FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 1996
---------------------------------
Commission file number: 0-23598
---------------------------------------------
NATIONAL WIRELESS HOLDINGS INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3735316
------------------------------- ----------------------------
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation)
249 Royal Palm Way, Suite 301, Palm Beach, Florida 33480
-------------------------------------------------- ------------
(Address of principal executive offices) (Zip Code)
(407) 832-0981
---------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Stock, $.01 par value: 3,253,000 shares as of September 6, 1996.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Introduction
National Wireless Holdings Inc. (the "Company"), was incorporated in
Delaware on August 31, 1993. Since its inception, the Company has sought to
identify wireless systems for acquisition and development, to acquire
frequencies and wireless cable technology and to raise the capital necessary to
carry out its business plan. The Company's fiscal year ends on October 31.
As part of these activities, the Company will provide financing to pay
for system development expenses; organizational expertise to bring together the
requisite number of frequencies, most of which are disparately held; operational
expertise to build and operate the systems effectively; regulatory expertise to
comply efficiently with federal regulations; and technological resources to
expand commercial access to existing wireless frequencies and to enable wireless
cable operators to provide reliable, flexible and efficient service. By making
available these strategic resources, the Company believes it will be able to
attract opportunities in the growing wireless cable industry from local wireless
cable operators, developers and suppliers of equipment and technology and
others.
In order to execute its business plan, the Company raised
approximately $22 million through an initial public offering of two million
shares of its Common Stock on March 9, 1994.
Results of Operations
Nine months ended July 31, 1996 as compared to nine months ended July 31, 1995:
Interest Income:
Interest income increased from $841,494 for the nine months ended July 31, 1995
to $874,465 for the nine months ended July 31, 1996 primarily as a result of
changes in balances and interest rates.
Service Revenue:
Service revenue increased from $316,950 for the nine months ended July 31, 1995
to $900,659 for the nine months ended July 31, 1996 as a result primarily of
revenues from a subsidiary acquired in August 1995.
Cost of Services:
Cost of services increased from $138,585 for the nine months ended July 31, 1995
to $531,357 for the nine months ended July 31, 1996 as a result of increased
operating costs and the acquisition referred to above.
Market Development:
Market development expenses increased from $556,316 for the nine months ended
July 31, 1995 as compared to $621,977 for the nine months ended July 31, 1996 as
a result of continued activity in the development of the Miami market.
<PAGE>
Professional Fees:
Professional fees increased from $211,709 in the nine months ended July 31, 1995
to $222,301 in the nine months ended July 31, 1996 as a result of the
acquisition and other costs.
General and Administrative:
General and administrative expense increased from $508,758 in the nine months
ended July 31, 1995 to $602,293 in the nine months ended July 31, 1996 primarily
as a result of the acquisition and other costs.
Depreciation and Amortization:
Depreciation and amortization increased from $169,541 in nine months ended July
31, 1995 to $450,056 in nine months ended July 31, 1996 as a result of
additional equipment and licenses being placed in service prior to July 31,
1996.
Interest Expense:
Interest expense increased from $4,990 in the nine months ended July 31, 1995 to
$58,188 in the nine months ended July 31, 1996 due to higher levels of
acquisition debt.
Net Loss:
As a result of each of the foregoing events, net loss increased from $465,022 in
nine months ended July 31, 1995 to $748,218 in nine months ended July 31, 1996.
Liquidity and Capital Resources
The Company has funded its operations with the net proceeds from a
$500,000 private placement of the Company's Series A Preferred Stock and its
initial public offering of 2,000,000 shares of Common Stock aggregating, after
payment of offering costs, approximately $22,000,000. The proceeds have been
and will be used to fund construction and development of wireless cable systems,
acquisitions of wireless cable frequency rights and development and acquisition
of new technologies. Such amount, with interest thereon, is expected to be
sufficient to implement the business plan of the Company through October 1997,
or for a shorter period if the Company determines to invest a substantial
portion of its assets in major acquisitions or equity investments. The
development of wireless cable systems entails substantial capital investment and
will require additional funding. The future availability and terms of equity
and debt financing and of strategic alliances cannot be predicted. The
unavailability or inadequacy of financing to meet future capital needs could
force the Company to modify, curtail, delay or suspend some or all aspects of
its planned operations.
