UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended March 31, 2000
--------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from to
Commission File No. 000-28507
---------
TELECOM WIRELESS CORPORATION
----------------------------
(Exact name of small business issuer as specified in its charter)
Utah 94-3172556
- --------------------------------------------- -------------------
(State or other jurisdiction of incorporation (IRS Employer
or organization) Identification No.)
5299 DTC Blvd., Suite 1120, Englewood, Colorado 80111
------------------------------------------------------
(Address of principal executive offices)
(303) 416-4000
---------------------------
(Issuer's telephone number)
Not Applicable
--------------
(Former name, former address and former fiscal year, if changed since last
report)
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 25,828,936 shares of common stock,
par value $.001 per share, as of May 19, 2000.
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
<PAGE>
PART I --- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
TELECOM WIRELESS CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. This report should, therefore, be read in
conjunction with the Company's Form SB-2 which included the financial
statements for the company for the year ended June 30, 1999.
The information included in this report is unaudited but reflects all
adjustments which, in the opinion of management, are necessary to a fair
statement of the results of the interim periods covered thereby. All adjustments
are of a normal and recurring nature except as described herein.
<PAGE>
TELECOM WIRELESS CORPORATION
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, March 31,
1999 2000
------------ -------------
<S> <C> <C>
ASSETS
Current assets
Cash $ 620,666 $ 42,301
Accounts receivable (net) 49,559 155,055
Accounts receivable - employees - 170,931
Stock subscription receivable 352,666 -
------------ -------------
Total current assets 1,022,891 368,287
------------ -------------
Property and equipment, net 589,797 838,369
------------ -------------
Intangible assets
Subscribers list - 225,000
Licenses 523,117 524,117
Goodwill - 178,943
Less accumulated amortization (208,247) (315,778)
------------ -------------
Net intangible assets 314,870 612,282
------------ -------------
Investment - 700,000
Idle equipment 181,256 174,285
Other assets 18,961 35,953
------------ -------------
Total assets $ 2,127,775 $ 2,729,176
============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities
Accounts payable $ 618,006 $ 2,108,677
Accrued expenses 140,703 535,277
Short-term notes payable - 1,688,819
------------ -------------
Total current liabilities 758,709 4,332,773
------------ -------------
Note payable 1,276,841 -
Accrued interest 91,227 -
------------ -------------
Total long term liabilities 1,368,068 -
------------ -------------
Total liabilities 2,126,777 4,332,773
------------ -------------
Commitments and contingencies
Stockholders' equity (deficit)
Preferred stock, $.001 par value, 25,000,000 shares authorized;
20,000 shares issued or outstanding - 1,441,385
Common stock, $.001 par value, 100,000,000 shares authorized,
15,107,920 (June 30, 1999) and 18,999,994
(March 31, 2000) shares issued and outstanding 15,108 19,000
Additional paid-in capital 6,950,836 24,856,976
Accumulated deficit (6,964,946) (25,171,266)
Stock subscription on investment - (2,749,692)
------------ -------------
Total stockholders' equity (deficit) 998 (1,603,597)
------------ -------------
Total liabilities and stockholders' equity $ 2,127,775 $ 2,729,176
============ =============
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
TELECOM WIRELESS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
For the For the
Three Months Ended Nine Months Ended
March 31, March 31,
----------------------- -------------------------
1999 2000 1999 2000
--------- ------------ ---------- -------------
<S> <C> <C> <C> <C>
Revenue
Internet services $ - $ 26,521 $ - $ 91,161
Wireless TV revenues 109,237 166,812 365,878 473,867
Other - - 32,359 -
--------- ------------ ---------- -------------
Total revenues 109,237 193,333 398,237 565,028
Internet service operating costs - 10,265 - 69,058
Direct costs - wireless TV 62,794 174,121 155,794 341,031
General and administrative 93,616 2,847,084 701,616 7,869,566
Stock based compensation - 563,237 - 4,723,551
--------- ------------ ---------- -------------
Total operating expenses 156,410 3,594,707 857,410 13,003,206
--------- ------------ ---------- -------------
Net loss from operations (47,173) (3,401,374) (459,173) (12,438,178)
Other income (expense)
Interest expense - (3,239,563) - (5,931,199)
Income from subsidiary - - - 163,057
--------- ------------ ---------- -------------
- (3,239,563) - (5,768,142)
--------- ------------ ---------- -------------
Net loss $(47,173) $(6,640,937) $(459,173) $(18,206,320)
========= ============ ========== =============
Net loss per common share
Basic and diluted $ (.05) $ (.38) $ (.55) $ (1.10)
========= ============ ========== =============
Shares used in computing net loss
per common share
Basic and diluted 864,991 17,699,099 838,729 16,617,115
========= ============ ========== =============
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
TELECOM WIRELESS CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional Stock
------------------ -------------------- Accumulated Paid-in Subscription
Shares Amount Shares Amount Deficit Capital on Investment
------ ---------- ---------- ------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance - June 30, 1998 - $ - 697,991 $ 698 $ (3,520,426) $ 2,855,715 $ -
Issuance of stock for services - - 12,000 12 - 29,988 -
Sale of common stock - - 155,144 155 - 290,403 -
Common stock issued in connection
with business reorganization - - 13,825,000 13,825 - (13,825) -
Proceeds of private offering (net of
offering costs of $83,095) - - 120,000 120 - 516,785 -
Proceeds of private offering (net of
offering costs of $359,994) - - 297,785 298 - 1,724,210 -
Stock based compensation - - - - - 1,547,560 -
Net loss - - - - (3,444,520) - -
------ ---------- ----------- -------- ------------- ------------ ------------
Balance - June 30, 1999 - - 15,107,920 15,108 (6,964,946) 6,950,836 -
Proceeds from Private Offering (net of
offering costs of $95,625) - - 127,935 128 - 641,242 -
Proceeds from Private Offering (net of
offering costs of $59,382) - - 97,227 97 - 387,771 -
Stock issued for acquisition of Prentice - - 346,667 347 - 2,426,322 -
Stock issued for acquisition of Aweb - - 28,562 29 - 199,902 -
Stock issued for cash - - 993,500 994 - 2,419,007 -
Stock issued for services - - 661,141 661 - 2,631,551 -
Warrants issued in conjunction with
bridge loan-immediately exercised - - 300,000 300 - 2,161,995 -
Stock issued for investment - - 1,002,807 1,003 - 2,748,689 (2,749,692)
Rescission of Prentice acquisition - - (346,667) (347) - (2,426,322) -
Stock cancelled in conjunction with
Prentice rescission - - (100,000) (100) - 100 -
Stock issued for rescission of debt - - 650,000 650 - 3,780,600 -
Options and warrants issued - - - - - 2,935,413 -
Stock issued in cancellation of
re-pricing warrants - - 130,902 130 - (130) -
Issuance of Preferred Stock 20,000 1,441,385 - - - - -
Net loss - - - - (18,206,320) - -
------- --------- ----------- -------- ------------- ------------ ------------
Balance - March 31, 2000 20,000 $1,441,385 18,999,994 $19,000 $(25,171,266) $24,856,976 $(2,749,692)
====== ========== =========== ======== ============= ============ ============
Total
Stockholders'
Equity (Deficit)
----------------
<S> <C>
Balance - June 30, 1998 $ (664,013)
Issuance of stock for services 30,000
Sale of common stock 290,558
Common stock issued in connection
with business reorganization -
Proceeds of private offering (net of
offering costs of $83,095) 516,905
Proceeds of private offering (net of
offering costs of $359,994) 1,724,508
Stock based compensation 1,547,560
Net loss (3,444,520)
----------------
Balance - June 30, 1999 998
Proceeds from Private Offering (net of
offering costs of $95,625) 641,370
Proceeds from Private Offering (net of
offering costs of $59,382) 387,868
Stock issued for acquisition of Prentice 2,426,669
Stock issued for acquisition of Aweb 199,931
Stock issued for cash 2,420,001
Stock issued for services 2,632,212
Warrants issued in conjunction with
bridge loan-immediately exercised 2,162,295
Stock issued for investment -
Rescission of Prentice acquisition (2,426,669)
Stock cancelled in conjunction with
Prentice rescission -
Stock issued for rescission of debt 3,781,250
Options and warrants issued 2,935,413
Stock issued in cancellation of
re-pricing warrants -
Issuance of Preferred Stock 1,441,385
Net loss (18,206,320)
----------------
Balance - March 31, 2000 $ (1,603,597)
================
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the
Nine Months Ended
March 31,
------------------------
1999 2000
--------- ------------
<S> <C> <C>
Cash flows from operating activities
Net loss $(459,173) $(18,206,320)
---------- -------------
Adjustments to reconcile net loss to net
cash used by operating activities
Depreciation and amortization 215,750 268,566
Stock issued for services/settlements 30,000 2,446,188
Stock based compensation - 3,121,436
Stock issued with bridge financing - 5,318,545
Deferred acquisition costs - -
Allowance for doubtful accounts - 12,500
Changes in assets and liabilities
Accounts receivable 4,545 (274,035)
Other assets (2,830) (14,034)
Accounts payable (34,762) 1,479,738
Accrued expenses (22,759) 394,574
Other liabilities (2,000) -
Accrued interest - 73,317
Cash overdraft - -
---------- -------------
187,944 12,826,795
---------- -------------
Net cash used by operating
activities (271,229) (5,379,525)
---------- -------------
Cash flows from investing activities
Purchase of equipment (14,410) (348,932)
Cash acquired from acquisitions - 5,878
Acquisition costs - (89,630)
License development costs - (1,000)
---------- -------------
Net cash used by investing
activities (14,410) (433,684)
---------- -------------
Cash flows from financing activities
Net activity - due to officer - -
Payments on short-term notes - (46,190)
Proceeds on short-term notes - 1,479,128
Proceeds from issuance of common stock 290,000 3,801,906
---------- -------------
Net cash provided by financing
activities 290,000 5,234,844
---------- -------------
Net increase (decrease) in cash 4,361 (578,365)
Cash at beginning of period 600 620,666
---------- -------------
Cash at end of period $ 4,961 $ 42,301
========== =============
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
Supplemental disclosure of cash flows information:
