<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(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, 1997 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 REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 33-0650673
(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)
REGISTRANT'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 [X] NO
---
2.YES [X] NO
---
AS OF APRIL 30, 1997, THERE WERE 13,444,191 SHARES OF COMMON STOCK ISSUED AND
OUTSTANDING.
<PAGE>
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
NO.
<S> <C> <C>
ITEM 1. Statement Regarding Financial Information i
Condensed Consolidated Balance Sheet at
March 31, 1997 (Unaudited) and
December 31, 1996 (Derived from audited
financial statements) 1
Condensed Consolidated Statements of Operations
for the three months ended March 31,
1997 and 1996 (Unaudited) 2
Condensed Consolidated Statements of Cash Flows
for the three months ended March 31,
1997 and 1996 (Unaudited) 3
Notes to Condensed Consolidated Financial
Statements (Unaudited) 4
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 19
ITEM 2. Changes in Securities 19
ITEM 3. Defaults Upon Senior Securities 19
ITEM 4. Submission of Matters to a Vote of Security Holders 19
ITEM 5. Other Information 19
ITEM 6. Exhibits and Reports on Form 8-K 20
</TABLE>
<PAGE>
PORTACOM WIRELESS, INC. AND SUBSIDIARIES
QUARTER ENDED MARCH 31, 1997
PART I. FINANCIAL INFORMATION
The financial statements included herein have been prepared by PortaCom
Wireless, Inc. (formerly known as "Extreme Technologies, 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-K for the year ended December 31, 1996
as filed with the SEC (file number 0-23228).
i
<PAGE>
PORTACOM WIRELESS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited and expressed in U.S. dollars)
<TABLE>
<CAPTION>
March 31, 1997 and December 31, 1996
- ----------------------------------------------------------------------------------------------------------
==========================================================================================================
MARCH 31, 1997 DECEMBER 31, 1996
- ----------------------------------------------------------------------------------------------------------
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 61,449 $ 114,275
- ----------------------------------------------------------------------------------------------------------
Total current assets 61,449 114,275
Equipment, net 18,869 12,427
Refundable deposits 200,000 ---
Other assets (note 3) 99,500 ---
Investments (note 3) 8,000,000 8,099,500
- ----------------------------------------------------------------------------------------------------------
$ 8,379,818 $ 8,226,202
==========================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 897,459 $ 650,133
Convertible promissory notes payable (note 4) --- 150,000
Notes payable 186,585 ---
- ----------------------------------------------------------------------------------------------------------
Total current liabilities 1,084,044 800,133
Shareholders' equity (deficiency):
Share capital (note 5)
Issued:
Common stock (March 31, 1997 - 13,615,261;
December 31, 1996 - 13,118,181) 13,615 13,118
Other paid-in capital 18,396,862 17,193,178
Accumulated deficit (11,114,703) (9,780,227)
==========================================================================================================
$ 8,379,818 $ 8,226,202
==========================================================================================================
</TABLE>
On behalf of the Board:
/s/ Stephen Leahy Director /s/ Douglas MacLellan Director
- ---------------------- -------------------------
See accompanying notes to condensed consolidated financial statements. Page 1
<PAGE>
PORTACOM WIRELESS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited and expressed in U.S. dollars)
<TABLE>
<CAPTION>
Three month periods ended March 31, 1997 and 1996
- --------------------------------------------------------------------------------------------
MARCH 31, 1997 MARCH 31, 1996
- --------------------------------------------------------------------------------------------
<S> <C> <C>
INCOME
Sales, net $ -- $ --
Other income -- --
============================================================================================
-- --
OPERATING EXPENSES:
Consulting fees 313,107 264,137
Depreciation and amortization 186 --
General and administrative 130,428 41,031
Interest, bank charges and financing charges 170,081 190
Legal and accounting 292,196 43,764
Management fees 30,164 5,129
Rent 20,888 14,426
Research and development --- ---
Travel and entertainment 238,964 86,551
Wages and benefits 138,463 79,716
============================================================================================
$ 1,334,477 534,944
- --------------------------------------------------------------------------------------------
Income (loss) before extraordinary item (1,334,477) (534,944)
- --------------------------------------------------------------------------------------------
Gain (loss) on settlement of debt --- (90,015)
- --------------------------------------------------------------------------------------------
Net income (loss) for the period $(1,334,477) $ (624,959)
============================================================================================
Net income (loss) per share (note 2(b)) $ (0.10) $ (0.04)
============================================================================================
Weighted average number of common shares outstanding 12,928,555 16,271,108
============================================================================================
</TABLE>
See accompanying notes to condensed consolidated financial statements. Page 2
<PAGE>
PORTACOM WIRELESS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited and expressed in U.S. dollars)
<TABLE>
<CAPTION>
Three months ended March 31, 1997 and 1996
- -------------------------------------------------------------------------------------------------
MARCH 31, 1997 MARCH 31, 1996
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS:
Net loss for the period $(1,291,092) $(624,958)
Depreciation and amortization 186 ---
Net changes in working capital relating to operations: ---
Accounts receivable --- (6,470)
Notes receivable --- (75,430)
Accounts payable 203,941 129,406
- -------------------------------------------------------------------------------------------------
Net cash generated (used) by operating activities (1,086,965) (577,452)
FINANCING:
Issue of and subscription for common shares 1,204,180 135,785
Convertible promissory notes payable (150,000) 780,000
Notes payable 186,585 60,000
- -------------------------------------------------------------------------------------------------
Net cash generated by financing activities 1,240,766 975,785
INVESTING:
Acquisition of equipment, net (6,628) (6,708)
Other assets (200,000) ---
- -------------------------------------------------------------------------------------------------
Net cash generated (used) by investing activities (206,628) (6,708)
- -------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (52,826) 391,625
Cash and cash equivalents, beginning of period 114,275 165,665
- -------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 61,449 $ 557,290
=================================================================================================
</TABLE>
See accompanying notes to condensed consolidated financial statements. Page 3
<PAGE>
PORTACOM WIRELESS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited and expressed in U.S. dollars)
Three months ended March 31, 1997
- --------------------------------------------------------------------------------
1. MANAGEMENT OPINION:
The condensed consolidated financial statements include the accounts of
PortaCom Wireless, Inc. (the "Company") and its wholly-owned and majority-
owned subsidiaries from the dates of acquisition or formation. All material
intercompany balances and intercompany transactions have been eliminated.
