<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 22, 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
METRO ONE TELECOMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
OREGON 93-0995165
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
</TABLE>
11200 MURRAY SCHOLLS PLACE, BEAVERTON, OREGON 97007, (503) 643-9500
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
TIMOTHY A. TIMMINS, PRESIDENT AND CHIEF EXECUTIVE OFFICER
11200 MURRAY SCHOLLS PLACE, BEAVERTON, OREGON 97007, (503) 643-9500
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
--------------------------
COPIES TO:
<TABLE>
<S> <C>
Neal H. Brockmeyer Cary K. Hyden
Carol A. Pfaffmann R. Scott Shean
Heller Ehrman White & McAuliffe Latham & Watkins
601 South Figueroa Street, 40th Floor 650 Town Center Drive, Suite 2000
Los Angeles, California 90017-5758 Costa Mesa, California 92626
(213) 689-0200 (714) 540-1235
</TABLE>
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this registration statement becomes effective.
--------------------------
If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. / /
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. / /
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
AGGREGATE PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PRICE PER SHARE(1) PRICE(1) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, no par value(2)........ 2,377,625 $16.75 $39,825,219 $11,072
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) under the Securities Act of 1933 based upon the
closing sale price of the registrant's common stock on October 21, 1999, as
reported on the Nasdaq National Market.
(2) Includes 310,125 shares to be issued pursuant to the underwriters'
over-allotment option.
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED OCTOBER 22, 1999
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
2,067,500 SHARES
[LOGO]
COMMON STOCK
$ PER SHARE
- --------------------------------------------------------------------------------
Metro One Telecommunications, Inc. is offering 2,000,000 shares and the selling
shareholders identified in this prospectus are offering 67,500 shares. Metro One
will not receive any proceeds from the sale of the shares by the selling
shareholders. This is a firm commitment underwriting.
The common stock is listed on the Nasdaq National Market under the symbol
"MTON." On October 21, 1999, the last reported sale price of our common stock on
the Nasdaq National Market was $16.75 per share.
INVESTING IN THE COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 8.
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -----------
<S> <C> <C>
Price to the public............................ $ $
Underwriting discount..........................
Proceeds to Metro One..........................
Proceeds to selling shareholders...............
</TABLE>
Metro One has granted an over-allotment option to the underwriters. Under this
option, the underwriters may elect to purchase a maximum of 310,125 additional
shares from Metro One within 30 days following the date of this prospectus to
cover over-allotments.
- --------------------------------------------------------------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
CIBC WORLD MARKETS
U.S. BANCORP PIPER JAFFRAY
The date of this prospectus is , 1999.
<PAGE>
[Inside Front Cover]
The Metro One National Call Center Network
IN THE CENTER OF THE PAGE IS A MAP OF THE UNITED STATES WITH METRO ONE CALL
CENTER CITIES INDICATED. BACKGROUND CONTAINS LOGOS OF VARIOUS SERVICES AND
FEATURES. PICTURES ARE SUPERIMPOSED ON AND AROUND THE MAP AS FOLLOWS:
[PICTURE OF THE INTERIOR OF A CALL CENTER]
[CAPTION] We provide enhanced directory assistance and information services
through our national network of call centers. Strategic locations enable us to
deliver our services on both a local and national basis.
[PICTURE OF THE INTERIOR OF LAB/EQUIPMENT ROOM]
[CAPTION] Our equipment laboratories enable the development, testing and
delivery of our services and features.
[PICTURE OF OPERATOR]
[CAPTION] Live friendly operators are available to assist callers throughout
each call. Callers simply press the star [Q] key to return to the operator at
any time.
[PICTURE OF PEOPLE AROUND COMPUTER MONITOR]
[CAPTION] Ongoing operator training in advanced search techniques and etiquette
leads to consistent, high quality service.
[PICTURE OF COMPUTER AND SWITCHING EQUIPMENT]
[CAPTION] Our advanced technology is based on customized software running Sun
Microsystems servers and Excel switching equipment.
[PICTURE OF OPERATIONS CENTER]
[CAPTION] Our network operations center provides 24 hour support for our call
center network, ensuring the availability of our services 365 days a year.
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Prospectus Summary.......................................... 4
Risk Factors................................................ 8
Forward-Looking Statements.................................. 16
Common Stock Market Price Data.............................. 16
Use of Proceeds............................................. 17
Dividend Policy............................................. 17
Capitalization.............................................. 18
Selected Financial Data..................................... 19
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 20
Business.................................................... 27
Management.................................................. 35
Certain Transactions........................................ 38
Principal and Selling Shareholders.......................... 39
Underwriting................................................ 40
Legal Matters............................................... 43
Experts..................................................... 43
Where You Can Find More Information......................... 43
Index to Financial Statements............................... F-1
</TABLE>
------------------------
In this prospectus, "Metro One," "we," "us" and "our" refer to Metro One
Telecommunications, Inc. and the term "common stock" refers to our Common Stock,
no par value.
Metro One's principal executive offices are located at 11200 Murray Scholls
Place, Beaverton, Oregon 97007. Our telephone number is (503) 643-9500. Our
website address is http://www.metro1.com. The information on our website is not
incorporated by reference into this prospectus.
Unless otherwise stated, the information contained in this prospectus assumes no
exercise of the over-allotment option granted to the underwriters.
The underwriters are offering the shares subject to various conditions and may
reject all or part of any order.
"Metro One Telecommunications," "Metro One," "Enhanced Directory Assistance,"
"StarBack," "AutoBack" and "NumberBack" are registered U.S. trademarks of Metro
One. Metro One also has applications pending for U.S. trademarks for "MetroDex,"
"TeleConcierge," and "LocationPro." Other trademarks used in this prospectus are
the property of their respective owners.
3
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED IN OTHER PARTS OF THIS PROSPECTUS.
BECAUSE IT IS A SUMMARY, IT DOES NOT CONTAIN ALL OF THE INFORMATION THAT YOU
SHOULD CONSIDER BEFORE INVESTING IN THE SHARES. YOU SHOULD READ THE ENTIRE
PROSPECTUS CAREFULLY.
OUR COMPANY
Metro One is a leading independent developer and provider of enhanced directory
assistance and information services for the telecommunications industry. We
primarily contract with wireless carriers to provide our services to their
subscribers. Our carrier customers include Sprint PCS, AT&T Wireless Services,
Pacific Bell Wireless, AirTouch Communications, Nextel Communications and ALLTEL
Communications, Inc. The volume of requests for enhanced directory assistance
and information services that we handled for our carrier customers grew from
42 million requests in 1997 to 93 million requests in the first nine months of
1999.
As a voice telephony portal, that is, an access point to useful information
through a telephone conversation with a live operator, we offer convenient and
practical enhanced directory assistance and information services. We have
situated our live operators within a network of 22 call centers strategically
located throughout the United States. We added significantly to this network in
1999 and expect to add three new call centers by the end of 1999 and at least
three new call centers during 2000. We provide information beyond basic
telephone listings, such as local events information, movie listings, restaurant
reservations and other useful information. We deliver our services using an
array of connectivity features, including call completion and our patented
StarBack feature, which allows callers to return to a live operator by pressing
the star [Q] key on their telephone.
We plan to continue to add new services, content and connectivity features that
we can deliver through our call center network and the voice telephony portal we
have created. We also intend to develop additional versions of our services for
delivery through other portals in private networks as well as public ones, such
as the Internet. We are developing new features such as MetroDex, which allows
callers to use their telephone or the Internet to access their personal or
corporate contacts databases, and LocationPro, which provides location-based
services, including turn-by-turn driving directions. We also are developing
web-based versions of some of our services, such as TeleConcierge, in which
callers can check the status of their restaurant reservations over the telephone
or the Internet. In developing these services and features, we have an active
program of seeking U.S. patents or other protection for the underlying
technology and methods of use.
The telecommunications industry is experiencing unprecedented change and strong
growth. Two rapidly growing segments of the industry are the wireless market and
the competitive local exchange market. According to the International
Telecommunication Union, an international telecommunications industry group, the
worldwide wireless industry generated $154 billion in revenue in 1998 and is
projected to grow to $315 billion in revenue in 2002. The competitive local
exchange industry generated $6.6 billion in revenue in 1998 and is projected to
grow to $26.1 billion in revenue in 2001, according to the Yankee Group, a
telecommunications market research firm. To date, we have focused primarily on
the domestic wireless directory assistance market because of the rapid growth in
the wireless telecommunications market and our belief that our services are
especially attractive to wireless telephone users. We are also marketing to
landline carriers, particularly competitive local exchange carriers, as we
believe increasing competition will result in the need for carriers to
differentiate their product offerings and to outsource activities such as
directory assistance.
Our services offer carriers the opportunity to differentiate themselves in a
highly competitive marketplace by providing high quality, value-added services
to their subscribers. We believe that our services can increase carriers'
revenues by increasing subscriber satisfaction, the number of calls made
4
<PAGE>
and, in the case of wireless and long distance carriers, the amount of billable
airtime. Further, our national call center network and integrated search engine
and database systems allow carriers operating in multiple markets to offer
consistent enhanced directory assistance and other information services on a
nationwide basis. This consistency permits greater system-wide marketing and
brand identification for the carriers.
Under our contracts, carriers agree to route some or all of their directory
assistance and/or text messaging calls to us. We are also able to offer our
services to multiple carriers within the same market. When a carrier's
subscribers dial a typical directory assistance number, such as "411,"
"555-1212" or "00," the calls are answered by our operators identifying the
service by that carrier's brand name, such as "AT&T Connect," "AirTouch 411
Connect" or "Sprint PCS Directory Assistance." Each carrier establishes its own
fee structure for its subscribers. Metro One charges carriers directly on a
charge per call basis and bears no subscriber collection risk.
OUR BUSINESS STRATEGY
Metro One's business strategy includes the following key elements:
- Build on our current carrier relationships, while seeking new domestic and
international customers, including landline carriers and other corporate
customers;
- Develop and offer additional value-added services and features;
- Expand our national call center network and its capabilities, while adding
greater bandwidth, storage capacity, speed and efficiency to our systems;
- Enhance the quantity and quality of our current content databases; and
- Leverage our voice telephony portal by delivering greater volumes of
existing and new services through our call center network as well as through
other portals.
RECENT DEVELOPMENTS
On October 21, 1999, we announced that we entered into a multi-year contract
with ALLTEL Communications, Inc. to provide our enhanced directory assistance
services to substantially all of its wireless subscribers. Previously, we had
provided service to a limited number of ALLTEL subscribers. We intend to service
the additional subscribers primarily through our existing call center network.
5
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common stock offered by Metro One........................... 2,000,000 shares
Common stock offered by the selling shareholders............ 67,500 shares
Common stock to be outstanding after this offering.......... 13,409,877 shares
Use of proceeds............................................. To develop or acquire technologies,
features and content complementary
to our business and to expand our
call center and network capacity to
serve existing and potential
customers; to reduce certain
outstanding indebtedness; and for
general corporate purposes,
including possible acquisitions and
other corporate development
activities and working capital. See
"Use of Proceeds."
Nasdaq National Market symbol............................... MTON
</TABLE>
- ---------------------
The number of shares to be outstanding after this offering is based on the
number of shares outstanding as of October 15, 1999, and excludes:
- 1,539,000 shares of common stock issuable on exercise of options outstanding
under our Stock Incentive Plan;
- 405,000 shares of common stock reserved for future issuance under our Stock
Incentive Plan; and
- 150,000 shares of common stock reserved for future issuance under our 1999
Employee Stock Purchase Plan.
6
<PAGE>
SUMMARY FINANCIAL DATA
(In thousands, except per share, call center and call volume data)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------ -------------------
1996 1997 1998 1998 1999
-------- -------- -------- -------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues........................................... $17,834 $26,090 $45,139 $31,280 $52,113
------- ------- ------- ------- -------
Direct operating costs............................. 8,334 13,017 23,107 16,104 30,481
General and administrative costs................... 7,615 11,702 18,334 13,099 19,795
------- ------- ------- ------- -------
Income from operations............................. 1,885 1,371 3,698 2,077 1,837
------- ------- ------- ------- -------
Net income......................................... $ 1,166 $ 1,432 $ 3,603 $ 2,026 $ 1,464
======= ======= ======= ======= =======
Basic earnings per share(1)........................ $ 0.13 $ 0.13 $ 0.33 $ 0.18 $ 0.13
======= ======= ======= ======= =======
Diluted earnings per share(1)...................... $ 0.12 $ 0.13 $ 0.32 $ 0.18 $ 0.12
======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1999
-------------------------
ACTUAL AS ADJUSTED(2)
-------- --------------
(unaudited)
<S> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments......... $ 3,891 $ 27,583
Working capital........................................... 3,502 29,337
Total assets.............................................. 48,100 71,792
Long-term obligations..................................... 6,480 1,409
Shareholders' equity...................................... 31,499 62,405
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------ ---------------------
1996 1997 1998 1998 1999
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
OTHER DATA (unaudited)(3):
EBITDA(4).......................... $ 3,207 $ 3,634 $ 7,472 $ 4,783 $ 6,130
Cash flow from operating
activities(3).................... $ 2,912 $ 3,293 $ 6,546 $ 5,265 $ 5,983
New call centers opened during
period........................... 1 4 2 1 4
Call centers in operation at end of
period........................... 12 16 18 17 22
Call volume........................ 30 million 42 million 71 million 49 million 93 million
</TABLE>
- ---------------------------
(1) See Note 9 of the Notes to Financial Statements included elsewhere in this
prospectus for information about how we calculated basic and diluted
earnings per share.
(2) The "as adjusted" column reflects the application of the proceeds from the
sale of 2,000,000 shares of common stock offered by Metro One in this
offering, at an assumed public offering price of $16.75 per share, and the
use of net proceeds as described under "Use of Proceeds."
(3) Cash flow from operating activities for the years ended December 31, 1996,
1997 and 1998 are audited.
(4) "EBITDA" is defined as income from operations plus depreciation and
amortization expense. EBITDA should not be construed as a substitute for
operating income or a better measure of liquidity than cash flow from
operating activities, which is determined in accordance with generally
accepted accounting principles. EBITDA is not necessarily a measure of our
ability to fund our cash needs and is not necessarily comparable to
similarly titled measures of other companies.
7
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISKS AND UNCERTAINTIES BEFORE YOU
INVEST IN OUR COMMON STOCK. INVESTING IN OUR COMMON STOCK INVOLVES RISK. IF ANY
OF THE FOLLOWING RISKS OR UNCERTAINTIES ACTUALLY OCCUR, OUR BUSINESS, FINANCIAL
CONDITION OR RESULTS OF OPERATIONS COULD BE MATERIALLY ADVERSELY AFFECTED. THE
FOLLOWING RISKS AND UNCERTAINTIES ARE NOT THE ONLY ONES FACING US. ADDITIONAL
RISKS AND UNCERTAINTIES OF WHICH WE ARE UNAWARE OR WHICH WE CURRENTLY BELIEVE
ARE IMMATERIAL COULD ALSO MATERIALLY ADVERSELY AFFECT OUR BUSINESS, FINANCIAL
CONDITION OR RESULTS OF OPERATIONS. IN ANY CASE, THE TRADING PRICE OF OUR COMMON
STOCK COULD DECLINE, AND YOU MAY LOSE ALL OR PART OF YOUR INVESTMENT. SEE ALSO
"FORWARD-LOOKING STATEMENTS."
OUR QUARTERLY AND ANNUAL OPERATING RESULTS FREQUENTLY VARY SIGNIFICANTLY DUE IN
PART TO FACTORS OUTSIDE OUR CONTROL.
In the future, as in the past, our quarterly and annual operating results may
vary significantly as a result of a number of factors. We cannot control many of
these factors, which include, among others:
- Changes in the telecommunications market, including the addition or
withdrawal of carriers from the market, changes in technology and increased
competition from existing and new competitors;
- The timing of the commencement of our services under new or existing
contracts with our carrier customers, which depend in part on the customers'
ability to adapt their networks to allow them to transfer calls to us and
bill for call completion;
- The timing and expense of our call center network expansion, including
increased staffing and infrastructure expenses related to anticipated new
call volume;
- The addition or expiration of contracts with carrier customers;
- Changes in our or our competitors', customers' or suppliers' pricing
policies;
- Lengthy sales cycles for new and extended contracts;
- Lack of market acceptance or delays or increased development costs related
to the introduction of our services or features; and
- General economic conditions.
For these reasons, you should not rely on period-to-period comparisons of our
financial results as an indication of any future results. Our future operating
results could fall below the expectations of securities industry analysts or
investors. Any such shortfall could result in a decline in the market price of
our common stock. Fluctuations in our operating results will likely increase the
volatility of our common stock price.
THE RAPIDLY CHANGING TELECOMMUNICATIONS MARKET COULD UNFAVORABLY AFFECT US.
The telecommunications market is subject to rapid change and uncertainty that
may result in competitive situations which could unfavorably affect us. These
changes and uncertainties are due to, among other factors:
- Mergers, acquisitions and alliances among carriers and among our
competitors, which can result in fewer carriers in the marketplace, lost
carrier customers, increased negotiating leverage for newly affiliated
carriers and more effective competitors;
- Changes in the regulatory environment, which may affect us directly, by
affecting our ability to access and update listings data at a reasonable
cost, or indirectly, by restricting our carrier customers' ability to
operate or provide a competitive service;
8
<PAGE>
- Increasing availability of alternative methods for delivery of directory
assistance and other information services, including the Internet; and
- Evolving industry standards, including frequent technological changes and
new product introductions.
WE HAVE A LIMITED NUMBER OF CONTRACTS WITH A SMALL NUMBER OF CARRIER CUSTOMERS.
IF WE FAIL TO EXTEND OR REPLACE THESE CONTRACTS, OR IF THESE CONTRACTS ARE
TERMINATED PRIOR TO THEIR EXPIRATION, OUR BUSINESS COULD BE ADVERSELY AFFECTED.
A limited number of customers account for substantially all our revenues. For
example, our top five customers accounted for approximately 97% of our revenues
in 1998 and approximately 98% of our revenues in the first nine months of 1999.
Of our two largest customers, Sprint PCS accounted for approximately 38% of our
revenues in 1998 and approximately 42% of our revenues for the first nine months
of 1999, and AT&T Wireless Services accounted for approximately 17% of our
revenues in 1998 and approximately 30% of our revenues for the first nine months
of 1999. The parent of Sprint PCS has entered into an agreement to be merged
into MCI WorldCom, Inc. Our business would be adversely affected by the loss of
either Sprint PCS or AT&T Wireless Services and could be adversely affected by
the loss of any other significant customer.
Of our contracts with significant customers, two expire in 2000, one expires in
2001 and the remainder, including Sprint PCS and AT&T Wireless Services, expire
in 2002 and beyond. Our contracts contain performance and other standards and
may be terminated prior to their scheduled expiration dates in specified
circumstances. In addition, Sprint PCS may, on payment of a termination fee,
accelerate the termination date of its contract to as early as March 31, 2000,
for any or no reason, by notifying us before March 31, 2000.
If we fail to extend or replace our contracts, or our contracts are terminated
prior to their expiration, our business could be adversely affected. Although we
seek to increase the number of our customers, and maintain good relationships
with our existing customers, a small number of companies dominate the
telecommunications market. This limits the potential customer base and our
expansion opportunities.
WE HAVE A LONG SALES CYCLE WHICH MAY CAUSE DELAYS THAT ADVERSELY AFFECT OUR
REVENUE GROWTH AND OPERATING RESULTS.
