<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-27024
METRO ONE TELECOMMUNICATIONS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
OREGON 93-0995165
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
11200 MURRAY SCHOLLS PLACE, BEAVERTON, OREGON 97007
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(503) 643-9500
(ISSUER'S TELEPHONE NUMBER)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT HAS (1) FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO
--- ---
NUMBER OF SHARES OF COMMON STOCK OUTSTANDING AS OF NOVEMBER 8, 2000: 11,692,446
SHARES, NO PAR VALUE PER SHARE.
<PAGE>
METRO ONE TELECOMMUNICATIONS, INC.
INDEX TO FORM 10 - Q
<TABLE>
<CAPTION>
Part I Financial Information Page No.
--------------------------------------- --------
<S> <C> <C>
Item 1. Financial Statements (Unaudited)
Condensed Statements of Income for
the three and nine months ended September 30, 2000 and 1999 1
Condensed Balance Sheets as of
September 30, 2000 and December 31, 1999 2
Condensed Statements of Cash Flows for
the nine months ended September 30, 2000 and 1999 3
Notes to Condensed Financial Statements 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 6
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 10
Part II Other Information
-----------------------------------
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
</TABLE>
<PAGE>
METRO ONE TELECOMMUNICATIONS, INC.
Condensed Statements of Income (Unaudited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(In thousands, except per share data) THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
------------------------------------ ----------------------------------
2000 1999 2000 1999
---------------- ---------------- ----------------- ---------------
<S> <C> <C> <C> <C>
Revenues $ 42,953 $ 20,469 $ 109,253 $ 52,113
---------------- --------------- --------------- ---------------
Costs and expenses:
Direct operating 26,879 12,136 69,439 30,481
General and administrative 12,219 7,374 32,205 19,795
---------------- --------------- --------------- ---------------
39,098 19,510 101,644 50,276
---------------- --------------- --------------- ---------------
Income from operations 3,855 959 7,609 1,837
Other income (expense), net 50 (3) (8) 112
Interest expense and loan fees (931) (253) (2,267) (425)
---------------- --------------- --------------- ---------------
Income before income taxes 2,974 703 5,334 1,524
Income tax expense 210 26 293 60
---------------- --------------- --------------- ---------------
Net income $ 2,764 $ 677 $ 5,041 $ 1,464
================ =============== =============== ===============
Income per common share
Basic $ .24 $ .06 $ .44 $ .13
Diluted $ .23 $ .06 $ .42 $ .12
</TABLE>
The accompanying notes are an integral part of these condensed
financial statements.
1
<PAGE>
METRO ONE TELECOMMUNICATIONS, INC.
Condensed Balance Sheets (Unaudited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
(In thousands) 2000 1999
------------------ -----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 6,277 $ 9,564
Short-term investments - 400
Accounts receivable 39,323 15,357
Prepaid costs and other current assets 1,493 985
------------------ -----------------
Total current assets 47,093 26,306
Furniture, fixtures and equipment, net 50,952 38,225
Other assets 2,223 944
------------------ -----------------
$ 100,268 $ 65,475
================== =================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 6,224 $ 2,909
Accrued liabilities 5,110 2,390
Accrued payroll and related costs 4,791 3,839
Operating line of credit 11,500 -
Current portion of capital lease obligations 49 159
Current portion of long-term debt 8,647 5,259
------------------ -----------------
Total current liabilities 36,321 14,556
Capital lease obligations - 17
Long-term debt 24,616 18,923
------------------ -----------------
60,937 33,496
------------------ -----------------
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, 11,677 and 11,414 shares,
respectively, issued and outstanding 42,619 40,308
Accumulated deficit (3,288) (8,329)
------------------ -----------------
Shareholders' equity 39,331 31,979
------------------ -----------------
$ 100,268 $ 65,475
================== =================
</TABLE>
The accompanying notes are an integral part of these condensed
financial statements.
2
<PAGE>
METRO ONE TELECOMMUNICATIONS, INC.
