<PAGE>
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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 SEPTEMBER 30, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 0-______
INTERNATIONAL WIRELESS COMMUNICATIONS HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 94-3248701
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
400 SOUTH EL CAMINO REAL, SUITE 1275
SAN MATEO, CALIFORNIA 94402
(Address of principal executive offices)
--------------------------
(415) 548-0808
(Registrant's telephone number, including area code)
--------------------------
Indicate by check X whether the registrant (1) has filed all
reports required to be filed by Sections 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
(1) Yes X No
--- ---
(2) Yes No X
--- ---
As of September 30, 1996 there were 615,760 shares of the
Registrant's common stock outstanding and 16,906,400 shares of the
Registrant's preferred stock outstanding. Each such share of preferred
stock is currently convertible into one share of the Registrant's common
stock.
This document contains 32 pages.
Page 1 of 32
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<PAGE>
INTERNATIONAL WIRELESS COMMUNICATIONS HOLDINGS, INC.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
----
<S> <C> <C>
Item 1. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Balance Sheets at December 31, 1995 and September 30, 1996
(unaudited). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Operations for the three and nine months
ended September 30, 1995 and 1996 (unaudited). . . . . . . . . . . . . . . . . . 5
Consolidated Statements of Cash Flows for the nine months ended
September 30, 1995 and 1996 (unaudited). . . . . . . . . . . . . . . . . . . . . 6
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
PART II. OTHER INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Item 4. Submission of Matters to a Vote of Security Holders. . . . . . . . . . . . . . . 30
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . 30
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
EXHIBIT INDEX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
</TABLE>
Page 2 of 32
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Page 3 of 32
<PAGE>
INTERNATIONAL WIRELESS COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND SHARE DATA)
<TABLE>
<CAPTION>
ASSETS DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . $ 25,398 $ 82,766
Accounts receivable, net . . . . . . . . . . . . . . . . . . . -- 276
Notes receivable from affiliates . . . . . . . . . . . . . . . 338 853
Note receivable. . . . . . . . . . . . . . . . . . . . . . . . -- 1,385
Advances to affiliates . . . . . . . . . . . . . . . . . . . . 728 102
Other current assets . . . . . . . . . . . . . . . . . . . . . 387 1,386
---------- ----------
Total current assets. . . . . . . . . . . . . . . . . . . 26,851 86,768
Property and equipment, net. . . . . . . . . . . . . . . . . . . . 4,269 11,698
Investments in affiliates. . . . . . . . . . . . . . . . . . . . . 52,280 46,956
Telecommunication licenses and other intangibles, net. . . . . . . 12,106 17,198
License and other deposits . . . . . . . . . . . . . . . . . . . . -- 14,300
Debt issuance costs, net . . . . . . . . . . . . . . . . . . . . . -- 5,891
Other assets .. . . . . . . . . . . . . . . . . . . . . . . . . 137 664
---------- ----------
Total assets. . . . . . . . . . . . . . . . . . . . . . . $ 95,643 $ 183,475
---------- ----------
---------- ----------
LIABILITIES, MINORITY INTEREST, REDEEMABLE CONVERTIBLE
PREFERRED STOCK AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued expenses. . . . . . . . . . . . . $ 5,757 $ 3,496
Notes payable to related party . . . . . . . . . . . . . . . . 1,800 --
Note payable . . . . . . . . . . . . . . . . . . . . . . . . . 4,000 4,000
---------- ----------
Total current liabilities . . . . . . . . . . . . . . . . 11,557 7,496
Long-term debt, net. . . . . . . . . . . . . . . . . . . . . . . . -- 71,623
Commitments and contingencies
Minority interest. . . . . . . . . . . . . . . . . . . . . . . . . -- 5,400
Redeemable convertible preferred stock, $.01 par value per share;
21,541,480 shares designated; 15,698,400 and 15,973,200 shares
issued and outstanding in 1995 and 1996, respectively; net of
note receivable from stockholder of $26 in 1995 and 1996;
liquidation and minimum redemption value of $107,399 . . . . . . 98,845 102,519
Stockholders' deficit:
Convertible preferred stock, $.01 par value per share;
1,200,000 shares designated; 1,200,000 and 933,200 shares issued
and outstanding in 1995 and 1996, respectively; liquidation
value of $793. . . . . . . . . . . . . . . . . . . . . . . . . 12 9
Common stock, $.01 par value per share; 26,000,000
shares authorized; 328,000 and 615,760 shares
issued and outstanding in 1995 and 1996, respectively . . . . 3 6
Additional paid-in capital . . . . . . . . . . . . . . . . . . 749 31,055
Note receivable from stockholder . . . . . . . . . . . . . . . (152) (152)
Unrealized gain on investments . . . . . . . . . . . . . . . . -- 112
Cumulative translation adjustment. . . . . . . . . . . . . . . (1) 250
Accumulated deficit. . . . . . . . . . . . . . . . . . . . . . (15,370) (34,843)
---------- ----------
Total stockholders' deficit . . . . . . . . . . . . . . . (14,759) (3,563)
---------- ----------
Total liabilities, minority interest, redeemable
convertible preferred stock and stockholders' deficit . . $ 95,643 $ 183,475
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to Consolidated Financial Statements.
Page 4 of 32
<PAGE>
INTERNATIONAL WIRELESS COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- ----------------------
1995 1996 1995 1996
-------- -------- -------- --------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Operating revenues. . . . . . . . . . . . . . $ -- $ 349 $ -- $ 532
Cost of revenues. . . . . . . . . . . . . . . -- 361 -- 541
-------- --------- --------- --------
Gross margin. . . . . . . . . . . . . . . -- (12) -- (9)
Operating expenses:
General and administrative expenses . . . 1,492 4,257 3,565 10,610
Equity in losses of affiliates. . . . . . 646 2,521 1,171 5,507
-------- --------- --------- --------
Loss from operations . . . . . . . . 2,138 (6,790) (4,736) (16,126)
Other income (expense):
Interest income . . . . . . . . . . . . . 18 513 130 937
Interest expense. . . . . . . . . . . . . (584) (2,462) (785) (2,663)
Other . . . . . . . . . . . . . . . . . . -- 14 (10) 1
-------- --------- --------- --------
Net loss . . . . . . . . . . . . . . $ (2,704) $ (8,725) $ (5,401) $(17,851)
-------- --------- --------- --------
-------- --------- --------- --------
</TABLE>
See accompanying notes to Consolidated Financial Statements.
Page 5 of 32
<PAGE>
INTERNATIONAL WIRELESS COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
----------------------
1995 1996
-------- ---------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (5,401) $(17,851)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 460
Amortization of telecommunication licenses and other intangibles. . . . . . . . . . 30 529
Amortization of debt issuance costs . . . . . . . . . . . . . . . . . . . . . . . . -- 109
Amortization of long term debt discount. . . . . . . . . . . . . . . . . .. . . . . -- 1,921
Equity in losses of affiliates. . . . . . . . . . . . . . . . . . . . . . . . . . . 1,171 5,507
Minority interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 5,400
Unrealized gain on investments. . . . . . . . . . . . . . . . . . . . . . . . . . . -- 112
Changes in operating assets and liabilities:
Accounts receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (66)
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6) (985)
Accounts payable and accrued expenses. . . . . . . . . . . . . . . . . . . . . . 662 (2,571)
-------- ---------
Net cash used in operating activities. . . . . . . . . . . . . . . . . . . . (3,532) (7,435)
-------- ---------
Cash flows from investing activities:
Notes receivable from affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . (135) (1,098)
Repayment of notes receivable from affiliate. . . . . . . . . . . . . . . . . . . . . . -- 583
Note receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (3,185)
Repayment of note receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 1,800
Advances to affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (1,924)
Purchases of property and equipment. . . . . . . . . . . . . . . . . . . . . . . . . . (35) (1,657)
Purchase of TeamTalk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (3,198)
Investments in affiliates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (28,474) (2,167)
Telecommunication licenses and other intangibles . . . . . . . . . . . . . . . . . . . -- (3,971)
License and other deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (14,300)
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (345)
-------- ---------
Net cash used in investing activities. . . . . . . . . . . . . . . . . . . . (28,644) (29,462)
-------- ---------
Cash flows from financing activities:
Proceeds from issuance of notes payable. . . . . . . . . . . . . . . . . . . . . . . . 26,276 --
Proceeds from revolving credit facility. . . . . . . . . . . . . . . . . . . . . . . . -- 7,000
Repayment of revolving credit facility. . . . . . . . . . . . . . . . . . . . . . . . -- (7,000)
Exercise of stock options. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 6
Debt issuance costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (6,000)
Proceeds from issuance of long-term debt . . . . . . . . . . . . . . . . . . . . . . . -- 69,702
Proceeds from issuance of warrants . . . . . . . . . . . . . . . . . . . . . . . . . . -- 30,300
-------- ---------
Net cash provided by financing activities. . . . . . . . . . . . . . . . . . 26,276 94,008
-------- ---------
Effect of foreign currency exchange rates on cash and cash equivalents . . . . . . . . . -- 257
-------- ---------
Net (decrease) increase in cash and cash equivalents . . . . . . . . . . . . . . . . . . (5,900) 57,368
Cash and cash equivalents at beginning of year/period. . . . . . . . . . . . . . . . . . 10,298 25,398
-------- ---------
Cash and cash equivalents at end of year/period. . . . . . . . . . . . . . . . . . . . . $ 4,398 $ 82,766
-------- ---------
-------- ---------
Supplemental cash flow information:
Cash paid for interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ -- $ 363
-------- ---------
-------- ---------
Noncash financing and investing activities:
Conversion of note receivable from affiliate to investment in affiliate. . . . . . . . $ 2,020 $ --
-------- ---------
-------- ---------
Conversion of notes payable and interest to related party into redeemable convertible
preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ -- $ 2,052
-------- ---------
-------- ---------
Effect of net assets of TeamTalk previously accounted for by the
equity method . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ -- $ 4,395
-------- ---------
-------- ---------
</TABLE>
See accompanying notes to Consolidated Financial Statements.
Page 6 of 32
<PAGE>
INTERNATIONAL WIRELESS COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
International Wireless Communications Holdings, Inc. ("IWC Holdings") was
incorporated in Delaware in July 1996 as a holding company whose primary
assets are all of the issued and outstanding capital stock of International
Wireless Communications, Inc. ("IWC") and a note receivable from IWC in
a principal amount equal to the net proceeds from the Debt Offering (see
note 8). IWC was incorporated in Delaware in January 1992 and develops,
owns and operates wireless communications companies in emerging markets
in Asia and Latin America. These local wireless businesses
("LWBs") provide a variety of communication services, including enhanced
capacity trunked radio ("ECTR"), wireless local loop ("WLL"), cellular
and paging. Together with its strategic partners, IWC has interests in
Brazil, China, India, Indonesia, Malaysia, Mexico, New Zealand,
Pakistan, Peru, Philippines, Taiwan and Thailand.
Subsequent to the formation of IWC Holdings, IWC Holdings and IWC completed
a reorganization in which IWC became a wholly owned subsidiary of IWC
Holdings through the conversion of each share of the then outstanding
capital stock of IWC into 40 shares of the corresponding class and series
of stock of IWC Holdings (the "Stock Conversion").
In the opinion of management, the accompanying unaudited financial
statements of IWC Holdings and subsidiary (the "Company") reflect all
adjustments (consisting only of normal recurring adjustments) considered
necessary for a fair presentation of the Company's financial condition,
results of operation and cash flows for the period presented. These
financial statements should be read in conjunction with the Company's
audited consolidated financial statements as of December 31, 1994 and 1995,
and for each of the years in the three-year period ended December 31, 1995,
including the notes thereto. The results of operations for the three and
nine months ended September 30, 1996 are not necessarily indicative of
results that may be expected for the year ended December 31, 1996. All
data related to shares and per share amounts for all periods presented have
been adjusted to reflect the effect of the Stock Conversion.