A customer's decision to contract for our directory assistance and information
services involves a significant commitment of technical and other resources. As
a result, we have a long sales cycle for both new and extended contracts,
particularly with larger customers. The selling process involves demonstrating
to the customer the value-added benefits of outsourcing their directory
assistance and using our services rather than those of our competitors. Any
delays due to lengthy sales cycles could significantly affect our revenue growth
and operating results.
OUR OPERATING RESULTS ARE SIGNIFICANTLY AFFECTED BY OUR ABILITY TO ACCURATELY
ESTIMATE THE AMOUNT AND TIMING OF CALL VOLUME. THE ACTUAL AMOUNT AND TIMING OF
CALL VOLUME IS OFTEN SUBJECT TO FACTORS OUTSIDE OF OUR CONTROL.
Our operating results are significantly affected by costs incurred for staffing
and expanding infrastructure. We incur significant staffing and general and
administrative costs in anticipation of call volume under our customer
contracts. If such call volume does not arrive as scheduled or in the amount
anticipated, or at all, our operating results can be adversely affected. For
example, during the second and third quarters of 1999, we expanded our call
center operations in anticipation of rolling out service in new markets for
several customers. However, due to several factors beyond our control, in some
instances the carriers were unable to deliver the anticipated volume of calls as
scheduled. This
9
<PAGE>
contributed to an increase in our operating expenses for those periods without a
corresponding increase in revenues from the anticipated call volume.
WE FACE SUBSTANTIAL COMPETITION FROM A NUMBER OF OTHER COMPANIES.
Many of our competitors in the directory assistance market, including the
regional Bell operating companies, have far greater resources and better name
recognition. The regional Bell operating companies and GTE Corporation also have
the advantageous position of being the local telephone carrier in their area of
operation. Some of these companies, including a former enhanced directory
assistance customer, Ameritech Cellular, are or may be developing their own
versions of expanded directory assistance services. We also face competition
from a number of other independent directory assistance providers. If we are
unable to compete successfully, it could have an adverse effect on our business,
financial condition and results of operations. Our ability to compete
successfully depends, in part, on our ability to anticipate and appropriately
respond to many factors, including the introduction of new services and products
by our competitors, changes in subscriber preferences, changes in economic
conditions and discount pricing strategies by our competitors.
OUR INABILITY TO ACHIEVE DESIRED PRICING LEVELS COULD ADVERSELY AFFECT OUR
PROFITABILITY AND OPERATIONS.
We are subject to competitive pressures with respect to pricing, which could
adversely affect our profit-ability and operations. The prices that we can
charge our carrier customers are subject to the terms of our contracts, the
changing telecommunications market, the relative leverage of the negotiating
parties and the overall competitive landscape. We currently charge our carriers
on a per call basis, with prices varying in some cases based on call volume. Our
long-term strategy is based in part on reducing the price we charge our
customers. Generally, our pricing levels have declined and, in the future, will
likely continue to decline as call volume increases. Substantially reduced
pricing without a corresponding increase in volume could adversely affect our
ability to operate profitably.
WE ARE DEPENDENT ON THE WIRELESS TELECOMMUNICATIONS INDUSTRY, AND A DECREASE IN
WIRELESS USAGE BY SUBSCRIBERS COULD HAVE AN ADVERSE IMPACT ON OUR RESULTS OF
OPERATIONS.
Almost all of our business comes from providing enhanced directory assistance
and information services to our wireless customers' subscribers. A decrease in
wireless usage by subscribers could have an adverse effect on our results of
operations. Wireless usage by subscribers appears to be affected by a number of
factors, including pricing, safety concerns, reliability and availability of the
wireless network, government regulation and reliability and availability of
alternative technologies.
HEALTH CONCERNS RELATING TO THE USE OF WIRELESS TELEPHONES MAY REDUCE THE USE OF
SUCH TELEPHONES AND HAVE AN ADVERSE EFFECT ON OUR BUSINESS.
Media reports have suggested that certain radio frequency emissions from
wireless telephones may be linked to various health concerns, including cancer,
and may interfere with various electronic medical devices, including hearing
aids and pacemakers. Concerns over radio frequency emission may have the effect
of discouraging the use of wireless telephones. Any decrease in the use of
wireless telephones could result in a decrease in our call volume and, thus,
have an adverse effect on our business.
WE NEED TO EXPAND CALL VOLUME AND INCREASE EFFICIENCIES IN ORDER TO BE
SUCCESSFUL.
In order to successfully execute our business strategies, we need to increase
the volume of calls made to our call center network, while realizing the
benefits of operating leverage (that is, revenues growing at a faster rate than
operating expenses). We intend to increase call volume by seeking additional
customers, including landline carrier customers, as well as seeking additional
business from our existing customers, in the areas served by our call center
network. We have limited experience in the landline
10
<PAGE>
market, which is dominated by the regional Bell operating companies and GTE
Corporation. If we are unable to expand our wireless business or attract
significant landline business, on a cost effective basis or at all, we may be
unable to increase profitability or sustain past growth rates.
IF WE ARE UNABLE TO ANTICIPATE CHANGES IN TECHNOLOGY AND INDUSTRY STANDARDS AND
TO DEVELOP NEW SERVICES AND FEATURES, WE MAY NOT SUCCEED.
Our success depends, in part, on our ability to anticipate changes in technology
and industry standards and to develop and introduce new services and features
that are accepted by the marketplace and cost effective for us to provide as a
part of our overall service offerings. The development of new services and
features can be very expensive. Further, given the rapid technological changes,
frequent introduction of new products, services and features, and changing
consumer demands that characterize our industry, it can be difficult to
correctly anticipate future changes in technology and industry standards. If we
fail to develop new services and features, encounter difficulties that delay the
introduction of such services and features, or incorrectly anticipate future
changes and develop services and features that are not accepted by the
marketplace or are not cost effective for us to provide as a part of our overall
service offerings, we may not succeed at our business.
ALTERNATIVE METHODS FOR DELIVERY OF DIRECTORY ASSISTANCE AND INFORMATION
SERVICES COULD REDUCE THE DEMAND FOR OUR SERVICES.
Our business comes primarily from providing enhanced directory assistance and
information services to telephone users. However, information can be transmitted
in other ways, including more intelligent communications devices and other
technologies and protocols, and over the Internet. For example, as the Internet
continues to develop and becomes easier to use and access, technologies may be
developed that decrease or eliminate the demand for telephone-based or
voice-based directory or information services. Widespread acceptance of existing
and developing technologies and protocols, such as voice recognition and
wireless application protocol, could adversely affect our business. Our call
volume could decline dramatically if telephone users change their usage habits
and rely on the Internet or other alternatives as their primary source for
information.
SYSTEMS FAILURES, DELAYS AND OTHER PROBLEMS COULD HARM OUR REPUTATION AND
BUSINESS, CAUSE US TO LOSE CUSTOMERS AND EXPOSE US TO CUSTOMER LIABILITY.
Our success also depends on our ability to provide reliable services. Our
operations could be interrupted by any damage to or failure of our network, our
connections to third parties, our computer hardware or software or our
customers' or suppliers' computer hardware or software. Any such damage or
failure could disrupt the operations of our network and the provision of our
services and result in the loss of current and potential customers. In addition,
as call volume increases, we will need to expand and upgrade our technology and
network hardware and software in order to provide services. Capacity limits on
our technology and network hardware and software may make it difficult for us to
expand and upgrade our systems in a timely and economical manner.
IF WE ARE UNABLE TO OBTAIN OR ADEQUATELY UPDATE DIRECTORY OR INFORMATION CONTENT
AT AN ECONOMICAL COST, WE MAY BE UNABLE TO PROVIDE CURRENT LEVELS OF SERVICE OR
IMPROVE OUR SERVICE.
Our operations depend on our access to the names, telephone numbers and other
information that we supply directly to callers or we use in providing our
services. The availability, cost, quality and usefulness of such data varies
widely across geographic regions. If we are unable to obtain or update directory
or information content at an economical cost, we may be unable to provide
current levels of service, improve our enhanced directory assistance service or
provide new services and features. Ultimately, the satisfaction of our carrier
customers, and our ability to renew and extend our current customer contracts
and enter into new customer contracts, depends on the quality of services we
11
<PAGE>
provide to the carrier's subscribers. The quality of our services is directly
related to the quality of our listings data and other information content.
AS WE RELY ON A LIMITED NUMBER OF SUPPLIERS, AN ABRUPT LOSS OF ANY KEY SUPPLIER
COULD ADVERSELY AFFECT OUR BUSINESS OPERATIONS OR DELAY OUR DEVELOPMENT EFFORTS.
We rely on some key suppliers to provide us with programming and engineering
services and to license us their technology. An abrupt loss of any current key
supplier could cause a disruption in our operations or a delay in our
development efforts, including our planned expansion of our call center network,
and could adversely affect our business operations.
IF WE ARE UNABLE TO CONTINUE TO ATTRACT AND RETAIN QUALIFIED SENIOR MANAGEMENT,
TECHNICAL PERSONNEL AND CALL CENTER OPERATORS, OR OUR CALL CENTER STAFF IS
UNIONIZED, OUR OPERATIONS COULD BE ADVERSELY AFFECTED.
Our success depends to a significant extent on the efforts and abilities of our
senior management, technical personnel and call center operators. The loss of
the services of our senior management and technical personnel could have a
material adverse effect on our business and our ability to meet our strategic
objectives. We also depend on the continued service of our call center
operators, who we hire from the available labor pool. As we continue to expand
our call center network, the ability to attract and retain additional qualified
senior management, technical personnel, operators and other skilled employees is
extremely important to the operation of our business. If we are unable to
attract and retain qualified individuals, or we are required to pay
significantly higher wages and other benefits to such individuals, or if our
call center staff is unionized, it could adversely affect our business
operations. We find it more difficult to recruit and retain qualified
individuals during periods of low unemployment. We may be subject to increasing
pressure to offer higher wages and other benefits. In our call center hiring, we
may also feel the effects of the telecommunications industry in general, which
has widespread union membership among its operators and other workers.
IF WE ARE UNABLE TO USE AND PROTECT OUR INTELLECTUAL PROPERTY, WE MAY BE UNABLE
TO PROVIDE SOME OF OUR ENHANCED DIRECTORY ASSISTANCE AND INFORMATION SERVICES OR
PROFITABLY OPERATE OUR BUSINESS.
We regard aspects of our enhanced directory assistance and information services
and their features and processes to be proprietary. If we are unable to use and
protect our intellectual property, we may be unable to provide some of our
enhanced directory assistance and information services or profitably operate our
business. To a limited extent, we rely on a combination of trade secret, patent
and other intellectual property law, nondisclosure agreements and other
protective measures to protect our intellectual property. However, these
measures may be difficult and costly to meaningfully enforce. Further, while we
are not aware of any pending or threatened claims that we are infringing on the
intellectual property rights of others, such claims could have a material
adverse effect on our business. If any infringement claim is asserted against
us, we may seek to obtain a license of the other party's intellectual property
rights. However, the other party may refuse to grant a license or require terms
that we would find to be unreasonable. In addition, attempts to enforce our
intellectual property rights may bring into question the validity of these
rights. Litigation with respect to patents or other intellectual property rights
can result in substantial costs and diversion of management and other resources.
See "Business--Intellectual Property."
FUTURE ACQUISITIONS MAY STRAIN OUR OPERATIONS.
We intend to evaluate, and in the future may pursue, acquisition opportunities
that are consistent with our business strategy. If we fail to adequately address
the financial and operational risks associated with such acquisitions, future
acquisitions may adversely harm our business.
12
<PAGE>
These risks can include, among other things:
- Difficulties in assimilating the operations, technology, information systems
and personnel of the acquired company, including the inability to maintain
uniform standards, controls and policies, and the loss of key employees of
the acquired company;
- Diversion of management's attention from other business concerns;
- Impairment of relationships with licensors, customers and suppliers;
- Difficulties in entering into markets in which we have no direct prior
experience;
- Use of cash resources, potentially dilutive issuances of equity securities
and incurrence of additional debt and contingent liabilities; and
- Significant write-offs and amortization expenses related to goodwill and
other intangible assets.
IF WE EXPAND OUR BUSINESS INTO INTERNATIONAL MARKETS, WE WILL ENCOUNTER RISKS
WHICH COULD ADVERSELY AFFECT US.
We currently operate only in the United States; however, an element of our
business strategy is to continue to explore international business
opportunities. If we expand into one or more international markets, we will
encounter significant risks and uncertainties. These risks and uncertainties
include increased operational difficulties arising from, among other things:
- Our ability to attract sufficient business or locate a suitable partner or
joint venture candidate to enable us to overcome logistical and economic
barriers to entry;
- Our ability and cost to gather sufficient information content and listings
data, properly modify our services and features to meet applicable
standards, and hire and train personnel;
- Fluctuations in foreign currency exchange rates; and
- Political, regulatory and economic developments and cultural differences.
REGULATIONS AFFECTING OUR CUSTOMERS AND SUPPLIERS AND FUTURE REGULATIONS TO
WHICH WE MAY BE SUBJECT MAY ADVERSELY AFFECT OUR BUSINESS.
Although we are not directly subject to telecommunications industry regulation,
the business of our customers and certain suppliers is subject to regulation
that indirectly affects our business. We cannot predict when, or upon what terms
and conditions, further regulation or deregulation might occur or the effect of
regulation or deregulation on our business.
WE WILL HAVE BROAD DISCRETION IN USING THE PROCEEDS OF THIS OFFERING, AND WE
CANNOT GUARANTEE THAT OUR USE OF THE PROCEEDS WILL ENHANCE THE VALUE OF YOUR
INVESTMENT.
Our management will have broad discretion over the allocation of the net
proceeds from the offering, as well as over the timing of their expenditure. As
a result, you will be relying on our management's judgment with only limited
information about its specific intentions for the use of proceeds. The failure
of our management to apply the net proceeds effectively could adversely affect
our future prospects.
RESTRICTIONS AND COVENANTS IN OUR LOAN AGREEMENTS MAY LIMIT OUR ABILITY TO
CONDUCT OUR BUSINESS AND COULD PREVENT US FROM OBTAINING FUNDS WHEN WE NEED THEM
IN THE FUTURE.
Our loan agreements contain a number of significant limitations that may
restrict our ability to, among other things, conduct our business and borrow
additional money, pay dividends or other distributions to our shareholders, make
investments, create liens on or sell our assets, enter into transaction with
affiliates, and engage in mergers or consolidations.
13
<PAGE>
These restrictions may limit our ability to obtain future financing, fund needed
capital expenditures or withstand a future downturn in our business or the
economy. If we violate the restrictions of our loan agreements, our lenders may
require us to repay our outstanding indebtedness immediately, which may
significantly impair our business. As of September 30, 1999, we did not meet one
of the financial ratio requirements under our loan agreement with a commercial
bank. Although this requirement was waived with respect to the third quarter of
1999, we may be required to meet the requirements of this agreement in the
future.
WE MAY NEED ADDITIONAL CAPITAL IN THE FUTURE, AND IT MAY NOT BE AVAILABLE ON
ACCEPTABLE TERMS.
We may require more capital in the future to fund our operations, finance
investments in equipment and infrastructure needed to maintain and expand our
call center and network capabilities, enhance and expand the range of services
and features we offer, and respond to competitive pressures and potential
opportunities, such as investments, acquisitions and international expansion. We
cannot be certain that additional financing will be available on terms favorable
to us or at all. The terms of available financing may place limits on our
financial and operating flexibility. If adequate funds are not available on
acceptable terms, we may be forced to reduce our operations or abandon expansion
opportunities. Moreover, even if we are able to continue our operations, the
failure to obtain additional financing could reduce our competitiveness as our
competitors may provide better maintained networks or offer an expanded range of
services.
OUR STOCK PRICE IS VOLATILE.
The market price of our stock has experienced and is likely to experience
significant fluctuations in response to a number of factors. These factors
include, among others:
- Announcements of extensions, expirations or changes in our contracts and the
opening of new call centers to support such activity;
- Announcements relating to material events concerning our customers;
- Actual or anticipated variations in our results of operations;
- Changes in financial estimates by securities analysts;
- Obsolescence of technologies that we or our customers use;
- Introductions of new technologies;
- General market conditions; and
- The increase in the number of publicly traded shares that will result from
this offering.
From January 1, 1999 through October 15, 1999, our stock price fluctuated from
$11.50 per share to $20.00 per share and has on several days fluctuated more
than 10%. Similar market fluctuations have affected the market prices of equity
securities of many telecommunications companies and other public companies
generally. These trading prices and valuations may change significantly. In
addition, broad market factors affecting telecommunications or technology stocks
may adversely affect the market price of our common stock. Our stock price may
also be adversely affected by general economic, political and market conditions,
including interest rate changes and recession.
OREGON LAW AND PROVISIONS OF OUR CHARTER COULD MAKE THE ACQUISITION OF OUR
COMPANY MORE DIFFICULT.
We are authorized to issue up to 10,000,000 shares of preferred stock, and the
board of directors has the authority to fix the preferences, limitations and
relative rights of those shares without any vote or action by the shareholders.
The potential issuance of preferred stock may delay or prevent a change in
control of our company, may discourage bids for the common stock at a premium
over the market
14
<PAGE>
price and may adversely affect the market price of, and the voting and other
rights of the holders of, common stock. In addition, provisions under Oregon law
limit the ability of parties who acquire a significant amount of voting stock to
exercise control over our company. These provisions may have the effect of
lengthening the time required for a person to acquire control of our company
through a proxy contest or the election of a majority of the board of directors
and may deter efforts to obtain control of our company.
THE YEAR 2000 ISSUE COULD DISRUPT OUR BUSINESS.
The year 2000 issue results from an inability of certain computer systems to
accurately recognize dates in and after the year 2000. The year 2000 issue could
disrupt our business if we fail to achieve year 2000 readiness or our suppliers
or carrier customers fail to achieve year 2000 readiness. Any material business
disruption could have an adverse effect on our financial condition and results
of operations. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Year 2000 Readiness Disclosure."
15
<PAGE>
FORWARD-LOOKING STATEMENTS
Some of the statements in this prospectus, and in the documents incorporated in
this prospectus by reference, that relate to our plans, objectives,
expectations, intentions and assumptions, and other statements that are not
statements of historical fact, are forward-looking statements within the meaning
of the federal securities laws. These statements may be found under the headings
"Prospectus Summary," "Risk Factors," "Use of Proceeds," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business," among others. Forward-looking statements may, but do not
necessarily, include words such as "anticipate," "believe," "plan," "expect,"
"future," "intend," "may," "will," "should," "estimate," "predict," "potential,"
"continue" and similar expressions. Forward-looking statements are not
guarantees and involve known and unknown risks and uncertainties, any of which
could cause actual results to vary materially from anticipated results. Metro
One's future operations, financial performance, business and share price may be
affected by a number of factors, including the factors listed in "Risk Factors."
You should not place undue reliance on these forward-looking statements, which
speak only as of the date of this prospectus. Metro One has no intention and
undertakes no obligation to update or revise any forward-looking statements,
whether as a result of new information, future events or otherwise.
COMMON STOCK MARKET PRICE DATA
Metro One's common stock is traded on the Nasdaq National Market under the
symbol "MTON." The following table shows, for the periods indicated, the high
and low sale prices per share of our common stock as reported on the Nasdaq
National Market.