Condensed Statements of Cash Flows (Unaudited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
(In thousands) 2000 1999
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 5,041 $ 1,464
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation and amortization 7,422 4,293
Loss on disposal of fixed assets 148 48
Changes in certain assets and liabilities:
Accounts receivable (23,966) (1,272)
Prepaid expenses and other assets (1,823) (608)
Accounts payable, accrued liabilities
and payroll and related costs 6,987 2,058
------------ -----------
Net cash (used in) provided by operating activities (6,191) 5,983
------------ -----------
Cash flows from investing activities:
Capital expenditures (20,261) (17,929)
Maturities of short-term investments 400 1,107
----------- -----------
Net cash used in investing activities (19,861) (16,822)
----------- -----------
Cash flows from financing activities:
Payments on operating line of credit (6,800) (1,400)
Repayment of long term debt (4,549) (1,142)
Repayment of capital lease obligations (127) (234)
Proceeds from operating line of credit 18,300 -
Proceeds from issuance of long-term debt 13,630 9,250
Proceeds from exercise of common stock options 2,311 1,793
----------- -----------
Net cash provided by financing activities 22,765 8,267
----------- -----------
Net decrease in cash and cash equivalents (3,287) (2,572)
Cash and cash equivalents, beginning of period 9,564 6,063
----------- -----------
Cash and cash equivalents, end of period $ 6,277 $ 3,491
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
condensed financial statements.
3
<PAGE>
METRO ONE TELECOMMUNICATIONS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (IN 000S, EXCEPT PER SHARE AMOUNTS,
UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying condensed financial statements have been prepared by
management of Metro One Telecommunications, Inc. (the "Company") without audit
and in conformity with accounting principles generally accepted in the United
States of America for interim financial information. Accordingly, certain
financial information and footnotes have been omitted or condensed. In the
opinion of management, the condensed financial statements include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair statement of the results for the interim periods. These condensed financial
statements and notes thereto should be read in conjunction with the Company's
audited financial statements included in the Company's Annual Report on Form
10-K for the year ended December 31, 1999. The results of operations for the
interim periods shown in this report are not necessarily indicative of results
for any future interim periods or the entire fiscal year.
2. INCOME PER SHARE
Basic income per share is based on the weighted average number of common shares
outstanding. Diluted income per share reflects the dilutive effect of stock
options outstanding. Net income for the calculation of both basic and diluted
income per share is the same for all periods.
A reconciliation of basic weighted average shares outstanding to diluted
weighted average shares outstanding is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Weighted average shares outstanding - Basic 11,648 11,405 11,581 11,383
Dilutive effect of stock options 336 611 371 629
----------- ----------- ----------- -----------
Weighted average shares outstanding - Diluted 11,984 12,016 11,952 12,012
=========== =========== =========== ===========
</TABLE>
The amount of dilution attributable to the stock options, determined by the
treasury stock method, is dependent on the average market price of the Company's
common stock for each period.
3. COMMITMENTS AND CONTINGENCIES
From time to time, the Company is party to various legal actions and
administrative proceedings arising in the ordinary course of business. The
Company believes that the disposition of such matters will not have a material
adverse effect on its financial position, results of operations or net cash
flows.
4. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------------
Cash paid for: 2000 1999
---------------- ----------------
<S> <C> <C>
Interest $ 2,198 $ 347
159 59
</TABLE>
4
<PAGE>
5. INCOME TAXES
At December 31, 1999, the Company had approximately $15.4 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.
During the nine months ending September 30, 2000, the Company reduced its
deferred tax valuation allowance to reflect deferred tax assets used to reduce
current year income taxes. The Company's 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 the Company or
its competitors, lengthy sales cycles, lack of market acceptance or delays in
the introduction of new versions of the Company's products or features, the
timing of the initiation of wireless services or their acceptance in new market
areas by telecommunications customers, the timing and expense of the Company's
expansion and infrastructure investment activities, changes in labor and
unemployment rates, general economic conditions and other factors. Given the
variability in operating results, the Company will continue to review the
valuation allowance on a quarterly basis and make adjustments as appropriate.
6. SUBSEQUENT EVENT
In November 2000, the Company entered into a definitive agreement with Sonera
Media Holding B.V. ("Sonera"), a wholly owned subsidiary of Sonera
Corporation of Helsinki, Finland, whereby Sonera will purchase four million
newly-issued shares of the Company's common stock at a price of $17.00 per
share, for an aggregate price of $68 million and an approximate 25.5%
ownership position. Under terms of the agreement, Sonera will gain
representation on the Company's Board of Directors and can further acquire up
to an aggregate 33% ownership position. In addition, the two companies have
agreed to start a business co-operation, to be documented by a future
agreement, aiming to further develop enhanced directory and other information
services. The agreement is expected to close in December 2000. The
transaction is subject to regulatory filings and possibly other approvals.