The Company has obtained rights to a sufficient number of frequencies
in Miami, Florida to commence development of a wireless cable system when
digital technology becomes available on an economic basis. The Company believes
that the overall cost of developing such a system in Miami would be in excess of
$100,000,000, and the initial capital investment required, including acquisition
and early phase construction costs, is estimated to be from $10,000,000 to
$13,000,000. The actual capital investment requirements for developing any
markets may vary substantially from such estimates depending upon which
frequencies are actually acquired, the technical configuration of the
transmission systems, and regulatory issues. The balance of the required
capital will be invested as subscribers are added. There can be no assurance
that the Company can develop the Miami market.
The Company has capitalized the costs of obtaining the rights to
wireless frequencies in the Miami market. The recoverability of such costs is
dependent upon the successful development of a system in Miami or through the
resale of such frequency rights. Management estimates that it will
<PAGE>
recover the carrying amount of these costs from cash flows generated by the
system once it has been developed. However, it is reasonably possible that such
estimate will change in the near term as a result of frequency availability,
technology, regulatory or other changes.
The Company will determine in which markets other than Miami it will
commence development based upon whether the Company can obtain at least 20
channels in a market, further technical and regulatory analysis of such market
and an assessment of the business potential for such market based upon the
number of homes within the radius of the proposed transmit site, the number of
homes passed by hard-wire cable and other demographic factors.
Development of markets in which the Company has already acquired
rights, including acquisition of the additional frequencies and other related
assets which may be necessary to make development feasible, would use
substantially all its capital. The Company also plans to acquire additional, as
yet unidentified wireless frequencies or assets, and there can be no assurance
it will be able to acquire any of them. The Company plans to use its assets to
develop Miami, the market which management considers most promising at present,
and will seek additional capital to develop Miami and other markets in which it
may acquire interests through equity or debt financing, joint ventures or other
arrangements. The Company does not currently have such financing or joint
venture partners in place. Based on the experience of its management in other
markets, the Company believes such financing will be available, especially for
the incremental capital needed as a system adds revenue producing subscribers;
however, there can be no assurance that it will be able to obtain such financing
or partners on a timely basis and on satisfactory terms and conditions, if at
all. In some cases, the Company may sell frequencies to finance development or
acquisition of other markets. The failure to obtain additional funds on a
timely basis could have a material adverse affect on the Company and its
business and, if such financing is not available, the Company may be obliged to
modify or curtail its operations. The Company believes it will be able to
undertake limited development of Miami (that is, with less rapid construction
and less extensive marketing) without such additional financing or partners and
still have available capital to finance local operators that wish to enter
strategic alliances with the Company and make other acquisitions or investments.
The Company may, when and if the opportunity arises, acquire or invest
in other businesses which are related to the Company's business. If such an
opportunity arises, the Company may use a portion of its funds for that purpose.
The Company has no specific arrangements with respect to any such acquisitions
or investments at the present time and is not presently involved in any
negotiations with respect to any such acquisition. There can be no assurance
that any such acquisitions or investments will be made.
<PAGE>
NATIONAL WIRELESS HOLDINGS INC.
PART I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Contents
Page(s)
---------
Condensed Consolidated Balance Sheets as of July 31, 1996
and October 31, 1995 3
Condensed Consolidated Statements of Operations for the
three and nine months ended
July 31, 1996 and 1995 4
Condensed Consolidated Statements of Cash Flows for the
nine months ended
July 31, 1996 and 1995 5
Notes to Condensed Consolidated Financial Statements 6-7
See accompanying notes to unaudited condensed consolidated financial statements.
1
<PAGE>
NATIONAL WIRELESS HOLDINGS INC.
Condensed Consolidated Balance Sheets
(Unaudited)
July 31, 1996 October 31, 1995
------------- ----------------
ASSETS:
Current assets:
Cash and cash equivalents $ 3,216,409.00 $ 4,888,240.00
U.S. treasury securities 11,991,085.00 11,964,634.00
Trade and other receivables 450,640.00 255,224.00
Due from related parties 47,350.00
Prepaid expenses and other current assets 133,771.00 85,408.00
------------ --------------
Total current assets 15,791,905.00 17,240,856.00
Notes receivable from EDSS 988,000.00 773,000.00
Wireless frequency license and acquisition
costs, net of accumulated
See accompanying notes to unaudited condensed consolidated financial statements.
