
82,306
|
||||
Non-current
marketable investments
|
--
|
4,656
|
--
|
--
|
--
|
|||||||||||
Total
assets
|
155,369
|
168,149
|
135,839
|
166,334
|
279,294
|
|||||||||||
Notes
payable and capital lease obligations, less current
portion
|
|
|
7,903
|
12,837
|
12,742
|
22,739
|
11,184
|
|||||||||
Series
A convertible preferred stock
(5)
|
|
|
--
|
|
|
--
|
|
|
--
|
|
79,790
|
|
86,314
|
|||
Total
stockholders' equity
|
|
109,728
|
|
113,738
|
|
70,524
|
(4,228
|
)
|
63,429
|
Year
Ended December 31,
|
|||||||||||||||
2005
|
2004
|
2003
|
2002
|
2001
|
|||||||||||
(in
thousands)
|
|||||||||||||||
Other Financial Data: | |||||||||||||||
Purchases of property and equipment |
$
|
(10,161
|
) | $ |
(13,066
|
) | $ |
(3,799
|
) | $ |
(8,632
|
) | $ |
(32,094
|
) |
Net cash provided by (used in) operating activities |
5,846
|
(1,150
|
) |
(11,175
|
) |
(40,331
|
)
|
(123,105
|
) | ||||||
Net cash (used in) provided by investing activities |
(9,781
|
)
|
(29,659
|
) |
561
|
9,581
|
12,292
|
|
|||||||
Net cash (used in) provided by financing activities |
(5,454
|
) |
45,747
|
4,280
|
|
(7,582
|
) |
72,204
|
(1)
|
We
adopted Statement of Financial Accounting Standard (SFAS) No. 142,
“Goodwill and Other Intangible Assets” during 2002. Accordingly, effective
January 1, 2002, goodwill is no longer amortized and is instead reviewed
for impairment annually, or more frequently, if indications of impairment
arise.
|
(2)
|
Restructuring
cost (benefit) relates to restructuring programs in which management
determined to exit certain non-strategic real estate lease and license
arrangements, consolidate network access points and streamline the
operating cost structure.
|
(3)
|
In
2000, we acquired CO Space, Inc. and the purchase price was allocated
to
net tangible assets and identifiable intangible assets and goodwill.
In
2001, the estimated fair value of certain assets acquired was less
than
their recorded amounts, and an impairment charge was recorded for
$196.0
million.
|
(4)
|
In
August 2003, we completed a private placement of our common stock
which
resulted in a decrease of the conversion price of our series A preferred
stock to $0.95 per share and an increase in the number of shares
of common
stock issuable upon conversion of all shares of series A preferred
stock
by 34.5 million shares. We recorded a deemed dividend of $34.6 million
in
connection with the conversion price adjustment, which is attributable
to
the additional incremental number of shares of common stock issuable
upon
conversion of our series A preferred
stock.
|
(5)
|
In
July 2003, we amended the deemed liquidation provisions of our charter
to
eliminate the events that could result in payment to the series A
preferred stockholders such that the events giving rise to payment
would
be within our control. As a result, 2,887,661 shares of our series
A
preferred stock, with a recorded value of $78.6 million, were reclassified
from mezzanine financing to stockholders' equity during 2003. Effective
September 14, 2004, all shares of our outstanding series A convertible
preferred stock were mandatorily converted into common stock in accordance
with the terms of our Certificate of
Incorporation.
|
· |
Due
to the nature of the services we provide, we generally price
our Internet
connectivity services at a premium to the services offered by
conventional
Internet connectivity service providers.
We
believe customers with business-critical Internet applications
will
continue to demand the highest quality of service as their Internet
connectivity needs grow and become even more complex and, as
such, will
continue to pay a premium for our high performance managed Internet
connectivity services.
|
· |
Our
success in executing our premium pricing strategy depends, to a
significant degree, on our ability to differentiate our connectivity
solutions from lower cost alternatives.
The key measures of our success in achieving this differentiation
are
revenue and customer growth. During 2005, we added more than
150 net
new customers, bringing our total to approximately 2,100 enterprise
customers as of December 31, 2005. Revenue for the year ended December
31,
2005 increased 6% to $153.7 million, compared to revenue of $144.5
million
for the year ended December 31, 2004.
|
· |
Solidified
management team is focused on achieving profitability and revenue
by
leveraging operating efficiencies. In
November 2005, James P. DeBlasio, a 20-year technology veteran
and former
Lucent executive, was appointed CEO. Through a renewed emphasis
on
aggressive cost containment our management team will focus on
reducing net
losses and driving gross profit to improve shareholder
value.
|
· |
We
intend to increase revenue by
leveraging the capabilities of our existing network access
points.
In our existing markets, we realize incremental margins as new
customers
are added. Additional volume in an existing market allows improved
utilization of existing facilities and an improved ability to
cost-effectively predict and acquire additional network capacity.
Conversely, decreases in the number of customers in an established
market
lead to decreased facility utilization and increase the possibility
that
direct network resources are not cost-efficiently employed. These
factors
have a direct bearing on our financial position and results of
operations.
|
· |
We
also intend to increase revenue by expanding our geographic coverage
in
key markets in the United States and abroad.
As
we enter new geographic markets, operatin results
will be affected by increased expense for hiring, training and managing
new employees, acquiring and implementing new systems and expense
for new
facilities. Our ability to generate increased revenue depends on
the
success of our cost control measures as we expand our geographic
coverage.
|
· |
We
believe that our data center services will continue to be drivers
of
revenue in 2006. During
2005, we focused on selling, investing in and managing data center
services. In order to meet the current and future anticipated demand
for
our data center services, we invested more than $10 million in 2005
to
upgrade and expand our existing facilities. Of
the 85,064 total square feet of data center space directly operated
by
Internap, approximately 71% was utilized as of December 31, 2005.
We have
38,894 total square feet of data center space operated under agreements
with third parties of which approximately 87% was utilized as of
December
31, 2005. During
the year, we also focused on bundling our IP and data center services.
Our
approach to expanding data center capabilities is needs driven, as
it
serves to enhance our customers’ access to Internap’s core IP services. We
believe this bundling brings great value to our customers, as evidenced
by
the fact that approximately 95% of our data center customers also
purchase
IP services.
|
· |
We
sell approximately two-thirds of new monthly recurring revenue
to new
customers. Selling
new monthly recurring revenue to new customers allows us to expand
our
customer base as well as guard against customer
loss.
|
· |
While
we have limited our execution of traditional advertising over the
past
year, we are focused on increasing brand awareness through appropriate
marketing vehicles. We
will continue to develop integrated marketing campaigns that identify
qualified leads, generate interest and promote business benefits
among key
audiences. We will also conduct public relations efforts focused
on
securing third party recognition of our products and services from
the
media and industry analysts. Our marketing organization is also
responsible for creating our product strategy based upon primary
and
secondary market research and the advancement of new technologies.
|
·
|
costs
for connecting to and accessing Internet network service providers
and
competitive local exchange
providers;
|
·
|
costs
related to operating and maintaining network access points and data
centers;
|
·
|
costs
incurred for providing additional third-party services to our customers
and;
|
·
|
costs
of Flow Control Platform solution and similar products sold.
