<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, 1998 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)
10061 Talbert Avenue, Suite #200
Fountain Valley, California 92708
(Address of principal executive offices)
Registrant's telephone number: (714) 593-3234
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, 1998, there were 13,576,970 shares of Common Stock issued and
outstanding.
<PAGE>
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
NO.
<C> <S> <C>
ITEM 1. Statement Regarding Financial Information i
Condensed Consolidated Balance Sheet at
March 31, 1998 (Unaudited) and
December 31, 1997 (Derived from audited
financial statements) 1
Condensed Consolidated Statements of Operations
for the three months ended March 31,
1998 and 1997 (Unaudited) 2
Condensed Consolidated Statements of Cash Flows
for the three months ended March 31,
1998 and 1997 (Unaudited) 3
Notes to Condensed Consolidated Financial 4
Statements (Unaudited)
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
<CAPTION>
PART II. OTHER INFORMATION
<C> <S> <C>
ITEM 1. Legal Proceedings 13
ITEM 2. Changes in Securities 13
ITEM 3. Defaults Upon Senior Securities 13
ITEM 4. Submission of Matters to a Vote of Security Holders 13
ITEM 5. Other Events 14
ITEM 6. Exhibits and Reports on Form 8-K 14
</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-K), 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. The accompanying financial statements
should be read in conjunction with the financial statements and notes thereto
included in the Company's Annual Report on Form 10-K for the year ended December
31, 1997 as filed with the SEC (file number 0-23228).
i
<PAGE>
PORTACOM WIRELESS, INC.
(DEBTOR-IN-POSSESSION)
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
------------ ------------
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 6,483 $ 15,070
Prepaid expenses 15,249 -
------------ ------------
TOTAL CURRENT ASSETS 21,732 15,070
------------ ------------
INVESTMENTS 8,000,000 8,000,000
------------ ------------
EQUIPMENT, Net 5,358 6,181
------------ ------------
OTHER ASSETS - 520
------------ ------------
TOTAL ASSETS $ 8,027,090 $ 8,021,771
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 114,004 $ 3,209,001
Notes payable - 359,490
------------ ------------
TOTAL CURRENT LIABILITIES 114,004 3,568,491
------------ ------------
LIABILITIES SUBJECT TO COMPROMISE 4,026,480 -
------------ ------------
TOTAL LIABILITIES 4,140,484 3,568,491
------------ ------------
STOCKHOLDERS' EQUITY
Common stock, $.001 par value, 100,000,000 shares
authorized; 13,576,970 shares issued and outstanding 13,576 13,576
Preferred stock, $.001 par value, 5,000,000
shares authorized; no shares issued - -
Additional paid-in capital 18,319,550 18,319,550
Accumulated deficit (14,446,520) (13,879,846)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 3,886,606 4,453,280
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 8,027,090 $ 8,021,771
============ ============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
-1-
<PAGE>
PORTACOM WIRELESS, INC.
(DEBTOR-IN-POSSESSION)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended March 31,
1998 1997
----------- -----------
<S> <C> <C>
OPERATING EXPENSES
Consulting fees $ 500,843 $ 313,107
Depreciation 822 186
General and administrative 20,185 130,428
Interest, bank charges and financing charges 15,672 170,081
Legal and accounting 102,323 292,196
Management fees 15,311 30,164
Rent 1,000 20,888
Travel 953 238,964
Wages and benefits 59,661 138,463
----------- ----------
716,770 1,334,477
----------- ----------
LOSS FROM OPERATIONS (716,770) (1,334,477)
OTHER INCOME 4 -
----------- ----------
LOSS BEFORE EXTRAORDINARY ITEM (716,766) (1,334,477)
GAIN ON SETTLEMENT OF DEBT 150,092 -
---------- -----------
NET LOSS FOR THE PERIOD $ (566,674) $(1,334,477)
========== ===========
BASIC AND DILUTED INCOME (LOSS) PER SHARE
Loss before extraordinary item $ (0.05) $ (0.10)
Extraordinary item 0.01 -
----------- -----------
NET LOSS $ (0.04) $ (0.10)
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON STOCK OUTSTANDING 13,576,970 12,928,555
=========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
-2-
<PAGE>
PORTACOM WIRELESS, INC.