Cash paid for interest: $22,670 for the nine months ended March 31,
2000. No interest was paid for the nine months ended March 31, 1999.
Supplemental disclosure of non-cash investing and financing activities:
In July 1999, the Company consummated an acquisition of all of the issued and
outstanding common shares of America's Web Station for 28,562 shares of common
stock valued at $199,931 for purposes of the acquisition. The acquisition has
been accounted for as a purchase. The purchase price, including acquisition
costs, was allocated as follows:
Cash $ 5,878
Accounts receivable, net 14,893
Property and equipment 53,705
Intangible assets 8,743
Subscriber lists 225,000
Other assets 2,957
--------
311,176
Liabilities assumed (191,814)
---------
119,362
Consideration given and acquisition costs (255,390)
---------
Excess purchase price recorded as goodwill $136,028
=========
<PAGE>
TELECOM WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- -----------------------------------------------------------------------------
The business plan of the Company involves capitalizing on the convergence on the
Internet of video, voice and data by providing a wireless broadband
point-to-multipoint network to, and becoming a leading consolidator in, the
Internet Service Provider ("ISP") and Competitive Local Exchange Carrier
("CLEC") business. The goal of the Company is to provide broadband connectivity,
content, and electronic commerce via an Internet platform to residential and
business customers in both the United States and abroad.
The Company has acquired, in separate transactions, the stock of one ASP and one
ISP subsequent to year end and plans to continue to acquire companies to expand
its operations.
Principals of Consolidation
- -----------------------------
The consolidated balance sheets include the accounts of the parent company,
Telecom Wireless Corporation and its wholly owned subsidiaries, Keys and
Phoenix, as of June 30, 1999, and America's Web as of March 31, 2000.
Affiliated companies in which Telecom does not have a controlling interest, or
which control is likely to be temporary are accounted for under the equity
method. The Company acquired a 90% interest in Prentice Technologies, Inc.
(Prentice). The Prentice transaction was rescinded in December 1999. The
Company's investment in Prentice had been recorded under the equity method due
to the Company having temporary control of Prentice. All significant
inter-company transactions and balances have been eliminated.
NOTE 2 - SHORT-TERM NOTES PAYABLE
- --------------------------------------
On September 1, 1999, the Company obtained various bridge loans totaling
$250,000. The loans bear interest at 10% per year with principal and interest
due and payable in full on the earlier of (a) October 31, 1999 or (b) the date
of receipt by the Company of financing aggregating at least $2,000,000. These
loans are personally guaranteed by a shareholder of the Company. These loans
are past due.
On September 23, 1999, the Company obtained various bridge loans totaling
$750,000. The loans bear interest at 10% per year with principal and interest
due and payable in full on the earlier of (a) November 23, 1999 or (b) the date
of receipt by the Company of financing aggregating at least $2,000,000. These
loans are past due.
Attached to these loans are warrants for the purchase of 100,000 shares of the
Company's common stock at $7 per share. These warrants terminate after four
years or the date on which a registration statement relating to the shares
underlying the warrants has been in effect for two years. If the loans are not
repaid in full within one month of the date of issuance, the lenders are
entitled to receive an additional 100,000 warrants subject to the same terms as
the repricing warrants issued in conjunction with the private placements
discussed in Note 10. The Company also issued warrants for the purchase of
300,000 shares at an exercise price of $.001. The Company amortized
approximately $2,000,000 of interest expense over the two month term of the
loans related to these warrants.
In January, 2000 the Company converted $375,000 of notes payable and the related
accrued interest into 400,000 shares of common stock. This conversion resulted
in interest expense of $2,100,000.
In connection with the acquisition of Prentice Technologies, the Company signed
a $253,750 note payable, due March 2000 with principal and interest of $43,284
payable monthly. Interest is calculated at 8% per annum. The Company completed
a rescission of the transaction with Prentice in December 1999 which resulted in
the cancellation of this note.
The Company assumed notes payable in conjunction with the acquisition of
America's Web which are due on demand. Interest is calculated at 7% - 19% per
annum and the notes are unsecured.
In November 1999, the Company signed a note payable to a corporation in the
amount of $700,000, bearing interest at 12% per annum. Principal and accrued
interest are due in full in April 2000. The note is convertible into common
stock of the Company at a conversion rate of $7 per share. This note was
entered into in conjunction with the agreement to acquire an equity interest in
another entity.
In December 1999 the Company signed a note payable to an individual for
$140,000. Principal and interest at 10% per annum plus 7,500 shares of the
Company's common stock are payable on or before April 21, 2000. If not paid
until May 21, 2000, the principal and interest as described above are due along
with 15,000 shares of the Company's common stock. If not paid until June 20,
2000 the Company is obligated to issue 50,000 shares of common stock in full
satisfaction of the debt.
In November 1999 the Company signed a $160,000 note payable to a corporation
which bears interest at prime rate plus 2% per annum; is due on demand and
provides for security consisting of all assets of the Company that are not
already encumbered. The security interest was not perfected as of March 31,
2000. This note has been paid.
NOTE 3 - AGREEMENT WITH MINORITY SHAREHOLDER
- --------------------------------------------------
As of June 10, 1998, JRHW17 Corporation (owned by a minority shareholder of
Keys) had advanced Keys $1,276,841. On that date, the Company entered into an
agreement with JRHW17 Corporation to cancel this debt in consideration of the
issuance of 20,000 shares of the Company's preferred stock. That stock,
designated as Redeemable, Non-Voting, Convertible Preferred Stock-Series 1998-1,
was issued during the quarter ended March 31, 2000. The 20,000 shares of
preferred stock shall be redeemable by the Company at par value if not
previously converted, provided that the Company shall not exercise its
redemption right prior to January 1, 2005. The preferred stock shall be
convertible to common stock of the Company upon the filing of a Registration
Statement with the Securities and Exchange Commission (SEC) for a public
offering of shares of the Company. One half of the shares issuable upon
exercise of the conversion will have "piggyback" registration rights on the
first public offering, the remaining shares resulting from the conversion will
have registration rights on the next subsequent or secondary offering. Subject
to approval of the regulatory authorities and the underwriters, the preferred
will convert to common stock of the Company on the following basis: the
conversion rate will be determined at the time of the public offering by first
taking 125% of the price at which a share of the Company's common stock will be
offered to the public. This number so calculated will be the divisor and the
par value per share of the preferred stock (i.e., $100.00) will be the dividend
and the quotient will then be the number of common shares into which each share
of preferred stock will be convertible. The common stock received upon
conversion by the preferred stockholder, subject to the foregoing registration
rights, shall be restricted pursuant to SEC Rule 144 and shall contain a legend
on each certificate to that effect.
The Company reflected the obligation to issue the preferred stock as a liability
until the quarter in which that stock was issued. The Company will continue to
recognize interest expense based on the difference between the note and the par
value of the preferred stock.
NOTE 4 - PRIVATE PLACEMENTS
- -------------------------------
The August and September 1999 private placements included re-pricing warrants
which entitle the holder to purchase, at an exercise price of $.001 per share,
that number of shares as equals the number of shares purchased by that holder
multiplied by a fraction the numerator of which is $8.75 minus the average
closing bid prices of the common stock during the twenty (20) days following the
effective date of the registration statement, and the denominator of which is
the average closing bid prices of the common stock during the twenty (20) days
following the effective date. The number of re-pricing warrants to be issued is
dependent on a future event and therefore cannot be valued utilizing the
Black-Scholes model until all contingent factors are known. Assuming a $7.00
closing bid price, warrants to purchase 50,628 shares would be issued.
In February 2000, the Company entered into agreements with the holders of the
re-pricing warrants to exchange their rights under the re-pricing warrants for
shares of stock. A total of 350,224 shares of common stock were issued in
cancellation of all outstanding re-pricing warrants. At March 31, 2000 130,902
shares had been issued in cancellation of the warrants. The remaining shares
were issued in April 2000.
NOTE 5 - COMMON STOCK, OPTIONS AND WARRANTS
- --------------------------------------------------
Consulting Agreement
- ---------------------
On June 18, 1998 the Company entered into an option agreement with the former
minority shareholder of Keys, for services rendered, under which the shareholder
has the right to purchase a number of shares of Company's common stock equal to
$400,000 divided by the exercise price of the option. The exercise price of the
option is calculated as the lower of 50% of the closing bid price of the shares
on the trading day immediately prior to the exercise date or 50% of the opening
bid price on the next trading day. The options expire in June 2002. No options
related to this agreement had been exercised as of September 30, 1999. The
options were valued at approximately $487,000 utilizing the Black-Scholes
pricing model with the following assumptions: expected life 4 years, 0%
volatility, risk-free interest rate of 5.5% and a dividend yield of 0%. This
expense has been recognized for the year ended June 30, 1998.