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
1997
First Quarter.............................................................. $ 9.75 $ 5.63
Second Quarter............................................................. 8.25 5.25
Third Quarter.............................................................. 9.50 6.50
Fourth Quarter............................................................. 11.00 7.00
1998
First Quarter.............................................................. $ 12.00 $ 7.75
Second Quarter............................................................. 13.94 7.00
Third Quarter.............................................................. 8.63 4.75
Fourth Quarter............................................................. 13.63 6.13
1999
First Quarter.............................................................. $ 19.44 $ 11.50
Second Quarter............................................................. 17.63 12.13
Third Quarter.............................................................. 20.00 12.00
Fourth Quarter (through October 21, 1999).................................. 19.25 15.25
</TABLE>
The last reported sale price of our common stock on the Nasdaq National Market
on October 21, 1999 was $16.75 per share. The approximate number of our
shareholders of record as of October 14, 1999 was 202.
16
<PAGE>
USE OF PROCEEDS
We estimate that the net proceeds from the sale of shares of common stock by us
in this offering will be approximately $30.9 million. If the underwriters fully
exercise the over-allotment option, we estimate that the net proceeds from the
shares sold by us will be approximately $35.8 million. "Net proceeds" is what we
expect to receive after paying the underwriting discount and other estimated
expenses of the offering. For the purpose of estimating net proceeds, we are
assuming that the public offering price will be $16.75 per share. Metro One will
not receive any proceeds from the sale of the shares by the selling
shareholders.
We currently expect to use the net proceeds from this offering as follows:
- Approximately $13 million to $15 million will be used to develop or acquire
technologies, features and content complementary to our business and to
expand our call center and network capacity to serve existing and potential
customers;
- Approximately $9.5 million will be used to reduce outstanding balances on
our revolving line of credit, which had a current interest rate of 8.25% as
of September 30, 1999 and expires in April 2001, and on our equipment line,
which had a current interest rate of 8.25% as of September 30, 1999 and is
payable in monthly installments through March 2003; and
- The balance will be used for general corporate purposes, including possible
acquisitions and other corporate development activities, and working
capital.
The amount allocated to reduce outstanding balances on our revolving line of
credit takes into account estimated additional borrowings under the line of
credit prior to the offering.
We reserve the right to vary the use of the net proceeds among the above
categories, because our ability to use the net proceeds in the approximate
amounts listed depends on a number of factors including future revenue growth,
capital expenditures, the amount of cash generated from operations and other
factors. Although we may use a portion of the net proceeds for possible
acquisitions, we have no current agreements or commitments in that regard. Until
we use our net proceeds of the offering, we intend to invest them in short-term,
interest-bearing, investment-grade securities.
DIVIDEND POLICY
We have never declared or paid cash dividends on our common stock. We intend to
retain earnings from operations for use in the operation and expansion of our
business and do not anticipate paying cash dividends with respect to our common
stock in the foreseeable future. Additionally, our loan agreement with a
commercial bank prohibits the payment of any dividends and other distributions
and the redemption of any stock that exceed 10% of our tangible net worth.
17
<PAGE>
CAPITALIZATION
The following table shows:
- The capitalization of Metro One as of September 30, 1999; and
- The capitalization of Metro One as of September 30, 1999, assuming the
completion of the offering, at an assumed public offering price of
$16.75 per share, and the application of the net proceeds as described under
"Use of Proceeds."
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
----------------------
ACTUAL AS ADJUSTED
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
Cash, cash equivalents and short-term investments..................... $ 3,891 $ 27,583
========= =========
Current portion of long-term debt and capital lease
obligations......................................................... $ 2,718 $ 575
========= =========
Long-term debt and capital lease obligations (excluding current
portion)............................................................ $ 6,480 $ 1,409
--------- ---------
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, 11,410,000
shares issued and outstanding, actual; 13,410,000 shares issued
and outstanding, as adjusted...................................... 40,270 71,176
Accumulated deficit................................................. (8,771) (8,771)
--------- ---------
Total shareholders' equity...................................... 31,499 62,405
--------- ---------
Total capitalization.......................................... $ 37,979 $ 63,814
========= =========
</TABLE>
The number of outstanding shares of common stock excludes:
- 1,539,000 shares of common stock issuable on exercise of options outstanding
under our Stock Incentive Plan;
- 405,000 shares of common stock reserved for future issuance under our Stock
Incentive Plan; and
- 150,000 shares of common stock reserved for future issuance under our 1999
Employee Stock Purchase Plan.
The capitalization information contained in this table should be read in
conjunction with the more detailed Financial Statements and the Notes to
Financial Statements included elsewhere in this prospectus.
18
<PAGE>
SELECTED FINANCIAL DATA
This section presents selected historical financial data of Metro One.
Historical results do not necessarily predict the results to be expected for any
future period. You should read carefully "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the Financial Statements,
including the Notes to Financial Statements, included elsewhere in this
prospectus. The selected data in this section is not intended to replace the
Financial Statements or the Notes to the Financial Statements.
We have derived the statement of operations data for the years ended
December 31, 1996, 1997 and 1998, and the balance sheet data as at December 31,
1996, 1997 and 1998, from our Financial Statements included elsewhere in this
prospectus, which have been audited by Deloitte & Touche LLP. We have derived
the statement of operations data for the year ended December 31, 1995 and the
balance sheet data as at December 31, 1995 from our financial statements not
included in this prospectus, which were audited by Deloitte & Touche LLP. We
have derived the statement of operations data for the year ended December 31,
1994 and the balance sheet data as at December 31, 1994 from our financial
statements not included in this prospectus, which were audited by a firm of
certified public accountants other than Deloitte & Touche LLP. We have derived
the statement of operations data for the nine months ended September 30, 1998
and 1999, and the balance sheet data as at September 30, 1999, from our
unaudited financial statements included in this prospectus, which, in the
opinion or our management, reflect all adjustments, consisting only of normal
recurring adjustments, necessary to present fairly the financial data for such
period.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30,
YEARS ENDED DECEMBER 31,
(IN THOUSANDS, EXCEPT PER ----------------------------------------------------- --------------------
SHARE, CALL CENTER AND CALL VOLUME DATA) 1994 1995 1996 1997 1998 1998 1999
--------- --------- --------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................... $ 5,050 $ 13,074 $ 17,834 $ 26,090 $ 45,139 $ $31,280 $ 52,113
--------- --------- --------- --------- --------- --------- ---------
Direct operating costs..................... 4,793 7,157 8,334 13,017 23,107 16,104 30,481
General and administrative costs........... 4,268 5,999 7,615 11,702 18,334 13,099 19,795
Income (loss) from operations.............. (4,011) (82) 1,885 1,371 3,698 2,077 1,837
--------- --------- --------- --------- --------- --------- ---------
Net income (loss).......................... $ (5,035) $ (1,724) $ 1,166 $ 1,432 $ 3,603 $ 2,026 $ 1,464
========= ========= ========= ========= ========= ========= =========
Basic earnings (loss) per share(1)......... $ (1.00) $ (.31) $ 0.13 $ 0.13 $ 0.33 $ 0.18 $ 0.13
========= ========= ========= ========= ========= ========= =========
Diluted earnings (loss) per share(1)....... $ (1.00) $ (.31) $ 0.12 $ 0.13 $ 0.32 $ 0.18 $ 0.12
========= ========= ========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
----------------------------------------------------- -------------
1994 1995 1996 1997 1998 1999
--------- --------- --------- --------- --------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments.......... $ 310 $ 1,149 $ 14,137 $ 8,554 $ 7,570 $ 3,891
Working capital............................................ (351) 151 15,012 9,844 8,414 3,502
Total assets............................................... 6,299 8,716 24,529 29,125 36,311 48,100
Long-term obligations...................................... 6,432 1,466 1,168 1,416 719 6,480
Shareholders' equity....................................... (14,713) 3,274 20,981 23,676 28,242 31,499
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
------------------------------- --------------------
1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
OTHER DATA (UNAUDITED)(2):
EBITDA(3)...................................................... $ 3,207 $ 3,634 $ 7,472 $ 4,783 $ 6,130
Cash flow from operating activities(2)......................... $ 2,912 $ 3,293 $ 6,546 $ 5,265 $ 5,983
New call centers opened during period.......................... 1 4 2 1 4
Call centers in operation at end of period..................... 12 16 18 17 22
Call volume.................................................... 30 million 42 million 71 million 49 million 93 million
</TABLE>
- ---------------------------
(1) See Note 9 of the Notes to Financial Statements included elsewhere in this
prospectus for information about how we calculated basic and diluted
earnings per share.
(2) Cash flow from operating activities for the years ended December 31, 1996,
1997, and 1998 are audited.
(3) "EBITDA" is defined as income from operations plus depreciation and
amortization expense. EBITDA should not be construed as a substitute for
operating income or a better measure of liquidity than cash flow from
operating activities, which is determined in accordance with generally
accepted accounting principles. EBITDA is not necessarily a measure of our
ability to fund our cash needs and is not necessarily comparable to
similarly titled measures of other companies.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
YOU SHOULD READ THE FOLLOWING DISCUSSION AND ANALYSIS TOGETHER WITH OUR
FINANCIAL STATEMENTS AND THE NOTES TO FINANCIAL STATEMENTS INCLUDED ELSEWHERE IN
THIS PROSPECTUS. RESULTS OF OPERATIONS FOR THE PERIODS DISCUSSED BELOW DO NOT
NECESSARILY PREDICT THE RESULTS TO BE EXPECTED IN ANY FUTURE PERIOD. THE
FOLLOWING DISCUSSION AND ANALYSIS CONTAINS STATEMENTS AND ANALYSES CONCERNING
THE FUTURE THAT ARE FORWARD-LOOKING STATEMENTS. THESE FORWARD-LOOKING STATEMENTS
ARE SUBJECT TO RISKS AND UNCERTAINTIES, AND OUR ACTUAL RESULTS OF OPERATIONS MAY
DIFFER MATERIALLY FROM THESE FORWARD-LOOKING STATEMENTS. SEE "RISK FACTORS" AND
"FORWARD-LOOKING STATEMENTS."
OVERVIEW
We are a leading independent developer and provider of enhanced directory
assistance and information services for the telecommunications industry. We
primarily contract with wireless carriers to provide enhanced directory
assistance and information services to their subscribers.
Under our contracts, the carriers agree to route some or all of their directory
assistance and/or text messaging calls to us. We are also able to offer our
services to multiple carriers within the same market. When a carrier's
subscribers dial a typical directory assistance number, such as "411,"
"555-1212" or "00," the calls are answered by our operators identifying the
service by that carrier's brand name, such as "AT&T Connect," "AirTouch 411
Connect" or "Sprint PCS Directory Assistance."
Each carrier establishes its own directory assistance fee structure for its
subscribers. Wireless subscribers typically pay fees ranging from $0.75 to $1.10
plus airtime charges for our services. We bear no subscriber collection risk.
We charge our carriers directly on a per call basis, with prices varying in some
cases based on call volume. Our long-term strategy is based in part on reducing
the price we charge our customers. We expect that our average price per call
will decrease in 1999 and 2000 as call volume increases. We believe this reduced
pricing better positions us to retain and expand service with existing carrier
customers, to attract new wireless and landline carriers, and to achieve, if we
are able to increase call volume without incurring substantial additional
expense, greater operating margins over time.
In the fourth quarter of 1999, we will continue our aggressive call center and
network build out to prepare for significant new call volume from Nextel
Communications, AT&T Wireless Services and other carriers. We will also continue
to opportunistically pursue additional significant new business. This build out
will significantly increase our local service coverage and our capacity to
process additional call volume.
Our rapid growth plan involves both capital expenditures and operating expenses,
as we build infrastructure and recruit and train qualified personnel. To better
serve our customers and strengthen our relationships, we maintain the operating
readiness of our call centers even when our carrier customers experience
unexpected delays in transitioning call volume to us. Some of our carrier
customers have recently experienced these types of delays and may experience
some additional delays in the future. These delays increase our ongoing
operating expenses with no corresponding increase in revenues. The result under
these conditions has been, and will likely continue to be, near-term reported
earnings that vary widely. However, we intend to continue to pursue and prepare
for significant additional call volume in order to seek to achieve greater
earnings over the long term.
On October 21, 1999, we announced that we entered into a multi-year contract
with ALLTEL Communications, Inc. to provide our enhanced directory assistance
services to substantially all of its wireless subscribers. Previously, we had
provided service to a limited number of ALLTEL subscribers.
20
<PAGE>
RESULTS OF OPERATIONS
The following table shows selected items of our statements of operations data
expressed as a percentage of revenues.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------ ----------------------
1996 1997 1998 1998 1999
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues.................................... 100.0% 100.0% 100.0% 100.0% 100.0%
----- ----- ----- ----- -----
Direct operating costs...................... 46.7 49.9 51.2 51.5 58.5
General and administrative costs............ 42.7 44.9 40.6 41.9 38.0
----- ----- ----- ----- -----
Income from operations...................... 10.6 5.2 8.2 6.6 3.5
Other income (expense)...................... (0.6) 1.6 0.6 0.8 0.2
Interest and loan fees...................... (3.2) (1.3) (0.6) (0.8) (0.8)
----- ----- ----- ----- -----
Income before income taxes.................. 6.8 5.5 8.2 6.6 2.9
Income tax expense.......................... 0.3 0.0 0.2 0.1 0.1
----- ----- ----- ----- -----
Net income.................................. 6.5 5.5 8.0 6.5 2.8
===== ===== ===== ===== =====
</TABLE>
COMPARISON OF THE FIRST NINE MONTHS OF 1999 TO THE FIRST NINE MONTHS OF 1998
REVENUES. Revenues increased 66.6%, from $31.3 million to $52.1 million. Call
volume grew from approximately 49 million calls to over 93 million calls. This
increase was due primarily to increased call volume under existing contracts and
call volume from new contracts that commenced service during the second half of
1998 and the third quarter of 1999.
DIRECT OPERATING COSTS. Direct operating costs consist of call center personnel
and data costs. These costs increased 89.3%, from $16.1 million to
$30.5 million. This increase was primarily due to servicing increased call
volumes and the cost of operating additional call centers in 1999. In addition,
during the second and third quarters of 1999 we elected to take on an increased
amount of staffing and infrastructure expenditures in preparation for additional
scheduled call volume, some of which did not arrive as anticipated. As a
percentage of revenues, direct operating costs increased from 51.5% to 58.5%,
due primarily to increased personnel and data costs associated with the start-up
of new call centers, the increase in staffing in anticipation of additional call
volume from existing customers and a reduction in average price per call.
GENERAL AND ADMINISTRATIVE COSTS. General and administrative costs increased
51.1%, from $13.1 million to $19.8 million. This increase resulted primarily
from the costs associated with the start-up of new call centers and the
investment in infrastructure necessary to support, and the increase in
depreciation expense associated with, additional call centers. As a percentage
of revenues, general and administrative costs decreased from 41.9% to 38.0%.
This decrease resulted primarily from efficiencies associated with the expansion
of our operations.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased by
58.6%, from $2.7 million to $4.3 million, due primarily to equipment purchased
for new call centers, for upgrades for existing call centers and for corporate
operations.
OTHER INCOME. Other income for the first nine months of 1999 was $112,000 and
consisted primarily of interest income offset by losses upon the disposition of
assets. Other income for the first nine months of 1998 was $248,000 and
consisted primarily of interest income offset by losses upon the disposition of
assets.
21
<PAGE>
INTEREST EXPENSE AND LOAN FEES. Interest expense and loan fees increased 66.6%,
from $255,000 to $425,000. This increase was attributable to an increase in
average debt outstanding during 1999.
INCOME TAX EXPENSE. Income tax expense for the first nine months of 1999 was
$60,000, for an effective tax rate of approximately 3.9%. Income tax expense for
the first nine months of 1998 was $44,000, for an effective tax rate of
approximately 2.1%. These rates differ from the combined federal and state
statutory rate of approximately 39% due to the use of net operating loss
carryforwards.
COMPARISON OF 1998 TO 1997
REVENUES. Revenues increased 73.0%, from $26.1 million to $45.1 million. Call
volume increased from approximately 42 million calls to approximately
71 million calls. This increase was due primarily to increases in call volume
under existing contracts and additional call volume from new contracts, offset
by decreases in call volume due to the completion of contracts with Ameritech
Cellular, BellSouth and Bell Atlantic Mobile.
DIRECT OPERATING COSTS. Direct operating costs increased 77.5%, from
$13.0 million to $23.1 million. The increase in direct operating costs was due
primarily to increased call volumes and the cost of operating several additional
call centers in 1998. As a percentage of revenues, direct operating costs
increased from 49.9% to 51.2%, as personnel costs increased due to the
continuing build out of our national network of call centers. This increase was
partially offset by higher call volumes and the associated operating
efficiencies due to improved personnel utilization.
GENERAL AND ADMINISTRATIVE COSTS. General and administrative costs increased
56.7%, from $11.7 million to $18.3 million. This increase in costs was due
primarily to the support of increased operational activity overall and the costs
associated with the opening of several additional call centers in 1998. As a
percentage of revenues, general and administrative costs decreased from 44.9% to
40.6%. This decrease resulted primarily from the decreasing investment in
corporate services necessary to support additional call centers. Depreciation
and amortization increased by 66.8%, from $2.3 million to $3.8 million, due
primarily to equipment purchased for new call centers and upgrades for existing
call centers and corporate research and development activities.
OTHER INCOME. Other income for 1998 was $289,000, and consisted of interest
income of $365,000, offset primarily by asset valuation losses of $73,000
related to equipment taken out of service during the year. Other income for 1997
was $408,000 and consisted of interest income of $569,000, offset primarily by
expenses of $142,000 related to estimated litigation settlement costs and asset
valuation losses for assets taken out of service during the year.
INTEREST EXPENSE AND LOAN FEES. Interest expense and loan fees declined 7.5%,
from $334,000 to $309,000. This decline was attributable to lower interest
rates. Monthly average debt outstanding increased from $1.6 million to
$1.7 million.
INCOME TAX EXPENSE. Income tax expense for 1998 was $75,000, for an effective
tax rate of approximately 2.1%. Income tax expense for 1997 was $13,000, for an
effective tax rate of approximately 0.9%. These rates differ from the combined
federal and state statutory rate of approximately 39% due to the use of net
operating loss carryforwards.
COMPARISON OF 1997 TO 1996
REVENUES. Revenues increased 46.3%, from $17.8 million to $26.1 million. Call
volume increased from approximately 30 million calls to approximately
42 million calls. This increase was due primarily to increases in call volumes
under existing contracts and additional call volumes from new contracts.
22
<PAGE>
DIRECT OPERATING COSTS. Direct operating costs increased 56.2%, from
$8.3 million to $13.0 million. The increase in direct operating costs was due
primarily to increased call volumes and the cost of operating several additional
call centers in 1997. As a percentage of revenues, direct operating costs
increased from 46.7% to 49.9%, as personnel costs increased due to the
continuing build out of our national network of call centers. This increase was
partially offset by higher call volumes and the associated operating
efficiencies due to improved personnel utilization and the introduction of new
technology designed to enhance productivity.
GENERAL AND ADMINISTRATIVE COSTS. General and administrative costs increased
53.8%, from $7.6 million to $11.7 million. This increase was due primarily to
increased operational activity overall and the costs associated with the opening
of several additional call centers in 1997. As a percentage of revenues, general
and administrative costs increased from 42.7% to 44.9%. This increase resulted
primarily from the investment in corporate services necessary to support
additional call centers. Depreciation and amortization increased by 71.2%, from
$1.3 million to $2.3 million, due primarily to equipment purchased for new call
centers, upgrades for existing call centers and corporate research and
development activities.