|
|
Year
Ended December 31,
|
|
|||||||
|
2005
|
2004
|
|
2003
|
|
||||
Revenue
|
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
Costs
and expense:
|
|
|
|
|
|
|
|
|
|
Direct
cost of revenue, exclusive of depreciation and amortization shown
below
|
|
53
|
|
|
53
|
|
|
56
|
|
Customer
support
|
|
7
|
|
|
7
|
|
|
7
|
|
Product
development
|
|
3
|
|
|
5
|
|
|
5
|
|
Sales
and marketing
|
|
17
|
|
|
16
|
|
|
16
|
|
General
and administrative
|
|
13
|
|
|
17
|
|
|
12
|
|
Depreciation
and amortization
|
|
10
|
|
|
11
|
|
|
27
|
|
Restructuring
costs
|
|
--
|
|
|
3
|
|
|
1
|
|
Other
operating expense
|
|
--
|
|
|
--
|
|
|
(1
|
)
|
Total
operating costs and expense
|
|
103
|
|
|
112
|
|
|
123
|
|
|
|
||||||||
Loss
from operations
|
|
(3
|
)
|
|
(12
|
)
|
|
(23
|
)
|
|
|
|
|
|
|
|
|
|
|
Total
other expense, net
|
|
--
|
|
|
1
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
(3
|
)%
|
|
(13
|
)%
|
|
(25
|
)%
|
Year
Ended December 31,
|
|||||
2005
|
2004
|
||||
Revenue: | |||||
IP
Services
|
$ |
99,848
|
$ |
101,103
|
|
Data
Center Services
|
36,226
|
|
25,737
|
||
CDN,
Edge Appliance and Other
|
17,643
|
17,706
|
|||
$ |
153,717
|
$ |
144,546
|
Year
Ended December 31,
|
|||||
2004
|
2003
|
||||
Revenue: | |||||
IP
Services
|
$ |
101,103
|
$ |
100,474
|
|
Data
Center Services
|
25,737
|
|
20,697
|
||
CDN,
Edge Appliance and Other
|
17,706
|
17,409
|
|||
$ |
144,546
|
$ |
138,580
|
|
|
Payments
Due by Period
|
|
|||||||||||||
|
|
Total
|
Less
than
1
year
|
1-
3
Years
|
3-5
Years
|
More
than
5
years
|
|
|||||||||
Note
payable (1)
|
|
$
|
12,031
|
|
$
|
4,375
|
|
$
|
7,656
|
|
$
|
--
|
|
$
|
--
|
|
Capital
lease obligations (2)
|
|
|
860
|
|
|
607
|
|
|
253
|
|
|
--
|
|
|
--
|
|
Operating
lease commitments
|
|
|
102,912
|
|
|
9,824
|
19,389
|
12,008
|
61,691
|
|
||||||
Service
commitments
|
|
|
13,676
|
6,110
|
5,534
|
2,032
|
--
|
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
128,479
|
|
$
|
20,916
|
|
$
|
32,832
|
|
$
|
14,040
|
|
$
|
61,691
|
|
(1) |
Note
payable does not include interest expense of $0.7 million and $0.5
million
due in less than one year and between one and three years,
respectively.
|
(2) | Capital lease obligations include imputed interest expense of less than $0.1 million. |
|
|
December
31,
2002
Restructuring
Liability
|
|
Restructuring
Charge
|
|
Cash
Reductions
|
|
December
31,
2003
Restructuring
Liability
|
|
|||||
Restructuring
costs activity for 2001 restructuring charge:
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Real
estate obligations
|
|
$
|
10,319
|
|
$
|
--
|
|
$
|
(4,476)
|
$
|
5,843
|
|
||
Network
infrastructure obligations
|
|
|
1,297
|
|
|
|
|
|
(172)
|
1,125
|
|
|||
Other
|
|
|
1,008
|
|
|
--
|
|
|
(141)
|
867
|
|
|||
Restructuring
costs activity for 2002 restructuring charge:
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Real
estate obligations
|
|
|
1,800
|
|
|
--
|
|
|
(1,800)
|
--
|
|
|||
Personnel
|
|
|
--
|
|
|
1,084
|
|
|
(1,084)
|
--
|
|
|||
Other
|
|
|
100
|
|
|
--
|
|
|
(100)
|
--
|
|
|||
|
|
14,524
|
|
|
1,084
|
|
|
(7,773)
|
7,835
|
|
||||
Net
asset write-downs for 2002 restructuring charge
|
|
|
(139)
|
|
--
|
|
|
--
|
|
(139)
|
||||
|
$
|
14,385
|
|
$
|
1,084
|
|
$
|
(7,773)
|
$
|
7,696
|
|
|||
|
|
December
31,
2003
Restructuring
Liability
|
|
Restructuring
Charge
(Benefit)
|
|
Cash
Reductions
|
|
December
31,
2004
Restructuring
Liability
|
|
|||||
Restructuring
costs activity for 2001 restructuring charge:
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Real
estate obligations
|
|
$
|
5,843
|
|
$
|
5,323
|
|
$
|
(3,013)
|
|
$
|
8,153
|
|
|
Network
infrastructure obligations
|
|
|
1,125
|
|
|
(951)
|
|
(174)
|
--
|
|
||||
Other
|
|
|
867
|
|
|
(867)
|
|
|
--
|
--
|
|
|||
|
|
7,835
|
|
|
3,505
|
|
|
(3,187)
|
8,153
|
|
||||
Net
asset write-downs for 2002 restructuring charge
|
|
|
(139)
|
|
139
|
|
|
--
|
|
--
|
||||
|
$
|
7,696
|
|
$
|
3,644
|
|
$
|
(3,187)
|
|
|
$
|
8,153
|
|
|
|
|
December
31
2004
Restructuring
Liability
|
|
Restructuring
Charge
|
|
Cash
Reductions
|
|
December
31,
2005
Restructuring
Liability
|
|
|||||
Restructuring
costs activity for 2001 restructuring charge:
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Real
estate obligations
|
|
$
|
8,153
|
|
$
|
44
|
|
$
|
(1,920)
|
$
|
6,277
|
|
||
|
2006
|
2007
|
2008
|
Fair
Value
|
|||||||||
Long-term
debt:
|
|
|
|
|
|||||||||
Term
loan
|
$
|
4,375
|
$
|
4,375
|
$
|
3,281
|
$
|
12,031
|
|||||
Interest
rate
|
7.5%
|
|
7.5%
|
|
7.5%
|
|
7.5%
|
|
·
|
During
the fiscal quarter ended December 31, 2005, we completed the remediation
initiatives disclosed in Item 4(b) of our Quarterly Report on Form
10-Q
for the quarterly period ended March 31, 2005 by concluding our initiative
to complete a physical count of fixed assets and the related
reconciliations of fixed asset accounting records to the physical
counts.
|
ITEM 15. |
EXHIBITS
AND FINANCIAL STATEMENT
SCHEDULES.
|
(a) |
Documents
filed as a part of the
report:
|
(1) |
Consolidated
Financial
Statements.
|
|
|
Page
|
|
||
|
||
|
||
|
||
|
||
|
(2) |
Financial
Statement Schedule.
|
(3) |
Index
to Exhibits.
|
Exhibit
Number
|
|
Description
|
2.1
|
|
Agreement
and Plan of Merger (incorporated herein by reference to Appendix
A to the
Company's Definitive Proxy Statement dated August 10,
2001).
|
|
|
|
3.1
|
|
Certificate
of Incorporation of the Company, as amended (incorporated by reference
herein to Exhibit 4.1 to the Company's Registration Statement on
Form S-3,
filed September 8, 2003, File No. 333-108573).
|
|
|
|
3.2
|
|
Amended
and Restated Bylaws of the Company (incorporated by reference herein
to
Exhibit 4.2 to the Company's Registration Statement on Form S-3,
filed
September 8, 2003, File No. 333-108573).
|
|
|
|
10.1
|
|
Form
of Indemnification Agreement between the Company and each of its
directors
and certain of its officers (incorporated herein by reference to
Exhibit
10.1 to the Company's Registration Statement on Form S-1, File No.