BASIS OF CONSOLIDATION
The accompanying consolidated financial statements of the Company include
the accounts of IWC, its wholly owned subsidiary, SRC Servicos de Rario
Comunicacoes Ltda ("SRC"), and two majority-owned subsidiaries, M/S
Mobilcom (Pte) Ltd. ("Mobilcom") and PeruTel SA ("PeruTel"). Effective
April 30, 1996, IWC acquired the remaining 50% of TeamTalk Limited
("TeamTalk") that it did not then own, and as such, the accompanying
consolidated balance sheet as of September 30, 1996 also includes the
accounts of TeamTalk. The consolidated statement of operations for the
three and nine month periods ended September 30, 1996 also include the
accounts of the now wholly owned TeamTalk subsidiary since April 30,
1996, the effective date of the acquisition (see Note 4). Prior to April
30, 1996, the consolidated financial statements reflect TeamTalk as an
investment accounted for under the equity method. In August 1996, IWC
acquired a 70% interest in Star Telecom Overseas (Cayman Islands)
Limited ("STOL"), and as such, the accompanying consolidated balance
sheet as of September 30, 1996 also includes the accounts of STOL. As
of September 30, 1996, STOL had no significant operations. All
significant intercompany accounts and transactions have been eliminated
in consolidation.
Page 7 of 32
<PAGE>
INTERNATIONAL WIRELESS COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(2) BALANCE SHEET COMPONENTS
Balance sheet components are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1996
<S> <C> <C>
Property and equipment
Furniture and fixtures. . . . . . . . . . . . . . . . . $ 40 $ 304
Office equipment. . . . . . . . . . . . . . . . . . . . 126 507
Automobiles . . . . . . . . . . . . . . . . . . . . . . 34 183
Telecommunication equipment . . . . . . . . . . . . . . -- 9,114
Construction in process . . . . . . . . . . . . . . . . 4,125 2,106
--------- ---------
4,325 12,214
Less accumulated depreciation . . . . . . . . . . . . . 56 516
--------- ---------
Property and equipment, net. . . . . . . . . . . . . $ 4,269 $ 11,698
--------- ---------
--------- ---------
Telecommunication licenses and other intangibles
SRC . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,714 $ 6,680
Mobilcom. . . . . . . . . . . . . . . . . . . . . . . . 5,439 5,439
STOL. . . . . . . . . . . . . . . . . . . . . . . . . . -- 3,971
TeamTalk. . . . . . . . . . . . . . . . . . . . . . . . -- 1,658
--------- ---------
12,153 17,748
Less accumulated amortization . . . . . . . . . . . . . 47 550
--------- ---------
Telecommunication licenses and other intangibles, net $ 12,106 $ 17,198
--------- ---------
--------- ---------
Accounts payable and accrued expenses
Accounts payable. . . . . . . . . . . . . . . . . . . . $ -- $ 665
Professional services . . . . . . . . . . . . . . . . . 3,041 1,084
Employee compensation and benefits. . . . . . . . . . . 189 458
Interest. . . . . . . . . . . . . . . . . . . . . . . . 256 271
Equipment purchases . . . . . . . . . . . . . . . . . . 1,719 --
Other . . . . . . . . . . . . . . . . . . . . . . . . . 552 1,018
--------- ---------
$ 5,757 $ 3,496
--------- ---------
--------- ---------
</TABLE>
(3) CASH AND CASH EQUIVALENTS
The Company has adopted the provisions of Statement of Financial Accounting
Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" and has classified its investments in certain debt and
equity securities as "available for sale". Such investments are recorded
at fair value, with unrealized gains and losses reported as a separate
component of stockholders' deficit. The cost of securities sold is based
upon the specific identification method.
Upon closing of the Debt Offering (see Note 8), the Company invested
the net proceeds in a variety of short-term, highly liquid investments,
all with original maturities of 90 days or less. As of September 30,
1996, the Company had cash in the amount of $13,976,000 and cash
equivalents consisting of mutual funds and U.S. government and agency
obligations in the aggregate amounts of $1,751,000 and $67,039,000,
respectively. Unrealized gains on investments of $112,000 is included
as a component of stockholders' deficit on the accompanying balance
sheet as of September 30, 1996.
Page 8 of 32
<PAGE>
INTERNATIONAL WIRELESS COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(4) INVESTMENTS IN AFFILIATES
The Company's investments in affiliates represent interests in various LWBs
in several developing countries. These investments are accounted for under
the equity or cost method.
EQUITY INVESTMENTS
For those investments in companies in which IWC's voting interest
is 20% to 50%, or for investments in companies in which IWC exerts
significant influence through board representation and management
authority, the equity method of accounting is used. Under this method, the
investment, originally recorded at cost, is adjusted to recognize the
Company's share of net earnings or losses of the affiliates, limited to the
extent of the Company's investment in and advances to the affiliates,
including any debt guarantees or other contractual funding commitments. The
Company's share of net earnings or losses of affiliates includes the
amortization of purchase accounting adjustments for the excess of cost over
the net book value of the interest acquired that is allocated to
telecommunication licenses, participation rights and other intangibles.
Investments in affiliated companies as of December 31, 1995 and
September 30, 1996 are as follows:
<TABLE>
<CAPTION>
PORTION OF
INVESTMENT
EXCEEDING THE
COMPANY'S SHARE
INVESTMENTS IN OF THE UNDERLYING
PERCENTAGE OF AFFILIATED HISTORICAL NET
OWNERSHIP COMPANIES(1) ASSETS
--------- ------------ -------------------
COUNTRY AFFILIATED COMPANY 1995 1996 1995 1996 1995 1996
------- ----------------------------------- ---- ---- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Malaysia Syarikat Telefon Wireless
(M) Sdn Bhd ("STW") . . . . . . . . . . . . . 30% 30% $ 20,879 $18,630 $ 17,459 $ 17,459
Indonesia PT Rajasa Hazanah Perkasa ("RHP") . . . . . . 25% 25% 24,539 23,572 23,680 23,680
New Zealand TeamTalk Limited ("TeamTalk") . . . . . . . . 50% 100%(2) 2,345 -- 1,712 --
India HFCL Mobile Radio Limited ("HFCL"). . . . . . 49% 49% 243 243 243 243
Indonesia PT Binamulti Visualindo ("PTBV"). . . . . . . 49% 49% 206 206 206 206
New Zealand Wireless Data Services Ltd. ("WDS") . . . . . -- 50% -- 181 -- --
Philippines Universal Telecommunications
Service, Inc. ("UTS") . . . . . . . . . . . . 19% 20%(3) -- 1,924 -- 933
-------- ------- -------- -------
48,212 44,756 43,300 42,521
Less accumulated amortization. . . . . . . . . . . . . . . 966 2,790 966 2,790
-------- ------- -------- -------
$ 47,246 $41,966 $ 42,334 $39,731
-------- ------- -------- -------
-------- ------- -------- -------
</TABLE>
---------------
(1) Adjusted for the Company's share of cumulative equity losses of
affiliated companies.
(2) Reflects acquisition of remaining 50% of TeamTalk pursuant to
agreement dated June 24, 1996.
(3) Reflects acquisition of additional 1.25% pursuant to agreement dated
September 25, 1996. This investment was previously accounted for as a
cost investment.
On June 24, 1996, IWC entered into an agreement with its local partner in
TeamTalk to acquire such partner's 1,700,000 shares of TeamTalk's common
stock, as well as to assume TeamTalk's existing note payable to the
shareholder totaling $3,022,000, for a purchase price of approximately
$3,198,000. The agreement was effective April 30, 1996, with the purchase
price paid in July 1996. As of September 30, 1996, TeamTalk is consolidated
into the financial statements of the Company as a wholly owned subsidiary.
In connection with the incremental investment, the Company reclassified the
associated unamortized portion of investment exceeding the Company's share
of the underlying historical net assets to telecommunication licenses and
other intangibles. The fair value of the assets acquired and the liabilities
assumed in connection with the acquisition were $8,327,000 and $3,584,000,
respectively.
Page 9 of 32
<PAGE>
INTERNATIONAL WIRELESS COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(4) INVESTMENTS IN AFFILIATES (CONTINUED)
Financial information for significant affiliated companies accounted for by
the equity method is as follows (in thousands):
AS OF AND FOR THE YEAR ENDED
DECEMBER 31, 1995
--------------------------------
STW RHP(A) TEAMTALK
-------- ------- --------
Current assets. . . . . . . . $ 2,611 $ 5,316 $ 213
Noncurrent assets . . . . . . 33,299 21,336 6,307
Current liabilities . . . . . 2,988 17,496 3,933
Noncurrent liabilities. . . . 21,925 6,257 1,492
Net revenues. . . . . . . . . 749 5,463 348
Net loss. . . . . . . . . . . (5,898) (3,186) (1,490)
AS OF AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1996
--------------------------------
STW RHP TEAMTALK(B)
-------- ------- -----------
Current assets. . . . . . . . $ 1,852 $42,537 --
Noncurrent assets . . . . . . 46,625 26,462 --
Current liabilities . . . . . 8,214 14,084 --
Noncurrent liabilities. . . . 36,545 51,233 --
Net revenues. . . . . . . . . 832 6,969 --
Net loss. . . . . . . . . . . (7,630) (3,671) --
----------------
(A) For the period March 28, 1995 through December 31, 1995. Net
revenues and net loss for the period from January 1, 1995 through
March 27, 1995 were $1,821,000 and $387,000, respectively.
(B) Effective April 30, 1996, TeamTalk became a wholly owned
subsidiary of the Company. Net revenues and net loss for
the period from January 1, 1996 through April 30, 1996 were
$282,000 and $645,000, respectively.
COST INVESTMENTS
The Company uses the cost method of accounting for three other investments
as of September 30, 1996. They are Corporacion Mobilcom, S.A. de C.V. and
subsidiaries ("Mobilcom Mexico"), PT Mobilkom Telekomindo ("Mobilkom"), and
RPG Paging Services Limited ("RPSL"), which the Company acquired in August
1996 as part of IWC's acquisition of STOL. IWC's ownership percentages
in these entities are 2.23%, 15% and 7%, respectively. All three are
operating entities. Prior to September 25, 1996, the Company accounted for
UTS, owned directly by IWC and indirectly through Mobilcom Corporation, as
a cost investment. On September 25, 1996, IWC entered into an agreement to
increase its ownership interest in UTS from 19% to 20.25% for Philippine
Peso 11,253,200, or approximately $433,000, and correspondingly changed its
method of accounting to the equity method for this investment.
The following represents the Company's carrying value of these cost
investments:
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
Mobilcom Mexico. . . . . . . . $ 2,062 $ 2,062
Mobilkom . . . . . . . . . . . 1,500 1,500
UTS. . . . . . . . . . . . . . 1,472 --
RPSL . . . . . . . . . . . . . -- 1,428
-------- --------
$ 5,034 $ 4,990
-------- --------
-------- --------
Page 10 of 32
<PAGE>
INTERNATIONAL WIRELESS COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(4) INVESTMENTS IN AFFILIATES (CONTINUED)
PRO FORMA SUMMARY
The following unaudited pro forma summary combines the consolidated results
of operations of the Company as if (i) TeamTalk had been been a wholly
owned consolidated subsidiary since January 1, 1995, (ii) ownership in
STW and RHP had been 30% and 25%, respectively, since January 1, 1995,
(iii) the merger with Vanguard International Telecommunications, Inc.
("VIT"), a wholly owned subsidiary of Vanguard, had occurred on
January 1, 1995, and (iv) the acquisition of STOL had occurred
on January 1, 1995. This pro forma summary does not necessarily
reflect the results of operations as they would have been if the
Company had acquired the entities as of January 1, 1995.
Unaudited pro forma consolidated results of operations for the various
acquisitions and mergers as described above are as follows (in thousands):
NINE MONTHS ENDED
SEPTEMBER 30,
1995 1996
-------- --------
Revenues . . . . . . . . . . . $ 277 $ 814
Net loss . . . . . . . . . . . (11,471) (18,877)
(5) RELATED PARTY TRANSACTIONS
NOTES RECEIVABLE FROM AFFILIATES
Notes receivable from affiliates as of December 31, 1995, consisted
primarily of a note due from Mobilcom Mexico for $158,000, which earns
interest at 6% per annum; and an interest-free note due from RHP for
$128,000. During the nine months ended September 30, 1996, IWC loaned RHP
an additional $455,000 in exchange for a series of 90 day interest-free
promissory notes, which brought the total amount loaned to RHP to $583,000.