7. FUTURE ACCOUNTING CHANGES
In December of 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial
Statements". The effective date of the bulletin was delayed according to SAB No.
101A and SAB NO. 101B and will be effective for the Company's first quarter of
fiscal year 2001. Management believes this bulletin will not have a significant
impact on the Company's financial statements or results of operations.
5
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
All statements and trend analyses contained in this item and elsewhere
in this report on Form 10-Q relative to the future constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. These forward-looking statements are subject to the business and
economic risks faced by the Company and the Company's actual results of
operations may differ materially from those contained in the forward looking
statements. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof. The Company
undertakes no obligation to publicly release any revisions to these
forward-looking statements to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events.
Results of operations for the periods discussed below should not be
considered indicative of the results to be expected in any future period and
fluctuations in operating results may also result in fluctuations in the
market price of the Company's common stock. The Company's quarterly and
annual operating results have in the past and may in the future vary
significantly depending on factors such as changes in the telecommunications
market, the addition or expiration of Enhanced Directory
Assistance-Registered Trademark-("EDA") contracts, increased competition,
changes in pricing policies by the Company or its competitors, lengthy sales
cycles, lack of market acceptance or delays in the introduction of new
versions of the Company's products or features, the timing of the initiation
of wireless services or their acceptance in new market areas by
telecommunications customers, the timing and expense of the Company's
expansion and infrastructure investment activities, changes in labor and
unemployment rates, general economic conditions and other factors, including
but not limited to, factors detailed in the Company's annual report on Form
10-K filed with the Securities and Exchange Commission.
OVERVIEW
The Company is a leading provider of enhanced telecommunications
services, including its EDA, and has significant contracts with six different
carriers to provide EDA and other services in numerous U.S. markets. The
Company's recent operations have been characterized by rapid call volume and
revenue growth as well as growth in profits. Call volume and revenues increased
123% and 110%, respectively, in the third quarter of 2000 from the third quarter
of 1999, and profits grew to $2,764,000 from $677,000. Call volume and revenues
increased 124% and 110%, respectively in the nine months ending September 30,
2000 from the nine months ending September 30, 1999 and profits grew to
$5,041,000 from $1,464,000.
The Company's marketing strategy includes efforts to increase its
share of the directory assistance and information services markets by
expanding services to existing customers, adding new customers and expanding
its call center network into new geographic markets. The Company has had
ongoing business discussions about new contracts with other
telecommunications companies. The Company opened four new call centers in the
first nine months of 2000 and anticipates that it will open additional call
centers or expand or relocate existing call centers, as needed, during 2000
and beyond to serve wireless and landline customers. With its increasing
size, the Company expects that costs associated with opening each new call
center should have a diminishing impact on results of operations.
To stimulate increased call volume and to attract and expand customer
commitments, the Company's strategy has included price discounts based on call
volumes. The Company expects that its average price per call will continue to
decrease in the remainder of 2000 and into 2001 as increasing call volumes
trigger volume-based pricing discounts. In addition, as the Company enters into
additional or new contracts, the average price per call may decrease as the
Company attempts to increase market share. The Company believes that its reduced
pricing better positions the Company to retain and expand service with existing
carrier customers, to extend service to new wireless and landline carriers and
to achieve greater operating margins over time.