In the opinion of management, the accompanying condensed consolidated
financial statements reflect all adjustments (which include only normal
recurring adjustments) and reclassifications for comparability necessary to
present fairly the financial position and results of operations as of and
for the three months ended March 31, 1997.
2. SIGNIFICANT ACCOUNTING POLICIES:
(a) Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements, and to the reported amounts of revenues and expenses
during the reporting period. With respect to the Company's operations,
these estimates primarily relate to the underlying value of investments
which will only be determinable based on future events. Management has
applied its judgment to the information available to the date of the
issuance of these condensed consolidated financial statements in making
such judgment. Actual results could differ from estimates made in preparing
these condensed consolidated financial statements.
(b) Loss per share:
Loss per share is computed based on the weighted average number of shares
outstanding during the period which number of shares excludes escrowed
shares that are contingently returnable to the Company's treasury. Fully
diluted net loss per share has not been presented as the effect is either
not materially dilutive or is anti-dilutive.
3. INVESTMENTS AND OTHER ASSETS:
On May 28, 1996, the Company announced that it had entered into a contract
to acquire all of the outstanding shares of Asian American
Telecommunications Corporation ("AAT"), an unrelated Los Angeles-based
telecommunications services developer. By an agreement made as of September
11, 1996, AAT and the Company agreed to terminate all rights and
obligations of either party under the proposed business combination. As
consideration for this termination, AAT issued to the Company 2,000,000
restricted common shares, and issued to the Company warrants to acquire
4,000,000 common shares of AAT for a period of three years at a price of
$4.00 per share. The Company paid no cash consideration for the shares or
warrants. The Company's investment is recorded at the estimated fair value
of the assets received in excess of the consideration payable to exercise
the warrants. This fair value was established by reference to capital stock
issuances made by AAT for cash consideration. In addition, AAT paid the
Company non-refundable cash consideration of $1,000,000 as part of this
termination agreement.
-4-
<PAGE>
PORTACOM WIRELESS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited and expressed in U.S. dollars)
Three months ended March 31, 1997
- --------------------------------------------------------------------------------
The 2,000,000 common shares have been pledged by the Company to AAT until
January 1, 1999 pursuant to the Company's indemnification obligations
under the termination agreement. These indemnification obligations provide
that the Company grants to AAT a lien on the common shares against any
costs or losses arising to AAT, or specified related parties, arising from
certain claims or potential claims related to the original proposed
acquisition or the termination agreement. At the date of these
consolidated financial statements, no claims under this indemnification
agreement have arisen.
On December 23, 1996, AAT entered into a business combination agreement
with MAC. In connection with the Agreement, MAC offered to exchange all
outstanding shares of AAT capital stock and all warrants to purchase
shares of AAT capital stock for shares and warrants of MAC. In the current
period, the Company agreed to exchange these shares and warrants of AAT
for equivalent shares and warrants of MAC immediately following the
consummation of the exchange offer.
On December 26, 1996, the Company acquired an 86% interest in American
Cambodian Telecom Ltd. ("ACT"), a newly formed Cambodian limited liability
company under the consent of the Ministry of Posts and Telecommunications
in Cambodia. ACT had been inactive to December 31, 1996.
Under the Joint Venture agreement, the Company was required to contribute
capital to ACT of at least 50 million Cambodian Riel (approximately
$20,000). In addition, the Company was required to provide a refundable
deposit of $200,000 within 45 business days of December 31, 1996. As of
the date of this report, the required capital had been contributed and the
refundable deposit had been made.