2
<PAGE>
amortization of $270,353 and $136,550,
respectively 2,676,956.00 2,530,724.00
Transmission and related equipment, net of
accumulated amortization of $183,821
and $56,474, respectively 1,192,888.00 1,050,735.00
Leasehold improvements, office equipment
and service vehicles, net
of accumulated depreciation of $246,441
and $149,986, respectively 418,282.00 527,181.00
Intangible assets, net of accumulated
amortization of $85,551 and $35,416,
respectively 414,810.00 464,911.00
Deposits and other assets 418,120.00 393,830.00
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Total Assets $21,900,961.00 22,981,237.00
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LIABILITIES and STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable and accrued expenses $590,760.00 $650,074.00
Due to related parties 60,000.00
Current maturities of long-term debt 423,798.00 448,830.00
-------------- -------------
See accompanying notes to unaudited condensed consolidated financial statements.
3
<PAGE>
Total current liabilities 1,074,558.00 1,098,904.00
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Long-term debt 365,309.00 673,021.00
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Stockholders' equity:
Preferred stock - -
Common Stock $.01 par value: 20,000,000
shares authorized;
3,253,000 shares issued and outstanding 32,530.00 32,530.00
Additional paid-in capital 22,421,173.00 22,421,173.00
Accumulated deficit (1,992,609.00) (1,244,391.00)
------------ ------------
Total stockholders' equity 20,461,094.00 21,209,312.00
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Total liabilities and stockholders' equity $21,900,961.00 $22,981,237.00
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See accompanying notes to unaudited condensed consolidated financial statements.
4
<PAGE>
NATIONAL WIRELESS HOLDINGS INC.
Condensed Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended July 31, Ended July 31,
------------------------- ----------------------
1996 1995 1996 1995
------------------------- ----------------------
Revenue:
<S> <C> <C> <C> <C>
Interest income $ 286,931.00 $ 282,430.00 $ 874,465.00 $ 841,494.00
Services 337,137.00 98,224.00 900,659.00 316,950.00
------------------------ --------------------------
Total revenue 624,068.00 380,654.00 1,775,124.00 1,158,444.00
------------------------ --------------------------
Expenses:
Cost of services 182,440.00 29,925.00 531,357.00 138,585.00
Market development 185,805.00 32,183.00 621,977.00 556,316.00
Technology development 37,170.00 37,170.00 33,567.00
Professional fees 82,067.00 96,841.00 222,301.00 211,709.00
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
5
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
General and administrative 206,749.00 214,204.00 602,293.00 508,758.00
Depreciation and amortization 182,820.00 107,161.00 450,056.00 169,541.00
Interest 11,674.00 1,257.00 58,188.00 4,990.00
-------------------------- --------------------------
Total expenses 888,725.00 481,571.00 2,523,342.00 1,623,466.00
-------------------------- --------------------------
Net loss $ 264,657.00 $ 100,917.00 $ 748,218.00 $ 465,022.00
-------------------------- --------------------------
Net loss per common share $ 0.08 $ 0.03 $ 0.23 $ 0.15
-------------------------- --------------------------
Weighted average number of
common shares
outstanding 3,253,000.00 3,253,000.00 3,253,000.00 3,182,500.00
-------------------------- ----------------------------
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
6
<PAGE>
NATIONAL WIRELESS HOLDINGS INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine Months
Ended July 31,
----------------------
1996 1995
-------- -------
Cash flows from operating activities
<S> <C> <C>
Net loss $ (748,218.00) $ (465,022.00)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 450,056.00 169,541.00
Gain on sale of vehicles (1,352.00)
Changes in assets and liabilities:
Due from related parties 47,350.00 3,488.00
Trade receivables and other receivables (195,416.00) (39,738.00)
Prepaid expenses and other current assets (48,363.00) 22,475.00
Deposits and other assets (24,290.00)
Accounts payable and accrued expenses (59,314.00) 1,767.00
Due to related parties 60,000.00 9,677.00
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
7
<PAGE>
<TABLE>
<S> <C> <C>
Other (26,451.00) (208,463.00)
----------- -------------
Net cash used in operating activities (545,998.00) (506,275.00)
----------- -------------
Cash flows from investing activities:
Wireless frequency license and acquisition costs (280,035.00) (1,266,663.00)
Acquisition of transmission and related equipment (269,500.00) (164,594.00)
Acquisition of leasehold improvements, office equipment and
service vehicles (69,684.00) (120,258.00)
Proceeds on sale of vehicles 41,130.00
Increase in loan receivable (625,000.00)
Investment in TLC (609,283.00)
Purchases of U.S. treasury securities (15,976,264.00)
Proceeds from redemption of U.S. treasury securities 23,802,269.00