As of September 30, 1996, the loans to RHP had been repaid in full.
During the nine months ended September 30, 1996, IWC loaned PT Mobile
Selular Indonesia ("Mobisel"), an entity of which the Company then
indirectly owned 17.5% through IWC's investment in RHP, a total of $635,000
in exchange for a series of 90 day interest-free promissory notes. The
notes to Mobisel have subsequently been extended.
ADVANCES TO AFFILIATES
The advances to affiliates as of December 31, 1995, represented advances to
TeamTalk in the amount of $728,000. As a result of the acquisition of the
remaining 50% interest in TeamTalk, the Company now eliminates advances to
TeamTalk in consolidation.
In January 1996, IWC advanced $102,000 to UTS. The advance is interest-free
with no stated terms. Management believes the advance will be repaid
within one year.
Page 11 of 32
<PAGE>
INTERNATIONAL WIRELESS COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(5) RELATED PARTY TRANSACTIONS (CONTINUED)
NOTES PAYABLE TO RELATED PARTY
Notes payable to a related party as of December 31, 1995, consisted of two
notes payable to Vanguard Cellular Operating Corp. (Vanguard), a
significant stockholder of the Company, each in the amount of $900,000 plus
accrued interest at 9% compounded annually. On April 26, 1996, these notes,
plus $252,000 of accrued interest, were converted into 274,800 shares of
the Company's Series D Redeemable Convertible Preferred Stock.
REVOLVING CREDIT FACILITY
On July 26, 1996, IWC entered into a Loan Agreement (the "1996 TD Loan
Agreement") with Toronto Dominion (Texas), Inc., an affiliate of Toronto
Dominion Bank, a stockholder of the Company, providing for a $10.0 million
revolving credit facility. Subject to the terms and conditions of the 1996
TD Loan Agreement, IWC was able to borrow funds in an initial amount of at
least $2,000,000 and additional amounts in multiples of at least
$1,000,000. All borrowings were evidenced by a promissory note bearing
interest at a specified base rate plus a margin increasing from 2.25% to
3.75% over the term of the facility or a specified LIBOR rate plus a margin
increasing from 3.5% to 5.0% over the term of the facility and were due in
July 1997, subject to mandatory repayment, without premium, from the net
proceeds from any public or private sale of debt or equity securities, the
net proceeds from certain asset sales by the Company or its subsidiaries,
or certain other events. The obligations of IWC under the 1996 TD Loan
Agreement and the note issued pursuant thereto were secured by a pledge by
IWC of all capital stock of certain of IWC's subsidiaries and affiliates.
On July 26, 1996, IWC borrowed $7,000,000 under the 1996 TD Loan Agreement.
On August 15, 1996, this amount, plus interest and fees, was repaid in full
with the proceeds from the Debt Offering (see Note 8).
(6) NOTE RECEIVABLE
On June 6, 1996, IWC loaned $3,080,000 to a co-shareholder of Mobilcom
Mexico, a trunked radio services operator in Mexico. IWC then owned
a 2.23% equity interest in Mobilcom Mexico. The loan, in the form of a
promissory note, accrues interest at 13% per annum and is due upon written
demand by IWC. The Company believes that this loan may facilitate future
strategic investments in projects in which this co-shareholder is involved.
As of September 30, 1996, the co-shareholder had repaid $1,800,000 of the
total amount loaned, bringing the remaining principal plus interest owed to
$1,385,000.
(7) LICENSE AND OTHER DEPOSITS
On June 28, 1996, IWC deposited $3,042,000 with a Taiwanese corporation
that is pursuing telecommunication licenses in Taiwan. This deposit
represents a 20% interest in a number of telecommunication license
applications currently being pursued. During the application process, the
deposit will be held in an interest-bearing escrow account in the name of
IWC. Once a license is granted, the deposit will become IWC's initial
capital of the venture that is ultimately formed. If the Taiwanese
corporation is unsuccessful in securing these applications, IWC's deposit,
less its pro rata share of application related expenses, will be
returned to IWC.
On August 27, 1996, IWC deposited $2,250,000 for a 10% interest in a Taiwan
paging project, a project in which the Company already has an indirect 14%
interest through IWC's investment in STOL. IWC and its partners in
this project have applied for a national paging license. If the license is
granted to the project, the deposit will become IWC's initial capital of
the venture that is ultimately formed to pursue the paging business in
Taiwan. If a license is not received, IWC's deposit, less its pro rata
share of application related expenses, will be returned to IWC.
Page 12 of 32
<PAGE>
INTERNATIONAL WIRELESS COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(7) LICENSE AND OTHER DEPOSITS (CONTINUED)
In September 1996, IWC entered into a subscription agreement (the "SDL
Subscription Agreement") with Star Telecom Holdings Limited ("STHL"), the
Company's partner in STOL, to purchase a 40% equity interest in SDL for an
aggregate purchase price of $20 million. The consummation of such
investment is subject to the fulfillment of certain closing conditions,
including the attainment by STHL of shareholder approval for the
transaction. Pursuant to the Subscription Agreement, in September 1996,
IWC also entered into an escrow agreement (the "SDL Escrow Agreement")
and deposited, in escrow, $9 million of the $20 million purchase price.
This investment has subsequently been consummated (see Note 13).
(8) LONG-TERM DEBT
On August 15, 1996, the Company issued 196,720 units, each consisting of a
$1,000 principal amount 14% Senior Secured Discount Note due 2001 (a "Note"
and, collectively, the "Notes") and one warrant to purchase 11.638 shares
of common stock, $0.01 par value, for total gross proceeds of $100 million
(the "Debt Offering"). Net proceeds, after repayment of $7.4 million,
including interest and fees, borrowed under the 1996 TD Loan Agreement (see
Note 5) and other offering expenses, totaled $86,602,000. Of the
$100 million gross proceeds, $30.3 million was allocated to additional
paid-in capital as the fair value of the warrants issued in the Debt
Offering. Long-term debt is presented net of unamortized discount of
$125,097,000 on the accompanying balance sheet as of September 30, 1996.
The aggregate principal amount of the Notes is $196,720,000. The Notes
are due on August 15, 2001 and bear interest at an effective rate of
22.05%, compounded semi-annually. There are no scheduled cash interest
payments on the Notes. The Notes are senior secured obligations of the
Company and will rank PARI PASSU in right of payment with all existing and
future senior indebtedness of the Company and senior to all subordinated
indebtedness of the Company. The Notes are effectively subordinated to all
indebtedness and other liabilities (including trade payables) of the
Company's subsidiaries and affiliated companies. The collateral securing
the Notes consists of a pledge of all of the capital stock of IWC. There are
no sinking fund requirements with respect to the principal of or the
interest on the Notes. Upon the occurrence of a change of control (as
defined in the indenture governing the Notes), each holder of the Notes will
have the option to require the Company to repurchase all or a portion of
such holder's Notes at 101% of the accreted value thereof to the date of
repurchase.
The costs related to the issuance of the long-term debt were capitalized
and are being amortized to interest expense using the effective interest
method over the life of the debt. Debt issuance costs are presented net of
amortization of $109,000 on the accompanying balance sheet as of September
30, 1996.
(9) MINORITY INTEREST
In August 1996, IWC acquired a 70% interest in STOL, which holds minority
interests in paging projects in India and Taiwan and is currently pursuing
additional paging opportunities in Indonesia and Thailand, for an aggregate
purchase price of $13.5 million. IWC's partner in STOL is STHL, IWC's
partner in SDL that owns one of the largest paging operators and Internet
service providers in Hong Kong. The total stockholders' equity of STOL
at September 30, 1996 is $18,000,000, of which $5,400,000 represents a
minority interest.
Page 13 of 32
<PAGE>
INTERNATIONAL WIRELESS COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(10) STOCK OPTION/STOCK ISSUANCE PLAN
On March 6, 1996, the Board of Directors of the Company approved the
amendment to and restatement of the 1994 Stock Option/Stock Issuance Plan
(the "1994 SO/SIP") and authorized the issuance of an additional 1,000,000
shares of common stock thereunder. The Board of Directors also granted an
additional 764,000 options at an exercise price of $8.13.
On April 19 and May 1, 1996 the Board of Directors granted an additional
60,000 and 48,000 options, respectively, under the 1994 SO/SIP at an
exercise price of $8.13.
On June 11, 1996, the Board of Directors approved another amendment and
restatement to the 1994 SO/SIP and authorized the issuance of an additional
400,000 shares of common stock thereunder. The Board of Directors also
granted an additional 20,000 options under the 1994 SO/SIP at an exercise
price of $9.38.
In July 1996, the Board of Directors granted an additional 170,000 options
under the 1994 SO/SIP at an exercise price of $9.38.
(11) STOCKHOLDERS' DEFICIT
In August 1996, a stockholder of the Company converted 266,800 shares of
the Company's Series A preferred stock into 266,800 shares of the Company's
common stock.
(12) COMMITMENTS AND CONTINGENCIES
CAPITAL CONTRIBUTIONS
In order to protect IWC's investments in affiliates from ownership
dilution, IWC has committed to make additional capital contributions
to the LWBs as needed.
IWC anticipates making additional investments in various operating
companies totaling $14,500,000.
NOTE PAYABLE
IWC is jointly and severally liable on a $16,000,000 note payable
to an unrelated party in connection with its RHP investment. The note
bears interest at 6.95% with principal and interest due October 10, 1996.
The Company has recorded its 25% pro rata share of this note on the
accompanying consolidated balance sheets. In the event that the other
payors, who are also shareholders of RHP, and RHP itself, are unable to
honor their pro rata obligation, IWC would be wholly liable. This
note, plus accrued interest, was paid in October 1996 (see Note 13).
GUARANTEE OF DEBT OF EQUITY INVESTEE
In connection with a Ringgit 91,000,000 (approximately $36,300,000 as
translated using effective exchange rates at September 30, 1996) senior
credit facility (the "STW Credit Facility") with a Malaysian bank
obtained by IWC's 30% equity investee, STW and IWC along with the other
STW shareholder, executed a financial "keep well" covenant pursuant to
which they have agreed (i) to ensure that STW will remain solvent and
be able to meet its financial liabilities when due and (ii), to ensure
that the project is completed timely, to make additional debt and
equity investments in STW to meet cost overruns. The loan is repayable
by STW in eleven semi-annual installments beginning October 8, 1997.
IWC and other STW shareholders have separately executed an agreement,
whereby each shareholder has agreed to share in the liability on a pro
rata basis in relation to their interest in STW. In the event that
the bank were to seek repayment from the STW shareholders and the other
shareholders were unable to honor their pro rata share in the
liability, IWC would likely be liable for the full amount of the
outstanding amount of the loan. The balance on this loan was Ringgit
54,640,000 or $21,500,000 and Ringgit 91,000,000 or $36,300,000 as of
December 31, 1995 and September 30, 1996, respectively. No provision
has been made in the accompanying consolidated financial statements for
any impact that might result from this arrangement.
STW currently has a number of trade creditors to whom payments are
currently past due. Certain of these trade creditors have notified STW
that they are considering legal action against STW for non-payment.
STW's failure to resolve this matter in a timely manner may give rise
to rights in such creditors, including the right to file an action for
the winding up of STW. Further, under the "keep well" covenant of the
STW Credit Facility, IWC may be deemed liable for the entire amount of
such payables, which may have a material adverse effect on the Company.
Management believes that a recent capital contribution by the
shareholders of STW will provide sufficient capital to address this
matter.
Page 14 of 32
<PAGE>
INTERNATIONAL WIRELESS COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(12) COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Company, indirectly through its wholly owned subsidiary, New Zealand
Wireless Limited, owns 15% of Mobilkom, a provider of enhanced capacity
trunked radio services in Indonesia. Mobilkom expects to fund the
continued buildout of its network and the acquisition of subscriber
terminals primarily through a seven-year $50 million revolving/reducing
credit facility which it has obtained from a syndicate of Thai banks.