The Company reviews the underlying value of all investments on an ongoing
basis and provides for declines in value that are other than temporary as
they are identified. Any impairments are charged to earnings and a new
cost basis for the security is established. At March 31, 1997, no such
impairments have been identified in the investments in MAC or ACT.
-5-
<PAGE>
PORTACOM WIRELESS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited and expressed in U.S. dollars)
Three months ended March 31, 1997
- --------------------------------------------------------------------------------
4. CONVERTIBLE PROMISSORY NOTES PAYABLE:
Between December 19, 1995 and December 11, 1996, the Company arranged,
subject to regulatory approval, private placements of convertible
promissory notes having an aggregate principal amount of $2,417,000. Of
this amount $1,817,000 was received subsequent to, and $600,000 was
received prior to, December 31, 1995. The promissory notes were due and
payable after two years which ranged to December 1998, or after six months
upon demand of the holder, and bore interest at 10% per annum, with
interest payable upon maturity or conversion. The promissory notes were
convertible into shares of common stock of the Company at conversion
prices ranging from $1.49 to $3.25 per share. Pursuant to the debt
subscription agreements, the Company also agreed to issue to the investors
non-transferable warrants to purchase an aggregate of up to 461,203 shares
of common stock of the Company for a period of two years at a price equal
to the conversion price of the notes. The conversion and warrant exercise
prices were based on the market price of the Company's common shares at
the date of their offering. On December 16, 1996, regulatory approval was
received for the issuance of convertible promissory notes aggregating
$2,417,000 and 461,203 warrants which were then issued by the Company. As
of December 31, 1996, convertible notes aggregating $2,267,000 were
converted to common stock. As of March 31, 1997, the remaining convertible
notes aggregating $150,000 had also been converted to common stock. As of
March 31, 1997 accrued interest on the convertible promissory notes
aggregating approximately $180,000 was payable by the Company. In
addition, the Company has agreed to issue, subject to the removal of the
Company from the jurisdiction of both the Vancouver Stock Exchange and the
British Columbia Securities Commission, 115,296 "bonus" warrants to
purchase shares of the Company's common stock, exercisable at $2.70,
expiring between December 31, 1999 and February 14, 2000.
5. SHARE CAPITAL:
(a) Authorized:
100,000,000 shares of common stock with a par value of
$0.001 per share; 5,000,000 shares of preferred stock
with a par value of $0.001 per share
-6-
<PAGE>
PORTACOM WIRELESS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited and expressed in U.S. dollars)
Three months ended March 31, 1997
- --------------------------------------------------------------------------------
(b) Issued common stock:
<TABLE>
<CAPTION>
=============================================================================================================
Number of Per share Total consideration
shares consideration
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, December 31, 1996 13,064,506 $17,098,946
Issued and to be issued for cash on private placement 190,388 3.035 577,750
Issued as consideration for loans (g) 42,757 3.960 169,302
Issued as consideration for conversion of 150,000
convertible promissory notes payable 55,862 2.690
Issued for cash on exercise of warrants 208,073 1.476 307,129
- -------------------------------------------------------------------------------------------------------------
Balance, March 31, 1997 13,561,586 $18,303,127
To be issued on settlement of debt (f) 53,675 2.000 107,350
- -------------------------------------------------------------------------------------------------------------
Balance issued and to be issued 13,615,261 $18,410,477
=============================================================================================================
</TABLE>
(c) Stock options:
As at December 31, 1996, the Company had common shares of
the Company reserved for issuance on exercise of incentive
stock options to 2002. Option changes for the period
January 1, 1997 to March 31, 1997 were as follows:
<TABLE>
<CAPTION>
=============================================================================================================
<S> <C>
Outstanding and exercisable as at December 31, 1996 1,136,183
- -------------------------------------------------------------------------------------------------------------
Granted at $3.61 per share 90,000
Canceled at C$1.25 per share (125,000)
- -------------------------------------------------------------------------------------------------------------
Outstanding and exercisable as at March 31, 1997 1,101,183
=============================================================================================================
</TABLE>
Stock options are issued at the average market price per
share for the ten trading days prior to the date of
issuance. The Company applies APB No. 25 and related
Interpretations in accounting for its option grants.
Accordingly, no compensation cost has been recognized for
options granted.
-7-
<PAGE>
PORTACOM WIRELESS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited and expressed in U.S. dollars)
Three months ended March 31, 1997
- --------------------------------------------------------------------------------
(d) Warrants:
During the three months ended March 31, 1997, the Company, in
connection with a private placement, issued warrants to
purchase 72,993 shares of common stock at $2.74 per share if
exercised by January 28, 1998 and $3.15 if exercised
thereafter to January 28, 1999.
In addition, pursuant to a bridge financing completed in 1996,
166,667 share purchase warrants exercisable at $3.30 per share
to May 31, 1998 are issuable. The warrants were recorded at
their estimated fair value of $250,000 in the year ended
December 31, 1996. As of March 31, 1997, none of these
warrants have been issued or exercised.