------------ -------------
Net cash (used in) provided by investing activities (578,089.00) 5,040,207.00
------------ -------------
Cash flows from financing activities:
Increase in notes receivable to EDSS (215,000.00)
Principal payments of long-term debt (332,744.00) (93,329.00)
------------ -------------
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
8
<PAGE>
<TABLE>
<S> <C> <C>
Net cash used in financing activities (547,744.00) (93,329.00)
------------ ------------
Net (decrease) increase in cash and cash equivalents (1,671,831.00) 4,440,603.00
Cash and cash equivalents, beginning of period 4,888,240.00 911,266.00
------------ ------------
Cash and cash equivalents, end of period $ 3,216,409.00 $ 5,351,869.00
-------------- --------------
Supplemental disclosure of cash flow information:
Cash paid for interest $ 58,188.00 $ 4,990.00
------------ -------------
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
9
<PAGE>
Notes to Condensed Consolidated Financial Statements
(unaudited)
1. Basis of Presentation:
The accompanying unaudited condensed consolidated financial statements of
National Wireless Holdings, Inc. (the "Company") have been prepared in
accordance with generally accepted accounting principles for interim financial
statements and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments, consisting solely of
normal recurring accruals necessary for a fair presentation of the financial
statements for these interim periods, have been included. Operating results for
the interim period are not necessarily indicative of the results that may be
expected for a full year. For further information, refer to the financial
statements and footnotes thereto included in the Company's Annual Report on Form
10-K for the fiscal year ended October 31, 1995 (File No. 0-23598) and filed
with the Securities and Exchange Commission.
2. Net Loss Per Share Data:
Net loss per share is computed based on the loss for the period divided by the
weighted average number of common shares outstanding during the period. Common
Stock equivalents are not reflected in the calculation since they are
anti-dilutive.
3. Shareholders' Equity:
On March 17, 1994, the Company completed an initial public offering of 2,000,000
shares of Common Stock, par value $.01 per share, at a price of $12.50 per
share, aggregating net proceeds of approximately $22.0 million.
On April 20, 1995, the holders of the Series A Convertible Preferred Stock
converted their preferred shares into 100,000 shares of Common Stock.
4. Loan to EDSS
On June 9, 1995, the Company entered into a loan agreement to provide a one
year $1,000,000 secured line of credit at an interest rate equal to the prime
rate plus 2% to Electronic Data Submission Systems, Inc. ("EDSS"), an electronic
healthcare billing network operator serving doctors and insurance companies.
The loan agreement provides,
10
<PAGE>
among other matters, that the Company will have an option to purchase 50% of
EDSS's voting common stock and that EDSS may extend the term of the loan for up
to two additional one year terms. The Company loaned an aggregate of $988,000
to EDSS through July 31, 1996 pursuant to the loan agreement. EDSS plans to use
the proceeds to develop an electronic healthcare billing network in Miami/South
Florida corridor to facilitate healthcare providers processing claims for
reimbursement from third party payors. In the future, the Company expects to be
able to develop applications of the EDSS billing network using the Company's
wireless frequencies.
5. Recently issued Accounting Pronouncements
The Company has considered all recently issued accounting standards not
requiring immediate adoption, particularly statement of Financial Accounting
Standard No. 123, and has estimated that the effect of these standards when
adopted will not have a material impact on the Company's financial position or
its results of operations. The Company has decided that when SFAS No. 123 is
adopted it will elect the alternate disclosure requirements.
11
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
Not applicable.
Item 2. Changes in Securities.
Not applicable.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 5. Other Information.
On June 20, 1996, the Company entered into an agreement with Spike
Technologies, Inc. ("Spike") for testing of Spike's bidirectional multipoint
microwave antenna technology. The Company expects to invest up to $500,000 in
such testing. The Company will have the exclusive right to use Spike's
technology in Florida, subject to certain royalties to Spike. The Company will
have the exclusive right to market Spike's technology to wireless cable
operators, including telephone companies, with a royalty of 5% payable to the
Company. In addition, the Company shall receive a warrant to purchase 5% of
Spike's common stock.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits: A copy of the agreement with Spike Technologies is
filed herewith as Exhibit 10-36.
