<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-27024
METRO ONE TELECOMMUNICATIONS, INC.
(INCORPORATED UNDER THE LAWS OF THE STATE OF OREGON)
8405 S.W. NIMBUS AVENUE, BEAVERTON, OREGON 97008
I.R.S. EMPLOYER IDENTIFICATION NUMBER 93-0995165
TELEPHONE - AREA CODE (503) 643-9500
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(d) OF THE EXCHANGE ACT DURING THE PAST 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
--- ---
AT MAY 6, 1996, 8,513,373 COMMON SHARES WERE OUTSTANDING.
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE): YES NO X
--- ---
<PAGE> 2
METRO ONE TELECOMMUNICATIONS, INC.
INDEX TO FORM 10 - QSB
Page No.
Part I Financial information
Condensed Statements of Operations (Unaudited)
Three months ended March 31, 1996 and 1995 1
Condensed Balance Sheets (Unaudited)
March 31, 1996 and December 31, 1995 2
Condensed Statements of Cash Flows (Unaudited)
Three months ended March 31, 1996 and 1995 3
Notes to Condensed Financial Statements 4-5
Management's Discussion and Analysis of Financial
Condition and Results of Operations 6-8
Part II Other information
Item 1 Legal Proceedings 8
Item 6 Exhibits and Reports on Form 8-K 8
<PAGE> 3
METRO ONE TELECOMMUNICATIONS, INC.
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended March 31,
-----------------------------
1996 1995
----------- -----------
<S> <C> <C>
Revenues $ 4,228,313 $ 2,637,835
----------- -----------
Costs and expenses:
Direct operating 1,994,170 1,787,265
General and administrative 1,739,798 1,485,613
----------- -----------
3,733,968 3,272,878
----------- -----------
Income (loss) from operations 494,345 (635,043)
Other income (expense) (46,482) 4,934
Loss on asset dispositions (394) (2,299)
Interest and loan fees (162,290) (276,053)
----------- -----------
Net income (loss) $ 285,179 $ (908,461)
=========== ===========
Weighted average number of common shares outstanding 8,118,107 5,213,418
Net income (loss) per common share $.03 $(.17)
=========== ===========
</TABLE>
1
The accompanying notes are an integral part of this statement
<PAGE> 4
METRO ONE TELECOMMUNICATIONS, INC.
CONDENSED BALANCE SHEETS (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
March 31, December 31,
------------ ------------
1996 1995
------------ ------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 1,601,641 $ 1,148,822
Accounts receivable 2,873,980 2,617,465
Other current assets 594,644 360,097
------------ ------------
Total current assets 5,070,265 4,126,384
Furniture, fixtures and equipment, net 4,299,744 4,187,554
Other assets 405,879 402,540
------------ ------------
$ 9,775,888 $ 8,716,478
============ ============
Liabilities and Shareholders' Equity
Current liabilities:
Current portion of capital lease obligations $ 760,125 $ 769,892
Current portion of long-term debt 748,925 2,045,897
Accounts payable and accrued expenses 1,405,734 1,160,049
------------ ------------
Total current liabilities 2,914,784 3,975,838
Capital lease obligations, less current portion 1,504,094 1,366,205
Long-term debt, less current portion -- 100,000
------------ ------------
4,418,878 5,442,043
------------ ------------
Commitments and contingencies (Note 3) -- --
Shareholders' equity:
Preferred stock, no par value; 10,000,000 shares
authorized, no shares issued or outstanding -- --
Common stock, no par value; 490,000,000 shares
authorized, 8,513,373 and 7,936,545 shares,
respectively, issued and outstanding 21,509,107 19,711,711
Accumulated deficit (16,152,097) (16,437,276)
------------ ------------
Net shareholders' equity 5,357,010 3,274,435
------------ ------------
$ 9,775,888 $ 8,716,478
============ ============
</TABLE>
2
The accompanying notes are an integral part of this statement
<PAGE> 5
METRO ONE TELECOMMUNICATIONS, INC.
