<PAGE>
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, 1998
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.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
OREGON 93-0995165
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
8405 SW NIMBUS AVENUE, BEAVERTON, OREGON 97008
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(503) 643-9500
(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 EXCHANGE ACT 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
-- --
NUMBER OF SHARES OF COMMON STOCK OUTSTANDING AS OF MAY 14, 1998: 11,039,947
SHARES, NO PAR VALUE PER SHARE
<PAGE>
METRO ONE TELECOMMUNICATIONS, INC.
INDEX TO FORM 10 - QSB
PART I FINANCIAL INFORMATION PAGE NO.
Item 1. Financial Statements
Condensed Statements of Operations (Unaudited)
for the three months ended March 31, 1998 and 1997 1
Condensed Balance Sheets as of
March 31, 1998 (Unaudited) and December 31, 1997 2
Condensed Statements of Cash Flows (Unaudited)
for the three months ended March 31, 1998 and 1997 3
Notes to Condensed Financial Statements 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 6
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 8
Signatures 9
<PAGE>
METRO ONE TELECOMMUNICATIONS, INC.
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1998 1997
----------- ------------
Revenues $ 9,044,990 $ 4,486,012
----------- ------------
<S> <C> <C>
Costs and expenses:
Direct operating 4,792,615 2,433,738
General and administrative 4,001,144 2,503,771
----------- ------------
8,793,759 4,937,509
----------- ------------
Income (loss) from operations 251,231 (451,497)
Other income 65,241 159,194
Interest and loan fees (101,636) (98,225)
----------- ------------
Income (loss) before income taxes 214,836 (390,528)
Income tax expense 5,500 -
----------- ------------
Net income (loss) $ 209,336 $ (390,528)
----------- ------------
----------- ------------
Income (loss) per common share
Basic $.02 $(.04)
Diluted $.02 $(.04)
</TABLE>
The accompanying notes are an integral part of this statement.
1
<PAGE>
METRO ONE TELECOMMUNICATIONS, INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
----------- -----------
1998 1997
----------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 9,144,238 $ 8,554,301
Accounts receivable 4,516,769 4,628,992
Prepaid costs and other current assets 697,970 694,025
----------- -----------
Total current assets 14,358,977 13,877,318
Furniture, fixtures and equipment, net 14,570,162 14,632,340
Other assets 632,780 615,737
----------- -----------
$29,561,919 $29,125,395
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,678,829 $ 1,302,372
Accrued liabilities 333,813 991,743
Accrued payroll and related costs 1,429,337 1,022,708
Current portion of capital lease obligations 608,660 638,200
Current portion of long-term debt 138,291 78,161
----------- -----------
Total current liabilities 4,188,930 4,033,184
Capital lease obligations 416,225 548,620
Long-term debt 807,511 867,641
----------- -----------
5,412,666 5,449,445
----------- -----------
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; 50,000,000 shares
authorized, 11,039,947 and 10,925,676 shares,
respectively, issued and outstanding 37,778,463 37,514,496
Accumulated deficit (13,629,210) (13,838,546)
----------- -----------
Net shareholders' equity 24,149,253 23,675,950
----------- -----------
$29,561,919 $29,125,395
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of this statement.
2
<PAGE>
METRO ONE TELECOMMUNICATIONS, INC.
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1998 1997
---------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 209,336 $ (390,528)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 864,694 457,231
Loss on disposal of fixed assets 22,677 -
Changes in certain assets and liabilities:
Accounts receivable 112,223 168,468
Prepaid expenses and other assets (46,624) (231,472)
Accounts payable, accrued liabilities and
payroll costs 125,156 111,987
---------- -----------
Net cash provided by operating activities 1,287,462 115,686
---------- -----------
Cash flows from investing activities:
Capital expenditures (799,557) (1,536,949)
---------- -----------
Net cash used in investing activities (799,557) (1,536,949)
---------- -----------
Cash flows from financing activities:
Repayment of capital lease obligations (161,935) (179,137)
Proceeds from issuance of common stock upon
exercise of warrants 263,967 212,188
---------- -----------
Net cash provided by financing activities 102,032 33,051
---------- -----------
Net increase (decrease) in cash and cash equivalents 589,937 (1,388,212)
Cash and cash equivalents, beginning of period 8,554,301 14,136,574
---------- -----------
Cash and cash equivalents, end of period $9,144,238 $12,748,362
---------- -----------
---------- -----------
</TABLE>
The accompanying notes are an integral part of this statement.
3
<PAGE>
METRO ONE TELECOMMUNICATIONS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying interim condensed financial statements have been prepared by
Metro One Telecommunications, Inc. (the "Company") without audit and in
conformity with generally accepted accounting principles for interim financial
information. Accordingly, certain financial information and footnotes have been
omitted or condensed. In the opinion of management, the condensed financial
statements include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair statement of the results for the interim
periods. These condensed financial statements and notes thereto should be read
in conjunction with the Company's audited financial statements included in the
Company's Annual Report on Form 10-KSB for the year ended December 31, 1997.
