<PAGE>
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 JUNE 30, 1995 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _________ TO ______
0-23228
(COMMISSION FILE NO.)
PORTACOM WIRELESS, INC.
(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
BRITISH COLUMBIA, CANADA N/A
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
8055 W. MANCHESTER AVENUE, SUITE 730
PLAYA DEL REY, CALIFORNIA 90293
(Address of principal executive offices)
ISSUER'S TELEPHONE NUMBER: (310) 448-4140
Check whether the issuer: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months and (2) has been subject to such filing requirements for the past 90
days.
1.YES NO X
--- ---
2.YES X NO
--- ---
AS OF JULY 31, 1996, THERE WERE 11,892,382 SHARES OF COMMON STOCK ISSUED AND
OUTSTANDING.
Transitional Small Business Disclosure Format (Check One):
1.YES ___ NO X
---
<PAGE>
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
NO.
<S> <C>
ITEM 1. Statement Regarding Financial Information 1
Condensed Consolidated Balance Sheet at
June 30, 1995 (Unaudited) and March 31,
1995 2
Condensed Consolidated Statements of Operations
for the three months ended June 30,
1995 and 1994 (Unaudited) 3
Condensed Consolidated Statements of Cash Flows
for the three months ended June 30,
1995 and 1994 (Unaudited) 4
Notes to Condensed Consolidated Financial 5
Statements (Unaudited)
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 15
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 21
ITEM 2. Changes in Securities 21
ITEM 3. Defaults Upon Senior Securities 21
ITEM 4. Submission of Matters to a Vote of Security Holders 21
ITEM 5. Other Information 21
</TABLE>
-2-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
ITEM 6. Exhibits and Reports on Form 8-K 21
</TABLE>
-3-
<PAGE>
PORTACOM WIRELESS, INC. AND SUBSIDIARIES
QUARTER ENDED JUNE 30, 1995
PART I. FINANCIAL INFORMATION
The financial statements included herein have been prepared by PortaCom
Wireless, Inc. (formerly known as "Extreme Technologies, Inc." and
"International PCBX Systems Inc.," and defined herein in the alternative as the
"Company" or the "Registrant"), without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission (the "SEC"). As
contemplated by the SEC under Rule 10-01 of Regulation S-X (as amended by
Regulation S-B), the accompanying financial statements and footnotes have been
condensed and therefore do not contain all disclosures required by generally
accepted accounting principles. However, the Company believes that the
disclosures are adequate to make the information presented not misleading.
Except where otherwise specified, all dollar amounts referenced in this document
are denominated in United States dollars. It is suggested that the financial
statements be read in conjunction with the financial statements and notes
thereto included in the Company's Form 10-KSB for the year ended March 31, 1995
as filed with the SEC (file number 0-23228).
<PAGE>
EXTREME TECHNOLOGIES, INC. AND SUBSIDIARIES
(formerly International PCBX Systems, Inc.)
Consolidated Balance Sheets
(expressed in U.S. dollars)
<TABLE>
<CAPTION>
===========================================================================================================================
June 30, March 31, March 31,
1995 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and short-term deposits $79,055 $73,384 $1,468,583
Accounts receivable - 40,433 64,747
Inventory - 58,852 386,847
Prepaid expenses - 6,680 68,940
Employee loans - - 147,209
-----------------------------------------------------------------------------------------------------------------------
79,055 179,349 2,136,326
Equipment (note 3) - 106,541 109,904
Patents, trademarks and other assets - 51,037 84,492
- ---------------------------------------------------------------------------------------------------------------------------
$79,055 $336,927 $2,330,722
===========================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Accounts payable $2,393,559 $2,083,431 $430,931
Accrued liabilities (note 4) 180,579 168,727 126,658
Current portion of promissory note payable (note 5) 25,000 37,500 50,000
Note payable - - 150,000
Current portion of loans payable (note 6) 1,762,008 1,547,008 -
-----------------------------------------------------------------------------------------------------------------------
4,361,146 3,836,666 757,589
Promissory note payable (note 5) - - 37,500
Loans payable (note 6) - - 1,000,000
Shareholders' equity (deficiency):
Share capital (note 7) 10,166,370 10,085,670 6,976,461
Deficit (14,448,461) (13,585,409) (6,440,828)
-----------------------------------------------------------------------------------------------------------------------
(4,282,091) (3,499,739) 535,633
Future operations (note 1)
Subsequent events (notes 1, 7(d) and 9(c))
Contingencies and commitments (notes 1, 6 and 9)
- ---------------------------------------------------------------------------------------------------------------------------
$79,055 $336,927 $2,330,722
===========================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
EXTREME TECHNOLOGIES, INC. AND SUBSIDIARIES
(formerly International PCBX Systems, Inc.)
