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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, 1997
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
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AT MAY 5, 1997, 10,783,303 COMMON SHARES WERE OUTSTANDING.
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE): YES NO X
--- ---
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METRO ONE TELECOMMUNICATIONS, INC.
INDEX TO FORM 10-QSB
Part I Financial Information Page No.
Condensed Statements of Operations (Unaudited)
Three months ended March 31, 1997 and 1996 1
Condensed Balance Sheets (Unaudited)
March 31, 1997 and December 31, 1996 2
Condensed Statements of Cash Flows (Unaudited)
Three months ended March 31, 1997 and 1996 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 5. Other Information 8
Item 6. Exhibits and Reports on Form 8-K 8
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METRO ONE TELECOMMUNICATIONS, INC.
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
- ------------------------------------------------------------------------------
THREE MONTHS ENDED MARCH 31,
----------------------------
1997 1996
----------- -----------
Revenues $ 4,486,012 $ 4,228,313
----------- -----------
Costs and expenses:
Direct operating 2,433,738 1,994,170
General and administrative 2,503,771 1,739,798
----------- -----------
4,937,509 3,733,968
----------- -----------
Income (loss) from operations (451,497) 494,345
Other income (expense) 159,194 (38,926)
Interest and loan fees (98,225) (162,290)
----------- -----------
Income (loss) before income taxes (390,528) 293,129
Income tax expense -- 7,950
----------- -----------
Net income (loss) $ (390,528) $ 285,179
----------- -----------
----------- -----------
Weighted average number of common shares
outstanding 10,756,030 8,118,107
Net income (loss) per common share $ (.04) $ .03
----------- -----------
----------- -----------
The accompanying notes are an integral part of this statement.
1
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METRO ONE TELECOMMUNICATIONS, INC.
CONDENSED BALANCE SHEETS (UNAUDITED)
- -------------------------------------------------------------------------------
MARCH 31, DECEMBER 31,
----------- -----------
1997 1996
----------- -----------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ 12,748,362 $ 14,136,574
Accounts receivable 2,554,076 2,722,544
Other current assets 657,774 537,077
----------- -----------
Total current assets 15,960,212 17,396,195
Furniture, fixtures and equipment, net 7,891,545 6,759,759
Other assets 673,298 373,391
----------- -----------
$ 24,525,055 $ 24,529,345
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of capital lease obligations $ 719,739 $ 736,941
Accounts payable and accrued expenses 936,215 1,062,440
Other current liabilities 790,520 581,108
----------- -----------
Total current liabilities 2,446,474 2,380,489
Capital lease obligations, less current portion 1,006,269 1,168,204
----------- -----------
3,452,743 3,548,693
----------- -----------
Commitments and contingencies -- --
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, 10,783,303 and 10,692,887 shares,
respectively, issued and outstanding 36,733,628 36,251,440
Accumulated deficit (15,661,316) (15,270,788)
----------- -----------
Net shareholders' equity 21,072,312 20,980,652
----------- -----------
$ 24,525,055 $ 24,529,345
----------- -----------
----------- -----------
The accompanying notes are an integral part of this statement.
2
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METRO ONE TELECOMMUNICATIONS, INC.
CONDENSED CASH FLOW STATEMENTS (UNAUDITED)
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THREE MONTHS ENDED MARCH 31,
----------------------------
1997 1996
----------- -----------
Cash flows from operating activities:
Net income (loss) $ (390,528) $ 285,179
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Depreciation and amortization 457,231 269,694
Changes in certain assets and liabilities:
Accounts receivable 168,468 (256,515)
Prepaid expenses and other assets (231,472) (179,977)
Accounts payable and accrued expenses 111,247 245,685
----------- -----------
Net cash provided by operating activities 114,946 364,066
----------- -----------
Cash flows from investing activities:
Capital expenditures (1,536,949) (66,624)
Collections on notes receivable 740 846
----------- -----------
Net cash used in investing activities (1,536,209) (65,778)
----------- -----------
Cash flows from financing activities:
Repayment of capital lease obligations (179,137) (245,894)
Repayment of debt -- (96,972)
Proceeds from issuance of common stock and
exercise of warrants and stock options, net 212,188 497,397
----------- -----------
Net cash provided by financing activities 33,051 154,531
----------- -----------
Net increase (decrease) in cash and cash
equivalents (1,388,212) 452,819
Cash and cash equivalents, beginning of period 14,136,574 1,148,822
----------- -----------
Cash and cash equivalents, end of period $12,748,362 $ 1,601,641
----------- -----------
----------- -----------
The accompanying notes are an integral part of this statement.
3
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METRO ONE TELECOMMUNICATIONS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
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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 periods. 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 1996 financial statements have
been reclassified to conform with 1997 presentation. Such reclassifications
have 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 primarily of options and warrants to purchase common stock. Primary
and fully diluted earnings per share are not presented for 1997 and 1996
since dilution is less than three 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, results of operations or net cash flows.
