<PAGE>
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 April 30, 1998
--------------
Commission file number: 0-23598
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NATIONAL WIRELESS HOLDINGS INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3735316
- ---------------------------------------------- ---------------------------------
(State or other jurisdiction of incorporation) (IRS Employer Identification No.)
249 Royal Palm Way, Suite 301, Palm Beach, Florida 33480
-------------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
(561) 822-9933
--------------
(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: 3,283,000 shares as of June 9, 1998.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
National Wireless Holdings Inc. ("NWH" or the "Company") is a holding and
strategic resource company for telecommunications and other businesses. The
Company currently operates an electronic data interchange company, providing
links between healthcare providers and third party payors. In addition, the
Company operates a satellite programming uplink facility, an educational
programming distribution company and other early stage businesses. The Company
also seeks to support, finance and acquire new businesses and technologies in
the telecommunications and other industries. The Company recently acquired an
interest in a company organized to purchase a British telecommunications
company, and may acquire or invest in other businesses. In June 1997, the
Company sold its wireless cable assets in Miami, Florida in exchange for common
stock of BellSouth Corporation.
The Company was incorporated in Delaware on August 31, 1993. The
Company's fiscal year ends on October 31.
RESULTS OF OPERATIONS
SIX MONTHS ENDED APRIL 30, 1998 AS COMPARED TO SIX MONTHS ENDED APRIL 30, 1997:
Service Revenue:
Service revenue increased from $1,345,398 for the six months ended April 30,
1997 to $2,144,320 for the six months ended April 30, 1998 primarily as a result
of increased revenues of EDSS (as described below), a majority owned subsidiary
acquired in December 1996, and commencement of a consulting agreement with a
subsidiary of BellSouth Corporation.
Interest and Dividend Income:
Interest income increased from $352,625 for the six months ended April 30, 1997
to $908,605 for the six months ended April 30, 1998 primarily as a result of
increased cash balances, and dividend income increased from $0 for the six
months ended April 30, 1997 to $293,271 for the six months ended April 30, 1998
as a result of dividends paid on BellSouth common stock acquired in June 1997.
Realized Gain on Sale of Securities:
Realized Gain on sale of securities increased from $0 for the six months ended
April 30, 1997 to $704,782 for the six months ended April 30, 1998 as a result
of sales of BellSouth common stock acquired in June 1997.
Cost of Services:
Cost of services increased from $681,864 for the six months ended April 30, 1997
to $852,726
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for the six months ended April 30, 1998 as a result of increased operating costs
and the acquisitions referred to above.
Wireless Market and Technology Development:
Wireless market and technology development expenses decreased from $325,970 for
the six months ended April 30, 1997 to $50,000 for the six months ended April
30, 1998 primarily as a result of the elimination of activity in the development
of the Miami market due to the sale of the Company's South Florida wireless
cable subsidiary as described below.
Professional Fees:
Professional fees decreased from $267,846 in the six months ended April 30, 1997
to $264,674 in the six months ended April 30, 1998 reflecting continued activity
relating to subsidiaries and corporate actions.
General and Administrative:
General and administrative expense increased from $853,850 in the six months
ended April 30, 1997 to $1,630,133 in the six months ended April 30, 1998
primarily as a result of increased costs to support the growth of EDSS.
Depreciation and Amortization:
Depreciation and amortization decreased from $405,346 in the six months ended
April 30, 1997 to $361,059 in the six months ended April 30, 1998 primarily as a
result of the sale of its South Florida wireless cable subsidiary as described
below.
Interest Expense:
Interest expense increased from $32,227 in the six months ended April 30, 1997
to $131,752 in the six months ended April 30, 1998 due to charges on
securities transactions.
Income from Operations:
As a result of the foregoing events, income from operations was $760,634 for
the six months ended April 30, 1998 as compared to a loss from operations of
($869,080) for the six months ended April 30, 1997.