(DEBTOR-IN-POSSESSION)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1998 1997
---------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss for the period $(566,674) $(1,334,477)
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation 822 186
Share capital issuable in settlement of
financing charges - 139,302
(Increase) decrease in assets
Prepaid expenses (15,249) -
Other assets 520 -
Increase in accounts payable and accrued liabilities 283,141 247,327
--------- -----------
Net cash used in operating activities (297,440) (947,662)
--------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Equipment, net - (6,628)
Other assets - (200,000)
--------- -----------
Net cash provided by (used in) investing activities - (206,628)
--------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Issue of common stock for cash - 914,878
Loans payable 288,853 186,586
--------- -----------
Net cash provided by financing activities 288,853 1,101,464
--------- -----------
DECREASE IN CASH AND CASH EQUIVALENTS (8,587) (52,826)
CASH - BEGINNING OF PERIOD 15,070 114,275
--------- -----------
CASH - END OF PERIOD $ 6,483 $ 61,449
========= ===========
SUPPLEMENTARY INFORMATION
Interest paid $ - $ -
========== ===========
Income taxes paid $ - $ -
========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
-3-
<PAGE>
PORTACOM WIRELESS, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997
NOTE 1 - INTERIM PERIODS
The unaudited information has been prepared on the same basis as the annual
financial statements and, in the opinion of the Company's management, reflects
normal recurring adjustments necessary for a fair presentation of the
information for the periods presented.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted. These financial statements should be read in conjunction
with the financial statements and notes thereto included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1997.
Certain amounts of the three months ended March 31, 1997 have been reclassified
to conform to the presentation for the three months ended March 31, 1998.
The results of operations for the three month periods ended March 31, 1998 and
1997 are not necessarily indicative of operating results for the full year.
NOTE 2 - BASIS OF PRESENTATION
The condensed consolidated financial statements include the accounts of PortaCom
Wireless, Inc. (the "Company") and its wholly owned subsidiaries from the dates
of acquisition or formation. All material intercompany balances and
intercompany transactions have been eliminated.
NOTE 3 - FILING OF PETITION FOR REORGANIZATION
At the close of business on March 23, 1998 (the "Petition Date"), the Company
filed a petition for reorganization under Chapter 11 of the United States
Bankruptcy Code in the United States Bankruptcy Court, District of Delaware (the
"Bankruptcy Court").
After a long period of negotiation, the Company was unable to reach out-of-court
settlements with all of its creditors. Accordingly, a bankruptcy petition was
filed in order to reorganize and begin implementing the Company's strategies
while working to restructure its indebtedness.
On April 22, 1998, the Company filed a plan of reorganization ("the Plan") and
disclosure statement ("the Disclosure Statement"). A hearing on the adequacy of
the Disclosure Statement is scheduled for June 3, 1998. There can be no
assurance at this time that the Plan or Disclosure Statement will be approved or
that the Plan will be confirmed by the Bankruptcy Court or that such plan will
be consummated. After the expiration of the Company's exclusivity period, for
such filing, creditors of the Company have the right to propose alternative
plans of reorganization. Any plan of reorganization, among other things, is
likely to result in material dilution of the equity of existing shareholders.
As a result of the Chapter 11 filing, absent approval of the Bankruptcy Court,
the Company is prohibited from paying, and creditors are prohibited from
attempting to collect, claims or debts arising pre-petition. The consummation
of the Plan is the principal objective of the Company's Chapter 11 case. The
Plan sets forth the means for satisfying claims and interests in the Company,
including the liabilities subject to compromise. The consummation of the Plan
for the Company will require the requisite vote of impaired creditors and
stockholders under the Bankruptcy Code and confirmation of the Plan by the
Bankruptcy Court.
-4-
<PAGE>
PORTACOM WIRELESS, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997
NOTE 3 - FILING OF PETITION FOR REORGANIZATION (Continued)
The accompanying condensed 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. However, as a result of the Chapter 11 filing and circumstances
relating to this event, including the Company's losses from operations, such
realization of assets and liquidation of liabilities is subject to significant
uncertainty. While under the protection of Chapter 11, the Company may sell or
otherwise dispose of assets, and liquidate or settle liabilities, for amounts
other than those reflected in the financial statements. Further, the Plan could
materially change the amounts reported in the financial statements, which do not
give effect to all adjustments of the carrying value of assets or liabilities
that might be necessary as a consequence of a plan of reorganization.