Stock-Based Compensation
- -------------------------
During the three months ended March 31, 2000, the Company issued options for the
purchase of 1,568,000 shares of the Company's common stock to several employees
of the Company. The exercise prices are between $4.67 and $7.21 per share. No
compensation expense was recorded for these options in accordance with Statement
of Financial Accounting Standards No. 123.
In October 1999, the majority stockholder of the Company sold an option to
purchase 250,000 shares of the Company's common stock for $250,000 and lent the
proceeds to the Company. The term of the option is two years and the option
exercise price is $.10 per share. The fair value of this option is
approximately $1,700,000 utilizing the Black-Scholes pricing model with the
following assumptions: expected life of 2 years, 0% volatility, risk-free rate
of 5.5% and a 0% dividend yield. Compensation expense will be recognized in
October 1999 for this option. The Company issued 250,000 shares of its common
stock in January 2000 to the option holder in payment of the loan and
termination of this option which resulted in interest expense of approximately
$1,000,000.
In November 1999, the Company authorized the issuance of warrants for the
purchase of 300,000 shares of its common stock at $.001 per share as additional
consideration in connection with a debt financing. This resulted in interest
expense of approximately $2,000,000. The fair value of this option was
determined utilizing the Black-Scholes pricing model with the following
assumptions: expected life of 5 years, 0% volatility, risk-free rate of 5.5%
and a 0% dividend yield. In November 1999, the holder indicated its desire to
exercise the warrants. In January 2000, the Company, as directed by the holder
of the warrants, issued the shares underlying the warrants to three persons
holding promissory notes issued by the Company.
In December 1999, the Company entered into a one-year investment banking
agreement with an institution. Under the agreement, the investment banker is to
perform a variety of services including advice and counsel regarding strategic
business and financial plans, negotiations with potential investors, acquisition
candidates, strategic partners and other such services. The agreement requires
a non-refundable fee of $500,000 or 550,000 shares of the Company's common stock
and a three-year warrant for the purchase of an additional 1,000,000 shares
exercisable at $5.50 per share. The Company issued the 550,000 shares in
satisfaction of the nonrefundable fee. The shares were valued at $2.50 per
share based on stock transactions for cash with unrelated parties in December
1999 and January 2000. The fair value of the shares or $1,375,000, will be
recognized over the one-year term of the contract. The warrants had no value as
determined by the Black Sholes pricing model using the following assumptions:
expected life 3 years, 0% volatility, risk-free interest rate of 5.5% and a 0%
dividend yield. The Company also agreed to pay finder's fees with respect to
transactions introduced to the Company by the investment banker. The investment
banking company may assess finder's fees to the Company for a two and a
half-year period subsequent to the term of this agreement.
Current Stock Transactions
- ----------------------------
In January 2000, the Company issued 2,300 shares of its common stock to 23
non-officer employees of the Company and its two subsidiaries as a stock bonus.
The 1,000,000 in bridge financing that was due in October and November 1999, is
past due with the exception of $375,000 which has been converted to common stock
in January 2000. A lawsuit is pending with respect to these notes.
In February 2000, the Company entered into additional employment agreements
which require annual salaries aggregating $490,000 with 30,500 shares of stock
issued as a signing bonuses and options to purchase 1,550,000 shares of the
Company's common stock. The agreements expire in February 2003. In addition,
two previous employment agreements were increased by $75,000 and 10%
respectively. The additional $75,000 is to be paid in discounted stock options.
The total obligation for annual salaries by the Company under all employment
agreements is $1,265,000.
In March 2000, the Company issued 19,753 shares at a value of $100,000 as a
penalty to two target acquisitions that were not consummated.
In March 2000, the Company issued options to 3 employees for the purchase of
18,000 shares of common stock at purchase prices ranging from $4.67 to $7.21 for
a term of 5 years.
NOTE 6 - COMMITMENTS AND CONTINGENT LIABILITIES
- -----------------------------------------------------
Employment Contracts
- ---------------------
The Company entered into employment agreements with certain officers for terms
of three years each, expiring March 31, 2002. The agreements call for minimum
annual salaries aggregating $1,025,000, with increases based on annual review by
the compensation committee. If the Company terminates the employment agreement
without cause, the Company will be obligated to pay the base salary for the
remainder of the initial term.
During the quarter ended March 31, 2000, the employment of two officers by the
Company was terminated resulting in cancellation of options for the purchase of
1,200,000 shares of the Company's common stock. Upon cancellation of the
employment agreement with one officer, a consulting agreement was entered into
with the same officer equal to the base salary previously received. The
consulting agreement expires on July 31, 2000. In addition, an advance by the
Company to the officer in the amount of $65,000 is to be evidenced by a
promissory note in the same amount which will bear interest at 8% per annum with
three equal consecutive annual installments of principal plus interest
commencing in March, 2001.
In March 2000, the Company entered into an agreement with a consultant for the
provision of public relations services. The Company agreed to issue to the
consultant options for the purchase of 1,000,000 shares of the Company's common
stock at prices ranging from $6.50 to $9.50 per share.
Office Space and Transmission Towers
- ----------------------------------------
On July 30, 1999, the Company entered into a lease agreement for office
facilities in West Palm Beach, Florida. The agreement, expiring July 31, 2004,
requires base monthly rental payments of $8,369, plus operating expenses, with a
4% annual increase in the base. The Company defaulted on this lease and the
landlord filed a lawsuit to recover costs and rents due over the remaining term
of the lease of approximately $900,000. In March 2000, the landlord and the
Company entered into a settlement which required the issuance of 40,000 shares
of common stock as a security deposit and payments of $50,608 in March 2000 and
April 2000. The shares were issued and the first payment due in March has been
made. However, the full amount of the April 2000 payment has not been made.
Under the settlement agreement, the landlord may take a judgment against the
Company for the full amount claimed if the Company defaults on its obligations.
In March 2000, the Company entered into a facilities lease in Denver, Colorado,
which requires monthly payments of $19,343 and expires February 28, 2002. There
is an option to extend for an additional two years.
Services Agreement
- -------------------
In August 1999, the Company entered into a Services Agreement with a consultant
whose services began in October 1999. The Services Agreement requires that the
consultant render financial consulting and other services to the Company. As
consideration, the Company issued to the consultant two stock purchase warrants.
The first is for the purchase of 500,000 shares of the Company's common stock at
an exercise price of $5.50 per share, which has a fair value of approximately
$1,500,000 utilizing the Black-Scholes pricing model with the following
assumptions: expected life of 6 years, 0% volatility, risk-free interest rate
of 5.5% and a 0% dividend yield. The second is for the purchase of 720,000
shares of the Company's common stock which vests at the rate of 15,000 shares
per month for 48 consecutive months, which has an aggregate fair value of
approximately $3,220,000 utilizing the Black-Scholes pricing model with the
following assumptions: expected life of 6 years, 0% volatility, risk-free
interest rate of 5.5% and a 0% dividend yield. This is subject to change as the
exercise price on the options issued in each monthly installment is contingent
upon the market value of the common stock as defined below. The exercise price
for each installment is 50% of the market value of the Company's common stock on
the vesting date for that installment. For this purpose, market value is deemed
to be the average of the closing prices for the 20 trading days preceding the
vesting date of the installment. In the event of a change in control (as
defined), an additional number of installments shall vest and become exercisable
as equals the number of previously vested installments, and the number of shares
included in each monthly installment will double. Compensation expense in the
amount of approximately $1,900,000 was reflected in the accompanying financial
statements, for the nine months ended March 31, 2000.
HyperLight Agreements
- ----------------------
TECHNOLOGY MARKETING AND LICENSE AGREEMENT
In September 1999 the Company entered into a five-year agreement with HyperLight
Network Corporation (HyperLight) granting the Company a non-exclusive world-wide
license to market a product incorporating a new broadband technology to be
acquired by HyperLight. The agreement required the Company to pay to HyperLight
a license fee equal to 50% of any revenues generated under the license. The
agreement was terminable by HyperLight if the Company failed to place an order
for the products backed by a $50 million irrevocable letter of credit by
November 1, 1999. HyperLight has given the Company notice of termination of the
license agreement as no purchase order was presented.
Subscription Agreement
In September 1999 the Company entered into a subscription agreement with
HyperLight to purchase 250 shares of HyperLight's Series C common stock in
exchange for 500,000 shares of the Company's common stock. The subscription
agreement required the Company to file a registration statement including the
shares issued to HyperLight no later than October 15, 1999. In addition, the
fair value of the shares issued by the Company was to be not less than
$5,000,000 supported by an independent appraisal. In November 1999 HyperLight
rescinded the offer to sell its securities contained in the subscription
agreement due to the Company's failure to pay for the equity interest in
HyperLight. Subsequently, the Company delivered the 500,000 shares to
HyperLight. The subscription agreement provides that HyperLight will retain
possession of the 250 shares of its common stock until the earlier of the
Company completing its payment obligations under the interim funding agreement
or the sale by HyperLight of more that 50,000 shares of the Company's common
stock pursuant to the registration statement.