4. BANK LINE OF CREDIT
The Company has a $3,000,000 Secured Operating Line of Credit with a
commercial bank. Under the terms of the agreement, outstanding borrowings
bear interest at prime rate plus 0.25 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,
as defined by the agreement, and prohibits the payment of cash dividends.
Availability of the unused portion of the line of credit is subject to
borrowing base requirements and compliance with loan covenants. At March 31,
1997, the Company had no borrowings against this line of credit.
4
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METRO ONE TELECOMMUNICATIONS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
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5. SUPPLEMENTAL CASH FLOW INFORMATION
1997 1996
---------- ----------
Cash paid for interest expense $ 91,809 $ 179,168
Conversion of debt into common stock -- 1,300,000
Equipment acquired by capital lease -- 374,015
Common stock issued in settlement of litigation 270,000 --
6. ACCOUNTING PRONOUNCEMENT
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings Per Share," which establishes new standards for computing and
presenting earnings per share (EPS) for entities having publicly held common
stock or potential common stock. SFAS No. 128 replaces the presentation of a
primary EPS with a basic EPS on the face of the income statement for entities
with complex capital structures, and additional disclosures regarding the
computation of EPS.
SFAS No. 128 will require changes in the computation and presentation of the
Company's EPS commencing with the financial statements for the year ending
December 31, 1997. Earlier application of this Statement is not permitted.
However, if the Company computed its EPS for the three months ended March 31,
1997 and 1996 in a manner consistent with SFAS No. 128, the pro forma amounts
would have been as follows:
For the Three Months Ended March 31,
1997 1996
--------------------- -------------------
Per Share Per Share
Shares Amount Shares Amount
---------- --------- --------- ---------
Basic Earnings (Loss) Per Share 10,756,030 ($0.04) 8,118,107 $0.04
Diluted Earnings (Loss) Per Share 10,926,243 ($0.04) 8,553,455 $0.03
5
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
All statements and trend analyses contained in this item and elsewhere
in this report on Form 10-QSB relative to the future constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. These forward-looking statements are subject
to the business and economic risks faced by the Company and the Company's
actual results of operations may differ materially from those contained in
the forward looking statements. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date
hereof. The Company undertakes no obligation to publicly release any
revisions to these forward-looking statements to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
Results of operations for the periods discussed below should not be
considered indicative of the results to be expected in any future period and
fluctuations in operating results may also result in fluctuations in the
market price of the Company's Common Stock. The Company's quarterly and
annual operating results have in the past and may in the future vary
significantly depending on factors such as increased competition and
expiration of Enhanced Directory Assistance ("EDA") contracts, the rapidly
changing telecommunications market, changes in pricing policies by the
Company or its competitors, lengthy sales cycles, lack of market acceptance
or delays in the introduction of new versions of the Company's product or
features, the timing of the initiation of wireless services in new market
areas by telecommunications customers, and general economic conditions.
OVERVIEW
The Company continues to expand its network of call centers into new
geographic markets through existing call centers and the opening of new call
centers. A call center serving the New York area initially for Personal
Communications Service ("PCS") customers is in start-up phase. Projected
opening is for the second quarter of 1997. The Company expects to open
several new call centers during the remainder of 1997, serving PCS and
potentially cellular customers.
In January 1997, the Company discontinued service to GTE Mobilnet in the
San Diego market. During 1996 this contract accounted for approximately five
percent of the Company's revenues. GTE Mobilnet, previously operating under
the terms of a contract between the Company and US West NewVector, which
contract was to have been assigned to GTE Mobilnet as part of a market swap
between the two carriers, transferred service to a GTE operator services
entity.
The San Diego call center is currently serving two PCS carrier customers
rolling out service in California and Nevada. One of these carrier
customers is served under a trial arrangement.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated selected items
of the Company's statements of operations as a percentage of revenues.
Three Months Ended
March 31,
------------------
1997 1996
-------- -------
Revenues 100.0% 100.0%
Direct operating costs 54.3 47.2
General and administrative costs 55.8 41.1
Operating profit (loss) (10.1) 11.7
Interest and loan fees 2.2 3.8
6
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COMPARISON OF FIRST QUARTER 1997 TO FIRST QUARTER 1996
Revenues increased 6.1% to $4.5 million from $4.2 million. Revenues
from existing call centers grew 5.9% and accounted for substantially all of
this increase. This net increase is due exclusively to increases in call
volumes at all call centers except San Diego, which experienced a decrease in
call volume due to the completion of a contract with AirTouch and
discontinuation of service to GTE Mobilnet.
Revenue growth is less than in prior reported periods, primarily due to
the conclusion of service to two carriers from the San Diego call center.
Excluding the revenue related to this concluded service, revenue from
existing customers increased 16.2% in the first quarter of 1997 compared to
the first quarter of 1996.