The appropriateness of using the going concern basis is dependent upon, among
other things, confirmation of a plan of reorganization, future profitable
operations, the ability to comply with the terms of the Debtor In Possession
loan facility and the ability to generate sufficient cash from operations and
financing arrangements to meet its obligations.
NOTE 4 - INVESTMENT IN METROMEDIA ASIA CORPORATION ("MAC")
On October 8, 1997, the Company signed a letter of intent with VDC Corporation,
Ltd. ("VDC") to sell its interest in MAC to VDC for 5.3 million shares of VDC
common stock and up to $700,000 in cash (the "Asset Sale"). On November 10,
1997, the company and VDC executed three agreements (specifically, a Loan
Agreement, a Pledge Agreement, and a Security Agreement, hereinafter referred to
collectively as the "VDC Loan Agreements") pursuant to which the Company granted
VDC a perfected first priority lien upon, and security interest in, its shares
and warrants of MAC to the extent that VDC provides loans to the Company or
effects payments authorized by the Company on its behalf to its creditors. On
November 19, 1997, the Company and VDC executed a definitive agreement with
respect to the asset purchase which was subject to shareholder consent, the
completion of due diligence, regulatory approvals and filings and other
necessary conditions, including resolving a majority of the Company's current
debts and obligations. There is no assurance that the transaction will be
consummated in accordance with the terms set forth in the letter of intent or
the definitive agreements, or at all.
During the Bankruptcy and subject to the approval of the Bankruptcy Court, the
Company intends to consummate the Asset Sale pursuant to Section 363 of the
Bankruptcy Code. The Company believes, based on the current value of the shares
of VDC's common stock, that it will receive substantial value in consideration
of the Asset Sale if consummated pursuant to that certain Post-Petition Asset
Purchase Agreement dated March 23, 1998 between the Company and VDC. The Post-
Petition Asset Purchase Agreement was amended by (1) a stipulation entered by
the Bankruptcy Court on April 6, 1998 which provides for an escrow account in
the form of $2,600,000 (minimum of $1,250,000 in cash) to be funded by VDC for
the benefit of holders of priority unsecured claims and general unsecured
claims; (2) an escrow agreement dated April 23, 1998 consistent with the April
6, 1998 stipulation and (3) a stipulation entered by the Bankruptcy Court on
April 23, 1998, which increased the amount of escrow funds to $2,682,000. The
number of VDC shares to be delivered to the escrow agent will be the difference
between the value of the 5,300,000 VDC shares and the cash escrow delivered and
indebtedness divided by the value of the VDC stock. An auction was held on April
23, 1998, after the Company solicited higher and better offers for the MAC
shares and warrants. VDC was the only bidder at the auction on April 23, 1998.
The Bankruptcy Court approved the sale of the MAC shares and warrants to VDC
pursuant to the Post-Petition Asset Purchase Agreement as modified by the
stipulations and the escrow agreement. The sale of the MAC shares and warrants
is scheduled to close on or before May 31, 1998.
Management believes that there has been no impairment in the carrying value of
its $8,000,000 investment in MAC and further believes that the fair market value
of this investment exceeds its carrying value based on the anticipated value of
the VDC stock to be received in exchange for its investment in MAC, which is
dependent upon the closing of the Asset Sale.
-5-
<PAGE>
PORTACOM WIRELESS, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997
NOTE 5 - COMPREHENSIVE INCOME
The Company adopted Statement of Financial Accounting Standards No. 130
Comprehensive Income for the first quarter of fiscal year 1998. However, the
Company has no items of other comprehensive income which are excluded from net
loss for the three months ended March 31, 1998 and 1997.
-6-
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations
---------------------
Results of Operations
Quarter ended March 31, 1998 as Compared with Quarter Ended March 31, 1997.
- ---------------------------------------------------------------------------
For the quarter ended March 31, 1998, the Company reported a net loss from
operations of $716,770. This compares to a net loss from operations of
$1,334,477 for the comparable quarter in the prior year. The loss per share of
common stock for the quarter ended March 31, 1998 as compared with the quarter
ended March 31, 1997 was ($.05) per share and ($0.10) per share, respectively.