6
<PAGE>
RECENT EVENTS
In November 2000, the Company entered into a definitive agreement with Sonera
Media Holding B.V. ("Sonera"), a wholly owned subsidiary of Sonera
Corporation of Helsinki, Finland, whereby Sonera will purchase four million
newly-issued shares of the Company's common stock at a price of $17.00 per
share, for an aggregate price of $68 million and an approximate 25.5%
ownership position. Under terms of the agreement, Sonera will gain
representation on the Company's Board of Directors and can further acquire up
to an aggregate 33% ownership position. In addition, the two companies have
agreed to start a business co-operation, to be documented by a future
agreement, aiming to further develop enhanced directory and other information
services. The Company intends to utilize the cash received to retire
approximately $35 million of debt, to further expand its infrastructure and
capacity through expansion of existing call centers and new call centers in
selected markets and for other corporate purposes. The agreement is expected
to close in December 2000. The transaction is subject to regulatory filings
and possibly other approvals.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the items of
the Company's statements of income as a percentage of revenues.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------------- ---------------------------------
2000 1999 2000 1999
---------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C>
Revenues 100.0% 100.0% 100.0% 100.0%
Direct operating costs 62.6 59.3 63.6 58.5
General and administrative costs 28.4 36.0 29.5 38.0
----- ----- ----- -----
Income from operations 9.0 4.7 6.9 3.5
Other income (expense), net 0.1 (0.1) (0.0) 0.2
Interest expense and loan fees (2.2) (1.2) (2.0) (0.8)
----- ----- ----- -----
Income before income taxes 6.9 3.4 4.9 2.9
Income tax expense 0.5 0.1 0.3 0.1
----- ----- ----- -----
Net income 6.4 3.3 4.6 2.8
===== ===== ===== =====
</TABLE>
COMPARISON OF THIRD QUARTER OF 2000 TO THIRD QUARTER OF 1999
Revenues increased 109.8% to $43.0 million in the third quarter of 2000
from $20.5 million in the third quarter of 1999. Call volume grew to over 83
million calls in the third quarter of 2000 from approximately 37 million calls
during the third quarter of 1999. These increases resulted primarily from
rollouts of new markets with existing customers, increased usage of the
Company's services by subscribers and overall growth in the wireless phone
market.
Direct operating costs increased 121.5% to $26.9 million in the
third quarter of 2000 from $12.1 million in the third quarter of 1999. This
increase was primarily due to increased staffing and listings data costs
associated with increased call volumes. As a percentage of revenues, direct
operating costs increased to 62.6% in the third quarter of 2000 from 59.3% in
the third quarter of 1999. This increase was due primarily to lower average
per call pricing, increased employee turnover and increased labor rates and
associated costs due to a tight labor market. This increase was partially
offset by operating efficiencies associated with higher call volumes. Labor
rates paid by the Company are intended to be competitive in the markets where
the Company operates. Labor rates in many of these markets have been higher
in recent periods due to the robust economy and historically low unemployment
rates, which are factors beyond the Company's control. Management's efforts
are focused on maintaining labor rates at reasonable levels going forward,
however, it may be necessary to raise labor rates in the future in response
to economic conditions beyond management's control.
7
<PAGE>
General and administrative costs increased 65.7% to $12.2 million
in the third quarter of 2000 from $7.4 million in the third quarter of 1999.
This increase resulted primarily from additional costs necessary to support
the Company's increased base of call centers and increased call volumes. As a
percentage of revenues, general and administrative costs decreased to 28.4%
in the third quarter of 2000 from 36.0% in the third quarter of 1999. This
decrease resulted primarily from improved operating efficiencies achieved by
leveraging fixed costs associated with the Company's national network of call
centers. Depreciation and amortization increased by 65.7% to $2.5 million in
the third quarter of 2000 from $1.5 million in the third quarter of 1999 due
primarily to equipment purchased for existing and new call centers, for
corporate systems support equipment and product development activities.
Other income, net for the three months ended September 30, 2000 was
$50,000 and consisted primarily of interest income offset by net losses on the
disposal of assets. Other expense, net for the three months ended September 30,
1999 was $3,000 and consisted primarily of net losses on disposal of fixed
assets offset by interest income.
Interest expense and loan fees increased 268.0% to $931,000 in the
third quarter of 2000 from $253,000 in the third quarter of 1999. This increase
was attributable to an increase in average outstanding debt during the
respective quarters, to $38.5 million from $8.7 million. This increase was
attributable to borrowings under an equipment financing facility used to finance
equipment purchased for existing and new call centers, for corporate systems
support equipment and product development activities.
Income tax expense for the three months ended September 30, 2000 and
1999 was $210,000 and $26,000, respectively and consisted primarily of state
income taxes. The increase in tax expense was a result of increased pre-tax
income as well as the exhaustion of net operating loss carryforwards in certain
states in which the Company operates. The Company's effective tax rates for the
three months ended September 30, 2000 and 1999 were 7.1% and 3.7%, respectively.
These rates differ from the combined federal and state statutory rate of
approximately 39% due to the use of federal and state net operating loss
carryforwards.