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended March 31,
-----------------------------
1996 1995
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 285,179 $ (908,461)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 269,694 245,505
Loss on disposal of fixed assets 394 2,299
Changes in certain assets and liabilities:
Accounts receivable (256,515) (13,401)
Prepaid expenses and other assets (180,371) (38,782)
Accounts payable and accrued expenses 245,685 69,129
----------- -----------
Net cash provided by (used in) operating activities 364,066 (643,711)
----------- -----------
Cash flows from investing activities:
Capital expenditures (66,624) (14,530)
Collections on notes receivable 846 160,530
----------- -----------
Net cash provided by (used in) investing activities (65,778) 146,000
----------- -----------
Cash flows from financing activities:
Debt issue costs, net (180,109)
Repayment of capital lease obligations (245,894) (138,495)
Repayment of debt (96,972) (250,000)
Proceeds from issuance of long-term debt -- 2,675,000
Proceeds from issuance of common stock and exercise
of warrants and stock options, net 497,397 55,000
----------- -----------
Net cash provided by financing activities 154,531 2,161,396
----------- -----------
Net increase in cash and cash equivalents 452,819 1,663,685
Cash and cash equivalents, beginning of period 1,148,822 310,191
----------- -----------
Cash and cash equivalents, end of period $ 1,601,641 $ 1,973,876
=========== ===========
Supplemental information:
Interest $ 179,168 $ 255,087
Conversion of debt into common stock 1,300,000 --
Equipment acquired by capital lease 374,015 107,499
</TABLE>
3
The accompanying notes are an integral part of this statement
<PAGE> 6
METRO ONE TELECOMMUNICATIONS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
The interim financial data are unaudited, however, in the opinion of management,
the interim data include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair statement of the results for the interim
period. The financial statements included herein have been prepared by the
Company pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures included herein
are adequate to ensure that the information presented is not misleading.
The organization and business of the Company, accounting policies followed by
the Company and other information are contained in the notes to the Company's
audited financial statements contained in and filed as part of the Form 10-KSB,
filed with the Securities and Exchange Commission. This quarterly report should
be read in conjunction with the audited financial statements.
Reclassification. Certain balances in the 1995 financial statements have been
reclassified to conform with 1996 presentation. Such reclassifications had no
effect on results of operations or shareholders' equity.
2. NET INCOME (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE
Net income (loss) per common and common equivalent share is computed using the
weighted average number of common and dilutive common equivalent shares assumed
to be outstanding during the period. Common equivalent shares consist of options
and warrants to purchase common stock. Primary and fully diluted earnings per
share are not presented since dilution is less than 3 percent.
3. COMMITMENTS AND CONTINGENCIES
The Company is party to various legal actions and administrative proceedings
arising in the ordinary course of business. The Company believes that the
disposition of these matters will not have a material adverse effect on its
financial position or results of its operations.
In 1995, the Company filed a registration statement with the Securities and
Exchange Commission and certain state securities regulators for a rescission
offering whereby it offered to certain holders of its common stock the right to
rescind their purchase of shares of the Company's common stock and to receive,
in exchange for the common stock tendered to the Company, a payment equal to the
purchase price of such securities plus interest from the date of purchase at the
applicable statutory rate of the state in which they reside. The securities
intended to be the subject of the Rescission Offer included 4,699,539 shares of
common stock outstanding at March 31, 1995 and purchased or converted from debt
securities by persons who resided in Oregon and certain other states.
The rescission offer closed in July 1995. As a result of the rescission offer,
the sales of 135,414 shares of common stock were rescinded and such shares were
purchased by the Company for approximately $738,660, including interest of
approximately $124,900. In total, shareholders representing approximately
$1,877,500 and 528,215 shares of common stock outstanding at March 31, 1995 did
not receive a rescission offer.
4. BANK LINE OF CREDIT
In March 1996, the Company entered into a $3,000,000 Secured Operating Line of
Credit with a commercial bank. Under the terms of the agreement, outstanding
borrowings bear interest at the prime rate plus 1.25 percent and all assets of
the Company are pledged as collateral. The agreement contains minimum net worth
and working capital requirements, as well as certain other restrictive
covenants, and prohibits the payment of cash dividends. At March 31, 1996, the
Company had no borrowings against this line of credit.
4
<PAGE> 7
METRO ONE TELECOMMUNICATIONS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
5. ACCOUNTING PRONOUNCEMENTS
In October 1995, the Financial Accounting Standards Board issued SFAS No. 123,
"Accounting for Stock-Based Compensation." SFAS No. 123 requires expanded
disclosures of stock-based compensation arrangements with employees and
encourages (but does not require) compensation cost to be measured based on the
fair value of the equity instrument awarded. Companies are permitted, however,
to continue to apply Accounting Principles Board (APB) Opinion No. 25,
"Accounting for Stock Issued to Employees," which recognizes compensation cost
based on the intrinsic value of the equity instrument awarded. The Company will
continue to apply APB Opinion No. 25 to its stock based compensation awards to
employees and will disclose the required pro forma effect on net income and
earnings per share in its 1996 annual report.