333-84035 dated July 29, 1999).+
|
|
|
|
10.2
|
|
Form
of Employment Agreement, dated December 31, 2002, between the Company
and
David L. Abrahamson (incorporated herein by reference to Exhibit
10.5 to
the Company's Annual Report on Form 10-K for the year ended December
31,
2002, filed on April 15, 2003).+
|
|
|
|
10.3
|
|
Amended
and Restated Internap Network Services Corporation 1998 Stock Option/Stock
Issuance Plan (incorporated herein by reference to Exhibit 10.1 to
the
Company's Quarterly Report on Form 10-Q for the quarter ended September
30, 2000, filed on November 14, 2000).+
|
|
|
|
10.4
|
|
Internap
Network Services Corporation 1999 Non-Employee Directors' Stock Option
Plan (incorporated herein by reference to Exhibit 10.2 to the Company's
Registration Statement on Form S-1, File No. 333-84035 dated July
29,
1999).+
|
|
|
|
10.5
|
|
Internap
Network Services Corporation 1999 Employee Stock Purchase Plan
(incorporated herein by reference to Exhibit 10.4 to the Company's
Registration Statement on Form S-1, File No. 333-84035 dated July
29,
1999).+
|
|
|
|
10.6
|
|
Amended
and Restated Internap Network Services Corporation 1999 Stock Incentive
Plan for Non-Officers (incorporated herein by reference to Exhibit
10.2 to
the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 2000, filed on November 14, 2000).+
|
|
|
|
10.7
|
|
Amended
Internap Network Services Corporation 1999 Equity Incentive Plan
(incorporated herein by reference to Exhibit 10.7 to the Company's
Registration Statement on Form S-1, File No. 333-95503 dated January
27,
2000).+
|
|
|
|
10.8
|
|
Form
of 1999 Equity Incentive Plan Stock Option Agreement (incorporated
herein
by reference to Exhibit 10.8 to the Company's Registration Statement
on
Form S-1, File No. 333-84035 dated July 29, 1999).+
|
|
|
|
10.9
|
|
Internap
Network Services Corporation 2000 Non-Officer Equity Incentive Plan
(incorporated herein by reference to Exhibit 99.1 to the Company's
Registration Statement on Form S-8, File No. 333-37400 dated May
19,
2000).+
|
|
|
|
10.10
|
|
Internap
Network Services Corporation 2002 Stock Compensation Plan (incorporated
herein by reference to Exhibit 99(d)(1) to the Company's Tender Offer
Statement on Schedule TO, filed on November 18, 2002).+
|
|
|
|
10.11
|
|
Form
of Nonstatutory Stock Option Agreement under the Internap Network
Services
Corporation 2002 Stock Compensation Plan (incorporated herein by
reference
to Exhibit 99(d)(2) to the Company's Tender Offer Statement on Schedule
TO, filed on November 18, 2002).+
|
|
|
|
10.12
|
|
Form
of Employee Confidentiality, Nonraiding and Noncompetition Agreement
used
between Company and its Executive Officers (incorporated herein by
reference to Exhibit 10.11 to the Company's Registration Statement
on Form
S-1, File No. 333-84035 dated July 29, 1999).
|
|
|
|
10.13
|
|
Form
of Warrant (incorporated herein by reference to Appendix E to the
Company's Definitive Proxy Statement dated August 10,
2001).
|
10.14
|
|
Loan
and Security Agreement, dated October 21, 2002, and Amendments to
Loan
Documents, dated October 21, 2002 and October 29, 2002, between Company
and Silicon Valley Bank (incorporated herein by reference to Exhibit
10.1
to the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 2002, filed on November 14, 2002).
|
|
|
|
10.15
|
|
Amendment
to Loan Documents between the Company and Silicon Valley Bank, dated
March
25, 2003 (incorporated herein by reference to Exhibit 10.32 to the
Company's Annual Report on Form 10-K for the year ended December
31, 2002,
filed on April 15, 2003).
|
|
|
|
10.16
|
|
Amendment
to Loan Documents between the Company and Silicon Valley Bank, dated
September 30, 2004, and Amended and Restated Schedule to Loan and
Security
Agreement, dated September 30, 2004 (incorporated herein by reference
to
Exhibits 10.1 and 10.2 to the Company's Current Report on Form 8-K
dated
September 30, 2004).
|
|
|
|
10.17
|
|
Limited
Waiver and Amendment to Loan Documents between the Company and Silicon
Valley Bank dated November 18, 2004 (incorporated herein by reference
to
Exhibit 10.1 to the Company's Current Report on Form 8-K dated November
18, 2004).
|
|
|
|
10.18
|
|
Employment
Agreement dated February 1, 2004 between the Company and David A.
Buckel (incorporated by reference to Exhibit 10.20 to the Company’s Annual
Report of Form 10-K for the year ended December 1, 2004 filed on
April 1,
2005). +
|
|
|
|
10.19
|
|
Limited
Waiver and Amendment to Loan Documents between the Company and Silicon
Valley Bank dated March 14, 2005 (incorporated herein by reference
to
Exhibit 10.21 to the Company’s Annual Report on Form 10-K for the year
ended December 31, 2004, filed on April 1, 2005.
|
10.20
|
Employment
Agreement, dated May 1, 2004 between the Company and David A. Buckel
(incorporated herein by reference to Exhibit 10.1 to the Company’s Current
Report on Form 8-K, filed on May 10, 2005).
|
|
10.21
|
2005
Incentive Stock Plan (incorporated by reference to Appendix A to
the
Company’s definitive proxy statement on Schedule 14A filed on April 29,
2005).
|
|
10.22
|
Employment
Agreement dated as of September 30, 2005 between the Company and
James
DeBlasio (incorporated herein by reference to Exhibit 10.1 to the
Company’s Current Report on Form 8-K, filed on October 6,
2005).
|
|
10.23
|
Amendment
to Loan Documents dated as of September 28, 2005 between the Company
(incorporated herein by reference to Exhibit 10.1 to the Company’s Current
Report on Form 8-K, filed on October 11, 2005).
|
|
10.24
|
Limited
Waiver and Amendment to Loan Documents dated November 3, 2005
(incorporated herein by reference to Exhibit 10.1 to the Company’s Current
Report on Form 8-K, filed on November 7,
2005).
|
10.25
|
General
Release Agreement dated as of December 15, 2005 between the Company
and
Gregory Peters (incorporated herein by reference to Exhibit 10.1
to the
Company’s Current Report on Form 8-K, filed on December 20,
2005).
|
|
10.26
|
Amendment
to Loan Documents dated as of December 27, 2005 between the Company
and
Silicon Valley Bank (incorporated herein by reference to Exhibit
10.1 to
the Company’s Current Report on Form 8-K, filed on December 30,
2005).
|
|
10.27*
|
Employment
Agreement dated as of February 1, 2004 between the Company and Eric
Suddith. +
|
|
10.28*
|
Employment
Agreement dated as of May 2, 2005 between the Company and Robert
Smith.
+
|
|
10.29*
|
Employment
Agreement dated as of June 15, 2005 between the Company and Eric
Klinker.