Borrowings under the credit facility bear interest at a floating rate based
on LIBOR and are secured by substantially all of Mobilkom's assets and a
pledge of all the capital stock held by IWC and Mobilkom's other
shareholders. Another Mobilkom shareholder has guaranteed borrowings of up
to $25 million under the credit facility. As of September 30, 1996,
borrowings of approximately $20.2 million were outstanding under this
facility.
At September 30, 1996, the Company indirectly owned a 17.5% equity interest
in Mobisel, a provider of cellular services in Indonesia through IWC's 25%
interest in RHP. Mobisel has obtained a six-year $60 million credit
facility from Nissho Iwai International (Singapore) PTE., LTD. ("Nissho
Iwai") to finance the construction of its network and the purchase of
subscriber terminals. Borrowings under the credit facility bear interest
at a floating rate based on LIBOR and are secured by all of Mobisel's
assets and a pledge of all the capital stock held by RHP and Mobisel's
other shareholders. RHP has also guaranteed the credit facility. As of
September 30, 1996, borrowings of approximately $50 million were
outstanding under this facility.
(13) SUBSEQUENT EVENTS
In October 1996, IWC paid $1,000,000 for an option to purchase 50%
of Laranda Sdn Bhd, a 10% shareholder of STW, for an exercise price of
$7,200,000 and certain other contractual rights. The exercise of such
option, which would increase IWC's aggregate direct and indirect
equity interest in STW to 35%, is at IWC's discretion and is
subject to the procurement of certain governmental approvals.
In October 1996, IWC expended an additional $4,300,000, consisting
of $4,000,000 of principal plus accrued interest, to repay its pro rata
share of a note payable to an unrelated party assumed in connection with
RHP and $8,556,000 to increase its interest in RHP to 29.2%, thereby
increasing its indirect equity interest in Mobisel to 20.4%.
In November 1996, in connection with the closing of IWC's acquisition of
an equity interest in SDL, the $9,000,000 that was held in escrow pursuant
to the SDL Subscription Agreement and the SDL Escrow Agreement was
released to STHL, and IWC funded an additional $11,000,000 to acquire its
40% interest in SDL for an aggregate purchase price of $20,000,000.
Page 15 of 32
<PAGE>
INTERNATIONAL WIRELESS COMMUNICATIONS HOLDINGS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
THE DISCUSSION IN THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS THAT
INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE DISCUSSED HEREIN. FACTORS THAT COULD CAUSE OR CONTRIBUTE
TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN "RISK
FACTORS THAT MAY AFFECT FUTURE RESULTS" AS WELL AS THOSE DISCUSSED IN THIS
SECTION AND ELSEWHERE IN THIS REPORT, AND THE RISKS DISCUSSED IN THE "RISK
FACTORS" SECTION INCLUDED IN THE COMPANY'S REGISTRATION STATEMENT ON FORM S-1
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 13, 1996,
AS SUBSEQUENTLY AMENDED (REG. NO. 333-11987).
RESULTS OF OPERATIONS
The Company's net loss increased from $5.4 million for the nine month
period ended September 30, 1995 to $17.9 million for the corresponding
period in 1996, an increase of 231%. For the three month period ended
September 30, 1995, the Company's net loss was $2.7 million compared to $8.7
million for the corresponding period in 1996, an increase of 223%. These
increases were due primarily to higher general and administrative expenses,
increases in equity in losses of affiliates and increases in interest
expense, as more fully described below.
The Company recorded no operating revenues and cost of revenues for the
nine month period ended September 30, 1995 compared to $532,000 in operating
revenues, offset by $541,000 in cost of revenues, for the corresponding
period in 1996. For the three month period ended September 30, 1996, the
Company recorded operating revenues of $349,000, offset by $361,000 in cost
of revenues. The operating revenues and cost of revenues for the nine and
three month periods ended September 30, 1996 resulted from the acquisition,
effective April 30, 1996, of the remaining 50% of TeamTalk, which increased
the Company's equity interest in TeamTalk to 100% and resulted in the
consolidation of TeamTalk's operations in the Company's financial statements.
General and administrative expenses increased from $3.6 million for the
nine month period ended September 30, 1995 to $10.6 million for the
corresponding period in 1996, an increase of 198%. For the three month period
ended September 30, 1995, general and administrative expenses were $1.5
million compared to $4.3 million for the corresponding period in 1996, an
increase of 185%. These increases were primarily due to increases in salary
and travel expenses and consulting fees that reflect the overall growth in
the Company's business.
General and administrative expenses for the nine month period ended
September 30, 1996 includes (i) $876,000 and $2.2 million of general and
administrative expenses associated with the consolidation of the operations
of TeamTalk and SRC, respectively, in the Company's financial statements and
(ii) $475,000 due to the amortization of telecommunication licenses of the
Company's consolidated subsidiaries. General and administrative expenses for
the three month period ended September 30, 1996 includes (i) $543,000 and
$1.3 million of general and administrative expenses associated with the
consolidation of the operations of TeamTalk and SRC, respectively, in the
Company's financial statements and (ii) $162,000 due to the amortization of
telecommunication licenses of the Company's consolidated subsidiaries. There
was no material amortization of telecommunication licenses for consolidated
subsidiaries during the corresponding nine and three month periods in 1995.
Equity in losses of affiliates increased from $1.2 million for the nine
month period ended September 30, 1995 to $5.5 million for the corresponding
period in 1996, an increase of 370%. For the three month period ended
September 30, 1995, equity in losses of affiliates was $646,000, compared to
$2.5 million for the corresponding period in 1996, an increase of 290%.
For the nine month period ended September 30, 1995, equity in losses of
affiliates consisted of $647,000 of operating losses and $524,000 of expense
relating to the amortization of telecommunication licenses. For the
corresponding period in 1996, equity in losses of affiliates consisted of
$3.6 million of operating losses and $1.9 million of expense relating to
amortization of telecommunication licenses. For the three month period ended
September 30, 1995, equity in losses of affiliates consisted of $386,000 of
operating losses and $260,000 of expense relating to the amortization of
telecommunication licenses. For the corresponding period in 1996, equity in
losses of affiliates consisted of $1.7 million of operating losses and
$792,000 of expense relating to amortization of telecommunication licenses.
The increase in operating losses for the three and nine month periods
ended September 30, 1996 compared to corresponding periods in 1995 reflects
an increase in the underlying operating losses of STW and RHP. In 1995 and
the first half of 1996, STW had increased operating losses due to the
expansion of its operations. However, due to the efforts of the Malaysian
government to rationalize the Malaysian telecommunications industry,
operating revenues during such period were nominal. Further, the operating
losses of RHP's majority-owned subsidiary, Mobisel, increased due primarily
to the expansion of Mobisel's sales and administrative operations.
The increase in amortization of telecommunication licenses for the three
and nine month periods ended September 30, 1996 compared to the corresponding
periods in 1995 was primarily due to the amortization of RHP's
telecommunication licenses, which was minimal in 1995 and $1 million for the
nine month period ended September 30, 1996.
The Company's interest income increased from $130,000 for the first nine
months of 1995 to $937,000 for the corresponding period in 1996, an increase
of 621%. This increase was due primarily to interest earned on the proceeds
from the sale and issuance of shares of the Company's Preferred Stock in late
1995 and the Debt Offering in August 1996, which were invested in short-term
interest-bearing securities. Interest income was $18,000 for the three month
period ended September 30, 1995 compared to $513,000 for the corresponding
period in 1996. This increase was due to the interest earned as a result of
the investment of the proceeds of the Debt Offering, which was consummated in
August 1996.
The Company's interest expense increased from $785,000 for the first nine
months of 1995 to $2.7 million for the corresponding period in 1996, an
increase of 239%. Interest expense was $584,000 for the three month period
ended September 30, 1995 compared to $2.5 million for the corresponding
period in 1996. These increases in interest expense were primarily due to
interest expense associated with the Debt Offering, which was consummated in
August 1996.
Page 16 of 32
<PAGE>
IMPACT OF INFLATION AND CURRENCY FLUCTUATION
Many developing countries have experienced substantial, and in some periods
extremely high, rates of inflation and resulting high interest rates for many
years. Inflation and rapid fluctuations in inflation rates have had and may
continue to have negative effects on the economies and securities markets of
certain developing countries and could have an adverse effect on the operating
companies and developmental stage projects in those countries, including an
adverse effect on their ability to obtain financing.
The value of the Company's investment in an operating company or
developmental stage project is partially a function of the currency exchange
rate between the dollar and the applicable local currency. In addition, the
operating companies will report their results of operations in the local
currency and, accordingly, the Company's results of operations will be affected
by changes in currency exchange rates between those currencies and U.S.
dollars. The Company does not hedge against foreign currency exchange rate
risks. As a result, the Company may experience economic loss with respect to
its investments and fluctuations in its results of operations solely as a
result of currency exchange rate fluctuations. For example, the Company
experienced a significant decline in the value of its investment in Mobilcom
Mexico, its ECTR operating company in Mexico, as a result of the 1994
devaluation of the Mexican peso and the resulting economic instability in
Mexico. Many of the currencies of developing countries have experienced
steady devaluations relative to the U.S. dollar, and major adjustments have
been made in the past and may again occur in the future, any of which could
have a material adverse effect on the Company.
To the extent that the operating companies commence or have commenced
commercial operations, any revenues they generate will generally be paid to the
operating companies in the local currency. By contrast, many significant
liabilities of the operating companies (such as liabilities for the financing of
telecommunications equipment) may be payable in U.S. dollars or in currencies
other than the local currency. As a result, any devaluation in the local
currency relative to the currencies in which such liabilities are payable could
have a material adverse effect on the Company.
LIQUIDITY AND CAPITAL RESOURCES
To date, the Company has funded its cash requirements primarily using the
net proceeds from a series of Preferred Stock private placements, bridge loans
and the Debt Offering. The bridge loans have generally been converted into
Preferred Stock. The proceeds from these financings were mainly used to fund the
Company's investments in operating companies and developmental stage projects,
to provide working capital and for general corporate purposes, including the
expenses incurred in seeking and evaluating new investment opportunities. As of
December 31, 1995 and September 30, 1996, the Company had cash balances of $25.4
million and $82.8 million, respectively.
The Company has generated negative cash flow from operations for each of
the last three fiscal years and for the nine months ended September 30, 1996,
and its operating companies and developmental stage projects are not expected to
provide any cash to the Company for the foreseeable future. As a result, the
Company is and will remain dependent upon raising funds from outside sources to
fund its working capital needs, investments in operating companies and
developmental stage projects and other cash requirements and to repay the Notes
and any other indebtedness it may incur when it becomes due and payable.
The Company will require additional financing prior to December 31, 1997 to
meet currently anticipated investments in its operating companies and
developmental stage projects. The Company has no commitments or arrangements for
additional financing, and there can be no assurance that this additional
financing will be available to the Company on acceptable terms when required by
the Company or at all. The Company's inability to obtain such additional
financing on acceptable terms would have a material adverse effect on the
Company. In addition, the Company intends to pursue additional investment
opportunities for wireless communications projects and will require additional
sources of financing in order to pursue those investments. However, there can be
no assurance that such additional financing will be available on favorable terms
or at all. See "Risks Factors That May Affect Future Results--Company Level
Risks--Negative Operating Cash Flow; Dependence on Additional Financing; No
Commitments for Additional Financing."
Page 17 of 32
<PAGE>
At the project level, IWC and its partners typically fund initial project
investments using capital contributions either in the form of equity or
shareholder loans. When projects become operational, IWC seeks to fund
ongoing development of the project using third-party financing, preferably on
a non-recourse basis to the Company.
Mobilkom, IWC's national ECTR operating company in Indonesia, arranged a
$50.0 million credit facility through a syndicate of Thai banks. This
facility is secured by all of the assets and capital stock of Mobilkom, and
$25.0 million of the facility has been guaranteed by Jasmine International
Public Company Limited ("Jasmine"), a 56.25% owner of Mobilkom. As of
September 30, 1996, approximately $20.2 million was outstanding under this
facility. The Company anticipates that the current $50.0 million facility
will be sufficient for Mobilkom to meet all of its currently anticipated
expenditures through 1997. Borrowings outstanding under this credit facility
must be repaid in 16 quarterly installments commencing in 2000.
