<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 July 31, 1998
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 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 September 9,
1998.
<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, 1998
and October 31, 1997 3
Condensed Consolidated Statements of Income for the three months
and nine months ended July 31, 1998 and 1997 4
Condensed Consolidated Statements of Cash Flows for the nine months
ended July 31, 1998 and 1997 5
Notes to Condensed Consolidated Financial Statements 6-7
<PAGE>
NATIONAL WIRELESS HOLDINGS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
July 31, October 31,
1998 1997
ASSETS: ------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 40,565,236 $ 21,256,356
Marketable securities 30,694,241 49,598,687
Trade and other receivables 779,402 893,498
Due from related parties 78,093 1,178,093
Prepaid expenses and other current assets 204,270 52,447
------------ ------------
Total current assets 72,321,242 72,979,081
Wireless frequency license and acquisition costs, net of accumulated
amortization of $133,794 and $106,165, respectively 247,917 275,546
Transmission and related equipment, net of accumulated
amortization of $474,705 and $328,899, respectively 979,689 853,629
Leasehold improvements, office equipment and service vehicles, net
of accumulated depreciation of $526,866 and $569,022, respectively 444,713 364,113
Intangible assets, net of accumulated amortization of $641,216 and
$419,086, respectively 3,611,826 3,983,956
Investments and other assets 796,245 629,331
------------ ------------
Total assets $ 78,401,632 $ 79,085,656
============ ============
LIABILITIES and STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable and accrued expenses $ 3,768,288 $ 1,890,734
Current portion of long-term debt 6,417 241,673
Marketable Securities - Short Sale 13,662,500 16,559,375
Current income taxes 5,600,000
Deferred income taxes 9,600,000 16,900,000
------------ ------------
Total current liabilities 32,637,205 35,591,782
Long-term debt 64,143 24,348
Due to related parties 250,000 400,000
------------ ------------
Total liabilities 32,951,348 36,016,130
------------ ------------
Stockholders' equity:
Preferred stock $.01 par value: 1,000,000 shares authorized;
no shares issued or outstanding 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 20,119,491 19,430,049
Unrealized gains on investments 2,650,591 959,275
------------ ------------
Total stockholders' equity 45,450,284 43,069,526
------------ ------------
Total liabilities and stockholders' equity $ 78,401,632 $ 79,085,656
============ ============
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
3
<PAGE>
NATIONAL WIRELESS HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED JULY 31, ENDED JULY 31,
--------------------------- ---------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue:
Services $ 1,084,870 $ 964,862 $ 3,229,190 $ 2,310,260
Interest income 529,181 194,830 1,437,786 547,455
Dividend income 116,452 269,396 409,723 269,396
Gain on sale of securities 674,252 1,379,034 -
----------- ----------- ----------- -----------
Total revenue 2,404,755 1,429,088 6,455,733 3,127,111
----------- ----------- ----------- -----------
Expenses:
Cost of services 521,204 431,764 1,373,930 1,113,628
Wireless market and
technology development 204,000 129,452 254,000 455,422
Professional fees 122,939 124,414 387,613 392,260
General and administrative 812,242 952,016 2,442,375 1,805,866
Depreciation and amortization 189,559 184,601 550,618 589,947
Interest expense 26,004 19,687 157,756 51,914
----------- ----------- ----------- -----------
Total expenses 1,875,948 1,841,934 5,166,292 4,409,037
----------- ----------- ----------- -----------
Income (loss) from operations 528,807 (412,846) 1,289,441 (1,281,926)
Gain on sale of SFTV 44,396,516 44,396,516
Minority interest - - -
----------- ----------- ----------- -----------
Income before provision
for income taxes 528,807 43,983,670 1,289,441 43,114,590
Provision for income taxes-current 300,000 16,900,000 600,000 16,900,000
----------- ----------- ----------- -----------
Net income $ 228,807 $27,083,670 $ 689,441 $26,214,590
=========== =========== =========== ===========
Net income per common share:
Basic $ 0.07 $ 8.33 $ 0.21 $ 8.06
=========== =========== =========== ===========
Diluted $ 0.07 $ 8.23 $ 0.21 $ 7.97
=========== =========== =========== ===========
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.