There were no sales in either period due to the fact that the Company did not
acquire any operating business nor did its Cambodia project become operational.
In addition, its revenue-producing subsidiaries (which were also generating
significant net losses) were discontinued in 1995 and remained inactive through
the first quarter of 1998. No sales are expected for 1998 and the Company's near
term operations, if any, are not expected to generate revenues in the
foreseeable future unless the Company acquires one or more controlling interests
in businesses that produce ongoing revenue from operations. No assurances can be
given as to the consummation of any future acquisitions of any such businesses.
Operating expenses decreased to $716,770 in the quarter ended March 31,
1998 from $1,334,477 in the quarter ended March 31, 1997.
Except for Consulting fees, which increased by $187,736 to $500,843 due to
the Company's engagement of outside consultants to assist with negotiations with
VDC Corporation and in obtaining debt reductions from most of the Company's
creditors, and Depreciation, which increased marginally, the decrease in
operating expenses from the prior year quarter was evidenced by decreases in all
other expense categories, the most significant of which was in Travel.
During the quarter ended March 31, 1998, Travel expenses decreased to $953
from the $238,964 recorded in quarter ended March 31, 1997, a decrease of
$238,011. This decrease resulted from the temporary suspension throughout the
quarter of the Company's business development activities which historically have
involved a significant amount of international travel on the part of its senior
management and independent contractors.
During the quarter ended March 31, 1998, legal and accounting expenses
declined to $102,323 from $292,196 recorded in the quarter ended March 31,
1997, a decrease of $189,873. This decrease reflected the shift in the Company's
activities to concluding a sale of its principal asset to VDC Corporation Ltd.
(the "Asset Sale") from the extensive due diligence work and disclosure
preparation related to prospective acquisitions that the Company undertook
during the prior year quarter.
Additional decreases occurred in Interest, bank and financing charges,
which decreased by $154,409 to $15,672, General and administrative, which
decreased by $110,243 to $20,185, and Wages and benefits, which decreased by
$78,802 to $59,661. These expenses are expected to remain stable throughout the
second and third quarters of 1998 but could increase significantly during the
fourth quarter of 1998 should the Company emerge from the Chapter 11
reorganization (discussed below) and begin, subject to receipt of sufficient
financing, to increase its business development activities, if any.
Liquidity and Capital Resources
- -------------------------------
During the three months ended March 31, 1998, the Company's cash and cash
equivalents decreased by $8,587. Although the Company generated $288,853 from
financing activities, the Company's operations utilized net cash of $297,440.
These activities contributed to a net working capital deficit as of March 31,
1998 of $92,272, which decreased $3,461,149 from $3,553,421 at December 31,
1997. This decrease is directly attributable to a reduction in current
liabilities which resulted from the reclassification to non-current liabilities
of all debts of the Company (but not of its subsidiaries) which existed as of
the date the Company filed for bankruptcy protection (described below).
The Company has incurred cumulative losses from inception through March 31,
1998 of $14,446,520 and has not 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 which have included an initial
public offering, a series of private placements of common stock, unsecured debt
financing, and more recently, secured debt financing.
-7-
<PAGE>
Sale of Principal Asset and Related Financing
On November 25, 1997, the Company and VDC Corporation, Ltd. ("VDC") entered
into an asset purchase agreement (the "Prepetition Asset Purchase Agreement"),
whereby VDC agreed to buy and the Company agreed to sell its minority interest
in MAC to VDC in consideration of up to $700,000 and 5.3 million shares of the
common stock of VDC (the "Asset Sale"). The Prepetition Asset Purchase
Agreement expired by its terms as of March 1, 1998. However, as of February 16,
1998, the parties entered into an amendment to the Prepetition Asset Purchase
Agreement, which extended the date by which the transaction was to be
consummated to April 30, 1998 together with certain additional consideration.