Net Income:
Net income was $760,634 for the six months ended April 30, 1998 as compared to
a net loss of ($869,080) for the six months ended April 30, 1997 as a result of
the foregoing events.
LIQUIDITY AND CAPITAL RESOURCES
The Company funds its operations with the net proceeds from its initial
public offering in 1994 of 2,000,000 shares of Common Stock aggregating, after
payment of offering costs, approximately $22,000,000 and the recent sale of its
South Florida wireless cable subsidiary for $48 million in BellSouth common
stock. The proceeds have been used for, and are currently reserved to fund
acquisitions of, additional EDI (electronic data interchange) investments,
wireless telecommunications assets, media businesses, development of its other
businesses and development and acquisition of new technologies and businesses in
other areas. Such amount,
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with interest thereon, is expected to be sufficient to implement this business
plan through October 1999, or for a shorter period if the Company determines to
invest a substantial portion of its assets in major acquisitions or equity
investments. Following completion of the sale of its South Florida wireless
cable assets, the Company has allocated its capital to development of its other
businesses and to acquisitions.
As of April 30, 1998, the Company had approximately $57 million in cash and
net marketable BellSouth common stock as well as its interest in EDSS, its
full-service teleport and satellite uplink facility in Miami, its ownership of
an educational video programming distributor, its investment in Landtel
Communications, Inc. and investments in other early stage companies.
In the six months ended April 30, 1998, the Company sold portions of its
position in BellSouth common stock. While the Company continues to review its
position in BellSouth common stock and from time to time has sold and purchased
shares and options on the position, it has not yet determined whether it will
sell or hedge its remaining BellSouth securities in the near future or how it
will invest the proceeds of any such sale.
On March 4, 1998, the Company agreed to purchase by July 31, 1998, for
$1,200,000 shares of Series A Preferred Stock of Electronic Data Submission
Systems, Inc. ("EDSS"), which when combined with its existing share ownership
represents 58% of the outstanding common stock and, with additional voting
rights, 82% control of EDSS. The Company will pay for such securities with
$1,000,000 in cash and $200,000 reduction in the principal amount of a note
outstanding pursuant to a loan agreement between EDSS and the Company, dated
June 19, 1995. After such transaction the Company will have outstanding
loans to EDSS of $788,000. The outstanding balance under this loan agreement
has been eliminated from the balance sheet in consolidation. The Company may
invest additional amounts in EDSS to finance its sales growth. Operating
overhead costs of EDSS have increased in order to support its continued
growth. The Company anticipates related increased revenues at EDSS in the
next three to six months.
The Company may, when and if the opportunity arises, acquire or invest in
other businesses in the wireless telecommunications industry, media businesses
or in unrelated areas. If such an opportunity arises, the Company may use a
portion of its funds for that purpose. For instance, the Company has invested
$100,000 through April 30, 1998 in Landtel and may invest up to an additional
$9,740,000 in Landtel to fund a possible acquisition of a British
telecommunications company. Other than Landtel, the Company has no specific
arrangements with respect to any such acquisitions or investments at the present
time. There can be no assurance that any such acquisitions or investments will
be made.
4
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NATIONAL WIRELESS HOLDINGS INC.
PART I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Contents
<TABLE>
<CAPTION>
Page(s)
--------
<S> <C>
Condensed Consolidated Balance Sheets as of April 30, 1998
and October 31, 1997 3
Condensed Consolidated Statements of Operations for the three months and six months
ended April 30, 1998 and 1997 4
Condensed Consolidated Statements of Cash Flows for the six months
ended April 30, 1998 and 1997 5
Notes to Condensed Consolidated Financial Statements 6-7
</TABLE>
5
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NATIONAL WIRELESS HOLDINGS INC.