Mobisel, IWC's national cellular operating company in Indonesia, in which
the Company held an indirect 17.5% interest as of September 30, 1996 through
IWC's investment in RHP, has obtained a $60.0 million credit facility from
Nissho Iwai. This facility is secured by all of Mobisel's assets and a
pledge of all of the capital stock of Mobisel held by RHP, which has also
guaranteed the credit facility. Borrowings under the credit facility with
Nissho Iwai are limited to funds necessary for the implementation and
construction of its network. Mobisel will require substantial additional
financing to complete its planned capital expenditures through 1997 and for
other cash needs. Accordingly, Mobisel has commenced discussions with a
number of potential financing sources in order to obtain additional
financing. Borrowings outstanding under this credit facility must be repaid
in six equal semi-annual installments beginning in late 1998.
STW, IWC's national WLL operating company in Malaysia, has arranged a
Ringgit 91.0 million (approximately $36.3 million as of September 30, 1996)
credit facility through a syndicate of Malaysian banks. This facility is
secured by substantially all of STW's assets and a pledge of all of the
capital stock of STW held by IWC and STW's other shareholders, and has been
guaranteed by Shubila Holding Sdn Bhd, the 60% owner of STW, and certain
officers of STW (including an officer of IWC). In addition, STW has agreed to
assign to and deposit with the banks all of its cash, including revenues,
loan drawings and shareholder advances. In addition to pledging their capital
stock in STW, IWC and the other STW shareholders have entered into a "keep
well" covenant pursuant to which they have agreed (i) to insure that STW
remains solvent and able to meet its financial liabilities when due and (ii)
to insure the timely completion of its WLL project and to make additional
debt or equity investments in STW necessary to meet any cost overruns.
Accordingly, IWC and the other STW shareholders could be jointly and
severally liable for amounts payable under the credit facility in the event
of a default by STW. Borrowings outstanding under this credit facility must
be repaid in eleven semi-annual installments beginning October 8, 1997.
In September 1996, pursuant to the SDL Subscription Agreement and the SDL
Escrow Agreement, IWC deposited $9.0 million of the $20.0 million purchase
price for a 40% equity interest in SDL into escrow with a Hong Kong financial
institution. In November 1996, in connection with the closing of the SDL
transaction, such $9.0 million was released to STHL, and IWC paid an
additional $11.0 million to SDL as payment in full for ordinary shares of SDL
representing a 40% equity interest in SDL.
In October 1996, IWC expended an additional $4.3 million to repay its pro
rata share of a note payable to an unrelated party assumed in connection with
RHP and paid an additional $8.5 million to acquire an additional 4.2% of RHP,
thereby increasing its aggregate ownership interest in RHP to 29.2% and,
therefore, its indirect ownership interest in Mobisel to 20.4%.
RISK FACTORS THAT MAY AFFECT FUTURE RESULTS
THE COMPANY OPERATES IN A RAPIDLY CHANGING ENVIRONMENT THAT INVOLVES A
NUMBER OF RISKS, SOME OF WHICH ARE BEYOND THE COMPANY'S CONTROL. THE
FOLLOWING DISCUSSION HIGHLIGHTS SOME OF THESE RISKS. THESE RISKS SHOULD BE
READ IN CONJUNCTION WITH THE "RISK FACTORS" SECTION INCLUDED IN THE COMPANY'S
REGISTRATION STATEMENT ON FORM S-1 AS FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION ON SEPTEMBER 13, 1996, AS SUBSEQUENTLY AMENDED (REG.
NO. 333-11987).
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<PAGE>
PROJECT LEVEL RISKS
EARLY STAGE OF DEVELOPMENT OF WIRELESS PROJECTS
Most of the Company's wireless projects are in the early stages of
development. Only the Company's seven operating companies, Mobilcom Mexico in
Mexico, Mobilkom and Mobisel in Indonesia, STW in Malaysia, TeamTalk in New
Zealand, UTS in the Philippines and SRC in Brazil, currently provide wireless
communications services on a commercial basis, and most of these operating
companies have only recently initiated providing such commercial service and
generally have a limited number of subscribers. Although memoranda of
understanding ("MOUs") have been signed with strategic partners in most of the
operating companies and developmental stage projects, in many cases definitive
joint venture and shareholder agreements have not been prepared or signed,
definitive legal entities have not been formed and/or required equity and debt
financing has not been secured. Even where an MOU or definitive joint venture
or shareholder agreement has been signed, there can be no assurance that the
terms of the Company's participation in an operating company or developmental
stage project will not be modified in a manner that is materially adverse to the
Company, particularly because the Company usually holds a minority interest.
The successful development and commercialization of these projects will depend
on a number of significant financial, logistical, technical, marketing, legal
and other factors, the outcome of which cannot be predicted. Virtually all of
the operating companies are, and in the future will be, newly-formed entities
that have a limited operating history and that operate at a loss for a
substantial period of time. These operating companies will require significant
amounts of additional financing to fund capital expenditures, working capital
requirements and other cash needs, including the costs of obtaining additional
licenses. In addition, there can be no assurance that these projects will not
encounter engineering, design or other operational problems. For example, STW,
the Company's Malaysian wireless local loop ("WLL") operating company, has
experienced significant delays in network deployment and its marketing plans
primarily as a result of adverse effects on STW of the Malaysian government's
recent attempt to consolidate the Malaysian telecommunications industry and its
related adverse effects. See "--Risks Inherent in Foreign Investment." As a
result, IWC and its principal strategic partner in STW have recently undertaken
an extensive review of STW's business plan and strategy, which is expected to be
completed by the end of 1996. There can be no assurance that the Company can
successfully develop any of its existing or planned developmental stage projects
or that any of these projects or any of its operating companies will achieve
commercial success. Further, the Company's current and anticipated ownership
interests in the operating companies and developmental stage projects are
subject to modification and may even be eliminated completely due to the
occurrence of certain events such as the re-negotiation of existing MOUs and/or
agreements, changes in foreign laws or regulations affecting foreign ownership,
government expropriation, financing contingencies and other factors. Likewise,
the Company may voluntarily withdraw from one or more operating companies or
developmental stage projects.
RISKS INHERENT IN FOREIGN INVESTMENT
The Company has invested substantial resources outside of the United States
and plans to continue to do so in the future. Governments of many developing
countries have exercised and continue to exercise substantial influence over
many aspects of the private sector. In some cases, the government owns or
controls companies that are or may in the future become competitors of the
Company or companies (such as national telephone companies) upon which the
operating companies and developmental stage projects may depend for required
interconnections to land-line telephone networks and other services.
Accordingly, government actions in the future could have a significant effect on
economic conditions in a developing country and otherwise have a material
adverse effect on the Company and its operating companies and developmental
stage projects. Expropriation, confiscatory taxation, nationalization,
political, economic or social instability or other developments could materially
adversely affect the Company's interest in operating companies and developmental
stage projects in particular developing countries.
For example, in early 1996 the Malaysian government announced a program
designed to consolidate the Malaysian telecommunications industry which, if
completed, would have forced the sale of STW, the Company's Malaysian operating
company, to one of a limited number of surviving telecommunications companies.
Although
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<PAGE>
the Malaysian government announced in July 1996 that it did not intend to
proceed with this program, the activities of the Malaysian government in
connection with such program resulted in significant delays in STW's network
deployment and marketing plans and contributed to a 37% decrease in subscribers
experienced by STW during the quarter ended September 30, 1996. There can be no
assurance that the Malaysian government will not initiate similar programs in
the future. There can also be no assurance that the Malaysian national
telephone company will not otherwise impose restrictions on STW, including
restrictions on the ability of STW to interconnect its wireless network with the
national telephone company's system, which could have a material adverse effect
on the Company. Moreover, there can be no assurance that other countries where
the Company has operating companies or developmental stage projects will not
initiate similar programs or impose other restrictions, which could have a
material adverse effect on the Company.
The Company also may be adversely affected by political or social unrest or
instability in foreign countries. There can be no assurance that unrest or
instability resulting from political, economic, social or other conditions in
foreign countries would not have a material adverse effect on the Company.
The Company does not have political risk insurance in the countries in
which it currently conducts business. Moreover, applicable agreements relating
to the Company's interests in its operating companies are frequently governed by
foreign law. As a result, in the event of a dispute, it may be difficult for
the Company to enforce its rights. Accordingly, the Company may have little or
no recourse upon the occurrence of any of these developments or if any of its
partners seek to re-negotiate existing or future MOUs and/or other agreements.
To the extent that any of the operating companies seeks to make a dividend or
other distribution to the Company, or to the extent that the Company seeks to
liquidate its investment in an operating company or developmental stage project
and repatriate monies from a relevant country, local taxes, foreign exchange
controls or other restrictions may effectively prevent the transfer of funds to
the Company or the exchange of local currency for U.S. dollars.
TECHNOLOGICAL RISK; RISK OF OBSOLESCENCE
The Company's operating companies and developmental stage projects
generally use new and emerging technologies. For example, in the Company's
regional cellular developmental stage project in China, the Chinese government
requires the migration to Code Division Multiple Access technology, a cellular
technology that is not widely deployed on a commercial basis at the present
time. Additionally, the "MPT 1327" technology selected by a number of the
Company's Enhanced Capacity Trunked Radio ("ECTR") operating companies is
currently operational in many countries but has had limited deployment for
public use in developing countries. Although many of the technologies currently
in use and to be used in the future by the Company have been developed by
international telecommunications companies such as Nokia, Philips, Motorola,
Ericsson, Lucent Technologies and Nortel, most are generally advanced
technologies which have only recently been developed and commercially
introduced. There can be no assurance that the operating companies and
developmental stage projects will not experience technical problems in the
commercial deployment of these technologies, particularly because they are being
introduced in developing countries. In addition, the technology used in
wireless communications is evolving rapidly and one or more of the technologies
currently utilized or planned by the Company may not be preferred by its
customers or may become obsolete, which in either case would likely have a
material adverse effect on the Company. There can be no assurance that the
Company will be able to keep pace with ongoing technological changes in the
wireless telecommunications industry.
RISK OF MODIFICATION OR LOSS OF LICENSES; UNCERTAINTY AS TO THE AVAILABILITY,
COST AND TERMS OF LICENSES; RESTRICTIONS ON LICENSES
The Company's ability to retain and exploit its existing telecommunications
licenses and to renew them when they expire, and to obtain new licenses in the
future, is essential to the Company's operations. However, these licenses are
typically granted by governmental agencies in developing countries, and there
can be no assurance that these governmental agencies will not seek to
unilaterally limit, revoke or otherwise adversely modify the terms of these
licenses in the future, any of which could have a material adverse effect on the
Company, and the Company may have limited or no legal recourse if any of these
events were to occur. In addition, there can be no assurance that renewals to
these licenses will be granted or, if renewed, that the renewal terms will not
be substantially less
Page 20 of 32
<PAGE>
favorable to the Company than the original license terms, any of which could
have a material adverse effect on the Company. Likewise, many of the Company's
operating companies and developmental stage projects have not yet obtained all
of the licenses necessary for their proposed operations, and no assurance can be
given that any such licenses will be obtained. The failure to obtain such
licenses would have a material adverse effect on such operating companies and
developmental stage projects.
The Company believes that the opportunity to acquire substantial new
wireless licenses in developing countries will exist only for a limited time.