Consolidated Statements of Operations and Deficit
(expressed in U.S. dollars)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Three months Years ended
ended June 30, March 31,
-------------------------------------------------
1995 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Income:
Sales $ 108,452 $ 780,839 $ 829,844 $ 414,864
Cost of sales (note 2(d)) 79,587 992,807 454,383 254,169
- ------------------------------------------------------------------------------------------------------------------
28,865 (211,968) 375,461 160,695
Expenses:
Advertising and promotion 6,038 281,649 336,466 314,692
Bad debt 74,237 571,003 86,129 47,883
Consulting fees (note 10) - 1,470,000 380,433 216,695
Debt settlement (note 5) - - - 150,000
Depreciation and amortization 146,988 210,052 38,479 16,302
General and administrative 57,356 499,165 261,422 227,282
Interest and bank charges 40,567 134,198 38,441 14,375
Legal and accounting 210,307 469,922 293,583 82,584
Management fees (note 10) 23,187 360,505 42,000 42,000
Rent 34,432 267,165 130,496 83,435
Research and development 35,831 570,441 776,340 103,534
Travel 3,635 439,748 163,383 93,003
Wages and benefits 259,339 1,658,765 1,033,526 655,533
--------------------------------------------------------------------------------------------------------------
891,917 6,932,613 3,580,698 2,047,318
- ------------------------------------------------------------------------------------------------------------------
Net loss for the period 863,052 7,144,581 3,205,237 1,886,623
Deficit, beginning of period 13,585,409 6,440,828 3,235,591 1,348,968
- ------------------------------------------------------------------------------------------------------------------
Deficit, end of period $14,448,461 $13,585,409 $ 6,440,828 $ 3,235,591
- ------------------------------------------------------------------------------------------------------------------
Loss per share (note 2(i)) $ 0.06 $ 0.49 $ 0.24 $ 0.17
- ------------------------------------------------------------------------------------------------------------------
Weighted average number of common
shares outstanding (note 2(i)) 15,259,652 14,524,845 13,293,315 11,060,770
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
EXTREME TECHNOLOGIES, INC. AND SUBSIDIARIES
(formerly International PCBX Systems, Inc.)
Consolidated Statements of Cash Flows
(expressed in U.S. dollars)
<TABLE>
<CAPTION>
===================================================================================================
Three months
ended Years ended March 31,
June 30, ------------------------------------
1995 1995 1994 1993
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operations:
Net loss for the period $(863,052) $(7,144,581) $(3,205,237) $(1,886,623)
Depreciation and amortization,
an item not involving cash 146,988 210,052 38,479 16,302
Net changes in non-cash
work capital relating
to operations:
Accounts receivable 40,433 24,314 (32,905) 1,664
Inventory 58,852 327,995 (210,069) (77,335)
Prepaid expenses 6,680 62,260 67,260 (119,151)
Employee loans (note 10(c)) - 147,209 (133,714) (13,495)
Accounts payable 310,128 1,652,500 305,068 76,147
Accrued liabilities 11,852 42,069 (102,725) 157,077
-------------------------------------------------------------------------------------------------
Net cash used by
operating activities (288,119) (4,678,182) (3,272,843) (1,845,414)
Financing:
Issue of and subscription for
common shares:
For cash 80,700 3,109,209 3,323,716 1,918,455
On settlement of debt - - 89,364 -
Payable to shareholders - - (57,364) 27,364
Note payable - (150,000) 150,000 -
Promissory note payable (12,500) (50,000) (50,000) 137,500
Loans payable 215,000 547,008 1,000,000 -
-------------------------------------------------------------------------------------------------
Net cash generated by
financing activities 283,200 3,456,217 4,455,716 2,083,319
Investments:
Disposal (acquisition) of
equipment, net 10,590 (92,379) (84,899) 73,040
Patents, trademarks and
other assets - (80,855) (84,492) -
-------------------------------------------------------------------------------------------------
Net cash used by
investing activities 10,590 (173,234) (169,391) 73,040
- ---------------------------------------------------------------------------------------------------
Increase (decrease) in cash
and cash equivalents 5,671 (1,395,199) 1,013,482 310,945
Cash and cash equivalents,
beginning of period 73,384 1,468,583 455,101 144,156
- ---------------------------------------------------------------------------------------------------
Cash and cash equivalents,
end of period $ 79,055 $ 73,384 $ 1,468,583 $ 455,101
===================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
EXTREME TECHNOLOGIES, INC. AND SUBSIDIARIES
(formerly International PCBX Systems, Inc.)
Notes to Consolidated Financial Statements
(expressed in U.S. dollars)
- -------------------------------------------------------------------------------
1. Future operations:
International PCBX Systems Inc. (the "Company") was incorporated on July 7,
1989 under the Company Act (British Columbia) and was inactive until April
1990 when it commenced activities related to the ownership and manufacturing
for resale of a Personal Computer Branch Telephone Exchange System (the
"PCBX System").
On April 13, 1990, the Company entered into an asset purchase agreement to
acquire, through a wholly-owned subsidiary, the assets of U.S. Trade
Research Information Systems, an unrelated company. These assets, which
comprised all rights and interest in the PCBX System, including related
software and hardware, fixed assets and future related inventions, were
acquired for consideration of 4,900,000 performance shares of the Company,
having a nominal value at the date of issuance and which are subject to an
escrow agreement. Of these shares, 4,300,000 were subsequently acquired by
directors and officers of the Company.
Effective September 7, 1993, the Company acquired, through a wholly-owned
subsidiary, the patents, trademarks, copyrights and other proprietary
information of Advanced Design International Inc. ("ADI"), an unrelated
company. The assets acquired relate to certain speaker and audio processor
systems. Pursuant to the acquisition agreements, the Company issued the
former owners the right to subscribe for 1,000,000 performance shares of the
Company for cash consideration of $10,000. To date no shares have been
issued. In addition, the former owners of ADI have been granted a royalty
fee of 3% of the net profit generated from sales, rentals or licensing of
the products developed using ADI technology. To date, no royalties have been
paid.
At June 30, 1995, the Company has a working capital deficiency of $4,282,091
and a deficiency in net assets of $4,282,091. As set out in note 6, the
Company is not in compliance with the terms of certain loan agreements. In
addition, during the three months period ended June 30, 1995, the Company
incurred a loss of $863,052 and had a net use of cash in operating
activities of $288,119 (year ended March 31, 1995 - $7,144,581 and
$4,678,182, respectively.) In addition, the Company is currently the subject
of a lawsuit from a supplier (note 9(a)) and certain other claims (notes
9(b) and (c)). Accordingly, there can be considered to be substantial doubt
as to the Company's future operations.