OTHER INCOME. Other income for 1997 was $408,000, and consisted of interest
income of $569,000, offset primarily by expenses of $142,000 related to
estimated litigation settlement costs and asset valuation losses for assets
taken out of service during the year. Other expense for 1996 was $109,000, and
consisted primarily of estimated litigation settlement expenses of $280,000 and
asset valuation losses of $151,000 related to equipment taken out of service
during the year, offset by interest income of approximately $288,000.
INTEREST EXPENSE AND LOAN FEES. Interest expense and loan fees declined 41.3%,
from $569,000 to $334,000. This decline was attributable to the reduction in
monthly average debt outstanding from $2.9 million to $1.6 million.
INCOME TAX EXPENSE. Income tax expense for 1997 was $13,000, for an effective
tax rate of approximately 0.9%. Income tax expense for 1996 was $41,000, for an
effective tax rate of approximately 3.4%. These rates differ from the combined
federal and state statutory rate of approximately 39% due to the use of net
operating loss carryforwards.
QUARTERLY RESULTS OF OPERATIONS
The following tables set forth certain unaudited statement of operations data
for the seven quarters ended September 30, 1999, as well as the percentage of
our revenues represented by each item. This data has been derived from unaudited
interim financial statements prepared on the same basis as the audited Financial
Statements contained herein and, in the opinion of management, include all
adjustments consisting only of normal recurring adjustments, that we consider
necessary for a fair presentation of such information when read in conjunction
with the Financial Statements and Notes to
23
<PAGE>
Financial Statements appearing elsewhere in this prospectus. The operating
results for any quarter should not be considered indicative of results of any
future period.
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------------------------------
MAR. 31, JUNE 30, SEP. 30, DEC. 31, MAR. 31, JUNE 30, SEP. 30,
1998 1998 1998 1998 1999 1999 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA) -------- -------- -------- -------- -------- -------- --------
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues........................... $9,045 $10,922 $11,312 $13,859 $14,175 $17,469 $20,469
------ ------- ------- ------- ------- ------- -------
Direct operating costs............. 4,793 5,525 5,786 7,003 7,836 10,509 12,136
General and administrative costs... 4,001 4,475 4,622 5,235 5,653 6,768 7,374
Income from operations............. 251 922 904 1,621 686 192 959
------ ------- ------- ------- ------- ------- -------
Net income......................... $ 209 $ 901 $ 916 $ 1,577 $ 682 $ 105 $ 677
====== ======= ======= ======= ======= ======= =======
Revenues........................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
------ ------- ------- ------- ------- ------- -------
Direct operating costs............. 53.0 50.6 51.1 50.5 55.3 60.2 59.3
General and administrative costs... 44.2 41.0 40.9 37.8 39.9 38.7 36.0
Income from operations............. 2.8 8.4 8.0 11.7 4.9 1.1 4.7
------ ------- ------- ------- ------- ------- -------
Net income......................... 2.3% 8.2% 8.1% 11.4% 4.8% 0.6% 3.3%
====== ======= ======= ======= ======= ======= =======
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
Our cash and cash equivalents and short-term investments are recorded at cost
that approximates their fair market value. As of September 30, 1999, we had
$3.9 million in cash and cash equivalents and short-term investments compared to
$7.6 million at December 31, 1998, a decrease of $3.7 million primarily from
capital expenditures incurred as part of the expansion of our national call
center network. Total capital expenditures were $17.9 million for the first nine
months of 1999. We have funded the expansion of our call center and network
capacity with cash on hand, cash provided by operating activities, proceeds from
the exercise of options and borrowings under credit facilities.
Working capital was $3.5 million at September 30, 1999, as compared with
$8.4 million at December 31, 1998. Our current ratio was 1.3:1 at September 30,
1999, as compared with 2.1:1 at December 31, 1998. These decreases were due
primarily to costs associated with the continuing build out of our national
network of call centers.
During the third quarter of 1999, we entered into a new loan agreement with an
equipment financing lender. The loan agreement provides us with $10 million of
borrowing capacity to fund the expansion of our call center network and for
other equipment needs. The agreement provides for fixed or floating rate
borrowings and all assets purchased pursuant to the agreement are pledged as
collateral. Borrowings under the agreement have a term of 48 months, and
prepayment of outstanding borrowings is allowable 12 months after the funding
date.
During the second quarter of 1999, we entered into a new loan agreement with a
commercial bank. The loan agreement consists of a $10 million revolving line of
credit plus a $7.5 million equipment line. Total borrowings under the two lines
cannot exceed $15 million. The revolving line of credit expires in April 2001
and advances under the equipment line are available through April 2000.
Outstanding borrowings bear interest at the prime rate (8.25% at September 30,
1999) and all of our assets are pledged to the bank as collateral, other than
assets previously pledged under existing financing and lease agreements and
assets that may be pledged pursuant to purchase money agreements. The agreement
contains minimum net worth, working capital and profitability requirements, as
well as certain other restrictive covenants, and prohibits the payment of any
dividends and other distributions and redemptions of our stock exceeding 10% of
our tangible net worth. As of September 30, 1999, we did not meet one of the
financial ratio requirements under this agreement. However, we have received a
waiver of this requirement for the third quarter of 1999 from our bank.
24
<PAGE>
CASH FLOW FROM OPERATIONS. Net cash from operations for the nine months ended
September 30, 1999 was $6.0 million, resulting primarily from net income and the
effect of non-cash depreciation and amortization. Net cash from operations for
the twelve months ended December 31, 1998 was $6.5 million, resulting primarily
from net income and non-cash expense items, such as depreciation and
amortization. Net cash from operations was $3.3 million for the twelve months
ended December 31, 1997, resulting primarily from net income and non-cash
expense items, such as depreciation and amortization, for the respective
periods.
CASH FLOW FROM INVESTING ACTIVITIES. Cash used in investing activities was
$16.8 million for the nine months ended September 30, 1999 and was related
primarily to capital expenditures for the purchase of equipment for new call
centers, the upgrade and expansion of existing call centers, investment in
corporate operations and our relocation to expanded corporate headquarters. Cash
used in investing activities was offset by proceeds from the sale of short-term
investments. Cash used in investing activities was $10.6 million for 1998 and
was related primarily to capital expenditures for new call centers and the
upgrade and expansion of existing call centers and purchase of investments. Cash
used in investing activities was $10.1 million for 1997 and was related
primarily to capital expenditures for new call centers and the upgrade and
expansion of existing call centers.
CASH FLOW FROM FINANCING ACTIVITIES. Net cash provided by financing activities
was $8.3 million for the nine months ended September 30, 1999, resulting from
the borrowing of $9.3 million under credit facilities and the repayment of
$2.8 million of debt obligations, and the receipt of cash proceeds of
$1.8 million from the exercise of options. Net cash provided by financing
activities for the twelve months ended December 31, 1998 was $1.6 million
resulting primarily from $1.4 million in borrowings against our line of credit
and the receipt of cash proceeds of $963,000 from the exercise of warrants and
options to purchase common stock. Net cash provided by financing activities for
the twelve months ended December 31, 1997 was $1.2 million resulting primarily
from the receipt of net cash proceeds of $993,000 from the exercise of warrants
and options to purchase common stock.
FUTURE CAPITAL NEEDS AND RESOURCES. The primary uses of our capital in the near
future are expected to be the development or acquisition of technologies,
features and content complementary to our business and to expand our call center
and network capacity to serve existing and potential customers; the reduction of
outstanding indebtedness; and for general corporate purposes, including possible
acquisitions and other corporate development activities and working capital.
Under the terms of certain contracts, we are required to open additional call
centers in major metropolitan areas in 1999 and 2000. We anticipate that our
capital expenditures will be approximately $21 million to $22 million in 1999
and approximately $14 million to $16 million in 2000, resulting primarily from
the projected expansion and planned improvements. We believe our existing cash
and cash equivalents, cash from this offering, credit facilities and cash from
operations will be sufficient to fund our operations through the end of the year
2000.
EFFECT OF INFLATION
Inflation did not materially affect our business during the last several years.
YEAR 2000 READINESS DISCLOSURE
The year 2000 issue exists because many computer systems and applications,
including those imbedded in equipment and facilities, use two-digit rather than
four-digit date fields to designate an applicable year. As a result, the systems
and applications may not properly recognize the year 2000 or process data that
includes it, potentially causing data miscalculations or inaccuracies or
operational malfunctions or failures.
25
<PAGE>
We recognize the importance of the year 2000 issue and have given high priority
to it. In the first quarter of 1998, we created a corporate-wide year 2000
project, called the Y2K Program, to identify, fix, test and develop contingency
plans for the year 2000 issue.
The Y2K Program includes a review of:
- Information and other technology systems used in our internal business;
- Our hardware and software products used to deliver service to customers; and
- Applications and products provided by third party manufacturers and
suppliers.
System-level testing of the call center application configuration, as designed
for Metro One's nationwide network of call centers, was completed in the third
quarter of 1999. This configuration satisfied the requirements of Metro One's
year 2000 compliance testing program. Deployment of the compliant, tested
configuration into all of Metro One's call centers will be completed during the
remainder of 1999.
We do not separately track the internal costs incurred for the Y2K Program
because there is little differentiation between costs that relate to the normal
upgrade and replacement of our operating systems and costs that relate solely to
year 2000 compliance-related issues. However, we do not believe that the
historical or anticipated costs of remediation have had, or will have, a
material effect on our financial condition or results of operations.
We intend to continue to monitor and test year 2000 compliance in all of our new
and existing business critical systems. The failure of our systems, the systems
of an entity that provides us essential services or goods, or the systems of our
carrier customers may have a material adverse impact on our business, financial
condition and results of operations. These material adverse effects could
include, among others, the delay or loss of revenue, cancellation of customer
contracts, diversion of development resources, damage to our reputation and
litigation costs.
Contingency plans are being developed in the event of a failure of an entity
that provides services or goods, such as a local electric company. These plans
will be finalized and implemented during the remainder of 1999.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Substantially all of our liquid investments are invested in money market
instruments, and therefore the fair market value of these investments is
affected by changes in market interest rates. However, substantially all of our
liquid investments mature within nine months. As a result, we believe the market
risk arising from our holdings of financial instruments is minimal. In addition,
we are exposed to interest rate risk primarily through our use of short-term and
long-term borrowings to finance operations. A hypothetical 1% fluctuation in
interest rates would not have a material adverse effect on our financial
position, results of operations or cash flows.
26
<PAGE>
BUSINESS
Metro One is a leading independent developer and provider of enhanced directory
assistance and information services for the telecommunications industry. We
primarily contract with wireless carriers to provide our services to their
subscribers. In 1989, we opened our first call center and began testing and
offering our enhanced directory assistance and information services. In 1991, we
entered into our first contract with a wireless carrier to provide our services
to that carrier's subscribers on a charge per call basis. Our customers include
many of the leading wireless telecommunications carriers such as Sprint PCS,
AT&T Wireless Services, Pacific Bell Wireless, AirTouch Communications, Nextel
Communications and ALLTEL Communications, Inc. In addition, we have expanded
into the landline telecommunications market, and currently provide our services
to GST Communications, a regional competitive local exchange carrier.
TELECOMMUNICATIONS INDUSTRY
The U.S. telecommunications industry is generally characterized by strong growth
and increased competition due to new technologies, a more favorable regulatory
environment and, for carriers, an increasingly sophisticated and demanding
subscriber. Telecommunications carriers face increasing competitive pressures to
differentiate their products and establish brand loyalty. With rising costs to
acquire new subscribers, carriers are seeking ways to minimize subscriber
turnover through the use of, among other things, value-added services and
features. In addition, carriers are increasingly offering local, long distance,
wireless, cable and Internet services bundled into one package in order to
appeal to a wider market. Competitive pressures are particularly acute for
wireless and newer landline carriers, such as competitive local exchange
carriers. The industry has also experienced a considerable amount of
consolidation and investment in new technologies and alternative methods of
delivery, including cable and the Internet.
WIRELESS TELECOMMUNICATIONS. The U.S. wireless telecommunication market has
experienced dramatic growth during the 1990s. This growth was largely due to
technological advances that give callers affordable, high-quality mobile
services. According to the Yankee Group, the number of wireless subscribers in
the United States approached 69 million at the end of 1998, and is estimated to
reach 177 million by the end of 2005. This estimated growth is illustrated by
the following graph:
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
1995 32.2
<S> <C>
SOURCE:
THE
YANKEE
GROUP,
1999
1996 42.1
Estimated
1997 53.8
1998 68.7
1999 86.4
2000 104.9
2001 122.6
2002 138.7
2003 152.8
2004 165.5
2005 177.1
</TABLE>
27
<PAGE>
A relatively small number of carriers dominate the wireless telecommunications
market. In terms of estimated number of subscribers, the largest U.S. wireless
carriers include AT&T Wireless Services, SBC Communications, AirTouch
Communications and GTE Wireless. Other nationwide carriers include Sprint PCS
and Nextel Communications.
In each of the major U.S. markets, at least four carriers compete for wireless
subscribers. As a result, carriers are seeking to differentiate themselves from
their competitors. While price continues to be an important competitive factor,
carriers increasingly focus on value-added services and features as a means of
differentiating themselves.
LANDLINE TELECOMMUNICATIONS. The U.S. landline telecommunications market is
significantly larger than the U.S. wireless market. For example, in 1998,
landline services generated approximately $210 billion in revenue as compared to
approximately $37 billion in revenue generated by wireless services, according
to the Federal Communications Commission. Like the wireless market, the landline
market is dominated by a relatively small number of major carriers. Carriers
providing local service include the regional Bell operating companies, such as
SBC Communications, independent telephone companies, such as ALLTEL
Communications, Inc., and competitive local exchange carriers, such as GST
Communications. Carriers providing long distance service include AT&T, MCI
WorldCom and Sprint Corp.
As local and long distance carriers begin competing in each other's markets as
well as against newer and smaller independent carriers, the landline market is
becoming extremely competitive. With deregulation, the entry of new landline
competitors and the increasing affordability of wireless services, subscribers
who were historically bound to local carriers as a matter of geography are now
increasingly able to choose their carriers. Of note, the competitive local
exchange carrier segment of the landline telecommunications industry is rapidly
growing. These companies compete with incumbent local carriers to provide a
variety of services, including local, long distance and Internet and other data
services. The Yankee Group estimates that the competitive local exchange
industry generated $6.6 billion in revenue in 1998 and will generate
$26.1 billion in revenue in 2001. As a result, the landline telecommunications
market is rapidly becoming subscriber-based and carriers must find ways to
differentiate their services to attract and retain subscribers. In addition, to
maintain operational focus, competitive local exchange carriers often outsource
non-core operations, including directory assistance services. While many
incumbent carriers provide directory assistance services on an outsourced basis,
the competitive local exchange carriers may prefer to outsource their directory
assistance needs to independent companies rather than use services of their
competitors.
INTERNATIONAL TELECOMMUNICATIONS. The international telecommunications market
is characterized by increasing privatization, competition and, in the wireless
market, rapid growth. As governments privatize their national telecommunications
companies, these companies face increased competition from large international
carriers who have access to and interest in the newly-opened markets. According
to the International Telecommunication Union, an international
telecommunications industry group, the worldwide wireless industry generated
$154 billion in revenue in 1998 and is projected to grow to $315 billion in
revenue by 2002. As a whole, the worldwide telecommunications services market
generated over $744 billion in revenue in 1998 and is expected to grow to
$925 billion in revenue by 2002, according to the International
Telecommunication Union.
DIRECTORY ASSISTANCE MARKET
Revenues generated by the wireless directory assistance market in the United
States are estimated to grow from $390 million in 1998 to $594 million in 2002,
according to Frost & Sullivan, a telecommunications market research firm.
Wireless subscribers tend to be heavy users of directory assistance services.
According to Frost & Sullivan, growth in the wireless directory assistance
market is driven by a number of factors, including growth in the wireless
subscriber base, rising wireless
28
<PAGE>
penetration, increasing subscriber mobility and the offering of enhanced
directory assistance services by wireless carriers.
The landline directory assistance market is significantly larger than the
wireless directory assistance market. Revenue generated by the landline
directory assistance market is estimated to grow from approximately $3 billion
in 1998 to $4 billion in 2002, according to Frost & Sullivan. Growth in the
landline directory services market is driven by a number of factors, including
the growing information needs of subscribers and the offering by landline
carriers of call completion services.
OUR BUSINESS STRATEGY
Metro One's business strategy includes the following key elements:
- BUILD ON OUR CURRENT CARRIER RELATIONSHIPS, WHILE SEEKING NEW DOMESTIC AND
INTERNATIONAL CUSTOMERS, INCLUDING LANDLINE CARRIERS AND OTHER CORPORATE
CUSTOMERS
We are continuing to expand our relationships with our existing carrier
customers. We believe that our services can increase carriers' revenues by
minimizing subscriber turnover and increasing the number of calls made and,
in the case of wireless and long distance carriers, billable airtime.
Further, our national call center network and integrated search engines and
database systems allow carriers operating in multiple markets to offer
consistent enhanced directory assistance and other information services on a
nationwide basis. This consistency permits greater system-wide marketing
opportunities and brand identification for these carriers. We believe that
our existing relationships and the quality of our services will allow us to
expand our business with our existing customers, providing us an opportunity
to deliver our services to them and their affiliates in additional markets,
including international markets.
We are also aggressively pursuing business opportunities with additional
wireless and landline carriers with a view to leveraging our reputation for
high quality service. We believe increasing competition among landline
carriers is leading to an increasingly subscriber-based business, which will
result in the need to differentiate their product offerings. Our services
provide them an opportunity to do so and, accordingly, could help us expand
into the significantly larger landline directory assistance market.
The information content that resides in our database systems, along with our
ability to store, maintain, manipulate and deliver it, provides an
opportunity to pursue other business customers and provide them with our
services over private networks or otherwise.
- DEVELOP AND OFFER ADDITIONAL VALUE-ADDED SERVICES AND FEATURES
We believe we are well positioned to continue developing and providing the
type of services and features that enhance the utility of the telephone and
other communications devices. For example, our MetroDex service is designed
to provide individual callers, as well as corporate users, with the ability
to quickly and efficiently access their personal or corporate contacts
databases, including otherwise unpublished numbers, and potentially take
advantage of additional services like having a personal assistant available
over the telephone. Such innovative features should permit our customers to
distinguish themselves further from their competitors by increasing their
subscribers' satisfaction.
- EXPAND OUR NATIONAL CALL CENTER NETWORK AND ITS CAPABILITIES, WHILE ADDING
GREATER BANDWIDTH, STORAGE CAPACITY, SPEED AND EFFICIENCY TO OUR SYSTEMS
We intend to continue to expand our network capacity and efficiency,
including adding to our call routing flexibility, redundancy and signaling
systems. We may also build additional call centers as required by demand and
customer commitments. We also intend to add to our storage capacity both for
purposes of database backup and for delivery of personal database, concierge
and other
29
<PAGE>
personalized or fulfillment-oriented services. We may build or license
specialty call centers to deliver special products such as customer service
and fulfillment assistance, as well as international call centers, should
attractive opportunities arise.
- ENHANCE THE QUANTITY AND QUALITY OF OUR CURRENT CONTENT DATABASES
We intend to continue to improve the scope, breadth and depth of the
information content within our database systems. We intend to seek
additional content to make our directory listings data more useful and to
enhance our ability to provide other services. Additions to this content may
be virtual, through the Internet or other links that allow us to license or
barter content. Some of this information will be deliverable to subscribers
through portals other than the voice telephony portal, such as those
available on the Internet.