In addition, funding was also provided to the Company by VDC pursuant to
that certain Loan Agreement, Security Agreement, and Pledge Agreement, each
dated November 10, 1997, and other documents, instruments, and notices,
including UCC Financing Statements, executed delivered or recorded in connection
therewith (collectively, the "Prepetition Loan Documents"), whereby VDC agreed
to extend credit and advance funds to the Company in an amount not to exceed
$700,000. The funds, together with all accrued interest, costs and other charges
constitute the Prepetition Indebtedness, which is secured by a lien granted to
VDC in and to the Company's interests in the MAC shares and warrants. VDC
perfected its interest in the MAC warrants by taking possession thereof. Until
recently, the MAC shares remained in the possession of MAC, which held such
shares to secure a contingent contractual indemnification obligation of the
Company, which expires on January 1, 1999 assuming certain conditions have been
met. Pending the completion of the Asset Sale (as described below) and pursuant
to the Bankruptcy Court's order dated April 23, 1998, the MAC shares are to be
sold to VDC free and clear of MAC's lien which shall attach to the sale proceeds
pursuant to Section 363 of the United States Bankruptcy Code.
Chapter 11 Reorganization
On March 23, 1998 (the "Petition Date"), the Company filed a voluntary
petition (the "Bankruptcy") for relief under Chapter 11 of the United States
Bankruptcy Code in the United States Bankruptcy Court, District of Delaware (the
"Bankruptcy Court"). The proceeding is being administered under the caption
"In re: PortaCom Wireless, Inc.", Case No. 98-661 (PJW), pursuant to an order of
the Bankruptcy Court. The following U.S. subsidiaries were not included in the
bankruptcy filings: Portacom International Ltd, Extreme Telecom, PCBX Systems
Inc., and Extreme Laboratories Inc. The petition requests that the existing
directors and officers of the Company be left in possession of the Company's
assets and responsible for the business of the Company.
In 1996, the Company generated revenues of approximately $9,000,000
(approximately $1,000,000 of which were cash revenues) pursuant to a Termination
Agreement between the Company and Asian American Telecommunications Corporation,
the predecessor to MAC. During 1997 and the first quarter of 1998, the Company
did not generate any revenues. Due to the lack of capital resources, the
Company reduced its business activities such that operations virtually ceased.
At the same time, the Company faced increasing pressure from trade creditors and
litigation. See "Legal Proceedings."
Prior to the Bankruptcy, the Company attempted to negotiate a settlement of
its outstanding indebtedness. In certain instances, the Company was able to
extinguish indebtedness by securing claim releases from creditors in
consideration for discounted cash payments. In other instances, the Company and
its creditors or claimants have entered into agreements (the "Prepetition
Settlements") that provide for extinguishment of debt and a claim
-8-
<PAGE>
release in consideration for a portion of the shares of VDC and/or cash that the
Company expects to receive in connection with the Asset Sale. The Company
believes the Prepetition Settlements are enforceable and will vigorously attempt
to enforce the Prepetition Settlements in the Bankruptcy, to the extent
necessary. As of the Petition Date, the informal settlement would have been
concluded but for a small number of significant creditors and claimants with
whom the Company had been unable to reach agreements.
Following the amendment to the Prepetition Asset Purchase Agreement, the
parties agreed that the transaction could not be consummated within the time
agreed upon. VDC's agreement to extend credit to the Company was intended to
provide the Company with liquidity through the consummation of the Asset Sale,
which was to occur prior to May 1, 1998. Facing a certain default under the
Prepetition Indebtedness to VDC along with the pressures of unresolved claims
and continuing litigation, the Company determined that the commencement of the
Bankruptcy was advisable to maximize the value of its assets for the benefit of
all creditors and equity security holders.
VDC previously agreed to fund the Company's operations on a secured basis
through the completion of the Asset Sale. Accordingly, the Company and VDC
entered into a certain Debtor In Possession Loan, Security, and Pledge
Agreement, under which VDC agreed to extend credit and advance funds to the
Company (the "DIP Financing"). As of April 30, 1998, $18,000 had been advanced
to the Company pursuant to the DIP Financing.
On April 22, 1998, the Company filed a plan of reorganization ("the Plan")
and disclosure statement ("the Disclosure Statement"). A hearing on the adequacy
of the Disclosure Statement is scheduled for June 3, 1998. There can be no
assurance at this time that the Plan and Disclosure Statement will be approved
or that the Plan will be confirmed by the Bankruptcy Court, or that the Plan
will be consummated. After the expiration of the exclusivity period for such
filing, creditors of the Company have the right to propose alternative plans of
reorganization. Any plan of reorganization, among other things, is likely to
result in material dilution of the equity of existing shareholders.