Interim Funding Agreement
In September 1999 the Company entered into an agreement with HyperLight in which
HyperLight agreed to assist the Company in making arrangements to acquire an
equity interest in Vision Tek, L.P.(Vision Tek) In exchange, the Company agreed
to pay $1,200,000 to HyperLight in four installments of $300,000 each over a
period of nine months. The first installment was paid by FlashNet
Communications, Inc. (FlashNet) as discussed below. The Company has acquired the
equity interest in Vision Tek. HyperLight claims that the Company is in default
under this agreement as the payment due March 1, 2000 has not been made.
Vision Tek, L.P. - Assignment and Subscription Agreement
In September 1999 the Company entered into an agreement to purchase a 2%
liquidating interest in Vision Tek for $400,000. The interest was purchased by
FlashNet but subsequently was acquired by Telecom Wireless as described below.
The interest in Vision Tek will entitle the Company to a distribution of 50
shares of Series B Common stock of HyperLight at such time as the shares are
distributed to the partners of Vision Tek by the liquidator.
FlashNet Transactions
In September 1999 the Company assigned its rights under the subscription
agreement, the interim funding agreement and the assignment and subscription
agreement to FlashNet which paid the initial $300,000 installment to HyperLight
under the interim funding agreement and $400,000 to the seller of the 2%
interest in Vision Tek. In November 1999 the Company reacquired its rights
under the assigned agreements, including the equity interest in Vision Tek, for
consideration consisting of a convertible promissory note in the principal
amount of $700,000 due April 30, 2000, payable to FlashNet. As of May 22, 2000,
the note had not been paid.
Subsequent Negotiations
In December 1999, the Company issued an additional 452,381 shares of its common
stock to HyperLight in exchange for the agreement of HyperLight to waive the
appraisal provision in the subscription agreement, to extend the maturity date
of the $300,000 installment in default under the interim funding agreement to
February 29, 2000, and to continue renegotiating the agreements in good faith.
This installment was paid by the issuance to HyperLight of 50,426 shares of the
Company's common stock. The $300,000 payment purportedly due March 1,2000, has
not been paid. The ultimate outcome of these negotiations is unknown.
The Company has accounted for the transactions involving HyperLight as an
advance until certificates evidencing the equity interest in HyperLight have
been delivered to the Company and its obligations with respect to the $900,000
have been satisfied. The Company has recorded the convertible note payable for
$700,000 to FlashNet in the financial statements of the Company as of December
31, 1999. The fair value of the 952,381 shares issued in connection with the
above agreements has been reflected as a stock subscription and netted in equity
at December 31, 1999 since the 250 shares of Series C common stock are being
retained by HyperLight pursuant to the subscription agreement. The fair value of
the shares issued was determined based on the fair market value of the Company's
common stock on the date of issuance, which was $2.50 per share based on other
equity transactions for cash with unrelated persons at about the same time.
Although the Company claims that the agreements with HyperLight have either been
terminated or are unenforceable, the Company believes it will be successful in
renegotiating the transactions. However, if the Company is not able to pay all
of the amounts claimed to be due under the interim funding agreement, HyperLight
may claim it has the right under the subscription agreement (i) to either return
the 952,381 shares of the Company's common stock to the Company, retain all
payments made under the interim funding agreement and cancel the 250 shares of
its Series C common stock, or (ii) to sue on the debt and retain possession of
the 250 shares of HyperLight's Series C common stock until the obligations are
paid in full.
NOTE 7 - SUBSEQUENT EVENTS
- ------------------------------
In April 2000, the Company returned 15 transmitters that were not in use and
received a credit from the vendor in the amount of approximately $200,000.
In April 2000, an officer and an affiliate of an officer of the Company agreed
to make equity investments aggregating $15 million in the Company. The affiliate
subscribed to purchase 3,400,000 shares of common stock at a purchase price of
$2.94 per share, or a total of $10,000,000, and the officer subscribed to
purchase 2,000,000 shares at a purchase price of $2.50 per share, or a total of
$5,000,000. Each paid the purchase price in the form of a full-recourse
promissory note secured by the shares purchased which bears interest at 8% per
year and matures in April 2001. The Company has agreed to register the shares
purchased under the Securities Act of 1933.
During 2000, the Company entered into various consulting agreements which
resulted in the issuance of warrants for the purchase of 1,050,000 shares of the
Company's common stock. The value of these warrants will be reflected in the
financial statements as services are rendered.
In conjunction with various sales of common stock by the Company in 2000, the
Company issued warrants for the purchase of 195,000 shares of common stock. In
addition the Company issued a warrant for the purchase of 20,000 shares of the
Company's common stock for financial consulting services rendered. The value of
the warrants will be recognized over the exercise period.
During the quarter ended March 31, 2000, the Company has issued 2,175,654 shares
of its common stock in consideration of $2,170,000 in net proceeds (includes
$50,000 in commissions); 650,000 shares were issued in cancellation of $625,000
in debt; 44,876 shares were issued for services. Substantially all of the
shares have registration rights under the Securities Act of 1933.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
Section 21E of the Securities Exchange Act of 1934, as amended, and Section
27A of the Securities Act of 1933, as amended, provide a safe harbor for certain
forward-looking statements. This quarterly report contains statements that are
forward-looking. Forward looking statements include those which are not
historical facts, including without limitation statements about management's
expectations for any period beyond the fiscal quarter ended March 31, 2000.
Words such as "expect", "anticipate", "believe", "intend" and "estimate" and
similar expressions are examples of words which identify forward looking
statements. While these statements reflect the Company's beliefs as of the date
of this report, they are subject to assumptions, uncertainties and risks that
could cause actual results to differ materially and adversely from the results
contemplated, forecast or estimated in the forward-looking statements included
in this report. These factors include, but are not necessarily limited to, the
impact of competitive products, the acceptance of new products or product lines
in the marketplace, the Company's ability to manage growth, the availability of
an adequate workforce and changes in market conditions.
The following discussion and analysis are based on the combined pro forma
results of Telecom Wireless Corporation and the historical results for each of
its subsidiaries.
OVERVIEW
The goal of Telecom Wireless Corporation is to provide a wireless broadband
point-to-multipoint network to, and become a leading consolidator in the highly
fragmented Internet service provider or "ISP" industry and in the competitive
local exchange carrier or "CLEC" industry. The business plan provides for
aggressive acquisition of ISPs and CLECs coupled with the concurrent deployment
of the fixed wireless broadband technologies. This will allow Telecom Wireless
to provide quality local service to both business and residential customers
while simultaneously satisfying demand for a full range of bundled services and
high speed reliable Internet access. Wireless broadband services will be
provided to both owned and non-owned ISPs and CLECs, and to building systems
integrators. Reductions in operating costs are expected to be achieved through
integration of the operations and systems of acquired ISPs and CLECs, including
centralization of billing, customer support services, marketing and advertising.
Revenues per subscriber are expected to be increased by making available to
customers enhanced Internet products and services. Telecom Wireless will attempt
to reduce customer turn-over by maintaining a local presence for acquired
businesses.
Telecom Wireless currently operates an ISP and a wireless cable television
company. Management believes this mix of technologies and markets will provide
the platform on which to validate planned new product offerings and market
assumptions.
BUSINESS PLAN
Wireless Broadband Network
Telecom Wireless intends to establish broadband wireless communications
networks in North America for small and medium sized businesses and consumers.
These networks will allow simultaneous real time transmission of voice, video
and data over the Internet and will allow local market ISPs and CLECs to provide
a full range of products and services typically offered by national ISP's.
Ultimately, Telecom Wireless plans to build high speed dedicated circuits to
connect six geographic regions, forming a high-speed interconnected network.
With our regional hubs and local ISPs and CLECs properly provisioned and
connected, Telecom Wireless will have the flexibility and capability to offer
and support bandwidth intensive services such as voice over internet protocol
and video streaming applications. By enabling the voice over internet protocol
network, Telecom Wireless will be in a position to provide Internet and
Intranet-based telephony services to businesses and consumers. We have entered
into a contract to purchase, over a period of five years, $225 million of
equipment and services necessary to establish the networks. Pursuant to that
contract, Telecom Wireless was obligated to take delivery of and remit payment
on March 15, 2000, for equipment having a purchase price of approximately
$3,450,090. Telecom Wireless has not made the required payment and negotiations
are continuing with the seller and financing sources to procure the funds
necessary to implement the rollout of the wireless broadband strategy in several
markets. Other related costs will be substantial such as infrastructure,
including location agreements for transmitters and receivers, installation and
marketing, and sales. We presently plan to market the wireless broadband
services to customers of owned and non-owned ISPs and CLECs.
Acquiring and consolidating independent telecommunications businesses.
We expect to acquire businesses that will enable us to provide a
comprehensive range of telecommunications products and services. Although we
expect most businesses will be profit-able, the implementation of new services
will require substantial expenditures for equipment in the field. This generally
will result in negative cash flow for at least the first year of operations for
each acquisition.
Standardizing and centralizing operations to capture efficiencies of scale.
Local Presence. Telecom Wireless will attempt to retain key employees of
acquired companies to ensure a smooth transition and maintain local
institutional knowledge. This will be important, as the local operating units
will be required to maintain local presence as Telecom Wireless develops a
national brand. We believe that consolidation efforts by national ISPs have been
seriously flawed by a lack of sensitivity to the essentially local nature of
many ISP businesses. This has often resulted in sharply increased subscriber
turnover rates after acquisitions and subsequent loss of revenue. We intend to
structure our integration and consolidation efforts to retain the perception by
subscribers of ISP businesses that we ac-quire that their ISP is a local
business providing superior service to that of national services.