Condensed Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
April 30, October 31,
1998 1997
------------ ------------
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents $ 38,126,172 $ 21,256,356
Marketable securities 34,201,624 49,598,687
Trade and other receivables 980,134 893,498
Due from related parties 1,178,093 1,178,093
Prepaid expenses and other current assets 133,542 52,447
------------ ------------
Total current assets 74,619,565 72,979,081
Wireless frequency license and acquisition costs, net of accumulated
amortization of $125,251 and $106,165, respectively 256,460 275,546
Transmission and related equipment, net of accumulated
amortization of $425,703 and $328,899, respectively 995,378 853,629
Leasehold improvements, office equipment and service vehicles, net
of accumulated depreciation of $473,567 and $569,022, respectively 369,523 364,113
Intangible assets, net of accumulated amortization of $570,506 and
$419,086, respectively 3,782,536 3,983,956
Investments and other assets 881,043 629,331
------------ ------------
Total assets $ 80,904,505 $ 79,085,656
------------ ------------
------------ ------------
LIABILITIES and STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable and accrued expenses $ 4,167,355 $ 1,890,734
Current portion of long-term debt 28,444 241,673
Marketable securities - short sale 12,850,000 16,559,375
Income taxes payable 8,300,000 -
Deferred income taxes 8,800,000 16,900,000
------------ ------------
Total current liabilities 34,145,799 35,591,782
Long-term debt 72,154 24,348
Note payable to related party 350,000 400,000
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Total liabilities 34,567,953 36,016,130
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Stockholders' equity:
Preferred stock - -
Common Stock $.01 par value: 20,000,000 shares authorized;
3,283,000 shares issued and outstanding 32,830 32,830
Paid-in capital 22,647,372 22,647,372
Retained earnings 19,890,684 19,430,049
Unrealized gains on investments, net 3,765,666 959,275
------------ ------------
Total stockholders' equity 46,336,552 43,069,526
------------ ------------
Total liabilities and stockholders' equity $ 80,904,505 $ 79,085,656
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
6
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NATIONAL WIRELESS HOLDINGS INC.
Condensed Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended April 30, Ended April 30,
-------------------------- --------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue:
Services $ 1,072,585 $ 839,394 $ 2,144,320 $ 1,345,398
Interest income 528,176 156,869 908,605 352,625
Dividend income 121,435 - 293,271 -
Realized gain on sale of securities 456,588 - 704,782 -
----------- ----------- ----------- -----------
Total revenue 2,178,784 996,263 4,050,978 1,698,023
----------- ----------- ----------- -----------
Expenses:
Cost of services 469,133 340,941 852,726 681,864
Wireless market and
technology development 50,000 168,157 50,000 325,970
Professional fees 129,270 164,512 264,674 267,846
General and administrative 901,215 411,658 1,630,133 853,850
Depreciation and amortization 182,941 220,314 361,059 405,346
Interest expense 78,205 19,203 131,752 32,227
----------- ----------- ----------- -----------
Total expenses 1,810,764 1,324,785 3,290,344 2,567,103
----------- ----------- ----------- -----------
Income (loss) from operations 368,020 (328,522) 760,634 (869,080)
Minority interest income 30,000 - - -
----------- ----------- ----------- -----------
Income (loss) before provision for
income taxes 398,020 (328,522) 760,634 (869,080)
Provision for income taxes 150,000 - 300,000 -
----------- ----------- ----------- -----------
Net income (loss) $ 248,020 $ (328,522) $ 460,634 $ (869,080)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Net income (loss) per common share:
Basic $ 0.08 $ (0.10) $ 0.14 $ (0.27)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Diluted $ 0.08 $ (0.10) $ 0.14 $ (0.26)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Weighted average number of common
shares outstanding:
Basic 3,283,000 3,253,000 3,283,000 3,253,000
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Diluted 3,283,000 3,288,752 3,283,000 3,288,752