During the year ended December 31, 1996, the Company, in
connection with private placements of common stock, issued
warrants to purchase 97,500 shares of common stock at $1.11
per share if exercised by November 1996 and $1.28 if
exercised thereafter to November 1997. Of these warrants,
30,000 were exercised during the three months ended March 31,
1997 and 67,500 remain outstanding. In addition, the Company
issued 461,203 warrants attached to convertible promissory
notes at prices ranging from $1.49 to $3.25 per share if
exercised by dates ranging from December 19, 1997 to May 7,
1998. As of March 31, 1997, 161,073 of these warrants were
exercised at $1.49 per share. In addition, the Company has
agreed to issue, subject to the removal of the Company from
the jurisdiction of both the Vancouver Stock Exchange and the
British Columbia Securities Commission, 115,296 "bonus"
warrants to purchase shares of the Company's common stock,
exercisable at $2.70, expiring between December 31, 1999 and
February 14, 2000.
During the nine months ended December 31, 1995, the Company,
in connection with private placements of common stock, issued
warrants to purchase up to 204,878 shares of common stock at
prices of between $1.28 and $1.47 per share if exercised by
August, 1996 and $1.47 and $1.69 per share if exercised
thereafter to August 1997. Of these warrants, 37,878 were
exercised during 1996 and 17,000 were exercised during the
three months ended March 31, 1997. Of these warrants, 150,000
remain outstanding.
(e) Performance shares:
Included in the issued and outstanding common stock are
600,000 shares which are subject to an escrow agreement. These
shares are releasable from 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
canceled. Pursuant to the escrow agreement, holders of the
shares may exercise all
-8-
<PAGE>
PORTACOM WIRELESS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited and expressed in U.S. dollars)
Three months ended March 31, 1997
- --------------------------------------------------------------------------------
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.
Upon release of the shares from escrow, compensation expense
will be recorded.
In October 1995, certain shareholders agreed to surrender
their 5,950,000 escrowed shares which were then held under the
escrow arrangement. In consideration therefor, the Company
agreed to issue 314,762 shares of common stock at a deemed
price of $2.00 per share. Although the escrowed shares have
been irrevocably canceled by the Company during 1996, the
issuance of the 314,762 shares continues to be subject to the
removal of the Company from the jurisdiction of both the
Vancouver Stock Exchange and the British Columbia Securities
Commission.
(f) Shares to be issued on settlement of debt:
In October, 1995 the Company 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 Company 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 March
31, 1997 53,675 shares continue to be reserved for issuance
when allowable. As of March 31, 1997, the outstanding accounts
payable of the Company's closed subsidiaries accounts for
approximately $90,000 of total accounts payable. The Company
is continuing to attempt to settle the outstanding debt on
terms favorable to the Company, although no assurances about
such settlement terms can be given.
(g) Shares to be issued for loans:
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, expiring on May 31, 1997.
During 1996, regulatory approval was received for the issuance
of 25,833 of these shares which were then issued by the
Company. During the quarter ended March 31, 1997, regulatory
approval was received for the issuance of 42,757 of these
shares which were then issued by the Company. Additionally,
subject to the removal of the Company from the jurisdiction of
both the Vancouver Stock Exchange and the British Columbia
Securities
-9-
<PAGE>
PORTACOM WIRELESS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited and expressed in U.S. dollars)
Three months ended March 31, 1997
- --------------------------------------------------------------------------------
Commission, the Company has agreed to extend the expiry date
of the 166,667 share purchase warrants to May 31, 1998 from
May 31, 1997. As of March 31, 1997, the issuance of the
remaining 17,757 shares and 166,667 warrants continued to be
subject to regulatory approval.
In connection with the issuance of certain short term debt by
the Company in February, 1997, the Company has agreed to
issue, subject to the removal of the Company from the
jurisdiction of both the Vancouver Stock Exchange and the
British Columbia Securities Commission, 120,000 "bonus"
warrants to purchase shares of the Company's common stock,
exercisable at $2.75, expiring on February 19, 1999.
In connection with the 1996 private placements of convertible
promissory notes, the Company has agreed to issue, subject to
the removal of the Company from the jurisdiction of both the
Vancouver Stock Exchange and the British Columbia Securities
Commission, 115,296 "bonus" warrants to purchase shares of the
Company's common stock, exercisable at $2.70, expiring between
December 31, 1999 and February 14, 2000.
(h) List of Directors:
R. Keith Alexander, Robert Flitton, Howard Frantom, Keith Hay,
Stephen Leahy, Douglas MacLellan, Stephen Stephens.
6. CONTINGENT LIABILITY:
During the year ended December 31, 1996, the Company emigrated from Canada.
Subject to final determination by the income tax authorities in Canada,
management does not believe that any tax liability arose on the emigration,
and no income tax liability is currently outstanding in Canada.
The Company has loss carry forwards in the United States of approximately
$9,000,000 expiring to 2011. The potential benefit of these losses of
approximately $3,600,000 has been fully offset by a valuation reserve.