The accompanying consolidated financial statements have been prepared
assuming the Company will continue to operate as a going concern which
requires the realization of assets and settlement of liabilities in the
ordinary course of business. The Company's viability as a going concern is
dependent upon the restructuring of its existing obligations and asset base,
the financial support of shareholders and creditors and, ultimately, the
generation of profitable operations. Although it is management's intention
to pursue these options, there can be no assurance that, except as indicated
below, these events will or can occur.
Subsequent to June 30, 1995, the Company has undertaken the following to
generate cash to fund the Company or to otherwise reduce its outstanding
liabilities:
. issued 775,478 common shares on the exercise of stock options and
warrants predominantly at $1.25 (Cdn.) per share. Of the options
exercised, 358,100 had been granted subsequent to June 30, 1995;
. made private placements of 156,078 common shares with 156,078 warrants
attached, certain of which placements are subject to completion; and
5
<PAGE>
EXTREME TECHNOLOGIES, INC. AND SUBSIDIARIES
(formerly International PCBX Systems, Inc.)
Notes to Consolidated Financial Statements, page 2
(expressed in U.S. dollars)
- --------------------------------------------------------------------------------
1. Future operations (continued):
. entered into written agreements or verbal understandings to settle
indebtedness in the amount of approximately $3,600,000 for cash or share
consideration. Generally these agreements or understandings, of which
those involving the issuance of shares are subject to regulatory
approval, provide for the creditor receiving consideration having a fair
value less than the actual liability.
In addition, subsequent to year end certain shareholders have agreed to
surrender their 5,950,000 performance shares which are currently held under
an escrow agreement (note 7(c)).
2. Significant accounting policies:
(a) Basis of and change in presentation:
These consolidated financial statements are prepared in accordance with
generally accepted accounting principles in Canada. In 1994 the
consolidated financial statements of the Company were presented in
accordance with generally accepted accounting principles in the United
States. To these consolidated financial statements there are no material
differences in the recorded amounts for assets, liabilities, revenues or
expenses between Canadian and United States accounting principles.
(b) Basis of consolidation:
These consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries, PCBX Systems, Inc., Spheric
Audio Laboratories, Inc., Extreme TeleCom, Inc. and PortaCom
International, Ltd. All material intercompany accounts and transactions
have been eliminated.
(c) Cash and cash equivalents:
Cash equivalents are highly liquid investments, such as term deposits,
having original maturities of three months or less, that are readily
convertible to contracted amounts of cash.
(d) Inventory:
Inventory consists primarily of finished goods and is valued at the lower
of cost, determined by the first-in, first-out method, and net realizable
value. Included in cost of sales is a provision of $40,231 (March 31,
1995 - $300,000) to reduce inventory to its estimated net realizable
value.
(e) Equipment:
Equipment is recorded at cost. Depreciation is provided at rates which
are calculated to amortize the cost of these assets over the following
estimated useful lives:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------
Asset Basis Rate
-------------------------------------------------------------------------
<S> <C> <C>
Computer equipment straight-line 3 years
Office equipment straight-line 5 years
Vehicle straight-line 5 years
------------------------------------------------------------------------
</TABLE>
6
<PAGE>
EXTREME TECHNOLOGIES, INC. AND SUBSIDIARIES
(formerly International PCBX Systems, Inc.)
Notes to Consolidated Financial Statements, page 3
(expressed in U.S. dollars)
- -------------------------------------------------------------------------------
2. Significant accounting policies (continued):
(f) Patents, trademarks and other assets:
Costs incurred related to patents, trademarks and other long-term assets
are capitalized and will be amortized over their estimated useful lives
or written-off when there is no certainty as to future value.
(g) Research and development:
Research and development costs are expensed as incurred.
(h) Revenue recognition:
Revenue is recognized at the time of shipment of goods. The Company
believes that its revenue recognition policies are in conformity with the
AICPA's Statement of Position No. 91-1, "Software Revenue Recognition".
Accordingly, the Company recognizes revenues, net of estimated returns
and allowances, upon shipment of product if collection of the related
receivable is considered probable. The estimated costs of providing
technical support under product warranties are accrued when the related
product revenues are recognized.
(i) Loss per share:
Loss per share is computed based on the weighted average number of shares
outstanding during the year, which number of shares includes performance
shares that are contingently returnable to the Company's treasury.
Fully diluted loss per share has not been presented as the effect of
issued performance shares and outstanding warrants and options are
anti-dilutive.
(j) Currency:
As the majority of the Company's activities are in U.S. dollars, these
consolidated financial statements are stated in U.S. dollars, except
where otherwise indicated. Translation of Canadian dollar transactions
has taken place at the exchange rate in effect at the transaction date.
There have been no material foreign exchange gains or losses through the
date of these consolidated financial statements.
(k) Share issuances:
The Company accounts for issuance of shares when the shares are
subscribed for. All share issuance costs reduce the consideration
recorded.
7
<PAGE>
EXTREME TECHNOLOGIES, INC. AND SUBSIDIARIES
(formerly International PCBX Systems, Inc.)
Notes to Consolidated Financial Statements, page 4
(expressed in U.S. dollars)
- --------------------------------------------------------------------------------
3. Equipment:
<TABLE>
- --------------------------------------------------------------------------------
June 30, March 31, March 31,
1995 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Computer equipment $ - $ 119,321 $ 88,937
Office equipment - 55,583 78,311
Vehicle - 31,700 -
- --------------------------------------------------------------------------------
- 206,604 167,248
Less accumulated depreciation - 100,063 57,344
- --------------------------------------------------------------------------------
$ - $ 106,541 $ 109,904
================================================================================
</TABLE>
4. Accrued liabilities:
Included in accrued liabilities are management fees of $154,000 (March 31,
1995 - $144,000; 1994 - $102,000) due to a director (formerly an officer)
of the Company.