Integration Teams. To help integrate operations, Telecom Wireless will
establish integration teams. Each integration team will consist of skilled
technical and marketing personnel. The integration team will have the
responsibility to help with the overall centralization, standardization, and
eventual branding of the local company as a part of the Telecom Wireless
organization. Additionally Telecom Wireless' accounting staff will work with the
integration team to centralize the accounting and billing systems promptly upon
closing of the acquisition. Upon completion of the initial integration process,
the operating units will begin executing the marketing and branding programs
established by Telecom Wireless to expand its customer base and improve its
customer retention.
Consolidation of Functions. The two major expenses associated with most ISP
and CLEC operations are administrative, primarily personnel, and technical,
including upstream telecommunications and local area networks. These factors
interact with administrative elements common to all ISPs including accounting,
system administration, web hosting and design, telephone and technical support.
To the ex-tent these common elements are consolidated and standardized,
significant savings can be achieved.
* Accounting: A high priority for Telecom Wireless is the installation of a
common accounting platform across all ISP acquisitions. Management currently is
evaluating accounting and billing platforms. The selected platform will be
flexible enough to include on one bill all products and services we may choose
to offer in the future and be scalable to include any number of subscribers.
* Technical Support: Telecom Wireless plans to maintain regional telephone
technical support centers to handle all consumer problems, service inquiries and
new subscriptions. Such centers will reduce the need for support staff at each
location and improve service.
* Web Design and Storage: It is our goal to transfer all ISP web design,
maintenance and hosting to a single division. Such a strategy should eliminate
the need for programmers at each local ISP.
* Systems Administration: Consolidation of telecommunications is a
challenging goal because of the number of factors that must be considered for
each acquisition. Prior to acquisition, each ISP maintains its own modem banks,
local area network, and routing to the Internet. In addition, each ISP may have
its own up-stream Internet service provider as well as a local exchange carrier.
Telecom Wireless will use care and caution so that the quality of service is not
jeopardized while consolidation is implemented.
Immediately Bundling Video, Voice, and Data Products and Services.
Increasingly, businesses and consumers are drawn to ISPs that can meet all of
their telecommunications needs. Bundling services provides the ability to become
a "one stop shop" for all customers' needs. We expect bundling to assist us in
retaining existing customers and attracting additional customers.
Developing and Offering Value-Added Products And Services. In some
segments of the telecommunications business, the ability to offer value-added
products and services provides a tremendous competitive advantage. By delivering
value-added services, Telecom Wireless will attract and retain customers. A
typical example of a value-added service is voice over Internet protocol, which
allows users to place long distance telephone calls over the Internet at a very
low cost. By installing new hardware that supports not only this service but the
traditional ISP services, Telecom Wireless will be able to begin offering these
types of service to the existing subscribers of acquired ISPs and CLECs.
Unified Branding. We intend to use the same brand name in marketing our
products and services. Unified branding should solidify our customer base,
ensure customer loyalty, help us to gain market share and enable us to benefit
from the efficiencies of centralization. In addition, it should enhance our
market visibility and perception. Branding also should enhance our ability to
sell additional products and ser-vices. In addition, past industry experience
indicates that unified branding should significantly reduce customer turnover.
Ability to Implement Business Plan
The ability of Telecom Wireless to remain in business and implement its
business plan depends upon a variety of factors, primarily the ability to obtain
financing and the ability to attract and retain employees having the necessary
skills. Funding operations and acquisitions has been and is expected to
continue to be the major impediment to implementing the company's business
plan. We need capital to sustain operations and to consummate acquisitions.
Management can give no assurance that Telecom Wireless' capital requirements can
be satisfied at all or on reasonable terms.
COMBINED RESULTS OF OPERATIONS
Revenues. Telecom Wireless Corporation and its subsidiaries historically
have derived their revenues primarily from subscription fees paid by ISP
subscribers for dial-up access to the Internet and subscription fees paid for
wireless cable television access. ISP subscription fees vary by the billing plan
within the subscriber base. The vast majority of the plans in effect are
monthly. However, there is a growing acceptance of annual contracts that offer
a discount over the monthly fee.
Wireless cable television subscribers pay monthly cable access fees. Like
ISP subscribers, wire-less cable television subscribers pay fees based on the
billing plan they have selected.
Costs. Our direct costs of sales with respect to ISP and wireless cable
television revenues consist primarily of maintaining sufficient capacity to
provide services to our subscribers. Capacity is a measurement of the provider's
ability to connect subscribers. ISP capacity costs include:
* the cost of leased routers and access servers and recurring
telecommunications costs, including the cost of local telephone lines to carry
subscriber calls to our points of presence, or "POPs";
* the costs associated with leased lines connecting our POPs directly to the
Internet or to operations centers and connecting operations centers to the
Internet; and
* Internet backbone costs, which are the amounts paid to Internet backbone
providers for bandwidth, which allows transmission of data from the Internet to
subscribers.
Cost of ISP sales revenues will increase as required to support a growing
subscriber base. We will seek to leverage the combined scale of our ISPs to
lower telecommunications costs as a percentage of revenues by:
* Negotiating one or more relationships with national backbone providers to
connect our ISPs to the Internet;
* Negotiating favorable local loop contracts and establishing co-location
arrangements with local exchange carriers;
* Establishing private peering relationships to reduce our costs and improve
access and reliability for our subscribers;
* Negotiating discounts with equipment vendors; and
* Implementing wireless technology to provide high speed Internet access to
the small office/home office market. The wireless technology will allow
high-speed access at costs less than reselling the lines from the existing local
exchange carriers.
Costs of sales of wireless cable television revenues consist primarily of
* Content costs;
* Frequency license leases;
* Technician labor costs; and
* Purchase or lease of equipment necessary for the receiving and
retransmission of programming.
General, administrative and other expenses consist primarily of:
* The salaries of our non-technician employees and associated benefits; and
* The cost of selling, marketing, accounting and legal services related to
merger and acquisition activities.
General, administrative and other expenses include expenses associated with
customer service and technical support, primarily salaries and employment costs.
We expect operations and customer support expenses to increase in the short
term to support new and existing subscribers. New subscribers tend to have
particularly heavy customer service and technical support requirements. Because
we anticipate growth in our subscriber base, we expect these costs to comprise
an increasing percentage of expenses in the near term. In addition, providing
customer service and technical support 24 hours a day, seven days a week, in our
markets will increase these expenses on an absolute basis. In the longer term,
as a percentage of revenues, we believe operations and customer support expenses
should decline as the existing sub-scriber base becomes less dependent on
customer service, and due to increased operating efficiencies. The consolidation
of the help desk and customer support functions will also offset increased costs
caused by increased demand.
General, administrative and other expenses also include the expenses
associated with acquiring subscribers, including salaries, bonuses, sales
commissions, advertising and referral bonuses. We expect ISP sales and marketing
expense to increase over time with the growth in our ISP subscriber base. On a
percentage of revenue basis, sales and marketing expense is a relatively
variable cost and may increase with our development of unified branding.
In addition, general, administrative and other expense includes internal
and external merger and acquisition costs such as salaries, bonuses, commissions
and accounting, legal and other professional fees. We expect to reduce merger
and acquisition expenses as a percentage of revenues of acquired businesses
through standardization of procedures and documents.
We expect general, administrative and other costs to increase to support
our growth, particularly as we establish a network operations center and
implement common billing and financial reporting systems in the near term. Over
time, we expect these relatively fixed expenses to decrease as a percentage of
revenues. Additionally, as a result of consolidation of the traditional back
office activities such as help desk, technical support, and centralized billing,
we anticipate the reduction of labor costs for our acquisitions. However, we
will incur substantial costs and expenses in connection with our integration and
consolidation efforts, including salaries, travel, software and equipment.
Amortization expense primarily relates, on a pro forma basis, to the
amortization of goodwill and subscriber lists acquired in business acquisitions.
We expect amortization expense to increase as additional acquisitions are
closed and to vary according to the purchase price and tangible assets involved
in the acquisition. Our policy is to amortize the portion of the acquisition
purchase price attributable to sub-scriber lists, goodwill and other intangible
assets over three to five years. This amortization will reduce income.
Therefore, as we expand our subscriber base through acquisitions, we will
experience increasing amortization expense.
Depreciation primarily relates to our technology and office equipment and
is provided over the estimated useful lives of the assets ranging from three to
nine years using the straight-line method. We expect depreciation expense to
increase as we grow our networks to support new and acquired subscribers and as
we build a network operations center and implement common billing and reporting
systems.
Operating results in the future may fluctuate significantly depending upon
a variety of factors, including capital costs and costs associated with the
introduction of new products and services. Additional factors that may cause
operating results to vary include:
* The pricing and mix of services provided;
* Subscriber retention rates;
* Changes in pricing policies and product offerings by competitors;
* Demand for Internet access services;
* One-time costs associated with acquisitions; and
* General telecommunications services, performance and availability.
We have experienced seasonal variation in Internet and wireless cable
television use in Florida, and revenue streams have fluctuated. As a result,
variations in the timing and amounts of revenues could have a material adverse
effect on our operating results. Based on the foregoing factors, we believe
that period-to-period comparisons of our operating results are not necessarily
meaningful and that these comparisons cannot be relied upon as indicators of
future performance.