+
|
|
|
|
|
21.1*
|
|
List
of Subsidiaries.
|
|
|
|
23.1*
|
|
Consent
of PricewaterhouseCoopers LLP, Independent Registered Public Accounting
Firm.
|
|
|
|
31.1*
|
|
Rule
13a-14(a)/15d-14(a) Certification, executed James P. DeBlasio, President,
Chief Executive Officer and Director the Company.
|
|
|
|
31.2*
|
|
Rule
13a-14(a)/15d-14(a) Certification, executed by David A. Buckel, Vice
President and Chief Financial Officer of the Company.
|
|
|
|
32.1*
|
|
Section
1350 Certification, executed by James P. DeBlasio, President, Chief
Executive Officer and Director the Company.
|
|
|
|
32.2*
|
|
Section
1350 Certification, executed by David A. Buckel, Vice President and
Chief
Financial Officer of the Company.
|
*
|
Documents
filed herewith.
|
+
|
Management
contracts and compensatory plans and arrangements required to be
filed as
exhibits pursuant to Item 15(c) of this
Report.
|
|
|
|
|
|
|
|
INTERNAP
NETWORK SERVICES CORPORATION
|
||
Date:
March 10, 2006
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
/s/
David A. Buckel
|
|
|
|
|
David
A. Buckel
Vice
President and Chief Financial
Officer
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
/s/
James P. DeBlasio
|
|
|
|
|
James
P. DeBlasio
|
|
President
and Chief Executive Officer
(Principal
Executive Officer)
|
|
March
10, 2006
|
|
|
|
|
|
/s/
Eugene Eidenberg
|
|
|
|
|
Eugene
Eidenberg
|
|
Non-Executive
Chairman
|
|
March
10, 2006
|
|
|
|
||
/s/
David A. Buckel
|
|
|
|
|
David
A. Buckel
|
|
Vice
President and Chief Financial Officer
(Principal
Financial and Accounting Officer)
|
|
March
10, 2006
|
/s/
Charles B. Coe
|
|
|
|
|
Charles
B. Coe
|
|
Director
|
|
March
10, 2006
|
|
|
|
|
|
/s/
William J. Harding
|
|
|
|
|
William
J. Harding
|
|
Director
|
|
March
10, 2006
|
|
|
|
|
|
/s/
Fredric W. Harman
|
|
|
|
|
Fredric
W. Harman
|
|
Director
|
|
March
10, 2006
|
|
|
|
|
|
/s/
Patricia L. Higgins
|
|
|
|
|
Patricia
L. Higgins
|
|
Director
|
|
March
10, 2006
|
|
|
|
|
|
/s/
Kevin L. Ober
|
|
|
|
|
Kevin
L. Ober
|
|
Director
|
|
March
10, 2006
|
|
|
|
|
|
/s/
Daniel C. Stanzione
|
|
|
|
|
Daniel
C. Stanzione
|
|
Director
|
|
March
10, 2006
|
|
|
Page
|
|
||
|
||
|
||
|
||
|
||
|
||
|
December
31,
|
||||||||
2005
|
2004
|
|||||||
ASSETS
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
24,434
|
|
$
|
33,823
|
|
|
Restricted
cash
|
|
|
--
|
|
|
76
|
|
|
Short-term
investments in marketable securities
|
|
|
16,060
|
|
|
12,162
|
|
|
Accounts
receivable, net of allowance of $963 and $1,124,
respectively
|
|
|
19,128
|
|
|
16,943
|
|
|
Inventory
|
|
|
779
|
|
|
345
|
|
|
Prepaid
expenses and other assets
|
|
|
2,957
|
|
|
3,202
|
|
|
|
||||||||
Total
current assets
|
|
|
63,358
|
|
|
66,551
|
|
|
|
||||||||
Property
and equipment, net
|
|
|
50,072
|
|
|
54,378
|
|
|
Investments
|
|
|
1,999
|
|
|
6,693
|
|
|
Intangible
assets, net
|
|
|
2,329
|
|
|
2,898
|
|
|
Goodwill
|
|
|
36,314
|
|
|
36,314
|
|
|
Deposits
and other assets
|
|
|
1,297
|
|
|
1,315
|
|
|
|
$
|
155,369
|
|
$
|
168,149
|
|
||
|
|
|
|
|
|
|
||
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
||
Current
liabilities:
|
|
|
|
|
|
|
||
Notes
payable, current portion
|
|
$
|
4,375
|
|
$
|
6,483
|
|
|
Accounts
payable
|
|
|
5,766
|
|
|
11,129
|
|
|
Accrued
liabilities
|
|
|
7,267
|
|
|
7,269
|
|
|
Deferred
revenue, current portion
|
|
|
2,737
|
|
|
1,826
|
|
|
Capital
lease obligations, current portion
|
|
|
559
|
|
|
512
|
|
|
Restructuring
liability, current portion
|
|
|
1,202
|
|
|
2,397
|
|
|
Total
current liabilities
|
|
|
21,906
|
|
|
29,616
|
|
|
|
||||||||
Notes
payable, less current portion
|
|
|
7,656
|
|
|
12,031
|
|
|
Deferred
revenue, less current portion
|
|
|
533
|
|
|
421
|
|
|
Capital
lease obligations, less current portion
|
|
|
247
|
|
|
806
|
|
|
Restructuring
liability, less current portion
|
|
|
5,075
|
|
|
5,756
|
|
|
Deferred
rent
|
|
|
9,185
|
|
|
5,781
|
|
|
Other
long-term liabilities
|
1,039
|
--
|
||||||
Total
liabilities
|
|
|
45,641
|
|
|
54,411
|
|
|
Commitments
and contingencies
|
||||||||
Stockholders'
equity:
|
|
|
|
|
|
|
||
Series
A convertible preferred stock, $0.001 par value, 3,500 shares designated,
no shares
issued
or outstanding
|
--
|
--
|
||||||
Common
stock, $0.001 par value, 600,000 shares authorized, 341,677 and 338,148
shares
issued
and outstanding, respectively
|
|
|
342
|
|
|
338
|
|
|
Additional
paid-in capital
|
|
|
969,913
|
|
|
967,951
|
|
|
Deferred
stock compensation
|
(420
|
) |
--
|
|||||
Accumulated
deficit
|
|
|
(860,112
|
) |
|
(855,148
|
) | |
Accumulated
items of other comprehensive income
|
|
|
5
|
|
|
597
|
|
|
Total
stockholders' equity
|
|
|
109,728
|
|
|
113,738
|
|
|
|
$
|
155,369
|
|
$
|
168,149
|
|
Year
Ended December 31,
|
||||||||||||
2005
|
2004
|
2003
|
||||||||||
Revenue
|
$
|
153,717
|
$
|
144,546
|
$
|
138,580
|
||||||
|
||||||||||||
Costs
and expense:
|
||||||||||||
Direct
cost of revenue, exclusive of depreciation
and
amortization, shown below
|
81,958
|
76,990
|
78,200
|
|||||||||
Customer
support
|
10,670
|
10,180
|
9,483
|
|||||||||
Product
development
|
4,864
|
6,412
|
6,982
|
|||||||||
Sales
and marketing
|
25,864
|
23,411
|
21,491
|
|||||||||
General
and administrative
|
20,096
|
24,772
|
16,711
|
|||||||||
Depreciation
and amortization
|
15,314
|
16,040
|
37,221
|
|||||||||
Amortization
of deferred stock compensation
|
60
|
--
|
390
|
|||||||||
Pre-acquisition
liability adjustment
|
--
|
--
|
(1,313
|
)
|
||||||||
Restructuring
costs
|
44
|
3,644
|
1,084
|
|||||||||
Gain
on disposals of property and equipment
|
(19
|
)
|
(3
|
)
|
(53
|
)
|
||||||
Total
operating costs and expense
|
158,851
|
161,446
|
170,196
|
|||||||||
Loss
from operations
|
(5,134
|
)
|
(16,900
|
)
|
(31,616
|
)
|
||||||
Non-operating
(income) expense:
|
||||||||||||
Interest
expense
|
1,373
|
1,981
|
2,981
|
|||||||||
Interest
income
|
(1,284
|
)
|
(665
|
)
|
(823
|
)
|
||||||
Other,
net
|
(259
|
)
|
(154
|
)
|
827
|
|||||||
Total
non-operating (income) expense
|
(170
|
)
|
1,162
|
2,985
|
||||||||
Net
loss
|
(4,964
|
)
|
(18,062
|
)
|
(34,601
|
)
|
||||||
|
||||||||||||
Less