Further, although the Company's operating companies and developmental stage
projects have, to date, obtained many of their operating licenses through
private negotiations without having to participate in competitive bidding
processes, the Company anticipates that governments of developing countries will
increasingly discover the value of new wireless technologies and may require
bidding for licenses, which would likely increase the cost of these licenses,
perhaps substantially. In addition, the operating companies and developmental
stage projects may be required to purchase licenses from other license holders
in certain circumstances, including, for example, to gain network capacity or to
increase geographic coverage. Furthermore, relevant governmental authorities
may grant telecommunications licenses covering the same geographical areas as
the operating companies' and developmental stage projects' licenses and
otherwise grant licenses which allow other companies to compete directly with
such operating companies and developmental stage projects for wireless
subscribers. Although the availability of only limited frequency ranges may
provide some protection against the issuance of competing licenses, there can be
no assurance that such competitive licenses will not be granted or that they
will not have a material adverse effect on the Company. In addition, licenses
may be subject to significant operating restrictions or conditions, including
restrictions on interconnection to the public telephone system or requirements
that the operating companies or developmental stage projects complete
construction or commence commercial operation of the networks by specified
deadlines, which conditions, if not satisfied, may result in loss or revocation
of the license. Accordingly, there can be no assurance that even if an
operating company or developmental stage project is able to obtain a required
license, such operating conditions will be satisfied and, as a result, that such
license will not be lost or revoked or that the restrictions imposed upon such
license will permit the commercial exploitation of such license, which could
have a material adverse effect on the Company.
DEPENDENCE ON OTHER TELECOMMUNICATIONS PROVIDERS
The success of the Company's wireless systems will in many cases depend
upon services provided by other telecommunications providers, some of which are
competitors of the Company, the operating companies and/or the developmental
stage projects. For example, the Company's operating companies and
developmental stage projects generally require interconnection agreements with
national or regional telephone companies in order for its wireless systems to
connect with land-line telephone systems, and may require the use of other
microwave or fiber optic networks to link its wireless systems. Although a
number of operating companies have entered into required interconnection
agreements or have interconnection arrangements in place, the revocation, loss
or modification of any of these existing agreements or arrangements or the
failure to obtain necessary agreements and/or arrangements in the future could
have a material adverse effect on the Company.
DEPENDENCE ON PARTNERS
The Company will generally continue to depend on its local partners to
obtain required licenses in all of its wireless projects. In addition, the
Company is often dependent on strategic partners with resources beyond those of
the Company to pursue, among other things, WLL and wireless cable television
("MMDS") projects. In WLL projects, the Company may require the participation
of a larger telecommunications company possessing the substantial capital and
operating resources required to finance and deploy a WLL system. In MMDS
projects, the Company requires the participation of a television programming
company capable of providing the television content required for wireless cable
television. The failure of the Company to identify and enter into relationships
with strong partners, or the failure of those partners to provide these
resources, would have a material adverse effect on the Company.
Page 21 of 32
<PAGE>
CONSTRUCTION RISKS
The operating companies and developmental stage projects in which the
Company invests typically require substantial construction of new wireless
networks and additions to existing wireless networks. Construction activity
will require the operating companies and developmental stage projects to obtain
qualified subcontractors and necessary equipment on a timely basis, the
availability of which varies significantly from country to country.
Construction projects are subject to cost overruns and delays not within the
control of the operating company or the developmental stage project or its
subcontractors, such as those caused by acts of governmental entities, financing
delays and catastrophic occurrences. Delays also can arise from design changes
and material or equipment shortages or delays in delivery. Accordingly, there
can be no assurance that the operating companies or developmental stage projects
will be able to complete current or future construction projects for the amount
budgeted or within the time periods projected, or at all. Failure to complete
construction for the amount budgeted or on a timely basis could jeopardize
subscriber contracts, franchises or licenses and could have a material adverse
effect on the Company. In particular, telecommunications licenses often are
granted on the condition that network construction be completed or commercial
operations be commenced by a specified date. Failure to comply with these
deadlines could result in the loss or revocation of the licenses. In that
regard, certain operating companies have failed to meet such deadlines in the
past. Specifically, UTS, which provides ECTR services in the Visayas and
Minandao regions of the Philippines, failed to comply with the service date
requirement contained in its provisional authority and is currently in the
process of applying for a second extension of such service date deadline.
Similarly, in the Company's Brazilian ECTR project, because the Company and its
proposed partners were unable to comply with operations commencement deadlines
with respect to their licenses, they had to apply for and received extensions of
such deadlines. Although such failures have not to date led to the loss of any
licenses to date, there can be no assurance that the relevant governmental
authorities will not seek to revoke licenses as a result of these past defaults
or refuse to grant deadline extensions or that similar defaults will not occur
in the future, which could have a material adverse effect on the Company.
OPERATING LOSSES AND NEGATIVE CASH FLOW; DEPENDENCE ON ADDITIONAL
FINANCING/CAPITAL
Most of the existing operating companies have generated operating losses
and negative cash flow from operations, and the Company expects that most of its
operating companies will continue to generate operating losses and negative cash
flow from operations for the foreseeable future. The business of the operating
companies and developmental stage projects, particularly WLL projects, is
capital intensive and, in light of such anticipated negative cash flow from
operations, will require continuing sources of outside financing to fund working
capital needs, capital expenditures and other cash requirements. The Company's
strategy is for such additional financing to be obtained by the operating
companies primarily from third parties and not from the Company or its strategic
partners. However, there can be no assurance that the operating companies and
developmental stage projects will be able to obtain the financing required to
make planned capital expenditures, provide working capital or meet other cash
needs. Failure to obtain such financing could have a material adverse effect on
the Company and, among other things, could result in the loss or revocation of
licenses held by the operating companies or developmental stage projects or
require that certain planned projects be delayed or abandoned. In particular,
at September 30, 1996 a significant portion of the Company's investments had
been made in two operating companies (namely STW, which is developing a national
WLL system in Malaysia; and Mobisel, which is developing a national cellular
system in Indonesia), and both of these operating companies will be required to
obtain substantial additional financing in order to complete planned capital
expenditures. Moreover, as noted above, the Company and its principal strategic
partners in STW have recently undertaken an extensive review of STW's business
plan and strategy. There can be no assurance that STW's business plan will not
be revised to require capital expenditures that are significantly higher than
those contemplated by STW's current business plan.
In most cases, under agreements with its local partners, the Company and
its partners may be required to make additional equity investments in operating
companies or developmental stage projects, and the Company's or such partners'
inability or unwillingness to do so could result in the dilution of such party's
equity interest or a significant impairment or loss of the value of the
Company's investment. Moreover, the Company and its other strategic partners
have in the past been required, and in the future likely will be required, to
guarantee and/or pledge their respective equity interests to secure certain
indebtedness of the operating companies and developmental stage
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<PAGE>
projects and otherwise to provide certain assurances to their lenders. See
"Liquidity and Capital Resources." In addition, the indenture governing the
Notes sold by the Company in the Debt Offering (the "Indenture") contains
certain restrictions (i) on the ability of the Company to make investments in,
or guarantee the indebtedness of, certain operating companies and developmental
stage projects and (ii) on the ability of the Company and certain of its
operating companies and developmental stage projects to incur additional
indebtedness, create liens on assets, make loans or other investments and effect
other corporate actions.
In addition, there can be no assurance that the operating companies or
developmental stage projects will be able to pay their indebtedness or other
liabilities when due. Any failure to pay such indebtedness or other liabilities
when due could have a material adverse effect on the Company. See "--Company
Level Risks--Negative Operating Cash Flow; Dependence on Additional Financing;
No Commitments For Additional Financing" below.
To date, most of the debt financing obtained by the operating companies has
been secured by assets of the respective operating companies, and it is likely
that any debt financing the operating companies or developmental stage projects
obtain in the foreseeable future will also be secured. The pledge of assets to
secure debt financing may limit the operations of the operating companies and
make it substantially more difficult to obtain additional financing from other
sources.
SUBSTANTIAL LEVERAGE
As discussed above, the business of the operating companies and
developmental stage projects will require continuing sources of additional
financing. Certain of the operating companies have substantial indebtedness
and, to the extent that additional debt financing is available, other operating
companies or developmental stage projects may in the future incur substantial
indebtedness, in relation to their respective equity capital. To the extent
that any of the operating companies or developmental stage projects now has or
in the future incurs a high level of indebtedness, such indebtedness will have
important consequences to the Company, including that (i) such entity's ability
to pay dividends or make other distributions to the Company may be restricted,
(ii) such entity's ability to obtain additional debt financing may be limited
and (iii) such entity's ability to react to changes in the industry and economic
conditions generally may be impaired.
COMPETITION
Although the implementation of advanced wireless technologies is in the
early stages of deployment in most developing countries, the Company believes
that its business will become increasingly competitive, particularly as
businesses and foreign governments realize the market potential of these
wireless technologies. A number of large American, Japanese and European
companies, including U.S.-based regional Bell operating companies ("RBOCs") and
large international telecommunications companies, are actively engaged in
programs to develop and commercialize wireless technologies in developing
countries. In many cases, the Company will also compete against land-line
carriers, including government-owned telephone companies. Most of these
companies have substantially greater financial and other resources, research and
development staffs and technical and marketing capabilities than the Company.
The Company anticipates that there will be increasing competition for additional
licenses and increased competition to the extent such licenses are obtained by
others. Although the Company intends to employ relatively new technologies,
there will be a continuing competitive threat from even newer technologies which
may render the technologies employed by the Company obsolete.
REGULATION
The wireless services of the Company's operating companies and
developmental stage projects are subject to governmental regulation, which may
change from time to time. There can be no assurance that material and adverse
changes in the regulation of the Company's existing or future operating
companies or developmental stage projects will not occur in the future. To
date, certain operating companies and developmental stage projects have been
subject to service requirements, restrictions on interconnection of wireless
systems to government-owned or private telephone networks, subscriber
rate-setting, technology and construction requirements, among others. These
regulations may be difficult to comply with, particularly given demographic,
geographic or other issues in a
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particular market. Further, changes in the regulatory framework may limit the
ability to add subscribers to developing systems. An operating company's or
developmental stage project's failure to comply with applicable governmental
regulations or operating requirements could result in the loss of licenses or
otherwise could have a material adverse effect on the Company.
FOREIGN CORRUPT PRACTICES ACT
The Company is subject to the Foreign Corrupt Practices Act ("FCPA"), which
generally prohibits U.S. companies and their intermediaries from bribing foreign
officials for the purpose of obtaining or keeping business or licenses or
otherwise obtaining favorable treatment. Although the Company has taken
precautions to comply with the FCPA, there can be no assurance that such
precautions will protect the Company against liability under the FCPA,
particularly as a result of actions which may in the past have been taken or
which may be taken in the future by agents and other intermediaries for whose
actions the Company may be held liable under the FCPA. In particular, the
Company may be held responsible for actions taken by its strategic or local
partners even though such strategic or local partners are themselves typically
foreign companies which are not subject to the FCPA; and the Company has no
ability to control such strategic or local partners. Any determination that the
Company has violated the FCPA could have a material adverse effect on the
Company.
INTERNATIONAL TAX RISKS
Distributions of earnings and other payments received from the Company's
operating subsidiaries and affiliates are likely to be subject to withholding
taxes imposed by the jurisdictions in which such entities are formed or
operating. In general, a United States corporation may claim a foreign tax
credit against its federal income tax expense for such foreign withholding taxes
and foreign taxes paid directly by corporate entities in which the Company owns
10% or more of the voting stock. The ability to claim such foreign tax credits
and to utilize net foreign losses is, however, subject to numerous limitations,
and the Company may incur incremental tax costs as a result of these limitations
or because the Company is not in a tax paying position in the United States.
Special U.S. tax rules apply to U.S. taxpayers that own stock in a "passive
foreign investment company" (a "PFIC") that could also increase the Company's
effective rate of taxation. In general, a non-U.S. corporation will be treated
as a PFIC if at least 75 percent of its income is "passive income" or if at
least 50 percent of its assets are held for the production of "passive income."
A non-U.S. corporation that owns 25 percent or more of the stock of a non-U.S.
subsidiary is treated as receiving a proportionate share of the income of, and
as owning a proportionate share of the assets of, such subsidiary.