As a result of the Bankruptcy, absent approval of the Bankruptcy Court, the
Company is prohibited from paying, and creditors are prohibited from attempting
to collect, claims or debts arising prior to the Petition Date. The
consummation of the Plan is the principal objective of the Company's Bankruptcy.
The Plan sets forth the means for satisfying claims and interests in the
Company, including the liabilities subject to compromise. The consummation of
the Plan for the Company will require the requisite vote of impaired creditors
and interest holders under the Bankruptcy Code and confirmation of the Plan by
the Bankruptcy Court.
During the Bankruptcy and subject to the approval of the Bankruptcy Court,
the Company intends to consummate the Asset Sale pursuant to Section 363 of the
Bankruptcy Code. The Company believes, based on the current value of the shares
of VDC's common stock, that it will receive substantial value in consideration
of the Asset Sale if consummated pursuant to that certain Post-Petition Asset
Purchase Agreement dated March 23, 1998 between the Company and VDC. The Post-
Petition Asset Purchase Agreement was amended by (1) a stipulation entered by
the Bankruptcy Court on April 6, 1998 which provides for an escrow account in
the form of $2,600,000 (minimum
-9-
<PAGE>
of $1,250,000 in cash) to be funded by VDC for the benefit of holders of
priority unsecured claims and general unsecured claims; (2) an escrow agreement
dated April 23, 1998 consistent with the April 6 stipulation, and (3) a
stipulation entered by the Bankruptcy Court on April 23, 1998, which increased
the amount of escrow funds to $2,682,000. The number of VDC shares to be
delivered to the escrow agent will be the difference between the value of the
5,300,000 VDC shares and the cash escrow delivered and indebtedness divided by
the value of the VDC stock. An auction was held on April 23, 1998, after the
Company solicited higher and better offers for the MAC shares and warrants. VDC
was the only bidder at the auction on April 23, 1998. The Bankruptcy Court
approved the sale of the MAC shares and warrants to VDC pursuant to the Post-
Petition Asset Purchase Agreement as modified by the stipulations and the escrow
agreement. The sale of the MAC shares and warrants is scheduled to close on or
before May 31, 1998.
Although no assurances can be given, it is expected that, upon emergence
from the Bankruptcy, the Company will be required to obtain financing through
offerings of securities in order for the Company to continue as a going concern.
Furthermore, the resumption by the Company of activities associated with
pursuing new opportunities would necessitate an immediate continuing material
increase in general office overhead and other costs such as general and
administrative, legal and accounting, and travel and entertainment. Failure to
obtain sufficient financing will have a material adverse effect upon the
reorganized Company.
As of March 31, 1998, the Company had 530,000 options and 333,346 warrants
outstanding which, upon exercise, would yield to the Company additional proceeds
in excess of approximately $2.3 million. The exercise of existing options or
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 options or warrants, or whether such will be exercised at all.
Rental expense accounts for approximately $550 of fixed expenses on a
monthly basis. Personnel costs, which could increase substantially during 1998
should the Company emerge from the Bankruptcy during 1998, presently account for
less than $7,500 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 between approximately $30,000 and $50,000 per month.
Management does not believe that in 1998 the Company's operations, if any,
will generate sufficient cash flow to finance its working capital and any
capital expenditure requirements. The Company will remain dependent on
management's ability to obtain additional debt and equity financing and to use a
portion of the proceeds from the Asset Sale (should such Asset Sale be
consummated). 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 once
it emerges from the Bankruptcy.
-10-
<PAGE>
Investment in American Cambodian Telecom, Ltd.
Although the Company held an 86% interest in American Cambodian Telecom,
Ltd. ("ACT") at December 31, 1997, at such date it was determined that this
investment had experienced an other than temporary decline in value and a
significantly decreased likelihood that the $345,454 in loans would be repaid.