- LEVERAGE OUR VOICE TELEPHONY PORTAL BY DELIVERING GREATER VOLUMES OF
EXISTING AND NEW SERVICES THROUGH OUR CALL CENTER NETWORK AS WELL AS THROUGH
OTHER PORTALS
Our strength has been to provide enhanced services through the voice
telephony portal we have created. We are seeking opportunities to provide
access to some of the content we acquire, develop and maintain, as well as
our applications and related features, to other portals, including those
available through the Internet. We believe that telephone carriers and
perhaps other customers, could use our content, applications and features to
provide high quality services that are consistent across various portals and
geographic areas. In so doing, these customers, particularly the telephone
carriers, could further bind their subscribers to them as competition in
their markets becomes increasingly subscriber-based.
CUSTOMERS
Metro One provides enhanced directory assistance and information services to
several of the nation's leading wireless carriers in all or a portion of their
service areas. Our customers include Sprint PCS, AT&T Wireless Services, Pacific
Bell Wireless, AirTouch Communications, Nextel Communications and ALLTEL
Communications, Inc. In addition, we have expanded into the landline
telecommunications market and currently provide our services to GST
Communications, a regional competitive local exchange carrier. Customers that
accounted for more than 10% of our revenues during any of the periods indicated
were as follows:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
CUSTOMER 1997 1998 SEPTEMBER 30, 1999
- -------- ---------- ---------- ------------------
<S> <C> <C> <C>
Sprint PCS................................... 17% 38% 42%
AT&T Wireless Services....................... 7 17 30
AirTouch Communications...................... 25 18 12
Pacific Bell Wireless........................ 6 12 12
Ameritech Cellular........................... 24 11 0
Bell Atlantic Mobile......................... 16 1 0
</TABLE>
We offer our services to a carrier's subscribers under a brand name selected by
the carrier, such as "AT&T Connect," "AirTouch 411 Connect" or "Sprint PCS
Directory Assistance." The carrier establishes its own fee structure with its
subscribers. Subscribers typically pay the carriers fees ranging from $0.75 to
$1.10 plus airtime charges for our services. Metro One charges carriers directly
and bears no subscriber collection risk. We currently charge our carriers on a
per call basis. To stimulate increased call volume and to attract and expand
customer commitments, we vary in some cases the per call charge based on volume.
Beginning in 1999, we have decreased the average price per call as increasing
call volumes from existing and new contracts have triggered the volume-based
pricing we put
30
<PAGE>
in place to attract business. During the nine months ended September 30, 1999,
our per call charges averaged approximately $0.55.
We currently have contracts with 13 carriers. These contracts are generally
similar, with variations in the geographic market to be served, the services and
features we are to provide the carriers' subscribers and the term, which is
typically up to five years. Several also require us to build out call centers in
specified locations. None of these contracts preclude us from providing services
to other carriers. The carriers agree to route some or all of their directory
assistance and/or text messaging calls to us.
CALL CENTER NETWORK
We operate 22 call centers located in strategic local markets throughout the
United States, and expect to add three new call centers by the end of 1999 and
at least three new call centers during the year 2000. Although our call center
network enables us to provide enhanced directory assistance and information
services nationwide, we are situated locally with respect to over one-half of
the population of the United States because of the geographic nature of our call
centers. We believe that the local nature of our call centers and operators
permits us to offer more accurate and valuable service than would be available
through a single or a few call centers attempting to serve the entire U.S.
market. We operate our call centers 24 hours a day, seven days a week, 365 days
a year.
We continually upgrade our network and systems to allow greater utility, speed
and efficiency in processing calls. We are also expanding capacity to store,
manipulate and manage the additional data that we acquire. In addition, our
telephone switching systems allow scalability, including the ability to join
multiple switches together or configure switches so they can handle large
volumes of calls in tandem. These systems are monitored from our network
operations center located at our corporate headquarters, which provides 24 hour
support for our call center network. Our systems are designed to permit
redundancy and avoid downtime from natural disasters or other adverse events.
For example, all of our call centers on the Eastern Seaboard continued to
operate during Hurricane Floyd in September 1999.
Because a carrier offers our services to its subscribers under its brand name,
we believe quality and reliability are important considerations in a carrier's
decision to use us. To ensure high quality and consistency, we emphasize
training, monitoring and customer support. We maintain a national training force
with training personnel in each call center. Our operators undergo extensive
training and testing on search techniques, etiquette and local information,
including landmarks, major thoroughfares and geography. Our training personnel
continually monitor, test and evaluate call center performance. We also monitor
our call centers for compliance with contract performance standards and report
this information to the carriers on a regular basis. In addition to accessing
our systems maintenance and support personnel, carriers can obtain extensive
customer usage information.
OUR SERVICES AND FEATURES
Metro One uses a customized array of hardware and software, along with
proprietary database search engines, to provide its enhanced directory
assistance and information services. We receive incoming calls by means of
assigned telephone numbers, which are "411," "555-1212" or "00" in almost all
cases. Our operators answer incoming calls and identify the service using the
carrier's brand name. Upon receiving information requests from callers, our
operators search the applicable database using one or more of our search
engines. The operator then connects the caller to a party or supplies the caller
with the requested information. We offer a variety of information, including:
- Directory listings information, which may be retrieved by methods that
include reverse and category searches;
- Time, weather and traffic information;
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<PAGE>
- Movie, restaurant and local event information;
- TeleConcierge services, which currently consists of restaurant reservations;
and
- Geographic directions.
Our enhanced directory assistance and information services also incorporate
connectivity features that make the telephone more useful and easier to use.
These connectivity features include:
- Call completion--allows a caller to be directly connected with the number
requested without the need to redial;
- StarBack--allows the caller to return to an operator simply by pressing the
star [Q] key at any time during the call;
- AutoBack--automatically returns the caller to a menu of options, including a
live operator, on a busy signal, "ring-no-answer" or other similar
situations;
- MessageBack--delivers a caller's message to a desired party and, when
configured with AutoBack, provides a convenient tool for ensuring
communication;
- NumberBack--provides the caller with the last number called by simply
pressing the number [#] key; and
- PagingAssistant--allows our operators to send customized alphanumeric
messages on behalf of a caller.
We are developing and testing new services that add new content and connectivity
features, such as MetroDex, which allows callers to use their telephone or the
Internet to access their personal or corporate contact databases, and
LocationPro, which provides location-based services, including turn-by-turn
driving directions. Other features under development include on-line research
and verification utilities for use by businesses with a direct private
connection to us, and fulfillment-oriented services, such as reservations and
procurement capabilities for use by our carriers' subscribers. Our equipment
laboratories at our corporate headquarters facilitate this development and
testing by simulating normal call center operations.
DATABASE SYSTEMS AND CONTENT
We believe the quality of our services is in large measure related to the scope,
quality and quantity of the information content that resides in our database
systems. The majority of the information or data that we acquire, develop and
maintain is telephone listings data. We obtain this listings data from multiple
sources, including the regional Bell operating companies, independent telephone
companies and other commercial sources, to ensure that our data is of high
quality and accuracy. This data is enhanced by our data collection efforts and a
principal database of local information is developed for each call center or
region.
Our proprietary operator interface software allows operators to efficiently
search and reverse search both their local databases and other national
databases. We use proprietary database management systems to maintain and update
our directory listings. We continually acquire additional content or access to
content that will, in many cases, build on this listings data to make them more
useful. Acquisitions are made from a variety of sources and are supplemented
with information relating to local events and amenities.
MARKETING
Our marketing is conducted directly with the telecommunications carriers. The
marketing process involves a considerable amount of time and attention by our
senior management. Our senior
32
<PAGE>
management and all of our sales and technical support personnel are based at our
corporate headquarters in Beaverton, Oregon. Call center managers also play a
key role in maintaining and developing carrier relationships. Some of our
contracts provide for customer promotion of the services we provide to their
subscribers.
We communicate on a regular basis with our existing carrier customers through
our quality assurance and customer service programs. We have developed
proprietary programs that allow us and our customers to monitor the quality of
our performance and the volume and duration of directory assistance and
information requests on a real-time basis. These programs also give us an
opportunity to learn more about our carriers' evolving needs.
TECHNOLOGY
Our ability to provide enhanced directory assistance and information services is
dependent to a great extent on our proprietary technology. Our proprietary
software applications enhance our call handling and delivery capabilities and
provide the basis for our connectivity features. We have developed search
engines to access information from our databases. We continue to upgrade our
operator interface software, database management systems and search engines to
increase the access speed and the efficiency and search capability of our
operators.
Our call processing systems incorporate programmable switching equipment, host
computers, voice response units and database servers. Our advanced technology is
based on customized software running Sun Microsystems servers and Excel
switching equipment. One of the characteristics of our call processing systems
is the ability to take all calls from a carrier's switch and have them run
through our switch for the entire length of the call so that we are able to
provide the full range of our services to the subscriber.
We are also monitoring technological advances in the methods of delivery of
information and data and are working to insure that our systems are compatible
with, and we can take advantage of, these developments. As an example, the
wireless application protocol (or WAP) allows telephone users with the proper
type of telephone to access the Internet. We are exploring the opportunities
that this may present. The possibilities include using the content we have
available to us in this new format. We believe that by expanding reliance on the
telephone as a source of information and data, the application of this
technology will also benefit our enhanced directory assistance and information
services business.
INTELLECTUAL PROPERTY
We rely on a combination of trademark, patent and trade secrets laws and
confidentiality procedures to protect our intellectual property rights. We hold
five U.S. patents, including one relating to our StarBack technology and another
associated with our point-to-point directions service currently in development.
We also have approximately 15 applications pending for additional U.S. patents.
We also have U.S. registered trademarks for, among others, "Metro One
Telecommunications," "Metro One," "Enhanced Directory Assistance," "StarBack,"
"AutoBack" and "NumberBack," and applications pending for U.S. trademarks for,
among others, "MetroDex," "TeleConcierge" and "LocationPro."
In August 1999, we commenced an action against a competitor in the United States
District Court in Delaware claiming infringement of one of our patents relating
to our StarBack feature. The defendant has denied that it is infringing the
patent and has asserted that our patent is invalid.
COMPETITION
The directory assistance and information services markets are characterized by
rapidly changing market forces, technological advancements and increasing
competition from large carrier-affiliated companies
33
<PAGE>
and small, independent companies. Our principal competitors include regional
Bell operating companies and other local providers, including GTE Corporation.
These carriers provide directory assistance or information services both in and
outside their own operating regions. Although we believe that none of these
competitors offers a form of directory assistance that incorporates all our
features, they have substantially greater financial, technical and marketing
resources than we do and may be able to offer features similar to ours in the
future. We also face competition from independent companies seeking to offer
forms of enhanced directory assistance and, in some cases, other information
services.
We believe the principal competitive factors in the directory assistance market
are quality and range of features, technological innovation, experience,
responsiveness to customers and price. Historically, we have sought to
distinguish ourselves from our competitors based on the quality of our services,
the development of useful features, the breadth of the content provided and our
extensive network of call centers.
GOVERNMENT REGULATION
While our business is not directly regulated, it is dependent upon relationships
with companies that are regulated by the Federal Communications Commission and
state public utility commissions. This regulation applies to all communications
common carriers, such as AT&T, the regional Bell operating companies and other
long distance and local exchange carriers.
EMPLOYEES
As of September 30, 1999, Metro One had approximately 2,200 employees,
approximately 12% of whom were employed on a part-time basis. Most of our
employees are operators, and the number of full-time and part-time operators
varies from time to time reflecting fluctuations in the volume of calls. None of
our employees are subject to a collective bargaining agreement. Our management
considers relations with our employees to be good.
We invest significant resources in the recruitment, training and retention of
qualified operators. Our organizational structure provides opportunities and
encourages talented individuals to take on roles of increasing responsibility.
We also invest considerable resources in personnel motivation, including
providing incentive plans for our operators and others.
PROPERTIES
In July 1999, we relocated our principal executive and administrative offices in
Beaverton, Oregon. We lease our new offices, with approximately 35,000 square
feet of space. The lease term extends through 2009. We have subleased our former
executive and administrative offices, which have approximately 15,400 square
feet of space and a remaining lease term of four years with a renewal option.
We also lease office facilities for our call center operations, which range in
size from 3,600 to 15,500 square feet. Currently, we have 28 leases for call
center facilities, 22 of which are in operation, with remaining terms ranging
from one month to five years. We believe the expansion of our call center
network may require us to lease additional office facilities within the next
year. From time to time, we are required to move our call centers or lease
additional space to meet expanding volume from existing or new customers.
34
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS, KEY EMPLOYEES AND DIRECTORS
Metro One's executive officers, key employees and directors are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- -------------------------- -------- ---------------------------------------------------
<S> <C> <C>
Timothy A. Timmins........ 42 President, Chief Executive Officer and Director
Stebbins B. Chandor, 39 Senior Vice President, Chief Financial Officer and
Jr...................... Secretary
Gary E. Henry............. 42 Senior Vice President--Operations
Karen L. Johnson.......... 49 Senior Vice President--Corporate Development
Hugh E. Knox.............. 59 Vice President--Sales and Marketing
R. Tod Hutchinson......... 36 Vice President--Finance
Janice I. Aday............ 37 Vice President--Customer Care
Nicholas J. Elsey......... 34 Vice President--Development
Michael A. Kepler......... 36 Vice President--Research
L. Lynne Michaelson....... 53 Vice President--Human Resources
Kevin M. Swayze........... 37 Vice President--Technical Operations
A. Jean de Grandpre....... 78 Chairman of the Board of Directors
William D. Rutherford..... 60 Director
James M. Usdan............ 49 Director
</TABLE>
TIMOTHY A. TIMMINS has served as President and Chief Executive Officer of Metro
One since 1995 and as a director since 1994. He served as Metro One's Executive
Vice President and Chief Financial Officer from 1993 to 1995. From 1985 to 1993,
Mr. Timmins served in various capacities with the Investment Banking Division of
Kemper Securities, Inc. and predecessor firms, ultimately as Senior Vice
President. Mr. Timmins is a certified public accountant and holds a Bachelor of
Science degree in Business Administration from Portland State University and a
Masters degree in Business Administration from the University of Southern
California.
STEBBINS B. CHANDOR, JR. joined Metro One in 1995 and serves as its Senior Vice
President and Chief Financial Officer. He has served as its Secretary since
1996. From 1985 to 1995, Mr. Chandor served in various corporate finance
capacities with BA Securities, Inc., a wholly-owned subsidiary of BankAmerica
Corporation, and affiliated or predecessor firms including Bank of America and
Continental Bank N.A. Mr. Chandor holds a Bachelor of Science degree in Chemical
Engineering from Tufts University and a Masters degree in Business
Administration from the University of Southern California.
GARY E. HENRY joined Metro One in 1992 and serves as its Senior Vice
President--Operations. From 1992 to 1999, he served Metro One in a variety of
positions, most recently as Senior Vice President--Call Center Operations. Prior
to 1992, he was Senior Vice President, Corporate Services Director for Imperial
Corporation of America, Inc., a financial institution, with which he was
employed since 1985. Mr. Henry holds a Bachelor of Arts degree in Public
Administration from San Diego State University.
KAREN L. JOHNSON joined Metro One in 1993 and since 1998 has served as its
Senior Vice President--Corporate Development. From 1993 to 1998, she served as
its Vice President--Controller. From 1989 to 1993, she was Financial Operations
Manager for Care Medical Equipment, Inc. and Care Ambulance, Inc. Ms. Johnson is
a certified public accountant with a Bachelor of Arts degree from St. Olaf
College and she performed post-graduate work in accounting and business
administration at Portland State University.
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<PAGE>
HUGH E. KNOX joined Metro One in 1998 and serves as its Vice President--Sales
and Marketing. From 1989 to 1998, Mr. Knox worked as Vice President--Sales and
Marketing with ACS Wireless, a developer, manufacturer and distributor of
telephone headset equipment to various telecommunications concerns, including
the regional Bell operating companies and major long distance telephone
companies. Prior to joining ACS Wireless, Mr. Knox served in senior sales and
marketing positions with Pacific Bell, Centex Telemanagement and PacTel
Connection. Mr. Knox attended San Diego State University.
R. TOD HUTCHINSON joined Metro One in 1998 and has served as Vice
President--Finance since 1999. From 1998 to 1999, he served as Vice
President--Controller. From 1995 to 1998, he served as the Chief Financial
Officer for various start-up and early stage companies. From 1990 to 1995, he
was the Controller and Chief Financial Officer for InterVen Partners, Inc., a
regional venture capital firm. From 1987 to 1990, he was an associate with Price
Waterhouse, LLP. Mr. Hutchinson is a certified public accountant and holds a
Bachelors degree in Finance from the University of Texas at Austin and a Masters
degree in Business Administration from the University of Oregon.
JANICE I. ADAY joined Metro One in 1997 and has served as Vice
President--Customer Care since 1998. From 1996 to 1998, she served as Vice
President--Training and, before that, as Director--Training. From 1993 to 1996,
Ms. Aday was Executive Vice President for Image One, a national design and
advertising agency specializing in yellow page ad design. Ms. Aday holds a
Bachelor of Arts degree in Business Communications from National University.
NICHOLAS J. ELSEY has served as Vice President--Development since 1998. From
1995 to 1998, he held a similar position at Interactive Northwest, an
independent ISV for Lucent Technologies. From 1989 to 1995, he held senior
software development and management positions at various software development
firms in the United Kingdom, specializing in mobile computing and Interactive
Voice Response technologies. Mr. Elsey holds a Bachelor of Science from the
University of Wales and attended post graduate studies at the Imperial College
in London.
MICHAEL A. KEPLER joined Metro One in 1989 and has served as Vice
President--Research since 1998. From 1993 to 1998, he was the Vice
President--Information Systems. From 1989 to 1993, he was a Director of
Information Systems. Prior to joining the Company, Mr. Kepler was a programmer
with ComLink West, a supplier of computer programming services for Metro One.
L. LYNNE MICHAELSON joined Metro One in 1990 and has served as Vice
President--Human Resources since 1998. From 1990 until 1998, she served as
Assistant Vice President--Human Resources and, before that, as Manager--Human
Resources. Prior to 1990, she worked as the Human Resources/ Operations Manager
for Meier and Frank Department Stores, a division of May Company. She attended
Southern Oregon State College and Portland State University.
KEVIN M. SWAYZE joined Metro One in 1995 and has served as Vice
President--Technical Operations since 1999. Prior to 1999, he served as
Assistant Vice President--Technical Operations and, before that, as
Manager--Systems Administration Group. From 1990 to 1995, he was a systems
administrator for Xerox Corporation. He attended San Jose State University.
A. JEAN DE GRANDPRE is Chairman of Metro One's Board of Directors and has served
as a director since 1995. Mr. de Grandpre is the founding Director and Chairman
Emeritus of Bell Canada Enterprises, from which he retired in 1989. He has
served on the Board of Thera Technologies since 1993. He is a former director of
Bell Canada, Northern Telecom Limited, Chrysler Corporation, Chrysler
Canada Ltd., and the International Advisory Board of The Chemical Bank, New
York. Mr. de Grandpre is a Life Member of the Canadian Bar Association, Emeritus
Member of the Canadian Association of Canadian General Counsel, Member of the
Bar of the Province of Quebec and former Chancellor of McGill University.
Mr. de Grandpre is a lawyer, appointed Queen's Counsel and a
36
<PAGE>
Companion of the Order of Canada, the highest honor granted a private citizen.