Accordingly, the accompanying consolidated financial statements reflect no
provision for income taxes.
7. RELATED PARTY TRANSACTIONS:
Related party transactions not disclosed elsewhere in these condensed
consolidated financial statements include $43,385 in accounts payable and
accrued liabilities at March 31, 1997 which is owing to related parties. In
the period, approximately $65,000 of consulting fees were charged by
related parties, while approximately $30,000 of management fees were
charged by related parties. The Company has reimbursed expenses incurred by
directors and officers on its behalf during the periods presented.
-10-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
BACKGROUND
The Company's corporate objective is to become a leading independent
provider of wireless and wireline telecommunications services in selected
developing world markets. To achieve this objective, the Company intends to
pursue opportunities to build, operate and actively participate in cellular,
wireless, paging, PSTN and long-distance networks in order to provide coverage
and high-quality service in these markets. The Company's current business is
focused on the support and build out of its joint venture in the Kingdom of
Cambodia and the active pursuit of similar opportunities in other emerging
markets. On May 9, 1997, the Company announced that it had signed, subject to
certain conditions including regulatory approval, agreements in principle to
acquire a controlling interest in a paging telecommunications venture in the
Republic of India. The Company also owns an interest in a telecommunications
business based in the Peoples Republic of China.
The Company was formed as a British Columbia, Canada corporation in 1989.
On December 23, 1996, the Company reincorporated from British Columbia to
Wyoming pursuant to a procedure known as a "continuance", and on December 24,
1996, the Company merged with its wholly owned Delaware subsidiary and thereby
reincorporated into Delaware. The Delaware subsidiary had been formed in 1994
for the purpose of the merger, which had been postponed for business reasons.
The Company presently conducts business operations both directly and through one
wholly owned U.S. subsidiary, PortaCom International, Ltd. ("PIL"). The Company
also has three other wholly owned U.S. subsidiaries which are not presently
operating: Extreme Telecom, Inc. ("Telecom"), PCBX Systems, Inc. ("PCBX"), and
Extreme Laboratories, Inc., formerly known as Spheric Audio Laboratories, Inc.
("Laboratories").
Since 1994, both directly and through its PIL subsidiary, the Company has
engaged in initial stage efforts to evaluate the feasibility of, and attempt to
secure, licensing opportunities and joint venture arrangements for the operation
of wireless telephone networks as well as other state-of-the-art mobile radio
communication systems and new telephone technologies. Although the
establishment and operation of wireless telephone networks and other advanced
communications systems will be investigated by the Company wherever strategic
opportunities arise, its principal efforts are presently focused (as of the date
of this report) upon certain Eastern European and Asian emerging markets,
including Cambodia, India, China and Vietnam.
The Company, in December 1996, entered into a joint venture agreement
through which it controls a limited liability company which holds a twenty-five
(25) year renewable license to develop a digital mobile wireless system in the
Kingdom of Cambodia. On May 9, 1997, the Company announced that it had signed
agreements in principle to acquire a controlling interest in Microwave
Communications, Ltd.("MCL"), a paging telecommunications venture in the
Republic of India (the "MCL Transactions"). The Company has an interest through
a shareholding in Metromedia Asia Corporation ("MAC") in a fixed line basic
services license and a cellular service license in the People's Republic of
China. The activities of the Company's PIL subsidiary to date have produced no
licenses or joint venture opportunities, and management does not believe that
revenues will be realized by PIL in 1997.
11
<PAGE>
The Company formerly pursued a number of ventures in the consumer
electronics and customer premise equipment sectors. 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. Telecom entered into an agreement with Nitsuko America Corporation
("Nitsuko America") to distribute telecommunications products manufactured by
Nitsuko America which were not then being distributed otherwise in the United
States. Laboratories developed and marketed a line of audio speakers, as well as
a proprietary audio recording and playback technology known as "SphericSound".
Because of substantial losses, the associated costs of continued development,
the lack of profitability by competitors and the uncertainty of marketing costs
associated with commercializing both proprietary technologies and other
manufacturers' products, management decided in 1995 to discontinue the
development and marketing activities of PCBX, Telecom and Laboratories.
Funding of the Company's operations since inception has been provided by:
(i) revenues from the sale of PCBX products, and, to a significantly lesser
extent, the products of Telecom and Laboratories; (ii) proceeds from the sale of
securities undertaken in a series of private placement transactions; (iii)
completion of an initial public offering on the Vancouver Stock Exchange during
October 1992; and (iv) revenues generated as a result of the receipt of cash and
securities of Asian American Telecommunications Corporation, the securities of
which were comprised of common shares (held in escrow) and warrants to purchase
shares of AAT's common stock and which were subsequently exchanged for an equal
number of common shares (held in escrow) and common share purchase warrants of
MAC.
RESULTS OF OPERATIONS
Quarter ended March 31, 1997 as Compared with Quarter Ended March 31, 1996.