5. Promissory note payable:
<TABLE>
- --------------------------------------------------------------------------------
June 30, March 31, March 31,
1995 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Promissory note payable $ 25,000 $ 37,500 $ 87,500
Less current portion 25,000 37,500 50,000
- --------------------------------------------------------------------------------
$ - $ - $ 37,500
================================================================================
</TABLE>
The promissory note payable was originally in the amount of $150,000 and
arose through settlement of a royalty claim. The promissory note is non-
interest bearing, repayable in quarterly instalments of $12,500 and secured
by a guarantee provided by a shareholder.
8
<PAGE>
EXTREME TECHNOLOGIES, INC. AND SUBSIDIARIES
(formerly International PCBX Systems, Inc.)
Notes to Consolidated Financial Statements, page 5
(expressed in U.S. dollars)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
6. LOANS PAYABLE:
--------------------------------------------------------------------------------
June 30, March 31, March 31,
1995 1995 1994
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Loan payable bearing interest at 10%
per annum, due June 30, 1995 $ 750,000 $ 750,000 $1,000,000
Loan payable bearing interest at 10%
per annum, due April 22, 1995 100,000 100,000 -
Loan payable bearing interest at 10%
per annum, due April 15, 1996 250,000 250,000 -
Loan payable bearing interest at 8%
per annum, due on demand 250,000 250,000 -
Loan payable bearing interest at 10%
per annum, due on demand 142,008 142,008 -
Other notes payable bearing interest at 10%
per annum and due to October 28, 1995 165,000 40,000 _
Loan payable bearing interest at 8%
per annum, due on demand 50,000 - -
Loan payable bearing interest at 9%
per annum, due July 17, 1995 40,000 - -
Notes payable to former officer, non-interest
bearing and without specific terms of
repayment 15,000 15,000 -
- -----------------------------------------------------------------------------------
1,762,008 1,547,008 1,000,000
Less current portion 1,762,008 1,547,008 -
- -----------------------------------------------------------------------------------
$ - $ - $1,000,000
- -----------------------------------------------------------------------------------
</TABLE>
Loans payable are with parties currently or formerly related to the Company. At
October 24, 1995 loan payments due subsequent to March 31, 1995 and June 30,
1995 had not been made and the Company is not in compliance with the terms of
the loan agreements. The lenders have not taken action to recover their security
on these loans.
7. SHARE CAPITAL:
(a) Authorized:
Authorized share capital is as follows:
100,000,000 common shares without par value
100,000,000 class "A" preference shares with a par value of $10 (Cdn.)
each
100,000,000 class "B" preference shares with a par value of $50 (Cdn.)
each
9
<PAGE>
EXTREME TECHNOLOGIES, INC. AND SUBSIDIARIES
(formerly International PCBX Systems, Inc.)
Notes to Consolidated Financial Statements, page 6
(expressed in U.S. dollars)
- --------------------------------------------------------------------------------
7. Share capital (continued):
(b) Issued common shares:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------
Number Per share Total
of shares consideration consideration
-----------------------------------------------------------------------------
<S> <C> <C> <C>
Issued for cash:
Performance shares 700,000 $0.01 $ 7,000
Free-trading 2,139,960 0.26 555,450
-----------------------------------------------------------------------------
Balance issued, March 31, 1991 2,839,960 562,450
Issued for cash:
Performance shares 5,600,000 0.01 49,000
Free-trading shares 1,837,150 0.40 729,355
-----------------------------------------------------------------------------
Balance issued, March 31, 1992 10,277,110 1,340,805
Issued under employment agreement:
Performance shares 250,000 - -
Issued for cash:
Free-trading shares, net of share
issuance costs of $153,000 1,665,434 1.08 1,798,837
On exercise of agent's warrants 425,000 1.00 423,739
-----------------------------------------------------------------------------
Balance issued, March 31, 1993 12,617,544 3,563,381
Issued for cash:
Free-trading shares 853,326 2.22 2,002,445
On exercise of stock options 15,000 0.90 13,855
On exercise of agent's warrants 75,000 0.92 68,620
Issued in settlement of debt 24,002 3.72 89,364
-----------------------------------------------------------------------------
Balance issued, March 31, 1994 13,584,872 5,737,665
Cash received in advance of issuance
of common shares 250,000 4.95 1,238,796
-----------------------------------------------------------------------------
13,834,872 6,976,461
Issued for cash:
Free-trading shares, net of share
issuance costs of $354,047 (1) 656,457 3.38 2,220,353
On exercise of stock options 266,000 1.01 427,325
On exercise of warrants 373,747 1.23 461,531
Issued as a finders fee 83,742 - -
-----------------------------------------------------------------------------
Balance issued and subscribed,
March 31, 1995 15,214,818 10,085,670
Issued for cash:
On exercise of stock options 89,667 0.90 80,700
-----------------------------------------------------------------------------
Balance issued and subscribed,
June 30, 1995 15,304,485 $10,166,370
=============================================================================
</TABLE>
10
<PAGE>
EXTREME TECHNOLOGIES, INC. AND SUBSIDIARIES
(formerly International PCBX Systems, Inc.)
Notes to Consolidated Financial Statements, page 7
(expressed in U.S. dollars)
- --------------------------------------------------------------------------------
7. Share capital (continued):
(c) Performance shares:
Included in the issued and outstanding common shares are 6,550,000
common performance shares which are subject to an escrow agreement.