DISCUSSION OF THE OPERATIONS OF TELECOM WIRELESS CORPORATION
During the fiscal quarter ended June 30, 1999, present management assumed
control of Telecom Wireless and started to plan, document and implement its
merger and acquisition activities. During that and the following fiscal quarter,
substantial time, effort and money were expended to develop and document M&A
due diligence and acquisition forms, documents and procedures. At the same time,
field personnel were actively seeking letters of intent from acquisition
targets. The initial M&A sales and marketing team was later expanded from two
senior managers and one support person to include two more in sales and two in
operations.
Between April and September 1999 Telecom Wireless entered into non-binding
letters of intent to acquire approximately 19 companies, and definitive
agreements for the acquisition of an additional five companies. Due to the lack
of acquisition funds, none of these transactions closed except America's Web
Station, Inc., and Prentice Technologies, Inc., which were acquisitions largely
for Telecom Wireless' common stock. On December 30, 1999, the acquisition of
Prentice was rescinded. In addition, the remaining three definitive agreements
expired by September 30, 1999.
For the three months ended March 31, 1999 and 2000, Telecom Wireless had
revenues of $109,237 and $193,333, respectively. For the nine months ended March
31, 1999 and 2000, revenues were $398,237 and $565,028, respectively. The
primary source of its operating revenues for the periods in 1999 were the
wireless cable television operations of Keys Microcable Corporation and the 2000
periods included the addition of the ISP revenue from America's Web Station.
Currently, wireless cable television services are not part of our strategic
plan as the small market in the Key West area limits the value of this
subsidiary. However, Keys Microcable does provide a platform from which we will
be able to test technical, administrative and marketing plans including the plan
for deployment of wireless broadband services described above. By utilizing Keys
Microcable's multi-media distribution system radio frequencies, we are planning
to offer wireless high-speed Internet access to residential and business
customers, market web site development and hosting services, and an improved
billing system. To improve the performance of Keys Microcable, Telecom Wireless
is making investments in equipment and subscriber services.
Revenue for the three months ended March 31, 2000 increased $84,096 from
$109,237 for the three months ended March 31, 1999 to $193,333. For the nine
months ended March 31, 2000 revenue increased $166,791 from $398,237 for the
nine months ended March 31, 1999 to $565,028. These increases were primary due
to improved marketing efforts at Keys Microcable and the additional revenue
generated by America's Web.
Increases in general and administrative expenses were substantially due to
the non-cash expenses. During the three months ended March 31, 2000, Telecom
Wireless incurred non-cash expenses aggregating approximately $4,000,000 for
depreciation, amortization, stock issued for services, stock-based compensation
and imputed interest in connection with financing transactions. We expect
non-cash expenses to continue, but at reduced levels. For the three months
ended March 31, 2000, our net loss was $6,640,937 while negative cash flow from
operations was $1,924,661.
For the three months ended March 31, 2000, and the nine months ended March
31, 2000, Telecom Wireless incurred approximately $50,023 and $1,079,143,
respectively, in M&A-related expenses for outside legal and accounting fees and
costs. As management expected, the level of M&A costs for the quarter decreased
with the addition of internal resources to replace more costly outside
professional services.
For the nine months ended March 31, 2000, Telecom Wireless incurred non-
cash expenses aggregating approximately $8,300,000 for depreciation, amortiza-
tion, stock issued for services, stock-based compensation and imputed interest
in connection with financing transactions. We expect non-cash expenses to
continue, but at reduced levels. For the nine months ended March 31, 2000, our
net loss was $18,206,320 while negative cash flow from operations was
$5,379,525.
To fully implement its business plan, Telecom Wireless will be required to
acquire or build a national infrastructure and establish and train integration
and consolidation teams. Since Telecom Wireless has made few acquisitions, the
staff presently required to manage integration and consolidation is minimal.
However, when funding for operations and acquisitions is obtained, significant
additional in-vestment in technical and integration personnel will be required.
DISCUSSION OF THE RESULTS OF OPERATIONS OF KEYS MICROCABLE CORPORATION
Keys Microcable Corporation, a Florida Corporation, provides wireless cable
television services in Key West, Florida. When current management assumed
control of Telecom Wireless in April 1999, Keys Microcable was in a state of
decline and disarray caused by lack of capital, which hindered operations as
well as growth. Non-payment of fees had resulted in cancellation of several
popular channels of programming. Many other programmers were threatening to
terminate service. In addition, there were several claims pending against Keys
Microcable.
During fiscal 1999 and the nine month period ending March 31, 2000, the
following actions were taken to reverse the financial and operational conditions
of Keys Microcable:
* All claims were settled for $159,000 except a lawsuit arising from a
traffic accident that is currently being settled by our insurance carrier.
* Resulting from successful negotiations with service, hardware, and
content vendors, the amount of overdue payables over 90 days have been
reduced by $500,000.
* Investments in capital equipment and maintenance programs to improve
signal quality and programming content were also made. These investments
have resulted in a significant increase in customer satisfaction based on
surveys of the subscribers. Investments included enhanced power back up
equipment as well as increased levels of maintenance spares.
* Investments were made to increase sales staff and local advertising
programs.
Since April 1999 the number of equivalent billing unit subscribers has
increased by over 19% and the number of premium channel subscriptions has
increased over 100%. Increased marketing to developers of new commercial
properties and government agencies will substantially increase the total
subscriber count by the end of the current fiscal year.
During the third quarter 2000 over 125 new equivalent billing units have
been added. In addition negotiations with the US Government could lead to the
addition of another 350 equivalent billing units within two calendar quarters.
Keys Microcable provides Telecom Wireless with a wireless platform on which
to add additional "bundled" services such as Internet access and voice over
Internet protocol. To offer wireless two-way, high speed Internet access will
require a significant capital investment. This investment may be as high as
$300,000 in capital equipment costs. Currently the project is not planned to
start until fiscal 2001. This new service along with web site design and hosting
is anticipated to generate incremental annual revenues in excess of $240,000.
The results of a recent engineering study have indicated that KMC can
expand northward up the Florida Keys. For a capital expenditure of less than
$200,000 an additional 14,000 potential customers could be in the reach of our
signals. Marketing studies have indicated that our penetration rate could be as
high as 27% of the total potential market. Management believes this level of
market penetration could result in additional cash flow from operations of
approximately $50,000 per month.
DISCUSSION OF AMERICA'S WEB STATION, INC. RESULTS OF OPERATIONS
America's Web Station, Inc., was founded in January 1997 to provide
Internet solutions to the rapidly expanding small- to medium-size business
market in southwest Florida. The initial focus was on high-end, database-driven
web sites and e-commerce solutions. Dial-up Internet access and web site
hosting for businesses subsequently was added. In the first quarter of 1998,
America's Web began offering residential Internet service.
For the nine months ended March 31, 2000, revenue decreased to $91,161 from
approximately $132,201 for the same period in the preceding year primarily due
to the time and effort required of America's Web management to negotiate,
document and close its acquisition by Telecom Wireless in July 1999 and to
address changes required by Y2K compliance. However, during the same periods,
general and administrative expenses decreased from approximately $201,000 to
$103,000 due to final payment of equipment leases and staff reorganization.
Since the acquisition, hardware and software have been expanded and
upgraded and new sales and marketing staff have been hired. The staff has been
undergoing training with respect to new products and services. Also, America's
Web has implemented a marketing campaign that management believes has been
favorably received by the local business community. At March 31, 2000, America's
Web had an average of 300 Internet access subscribers and approximately 60 web
site hosting customers.
LIQUIDITY AND CAPITAL RESOURCES
Telecom Wireless had a negative cash flow from operations of $1,924,661 and
$5,379,525 for the three months ended March 31, 2000, and the nine months ended
Mach 31, 2000, respectively. Cash flow used in investing activities was
primarily for the purchase of equipment and acquisition costs. Cash flow
generated by financing activities was primarily from the issuance of stock and
short-term debt. As of March 31, 2000, Telecom Wireless had a deficit in
stockholders' equity of $1,603,597 and current liabilities exceeded current
assets by $3,964,486. Substantial additional cash will be required to
implement our business plan. However, changing market conditions and the
adverse financial condition of Telecom Wireless, primarily its substantial
current liabilities, have made it increasingly difficult to obtain financing.
Since April 1999, Telecom Wireless has funded its operations and working
capital needs primarily through private placements of its equity securities and
short-term debt instruments, lease financing and increases in current
liabilities. These private placements are discussed in Notes 7, 10 and 14 of the
consolidated financial statements of Telecom Wireless Corporation included in
the most recent prospectus.
In addition to normal operating expenses and current indebtedness, Telecom
Wireless has incurred substantial obligations payable during 2000 including the
following:
* Telecom Wireless entered into a Master Lease Agreement dated as of July
30, 1999, with the Internet Working Division of Lucent Technologies Inc., as
lessor. Subject to certain conditions, the lessor has agreed to provide
telecommunications and other equipment to Telecom Wireless and its subsidiaries
having a maximum aggregate purchase price of $20,000,000. Telecom Wireless may
lease equipment with a value of up to $5,000,000 without having to satisfy
certain covenants and financial ratios. To date, Telecom Wireless has received
equipment having a value of approximately $1.2 million. Most of the equipment
presently is in storage in Albuquerque, New Mexico and St. Augustine Florida,
awaiting field deployment. Lease payments for the rental of this equipment,
in-creasing to approximately $49,000 per month by March 2000, were scheduled to
commence in November 1999, but have been suspended pending completion of an
inventory of equipment delivered. The Master Lease Agreement meets the
requirements of an operating lease for accounting purposes. Lease payments for
the rental of this equipment, in-creasing to approximately $49,000 per month by
March 2000, are current.