- ---------------------------------------------------------------------------
For the quarter ended March 31, 1997, the Company reported a net loss from
operations of $1,334,477. This compares to a net loss from operations of
$534,944 for the comparable quarter in the prior year. Expressed in terms of
loss per share of common stock, results from operations for the quarter ended
March 31, 1997 as compared with those for the quarter ended March 31, 1996 were
($0.10) per share and ($0.04) per share, respectively. There were no sales in
either period due to the fact that the Company's revenue-producing subsidiaries
(which were also generating significant net losses) were discontinued in 1995
and remained inactive throughout 1996 and the first quarter of 1997. No sales
are expected for the current year and the Company's current operations are not
expected to generate revenues until 1998 unless the Company earlier concludes
the MCL Transactions or acquires one or more controlling interests in businesses
which produce ongoing revenue from operations. No assurances can be given as to
the conclusion of the MCL Transactions or any future acquisitions of any such
businesses.
12
<PAGE>
Operating expenses increased to $1,334,477 in the quarter ended March 31,
1997 from $534,944 in the quarter ended March 31, 1996. Of this increase, the
most significant factor was an increase in legal and accounting expenses
(discussed below).
The increases in operating expenses were primarily related to the increase
in activities of the Company with respect to the recently announced MCL
Transactions as well as expenses incurred related to the deployment by ACT of a
digital wireless telecommunications system in Cambodia as compared with a
general reduction in these categories throughout the comparable quarter in the
prior year during which time management's efforts were divided between the
ongoing pursuit of wireless telecommunications opportunities and the work of
restructuring the operations of the Company which included the settlement of
certain outstanding debts of the Company's inactive subsidiaries.
During the quarter ended March 31, 1997, legal and accounting expenses rose
to $292,196 from $43,764 recorded in quarter ended March 31, 1996. This increase
was primarily related to the recently announced MCL Transactions and related
transactions, due diligence work performed with respect to prospective
transactions that were not consummated, and the activities of ACT, as well as to
the extensive preparation, review and revision of disclosure incorporated into
the Company's recent public filings.
During the quarter ended March 31, 1997, interest, bank and financing
charges rose to $170,081 from $190 recorded in quarter ended March 31, 1996.
This increase was primarily related to the expense recorded upon the issuance of
42,757 shares of the Company's common stock in consideration for loans made to
the Company in prior periods. Although an additional 17,757 of such shares of
the Company's common stock remain issuable upon regulatory approval, any other
similar future issuances are not expected to have a material impact upon future
operations.
Additional factors included increases in Travel and entertainment, which
increased by $152,413 to $238,964, General and administrative, which increased
by $89,397 to $130,428, Wages and benefits, which increased by $58,747 to
$138,463 and Consulting, which increased by $48,970 to $313,107. These expenses
are expected to increase throughout the remainder of 1997 along with increased
activities related to the deployment of ACT, and with respect to any additional
licences, interests, or joint ventures which the Company may obtain or
participate in.
13
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
In the quarter ended March 31, 1997, the Company realized net proceeds of
$1,204,180 from the issuance of shares of common stock in private placements,
some of which are subject to regulatory approval, and from the exercise of share
purchase warrants. In the quarter, the Company also issued a non convertible
promissory note for $186,600. These activities contributed to a net working
capital (deficit) position as of March 31, 1997 of ($979,210), which is up
$293,352 from ($685,858) at December 31, 1996.
The Company has incurred cumulative losses from inception through March 31,
1997 of $11,114,703 and has not yet achieved revenues sufficient to offset
direct expenses and corporate overhead. As of March 31, 1997, management does
not believe that revenues will likely be realized by the Company in the near
term; however, the Company expects that it will need to expend significant funds
in order to develop the Cambodian Licence, to fund the MCL Transactions, and to
obtain additional licenses and to form additional joint ventures necessary for
the Company or PIL to provide wireless communications services in other markets
where such opportunities are being sought. The Company would not generate any
revenues, however, until such licenses are obtained and such joint ventures are
operational. These continuing activities are likely to necessitate an immediate
and continuing material increase in general office overhead and other costs such
as general and administrative and travel and entertainment.
Since inception, a substantial portion of the Company's operating capital
has been provided through financing activities, which have included an initial
public offering and a series of private placements of common shares and
convertible promissory notes. During the three months ended March 31, 1997, the
Company sold 398,461 shares of common stock and 190,388 common stock purchase
warrants in private placement
14
<PAGE>
transactions and upon the exercise of outstanding stock options and warrants.
The Company anticipates that it will seek additional financing through the
private placement of equity or debt securities, although no assurances can be
given as to the success of any future offerings of securities.