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
7
<PAGE>
NATIONAL WIRELESS HOLDINGS INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months
Ended April 30,
-------------------------------
1998 1997
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<S> <C> <C>
Cash flows from operating activities
Net income (loss) $ 460,634 $ (869,080)
Adjustments to reconcile net income (loss) to net cash used in
operating activities:
Depreciation and amortization 361,059 405,346
Accretion of interest income (298,014)
Realized gain on sale of securities (704,782)
Deferred income taxes (10,500,000)
Changes in assets and liabilities:
Due from related parties 73,000
Trade and other receivables (86,636) (197,978)
Prepaid expenses and other current assets (81,095) 14,171
Other assets (128,712) (169,649)
Accounts payable and accrued expenses 105,566 330,320
Due to related 43,390
Current income taxes payable 8,300,000
------------ ------------
Net cash used in operating activities (2,273,966) (668,494)
------------ ------------
Cash flows from investing activities:
Wireless frequency license and acquisition costs - (170,190)
Acquisition of transmission and related equipment (238,553) (40,900)
Acquisition of leasehold improvements, office equipment and
service vehicles (90,776) (192,718)
Acquisition of marketable securities (6,676,538)
Proceeds of sale of marketable securities 14,306,025
Proceeds of marketable securities-short sale 12,132,047
Purchases of U.S. treasury securities (11,693,040)
Proceeds from redemption of U.S. securities 199,140
Acquisition of EDSS (1,439,200)
Increase in investments (123,000) (104,500)
------------ ------------
Net cash provided by (used in) investing activities 19,309,205 (13,441,408)
------------ ------------
Cash flows from financing activities:
Principal payments of long-term debt (165,423) (186,096)
------------ ------------
Net cash used in financing activities (165,423) (186,096)
------------ ------------
Net increase (decrease) in cash and cash equivalents 16,869,816 (14,295,998)
Cash and cash equivalents, beginning of period 21,256,356 14,788,765
------------ ------------
Cash and cash equivalents, end of period $ 38,126,172 $ 492,767
------------ ------------
------------ ------------
Supplemental disclosure of cash flow information:
Cash paid for interest $ 53,547 $ 32,227
------------ ------------
------------ ------------
Cash paid for taxes $ 2,500,000 $ -
------------ ------------
------------ ------------
</TABLE>
Non-cash financing and investing activities:
The Company closed 400,000 shares of its short sale positions by delivery of
marketable securities.
See accompanying notes to unaudited condensed consolidated financial statements.
8
<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, 1997 (File No. 0-23598) and filed with the
Securities and Exchange Commission.
2. Net Income (Loss) Per Share Data:
The Company adopted the provisions of SFAS No. 128 "Earnings per Share"
effective November 1, 1997, with restatement of all prior periods
presented. Basic earnings per share is computed by dividing net income by
the weighted-average number of common shares outstanding. Diluted earnings
per share reflects the potential dilution if securities (stock options)
were exercised or converted into common stock.
3. Acquisition of EDSS:
On December 13, 1996, the Company exercised a warrant and an option to
purchase shares of the common stock of Electronic Data Submission Systems,
Inc. ("EDSS"), which when combined with its existing share ownership
represents 50% of the outstanding common stock and, pursuant to the EDSS
Shareholders Agreement dated as of July 25, 1996, control of EDSS. The
aggregate purchase price for the purchase of EDSS shares was $1,887,500.
The acquisition has been accounted for under the purchase method of
accounting and the results of operations from the date of purchase have
been reflected in the consolidated statement of operations. The purchase
price has been allocated principally to intangible assets (goodwill) and is
being amortized over 15 years.
On September 10, 1997 the Company purchased an additional 5% of the common
stock of EDSS from the president of EDSS for $750,000.