It is possible that certain operating companies in which the Company owns
an equity interest are PFICs. Generally, except to the extent the Company makes
an election to treat a PFIC in which it owns stock as a "qualified electing
fund" (a "QEF") in the first taxable year in which the Company owns the PFIC's
stock, (i) the Company would be required to allocate gain recognized upon the
disposition of stock in the PFIC and income recognized upon receiving certain
dividends ratably over the Company's holding period for the stock in the PFIC,
(ii) the amount allocated to each year other than the year of the disposition or
dividend payment would be taxable at the highest U.S. tax rate applicable to
corporations, and an interest charge for the deemed deferral benefit would be
imposed with respect to the tax attributable to each year, and (iii) gain
recognized upon disposition of PFIC shares would be taxable as ordinary income.
If the Company were to make the QEF election, as described above, the
Company would be required in each year that the PFIC qualification tests are met
to include its pro rata share of the QEF's earnings as ordinary income and its
pro rata share of the QEF's net capital gain as long-term capital gain, whether
or not such amounts are actually distributed. The Company has not made any QEF
election with respect to any non-U.S. corporation in which it holds stock.
The Company may also be required to include in its income for U.S. income
tax purposes its proportionate share of the earnings of those foreign corporate
subsidiaries that are classified as "controlled" foreign corporations without
regard to whether distributions have been received from such companies.
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REPORTING STANDARDS; FINANCIAL STATEMENTS OF OPERATING COMPANIES; TIMELY
COMPLIANCE WITH INFORMATIONAL AND FILING REQUIREMENTS
The Company is subject to certain informational and filing requirements
pursuant to the Indenture and the Securities Exchange Act of 1934 (the "Exchange
Act"). The Company's ability to comply with the informational and filing
requirements of the Indenture and the Exchange Act to which it is or will be
subject will depend on the timely receipt of accurate and complete financial and
other information from the Company's operating companies and developmental stage
projects. Companies in developing countries are subject to accounting, auditing
and financial standards and requirements that differ, in some cases
significantly, from those applicable to U.S. companies. In addition, there may
be substantially less publicly available information about companies in a
developing country than there is about U.S. companies. The failure by the
Company to receive such information on a timely basis could have a material
adverse effect on the Company, including preventing it from satisfying the
informational and filing requirements of the Indenture and the Exchange Act.
COMPANY LEVEL RISKS
LIMITED OPERATING HISTORY; CONTINUING LOSSES
The Company has a limited operating history. Since its inception in
January 1992, the Company's activities have been concentrated primarily on the
early stage development of its wireless projects, including the selection of
local partners, the formation of operating companies and the pursuit of
operating licenses. The Company has incurred net losses since its inception and
had an accumulated stockholders' deficit of approximately $34.8 million at
September 30, 1996. The Company anticipates that its net losses will increase
significantly in the foreseeable future, and there can be no assurance as to
whether or when the Company's operations will become profitable.
NEGATIVE OPERATING CASH FLOW; DEPENDENCE ON ADDITIONAL FINANCING; NO COMMITMENTS
FOR ADDITIONAL FINANCING
The Company has generated negative cash flow from operations of $7.4
million for the nine months ended September 30, 1996 and $2.0 million for the
year ended December 31, 1995, and expects such negative cash flows to continue
and likely increase in the foreseeable future. Because of such negative cash
flow and the capital intensive nature of the Company's business, the Company
will require continuing sources of outside debt and equity financing to fund its
working capital needs, investments and other cash requirements.
Moreover, although the Company anticipates that its cash balance is
sufficient to meet its cash requirements for approximately 12 months, there can
be no assurance that the Company will not require additional financing prior to
such time. In addition, the Company intends to pursue aggressively additional
investment opportunities for wireless projects and anticipates that it will
require additional sources of financing in order to pursue those investments.
However, the Company has no commitments or arrangements for additional
financing, and there can be no assurance that any additional debt or equity
financing will be available to the Company on acceptable terms when required by
the Company or at all. If adequate sources of additional financing are not
available, the Company will be forced to delay, scale back or eliminate one or
more of its projects or to liquidate one or more of its investments, may be
unable to repay the Notes or other liabilities as they become due, and may be
unable to meet its working capital and other cash requirements. Accordingly,
the Company's inability to obtain such additional financing would have a
material adverse effect on the Company.
RESTRICTIONS ON TRANSFER OF OWNERSHIP INTERESTS
The Company's ability to sell or transfer its ownership interests in its
operating companies and developmental stage projects is generally subject to (i)
limitations contained in the agreements between the Company and its local
partners including, in certain cases, complete prohibitions on sales or
transfers for a period of years, co-sale rights and/or rights of first refusal
and (ii) provisions in local operating licenses and local governmental
regulations that, in certain cases, prohibit or restrict the transfer of the
Company's ownership interests in such operating companies and
Page 25 of 32
<PAGE>
developmental stage projects. Moreover, the Company and its local partners have
in the past been required to pledge their capital stock in certain operating
companies to secure credit facilities obtained by those operating companies, and
the Company may be prohibited from transferring or otherwise disposing of such
capital stock so long as it is pledged as collateral for those credit
facilities. In addition, none of the operating companies or developmental stage
projects currently has any publicly traded securities and there can be no
assurance that there will in the future be either a public or private market for
the securities of the Company's operating companies or developmental stage
projects. As a result, the Company's ability to liquidate any or all of its
investments may be substantially limited and there can be no assurance that the
Company will be able to do so in a timely manner or at all in the event of an
acceleration of the Notes prior to their maturity or in order to satisfy certain
obligations in respect of such securities or to repay the Notes upon their
maturity. Moreover, even if any sales are completed, the prices realized on
those sales could be less than the Company's investment, and there may be
substantial local taxes imposed on the Company in the case of any such sales
and, in any event, there can be no assurance that there will not be substantial
taxes or other restrictions on the ability of the Company to repatriate any
amounts realized upon the sale of any such investments. In addition, certain of
the operating companies and developmental stage projects are or may be parties
to credit agreements that restrict their ability to pay dividends or make other
distributions to their equity investors, and the Company's local partners, by
virtue of their majority ownership interest in the operating companies and
developmental stage projects, generally have the right to determine the timing
and amount of any such dividends or distributions.
LACK OF CONTROL OF OPERATING COMPANIES AND DEVELOPMENTAL STAGE PROJECTS
The Company anticipates that it will often have a minority interest in its
operating companies and developmental stage projects, in part because applicable
laws often limit foreign investors to minority equity positions. Although the
Company is actively involved in the management of most of the operating
companies and developmental stage projects in which it has an ownership interest
and intends to invest in the future in operating companies and developmental
stage projects in which it can participate in management, its minority voting
positions may preclude it from controlling such entities and implementing
strategies that it favors, including strategies involving the expansion or
development of projects or the pursuit of certain financing alternatives. In
addition, the Company may be unable to access the cash flow, if any, of its
operating companies. See "--Financing Risks--Holding Company Structure;
Limitations on Access to Cash Flow of Operating Companies."
RISKS INHERENT IN GROWTH STRATEGY
The Company has grown rapidly since inception, and as of September 30, 1996
had operating companies or developmental stage projects in 12 foreign countries.
Subject to the availability of additional financing, the Company anticipates
that it will make additional investments in wireless projects in other foreign
countries and is actively seeking and evaluating new investment opportunities in
foreign countries where it currently has operating companies or developmental
stage projects. The growth strategy presents the risks inherent in assessing
the value, strengths and weaknesses of development opportunities, in evaluating
the costs and uncertain returns of building and expanding the facilities for
operating systems and in integrating and managing the operations of additional
operating systems. The Company's growth strategy will place significant demands
on the Company's operational, financial and marketing resources. Any failure to
manage the Company in an efficient manner would have a material adverse effect
on the Company.
RISK OF REGISTRATION UNDER INVESTMENT COMPANY ACT OF 1940
Because the Company often acquires minority ownership positions in
operating companies and development stage projects, there is a risk that these
ownership positions could be deemed to be investment securities and that the
Company could be characterized as an investment company under the Investment
Company Act of 1940 (the "Investment Company Act"). Due to the Company's active
role in developing and managing the operating companies, the Company believes
that a substantial majority of its interests in the operating companies are the
equivalent of joint venture interests rather than investment securities.
Therefore, the Company believes that it is not an investment company and intends
to continue its business and conduct its operations so as not to become subject
to the Investment Company Act. If the Commission or its staff were to take the
position, or if it were otherwise
Page 26 of 32
<PAGE>
asserted, that the Company is an investment company, the Company could be
required either (i) to liquidate its investments in one or more operating
companies or developmental stage projects and change the manner in which it
conducts its operations to avoid being required to register as an investment
company or (ii) to register as an investment company. If the Company were
required to register under the Investment Company Act, it would be subject to
substantive regulations with respect to capital structure, operations,
transactions with affiliates and other matters. In addition, a determination
that the Company is subject to the Investment Company Act would constitute an
event of default under the Indenture and permit acceleration of the Notes. If
the Company were found to be an investment company but was not registered under
the Investment Company Act, the Company would be prohibited from, among other
things, conducting public offerings in the United States or engaging in
interstate commerce in the United States, would be subject to monetary penalties
and injunctive relief in an action brought by the Commission, and might render
contracts to which the Company is a party unenforceable or subject to rescission
by either party thereto. As a result, any determination that the Company is an
investment company would have a material adverse effect on the Company.
CONTROL OF THE COMPANY
At September 30, 1996, Vanguard Cellular Systems, Inc. (together with its
operating subsidiary, "Vanguard") beneficially owned approximately 39% of the
Company's equity on an as converted basis. Vanguard has provided and continues
to provide a number of services to the Company relating to the formation,
development and operation of wireless communications services, including
identification and evaluation of wireless communications opportunities, review
of business and technical plans and assistance in training operating company
personnel. Vanguard has the right to elect three directors to the Company's
Board of Directors and has three representatives on such Board, including Haynes
G. Griffin, Chairman of the Board of Directors of the Company. As a result,
Vanguard may have the ability to effectively control the Company and direct its
business and affairs.
CONFLICTS OF INTEREST
Vanguard is not precluded from competing with the Company by itself or
through affiliates by developing, owning and/or operating international wireless
communications businesses, including businesses that use the same or similar
technologies or provide the same services as the Company's existing and future
operating companies. This is true even though the Company acquired
substantially all of Vanguard's interests in certain of its international
wireless projects in December 1995. Although the directors designated by
Vanguard have fiduciary duties to the Company in their capacity as such and may
abstain from voting on matters in which the interests of the Company and
Vanguard are in conflict, they are not obligated to do so, and the Company has
not adopted any formal policies or procedures designed to prevent actual
conflicts of interest from occurring. As a result, the presence of potential or
actual conflicts could affect the process or outcome of Board deliberations.
There can be no assurance that such conflicts of interest will not materially
adversely affect the Company.
DEPENDENCE ON KEY PERSONNEL
The success of the Company and its growth strategy depends in large part on
the ability of the Company to attract and retain key management, marketing and
operating personnel, both at the Company and operating company and developmental
stage project levels. There can be no assurance the Company will continue to
attract and retain the qualified personnel needed for its business, particularly
because of the amount of international travel required of the Company's managers
and because experienced local managers are often unavailable. In addition, the
loss of the services of one or more members of its senior management team,
particularly John D. Lockton, the co-founder, President and Chief Executive
Officer and a director of the Company, or Hugh B.L. McClung, the co-founder,
Vice-Chairman of the Board and Managing Director, Asia of the Company, could
have a material adverse effect on the Company.
Page 27 of 32
<PAGE>
FINANCING RISKS; RISKS ASSOCIATED WITH DEBT OFFERING
HOLDING COMPANY STRUCTURE; LIMITATIONS ON ACCESS TO CASH FLOW OF OPERATING
COMPANIES
All of the operations of the Company are conducted through its subsidiaries
and affiliated companies, which are separate and distinct legal entities and
have no obligation, contingent or otherwise, to pay any amounts due pursuant to
the Notes or to make any funds available to the Company to enable it to make
payments on the Notes or make investments in operating companies or
developmental stage projects, meet working capital needs or other liabilities of
the Company, or for any other reason. In addition, most of the operating
companies have generated negative cash flow from operations, and the Company
expects that most operating companies will continue to generate negative cash
flow from operations in the foreseeable future. Further, to the extent that any
of the operating companies generates positive cash flow, the Company may be
unable to access such cash flow because (i) its owns 50% or less of the equity
of most of such entities and, therefore, does not have the requisite control to
cause such entities to pay dividends to their equity holders; (ii) certain of
such entities are currently or may become parties to credit or other borrowing
agreements that restrict or prohibit the payment of dividends, and such entities
are likely to continue to be subject to such restrictions and prohibitions for
the foreseeable future; (iii) the Company expects that its operating companies
will generally reinvest all of their cash flow in development opportunities for
the foreseeable future; and (iv) some of the countries in which such entities
conduct business tax the payment and repatriation of dividends or otherwise
restrict the repatriation of funds. As a result, the Company does not expect
that it will be able to generate any significant cash through dividends or other
distributions from the operating companies in the foreseeable future, and there
can be no assurance that the Company will be able to generate any significant
cash flow from the operating companies at any time in the future.