Mr. de Grandpre is the recipient of the Honourary Associate Award of the
Conference Board of Canada and is an inductee into the Canadian Business Hall of
Fame.
WILLIAM D. RUTHERFORD has served as a director of Metro One since 1995. He is
the Principal of Rutherford Investment Management, an investment advisory
service. During 1997, Mr. Rutherford was Chief Executive Officer of Fiberboard
Asbestos Compensation Trust. From 1995 to 1996, Mr. Rutherford was a principal
with Macadam Partners, a Portland-based investment firm. He was formerly the
Treasurer of the State of Oregon, where he was responsible for the State's then
$14 billion investment program and the state's then $7.5 billion in indebtedness
and during which service he was elected Chairman of the Oregon Investment
Council. He also served for seven years as a Member of the Oregon House of
Representatives. From 1994 to 1995, Mr. Rutherford served as Director of Special
Projects for Metallgesellschaft Corp., a multi-billion dollar international
trading company. From 1990 through 1993, Mr. Rutherford was President and a
director of Societe Generale Touche Remnant Corporation (U.S.), an international
asset management company. From 1987 to 1990, Mr. Rutherford was President and
Chief Executive Officer of ABD International Management Corporation, an
international asset management company. Mr. Rutherford formerly practiced law
and served as the Chief Executive Officer of a regional investment firm. A U.S.
Army veteran, Mr. Rutherford received a Bachelor of Science degree in History
from the University of Oregon and an LL.B. from Harvard University Law School.
JAMES M. USDAN has served as a director of Metro One since 1997. He is the Chief
Executive Officer of NextCARE Hospitals, Inc., a provider of long-term acute
care hospital services. From 1990 to 1998, Mr. Usdan was the President, Chief
Executive Officer and a director of RehabCare Group Inc. (NYSE: RHB), a provider
of physical therapy, rehabilitation staffing and outsourcing services. Prior to
joining RehabCare, Mr. Usdan founded and was President and Chief Executive
Officer of American Transitional Care, Inc. from 1987 to 1990, and, from 1986 to
1987, he was Executive Vice President and Chief Operating Officer of Rehab
Hospital Services Corporation, the rehabilitation subsidiary of National Medical
Enterprises. Mr. Usdan serves on the Board of D & K Healthcare Services, Inc.
(Nasdaq: DKWD) a pharmaceutical distribution company, and is an Advisory Board
member of Mercantile Bank, the MedStat Group and Maryville College. Mr. Usdan
holds a Bachelor of Arts degree from Harvard College.
37
<PAGE>
CERTAIN TRANSACTIONS
During 1994, A. Jean de Grandpre, the Chairman of the Board of Directors,
purchased Metro One's 8% Convertible Secured Notes in the principal amount of
$150,000, using investment companies he controlled, as a part of Metro One's
then convertible secured note financing. Metro One converted these Notes into
64,932 shares of its common stock during the fourth quarter of 1995.
In 1996, Metro One and the lenders in the convertible secured note financing,
including Mr. de Grandpre, entered into a Shareholder Rights Agreement. In the
Shareholder Rights Agreement, Metro One granted the lenders registration rights
on their shares of common stock and a right of first refusal on future sales of
its common stock, preferred stock or other securities. Some of these lenders
will be entitled to exercise their right of first refusal for up to 147,980 of
the shares being offered by us in this prospectus. See "Underwriting." The right
of first refusal terminates on the completion of an underwritten public offering
of common stock if Metro One receives cash proceeds of $10 million at a per
share price of at least $10.50.
The Board of Directors and Timothy A. Timmins, our President, Chief Executive
Officer and a director, are discussing an extension and modification of his
employment agreement, which expires in 2000.
38
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table shows certain information regarding the ownership of our
common stock as of October 15, 1999, and as adjusted to reflect the sale by us
of 2,000,000 shares of common stock and the sale of 67,500 shares of common
stock by the selling shareholders, of the following:
- Each person we know to beneficially own more than 5% of the outstanding
shares of our common stock;
- Each director;
- Each named executive officer;
- All directors and executive officers as a group; and
- All other selling shareholders.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED OWNED
PRIOR TO OFFERING AFTER THE OFFERING
5% OWNERS, DIRECTORS -------------------- SHARES --------------------
AND EXECUTIVE OFFICERS: NUMBER PERCENT OFFERED NUMBER PERCENT
- ----------------------- --------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
A. Jean de Grandpre...................... 212,071 1.8% 0 212,071 1.6%
William D. Rutherford**.................. 128,759 1.1% 18,000 110,759 1.0%
Timothy A. Timmins....................... 408,910 3.5% 15,000 393,910 2.9%
James M. Usdan........................... 40,300 * 0 40,300 *
Gary E. Henry............................ 63,252 * 0 63,252 *
Stebbins B. Chandor, Jr.................. 80,826 * 7,500 73,326 *
Karen L. Johnson......................... 50,806 * 7,500 43,306 *
All directors and executive
officers as a group (9 persons)........ 1,008,361 8.7% 48,000 960,361 7.2%
<CAPTION>
OTHER SELLING SHAREHOLDERS:
- ---------------------------
Janice I. Aday. 7,857 * 2,500 5,357 *
<S> <C> <C> <C> <C> <C>
Jack G. Blesener......................... 5,803 * 3,000 2,803 *
Michael A. Kepler........................ 73,926 * 10,000 63,926 *
Steven D. McGavran....................... 11,964 * 4,000 7,964 *
</TABLE>
- ---------------------------
* Less than one percent
** Includes 15,238 shares held by Karen Anderegg, Mr. Rutherford's spouse, of
which she will be selling 3,000 shares in this offering.
We believe that the persons listed above have sole investment and voting power
with respect to their shares of common stock. Applicable percentage ownership in
the table is based on 11,409,877 shares of common stock outstanding as of
October 15, 1999.
For purposes of this table, beneficial ownership is determined in accordance
with rules of the SEC, and includes voting power and investment power with
respect to shares. Shares issuable upon the exercise of outstanding stock
options that are currently exercisable or become exercisable within 60 days of
October 15, 1999 are considered outstanding for purposes of calculating the
percentage owned by a person, but not for purposes of calculating the percentage
owned by any other person. The numbers of shares that are issuable upon the
exercise of options that are currently exercisable or exercisable within
60 days are as follows: A. Jean de Grandpre--147,139 shares; William D.
Rutherford--97,140 shares; Timothy A. Timmins--399,981 shares; James M.
Usdan--40,000 shares; Gary E. Henry--62,252 shares; Stebbins B. Chandor,
Jr.--76,426 shares; Karen L. Johnson--50,406 shares; and all directors and
officers as a group--896,781 shares.
39
<PAGE>
UNDERWRITING
Metro One and the selling shareholders will enter into an underwriting agreement
with the underwriters named below. CIBC World Markets Corp. and U.S. Bancorp
Piper Jaffray Inc. are acting as representatives of the underwriters.
The underwriting agreement will provide for the purchase of a specific number of
shares of common stock by each of the underwriters. The underwriters'
obligations will be several, which means that each underwriter is required to
purchase a specified number of shares, but is not responsible for the commitment
of any other underwriter to purchase shares. Subject to the terms and conditions
of the underwriting agreement, each underwriter will severally agree to purchase
the number of shares of common stock set forth opposite its name below:
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
- ------------ ----------------
<S> <C>
CIBC World Markets Corp.....................................
U.S. Bancorp Piper Jaffray Inc..............................
---------
Total................................................... 2,067,500
=========
</TABLE>
The underwriters have agreed to purchase all of the shares offered by this
prospectus (other than those covered by the over-allotment option described
below) if any are purchased. Under the underwriting agreement, if an underwriter
defaults in its commitment to purchase shares, the commitments of non-defaulting
underwriters may be increased or the underwriting agreement may be terminated,
depending on the circumstances.
The shares should be ready for delivery on or about , against payment
in immediately available funds. The representatives have advised Metro One and
the selling shareholders that the underwriters propose to offer the shares
directly to the public at the public offering price that appears on the cover
page of the prospectus. In addition, the representatives may offer some of the
shares to other securities dealers at the same price less a concession of
$______ per share. The underwriters may also allow, and such dealers may
reallow, a concession not in excess of $____ per share to other dealers. After
the shares are released for sale to the public, the representatives may change
the offering price and other selling terms at various times.
Metro One will grant the underwriters an over-allotment option. This option,
which is exercisable for up to 30 days after the date of this prospectus,
permits the underwriters to purchase a maximum of 310,125 additional shares from
us to cover over-allotments. If the underwriters exercise all or part of this
option, they will purchase shares covered by the option at the public offering
price that appears on the cover page of this prospectus, less the underwriting
discount. If this option is exercised in full, the total price to public will be
$______, the total proceeds to Metro One will be $______ and the total proceeds
to the selling shareholders will be $______. The underwriters will severally
agree that, to the extent the over-allotment option is exercised, they will each
purchase a number of additional shares proportionate to the underwriter's
initial amount reflected in the foregoing table.
40
<PAGE>
The following table provides information regarding the amount of the discount to
be paid to the underwriters by Metro One and the selling shareholders.
<TABLE>
<CAPTION>
TOTAL WITH FULL EXERCISE
TOTAL WITHOUT EXERCISE OF OF OVER-ALLOTMENT
PER SHARE OVER-ALLOTMENT OPTION OPTION
--------- ------------------------- ------------------------
<S> <C> <C> <C>
Metro One............................. $ $ $
Selling shareholders.................. $ $ $
------- ------- -------
Total............................. $ $
</TABLE>
Metro One and the selling shareholders estimate that their portions of the total
expenses of the offering, excluding the underwriting discount, will be
approximately $______ for Metro One and $______ for the selling shareholders as
a group.
Metro One and the selling shareholders will agree to indemnify the underwriters
against certain liabilities, including liabilities under the Securities Act of
1933.
Metro One, its officers and directors will agree to a 90-day "lock up" with
respect to all shares of common stock that they beneficially own, including
securities that are convertible into shares of common stock and securities that
are exchangeable or exercisable for shares of common stock. This means that,
subject to certain exceptions, for a period of 90 days following the date of
this prospectus, Metro One and such persons may not offer, sell, pledge or
otherwise dispose of these Metro One securities without the prior written
consent of CIBC World Markets Corp.
Rules of the Securities and Exchange Commission may limit the ability of the
underwriters to bid for or purchase shares before the distribution of the shares
is completed. However, the underwriters may engage in the following activities
in accordance with the rules:
- Stabilizing transactions--The representatives may make bids or purchases for
the purpose of pegging, fixing or maintaining the price of the shares, so
long as stabilizing bids do not exceed the specified maximum.
- Over-allotments and syndicate covering transactions--The underwriters may
create a short position in the shares by selling more shares than are set
forth on the cover page of this prospectus. If a short position is created
in connection with the offering, the representatives may engage in syndicate
covering transactions by purchasing shares in the open market. The
representatives may also elect to reduce any short position by exercising
all or part of the over-allotment option.
- Penalty bids--If the representatives purchase shares in the open market in a
stabilizing transaction or syndicate covering transaction, they may reclaim
a selling concession from the underwriters and selling group members who
sold those shares as part of this offering.
- Passive market making--Market makers in the shares who are underwriters or
prospective underwriters may make bids for or purchases of shares, subject
to limitations, until the time, if ever, at which a stabilizing bid is made.
Stabilization and syndicate covering transactions may cause the price of the
shares to be higher than it would be in the absence of such transactions. The
imposition of a penalty bid might also have an effect on the price of the shares
if it discourages resales of the shares.
Neither Metro One nor the underwriters makes any representation or prediction as
to the effect that the transactions described above may have on the price of the
shares. These transactions may occur on the Nasdaq National Market or otherwise.
If such transactions are commenced, they may be discontinued without notice at
any time.
CIBC World Markets Corp. or its affiliates have provided and may in the future
provide investment banking or other financial services to Metro One in the
ordinary course of business. In consideration
41
<PAGE>
for these services, CIBC World Markets Corp. or its affiliates have received and
are expected to receive customary fees and expenses.
Some of the shareholders who participated in our convertible secured note
financing in 1994 have a right of first refusal on future sales of our stock,
including the shares to be sold by us in this offering. We have reserved 147,980
shares for sale to them at the public offering price. Any reserved shares not
purchased by them will be offered by the underwriters to the general public on
the same basis as the other shares offered by this prospectus. The underwriters
will not receive any underwriting discounts from the sale of shares under this
right of first refusal.
42
<PAGE>
LEGAL MATTERS
The validity of the shares of common stock offered by this prospectus will be
passed upon for us by Heller Ehrman White & McAuliffe, Los Angeles, California,
counsel to Metro One. Certain legal matters will be passed upon for the
underwriters by Latham & Watkins, Costa Mesa, California, counsel to the
underwriters.
EXPERTS
The financial statements as of December 31, 1997 and 1998 and for each of the
three years in the period ended December 31, 1998, included and incorporated by
reference in this prospectus have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report included and incorporated by
reference herein and have been so included and incorporated in reliance upon the
report of such firm given upon their authority as experts in accounting and
auditing.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission. Our filings are
available to the public over the Internet at the SEC's web site at
"http://www.sec.gov." You can read and copy any document that we file with the
SEC at the following SEC public reference facilities:
<TABLE>
<S> <C> <C>
Public Reference Room New York Regional Office Chicago Regional Office
450 Fifth Street, N.W. 7 World Trade Center Citicorp Center
Room 1024 Suite 1300 500 West Madison Street
Washington, D.C. 20549 New York, NY 10048 Suite 1400
Chicago, IL 60661
</TABLE>
You can also obtain copies of the documents at prescribed rates by writing to
the SEC's Public Reference Section at 450 Fifth Street, N.W., Washington, D.C.
20549. Please call 1-800-SEC-0330 for further information on the operation of
the SEC's public reference facilities. You also can inspect copies of our
filings at The Nasdaq Stock Market at 1735 K Street, N.W., Washington, D.C.
20006.
The SEC allows us to "incorporate by reference" into this prospectus the
information we file with the SEC. This means that we can disclose important
information to you by referring you to those documents. Information incorporated
by reference is part of this prospectus. Information that we later file with the
SEC will automatically update and supersede this information.
We incorporate by reference the documents listed below and any future filings
made with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Securities
Exchange Act of 1934 until this offering is completed:
- Our Annual Report on Form 10-K for the year ended December 31, 1998;
- Our Amendment to Annual Report on Form 10-K/A for the year ended
December 31, 1998;
- Our Quarterly Report on Form 10-Q for the quarter ended March 31, 1999;
- Our Quarterly Report on Form 10-Q for the quarter ended June 30, 1999;
- Our Current Report on Form 8-K filed July 1, 1999;
- Our Quarterly Report on Form 10-Q for the quarter ended September 30, 1999;
and
43
<PAGE>
- The description of our common stock contained in our Registration Statement
on Form 8-A, filed with the Commission on October 19, 1995.
You may request a copy of these filings, at no cost, by writing or telephoning
us at the following address:
Metro One Telecommunications, Inc.
11200 Murray Scholls Place
Beaverton, Oregon 97007
Telephone: (503) 643-9500
Attention: Investor Relations
This prospectus is part of a registration statement that we filed with the SEC.
This prospectus does not contain all of the information included in the
registration statement. We have omitted certain parts of the registration
statement in accordance with the rules and regulations of the SEC. For further
information, we refer you to the registration statement, including its exhibits
and schedules.
* * * *
Metro One has authorized no one to provide you with any information that differs
from that contained in this prospectus. Accordingly, you should not rely on any
information that is not contained in this prospectus. Metro One is not making an
offer of these securities in any state where the offer is not permitted. You
should not assume that the information in this prospectus is accurate as of any
date other than the date on the front cover of this prospectus.
44
<PAGE>
INDEX TO FINANCIAL STATEMENTS
METRO ONE TELECOMMUNICATIONS, INC.
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Independent Auditors' Report................................ F-2
Statements of Operations for the years ended December 31,
1996, 1997 and 1998 and the nine months ended
September 30, 1998 and 1999 (unaudited)................... F-3
Balance Sheets as at December 31, 1997 and 1998 and
September 30, 1999 (unaudited)............................ F-4
Statements of Shareholders' Equity for years ended
December 31, 1996, 1997 and 1998 and the nine months ended
September 30, 1999 (unaudited)............................ F-5
Statements of Cash Flows for the years ended December 31,
1996, 1997 and 1998 and the nine months ended
September 30, 1998 and 1999 (unaudited)................... F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Metro One Telecommunications, Inc.