The results of operations for the interim period shown in this report are not
necessarily indicative of results for any future interim period or the entire
fiscal year.
RECLASSIFICATION. Certain balances in the 1997 financial statements have been
reclassified to conform with 1998 presentation. Such reclassifications have no
effect on results of operations or shareholders' equity.
2. EARNINGS PER SHARE
Effective for the year ending December 31, 1997, the Company adopted SFAS No.
128, Earnings Per Share. SFAS No. 128 established new standards for
computing and presenting earnings per share. The per share amounts are based
on the weighted average number of common and dilutive common equivalent
shares assumed to be outstanding during the period of computation. Net
income for the calculation of both basic and diluted earnings per share is
the same for all periods.
The calculation of weighted-average outstanding shares is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-----------------------------
1998 1997
----------- -----------
<S> <C> <C>
Basic earnings per share 11,013,105 10,756,030
Common stock equivalents 268,002 -
----------- -----------
Diluted earnings per share 11,281,107 10,756,030
----------- -----------
----------- -----------
</TABLE>
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. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1998 1997
---------- ---------
<S> <C> <C>
Cash paid for interest expense $ 104,084 $ 91,809
Cash paid for income taxes 7,575 -
Stock issued in settlement of litigation - 270,000
</TABLE>
4
<PAGE>
METRO ONE TELECOMMUNICATIONS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
5. ACCOUNTING PRONOUNCEMENT
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS No. 131 establishes standards for
disclosure about operating segments in annual financial statements and selected
standards for related disclosures about products and services, geographic areas
and major customers. The Company believes the adoption of SFAS No. 131 will
have no material impact on current disclosures.
5
<PAGE>
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-KSB 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, the
expiration of Enhanced Directory Assistance-Registered Trademark- ("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 or their acceptance in new market areas by telecommunications
customers, the timing and expense of the Company's expansion of its national
call center network, general economic conditions and other factors.
OVERVIEW
The Company is a leading provider of EDA for the telecommunications
industry and has twelve significant EDA contracts with six different carriers
to provide EDA in numerous metropolitan markets. The Company expects to
continue to expand its share of the wireless telecommunications directory
assistance market by adding customer carriers to the existing national
network of call centers and by expanding this network into new geographic
markets to serve new and existing carrier customers. The Company anticipates
that it will open several new call centers during the remainder of 1998,
serving PCS and cellular customers.
In the first quarter of 1998, the Company discontinued service to Bell
Atlantic Mobile in the Baltimore and Philadelphia markets. This contract
accounted for approximately 2.4% of the Company's revenues for the first quarter
of 1998 and 16.5% of the Company's revenues for the 1997 fiscal year.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the items of the
Company's statements of operations as a percentage of revenues.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------
1998 1997
----------- ----------
<S> <C> <C>
Revenues 100.0% 100.0%
Direct operating costs 53.0 54.3
General and administrative costs 44.2 55.8
----- -----
Income (loss) from operations 2.8 (10.1)
Other income 0.7 3.6
Interest and loan fees (1.1) (2.2)
----- -----
Income (loss) before income taxes 2.4 (8.7)
Income tax expense 0.1 0.0
----- -----
Net income (loss) 2.3 (8.7)
----- -----
----- -----
</TABLE>
6
<PAGE>
COMPARISON OF FIRST QUARTER 1998 TO FIRST QUARTER 1997
Revenues increased 101.6% to $9.0 million from $4.5 million. Call
volume grew to over 14 million calls in the first quarter of 1998 from
approximately 7 million calls during the first quarter of 1997. This
increase was due primarily to increased call volumes under existing contracts
and additional call volumes from new contracts, and was partially offset by a
decrease in call volumes resulting from the expiration in the quarter of two
contracts to provide EDA services to Bell Atlantic Mobile.
Direct operating costs increased 96.9% to $4.8 million from $2.4 million.
This increase was primarily due to the costs associated with increased call
volumes and the cost of operating additional call centers in 1998. As a
percentage of revenues, direct operating costs decreased to 53.0% from 54.3%.
This decrease was due primarily to operating efficiencies associated with higher
call volumes, and was partially offset by increased personnel and data costs
associated with the start-up of new call centers.
General and administrative costs increased 59.8% to $4.0 million from $2.5
million. This increase resulted primarily from the investment in corporate
services necessary to support additional call centers. As a percentage of
revenues, general and administrative costs decreased to 44.2% from 55.8%. This
decreased resulted primarily from operating efficiencies associated with the
expansion of the Company's national network of call centers. Depreciation and
amortization increased by 89.1% to $865,000 from $457,000 due primarily to
equipment purchased for new call centers, upgrades for existing call centers and
corporate research and development activities.