5
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
RESULTS OF OPERATIONS
The information which appears below relates to the current and prior
periods, the results of operations for which are not necessarily indicative of
the results which may be expected for any subsequent period.
The net income for the quarter ended March 31, 1996 was $285,179,
compared to a net loss of ($908,461) for the same quarter in 1995.
Net income from operations in the first quarter of 1996 was $494,345,
compared to a net loss from operations of ($635,043) for the same quarter in
1995.
The following table summarizes certain operating data:
<TABLE>
<CAPTION>
Three months ended March 31
--------------------------------------------------------
Percent of Percent of
1996 Revenue 1995 Revenue
---------- ------- ---------- -------
<S> <C> <C> <C> <C>
Revenue $4,228,313 100% $2,637,835 100%
Direct operating expenses 1,994,170 47 1,787,265 68
General & administrative expenses 1,739,798 41 1,485,613 56
Depreciation & amortization 269,694 6 245,505 9
Interest expense 162,290 4 276,053 10
</TABLE>
Revenues
The increase in revenues for 1996 was primarily due to growth in call
volumes for existing locations. Revenues for call centers open for both three
month periods ended March 31, increased 47 percent in 1996 to $3,871,317 from
$2,637,834 for the same period in 1995. This increase reflects rapid growth
historically experienced in the first years of operation of a call center. There
can be no assurance that the Company will be able to sustain past growth rates.
There were no price increases. Revenues from one new call center, which opened
during the fourth quarter of 1995, also contributed to the increased revenues
for the period ended March 31, 1996, compared to the same period in 1995.
Costs and Expenses
The increase in expenses for the three month period in 1996 was due
primarily to increased call volumes and the activities necessary to support the
operations related thereto. However, as a percent of revenue, both direct
operating and general and administrative costs declined for the three months
ended March 31, 1996, compared to the same period in 1995. This decline was
primarily due to the increased call volumes in 1996 and associated improved
operating efficiencies and utilization of personnel. One additional call center,
which opened during the fourth quarter of 1995, also contributed to the
increased costs and expenses for the period ended March 31, 1996, compared to
the same period in 1995.
Depreciation and amortization increased for the three months ended
March 31, 1996, compared to the same period in 1995, reflecting the effect of
increased fixed asset balances depreciated during the operating period. As a
percent of average net asset balance for the three month periods ended March 31,
1996 and 1995, depreciation and amortization were 6.35% and 6.13%, respectively.
6
<PAGE> 9
Interest Expense
The decrease in net interest expense was attributable to lower average
balances of debt outstanding for the three month period ended March 31, 1996,
compared to the same period in 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company has consistently used external sources of funds, primarily
from the issuance of equity and debt securities, to fund the Company's operating
needs and capital expenditures. For the three months ended March 31, 1996, the
Company generated net income of $285,179, however for most of its operating
history, the Company has generated net losses. At March 31, 1996, the
accumulated deficit was approximately $16.2 million. Cash flow solely from
operations remains insufficient to fund all of the Company's budgeted capital
and other non-operating needs. The Company anticipates using its existing cash
and cash equivalents, cash flow from operations, as well as externally generated
funds from debt and equity sources as discussed below to cover its needs in
1996, including the expansion of its operations and development of additional
system enhancements and product features.
The Company has a $3.0 million Secured Operating Line of Credit with a
commercial bank. Availability under the line of credit is subject to borrowing
base requirements and compliance with loan covenants. Under the terms of the
agreement, outstanding borrowings bear interest at prime rate plus 1.25 percent
and all assets of the Company are pledged as collateral. The agreement contains
minimum net worth and working capital requirements as well as certain other
restrictive covenants and prohibits the payment of cash dividends. At May 1,
1996, the Company had no borrowings against this line of credit.
Working capital was $2,155,481 and $1,678,412 at March 31, 1996 and
1995, respectively. The improvement reflects primarily (i) the conversion of
$1,300,000 of Subordinated Notes to equity in the first quarter of 1996 and (ii)
the infusion of $597,398 in cash from the exercise of warrants to purchase
common stock.
Cash provided by operations for the first three months of 1996 was
primarily a result of operating and net income for the quarter. No new call
centers were opened and most call centers operated profitably and contributed to
cash flow from operations during the three months ended March 31, 1996.