Beaverton, Oregon
We have audited the accompanying balance sheets of Metro One Telecommunications,
Inc. as of December 31, 1998 and 1997 and the related statements of operations,
shareholders' equity, and cash flows for each of the three years in the period
ended December 31, 1998. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all respects, the
financial position of Metro One Telecommunications, Inc. as of December 31, 1998
and 1997 and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1998 in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE LLP
Portland, Oregon
February 15, 1999
F-2
<PAGE>
METRO ONE TELECOMMUNICATIONS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------ -------------------
1996 1997 1998 1998 1999
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues....................................... $17,834 $26,090 $45,139 $31,280 $52,113
------- ------- ------- ------- -------
Costs and expenses:
Direct operating............................. 8,334 13,017 23,107 16,104 30,481
General and administrative................... 7,615 11,702 18,334 13,099 19,795
------- ------- ------- ------- -------
15,949 24,719 41,441 29,203 50,276
------- ------- ------- ------- -------
Income from operations......................... 1,885 1,371 3,698 2,077 1,837
Other income (expense)......................... (109) 408 289 248 112
Interest and loan fees......................... (569) (334) (309) (255) (425)
------- ------- ------- ------- -------
Income before income taxes..................... 1,207 1,445 3,678 2,070 1,524
Income tax expense............................. 41 13 75 44 60
------- ------- ------- ------- -------
Net income..................................... $ 1,166 $ 1,432 $ 3,603 $ 2,026 $ 1,464
======= ======= ======= ======= =======
Income per common share
Basic........................................ $ 0.13 $ 0.13 $ 0.33 $ 0.18 $ 0.13
Diluted...................................... $ 0.12 $ 0.13 $ 0.32 $ 0.18 $ 0.12
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
METRO ONE TELECOMMUNICATIONS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
------------------- --------------
1997 1998 1999
-------- -------- --------------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 8,554 $ 6,063 $ 3,491
Short-term investments.................................... -- 1,507 400
Accounts receivable....................................... 4,629 7,428 8,700
Prepaid costs and other current assets.................... 694 766 1,032
-------- -------- -------
Total current assets.................................... 13,877 15,764 13,623
Furniture, fixtures and equipment, net...................... 14,632 19,982 33,660
Other assets................................................ 616 565 817
-------- -------- -------
$ 29,125 $ 36,311 $48,100
======== ======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 1,302 $ 1,501 $ 2,245
Accrued liabilities....................................... 992 1,992 2,731
Accrued payroll and related costs......................... 1,023 1,852 2,427
Line of credit payable.................................... -- 1,400 --
Current portion of capital lease obligations.............. 638 365 193
Current portion of long-term debt......................... 78 240 2,525
-------- -------- -------
Total current liabilities............................... 4,033 7,350 10,121
Capital lease obligations................................. 548 103 41
Long-term debt............................................ 868 616 6,439
-------- -------- -------
5,449 8,069 16,601
-------- -------- -------
Commitments and contingencies............................... -- -- --
Shareholders' equity:
Preferred stock, no par value; 10,000 shares authorized, no
shares issued or outstanding.............................. -- -- --
Common stock, no par value; 50,000 shares authorized,
10,926, 11,188 and 11,410 shares issued and outstanding as
of December 31, 1997 and 1998 and September 30, 1999,
respectively.............................................. 37,514 38,477 40,270
Accumulated deficit......................................... (13,838) (10,235) (8,771)
-------- -------- -------
Shareholders' equity........................................ 23,676 28,242 31,499
-------- -------- -------
$ 29,125 $ 36,311 $48,100
======== ======== =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
METRO ONE TELECOMMUNICATIONS, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
SHAREHOLDERS' EQUITY
--------------------------------------------------
COMMON STOCK
------------------- (ACCUMULATED SHAREHOLDERS'
SHARES AMOUNT DEFICIT) EQUITY
(IN THOUSANDS) -------- -------- ------------ -------------
<S> <C> <C> <C> <C>
Balances at January 1, 1996........................ 7,937 $19,711 $(16,436) $ 3,275
Common stock issued in public offering............. 1,675 12,515 -- 12,515
Stock options/warrants exercised, net.............. 819 2,625 -- 2,625
Conversion of long-term debt to common stock....... 262 1,400 -- 1,400
Net income......................................... -- -- 1,166 1,166
------ ------- -------- -------
Balances at December 31, 1996...................... 10,693 36,251 (15,270) 20,981
Stock options/warrants exercised, net.............. 183 993 -- 993
Stock issued for legal settlement.................. 50 270 -- 270
Net income......................................... -- -- 1,432 1,432
------ ------- -------- -------
Balances at December 31, 1997...................... 10,926 37,514 (13,838) 23,676
Stock options/warrants exercised, net.............. 262 963 -- 963
Net income......................................... -- -- 3,603 3,603
------ ------- -------- -------
Balances at December 31, 1998...................... 11,188 38,477 (10,235) 28,242
Stock options/warrants exercised, net
(unaudited)...................................... 222 1,793 -- 1,793
Net income (unaudited)............................. -- -- 1,464 1,464
------ ------- -------- -------
Balances at September 30, 1999 (unaudited)......... 11,410 $40,270 $ (8,771) $31,499
====== ======= ======== =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
METRO ONE TELECOMMUNICATIONS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------ -------------------
1996 1997 1998 1998 1999
-------- -------- -------- -------- --------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income................................. $ 1,166 $ 1,432 $ 3,603 $ 2,026 $ 1,464
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization............ 1,322 2,263 3,774 2,706 4,293
Loss on disposal of fixed assets......... 151 81 73 32 48
Deferred income taxes.................... (33) (12) (42) (23) (8)
Changes in certain assets and liabilities:
Accounts receivable...................... (105) (1,906) (2,799) (830) (1,272)
Prepaid expenses and other assets........ (73) (238) (91) (103) (600)
Accounts payable, accrued liabilities and
payroll costs.......................... 484 1,673 2,028 1,457 2,058
------- -------- -------- ------- --------
Net cash provided by operating
activities........................... 2,912 3,293 6,546 5,265 5,983
------- -------- -------- ------- --------
Cash flows from investing activities:
Capital expenditures....................... (3,408) (10,096) (9,085) (5,371) (17,929)
Purchase of short-term investments......... -- -- (1,507) -- --
Sale of short-term investments............. -- -- -- -- 1,107
------- -------- -------- ------- --------
Net cash used in investing
activities........................... (3,408) (10,096) (10,592) (5,371) (16,822)
------- -------- -------- ------- --------
Cash flows from financing activities:
Net proceeds from line of credit........... -- -- 1,400 -- (1,400)
Proceeds from issuance of debt............. 1,121 946 -- -- 9,250
Repayment of debt.......................... (1,867) -- (90) (22) (1,142)
Repayment of capital lease obligations..... (910) (719) (718) (643) (234)
Proceeds from issuance of common stock and
exercise of warrants and options......... 2,625 993 963 465 1,793
Proceeds from initial public offering of
common stock, net of expenses............ 12,515 -- -- -- --
------- -------- -------- ------- --------
Net cash provided by (used in)
financing activities................. 13,484 1,220 1,555 (200) 8,267
------- -------- -------- ------- --------
Net increase (decrease) in cash and cash
equivalents................................ 12,988 (5,583) (2,491) (306) (2,572)
Cash and cash equivalents, beginning of
period..................................... 1,149 14,137 8,554 8,554 6,063
------- -------- -------- ------- --------
Cash and cash equivalents, end of period..... $14,137 $ 8,554 $ 6,063 $ 8,248 $ 3,491
======= ======== ======== ======= ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
METRO ONE TELECOMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED AS OF SEPTEMBER 30, 1999 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999)
1. SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS. We provide enhanced directory assistance services to
telecommunications carriers and their customers. Revenues are derived
principally through fees charged to telecommunications carriers. We operate call
centers located in many metropolitan areas throughout the United States.
CASH AND CASH EQUIVALENTS. Cash and cash equivalents include cash deposits in
banks and highly liquid investments with original maturity dates of less than
three months.
SHORT-TERM INVESTMENTS. Short-term investments include highly liquid
investments such as money market instruments with original maturity dates of
three months to one year. We classify our investments as "held-to-maturity" and
accordingly record these investments at cost, which approximates fair value.
REVENUE RECOGNITION. Under existing contracts with telecommunications carriers,
we record revenue for the number of calls processed. Revenue is recognized as
services are provided.
MAJOR CUSTOMERS. In each of the years ended December 31, 1996, 1997 and 1998
and the nine months ended September 30, 1998 and 1999, twelve customers
accounted for substantially all revenue reported and accounts receivable. Our
three largest customers accounted for approximately 28%, 26% and 22% of revenue
in 1996. Our four largest customers accounted for approximately 25%, 24%, 17%
and 16% of revenue in 1997. Our five largest customers accounted for
approximately 38%, 18%, 17%, 12% and 11% of revenue in 1998. Our five largest
customers accounted for approximately 37%, 19%, 14%, 14% and 12% of revenue
during the nine months ended September 30, 1998, and our four largest customers
accounted for approximately 42%, 30%, 12% and 12% of revenue during the nine
months ended September 30, 1999. Historically, we have not incurred significant
losses related to our accounts receivable and accordingly, no allowance for
uncollectible accounts has been provided.
FURNITURE, FIXTURES AND EQUIPMENT. Furniture, fixtures and equipment are stated
at cost and are depreciated over their estimated useful lives of three to seven
years using the straight-line method. Leasehold improvements are amortized over
the lesser of the remaining lease term or the useful life. Expenses for repairs
and maintenance are expensed as incurred. Capital lease assets were $2,792,000,
$1,323,000 and $1,184,000 at December 31, 1997 and 1998 and September 30, 1999,
respectively. Accumulated amortization for capital leases is included in
accumulated depreciation. In the event that facts and circumstances indicate
that the cost of furniture, fixtures and equipment may be impaired, an
evaluation of recoverability would be performed and the asset's carrying amount
would be reduced to market value or discounted cash flow value.
PATENTS AND TRADEMARKS. Patents, patents pending and trademarks are included in
other assets and are carried at cost less accumulated amortization. Costs are
amortized over the estimated useful lives of the related assets of three to ten
years. In the event that facts and circumstances indicate that the cost of
patents or trademarks may be impaired, an evaluation of recoverability would be
performed and the asset's carrying amount would be reduced to market value or
discounted cash flow value.
FAIR VALUE OF FINANCIAL INSTRUMENTS. The carrying value of cash and cash
equivalents, short-term investments, accounts receivable, accounts payable,
accrued liabilities and line of credit payable approximate fair value due to the
short-term maturities of these assets and liabilities.
F-7
<PAGE>
METRO ONE TELECOMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AS OF SEPTEMBER 30, 1999 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999)
1. SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES. The preparation of financial statements in conformity with
generally accepted accounting principles requires us to make estimates and
assumptions that effect reported amounts of assets and liabilities at the date
of the financial statements and the reported amounts of revenue and expenses
during the fiscal year. Actual results could differ from those estimates.
COMMITMENTS AND CONTINGENCIES. We are party to various legal actions and
administrative proceedings arising in the ordinary course of business. We
believe the disposition of these matters will not have a material adverse effect
on our financial position, results of operations or cash flows.
RECLASSIFICATION. Certain balances in the 1996, 1997 and 1998 financial
statements have been reclassified to conform with 1999 presentations. Such
reclassifications had no effect on results of operations or accumulated deficit.
UNAUDITED INTERIM FINANCIAL DATA. The interim financial data has been prepared
without audit and in conformity with generally accepted accounting principles
for interim financial information. In our opinion, the interim financial data
includes all adjustments, consisting only of normal recurring adjustments,
necessary for a fair statement of the results for the interim periods.
2. FURNITURE, FIXTURES AND EQUIPMENT
Furniture, fixtures and equipment by major classification are summarized as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
------------------- --------------
1997 1998 1999
-------- -------- --------------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C>
Equipment..................................... $16,409 $22,824 $ 36,390
Furniture and fixtures........................ 2,403 3,536 5,823
Leasehold improvements........................ 912 1,634 3,308
------- ------- --------
19,724 27,994 45,521
Accumulated depreciation and amortization..... (5,092) (8,012) (11,861)
------- ------- --------
$14,632 $19,982 $ 33,660
======= ======= ========
</TABLE>
3. LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
------------------- --------------
1997 1998 1999
-------- -------- --------------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C>
Secured Equipment Line........................ -- -- 7,214
Secured Equipment Financing Loan.............. -- -- 1,750
Secured Term Loan............................. $ 946 $ 856 $ --
Current portion............................... (78) (240) (2,525)
------- ------- --------
Long-term debt................................ $ 868 $ 616 $ 6,439
======= ======= ========
</TABLE>
F-8
<PAGE>
METRO ONE TELECOMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AS OF SEPTEMBER 30, 1999 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999)
3. LONG-TERM DEBT (CONTINUED)
LOAN AGREEMENTS. In April 1999, we entered into a new loan agreement with a
commercial bank that replaced prior agreements. The loan agreement consists of a
$10 million Revolving Line of Credit plus an Equipment Line under which we may
borrow up to $7.5 million to finance purchases of capital equipment. Total
borrowings under the two lines cannot exceed $15 million in the aggregate. The
Revolving Line of Credit expires in April 2001 and advances under the Equipment
Line are available through April 2000. Availability under the loan agreement may
be subject to borrowing base requirements and requires compliance with loan
covenants. Under the terms of the loan agreement, outstanding borrowings bear
interest at the prime rate (8.25 percent at September 30, 1999) and all of our
assets are pledged as collateral, except for assets previously pledged under
existing financing and lease agreements and assets that may be pledged pursuant
to purchase money agreements. The agreement contains minimum net worth, working
capital and profitability requirements as well as certain other restrictive
covenants and prohibits the payment of cash dividends exceeding 10% of our
tangible net worth. As of September 30, 1999, we did not meet one of the
financial ratio requirements under this agreement, however we have received a
waiver of this requirement for the third quarter of 1999 from our bank. As of
September 30, 1999, we had no borrowings against the Revolving Line of Credit
and $7.2 million in borrowings against the Equipment Line. This loan bears an
interest rate that approximates current market rates; thus, the recorded value
of this loan is considered to be at fair value.
In September 1999, we entered into a new loan agreement with an equipment
financing lender. The loan agreement provides us with $10 million of borrowing
capacity to fund the expansion of our call center network and for other
equipment needs. The agreement provides for fixed or floating rate options and
all assets purchased pursuant to the agreement are pledged as collateral.
Borrowings under the agreement have a term of 48 months, and prepayment of
outstanding borrowings is allowable 12 months after the funding date. As of
September 30, 1999, we had $1.8 million in borrowings against this facility,
bearing interest at a fixed rate of 8.77%. This interest rate approximates
current market rates; thus, the recorded value of this loan is considered to be
at fair value.
At December 31, 1998, we had in place a $6 million Secured Operating Line of
Credit with a commercial bank. Under the terms of the agreement, outstanding
borrowings bore interest at prime rate plus 0.25 percent and all of our assets
were pledged as collateral. The agreement contained minimum net worth and
working capital requirements as well as certain other restrictive covenants, as
defined by the agreement, and prohibited the payment of cash dividends. At
December 31, 1998, we had $1.4 million in borrowings against this line of
credit. In addition, we had a credit facility under which we could borrow up to
$2 million to finance purchases of capital equipment. Borrowings bore interest
at the prime rate plus 0.50 percent and were secured by the purchased equipment.
At December 31, 1998, we had no borrowings against this credit facility.
In 1997, we entered into a $1 million Secured Term Loan agreement with a
commercial bank. Under the terms of the agreement, outstanding borrowings bore
interest at prime rate plus 0.5 percent. The terms of the loan called for an
18-month interest only accumulation period through August 1998 followed by 42
monthly payments of approximately $27,000 for principal and interest. The
agreement contained minimum net worth and working capital requirements as well
as certain other restrictive covenants and prohibited the payment of cash
dividends. We had $946,000 and $856,000 in borrowings
F-9
<PAGE>
METRO ONE TELECOMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AS OF SEPTEMBER 30, 1999 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999)
3. LONG-TERM DEBT (CONTINUED)
against this credit facility at December 31, 1997 and 1998, respectively. This
loan bore an interest rate that approximated current market rates; thus, the
recorded value of this loan was considered to be at fair value.
Aggregate long-term debt payments are scheduled to be $0.6 million for the three
months ended December 31, 1999, $2.5 million in 2000, $2.6 million in 2001, $2.5
million in 2002 and $0.7 million in 2003.
4. LEASE OBLIGATIONS
We lease operating facilities and equipment under operating leases with
unexpired terms of one to ten years. Rental expense for operating leases was
approximately $942,000, $1,388,000 and $2,091,000 for the years ended December
31, 1996, 1997 and 1998, respectively. Rental expense for operating leases was
approximately $1,519,000 and $2,374,000 for the nine months ended September 30,
1998 and 1999, respectively.
Minimum annual rentals for the five years subsequent to 1998 and in the
aggregate thereafter are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, CAPITAL LEASES OPERATING LEASES
- ------------ -------------- ----------------
<S> <C> <C>
1999............................................ 422 2,609
2000............................................ 98 2,534
2001............................................ 17 2,194
2002............................................ -- 1,647
2003............................................ -- 988
Thereafter...................................... -- 3,254
----- -------
Total minimum lease payments.................... 537 $13,226
=======
Less interest portion at rates of 16.7% to
20.7%......................................... (69)
-----
Present value of net minimum lease payments,
capital leases................................ 468
Portion due within one year..................... (365)
-----
Long-term portion............................... $ 103
=====
</TABLE>
F-10
<PAGE>
METRO ONE TELECOMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AS OF SEPTEMBER 30, 1999 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999)
4. LEASE OBLIGATIONS (CONTINUED)
Minimum annual rentals for the five years subsequent to September 30, 1999 and
in the aggregate thereafter are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
TWELVE MONTHS
ENDED SEPTEMBER 30, CAPITAL LEASES OPERATING LEASES
- ------------------- -------------- ----------------
<S> <C> <C>
2000............................................ 214 3,838
2001............................................ 42 3,451
2002............................................ -- 3,115
2003............................................ -- 2,607
2004............................................ -- 1,846
Thereafter...................................... -- 2,930
----- -------
Total minimum lease payments.................... 256 $17,787
=======
Less interest portion at rates of 16.7% to
20.7%......................................... (22)
-----
Present value of net minimum lease payments,
capital leases................................ 234
Portion due within one year..................... (193)
-----
Long-term portion............................... $ 41
=====
</TABLE>
F-11
<PAGE>
METRO ONE TELECOMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AS OF SEPTEMBER 30, 1999
AND THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999)
5. SHAREHOLDERS' EQUITY
PREFERRED STOCK. We have authorized 10,000,000 shares of preferred stock for
issuance. Our board of directors has the power to issue one or more series of
preferred shares and the authority to fix and determine the rights and
preferences of such shares. No preferred shares were issued or outstanding as of
September 30, 1999.
COMMON STOCK OPTIONS AND WARRANTS. We have a Stock Incentive Plan (the "Plan"),
approved by the shareholders, which provides for the award of incentive stock
options to key employees and the award of non-qualified stock options, stock
sales and grants to employees, outside directors, independent contractors and
consultants. As of September 30, 1999, 2,300,000 shares of common stock were
reserved for issuance under the Plan. It is intended that the Plan will be used
principally to attract and retain key employees.
The option price per share of an incentive stock option may not be less than the
fair market value of a share of common stock as of the date such option is
granted. The option price per share of a non-qualified stock option may be at
any price established by the board of directors or a committee thereof
established for purposes of administering the plan. Options become exercisable
at the times and subject to the conditions prescribed by the board of directors.
Generally, options vest over a period of four years and the term of each option
may not exceed ten years. Payment for shares purchased pursuant to options may
be made in cash or by delivery of shares of common stock having a market value
equal to the exercise price of the options.
In 1999, our shareholders approved the Metro One Telecommunications, Inc. 1999
Employee Stock Purchase Plan (the "ESPP"). The purpose of the ESPP is to attract
and retain qualified employees essential to our success, and to provide such
persons with an incentive to perform in our best interests. As of September 30,
1999, 150,000 shares of common stock were reserved for issuance under the ESSP.
We have elected to continue to account for stock options according to Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees."
Accordingly, no compensation cost has been recognized for this plan in the
financial statements. If compensation cost on stock options granted under this
plan had been determined based on the fair value of the options granted as of
the grant date in a method consistent with that described in Statement of
Financial Accounting Standards No. 123, our net income and earnings per share
would have been changed to the pro forma amounts indicated below for the years
ended December 31, 1996, 1997, 1998 and the nine months ended September 30, 1998
and 1999:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------ -------------------
1996 1997 1998 1998 1999
-------- -------- -------- -------- --------
(IN THOUSANDS) (UNAUDITED)
(EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Net income, as reported............. $1,166 $1,432 $3,603 $2,026 $1,464
Diluted earnings per share, as
reported.......................... 0.12 0.13 0.32 0.18 0.12
Net income, pro forma............... 944 1,048 3,311 1,883 978
Diluted earnings per share, pro
forma............................. 0.10 0.10 0.29 0.17 0.08
</TABLE>
F-12
<PAGE>
METRO ONE TELECOMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AS OF SEPTEMBER 30, 1999
AND THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999)
5. SHAREHOLDERS' EQUITY (CONTINUED)
The pro forma amounts may not be indicative of the effects on reported net
income for future periods due to the effect of options vesting over a period of
years and the awarding of stock compensation in future years.
The fair value of each option grant was estimated on the date of grant using the
Black-Scholes option-pricing model with the following assumptions used for
grants in the years ended December 31, 1996, 1997 and 1998, respectively:
dividend yield of 0 for all years; risk-free interest rates of 6.3, 5.7 and 4.5
percent; expected volatility of 46.5, 55.3 and 66.6 percent; and expected life
of 4.0 for all years. The following assumptions were used for grants in the nine
months ended September 30, 1998 and 1999, respectively: dividend yield of 0 for
both periods; risk-free interest rates of 4.5 and 5.9 percent; expected
volatility of 66.6 and 73.6 percent; and expected life of 4.0 for both periods.