These shares are released form escrow on satisfaction of certain
predetermined tests set out by regulatory authorities related to the
generation of positive cash flow from operations. Shares not released
from escrow by September 9, 2002 will be cancelled. Pursuant to the
escrow agreement, holders of the performance shares may exercise all
voting rights attached thereto except on a resolution to cancel any of
the shares, and have waived their rights to receive dividends or to
participate in the assets and property of the Company on a winding-up or
dissolution of the Company.
In addition, the Company is committed to issue an additional 1,000,000
performance shares pursuant to the acquisition of ADI (note 1).
Subsequent to year end certain of these performance shares were
cancelled (note 1).
(d) Stock options:
As at June 30, 1995, the Company had common shares of the Company
reserved for issuance on exercise of incentive stock options to 1999.
Option changes for the period April 1, 1992 to June 30, 1995 were as
follows:
<TABLE>
<S> <C>
Outstanding and exercisable as at March 31, 1992 959,000
Granted at $1.25 (Cdn.) per share 325,000
Cancelled (133,800)
-----------------------------------------------------------------
Outstanding and exercisable as at March 31, 1993 1,150,200
Granted at $4.45 (Cdn.) per share 100,000
Exercised at $1.25 (Cdn.) per share (15,000)
-----------------------------------------------------------------
Outstanding and exercisable as at March 31, 1994 1,235,200
Granted at $5.68 (Cdn.) per share 274,800
Exercised at $4.45 (Cdn.) per share (80,000)
Exercised at $1.25 (Cdn.) per share (186,000)
-----------------------------------------------------------------
Outstanding and exercisable as at March 31, 1995 1,244,000
Exercised at $1.25 (Cdn.) per share (89,667)
Cancelled (424,800)
-----------------------------------------------------------------
Outstanding and exercisable as at June 30, 1995 729,533
=================================================================
</TABLE>
Stock options are issued at the average market price per share for the ten
trading days prior to the date of issuance.
Subsequent to June 30, 1995, the Company granted, and had exercised, stock
options (note 1).
11
<PAGE>
EXTREME TECHNOLOGIES, INC. AND SUBSIDIARIES
(formerly International PCBX Systems, Inc.)
Notes to Consolidated Financial Statements, page 8
(expressed in U.S. dollars)
- --------------------------------------------------------------------------------
7. Share capital (continued):
(e) Warrants:
During the year ended March 31, 1993, the Company, in connection with a
number of private placements of common shares, issued warrants to
purchase up to 445,671 common shares at prices of between $1.75 (Cdn.)
and $2.45 (Cdn.) until February 1995. Of these warrants, 220,747 were
exercised and the balance expired during the year ended March 31, 1995.
During the year ended March 31, 1994, the Company, in connection with
private placements of common shares, issued warrants to purchase 853,326
common shares at $3.43 (Cdn.) per share if exercised between May 1994
and April 1995. As part of this transaction, the Company agreed to pay a
finder's fee in the form of 57,256 share purchase warrants exercisable
at $4.37 (Cdn.) per share if exercised between May 1994 and April 1995.
These warrants expired subsequent to March 31, 1995.
During the year ended March 31, 1995, the Company, in connection with
private placements of common shares, issued warrants to purchase 483,457
common shares at $4.03 (U.S.) per share if exercised thereafter to
October 1996. In addition, the Company, in connection with another
private placement, issued warrants to purchase 211,500 common shares at
$5.87 (U.S.) if exercised thereafter to June 1996. None of these
warrants have been exercised at June 30, 1995 or October 24, 1995.
(f) Issuance costs:
During the year ended March 31, 1995, the Company recorded $214,865 of
costs related to the settlement of a legal dispute arising from a prior
placement of common stock. Accordingly, these costs have been recorded
as a reduction in the equity previously raised.
8. Income taxes:
As at March 31, 1995, the Company has income tax losses in Canada and the
United States in excess of $12,000,000 available to reduce future income
taxes payable the benefit of which has not been recorded in the accounts.
These loss carry forwards expire at various times through the year 2005.
9. Contingencies and commitments:
(a) Bell Industries, Inc., a former vendor, has filed suit against a
subsidiary of the Company for breach of written agreement for alleged
failure to purchase certain electronic components and devices to be used
by the subsidiary for the assembly of private circuit boards. The
specific amount of relief requested by Bell is to be proved at trial.
The Company has provided for its estimated costs of resolution of this
suit in these consolidated financial statements. Any additional amounts
will be provided when determinable.
12
<PAGE>
EXTREME TECHNOLOGIES, INC. AND SUBSIDIARIES
(formerly International PCBX Systems, Inc.)
Notes to Consolidated Financial Statements, page 9
(expressed in U.S. dollars)
- --------------------------------------------------------------------------------
9. Contingencies and commitments (continued):
(b) The Company is also subject to claims by other suppliers of goods and
services and by certain former employees of the Company, generally for
breach of contract. The ultimate cost of resolution of these claims is
uncertain. Any costs to be incurred with respect to these claims will be
provided when determinable.
(c) During 1995 the Company entered into an employment contract with an
individual who left the Company's employ subsequent to March 31, 1995.
This contract, which was approved by the board of directors, includes
terms requiring the payment of specified expenses incurred by the
individual to a maximum of $300,000. The terms of this contract are
subject to approval by the Vancouver Stock Exchange. The Company has
provided for its estimated costs under the employment contract in
accordance with its terms.
(d) The Company provides a one year warranty under which they are obliged to
replace any defective PCBX boards. These consolidated financial
statements include an accrual for the estimated costs of the warranty
program.
10. Related party transactions:
Related party transactions and balances not disclosed elsewhere in these
consolidated financial statements include:
(a) Included in accounts payable at June 30, 1995 is approximately $767,000
(March 31, 1995 - $758,000) owing to related parties.
(b) Management and consulting fees have predominantly been charged by
related parties.