On March 4, 1998, the Company agreed to purchase by July 31, 1998, for
$1,200,000, shares of Series A Preferred Stock of Electronic Data
Submission Systems, Inc. ("EDSS"), which when combined with its existing
share ownership represents 58% of the outstanding common stock and, with
additional voting rights, 82% control of EDSS. The Company will pay for
such securities with $1,000,000 in cash and $200,000 reduction in the
principal amount of a
Continued
9
<PAGE>
Notes to Condensed Consolidated Financial Statements
(unaudited), Continued
note outstanding pursuant to a loan agreement between EDSS and the Company,
dated June 19, 1995. After such transaction, the Company will have
outstanding loans to EDSS of $788,000. The President of EDSS, also agreed
to convert $200,000 of indebtedness owed to him by EDSS into Series B
Convertible Preferred Stock of EDSS.
4. Sale of SFTV:
On February 26, 1997, the registrant and its wholly-owned subsidiary, South
Florida Television, Inc. ("SFTV") entered into an Agreement and Plan of
Reorganization, as amended, (the "Merger Agreement") which became effective
on June 27, 1997 with BellSouth Corporation ("BellSouth") and its
wholly-owned subsidiary, Bell South South Florida Merger Subsidiary, Inc.
("BellSouth Sub"), pursuant to which BellSouth Sub merged into SFTV. SFTV
became a wholly-owned subsidiary of BellSouth and the registrant received
an aggregate of $48 million in BellSouth common stock (the "Merger") which
resulted in a gain of approximately $44.4 million. The Merger has been
treated as a tax-free reorganization.
5. Due from Related Parties:
On July 9, 1997 the Company loaned $1,100,000 to an officer of the Company
under a note receivable which bears interest at 8% and is due on July 9,
1998. The officer pledged 100,000 shares of the Company's common stock as
collateral.
10
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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.
At its Annual Meeting of Stockholders held on April 17, 1998 and, as
adjourned, on May 13, 1998, the Company's stockholders approved and ratified the
following actions:
1. Approval of the 1997 Equity Incentive Plan, as amended
<TABLE>
<CAPTION>
Number of Number of Number of Number of
Votes For Votes Against Votes Abstaining Broker Non-Votes
<S> <C> <C> <C>
1,231,395 341,517 24,400 1,112,852
</TABLE>
2. Election of Directors:
The following individual was elected as a director of the Corporation:
<TABLE>
<CAPTION>
Number of Number of
Votes For Votes Withheld
<S> <C> <C>
Louis B. Lloyd - Class I 2,600,974 2,300
</TABLE>
to serve until the 2001 Annual Meeting of Stockholders and until his
respective successor has been elected and has qualified.
3. 381,750 shares of all shares entitled to vote were voted in favor of, and
9,950 votes were withheld for, the appointment of Coopers & Lybrand L.L.P. as
independent auditors of the Corporation until the next Annual Meeting of
Stockholders.
11
<PAGE>
Item 5. Other Information.
Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
None
(b) Reports on Form 8-K:
None.
12
<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.
Date: June 9, 1998
NATIONAL WIRELESS HOLDINGS INC.
-------------------------------
(Registrant)
By: /s/ Terrence S. Cassidy
-----------------------
Terrence S. Cassidy, President and
Principal Accounting Officer
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-01-1997
<PERIOD-END> APR-30-1998
<CASH> 38,126,172
<SECURITIES> 34,201,624
<RECEIVABLES> 980,134
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 74,619,565
<PP&E> 2,264,171
<DEPRECIATION> 899,270
<TOTAL-ASSETS> 80,904,505
<CURRENT-LIABILITIES> 34,145,799
<BONDS> 0
0
0
<COMMON> 32,830
<OTHER-SE> 46,303,722
<TOTAL-LIABILITY-AND-EQUITY> 80,904,505
<SALES> 2,144,320
<TOTAL-REVENUES> 4,050,978
<CGS> 852,726
<TOTAL-COSTS> 3,158,592
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 131,752
<INCOME-PRETAX> 760,634
<INCOME-TAX> 300,000
<INCOME-CONTINUING> 460,634
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 460,634
<EPS-PRIMARY> .14
<EPS-DILUTED> .14
</TABLE>