Between December 19, 1995 and December 11, 1996, the Company arranged,
subject to regulatory approval, private placements of convertible promissory
notes having an aggregate principal amount of $2,417,000. The promissory notes
were due and payable after two years which ranged to December 1998, or after six
months upon demand of the holder, and bore interest at 10% per annum, with
interest payable upon maturity or conversion. The promissory notes were
convertible into shares of common stock of the Company at conversion prices
ranging from $1.49 to $3.25 per share. Pursuant to the debt subscription
agreements, the Company also agreed to issue to the investors non-transferable
warrants to purchase an aggregate of up to 461,203 shares of common stock of the
Company for a period of two years at a price equal to the conversion price of
the notes. The conversion and warrant exercise prices were based on the market
price of the Company's common shares at the date of their offering. On December
16, 1996, regulatory approval was received for the issuance of convertible
promissory notes aggregating $2,417,000 and 461,203 warrants which were then
issued by the Company. As of December 31, 1996, convertible notes aggregating
$2,267,000 were converted to common stock. As of March 31, 1997, the remaining
convertible notes aggregating $150,000 had also been converted to common stock.
As of March 31, 1997 accrued interest on the convertible promissory notes
aggregating approximately $180,000 was payable by the Company. In addition, the
Company has agreed to issue, subject to the removal of the Company from the
jurisdiction of both the Vancouver Stock Exchange and the British Columbia
Securities Commission, 115,296 "bonus" warrants to purchase shares of the
Company's common stock, exercisable at $2.70, expiring between December 31, 1999
and February 14, 2000.
As of March 31, 1997, the Company had 1,691,806 (1,101,183 options and
590,623 warrants) options and warrants outstanding which upon exercise would
yield to the Company additional proceeds in excess of $3.9 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.
Rental expense accounts for approximately $3,000 of fixed expenses on a
monthly basis. Personnel costs, which are expected to increase throughout the
year, are likely to account for between $75,000 and $100,000 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 between approximately $75,000
and $100,000 per month.
In addition to fixed rental and certain personnel expenses, as of March 31,
1997, the Company anticipates capital expenditures of approximately $30 million
during the remainder of 1997 in connection with the establishment and expansion
of ACT's operations. The Company may also elect to exercise some or all of its
MAC share purchase warrants in 1997, the purchase price for which would be $16
million assuming the exercise of all of its warrants. In addition, the Company
recently announced that it has signed agreements in principle to acquire a
controlling interest in a
15
<PAGE>
paging telecommunications venture in India. Under the terms of the agreements,
which are subject to certain conditions, including regulatory approval, PortaCom
will acquire an approximate aggregate sixty-five percent (65%) interest in MCL,
which owns and operates certain paging licences in the Republic of India. In
order to conclude the proposed transaction in India, the Company will require
approximately $31 million by July 15, 1997 (subject to extension under certain
circumstances). Accordingly, consistent with the Company's objective of
continuing to develop opportunities to build, operate and actively participate
in cellular, wireless, paging, PSTN and long distance networks, the Company has
significant additional capital requirements. There can be no assurance that the
Company will be able to obtain financing in order to satisfy its obligations and
requirements.
Management does not believe that in the foreseeable future, and in any
event not within the next 12 months, the Company's operations will generate
sufficient cash flow to finance its working capital and capital expenditure
requirements. 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). In particular, since the Company does not
currently have any sources of revenues from operations, and as a result of
continuing general and administrative expenses (including legal and accounting
and including costs associated with the negotiations of the recently announced
Indian transaction), and ongoing funding requirements of the build out of ACT's
operations, it is likely that the Company will be unable to meet all of its
obligations to creditors in the near term. The Company is also presently unable
to fund certain short term obligations of ACT, including required deposits for
frequency allocations, prefix assignments, site leases and architectural and
engineering design work. In addition, in order to conclude the proposed MCL
Transactions, the Company will require approximately $31 million by July 15,
1997. Although payments related to the MCL Transactions are subject to extension
under certain circumstances, there can be no assurances that the circumstances
which would permit extension will exist on or before July 15, 1997.
Accordingly, management has determined that the Company will be required in
the near term to obtain debt or equity financing. The Company has been able to
secure financing in the past through loans from certain stockholders; however,
although management may endeavor to make similar arrangements, it has no reason
to believe that these will be available in the near term or in the future. 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. Failure to obtain such additional sources of financing
will have material adverse impact on the operations of ACT and the possibility
of consummating the MCL Transactions. Furthermore, without such additional
sources of financing in the near term, the Company will not be able to continue
as a going concern.
The political systems of the countries in which the Company has or may seek
to establish joint venture operations are in many cases emerging from legacies
of totalitarianism or civil unrest. In addition, many of the economies are weak,
volatile and reliant on foreign assistance. Free market reforms undertaken by
some of these countries face uncertain success and may lead to further economic
instability. These factors may adversely affect the Company's business
activities and results of operations. The laws, rules and regulations applicable
to the Company's activities in developing countries are generally new, subject
to change and incomplete. There can be no assurance that local laws, rules and
regulations will become stable or complete in the future, or that changes
thereto will not materially adversely affect the operations of the Company. All
of the Company's joint venture operations are and are expected to be outside the
United States. As a result, such operations are exposed to currency fluctuations
and the need to comply with a variety of foreign laws, including laws that
control currency exchanges and currency repatriation. The Company does not hedge
its foreign currency risks. There can be no assurance that the Company's
operations will not be adversely affected by such factors.