(c) Included in bad debts expense for the three months ended June 30, 1995
is $41,000 (year ended March 31, 1995 - $227,000) recorded as provisions
against employee loans.
(d) The Company has reimbursed expenses incurred by directors and officers
on its behalf during the periods presented.
13
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
BACKGROUND
- ----------
CAUTIONARY NOTE: THE FOLLOWING DESCRIPTION IS PROVIDED SUBSTANTIALLY AS OF
JUNE 30, 1995. SUBSEQUENT TO THAT DATE, THE BUSINESS OF THE REGISTRANT HAS
CHANGED SUBSTANTIALLY AND ITS CURRENT OPERATIONS CONSIST ONLY IN OPERATING
COMPANIES PROVIDING CELLULAR, WIRELESS AND PSTN TELECOMMUNICATIONS SERVICES IN
SELECTED DEVELOPING WORLD MARKETS. INTERESTED PERSONS SHOULD REFER TO THE
REGISTRANT'S ANNUAL REPORT ON FORM 10-KSB FOR THE YEAR ENDED DECEMBER 31, 1995,
WHEN AVAILABLE, FOR AN UPDATED DESCRIPTION OF THE REGISTRANT'S BUSINESS.
The Company conducted business operations, as of June 30, 1995, through
four wholly owned subsidiaries: PCBX Systems, Inc. ("PCBX"), Extreme Telecom,
Inc. ("Telecom"), Extreme Laboratories, Inc., formerly known as Spheric Audio
Laboratories, Inc. ("Laboratories") and PortaCom International, Ltd. ("PIL").
As of November 1995, the Registrant had begun to pursue the business of
developing and operating companies providing cellular, wireless, and public
switched telephone network ("PSTN") telecommunications services in selected
developing world markets. In addition, the Registrant continues to develop
business opportunities through PIL.
Through its PIL subsidiary, the Registrant has engaged in initial stage
efforts to evaluate the feasibility of and attempt to secure, licensing and
joint venture arrangements for the operation of wireless telephone networks,
fixed and mobile, and other telecommunications systems. Although the
establishment and operation of a wireless telephone network and other advanced
communications systems will be investigated by PIL wherever strategic
opportunities arise, its principal efforts are presently focused (as of the date
of filing of this report) upon China and Vietnam. As of June 30, 1995, the
operations of PIL had produced no revenues and remained limited in scope.
PCBX developed and marketed a personal computer branch exchange which
permitted the operation of a full-featured telephone network control system from
a centrally located personal computer. The PCBX systems offered by the
Registrant featured the Registrant's proprietary integrated circuit board, which
fit into a personal computer and allowed a number of fundamental and advanced
features to be programmed into a telephone system. The principal advantages of
the Registrant's PCBX systems over competing systems were believed by management
to include low cost per feature, significant flexibility and mobility, and
relative ease of programming, upgrading and maintenance. Note: these
operations were discontinued by the Company as of August 1995.
Telecom entered into an agreement with Nitsuko America Corporation
("Nitsuko") to distribute telecommunications products manufactured by Nitsuko.
Nitsuko provided Telecom with access to a line of products not then being
distributed otherwise in the United States. Note: these operations were
discontinued by the Company as of August 1995.
Laboratories developed and marketed a line of high quality audio speakers,
as well as a proprietary audio recording and playback technology known as
"SphericSound". SphericSound represented a form of audio recording and playback
that featured multi-dimensional imaging that created the realistic sensation of
directional sound movement emanating from stationary speakers. Note: these
operations were discontinued by the Company as of August 1995.
Since the commencement of operations, the Registrant's revenues have been
solely derived from the sale of its proprietary PCBX systems and Nitsuko
products. The Registrant secured arrangements with a number of dealers who
agreed to undertake marketing and sales of its line of speakers. However, as of
June 30, 1995, sales had not yet been realized. The Registrant also attempted
to secure licensing arrangements or other means of commercial exploitation of
its SphericSound technologies. However, as of June 30, 1995, no sales revenues
had been realized from these efforts.
Funding of the Registrant's operations since inception has been provided
by: (i) revenues from the sale of PCBX systems, and, to a lesser extent,
Telecom's distribution agreement with Nitsuko; (ii) proceeds from the sale of
securities undertaken in a series of private placement transactions; and (iii)
completion of an initial public offering on the Vancouver Stock Exchange during
October 1992. See "ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITIONS AND RESULTS OF OPERATIONS."
15
<PAGE>
The Company was formed as a British Columbia corporation in 1989 for the
purpose of acquiring U.S. Trade Research Information Systems, Inc. (See
"Business of PCBX Systems, Inc.").
RESULTS OF OPERATIONS
Quarter ended June 30, 1995 as Compared with Comparable Period Ended June 30,
- -----------------------------------------------------------------------------
1994.
- -----
For the quarter ended June 30, 1995, the Company incurred a loss of
$863,052 on sales of $108,452. This compares to a loss of $864,809 on sales of
$289,097 for the comparable prior year quarter. The decrease in sales was
primarily due to a substantial amount of returned products due to customer
dissatisfaction with product quality and delivery. Revenues are expected to
decline throughout the fiscal year due to the discontinuance of the operations
of PCBX, Telecom and Laboratories as of August 1995. Virtually all of the
Company's sales to date were attributable to the Company's PCBX systems and
related products, with a small percentage of such sales being attributable to
Telecom and Laboratories. No sales have been realized by PIL.
The Company's loss for the quarter ended June 30, 1995 represents a loss of
$.06 per common share, as compared to a loss per common share of $.12 for the
comparable prior year quarter.