SUBSTANTIAL LEVERAGE; INABILITY TO COVER FIXED CHARGES
The Company is highly leveraged and has indebtedness that is substantial in
relation to its stockholders' equity. The high level of the Company's
indebtedness has important consequences to the Company, including (i) the
Company's ability to obtain additional debt financing in the future may be
limited, and (ii) the Company's level of indebtedness could limit its
flexibility in reacting to changes in the industry and economic conditions
generally.
For the year ended December 31, 1995 and the nine months ended September
30, 1996, the Company's earnings were insufficient to cover fixed charges by
$11.1 million and $19.6 million, respectively. The Company anticipates that
its earnings will continue to be insufficient to cover fixed charges for the
foreseeable future. See "-- Company Level Risks--Limited Operating History;
Continuing Losses."
NO ASSURANCE OF REPAYMENT OF NOTES AT MATURITY
For each of the three years ended December 31, 1995 and the nine months
ended September 30, 1996, the Company had net losses and did not generate
positive cash flow from operations and, as discussed above under "--Holding
Company Structure; Limitations on Access to Cash Flow of Operating Companies,"
the Company does not expect that it will generate positive cash flow from
operations for the foreseeable future. Accordingly, the Company's ability to
repay the Notes at maturity will be dependent on developing one or more sources
of cash prior to the maturity of the Notes. The Company may, among other
things, (i) seek to refinance all or a portion of the Notes at maturity through
sales of additional debt or equity securities of the Company, (ii) seek to sell
all or a portion of its interests in one or more of its operating companies or
developmental stage projects (subject to the restrictions described above under
"--Company Level Risks--Restrictions on Transfer of Ownership Interests") or
(iii) negotiate with its financial and strategic partners to permit the cash, if
any, produced by the operating companies to be distributed to equity holders.
There can be no assurance that (i) there will be a market for the debt or equity
securities of the Company in the future, (ii) the Company will be able to sell
assets in a timely manner or on commercially acceptable terms or in an amount
that will be sufficient to repay the Notes when due, (iii) the Company will be
able to obtain the consents and approvals required in order to sell its
interests in its operating companies or developmental stage projects or (iv)
that the operating companies will in fact generate positive cash
Page 28 of 32
<PAGE>
flow or that any such cash flow will be distributed to equity holders
(particularly since the Company expects that its operating companies will
generally reinvest all of their cash flow in development opportunities for the
foreseeable future). In addition, default under the Notes could in turn permit
lenders under STW's $36.4 million credit facility, and possibly under other debt
instruments of the operating companies, to declare borrowings outstanding
thereunder to be due and payable pursuant to cross-default clauses, permitting
the lenders under such debt instruments to proceed against any collateral
pledged as security therefor. Any failure by the Company to repay the Notes when
due would have a material adverse effect on the Company.
RISK OF INABILITY TO FINANCE A CHANGE OF CONTROL OFFER
Pursuant to the Indenture, upon the occurrence of a change of control of
the Company , the Company may be required to make an offer to purchase all of
the outstanding Notes at a price equal to 101% of the accreted value of the
Notes to the date of repurchase. In such event, the Company's failure to
purchase the Notes would result in a default under the Indenture. Further, in
the event, there can be no assurance that the Company would have sufficient
assets to satisfy all of its obligations under the Indenture. Future debt of
the Company may also contain prohibitions of certain events or transactions
which may constitute a change in control under the Indenture or require the
obligations under such debt to be retired.
CLASSIFICATION OF NOTES AS DEBT
Although the Company intends to treat the Notes as debt for all purposes,
there can be no assurance that the Internal Revenue Service will agree that the
Notes qualify as debt for federal income tax purposes. If the Notes are not
respected as debt for such purposes, they would likely be recharacterized as an
equity interest in the Company and the interest that accretes on the Notes would
not be deductible by the Company when accrued or paid. Loss of such interest
deductions would increase income taxes ultimately payable by the Company, and
thus, reduce cash flow otherwise available to repay the Notes, which would have
a material adverse effect on the Company.
Page 29 of 32
<PAGE>
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On August 7, 1996, pursuant to Section 228 of the Delaware General
Corporation Law, the stockholders of the Registrant approved the
following items by written consent in lieu of a meeting (the "Consent"):
(a) The Registrant's 1996 Stock Option/Stock Issuance Plan
pursuant to which an aggregate of 2,400,000 shares of the Common Stock
of the Registrant were reserved for issuance upon the exercise of future
options and outstanding options issued under the Registrant's
predecessor stock option plan; and
(b) The Registrant's form of indemnification agreement to
be entered into between the Registrant and its executive officers and
directors.
Holders of 570,400 shares of the Registrant's Common Stock, representing
93% of the total outstanding shares of the Registrant's Common Stock,
and 16,708,440 shares of the Registrant's Preferred Stock, representing
99% of the total outstanding shares of the Registrant's Preferred Stock,
executed the Consent.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
2.5 Agreement and Plan of Merger dated as of August 8, 1996 by and among the Registrant,
International Wireless Communications Acquisition Corporation and International Wireless
Communications, Inc.
2.6 Subscription Agreement among Star Digitel Limited, Star Telecom Holding Limited and
International Wireless Communications, Inc., dated September 23, 1996
3.3 Amended and Restated Certificate of Incorporation of the Registrant, as filed with the
Secretary of State of the State of Delaware on August 8, 1996
3.4 Bylaws of the Registrant, as adopted by the Board of Directors of the Registrant on August
7, 1996
4.5 Indenture dated as of August 15, 1996 between the Registrant, as issuer, and Marine Midland
Bank, as Trustee
4.6 Pledge Agreement dated as of August 15, 1996 by the Registrant and International Wireless
Communications, Inc. in favor of Bankers Trust Company, as Collateral Agent
4.7 Unit Agreement dated as of August 15, 1996 among the Registrant and Bankers Trust Company,
as Unit Agent and Warrant Agent and Marine Midland Bank, as Trustee
4.8 Registration Rights Agreement dated as of August 15, 1996 among the Registrant, BT
Securities Corporation, Toronto Dominion Securities (USA) Inc. and Salomon Brothers Inc
10.17 Warrant Agreement dated August 15, 1996 between the Registrant and Bankers Trust Company, as
Warrant Agent
10.18 Assignment and Assumption Agreement dated as of August 7, 1996 between the Registrant and
International Wireless Communications, Inc.
10.19 Consent, Waiver, Amendment, Assignment and Assumption Agreement effective as of August 7,
1996 among the Registrant and the other parties named therein
10.20 Consent, Waiver, Amendment, Assignment and Assumption Agreement effective as of August 7,
1996 among International Wireless Communications, Inc. and the parties named therein
10.21 International Wireless Communications Holdings, Inc. 1996 Stock Option/Stock Issuance Plan
10.22 Form of Indemnification Agreement of the Registrant
10.23 First Amendment to Lease between The Prudential Insurance Company of America and
International Wireless Communications, Inc., dated September 1, 1996
10.24 Cooperation Agreement on Network Interconnection of Mobisel STBS with Telkom PSTN between
PT. (Persero) Telekomunikasi Indonesia ("Telekom Indonesia") and PT Mobile Selular
Indonesia, dated August 21, 1996
10.25 Shareholders' Agreement among Mainstream Limited, International Wireless Communications,
Inc. and Star Telecom Holding Limited, dated August 30, 1996
27.2 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K
No Reports on Form 8-K were filed during the quarter ended
September 30, 1996.
Page 30 of 32
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 14, 1996 INTERNATIONAL WIRELESS
COMMUNICATIONS HOLDINGS, INC.
(Registrant)
By: /s/ Douglas S. Sinclair
-------------------------------------
Douglas S. Sinclair
Vice President and Chief Financial
Officer
By: /s/ Keith D. Taylor
-------------------------------------
Keith D. Taylor
Controller and Chief
Accounting Officer
Page 31 of 32
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
2.5* Agreement and Plan of Merger dated as of August 8, 1996 by and among the Registrant, International
Wireless Communications Acquisition Corporation and International Wireless Communications, Inc.
2.6* Subscription Agreement among Star Digitel Limited, Star Telecom Holding Limited and International
Wireless Communications, Inc., dated September 23, 1996
3.3* Amended and Restated Certificate of Incorporation of the Registrant, as filed with the Secretary of
State of the State of Delaware on August 8, 1996
3.4* Bylaws of the Registrant, as adopted by the Board of Directors of the Registrant on August 7, 1996
4.5* Indenture dated as of August 15, 1996 between the Registrant, as issuer, and Marine Midland Bank, as
Trustee
4.6* Pledge Agreement dated as of August 15, 1996 by the Registrant and International Wireless
Communications, Inc. in favor of Bankers Trust Company, as Collateral Agent
4.7* Unit Agreement dated as of August 15, 1996 among the Registrant and Bankers Trust Company, as Unit
Agent and Warrant Agent and Marine Midland Bank, as Trustee
4.8* Registration Rights Agreement dated as of August 15, 1996 among the Registrant, BT Securities
Corporation, Toronto Dominion Securities (USA) Inc. and Salomon Brothers Inc
10.17* Warrant Agreement dated August 15, 1996 between the Registrant and Bankers Trust Company, as Warrant
Agent
10.18* Assignment and Assumption Agreement dated as of August 7, 1996 between the Registrant and
International Wireless Communications, Inc.
10.19* Consent, Waiver, Amendment, Assignment and Assumption Agreement effective as of August 7, 1996 among
the Registrant and the other parties named therein
10.20* Consent, Waiver, Amendment, Assignment and Assumption Agreement effective as of August 7, 1996 among
International Wireless Communications, Inc. and the parties named therein
10.21* International Wireless Communications Holdings, Inc. 1996 Stock Option/Stock Issuance Plan
10.22* Form of Indemnification Agreement of the Registrant
10.23* First Amendment to Lease between The Prudential Insurance Company of America and International
Wireless Communications, Inc., dated September 1, 1996
10.24* Cooperation Agreement on Network Interconnection of Mobisel STBS with Telkom PSTN between PT.
(Persero) Telekomunikasi Indonesia ("Telekom Indonesia") and PT Mobile Selular Indonesia, dated
August 21, 1996
10.25* Shareholders' Agreement among Mainstream Limited, International Wireless Communications, Inc. and
Star Telecom Holding Limited, dated August 30, 1996
27. 2 Financial Data Schedule
</TABLE>
- ---------------------
* Incorporated by reference to an exhibit to the Registrant's Registration
Statement on Form S-1, filed with the Securities and Exchange Commission on
September 13, 1996, as subsequently amended (Reg. No. 333-11987).
Page 32 of 32
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
INTERNATIONAL WIRELESS COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARY
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 82,766
<SECURITIES> 0
<RECEIVABLES> 276
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 86,768
<PP&E> 12,214
<DEPRECIATION> 516
<TOTAL-ASSETS> 183,475
<CURRENT-LIABILITIES> 7,496
<BONDS> 71,623
102,519
9
<COMMON> 6
<OTHER-SE> 3,578
<TOTAL-LIABILITY-AND-EQUITY> 183,475
<SALES> 532
<TOTAL-REVENUES> 532
<CGS> 541
<TOTAL-COSTS> 541
<OTHER-EXPENSES> 665
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,663
<INCOME-PRETAX> (17,851)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (17,851)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