Cash used in investing activities for the first three months of 1996
related primarily to capital expenditures for system redundancy capabilities and
equipment upgrades for certain existing locations. In the first quarter of 1996,
additional capital equipment for the same purposes was acquired through lease
financing in the amount of $374,015.
Cash provided by financing activities for the first three months of
1996 related primarily to cash generated by the exercise of warrants for the
purchase of the Company's common stock, offset by the principal payments made on
current notes payable and existing lease obligations for past capital
acquisitions.
Future Capital Needs and Resources. The primary uses of capital are
expected to be for: (i) the expansion of existing markets, (ii) the funding of
start-up operating losses for newly opened markets, (iii) principal and interest
payments on indebtedness, (iv) the purchase of equipment for improvement of
certain existing call centers, and (v) the furnishing of new operating sites.
In late 1995 and in the first quarter of 1996, the future debt
obligations of the Company were significantly reduced through the conversion of
the majority of its Subordinated Notes into equity. From July 1996 through
January 1997, the remaining portions of the Subordinated Notes mature,
reflecting an obligation for principal payments of $650,000.
The Company currently anticipates that its capital equipment needs
may require up to approximately three million dollars through the end of 1996,
for projected expansion and for discretionary planned improvements. The Company
expects to continue to primarily use debt sources and lease financing for its
capital equipment needs. There can be no assurance that such additional
financing or credit facilities will be available or, if available, that they
will be on satisfactory terms.
Should the Company obtain substantial new business, there can be no
assurance that existing capital resources would be sufficient to fund the
necessary expansion. If adequate funds are not available, the growth of the
Company would be significantly
7
<PAGE> 10
impaired. Also, the cancellation or non-renewal of a material existing contract
by a carrier could have a material adverse effect on the Company's business,
financial condition and results of operations.
The Company is conducting discussions with investment banking firms
regarding an initial public offering of the Company's common stock. However, no
assurance can be given that the Company will pursue an initial public offering
of its common stock or, should the Company proceed with an initial public
offering, that the offering price will exceed the prices paid by original
purchasers of the common stock. The proceeds of such an offering could be used
for a variety of purposes, including market expansion, development of product
features and retirement of debt.
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The Company is party to various legal actions and administrative
proceedings arising in the ordinary course of business. The Company believes
that the disposition of these matters will not have a material adverse effect on
its financial position or results of its operations.
In September, 1995, an action was filed in the U.S. District Court for
the District of New Mexico by Hebenstreit Communications Corporation and
Hebenstreit Communications of Dallas Limited Partnership (together
"Hebenstreit") against McCaw Cellular Communications, Inc., LIN Broadcasting
Corporation, Metrocel Cellular Telephone and the Company. In the case,
Hebenstreit alleges a variety of claims against the defendants arising from
assertions that defendants, other than the Company, appropriated confidential or
proprietary information from Hebenstreit to Hebenstreit's detriment. Without
specificity, the complaint further alleges that the Company received this
information in some form from the other defendants and that the information has
been used to Hebenstreit's detriment in competition with the Company. The action
seeks damages in an unspecified amount, as well as costs, disbursements,
attorneys' fees and punitive damages. The Company moved to dismiss the action
for lack of jurisdiction, as well as for failure to properly plead claims
against the Company with the required specificity. In March 1996, this action
was dismissed for lack of jurisdiction. Plaintiff may or may not appeal the
dismissal and may or may not re-file the action.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
A. There are no exhibits to this report.
B. No reports on Form 8-K were filed during the quarter ended March 31,
1996.
8
<PAGE> 11
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.
Metro One Telecommunications, Inc.
----------------------------------
Registrant
Date: May 10, 1996
Stebbins B. Chandor, Jr.
-------------------------------------
Stebbins B. Chandor, Jr.
Senior Vice President
Chief Financial Officer
Karen L. Johnson
-------------------------------------
Karen L. Johnson
Vice President
Controller
9
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 1601641
<SECURITIES> 0
<RECEIVABLES> 2873980
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5070265
<PP&E> 6620380
<DEPRECIATION> 2320636
<TOTAL-ASSETS> 9775888
<CURRENT-LIABILITIES> 2914784
<BONDS> 0
0
0
<COMMON> 21509107
<OTHER-SE> (16152097)
<TOTAL-LIABILITY-AND-EQUITY> 9775888
<SALES> 4228313
<TOTAL-REVENUES> 4228313
<CGS> 0
<TOTAL-COSTS> 3733968
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 162290
<INCOME-PRETAX> 285179
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 285179
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