(b) Reports on Form 8-K: Not Applicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NATIONAL WIRELESS HOLDINGS INC.
-------------------------------------
(Registrant)
Date: September 13, 1996 By: /s/ Terrence S. Cassidy
--------------------------------
Terrence S. Cassidy, President
and Principal Accounting Officer
<PAGE>
EXHIBIT INDEX
-------------
Item No. Description
- -------- -----------
10.36 A copy of the agreement with Spike Technologies
Exhibit 10.36
NATIONAL WIRELESS HOLDINGS INC.
156 West 56th Street, Suite 2001
New York, New York 10019
June 20, 1996
Doug Carey, President
Spike Technologies, Inc.
131 Varick Street, 10th Floor
New York, N.Y. 10013
Dear Doug:
National Wireless Holdings ("National") wants to test, validate,
install, and potentially market Spike Technologies, Inc.'s ("Spike") wireless
base station and subscriber equipment and services as applied to the 33
MMDS/ITFS commercial and educational wireless cable channels (the "Technology"),
initially using National's wireless cable facilities in the Miami market.
National is already planning a test of the Technology over its Miami
channels or in another area. You have advised us that Spike's base station
equipment for the test will cost approximately $500,000. National will fund the
test and carry it out, if we can get FCC approval and the results of your
current New Hampshire test meet our expectations. In the test, National will
build a transmit site in the Miami area, subject to FCC approval, to use the
Technology for Internet access. National will apply for an experimental
temporary FCC license for the use of the Technology.
After National completes the test and the Technology works as
expected, and subject to FCC approval, National will launch a commercial system
over its channels in Miami for Internet access using the Technology and
additional equipment to be purchased from Spike. After National achieves
positive operating cash flow for the system (net of debt service on capital used
in establishing the system), National will pay to Spike 50% of such net cash
flow up to 5% of our gross revenues from the system.
<PAGE>
Based on initiating the test of the Technology, National will have the
exclusive right to use the Technology in Florida and to represent you on an
exclusive nationwide basis in marketing the Technology to the MMDS/ITFS market,
for instance to wireless cable operators and Telcos. National will be entitled
to a 5% royalty on Spike's revenues from sales of services and products
incorporating the Technology, subject to agreed upon exceptions. Spike will
also grant to us a five year warrant, with standard demand (at National's
expense) and piggyback registration rights (excluding initial public offering),
and cashless exercise rights, to purchase 5% of its fully diluted equity,
exercisable at a $30 million valuation. The warrant will have full protection
from dilution for this percentage on financings and issuances with equity
valuation of the company of less than $30 million.
The terms of this letter agreement shall be kept confidential, and
neither party will disclose them unless required by law, in which cash the party
required to disclose will give prior notice to the other party of such
agreement.
If this sets forth our agreement, please sign and return this letter
so we can proceed.
Very truly yours,
/s/ Terrence S. Cassidy
------------------------------
Terrence S. Cassidy
Chief Executive Officer
Agreed:
Spike Technologies, Inc.
By:/s/ Douglas F. Carey
------------------------
Douglas F. Carey,
President
<TABLE> <S> <C>
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<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> NOV-01-1995
<PERIOD-END> JUL-31-1996
<CASH> 3,216,409
<SECURITIES> 11,991,085
<RECEIVABLES> 450,640
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 15,791,905
<PP&E> 664,723
<DEPRECIATION> 246,441
<TOTAL-ASSETS> 21,900,961
<CURRENT-LIABILITIES> 1,074,558
<BONDS> 365,309
0
0
<COMMON> 32,530
<OTHER-SE> 20,428,654
<TOTAL-LIABILITY-AND-EQUITY> 21,900,961
<SALES> 900,659
<TOTAL-REVENUES> 1,775,124
<CGS> 531,357
<TOTAL-COSTS> 2,465,154
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 58,188
<INCOME-PRETAX> (748,218)
<INCOME-TAX> 0
<INCOME-CONTINUING> (748,218)
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<EXTRAORDINARY> 0
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<NET-INCOME> (748,218)
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