* In December 1999, Telecom Wireless entered into an agreement with Adaptive
Broadband Corporation to purchase broadband wireless telecommunications
equipment and services to establish wireless communications networks in North
America for small- and medium-sized businesses and consumers. The agreement
requires expenditures over its five-year term of approximately $225 million by
Telecom Wireless. Telecom Wireless is obligated to, but has not yet placed, a
purchase order in the amount of $13,635,375 covering equipment to be delivered
this year including equipment to conduct a trial test through Keys Microcable
Corporation. Pursuant to that contract, Telecom Wireless was obligated to take
delivery of and remit payment on March 15, 2000, for equipment having a purchase
price of approximately $3,340,090. Telecom Wireless has not made the required
payment and negotiations are continuing with Adaptive Broadband and financing
sources to procure the funds necessary to implement the rollout of the wireless
broadband strategy in several markets. Additional payments of $3,392,290 each
are due on the first day of June, September and December 2000. Telecom Wireless
may terminate the agreement without penalty at any time if Adaptive's product
technology is not reasonably competitive in the fixed wireless broadband market.
Adaptive may terminate the Agreement if it is not satisfied with the sales
or promotional performance of Telecom Wireless. If Telecom Wireless fails to
purchase the amount of equipment specified in the agreement by the end of any
calendar year, it may be subject to a penalty equal to five percent of the
unpurchased equipment. In the event of termination by Telecom Wireless without
cause or termination by Adaptive with cause, then Telecom Wireless must pay
Adaptive five per-cent of the purchase price of the unpurchased equipment for
the remainder of the term of the agreement.
* A convertible promissory note in the principal amount of $700,000 was due
and payable in full on April 30, 2000. As of May 22, 2000, the note has not been
paid. The conversion rate is $7.00 per share of common stock. Telecom Wireless
is in negotiations with the lender to extend the maturity of the note in
consideration of a reduction of the conversion price. Although the holder has
registration rights with respect to the underlying shares of common stock, it is
probable the holder will not exercise the conversion right unless the market
price is substantially higher than the conversion price on the conversion date.
* HyperLight Network Corporation claims Telecom Wireless is obligated to pay
it an additional $600,000, of which $300,000 purportedly is due on each of March
1 and June 1, 2000. The payment due February 29, 2000, was paid in shares of
Telecom Wireless common stock. The payment purportedly due March 1, 2000, has
not been made. The parties are in negotiation with respect to the HyperLight
investment.
* In September and October 1999, Telecom Wireless borrowed $625,000 under
convertible promissory notes due in October and November 1999. These notes have
not been paid. Upon default, the interest rate increased from 10% to 18% per
annum. Telecom Wireless, at its option, has the right to convert principal and
accrued interest on the notes into the common stock of Telecom Wireless at a
price which is equal to 50% of the five-day average closing bid price of the
common stock for the period immediately prior to the notice of conversion given
by Telecom Wireless. A lawsuit is pending with respect to these notes and other
matters as more fully described herein.
When present management assumed control of Telecom Wireless in mid-April,
1999, the market for Internet and Internet-related stocks was strong. However,
since about July 1999, the market for many of such securities has been highly
volatile. It has become increasingly difficult for Telecom Wireless to obtain
financing, either debt or equity, to fund operations or acquisitions. This has
forced Telecom Wireless to obtain high cost short-term financing to cover
operating expenses and to forego acquisitions with a significant cash component.
Management believes that the ability of Telecom Wireless to obtain funding
necessary to implement its business plan will depend upon its ability to adapt
the business plan to rapidly changing market conditions and to maintain and
expand its management as required to implement that plan.
Telecom Wireless has adopted the following financing plan:
* Establish broadband wireless communications networks in North America for
small and medium-sized businesses and consumers. We presently plan to market
the wireless broadband services on a wholesale basis and to subscribers of ISPs
we acquire and others in the communities served by those ISPs.
* Seek mergers, joint ventures or financing arrangements with larger private
or public ISPs and other entities structured primarily with Telecom Wireless
equity. These entities may have ISP operational infrastructures already in place
and/or may require a source of acquisitions.
* Seek short- and long-term financing through private placements of debt and
equity securities in the capital markets. If possible, Telecom Wireless will
seek to finance its longer term requirements with debt rather than equity so as
to reduce dilution to stock-holders of Telecom Wireless.
* Mount an aggressive campaign to acquire companies for cash, if available,
and otherwise for Telecom Wireless common stock. This will require substantial
working capital to fund operating and merger and acquisition expenses and to pay
the significant cost of compliance with applicable securities laws.
There can be no assurance that financing will be available in amounts or on
terms acceptable to Telecom Wireless, if at all. Should Telecom Wireless be
unsuccessful in its efforts to raise capital, it may be required to curtail
operations.
FINANCING ARRANGEMENTS
Jack Augsback & Associates, Inc. In March 1999, Telecom Wireless entered
into an agreement whereby Jack Augsback & Associates, Inc., West Palm Beach,
Florida, agreed to research and find sources for Telecom Wireless' various needs
of financing and to make introductions to persons capable of providing such
financing to Telecom Wireless. Telecom Wireless agreed to compensate Augsback in
the form of fees of up to 10% of gross proceeds to Telecom Wireless, stock
purchase warrants and expense reimbursement. The Augsback agreement was
effective through December 31, 1999. Pursuant to that agreement, Augsback
introduced Telecom Wireless to investors who purchased securities for net
proceeds to Telecom Wireless aggregating approximately $3,868,745.
First Equity Capital Securities, Inc. First Equity Capital Securities,
Inc., New York, New York, raised $1,000,000 in bridge loan financing for Telecom
Wireless and introduced Telecom Wireless to a person which loaned it $700,000.
Telecom Wireless agreed to compensate First Equity in the form of fees of up to
10% of gross proceeds to Telecom Wireless, stock purchase warrants and expense
reimbursement.
On October 15, 1999, Telecom Wireless entered into a supplemental agreement
with First Equity whereby the company agreed, among other things, to issue
five-year warrants to First Equity to purchase 300,000 shares of Telecom
Wireless' common stock at a price of $.001 per share and to provide piggy-back
registration rights for the underlying shares. In consideration, First Equity
agreed to waive fees due and payable to it. First Equity has exercised the
warrant. First Equity and certain of its investors have sued Telecom Wireless
as described herein.
Hampton-Porter. In December 1999 Telecom Wireless entered into an
Investment Banking Agreement with Hampton-Porter Investment Bankers. Under the
agreement, Hampton-Porter agreed to perform a variety of services on a best
efforts basis including advice and counsel regarding strategic business and
financial plans, negotiations with potential investors, acquisition candidates,
strategic partners and others, introductions to securities broker-dealers,
information and analysis of market-making activities in the common stock of
Telecom Wireless, and due diligence investigations of third persons at the
request of management. The agreement required a non-refundable fee of $500,000
or 550,000 shares of the common stock of Telecom Wireless and three-year
warrants for the purchase of an additional 1,000,000 shares exercisable at $5.50
per share. If the 550,000 shares are not free-trading by March 21, 2000, then
Telecom Wireless will be obligated to issue an additional 200,000 shares to
Hampton-Porter as a penalty. The 550,000 shares have been included in this
registration statement. The shares issuable upon exercise of the warrants also
have registration rights.
In addition, Telecom Wireless agreed to pay Hampton-Porter finder's fees up
to five percent of the value of transactions introduced by Hampton-Porter to
Telecom Wireless. The term of the agreement is one year although it can be
terminated by either party on five days' notice.
In January 2000, Hampton-Porter served as placement agent in a non-public
offering to one investor of 100,000 shares of Telecom Wireless common stock for
a purchase price of $2.50 per share and three-year warrants for the purchase of
an additional 75,000 shares at an exercise price of $2.50 per share for which
Telecom Wireless has agreed to pay additional fees.
The Wall Street Trading Group. In March 2000, Telecom Wireless entered into
an agreement with The Wall Street Trading Group, San Francisco, California, for
the provision of public relations services. Telecom Wireless agreed to issue to
Wall Street Trading options for the purchase of 1,000,000 shares of Telecom
Wireless common stock at prices ranging from $6.50 to $9.50 per share. The
options are exercisable until March 21, 2001, for "free trading shares." In
accordance with interpretations by the Securities and Exchange Commission,
Telecom Wireless is not presently able to register the option shares for public
sale. Accordingly, it is unlikely these options will be exercised in the near
term, if ever.
Other Financing Arrangements. The Roberts Family Trust is controlled by
James C. Roberts, Chairman of the Board, and Lynne K. Roberts, a Vice President
and the spouse of Mr. Roberts. In April 2000, the Roberts Family Trust and
Calvin D. Smiley, Chief Executive Officer of Telecom Wireless, agreed to make
equity investments aggregating $15 million in Telecom Wireless. The Roberts
Family Trust subscribed to purchase 3,400,000 shares of common stock at a
purchase price of $2.94 per share, or a total of $10,000,000, and Mr. Smiley
subscribed to purchase 2,000,000 shares at a purchase price of $2.50 per share,
or a total of $5,000,000. Each paid the purchase price in the form of a
one-year, full-recourse promissory note secured by the shares purchased. The
buyers are arranging loans also secured by the shares purchased, the proceeds
from which will be used to pay principal and interest on the promissory notes.