Cost of sales were $79,587 or 73% of sales in the quarter ended June 30,
1995, as compared with $180,966 or 63% of sales in the prior year quarter. The
increase is the Company's cost of sales as a percentage of sales in the quarter
ended June 30, 1995 was due primarily to manufacturing and product quality
problems, which resulted in the Company having to manufacture substantially more
units in order to satisfy delivery requirements, although part of the increase
was attributable to product enhancements which increased unit costs. The
Company also experienced a substantial increase in product returns.
Operating expenses fell in the quarter ended June 30, 1995 to $891,917 from
$972,940 in the comparable year-earlier quarter, a decrease of $81,023, or 8.3%.
Of this increase, the most significant factors were staff reductions and lower
expenses due to moving Laboratories's operations into PCBX's leased premises.
Legal and accounting costs increased principally as a result of legal costs
associated with organizational matters, litigation and other costs. Management
expects that expenses will continue to grow in absolute terms as operations
expand. However, expenses as a percentage of sales will only decline if the
Company is able to increase sales of its products.
During the quarter ended June 30, 1995, wages and benefits rose to $259,339
from $254,920, an increase of 1.7% from the comparable prior year quarter.
Consulting fees decreased to nil in the current quarter from $104,931
recorded in the comparable prior year quarter. This resulted from the
termination of the Company's agreements with a consultant which advised on
marketing issues with respect to the new Laboratories products and with an
investor relations consultant in order to conserve cash by reducing operating
expenses.
16
<PAGE>
The Company believes that termination of these agreements will adversely affect
the Company's ability to market the products of its Laboratories subsidiary.
As at June 30, 1995, management believed that the Company's PCBX product
line was fully developed and that development of the products of Laboratories
was near completion. However, the Company continued to experience severe
difficulties in gaining market acceptance of its products and in its
manufacturing efforts and no assurance could be given that sales from its PCBX,
Telecom and Laboratories subsidiaries would increase. As at June 30, 1995,
management did not believe that revenues would likely be realized by PIL for the
near term. However, management believed that the Company's business would
become more dependent on PIL in the near future and it expects to devote more
resources to those operations, especially if the performance of the Telecom and
Laboratories subsidiaries continues to be disappointing.
In the event that the Company's operations become more dependent on PIL, as
anticipated, the Company expects that it will need to expend significant funds
in order to obtain the licenses and form the joint ventures necessary for PIL to
provide wireless communications services, although PIL will not generate any
revenues until such licenses are obtained and such joint ventures are
operational. This may necessitate a material increase in general office
overhead and other general and administrative costs.
SUBSEQUENT EVENTS
Convertible Promissory Notes
- ----------------------------
Between December 19, 1995 and May 7, 1996, the Company arranged, subject to
regulatory approval, private placements of convertible promissory notes having
an aggregate principal amount of $2,405,000. The promissory notes are due and
payable after two years, or after six months upon demand of the holder. The
promissory notes are convertible into shares of common stock of the Company at
conversion prices ranging from $1.49 to $3.25 per share. The Company will also
issue to the investors non-transferable warrants to purchase up to an aggregate
of 459,021 shares of common stock of the Company for a period of two years at a
price equal to the conversion price of the notes. As of July 31, 1996, the
issuance of such securities remains subject to regulatory approval.
Debt Settlements
- ----------------
In October 1995 the Registrant began to enter into written agreements to
settle indebtedness in the aggregate amount of approximately $2,809,000 for cash
or share consideration. These agreements were subject to regulatory approval.
In May 1996, the Registrant received regulatory approval and completed the
settlement of $2,513,121 of such debt through the issuance of a total of
1,256,561 shares of Common Stock. As of July 31, 1995, 53,675 shares continue
to be reserved for issuance when permissible.
In December 1995, the Registrant agreed to the restructuring and settlement
of claims of two parties related to each other, which settlement has
subsequently been amended and partially paid.
17
<PAGE>
As of the July 31, 1996, the Registrant is obligated to make a final payment of
$200,000 due December 31, 1996.
Between October 10, 1995 and May 28, 1996, the Registrant had settled for
cash approximately $1,090,000 of accounts payable owing by the Registrant and
its closed subsidiaries. As of July 31, 1996, the outstanding accounts payable
of the Registrant's closed subsidiaries is approximately $185,000, which
management of the Registrant is continuing to attempt to settle on terms
favorable to the Registrant, although no assurances about such settlements can
be given.
Cancellation of Performance Shares
- ----------------------------------
In October 1995, certain shareholders agreed to surrender their 5,950,000
performance shares which were then held under an escrow arrangement. In
consideration therefor, the Registrant agreed to issue 314,762 common shares at
a deemed price of $2.00 per share. Although the performance shares have been
irreversably canceled by the Registrant, as of July 31, 1996, the issuance of
the 314,762 shares continues to be subject to the removal of the Registrant from
the jurisdiction of both the Vancouver Stock Exchange and the British Columbia
Securities Commission.
Bonus Shares and Warrants
- -------------------------
In connection with the issuance of certain short-term debt by the Company
in January 1995 and May 1996, the Company has agreed to issue, subject to
regulatory approval, 85,590 "bonus" shares of common stock and 166,667 share
purchase warrants, exercisable at $3.30 per share, expiring on May 31, 1997. As
of July 31, 1996, the issuance of such shares and warrants remains subject to
regulatory approval.
LIQUIDITY AND CAPITAL RESOURCES
In the quarter ended June 30, 1995, the Company realized net proceeds of
$80,700 from the issuance of shares of common stock in a private placement and
exercise of stock options. In the quarter, the Company also repaid $12,500 of
loans outstanding. These activities contributed to a net working capital
position as of June 30, 1995 of ($4,282,091), which is down $624,774 from
($3,657,317) at March 31, 1995.