4
<PAGE>
NATIONAL WIRELESS HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED JULY 31,
--------------------------
1998 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 689,441 $26,214,590
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization 550,618 589,947
Accretion of interest income (306,100)
Realized gain on sale of securities (1,379,034) (44,396,516)
Deferred income taxes (11,800,000) 16,900,000
Changes in assets and liabilities:
Due from related parties 1,100,000 (1,105,094)
Trade receivables and other receivables 114,096 (875,421)
Prepaid expenses and other current assets (151,823) 13,762
Other assets (158,376) 82,405
Accounts payable and accrued expenses 2,098,785 688,071
Current income taxes payable 5,600,000
Due to related parties and other 496,181
----------- -----------
Net cash used in operating activities (3,336,293) (1,698,175)
----------- -----------
Cash flows from investing activities:
Wireless frequency license and acquisition costs - (170,190)
Acquisition of transmission and related equipment (272,866) (40,900)
Acquisition of leasehold improvements, office equipment and
service vehicles (224,191) (192,718)
Acquisition of marketable securities (16,901,277)
Proceeds of marketable securities 28,125,920
Proceeds of marketable securities-short sale 12,132,048 13,652,000
Purchases of U.S. treasury securities (15,693,040)
Proceeds from redemption of U.S. securities 15,999,140
Acquisition of EDSS (1,543,700)
Increase in investments (19,000) (78,786)
Other (1,105,094)
----------- -----------
Net cash provided by (used in) investing activities 22,840,634 10,826,712
----------- -----------
Cash flows from financing activities:
Principal payments of long-term debt (195,461) (293,961)
Exercise of stock options 226,449
----------- -----------
Net cash used in financing activities (195,461) (67,512)
----------- -----------
Net increase in cash and cash equivalents, end of period 19,308,880 9,061,025
Cash and cash equivalents, beginning of period 21,256,356 14,788,765
----------- -----------
Cash and cash equivalents, end of period $40,565,236 $23,849,790
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 157,756 $ 32,227
=========== ===========
Cash paid for taxes $ 4,500,000 $ -
=========== ===========
</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.
5
<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 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.
6
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED), CONTINUED
On March 4, 1998, the Company agreed to and did purchase on 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 paid 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 has
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 was paid on June 26,
1998. The officer pledged 100,000 shares of the Company's common stock as
collateral.
7
<PAGE>
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 also 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
NINE MONTHS ENDED JULY 31, 1998 AS COMPARED TO NINE MONTHS ENDED JULY 31, 1997:
Service Revenue:
Service revenue increased from $2,310,260 for the nine months ended July 31,
1997 to $3,229,190 for the nine months ended July 31, 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 $547,455 for the nine months ended July 31, 1997
to $1,437,786 for the nine months ended July 31, 1998 primarily as a result of
increased cash balances, and dividend income increased from $269,396 for the
nine months ended July 31, 1997 to $409,723 for the nine months ended July 31,
1998 as a result of dividends received from BellSouth common stock acquired in
June 1997.
Realized Gain on Sale of Securities:
Realized gain on sale of securities increased from $0 for the nine months ended
July 31, 1997 to $1,379,034 for the nine months ended July 31, 1998 as a result
of sales of BellSouth common stock acquired in June 1997.
Cost of Services:
Cost of services increased from $1,113,628 for the nine months ended July 31,
1997 to
8
<PAGE>
$1,373,930 for the nine months ended July 31, 1998 as a result of increased
operating costs and the acquisition referred to above.
Wireless Market and Technology Development:
Wireless market and technology development expenses decreased from $455,422 for
the nine months ended July 31, 1997 to $254,000 for the nine months ended July
31, 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 $392,260 for the nine months ended July 31,
1997 to $387,613 for the nine months ended July 31, 1998. Professional fees
reflect continued activity relating to subsidiaries and corporate actions.