Other income for the three months ended March 31, 1998 was $65,000 and
consisted primarily of interest income offset by losses on the disposition of
assets. Other income for the three months ended March 31, 1997 was $159,000 and
consisted primarily of interest income.
Interest expense and loan fees increased 3.5% to $102,000 from $98,000.
This increase was attributable to the increase in average debt outstanding to
$2.0 million from $1.8 million.
Income tax expense for the three months ended March 31, 1998 was $5,500,
for an effective tax rate of approximately 2.6%. This rate differs from the
combined federal and state statutory rate of approximately 39% due to the use of
net operating loss carryforwards. For the three months ended March 31, 1997,
the Company experienced a net loss and did not recognize income tax expense.
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, 1998 the Company had $9.1
million in cash and cash equivalents compared to $8.5 million at December 31,
1997, an increase of $590,000 primarily from cash provided by operations, offset
by the use of cash for capital expenditures.
Working capital was $10.2 million at March 31, 1998, compared to $9.8
million at December 31, 1997. The increase is primarily due to cash provided
by operations, offset by the use of cash for capital expenditures.
The Company has a $3.0 million secured operating line of credit with a
commercial bank. The line of credit expires in 1999. 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 the prime rate plus 0.25 percent and all assets of the
Company are pledged to the bank 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 by the
Company. As of March 31, 1998, the Company had no borrowings against this
Credit Facility. The Company also has a credit facility under which the
Company may borrow up to $1.0 million to finance purchases of capital
equipment. Borrowings bear interest at the prime rate (8.5 percent at March
31, 1998) plus 0.50 percent and are secured by the purchased equipment. As
of March 31, 1998, the Company had borrowings of $946,000 against this credit
facility. The terms of the loan call for an 18-month "interest only"
accumulation period through August 1998 followed by 42 monthly payments of
principal plus interest. The
7
<PAGE>
Company believes that current cash and cash equivalents, cash flows from
operations and available credit facilities are sufficient to meet current and
anticipated future capital requirements through 1998.
CASH FLOW FROM OPERATIONS. Net cash from operations for the three months
ended March 31, 1998 was $1.3 million, resulting primarily from net income and
the effect of noncash depreciation and amortization.
CASH FLOW FROM INVESTING ACTIVITIES. Cash used in investing activities was
$800,000 and was related primarily to capital expenditures for the upgrade and
expansion of existing call centers.
CASH FLOW FROM FINANCING ACTIVITIES. Net cash provided by financing
activities was $102,000 for the three months ended March 31, 1998, resulting
primarily from the exercise of warrants to purchase 114,271 shares of Common
Stock and the receipt of cash proceeds by the Company of $264,000. Cash
provided by financing activities was offset by the repayment of capital lease
obligations totaling $162,000.
FUTURE CAPITAL NEEDS AND RESOURCES. The primary uses of capital are
expected to be the expansion of existing call centers, the funding of
start-up operating losses for newly opened call centers, the payment of
principal and interest on indebtedness and the purchase of equipment and
development of technology for the improvement of existing and new call
centers. The Company anticipates that its capital expenditures will be
approximately $8.0 million to $10.0 million through the end of 1998,
resulting primarily from the projected expansion and planned improvements.
The Company believes its existing cash and cash equivalents, credit
facilities and cash from operations will be sufficient to fund its operations
through the end of fiscal 1998.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
27. Financial Data Schedule.
(b) REPORTS FILED ON FORM 8-K
There were no reports filed on Form 8-K in the first quarter ended March
31, 1998.
8
<PAGE>
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 14, 1998
/s/ Stebbins B. Chandor, Jr.
-----------------------------
Stebbins B. Chandor, Jr.
Senior Vice President
Chief Financial Officer
/s/ R. Tod Hutchinson
-----------------------------
R. Tod Hutchinson
Asst. Vice President, Controller
Chief Accounting Officer
9
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AS OF MAR-31-1998 AND THE RELATED STATEMENTS OF OPERATIONS AND CASH FLOWS
FOR THE PERIOD THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 9,144
<SECURITIES> 0
<RECEIVABLES> 4,517
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 14,359
<PP&E> 20,441
<DEPRECIATION> 5,871
<TOTAL-ASSETS> 29,562
<CURRENT-LIABILITIES> 4,189
<BONDS> 1,224
0
0
<COMMON> 37,778
<OTHER-SE> (13,629)
<TOTAL-LIABILITY-AND-EQUITY> 29,562
<SALES> 0
<TOTAL-REVENUES> 9,045
<CGS> 0
<TOTAL-COSTS> 8,794
<OTHER-EXPENSES> (65)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 101
<INCOME-PRETAX> 215
<INCOME-TAX> 6
<INCOME-CONTINUING> 209
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 209
<EPS-PRIMARY> $0.02
<EPS-DILUTED> $0.02
</TABLE>