A summary of the status of our stock option plan for the years ended December
31, 1996, 1997 and 1998 and the nine months ended September 30, 1998 and 1999
and changes during the periods ending on those dates is presented below.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1997 DECEMBER 31, 1998
-------------------- -------------------- --------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
(IN THOUSANDS) SHARES PRICE SHARES PRICE SHARES PRICE
(EXCEPT PER SHARE AMOUNTS) -------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year........ 1,103 $ 8.05 1,291 $8.55 1,454 $ 8.58
Granted................................. 189 11.48 262 8.57 407 10.07
Exercised............................... -- -- (71) 8.05 (62) 8.07
Forfeited............................... (1) 8.05 (28) 8.40 (34) 11.82
------ ------ ------ ----- ------ ------
Outstanding at end of year.............. 1,291 $ 8.55 1,454 $8.58 1,765 $ 8.88
------ ------ ------ ----- ------ ------
Options exercisable at year-end......... 950 1,183 1,244
Weighted-average fair value of options
granted during the year............... $ 5.09 $ 3.15 $ 4.37
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1999
-------------------- --------------------
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
EXERCISE EXERCISE
(IN THOUSANDS) SHARES PRICE SHARES PRICE
(EXCEPT PER SHARE AMOUNTS) -------- --------- -------- ---------
<S> <C> <C> <C> <C>
Outstanding at beginning of year......................... 1,454 $ 8.58 1,765 $ 8.88
Granted.................................................. 84 8.51 24 13.03
Exercised................................................ -- -- (222) 8.07
Forfeited................................................ (28) 12.46 (28) 12.15
------ ------ ------ ------
Outstanding at end of year............................... 1,510 $ 8.51 1,539 $ 9.01
====== ====== ====== ======
Options exercisable at year-end.......................... 1,245 1,153
Weighted-average fair value of options granted during the
year................................................... $ 2.73 $ 6.70
</TABLE>
F-13
<PAGE>
METRO ONE TELECOMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AS OF SEPTEMBER 30, 1999
AND THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999)
5. SHAREHOLDERS' EQUITY (CONTINUED)
The following table summarizes information about stock options outstanding and
exercisable under the Plan at September 30, 1999:
<TABLE>
<CAPTION>
OUTSTANDING
----------------------------------- EXERCISABLE
WEIGHTED- ---------------------
AVERAGE WEIGHTED- WEIGHTED-
(IN THOUSANDS) REMAINING AVERAGE AVERAGE
(EXCEPT PER SHARE AMOUNTS) NUMBER OF CONTRACTUAL EXERCISE NUMBER OF EXERCISE
RANGE OF EXERCISE PRICES OPTIONS LIFE (YRS) PRICE OPTIONS PRICE
------------------------ --------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
$ 8.05 - 8.05 814 5.89 $ 8.05 814 $ 8.05
$ 8.50 - 14.00 725 8.54 $10.08 339 $10.11
--------------------- ----- ---- ------ ----- ------
$ 8.05 - 14.00 1,539 7.14 $ 9.01 1,153 $ 8.66
===================== ===== ==== ====== ===== ======
</TABLE>
At December 31, 1997, there were outstanding warrants to purchase 114,000 shares
of common stock. The warrants were fully exercisable at a price of $2.31 per
share, and were exercised on various dates through February 1998. At December
31, 1997, there was an outstanding option to purchase 86,000 shares of common
stock. This option was granted prior to the adoption of the Plan, was fully
exercisable at a price of $2.31 per share, and was exercised in September 1998.
6. RELATED PARTIES
We have entered into various capital lease arrangements for furniture, fixtures
and equipment with a company owned by a shareholder (non-officer/director) of
the Company. These leases bear interest at rates ranging from 16.7% to 20.7% and
expire in 2001. Minimum capital lease obligations to this related party totaled
$740,000, $533,000 and $256,000 at December 31, 1997 and 1998 and September 30,
1999, respectively.
7. OTHER INCOME (EXPENSE)
Included in other income (expense) are certain items that do not relate directly
to current ongoing business activity. For the year ended December 31, 1996,
other expense consisted primarily of estimated litigation settlement expenses of
$280,000; loss on asset dispositions of $151,000; and interest income of
$288,000. For the year ended December 31, 1997, other income consisted primarily
of estimated litigation settlement expenses of $61,000; loss on asset
dispositions of $81,000; and interest income of $569,000. For the year ended
December 31, 1998, other income consisted primarily of loss on asset
dispositions of $73,000 and interest income of $365,000. For the nine months
ended September 30, 1998, other income consisted primarily of loss on asset
dispositions of $32,000 and interest income of $283,000. For the nine months
ended September 30, 1999, other income consisted primarily of loss on asset
dispositions of $49,000 and interest income of $159,000.
F-14
<PAGE>
METRO ONE TELECOMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AS OF SEPTEMBER 30, 1999
AND THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999)
8. INCOME TAXES
The components of income tax expense are as follows:
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
------------------------------ ----------------------
1996 1997 1998 1998 1999
-------- -------- -------- -------- --------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Current:
Federal.................................... $ 33 $ 12 $ 42 $ 23 $ 8
State...................................... 41 13 75 44 60
---- ---- ---- ---- ---
74 25 117 67 68
---- ---- ---- ---- ---
Deferred:
Federal.................................... (33) (12) (42) (23) (8)
State...................................... -- -- -- -- --
---- ---- ---- ---- ---
Total tax expense............................ $ 41 $ 13 $ 75 $ 44 $60
==== ==== ==== ==== ===
</TABLE>
At December 31, 1997 and 1998 and September 30, 1999 the significant components
of deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
------------------- --------------
1997 1998 1999
(IN THOUSANDS) -------- -------- --------------
(UNAUDITED)
<S> <C> <C> <C>
Deferred tax liability:
Tax depreciation in excess of book.......... $ 1,042 $ 1,487 $ 2,391
Deferred tax asset:
Net operating loss carryforwards............ 5,986 $ 5,102 $ 6,002
Expenses not currently deductible........... 179 176 235
Tax credit carryforwards.................... 61 113 124
------- ------- -------
Gross deferred tax assets................... 6,226 5,391 6,361
Valuation allowance......................... (5,139) (3,817) (3,875)
------- ------- -------
Deferred tax assets......................... 1,087 1,574 2,486
------- ------- -------
Net deferred tax asset...................... $ 45 $ 87 $ 95
======= ======= =======
</TABLE>
During 1997 and 1998 and the first nine months of 1999, we reduced our deferred
tax valuation allowance to reflect deferred tax assets used to reduce current
year income taxes. Our quarterly and annual operating results have in the past
and may in the future vary significantly depending on factors such as changes in
the telecommunications market, the addition or expiration of contracts,
increased competition, changes in pricing policies by us or our competitors,
lengthy sales cycles, lack of market acceptance or delays in the introduction of
new versions of our 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 expansion of our national call center
network, general economic
F-15
<PAGE>
METRO ONE TELECOMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AS OF SEPTEMBER 30, 1999
AND THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999)
8. INCOME TAXES (CONTINUED)
conditions and other factors. Given the variability in operating results, we
will continue to review the valuation allowance on a quarterly basis and make
adjustments as appropriate.
At September 30, 1999, we had approximately $13.3 million of net operating loss
carryforwards expiring during the years 2005 to 2010. Ownership changes as
defined by section 382 of the Internal Revenue Code could limit the amount of
net operating loss carryforwards used in any one year or in the aggregate.
The difference between taxes calculated at the statutory federal and state tax
rates and the effective combined rates for the years ended December 31, 1996,
1997 and 1998 and the nine months ended September 30, 1998 and 1999 is as
follows:
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
------------------------------------ ----------------------
1996 1997 1998 1998 1999
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Federal statutory rate: 35.0% 35.0% 35.0% 35.0% 35.0%
State income taxes, net of federal
benefit................................ 5.0 2.6 3.9 3.9 4.5
Valuation allowance...................... (39.4) (39.5) (36.7) (36.7) (35.5)
Other.................................... 2.8 2.8 (0.1) (0.1) (0.1)
----- ----- ----- ----- -----
Effective tax rate....................... 3.4 0.9 2.1 2.1 3.9
===== ===== ===== ===== =====
</TABLE>
9. EARNINGS PER SHARE
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share," requires dual presentation of basic and diluted earnings per share
("EPS"). Basic EPS is based on the weighted average number of common shares
outstanding. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock. There were no adjustments to net income for the calculation
of both basic and diluted earnings per shares for all periods.
F-16
<PAGE>
METRO ONE TELECOMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AS OF SEPTEMBER 30, 1999
AND THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999)
9. EARNINGS PER SHARE (CONTINUED)
The calculation of weighted-average outstanding shares is as follows:
<TABLE>
<CAPTION>
AVERAGE SHARES
----------------------------------------------------
NINE MONTHS
ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------ -------------------
1996 1997 1998 1998 1999
-------- -------- -------- -------- --------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Weighted average common shares
outstanding (used in computing
Basic EPS)......................... 9,152 10,820 11,063 11,039 11,383
Common stock equivalents............. 244 141 211 190 629
----- ------ ------ ------ ------
Weighted average common shares
outstanding (used in computing
Diluted EPS)....................... 9,396 10,961 11,274 11,229 12,012
===== ====== ====== ====== ======
</TABLE>
10. BENEFIT PLANS
We have a deferred compensation savings plan for the benefit of our eligible
employees. The plan permits certain voluntary employee contributions to be
excluded from the employees' current taxable income under the provisions of
Internal Revenue Code Section 401(k). Upon reaching the age of twenty-one, each
employee becomes eligible to participate in the savings plan six months
following the initial date of employment. The employee must also complete at
least 500 hours of service in any twelve-month period. Under the plan, we can
make discretionary contributions to the plan as approved by the board of
directors.
Participants' interest in company contributions to the plan vest over a
four-year period. We made contributions of approximately $11,000, $25,000 and
$35,000 during 1996, 1997 and 1998, respectively, and $25,000 and $40,000 for
the nine months ended September 30, 1998 and 1999, respectively.
11. STATEMENT OF CASH FLOWS
Supplemental disclosure of Cash Flow information:
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
------------------------------ -------------------
1996 1997 1998 1998 1999
-------- -------- -------- -------- --------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash paid for interest expense............ $ 572 $318 $297 $246 $347
Cash paid for income taxes................ 44 51 95 55 59
Equipment acquired by capital lease....... 679 -- -- -- --
Conversion of debt into common stock...... 1,400 -- -- -- --
Stock issued in settlement of
litigation.............................. -- 270 -- -- --
</TABLE>
F-17
<PAGE>
[Inside Back Cover]
Innovative Features and Services
[Vignette of a telephone keypad surrounded by service and feature logos, as
follows:]
[STARBACK LOGO]
[CAPTION] StarBack allows callers to return to a live operator simply by
pressing the star [Q] key at any time during a call.
[AUTOBACK LOGO]
[CAPTION] AutoBack automatically returns the caller to a menu of options,
including a live operator, upon a busy signal or "ring-no-answer" or other
similar situations without pressing a single key.
[PAGINGASSISTANT LOGO]
[CAPTION] PagingAssistant allows our operators to send customized alphanumeric
messages on behalf of a caller.
[MESSAGEBACK LOGO]
[CAPTION] MessageBack delivers a caller's message to a desired party, and when
configured with AutoBack, provides a convenient tool for ensuring communication.
[NUMBERBACK LOGO]
[CAPTION] NumberBack provides the caller with the last number called by pressing
simply the [#] key.
[METRODEX LOGO]
[CAPTION] MetroDex, under development, allows callers to use their telephone or
the Internet to access their personal or corporate contacts databases.
[TELECONCIERGE LOGO]
[CAPTION] TeleConcierge provides a means of making advance restaurant
reservations, and is being developed for use in a variety of other scenarios.
[LOCATIONPRO LOGO]
[CAPTION] LocationPro, under development, provides location-based services,
including turn-by-turn driving directions.
<PAGE>
- --------------------------------------------------------------------------------
[LOGO]
METRO ONE
TELECOMMUNICATIONS, INC.
2,067,500 SHARES
COMMON STOCK
----------------
PROSPECTUS
-------------------
__________, 1999
CIBC WORLD MARKETS
U.S. BANCORP PIPER JAFFRAY
----------------------------------------------------------
YOU SHOULD RELY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. NO DEALER,
SALESPERSON OR OTHER PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION THAT IS NOT CONTAINED IN THIS PROSPECTUS. THIS PROSPECTUS IS NOT
AN OFFER TO SELL NOR IS IT SEEKING AN OFFER TO BUY THESE SECURITIES IN ANY
JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED. THE INFORMATION CONTAINED
IN THIS PROSPECTUS IS CURRENT ONLY AS OF THE DATE OF THIS PROSPECTUS, REGARDLESS
OF THE TIME OF THE DELIVERY OF THIS PROSPECTUS OR ANY SALE OF THESE SECURITIES.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
[Metro One will pay all expenses incident to the offering and sale to the public
of the shares being registered, other than any commissions and discounts of
underwriters, dealers or agents and any transfer taxes.] Such expenses are shown
in the following table. All of the amounts shown are estimates except the SEC
registration fee, the NASD filing fee and the Nasdaq fee.
<TABLE>
<CAPTION>
SELLING
METRO ONE SHAREHOLDERS
--------- ------------
<S> <C> <C>
SEC registration fee........................................ $11,072 $
NASD filing fee............................................. 4,483
Nasdaq fee..................................................
Printing and engraving expenses.............................
Legal fees and expenses.....................................
Accounting fees and expenses................................
Blue sky expenses...........................................
Transfer agent and registrar fees and expenses..............
Miscellaneous expenses......................................
------- --------
Total.....................................................
======= ========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
As an Oregon corporation, Metro One is subject to the Oregon Business
Corporation Act ("OBCA") and the exculpation from liability and indemnification
provisions contained therein. Pursuant to Section 60.047(2)(d) of the OBCA,
Article X of Metro One's Third Restated Articles of Incorporation (the
"Articles") eliminates the liability of its directors to Metro One or its
shareholders, except for any liability related to breach of the duty of loyalty,
actions not in good faith and certain other liabilities.
Section 60.387 et seq. of the OBCA allows corporations to indemnify their
directors and officers against liability where the director or officer has acted
in good faith and with a reasonable belief that actions taken were in the best
interests of the corporation or at least not adverse to the corporation's best
interests and, if in a criminal proceeding, the individual had no reasonable
cause to believe the conduct in question was unlawful. Under the OBCA,
corporations may not indemnify against liability in connection with a claim by
or in the right of the corporation but may indemnify against the reasonable
expenses associated with such claims. Corporations may not indemnify against
breaches of the duty of loyalty. The OBCA provides for mandatory indemnification
of directors against all reasonable expenses incurred in the successful defense
of any claim made or threatened whether or not such claim was by or in the right
of the corporation. Finally, a court may order indemnification if it determines
that the director or officer is fairly and reasonably entitled to
indemnification in view of all the relevant circumstances whether or not the
director or officer met the good faith and reasonable belief standards of
conduct set out in the statute.
The OBCA also provides that the statutory indemnification provisions are not
deemed exclusive of any other rights to which directors or officers may be
entitled under a corporation's articles of incorporation or bylaws, any
agreement, general or specific action of the board of directors, vote of
shareholders or otherwise.
Article X of the Articles requires Metro One to indemnify its directors and
officers to the fullest extent not prohibited by law. The Bylaws of Metro One
also require it to indemnify its directors and officers to the fullest extent
permitted by the OBCA.
II-1
<PAGE>
ITEM 16. EXHIBITS.
The following documents are filed herewith (unless otherwise indicated) and made
a part of this registration statement.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
<C> <S>
1.1.. Form of Underwriting Agreement*
5.1.. Opinion of Heller Ehrman White & McAuliffe*
23.1.. Consent of Deloitte & Touche LLP, Independent Auditors
23.2.. Consent of Counsel (included in Exhibit 5.1)*
24.1.. Power of Attorney (included on page II-4)
</TABLE>
- ---------------------------
* To be filed by amendment
ITEM 17. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) Securities
Act of 1933;
(ii) to reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form
of prospectus filed with the Commission pursuant to Rule 424(b) if,
in the aggregate, the changes in volume and price represent no more
than a 20% change in the maximum aggregate offering price set forth
in the "Calculation of Registration Fee" table in the effective
registration statement;
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement; provided, however, that paragraphs (a)(l)(i) and
(a)(l)(ii) do not apply if the registration statement is on
Form S-3, Form S-8 or Form F-3, and the information required to be
included in a post-effective amendment by those paragraphs is
contained in periodic reports filed with or furnished to the
Commission by the registrant pursuant to Section 13 or
Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the registration statement;
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination
of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of
the registrant's annual report pursuant to Section 13(a) or Section 15(d) of
the Exchange Act of 1934 (and, where applicable, each filing of an employee
II-2
<PAGE>
benefit plan's annual report pursuant to Section 15(d) of the Exchange Act
of 1934) that is incorporated by reference in the registration statement
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment
by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
II-3
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Act of 1933, Registrant has duly
caused this Registration Statement on Form S-3 to be signed on its behalf by the
undersigned, thereunto duly authorized, in Beaverton, Oregon on October 21,
1999.
<TABLE>
<S> <C> <C>
METRO ONE TELECOMMUNICATIONS, INC.
By /s/ TIMOTHY A. TIMMINS
------------------------------------------
Timothy A. Timmins
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
POWERS OF ATTORNEY
Each person whose signature appears below constitutes and appoints Timothy A.
Timmons and Stebbins B. Chandor his or her true and lawful attorneys-in-fact and
agents, each acting alone, with full power of substitution and resubstitution,
for him or her and in his or her name, place and stead, in any and all
capacities, to sign any or all amendments (including post-effective amendments)
to the Registration Statement, and to sign any registration statement for the
same offering covered by this Registration Statement that is to be effective
upon filing pursuant to Rule 462(b) under the Securities Act of 1933, and all
post-effective amendments thereto, and to file the same, with all exhibits
thereto, and all documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, each acting alone, or his or her
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<C> <S> <C>
/s/ TIMOTHY A. TIMMINS President, Chief Executive
--------------------------------------- Officer and a Director October 21, 1999
Timothy A. Timmins (Principal Executive Officer)
Senior Vice President and
/s/ STEBBINS B. CHANDOR, JR. Chief Financial Officer
--------------------------------------- (Principal October 21, 1999
Stebbins B. Chandor, Jr. Financial Officer)
/s/ R. TOD HUTCHINSON Vice President, Finance
--------------------------------------- (Principal Accounting October 21, 1999
R. Tod Hutchinson Officer)
[Signatures continued on next page.]
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<C> <S> <C>
/s/ A. JEAN DE GRANDPRE
--------------------------------------- Chairman of the Board October 21, 1999
A. Jean de Grandpre
/s/ WILLIAM D. RUTHERFORD
--------------------------------------- Director October 21, 1999
William D. Rutherford
/s/ JAMES M. USDAN
--------------------------------------- Director October 21, 1999
James M. Usdan
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- --------------------- ----------------------
<C> <S> <C>
1.1.................. Form of Underwriting Agreement*
5.1.................. Opinion of Heller Ehrman White & McAuliffe*
23.1................. Consent of Deloitte & Touche LLP, Independent Accountants
23.2................. Consent of Counsel (included in Exhibit 5.1)*
24.1................. Power of Attorney (included on page II-4)
</TABLE>
- ---------------------
* To be filed by amendment
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
Metro One Telecommunications, Inc. on Form S-3 of our report dated February 15,
1999 included in the Annual Report on Form 10-K of Metro One Telecommunications,
Inc. for the year ended December 31, 1998 and to the use of our report dated
February 15, 1999 in the Prospectus, which is part of this Registration
Statement. We also consent to the reference to us under the headings "Selected
Financial Data" and "Experts" in such Prospectus.
DELOITTE & TOUCHE LLP
Portland, Oregon
October 21, 1999