Telecom Wireless has agreed to register the shares purchased and to subordinate
its security interest in the shares purchased to the security interest of the
lender if required to facilitate the loans. The dates the notes will be paid, in
whole or in part, is uncertain. However, the Roberts Family Trust and Mr. Smiley
have represented to Telecom Wireless that the registered shares will not be sold
for a period of one year after the date of issuance, except as required to meet
the requirements of the lenders. In addition, the Roberts Family Trust and Mr.
Smiley are subject to stock sale restriction agreements limiting the amount of
the Telecom Wireless common stock that they can sell as described under Telecom
Wireless' Stock - Shares Available for Future Sale.
In addition, Telecom Wireless entered into a similar arrangement with John
A. Hansen. Mr. Hansen is a substantial shareholder in an entity which owns an
Internet service provider which has entered into a non-binding letter of intent
to be acquired by Telecom Wireless. Mr. Hansen subscribed to purchase 347,000
shares of common stock at a purchase price of $2.60, or an aggregate of
$902,200. He also paid the purchase price in the form of a one-year,
full-recourse promissory note secured by the shares purchased.
PART II --- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Telecom Wireless was the defendant in Coker & Palmer, Inc. v. Telecom
Wireless Corporation, a lawsuit filed September 3, 1999, in the County Court of
the First Judicial District of Hinds County, Mississippi, Civil Action No.
251-99-4537-CO. Coker & Palmer alleged that Telecom Wireless failed to promptly
disclose to the public through the news media material information that would
reasonably be expected to affect the value of its securities or influence
investors' decisions in connection with a reverse stock split of Telecom
Wireless' common stock effected on or about May 4, 1999. Coker & Palmer alleged
that it incurred losses of $28,613 because of the failure and sought that amount
in compensatory damages plus an unspecified amount in consequential and
incidental damages plus costs. Telecom Wireless reached an agreement with Coker
& Palmer whereby Telecom Wireless paid to Coker & Palmer the sum of $14,300 plus
interest of $640 in settlement of Coker & Palmer's claims. The lawsuit was
dismissed with prejudice in April 2000.
Telecom Wireless entered into an office lease with One Clearlake Centre VEF
III, LLC, for approximately 7,439 square feet of office space. Prior to taking
occupancy of the space, Telecom Wireless notified the landlord that it did not
intend to occupy the space. The landlord took the position that Telecom Wireless
was in default under the lease and filed a complaint on in the Circuit Court of
the 15th Judicial Circuit in and for Palm Beach County, Florida, Case No. CL
9910570-AD, seeking damages of approximately $900,000 for the unpaid rent for
the remaining term of the lease including court costs, interest and a reasonable
attorney's fee. In March 2000, Telecom Wireless and One Clearlake Centre entered
into an agreement settling the lawsuit. Pursuant to the agreement Telecom
Wireless paid One Clearlake Centre $50,609 and was obligated to pay an
additional $50,609 in early April 2000 when the space was ready for occupancy.
In addition, Telecom Wireless issued to One Clearlake Centre 40,000 restricted
shares of Telecom Wireless' common stock with registration rights as the
security deposit under the lease. However, full payment of the amount due to the
landlord has not been paid and the landlord is threatening to take a default
judgment against Telecom Wireless for the amounts described above.
On March 31, 2000, Telecom Wireless and James C. Roberts, Chairman of the
Board, were sued (Kiam Interests, Ltd., et al, v. Telecom Wireless Corporation,
et al, case number 00 CIV 2347 pending in the United States District Court for
the Southern District of New York) for $625,000 plus interest and collection
costs in connection with promissory notes issued to investors through First
Equity Capital Securities, Inc. In addition, the investors claim breach of
contract to issue stock purchase warrants and to register the shares of common
stock issuable upon exercise of the warrants and breach of contract to
compensate the placement agent. The maturity dates of the notes were in October
and November 1999. Upon default, the interest rate increased from 10% to 18%
per annum and Telecom Wireless was obligated to maintain an effective
registration statement with respect to the common stock underlying the notes.
Telecom Wireless, at its option, has the right to convert principal and accrued
interest on the notes into the common stock of Telecom Wireless at a price which
is equal to 50% of the five-day average closing bid price of the common stock
for the period immediately prior to the notice of conversion given by Telecom
Wireless. Since the lawsuit is in the early stages, no assessment of the
probable outcome presently is possible.
On March 16, 2000, Carr, Riggs & Ingram, LLP filed a complaint against
Telecom Wireless (pending in the Circuit Court, Fourteenth Judicial Circuit of
the State of Florida) for $25,743 (less $6,057 previously paid) plus interest,
attorney fees and costs under an alleged oral agreement with respect to
accounting services performed for a company which Telecom Wireless expected to
acquire. Telecom Wireless is investigating this matter. At this early stage of
the proceedings, no assessment of the probable outcome is possible.
ITEM 2. CHANGES IN SECURITIES.
(a) Not applicable.
(b) Not applicable.
(c) Between January 1 and March 31, 2000, Telecom Wireless issued securities
that were not registered under the Securities Act of 1933 in reliance upon the
exemption from securities registration provided by Section 4(2) and/or Rule 506
of Regulation D under the Securities Act as follows:
- - 785,000 shares of its common stock for $2,180,000 in cash and warrants for
the purchase of 370,000 shares of its common stock at an average exercise price
of approximately $2.64 per share to nine accredited investors and one offshore
investor. With respect to a portion of in connection with a portion of which
Telecom Wireless paid, or is obligated to pay, finders fees as follows:
Equitrade Securities - $9,000; Spencer Edwards Inc. - $20,600; and
Hampton-Porter Investment Bankers and International Financial Management -
$100,000 plus warrants for the purchase of 40,000 shares.
- - 112,655 shares of its common stock valued at $711,217 to four accredited
investors and one non-accredited investor in consideration of debt cancellation.
With respect to all of the transactions described above the purchasers
represented they were taking the securities for investment and not for
distribution and acknowledged that the certificates evidencing the securities
would bear a legend restricting transfer under the Securities Act since they had
not been sold in a registered offering. Telecom Wireless believes that the
non-accredited investors to whom the securities were issued pursuant to Rule 506
had such knowledge and experience in financial and business matters that they
were capable of evaluating the merits and risks of the prospective investment.
Telecom Wireless also believes that all investors were sophisticated in business
and financial matters, had access to the same type of information as would be
contained in a registration statement and did not need the protections that
registration would afford.
On January 6, 2000, an independent NASD-licensed broker dealer sold 116,000
shares of The Company's common stock for $290,000, believing such shares could
be sold pursuant to the exemption from registration provided by Section 3(b) of
the Securities Act of 1933, as amended, as implemented by Rule 504 of Regulation
D. On January 21, 2000, corporate counsel advised the Company that there was a
potential integration issue and the afore-referenced exemption might not be
available. On January 21, 2000, The Company made a rescission offer. The
Company has since instituted new corporate procedures to insure such
transactions do not occur in the future.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
- - A convertible promissory note in the principal amount of $700,000 was due
and payable in full by Telecom Wireless on April 30, 2000. As of May 22, 2000,
the total unpaid amount was $748,711. Negotiations with the lender to extend the
maturity of the note are in process.
- - In 1999, Telecom Wireless entered into an office lease with One Clearlake
Centre VEF III, LLC, which resulted in the lawsuit described in Item 1 herein.
As of May 22, 2000, Telecom Wireless owed the landlord approximately $26,000. In
the settlement of the lawsuit, Telecom Wireless agreed that if it failed to pay
the settlement amount, the landlord could obtain judgment against Telecom
Wireless for approximately $900,000 for the unpaid rent for the remaining term
of the lease including court costs, interest and a reasonable attorney's fee. To
date, the landlord has not sought to take a default judgment as Telecom Wireless
has been making periodic good faith payments. In addition, Telecom Wireless is
seeking to sublease the space.
- - As described in Item 1 herein, on March 31, 2000, Telecom Wireless was
sued on certain convertible promissory notes for $625,000 plus interest and
collection costs, and for $95,000 in investment banking fees. Telecom Wireless
has denied liability on the notes and is vigorously defending the lawsuit. As of
May 22, 2000, the amount claimed to be due was approximately $787,000.
- - HyperLight Network Corporation claims Telecom Wireless is in default under
certain agreements obligating it to pay it $300,000 on March 1, 2000, and an
additional $300,000 on June 1, 2000. Management of Telecom Wireless believes it
has meritorious defenses to any claims that may be made by HyperLight and will
vigorously defend any lawsuit filed by HyperLight.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
27.1 Financial Data Schedule
(b) Reports on Form 8-K. No reports on Form 8-K were filed during the
quarter ended March 31, 2000.
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunder duly
authorized.
TELECOM WIRELESS CORPORATION
Date: May 22, 2000 By: /s/ C. Stephen Guyer
---------------------------- ------------------------------------------
Title: Vice President-Corporate Finance
Date: May 22, 2000 By: /s/ Calvin D. Smiley
---------------------------- ------------------------------------------
Title: President and CEO
<PAGE>
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