The Company has incurred cumulative losses from inception through June 30,
1995 of $14,448,461 and has not yet achieved revenues sufficient to offset
direct expenses and corporate overhead.
Since inception, a substantial portion of the Company's operating capital
has been provided through financing activities. Operations have provided gross
revenues to the Company of $2,187,450 whereas financing has yielded the Company
net proceeds of $11,390,928. The Company's financing has been provided by an
initial public offering and a series of private placements of shares. The
Company continues to secure financing through the private placement of equity
securities. During the quarter ended June 30, 1995, the Company sold 89,667
shares of common stock and no purchase warrants in private placement
transactions. The Company continues
18
<PAGE>
to seek additional equity financing, although there can be no assurances as to
the success of such an anticipated placement. Although management is hopeful
that sales from its PCBX Systems and Laboratories subsidiaries will increase, no
assurances can be given, and recent experience does not provide cause for
optimism. In addition, PIL will likely remain a draw upon the Company's capital
resources for the near term and this draw will likely increase to the extent
that PIL's operations are expanded and additional efforts are expended to obtain
licenses and establish operating joint ventures.
As of June 30, 1995, the Company had 1,417,990 options and warrants
outstanding which upon exercise would yield to the Company additional proceeds
in excess of $4 million. The exercise of existing warrants is impossible to
predict with any certainty, accordingly, management can render no assurances
that any material funds will be realized upon the exercise of such warrants, or
whether such will be exercised at all.
The Company has been able to secure financing in the past through loans
from certain stockholders. Management has no reason to believe that similar
arrangements will available in the foreseeable future.
The Company's net working capital position decreased approximately $624,774
from March 31, 1995 to June 30, 1995. The Company's trend towards increased
working capital from March 31, 1993 to March 31, 1994 was reversed during the
quarter ended June 30, 1994. Unless the Company continues to receive proceeds
from the sale of securities and/or realize increased revenues from operations,
it is likely that the trend towards decreased working capital will continue.
Working capital levels have only been able to increase in the past by virtue of
the Company's continued offerings of securities. At some point in time, these
offerings may no longer continue, at which time the Company's working capital
will continue to decrease if operating losses continue. Although management
believes that the Company will be able to generate profits once its products and
technologies become more fully commercialized, there can be no assurance to that
effect.
With the exception of fixed rental and certain personnel expenses, the
Company anticipates no significant capital expenditures within the short term,
other than in connection with expansion and establishment of PIL's operations.
Rental expense accounts for approximately $11,500 of fixed expenses on a monthly
basis. Personnel costs, which are expected to remain relatively stable within
the short term, are likely to account for approximately $86,500 of fixed
expenses on a monthly basis. Additional variable expenses, such as consulting
fees, legal and accounting, travel and entertainment, utilities and
miscellaneous equipment purchases (or rentals) are expected to account for
approximately $85,000 per month.
Management does not believe that in the near term the Company's operations
will generate sufficient cash flow to finance its working capital and any
capital expenditure requirements and the Company's operations will remain
dependent on the Company's ability to obtain additional debt and equity
financing (including from the exercise of existing warrants), as to which no
assurance can be given. In the past, the Company has been able to secure
financing through loans from certain stockholders. While no arrangements are
yet in place, the Company is hopeful that financing will become available to for
PIL to produce and market its services through the formation of joint
19
<PAGE>
ventures with financial and strategic partners, although no assurances can be
given. While the Company will continue to seek both debt and equity financing,
there can be no assurance that any such financing will be available on terms
acceptable to the Company or at all. Without such additional sources of
financing, the Company will not be able to continue as a going concern.
EFFECTS OF INFLATION
The Company does not expect inflation to materially affect its results of
operations, however, it is expected that operating cost and the cost of capital
equipment to be acquired in the future may be subject to general economic and
inflationary pressures.
20
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
-----------------
On April 17, 1995, Bell Industries, Inc., a supplier of the
Registrant's PCBX Systems subsidiary, filed suit against PCBX Systems
in Los Angeles Superior Court, for breach of written agreement for
alleged failure to accept delivery of components for which PCBX
Systems had previously submitted a purchase order. The amount of
relief requested was to be proved at trial; however, management had
anticipated a contingent liability of approximately $300,000.00. On
November 29, 1995, a final settlement was reached and the supplier
received $31,640 in settlement of all claims against the Registrant
and its subsidiaries.
ITEM 2. CHANGES IN SECURITIES
---------------------
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
-------------------------------
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
None
ITEM 5. OTHER EVENTS
------------
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
None.
21
<PAGE>
SIGNATURE
In accordance with to the requirements of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
PORTACOM WIRELESS, INC.
Date: August 7, 1996
By: /s/ Douglas C. MacLellan
-----------------------------
Douglas C. MacLellan
President and Chief Executive Officer
By: /s/ J. Michael Christiansen
--------------------------------
J. Michael Christiansen
Executive Vice President
(principal financial officer)
<PAGE>
EXHIBIT INDEX
Exhibit
No. Description
27 Financial Data Schedule*
*Filed Herewith
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> APR-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 79,055
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 79,055
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 79,055
<CURRENT-LIABILITIES> 4,361,146
<BONDS> 0
0
0
<COMMON> 10,166,370
<OTHER-SE> (14,448,461)
<TOTAL-LIABILITY-AND-EQUITY> 79,055
<SALES> 108,452
<TOTAL-REVENUES> 108,452
<CGS> 79,587
<TOTAL-COSTS> 79,587
<OTHER-EXPENSES> 851,350
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 40,567
<INCOME-PRETAX> (863,052)
<INCOME-TAX> 0
<INCOME-CONTINUING> (863,052)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (863,052)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> 0
</TABLE>