deemed dividend related to beneficial conversion feature
|
--
|
--
|
(34,576
|
)
|
||||||||
Net
loss attributable to common stockholders
|
$
|
(4,964
|
)
|
$
|
(18,062
|
)
|
$
|
(69,177
|
)
|
|||
Basic
and diluted net loss per share
|
$
|
(0.01
|
)
|
$
|
(0.06
|
)
|
$
|
(0.40
|
)
|
|||
Weighted
average shares used in computing basic
and
diluted net loss per share
|
339,387
|
287,315
|
174,602
|
Series
A
Convertible
Preferred
Stock
|
Common
Stock
|
|||||||||||||||||||||||||||
Shares
|
Par
Value
|
Shares
|
Par
Value
|
Additional
Paid-In Capital
|
Deferred Stock
Compensation
|
Accumulated
Deficit
|
Accumulated
Items
of Comprehensive Income (Loss)
|
Total
Stockholders' Equity
|
||||||||||||||||||||
Balance,
January 1, 2003
|
--
|
$
|
--
|
160,094
|
$
|
160
|
$
|
798,344
|
$
|
(396)
|
|
$
|
(802,485)
|
|
$
|
149
|
$
|
(4,228
|
)
|
|||||||||
Net
loss
|
--
|
--
|
--
|
--
|
--
|
--
|
(34,601)
|
|
--
|
(34,601
|
)
|
|||||||||||||||||
Other
comprehensive income
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
151
|
151
|
|||||||||||||||||||
Total
comprehensive loss
|
(34,450
|
)
|
||||||||||||||||||||||||||
Conversion
of Series A convertible preferred stock into common stock before
reclassification to stockholders' equity
|
--
|
--
|
953
|
1
|
1,201
|
--
|
--
|
--
|
1,202
|
|||||||||||||||||||
Reclassification
of preferred stock to stockholders' equity
|
2,888
|
78,589
|
--
|
--
|
--
|
--
|
--
|
--
|
78,589
|
|||||||||||||||||||
Conversion
of Series A convertible preferred stock into common stock after
reclassification to stockholders' equity
|
(1,483)
|
|
(40,338)
|
|
49,668
|
50
|
40,288
|
--
|
--
|
--
|
--
|
|||||||||||||||||
Amortization
of deferred stock compensation and reversal for terminated
employees
|
--
|
--
|
--
|
--
|
(6)
|
|
396
|
--
|
--
|
390
|
||||||||||||||||||
Stock
compensation plans and warrant activity
|
--
|
--
|
3,689
|
4
|
2,084
|
--
|
--
|
--
|
2,088
|
|||||||||||||||||||
Issuance
of common stock to non-employees
|
--
|
--
|
12,926
|
13
|
11,480
|
--
|
--
|
--
|
11,493
|
|||||||||||||||||||
Issuance
of stock in conjunction with acquisitions
|
346
|
13,590
|
1,421
|
1
|
1,849
|
--
|
--
|
--
|
15,440
|
|||||||||||||||||||
Record
embedded beneficial conversion feature charge related to Series
A
preferred stock
|
--
|
(34,576)
|
|
--
|
--
|
34,576
|
--
|
--
|
--
|
--
|
||||||||||||||||||
Amortize
deemed dividend related to beneficial conversion feature
|
--
|
34,576
|
--
|
--
|
(34,576)
|
|
--
|
--
|
--
|
--
|
||||||||||||||||||
Balance,
December 31, 2003
|
1,751
|
51,841
|
228,751
|
229
|
855,240
|
--
|
(837,086)
|
|
300
|
70,524
|
||||||||||||||||||
Net
loss
|
--
|
--
|
--
|
--
|
--
|
--
|
(18,062)
|
|
--
|
(18,062
|
)
|
|||||||||||||||||
Other
comprehensive income
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
297
|
297
|
|||||||||||||||||||
Total
comprehensive loss
|
(17,765
|
)
|
||||||||||||||||||||||||||
Conversion
of Series A convertible preferred stock
|
(1,751)
|
|
(51,841)
|
|
58,994
|
59
|
51,782
|
--
|
--
|
--
|
--
|
|||||||||||||||||
Issuance
of common stock, net of issuance cost
|
--
|
--
|
40,250
|
40
|
55,892
|
--
|
--
|
--
|
55,932
|
|||||||||||||||||||
Stock
compensation plans and warrant activity
|
--
|
--
|
10,153
|
10
|
5,037
|
--
|
--
|
--
|
5,047
|
|||||||||||||||||||
Balance,
December 31, 2004
|
--
|
--
|
338,148
|
338
|
967,951
|
--
|
(855,148)
|
|
597
|
113,738
|
||||||||||||||||||
Net
loss
|
--
|
--
|
--
|
--
|
--
|
--
|
(4,964)
|
|
--
|
(4,964
|
)
|
|||||||||||||||||
Other
comprehensive loss
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
(592)
|
|
(592
|
)
|
|||||||||||||||||
Total
comprehensive loss
|
(5,556
|
)
|
||||||||||||||||||||||||||
Deferred
stock compensation grant
|
--
|
--
|
--
|
--
|
480
|
(480)
|
|
--
|
--
|
--
|
||||||||||||||||||
Amortization
of deferred stock compensation
|
60
|
60
|
||||||||||||||||||||||||||
Stock
compensation plans activity
|
--
|
--
|
3,529
|
4
|
1,482
|
--
|
--
|
--
|
1,486
|
|||||||||||||||||||
Balance,
December 31, 2005
|
--
|
$
|
--
|
341,677
|
$
|
342
|
$
|
969,913
|
$
|
(420)
|
|
$
|
(860,112)
|
|
$
|
5
|
$
|
109,728
|
Year
Ended December 31,
|
|||||||||||||||
2005
|
2004
|
2003
|
|||||||||||||
Cash
flows from operating activities:
|
|
|
|
||||||||||||
Net
loss
|
$
|
(4,964
|
)
|
$
|
(18,062
|
)
|
$ | (34,601 |
)
|
||||||
Adjustments
to reconcile net loss to net cash provided by (used in) operating
activities:
|
|
||||||||||||||
Depreciation
and amortization
|
15,314
|
16,040
|
37,221
|
||||||||||||
Gain
on disposal of property and equipment, net
|
(19
|
)
|
(3
|
)
|
(53
|
)
|
|||||||||
Provision
for doubtful accounts
|
1,431
|
2,415
|
2,435
|
||||||||||||
(Gain)
loss on equity-method investment, net
|
(83
|
)
|
390
|
827
|
|||||||||||
Non-cash
interest expense on capital lease obligations
|
--
|
904
|
1,304
|
||||||||||||
Non-cash
changes in deferred rent
|
2,690
|
879
|
915
|
||||||||||||
Lease
incentives
|
713
|
--
|
-- | ||||||||||||
Pre-acquisition
liability adjustment
|
--
|
--
|
(1,313
|
)
|
|||||||||||
Non-cash
compensation expense
|
75
|
--
|
390
|
||||||||||||
Other,
net
|
(44
|
)
|
176
|
--
|
|||||||||||
Changes
in operating assets and liabilities, net of the
effect
of acquisitions:
|
|
||||||||||||||
Accounts
receivable
|
(3,616
|
)
|
(3,771
|
)
|
(2,704
|
)
|
|||||||||
Inventory,
prepaid expense and other assets
|
(170
|
)
|
1,633
|
2,583
|
|||||||||||
Accounts
payable
|
(5,433
|
)
|
851
|
(5,941
|
)
|
||||||||||
Accrued
liabilities
|
805
|
(1,316
|
)
|
(1,115
|
)
|
||||||||||
Deferred
revenue
|
1,023
|
(1,743
|
)
|
(4,461
|
)
|
||||||||||
Accrued
restructuring
|
(1,876
|
)
|
457
|
(6,662
|
)
|
||||||||||
Net
cash flows provided by (used in) operating activities
|
5,846
|
(1,150
|
)
|
(11,175
|
)
|
||||||||||
Cash
flows from investing activities:
|
|
||||||||||||||
Purchases
of property and equipment
|
(10,161
|
)
|
(13,066
|
)
|
(3,799
|
)
|
|||||||||
Proceeds
from disposal of property and equipment
|
17
|
51 | -- | ||||||||||||
Reduction
of restricted cash
|
76 | 49 | 2,053 | ||||||||||||
Purchase
of investments in marketable securities
|
(18,710
|
)
|
(16,753
|
)
|
--
|