The preceding paragraphs contain certain forward looking statements that
are subject to inherent uncertainties.
16
<PAGE>
Debt Settlements
In October, 1995 the Company 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 Company 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 March 31, 1997, 53,675 shares continue
to be reserved for issuance when allowable. As of March 31, 1997, the
outstanding accounts payable of the Company's closed subsidiaries accounts for
approximately $90,000 of total accounts payable. The Company is continuing to
attempt to settle the outstanding debt on terms favorable to the Company,
although no assurances about such settlement terms 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 Company agreed to issue 314,762 common shares at a
deemed price of $2.00 per share. Although the performance shares have been
irrevocably canceled by the Company, as of the date of this filing, the issuance
of the 314,762 shares continues to be subject to the removal of the Company 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, expiring on May 31, 1997. During 1996,
regulatory approval was received for the issuance of 25,833 of these shares
which were then issued by the Company. During the quarter ended March 31, 1997,
regulatory approval was received for the issuance of 42,757 of these shares
which were then issued by the Company. Additionally, subject to the removal of
the Company from the jurisdiction of both the Vancouver Stock Exchange and the
British Columbia Securities Commission, the Company has agreed to extend the
expiry date of the 166,667 share purchase warrants to May 31, 1998 from May 31,
1997. As of March 31, 1997, the issuance of the remaining 17,757 shares and
166,667 warrants continued to be subject to regulatory approval.
In connection with the issuance of certain short term debt by the Company
in February, 1997, the Company has agreed to issue, subject to the removal of
the Company from the jurisdiction of both the Vancouver Stock Exchange and the
British Columbia Securities Commission, 120,000
17
<PAGE>
"bonus" warrants to purchase shares of the Company's common stock, exercisable
at $2.75, expiring on February 19, 1999.
Terminated Acquisition
On October 20, 1995, the Company announced that it had agreed to acquire
PortaCom Wireless Communications, Inc., a Delaware corporation ("PWC"), which
had been developing new business opportunities in wireless telecommunications
services in China, Burma, Laos, Bulgaria, Macedonia and certain other countries.
The acquisition was approved by the shareholders on November 20, 1995 and
remained subject to the approval of the Vancouver Stock Exchange ("VSE") and the
receipt of an acceptable valuation of PWC. Upon closing, the Company was
obligated to issue a total of 1,568,600 shares of common stock to the PWC
shareholders. On July 18, 1996, the Company announced that it had terminated
the acquisition as it had not yet received regulatory approval. The Company has
determined, however, that it will issue shares of its common stock to Messrs.
MacLellan and Stephens and to PJL, in the same amounts as previously provided in
the PWC Agreement, in the event it is permissible to do so without receiving
approval of the VSE.
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.
18
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
-----------------
None
ITEM 2. CHANGES IN SECURITIES
---------------------
The Registrant has sold the following securities in the three
months ended March 31, 1997:
On January 27, 1997, the Company issued 25,862 shares of Common
Stock to an accredited individual in consideration for the conversion
of a convertible promissory note for $75,000.
On February 3, 1997, the Company issued 42,755 shares of Common
Stock to Morris Magid, an accredited individual, in consideration for
loans which had been made to the Company.
On February 7, 1997, the Company granted Options to acquire an
aggregate of 90,000 shares of Common Stock to certain employees.
On February 14, 1997, the Company issued 30,000 shares of Common
Stock to an accredited individual in consideration for the conversion
of a convertible promissory note for $75,000.
On February 25, 1997, the Company issued 72,933 Units, comprising
one share of Common Stock and one warrant to purchase shares of the
Company's Common Stock, for cash in a private placement for
consideration of $200,000.
The issuance of all such securities was exempt from registration
under the Securities Act of 1933 pursuant to Section 4(2) thereof and
Regulation D promulgated thereunder.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
-------------------------------
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
None
ITEM 5. OTHER EVENTS
------------
None.
19
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
None.
20
<PAGE>
SIGNATURE
In accordance with 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: May 20, 1997
By: /s/ Douglas C. MacLellan
----------------------------
Douglas C. MacLellan
President and Chief Executive Officer
By: /s/ Michael A. Richard
----------------------------
Michael A. Richard
Vice President, Accounting
(principal financial officer)
21
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED FINANCIAL STATEMENTS OF THE COMPANY FOR THE THREE MONTHS ENDED MARCH
31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 61,449
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 61,449
<PP&E> 8,299,500
<DEPRECIATION> 0
<TOTAL-ASSETS> 8,379,818
<CURRENT-LIABILITIES> 1,084,044
<BONDS> 0
0
0
<COMMON> 13,615
<OTHER-SE> 18,396,862
<TOTAL-LIABILITY-AND-EQUITY> 8,379,818
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,164,396
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 170,081
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,334,477)
<EPS-PRIMARY> (0.10)
<EPS-DILUTED> 0
</TABLE>