General and Administrative:
General and administrative expense increased from $1,805,866 for the nine months
ended July 31, 1997 to $2,442,375 for the nine months ended July 31, 1998
primarily as a result of increased costs to support the growth of EDSS.
Depreciation and Amortization:
Depreciation and amortization decreased from $589,947 in the nine months ended
July 31, 1997 to $550,618 in the nine months ended July 31, 1998 primarily as a
result of the sale of the Company's South Florida wireless cable subsidiary as
described below.
Interest Expense:
Interest expense increased from $51,914 in the nine months ended July 31, 1997
to $157,756 in the nine months ended July 31, 1998 due to charges on securities
transactions.
Income from Operations:
As a result of the foregoing events, income from operations was $1,289,441 for
the nine months ended July 31, 1998 as compared to a loss from operations of
($1,281,926) for the nine months ended July 31, 1997.
Net Income:
Net income for the nine months ended July 31, 1998 was $689,441 as compared to
net income of $26,214,590 for the nine months ended July 31, 1997 due to the
sale in June 1997 of the Company's South Florida wireless cable subsidiary as
described below.
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 June 1997 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,
9
<PAGE>
wireless telecommunications assets, media businesses, development of the
Company's other businesses and development and acquisition of new technologies
and businesses in other areas. Such amount, 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 July 31, 1998, the Company had approximately $55.3 million in cash
and net marketable BellSouth common stock and derivatives, 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. ("Landtel") and investments in
other early stage companies.
In the nine months ended July 31, 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.
In July 1998 the Company completed its purchase of $1,200,000 of 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 diluted common stock and, with additional voting rights, 82% control
of EDSS. The Company paid 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 has 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 nine 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 July 31, 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.
YEAR 2000 ISSUES
Each of the Company and EDSS has sought to identify and resolve the effect
of Year 2000 software issues on the integrity and reliability of its financial
and operational systems. In addition, EDSS is communicating with its principal
vendors and service providers to coordinate
10
<PAGE>
Year 2000 conversion. Although the Company cannot yet assess the cost of Year
2000 issues, the Company does not expect the costs of achieving Year 2000
compliance to have a material impact on the Company's business, operations or
its financial condition.
CAUTIONARY STATEMENT
This Item and other Items in this Report include "forward-looking"
information, as that term is defined in the Private Securities Litigation Reform
Act of 1995 or by the Securities and Exchange Commission in its rules,
regulations and releases, about the Company's financing, strategy and
operations. The Company cautions investors that any such statements made by the
Company are not guarantees of future performance. Known and unknown risks,
uncertainties, and other factors, including without limitation risks relating to
acquiring and developing new businesses, availability of additional financial
resources and capital requirements, customer demand, technological risks,
management of growth, competition and government regulation, may cause actual
results to differ materially from the future results implied or expressed in the
forward looking statements. The Company does not undertake to update or revise
its forward-looking statements publicly even if experience or future changes
make it clear that any projected results expressed or implied herein will not be
realized.
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.
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: September 15, 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> 9-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> JUL-31-1998
<CASH> 40,565,236
<SECURITIES> 30,694,241
<RECEIVABLES> 779,402
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 72,321,242
<PP&E> 2,425,973
<DEPRECIATION> 1,001,571
<TOTAL-ASSETS> 78,401,632
<CURRENT-LIABILITIES> 32,637,205
<BONDS> 0
0
0
<COMMON> 32,830
<OTHER-SE> 45,483,114
<TOTAL-LIABILITY-AND-EQUITY> 78,401,632
<SALES> 3,229,190
<TOTAL-REVENUES> 6,455,733
<CGS> 1,373,930
<TOTAL-COSTS> 5,008,536
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 157,756
<INCOME-PRETAX> 1,289,441
<INCOME-TAX> 600,000
<INCOME-CONTINUING> 689,441
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 689,441
<EPS-PRIMARY> .21
<EPS-DILUTED> .21
</TABLE>