Accordingly, the investment and advances were written down to their estimated
fair value of $-0-. In addition, ACT advised the Company that equipment
aggregating $61,221 was found to be missing and presumed stolen during the
political coup that occurred in Cambodia in 1997 and that, as of December 31,
1997, ACT had breached the terms of its joint venture contract, raising
substantial doubt as to the recoverability of the $200,000 deposit which ACT had
paid to the Ministry of Posts and Telecommunications in Cambodia earlier in the
year. Accordingly, these assets were written off as of December 31, 1997, and a
loss of $360,721 was charged to operations in 1997. ACT was sold in January,
1998 as part of the consideration for a prepetition termination and settlement
agreement with a former officer to whom the Company owed unpaid wages and
expenses.
-11-
<PAGE>
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.
-12-
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
During 1997, one of the Company's vendors, JMS North America, Inc.
("JMS") filed a Motion for Judgment with the Circuit Court of the County of
Fairfax, Commonwealth of Virginia, seeking $836,614 in allegedly due
consulting fees, finance charges and travel expenses. JMS further seeks
$2,250,000 for alleged breach of contract and $1,500,000 for alleged fraud.
The Company has disputed and intends to dispute in trial a material portion
of the amounts billed and or claimed by JMS for consulting fees, finance
charges and travel expenses. Additionally, the Company believes that the
claims of JMS with respect to alleged fraud and alleged breach of contract
are without merit and will vigorously contest them.
During 1997, J. Michael Christiansen ("Christiansen"), filed a
Complaint with the Superior Court of the State of California, seeking in
excess of $350,000 plus interest, costs and undetermined exemplary and
punitive damages in connection with the alleged breach by the Company of a
Release and Settlement Agreement dated October 2, 1996, pursuant to which
the Company was to have issued Christiansen 75,000 shares of the common
stock of the Company. The Company believes that the issuance of such
shares to Christiansen has been necessarily delayed pursuant to certain
regulatory constraints, the removal of which the Company has continued to
seek without success. The Company is presently attempting to engage legal
counsel to review and opine on the merit of Christiansen's claims and to
vigorously pursue any and all defenses and counterclaims determined to be
available to the Company with respect to certain of the allegations set
forth by Christiansen and to certain past actions of Christiansen.
On March 23, 1998, the Company filed a voluntary petition pursuant to
Chapter 11 of Title 11 of the United States Code (the "Bankruptcy Code").
Accordingly, pursuant to 11 U.S.C. (S) 36, the proceedings described above
have been automatically stayed. The Company intends to object to the
claims of JMS and Christiansen and to pursue its rights, remedies and
defenses in the bankruptcy case.
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.
-13-
<PAGE>
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
On March 30, 1998, the Company filed a Current Report on Form 8-K
relating to the filing of a voluntary petition for relief under the
Bankruptcy Code (Item 3), a change in the Company's independent
accountants (Item 4), an amendment to the Asset Purchase Agreement
dated November 25, 1997 between the Company and VDC Corporation, Ltd
(Item 5) and the change in the composition of the Company's Board of
Directors.
On April 10, 1998, the Company filed an amendment to the
aforementioned Current Report on Form 8-K in order to correct certain
statements made by the Company in Item 4 and to file a letter from
KPMG, the Company's former independent accountants, to the United
States Securities and Exchange Commission pursuant to Item 304(a)(3)
of Regulation S-K.
-14-
<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, 1998
By: /s/ Michael A. Richard
------------------------------------
Michael A. Richard
President, Chief Executive Officer,
Vice President Accounting (principal
accounting officer)
-15-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED FINANCIAL STATEMENTS OF THE COMPANY AS AT AND FOR THE THREE MONTHS
ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 6,483
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 21,732
<PP&E> 11,339
<DEPRECIATION> 5,981
<TOTAL-ASSETS> 8,027,090
<CURRENT-LIABILITIES> 114,004
<BONDS> 0
0
0
<COMMON> 13,576
<OTHER-SE> 3,873,030
<TOTAL-LIABILITY-AND-EQUITY> 8,027,090
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 716,770
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (716,766)
<INCOME-TAX> 0
<INCOME-CONTINUING> (716,766)
<DISCONTINUED> 0
<EXTRAORDINARY> 150,092
<CHANGES> 0
<NET-INCOME> (566,674)
<EPS-PRIMARY> (0.04)
<EPS-DILUTED> (0.04)
</TABLE>