||||||||||
Maturities
of marketable securities
|
19,350
|
--
|
--
|
||||||||||||
Net
cash received from acquired businesses
|
--
|
--
|
2,307
|
||||||||||||
Other,
net
|
(353
|
)
|
60
|
--
|
|||||||||||
Net
cash flows (used in) provided by investing activities
|
(9,781
|
)
|
(29,659
|
)
|
561
|
||||||||||
Cash
flows from financing activities:
|
|
||||||||||||||
Change
in revolving credit facility
|
--
|
(8,392
|
)
|
(1,608
|
)
|
||||||||||
Proceeds
from notes payable
|
--
|
17,500
|
--
|
||||||||||||
Principal
payments on notes payable
|
(6,483
|
)
|
(4,051
|
)
|
(4,645
|
)
|
|||||||||
Payments
on capital lease obligations
|
(512
|
)
|
(20,289
|
)
|
(2,801
|
)
|
|||||||||
Proceeds
from issuance of common stock, net of issuance costs
|
--
|
55,932
|
9,299
|
||||||||||||
Proceeds
from stock options, employee stock purchase plan, and exercise
of
warrants
|
1,471
|
5,047
|
4,035
|
||||||||||||
Other,
net
|
70
|
--
|
-- | ||||||||||||
Net
cash flows (used in) provided by financing activities
|
(5,454
|
)
|
45,747
|
4,280
|
|||||||||||
Net
(decrease) increase in cash and cash equivalents
|
(9,389
|
)
|
14,938
|
(6,334
|
)
|
||||||||||
Cash
and cash equivalents at beginning of period
|
33,823
|
18,885
|
25,219
|
||||||||||||
Cash
and cash equivalents at end of period
|
$
|
24,434
|
$
|
33,823
|
$ | 18,885 |
Year
Ended December 31,
|
||||||||||||
2005
|
2004
|
2003
|
||||||||||
Supplemental
disclosure of cash flow information:
|
|
|
|
|||||||||
|
|
|
|
|||||||||
Cash
paid for interest, net of amounts capitalized
|
$
|
1,223
|
$
|
1,767
|
$
|
1,170
|
||||||
Non-cash
acquisition of property and equipment
|
971
|
1,597
|
125
|
|||||||||
Change
in accounts payable attributable to purchases
of
property and equipment
|
(381
|
)
|
(2,733
|
)
|
(7
|
)
|
||||||
Issuance
of stock related to capital lease amendment
|
--
|
--
|
250
|
|||||||||
Deferred
stock compensation grant
|
480
|
--
|
--
|
|||||||||
Conversion
of preferred stock to common stock
|
--
|
51,841
|
41,540
|
|||||||||
Value
of stock issued for acquisitions
|
--
|
--
|
15,440
|
|||||||||
|
1.
|
DESCRIPTION
OF THE COMPANY AND NATURE OF
OPERATIONS
|
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING
POLICIES
|
Year
Ended December 31,
|
||||||||||||
|
2005
|
2004
|
2003
|
|||||||||
Net
loss, as reported
|
$
|
(4,964
|
)
|
$
|
(18,062
|
)
|
$
|
(34,601
|
)
|
|||
Add:
stock-based employee compensation expense
included in reported net loss |
75
|
--
|
390
|
|||||||||
Adjust:
total stock-based employee compensation
expense determined under fair value based method for all awards |
(9,678
|
)
|
(15,364
|
)
|
(8,362
|
)
|
||||||
Pro
forma net loss
|
$
|
(14,567
|
)
|
$
|
(33,426
|
)
|
$
|
(42,573
|
)
|
|||
Loss
per share:
|
||||||||||||
Basic
and diluted--as reported
|
$
|
(0.01
|
)
|
$
|
(0.06
|
)
|
$
|
(0.40
|
)
|
|||
Basic
and diluted--pro forma
|
(0.04
|
)
|
(0.12
|
)
|
(0.44
|
)
|
|
|
Year
Ended December 31,
|
|||||||
|
|
2005
|
|
2004
|
|
2003
|
|||
Risk
free interest rate
|
|
|
4.22
%
|
4.27
%
|
4.01
%
|
||||
Volatility
|
|
|
118
%
|
142
%
|
144
%
|
||||
Expected
life
|
|
|
4
years
|
4
years
|
4
years
|
Year
Ended December 31,
|
||||||||||||
|
2005
|
2004
|
2003
|
|||||||||
Net
loss
|
$
|
(4,964
|
)
|
$
|
(18,062
|
)
|
$
|
(34,601
|
)
|
|||
Less
deemed dividend related to beneficial conversion feature
|
--
|
--
|
(34,576
|
)
|
||||||||
Net
loss attributable to common stockholders
|
$
|
(4,964
|
)
|
$
|
(18,062
|
)
|
$
|
(69,177
|
)
|
|||
Basic
and diluted:
|
||||||||||||
Weighted
average shares of common stock outstanding used in computing basic
and
diluted net loss per share
|
339,387
|
287,315
|
174,602
|
|||||||||
Basic
and diluted net loss per share
|
$
|
(0.01
|
)
|
$
|
(0.06
|
)
|
$
|
(0.40
|
)
|
|||
Anti-dilutive
securities not included in diluted net loss per share
calculation:
|
||||||||||||
Series
A convertible preferred stock
|
--
|
--
|
58,994
|
|||||||||
Options
to purchase common stock
|
35,562
|
43,949
|
39,161
|
|||||||||
Restricted
stock
|
1,000
|
--
|
--
|
|||||||||
Warrants
to purchase common stock
|
14,998
|
14,998
|
17,133
|
|||||||||
|
51,560
|
58,947
|
115,288
|
3.
|
IMPAIRMENT
AND RESTRUCTURING COSTS
|
|
December
31,
2002
Restructuring
Liability
|
Restructuring
Charge
|
Cash
Reductions
|
December
31,
2003
Restructuring
Liability
|
|||||||||||||||
Restructuring
costs activity for 2001 restructuring charge:
|
|
|
|
||||||||||||||||
Real
estate obligations
|
$
|
10,319
|
$
|
--
|
$
|
(4,476
|
)
|
$ | 5,843 | ||||||||||
Network
infrastructure obligations
|
1,297
|
(172
|
)
|
1,125 | |||||||||||||||
Other
|
1,008
|
--
|
(141
|
)
|
867 | ||||||||||||||
Restructuring
costs activity for 2002 restructuring charge:
|
|||||||||||||||||||
Real
estate obligations
|
1,800
|
--
|
(1,800
|
)
|
-- | ||||||||||||||
Personnel
|
--
|
1,084
|
(1,084
|
)
|
-- | ||||||||||||||
Other
|
100
|
--
|
(100
|
)
|
-- | ||||||||||||||
14,524
|
1,084
|
(7,773
|
)
|
7,835 | |||||||||||||||
Net
asset write-downs for 2002 restructuring charge
|
(139
|
)
|
--
|
--
|
(139 |
)
|
|||||||||||||
$
|
14,385
|
$
|
1,084
|
$
|
(7,773
|
)
|
$ | 7,696 | |||||||||||
|
December
31,
2003
Restructuring
Liability
|
Restructuring
Charge
(Benefit)
|
Cash
Reductions
|
December
31,
2004
Restructuring
Liability
|
|||||||||||||||
Restructuring
costs activity for 2001 restructuring charge:
|
|
|
|
||||||||||||||||
Real
estate obligations
|
$
|
5,843
|
$
|
5,323
|
$
|
(3,013
|
)
|
$ | 8,153 | ||||||||||
Network
infrastructure obligations
|
1,125
|
(951
|
)
|
(174
|
)
|
-- | |||||||||||||
Other
|
867
|
(867
|
)
|
--
|
-- | ||||||||||||||
7,835
|
3,505
|
(3,187
|
)
|
8,153 | |||||||||||||||
Net
asset write-downs for 2002 restructuring charge
|
(139
|
)
|
139
|
--
|
-- | ||||||||||||||
$
|
7,696
|
$
|
3,644
|
$
|
(3,187
|
)
|
$ | 8,153 | |||||||||||
|
December
31,
2004
Restructuring
Liability
|
Restructuring
Charge
|
Cash
Reductions
|
December
31,
2005
Restructuring
Liability
|
|||||||||||||
Restructuring
costs activity for 2001 restructuring charge:
|
|
|
|
||||||||||||||
Real
estate obligations
|
$
|
8,153
|
$
|
44
|
$
|
(1,920
|
)
|
$ | 6,277 | ||||||||
4.