Direct operating costs increased 22.0% to $2.4 million from $2.0
million. The increase was primarily due to the cost of operating an
additional call center in 1997 and to increased call volumes. As a
percentage of revenues, direct operating costs increased to 54.3% from 47.2%
primarily due to costs associated with two call centers serving only PCS
customers with recently initiated service and accordingly relatively small
call volumes. As these PCS carriers increase market penetration and generate
increased call volumes, the proportionate relationship of direct costs to
revenue is expected to decline. However, no assurance can be given that
market penetration will increase or that if it does, the call volumes will be
significant enough to impact the relationship of direct operating costs to
revenue. In addition, prior to efficient utilization of personnel and data,
the servicing of new geographic markets from existing call centers increases
direct operating costs as a percentage of revenue.
General and administrative costs increased 43.9% to $2.5 million from
$1.7 million. As a percentage of revenues, general and administrative costs
increased to 55.8% from 41.2% of revenues. This increase resulted primarily
from increased depreciation and amortization expense, expansion of technical
and support staff, the support of increased operational activity overall and
costs associated with the operation of an additional call center during 1997.
The Company is also in the process of opening a new call center to serve the
New York area. Although the pre-opening costs will be primarily recognized
in the second quarter of 1997, approximately $20,000 of general and
administrative costs were recognized and certain capital equipment was
acquired in the first quarter. Depreciation and amortization increased by
69.5% to $457,231 from $269,694 due to equipment upgrades for existing call
centers and the acquisition of new equipment for one new call center.
Other income for the three months ended March 31, 1997 was $159,194 and
consisted primarily of interest income. Other expense for the three months
ended March 31, 1996 was $38,926 and consisted primarily of litigation
settlement expenses of approximately $49,000 and interest income of $13,224.
Interest expense and loan fees declined 39.5% to $98,225 from $162,290.
This decline was attributable solely to the reduction in average debt
outstanding to $1.8 million from $3.8 million.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents are recorded at cost which
approximates their fair market value. As of March 31, 1997 the Company had
$12.7 million in cash and cash equivalents compared to $14.1 million at
December 31, 1996, a decrease of $1.4 million primarily from acquisition of
equipment.
Working capital was $13.5 million at March 31, 1997, compared to $15.0
at December 31, 1996. The decline is primarily due to use of cash for
capital equipment acquisitions, a decrease in outstanding accounts receivable
and an increase in current liabilities.
The Company has a two year, $3.0 million secured operating line of
credit with a commercial bank. Availability of the unused portion of the
line of credit is subject to borrowing base requirements and compliance with
loan covenants. At March 31, 1997, the Company had no borrowing against the
line of credit.
CASH FLOW FROM OPERATIONS. Net cash from operations for the three
months ended March 31, 1997 was $114,946, resulting primarily from the effect
of the noncash item, depreciation and amortization. One existing call
7
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center and one new call center primarily serve PCS customers which have
recently initiated service in some of their respective markets. Due to
the relatively small call volumes in these markets, these call centers were
net users of cash, while most existing call centers contributed to cash flow
from operations during the three months ended March 31, 1997.
CASH FLOW FROM INVESTING ACTIVITIES. Cash used in investing activities
was $1.5 million and was primarily related to capital expenditures for system
redundancy capabilities, equipment upgrades for certain locations and
acquisitions for a new call center in the New York area and relocation of an
existing call center.
CASH FLOW FROM FINANCING ACTIVITIES. Net cash provided by financing
activities was $33,051 and was primarily from the exercise of outstanding
warrants and stock options.
FUTURE CAPITAL NEEDS AND RESOURCES. The Company's future needs for
financial resources include amounts for purchase of equipment for the
upgrading of existing and establishment of new call centers and funding of
start-up losses for newly opened call centers. The Company believes its
existing capital resources and cash generated from operations will be
sufficient to meet its working capital and capital expenditure requirements
for the next twelve months.
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION.
SUBSEQUENT EVENT. The Company announced on May 7, 1997 that it had
signed a multi-year, national agreement with AT&T Wireless Services under
which regions of AT&T Wireless Services and its affiliates may elect to offer
the Company's EDA services to their subscribers. Specific regional decisions
to enter into the agreement have not yet been finalized. The timing and
amount of revenues and expenses associated with this agreement are difficult
to predict and will be primarily dependent on the number of regions which
enter into the agreement, the timing of when the Company begins to provide
its EDA service for those regions, the directory assistance call volumes
achieved in those markets and the timing and number of new call center
openings, if any.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
There are no exhibits to this report.
(b) REPORTS FILED ON FORM 8-K
There were no reports filed on Form 8-K in the first
quarter ended March 31, 1997.
8
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SIGNATURE
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 12, 1997
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>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE MARCH
31, 1997 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
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