|
BUSINESS
COMBINATIONS
|
Cash
acquired
|
|
$
|
1,443
|
Restricted
cash
|
|
|
105
|
Inventory
|
|
|
421
|
Property
and equipment
|
|
|
531
|
Other
tangible assets
|
|
|
80
|
Tangible
assets acquired
|
|
|
2,580
|
Product
technology
|
|
|
3,311
|
Goodwill
|
|
|
8,216
|
Intangible
assets acquired
|
|
|
11,527
|
Total
assets acquired
|
|
$
|
14,107
|
Acquisition
expense incurred
|
|
$
|
79
|
Liabilities
assumed
|
|
|
438
|
Value
of stock issued
|
|
|
13,590
|
Total
liabilities assumed and preferred stock issued
|
|
$
|
14,107
|
Cash
acquired
|
$
|
864
|
Restricted
cash
|
|
20
|
Property
and equipment
|
|
291
|
Other
tangible assets
|
|
109
|
Tangible
assets acquired
|
|
1,284
|
Goodwill
|
|
926
|
Total
assets acquired
|
$
|
2,210
|
Acquisition
expense incurred
|
$
|
79
|
Liabilities
assumed
|
|
281
|
Value
of stock issued
|
|
1,850
|
Total
liabilities assumed and common stock issued
|
$
|
2,210
|
5.
|
INVESTMENTS
|
|
2005
|
2004
|
2003
|
|||||||||
Investment
Balance, January 1,
|
$
|
861
|
$
|
1,195
|
$
|
1,870
|
||||||
Proportional
share of net income (loss)
|
83
|
(390
|
)
|
(827
|
)
|
|||||||
Unrealized
foreign currency translation (loss) gain, net
|
(121
|
)
|
56
|
152
|
||||||||
Investment
Balance, December 31,
|
$
|
823
|
$
|
861
|
$
|
1,195
|
||||||
|
|
As
of December 31, 2005
|
||||||||||
|
Cost
Basis
|
Unrealized
Loss
|
Recorded
Value
|
||||||||
Short-term
investments in marketable securities
|
$
|
16,113
|
$
|
(53
|
)
|
$
|
16,060
|
|
As
of December 31, 2004
|
||||||||||
|
Cost
Basis
|
Unrealized
Gain
(Loss)
|
Recorded
Value
|
||||||||
Short-term
investments in marketable securities
|
$
|
12,083
|
$
|
79
|
|
$
|
12,162
|
||||
Investments in marketable securities, non-current |
4,671
|
(15 | ) |
4,656
|
|||||||
$ |
16,754
|
$ | 64 | $ |
16,818
|
6.
|
PROPERTY
AND EQUIPMENT
|
|
December
31,
|
|||||||
|
2005
|
2004
|
||||||
Network
equipment
|
$
|
87,467
|
$
|
95,149
|
||||
Network
equipment under capital lease
|
1,596
|
1,596
|
||||||
Furniture,
equipment and software
|
31,571
|
32,319
|
||||||
Leasehold
improvements
|
73,124
|
63,314
|
||||||
Property
and equipment, gross
|
193,758
|
192,378
|
||||||
Less:
Accumulated depreciation and amortization ($843 and $310 related
to
capital leases at
December
31, 2005 and 2004, respectively)
|
(143,686
|
)
|
(138,000
|
)
|
||||
$
|
50,072
|
$
|
54,378
|
7.
|
GOODWILL
AND OTHER INTANGIBLE
ASSETS
|
|
December
31, 2005
|
December
31, 2004
|
||||||||||||
|
Gross
Carrying
Amount
|
Accumulated
Amortization
|
Gross
Carrying
Amount
|
Accumulated
Amortization
|
||||||||||
Contract
based
|
$
|
14,518
|
$
|
(14,263
|
)
|
$
|
14,518
|
$
|
(14,234
|
)
|
||||
Technology
based
|
5,911
|
(3,837
|
)
|
5,911
|
(3,297
|
)
|
||||||||
|
$
|
20,429
|
$
|
(18,100
|
)
|
$
|
20,429
|
$
|
(17,531
|
)
|
|
||||
2006
|
$
|
544
|
||
2007
|
443
|
|||
2008
|
443
|
|||
2009
|
443
|
|||
2010
|
339
|
|||
Thereafter
|
117
|
|||
$
|
2,329
|
8.
|
ACCRUED
LIABILITIES
|
|
|
December
31,
|
||||
|
|
2005
|
|
2004
|
||
Taxes
|
|
$
|
1,753
|
|
$
|
4,051
|
Compensation
payable
|
|
|
2,463
|
|
|
1,225
|
Network
commitments
|
|
|
305
|
|
|
608
|
Insurance
payable
|
|
|
639
|
|
|
303
|
Other
|
|
|
2,107
|
|
|
1,082
|
|
$
|
7,267
|
|
$
|
7,269
|
9.
|
REVOLVING
CREDIT FACILITY AND NOTES
PAYABLE
|
|
December
31,
|
||||||
|
2005
|
2004
|
|||||
Notes
payable to financial institutions
|
$
|
12,031
|
$
|
18,073
|
|||
Notes
payable to vendors
|
--
|
441
|
|||||
Notes
payable
|
$
|
12,031
|
$
|
18,514
|
2006
|
$
|
4,375
|
||
2007
|
4,375
|
|||
2008
|
3,281
|
|||
Total
maturities and principal payments
|
12,031
|
|||
Less:
current portion
|
(4,375
|
)
|
||
$
|
7,656
|
10.
|
CAPITAL
LEASES
|
|
||||
2006
|
$
|
607
|
||
2007
|
253
|
|||
Remaining
capital lease payments
|
860
|
|||
Less:
amounts representing imputed interest
|
(54
|
)
|
||
Present
value of minimum lease payments
|
806
|
|||
Less:
current portion
|
(559
|
)
|
||
$
|
247
|
11.
|
INCOME
TAXES
|
|
Year
Ended December 31,
|
|||||||||
|
2005
|
2004
|
2003
|
|||||||
Federal
income tax benefit at statutory rates
|
(34)%
|
|
(34)%
|
|
(34)%
|
|
||||
State
income tax benefit at statutory rates
|
(4)
|
|
(4)
|
|
(4)
|
|
||||
Foreign
operating losses at statutory rates
|
--
|
--
|
1
|
|||||||
Stock
compensation expense
|
--
|
--
|
(1)
|
|
||||||
Other,
net
|
1
|
1
|
1
|
|||||||
Change
in valuation allowance
|
37
|
|
37
|
|
37
|
|
||||
|
|
|
||||||||
Effective
tax rate
|
0%
|
|
0%
|
|
0%
|
|
|
2005
|
2004
|
||||||
Current
deferred income tax assets:
|
|
|
||||||
Provision
for doubtful accounts
|
$
|
329
|
$
|
402
|
||||
Deferred
revenue
|
860
|
682
|
||||||
Accrued
compensation
|
433
|
157
|
||||||
Restructuring
costs
|
457
|
911
|
||||||
Capital
loss carryforwards
|
5,383
|
--
|
||||||
Other
|
854
|
672
|
||||||
Current
deferred income tax assets
|
8,316
|
2,824
|
||||||
Less:
Valuation allowance
|
(8,263
|
)
|
(2,806
|
)
|
||||
53
|
18
|
|||||||
Non-current
deferred income tax assets:
|
||||||||
Net
operating loss carryforwards
|
133,917
|
132,181
|
||||||
Capital
loss carryforwards
|
--
|
5,383
|
||||||
Property
and equipment
|
22,738
|
23,372
|
||||||
Investments
|
1,824
|
1,824
|
||||||
Deferred
revenue, less current portion
|
367
|
150
|
||||||
Restructuring
costs, less current portion
|
1,438
|
2,187
|
||||||
Deferred
rent
|
3,413
|
2,120
|
||||||
Non-
current deferred income tax assets
|
163,697
|
167,217
|
||||||
Less:
Valuation allowance
|
(162,667
|
)
|
(166,176
|
)
|
||||
1,030
|
1,041
|
|||||||
Non-current
deferred income tax liabilities:
|
||||||||
Purchased
intangibles
|
(1,083
|
)
|
(1,059
|
)
|
||||
Non-current
deferred income tax liabilities, net
|
(53
|
)
|
(18
|
)
|
||||
Net
deferred tax assets (liabilities)
|
$
|
--
|
$
|
--
|
12.
|
EMPLOYEE
RETIREMENT PLAN
|
13.
|
COMMITMENTS,
CONTINGENCIES, CONCENTRATIONS OF RISK AND
LITIGATION
|
2006
|
$
|
9,824
|
||
2007
|
9,828
|
|||
2008
|
9,561
|
|||
2009
|
7,486
|
|||
2010
|
4,522
|
|||
Thereafter
|
61,691
|
|||
|
$
|
102,912
|
2006
|
$
|
6,110
|
||
2007
|
2,765
|
|||
2008
|
2,769
|
|||
2009
|
2,032
|
|||
|
$
|
13,676
|
14.
|
CONVERTIBLE
PREFERRED STOCK AND STOCKHOLDERS'
EQUITY
|
Year
of
Expiration
|
Weighted
Average
Exercise
Price
|
Shares
|
|||||
2006
|
$
|
0.95
|
14,657
|
||||
2007
|
--
|
--
|
|||||
2008
|
0.95
|
341
|
|||||
|
$
|
0.95
|
14,998
|
15.
|
STOCK-BASED
COMPENSATION PLANS
|
|
Shares
|
Weighted
Average
Exercise
Price
|
||||||
Balance,
January 1, 2003
|
23,321
|
$
|
2.43
|
|||||
Granted
|
25,499
|
1.22
|
||||||
Exercised
|
(1,974
|
)
|
0.89
|
|||||
Cancelled
|
(7,685
|
)
|
3.47
|
|||||
|
||||||||
Balance,
December 31, 2003
|
39,161
|
1.52
|
||||||
|
||||||||
Granted
|
16,376
|
1.74
|
||||||
Exercised
|
(7,502
|
)
|
0.57
|
|||||
Cancelled
|
(4,086
|
)
|
2.25
|
|||||
Balance,
December 31, 2004
|
43,949
|
1.70
|
||||||
Granted
|
9,476
|
0.48
|
||||||
Exercised
|
(2,017
|
)
|
0.45
|
|||||
Cancelled
|
(15,846
|
)
|
1.91
|
|||||
Balance,
December 31, 2005
|
35,562
|
$
|
1.35
|
|
|
Options
Outstanding
|
|
Options
Exercisable
|
|
|||||||||
Exercise
Prices
|
|
Number
of
Shares
|
|
Weighted
Average
Remaining
Contractual
Life
(In years)
|
|
Number
of
Shares
|
|
Weighted
Average
Exercise
Prices
|
|
|||||
$0.03
- $0.46
|
|
|
5,483
|
|
|
6.9
|
|
|
4,752
|
|
$
|
0.34
|
|
|
$0.47
- $0.52
|
|
|
9,320
|
|
|
6.7
|
|
|
1,138
|
|
|
0.48
|
|
|
$0.53
- $1.23
|
|
|
6,315
|
|
|
7.3
|
|
|
4,549
|
|
|
0.94
|
|
|
$1.27
- $2.00
|
|
|
5,777
|
|
|
7.1
|
|
|
4,924
|
|
|
1.50
|
|
|
$2.15
- $2.78
|
|
|
8,211
|
|
|
8.0
|
|
|
5,315
|
|
|
2.25
|
|
|
$5.00
- $69.88
|
|
|
456
|
|
|
4.0
|
|
|
455
|
|
|
19.07
|
|
|
$0.03
- $69.88
|
|
|
35,562
|
|
|
7.2
|
|
|
21,133
|
|
$
|
1.63
|
|
16.
|
RELATED
PARTY TRANSACTIONS
|
17.
|
UNAUDITED
QUARTERLY RESULTS
|
|
|
Quarter
Ended
|
|
||||||||||
|
|
March
31
|
|
June
30
|
|
September
30
|
|
December
31
|
|
||||
2005
|
|
|
|
|
|||||||||
|
|
|
|
|
|
|
|
|
|
||||
Revenue
|
|
$
|
37,855
|
$
|
37,571
|
$
|
37,999
|
$
|
40,292
|
|
|||
Net
loss
|
|
|
(570
|
)
|
(1,046
|
)
|
(3,171
|
)
|
(177
|
)
|
|||
Basic
and diluted net loss per share
|
|
$
|
(0.00
|
)
|
$
|
(0.00
|
)
|
$
|
(0.01
|
)
|
$
|
(0.00
|
)
|
|
|
Quarter
Ended
|
|
||||||||||
2004
|
|
March
31
|
|
June
30
|
|
September
30
|
|
December
31
|
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Revenue
|
|
$
|
36,250
|
|
$
|
35,999
|
|
$
|
35,151
|
|
$
|
37,146
|
|
Net
loss
|
|
|
(2,645
|
)
|
|
(4,271
|
)
|
|
(7,877
|
)
|
|
(3,269
|
)
|
Basic
and diluted net loss per share
|
|
$
|
(0.01
|
)
|
$
|
(0.02
|
)
|
$
|
(0.03
|
)
|
$
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at
Beginning
Of
Fiscal
Period
|
|
Charges
to
Costs
and
Expense
|
|
Charges
to
Other
Accounts
|
|
Deductions
|
|
Balance
at
End
of
Fiscal
Period
|
|
|||||
Year
ended December 31, 2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for doubtful accounts
|
|
$
|
1,595
|
|
$
|
2,435
|
|
$
|
--
|
|
$
|
(1,601
|
)
|
$
|
2,429
|
|
Tax
valuation allowance
|
|
|
138,351
|
|
|
--
|
|
|
23,323
|
|
|
--
|
|
|
161,674
|
|
Year
ended December 31, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for doubtful accounts
|
|
|
2,429
|
|
|
2,415
|
|
|
--
|
|
|
(3,720
|
)
|
|
1,124
|
|
Tax
valuation allowance
|
|
|
161,674
|
|
|
--
|
|
|
7,308
|
|
|
--
|
|
|
168,982
|
|
Year
ended December 31, 2005
|
||||||||||||||||
Provision
for doubtful accounts
|
1,124
|
1,431
|
--
|
(1,592
|
)
|
963
|
||||||||||
Tax
valuation allowance
|
168,982
|
--
|
1,948
|
--
|
170,930__
|