COMPARISON OF THE FIRST NINE MONTHS OF 2000 TO THE FIRST NINE MONTHS OF 1999
Revenues increased 109.6% to $109.3 million in the first nine months of
2000 from $52.1 million in the first nine months of 1999. Call volume grew to
approximately 210 million calls in the first nine months of 2000 from
approximately 94 million calls during the first nine months of 1999. This
increase was due primarily to increased call volumes under existing contracts
and additional call volumes from new contracts entered into in 1999.
Direct operating costs increased 127.8% to $69.4 million in the
first nine months of 2000 from $30.5 million in the first nine months of
1999. This increase was primarily due to staffing and listings data costs
associated with increased call volumes. As a percentage of revenues, direct
operating costs increased to 63.6% in the first nine months of 2000 from
58.5% in the first nine months of 1999. This increase was due primarily to
lower average per call pricing, increased employee turnover and increased
labor rates and associated costs due to a tight labor market. This increase
was partially offset by operating efficiencies associated with higher call
volumes. Labor rates paid by the Company are intended to be competitive in
the markets where the Company operates. Labor rates in many of these markets
have been higher in recent periods due to the robust economy and historically
low unemployment rates, which are factors beyond the Company's control.
Management's efforts are focused on maintaining labor rates at reasonable
levels going forward, however, it may be necessary to raise labor rates in
the future in response to economic conditions beyond management's control.
8
<PAGE>
General and administrative costs increased 62.7% to $32.2 million in
the first nine months of 2000 from $19.8 million in the first nine months of
1999. This increase resulted primarily from additional costs necessary to
support the Company's increased base of call centers and increased call
volumes. As a percentage of revenues, general and administrative costs
decreased to 29.5% in the first nine months of 2000 from 38.0% in the first
nine months of 1999. This decrease resulted primarily from improved operating
efficiencies achieved by leveraging fixed costs associated with the Company's
national network of call centers. Depreciation and amortization increased by
73.4% to $6.9 million in the first nine months of 2000 from $4.0 million in
the first nine months of 1999 due primarily to equipment purchased for
existing and new call centers, and for corporate systems support equipment
and product development activities.
Other expense, net for the nine months ended September 30, 2000 was
$8,000 and consisted primarily of losses on the disposal of fixed assets offset
by interest income. Other income, net for the nine months ended September 30,
1999 was $112,000 and consisted primarily of interest income.
Interest expense and loan fees increased 433.4% to $2.3 million in the
first nine months of 2000 from $425,000 in the first nine months of 1999. This
increase was attributable to an increase in average debt outstanding to $32.0
million during the first nine months of 2000 from $4.9 million during the first
nine months of 1999.
Income tax expense for the nine months ended September 30, 2000 was
$293,000, for an effective tax rate of approximately 5.5%. Income tax expense
for the nine months ended September 30, 1999 was $60,000, for an effective tax
rate of approximately 3.9%. These rates differ from the combined federal and
state statutory rate of approximately 39% due to the use of federal and state
net operating loss carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents and investments are recorded at
cost, which approximates fair market value. As of September 30, 2000, the
Company had $6.3 million in cash and cash equivalents compared to $10.0 million
at December 31, 1999, a decrease of $3.7 million. This decrease resulted
primarily from cash used in operating activities, the acquisition of capital
equipment and the repayment of debt, offset by net income, proceeds from
borrowings and from the exercise of common stock options.
CASH FLOW FROM OPERATIONS. Net cash used in operations for the nine
months ended September 30, 2000 was $6.2 million, resulting primarily from an
increase in accounts receivable offset by net income and the effect of non-cash
depreciation and amortization and an increase in accounts payable and accrued
expenses.
CASH FLOW FROM INVESTING ACTIVITIES. Cash used in investing activities
was $19.9 million for the nine months ended September 30, 2000 and was primarily
related to capital expenditures for equipment purchased for existing and new
call centers, for corporate systems support equipment and product development
activities.
CASH FLOW FROM FINANCING ACTIVITIES. Net cash provided by financing
activities was $22.8 million for the nine months ended September 30, 2000
resulting from borrowings on the operating line of credit and the issuance of
long-term debt as well as the exercise of common stock options. Cash provided
by borrowings under the Company's credit facilities was offset by the
repayment of debt and capital lease obligations.
As of September 30, 2000, the Company had $33.3 million in borrowings
with an equipment-financing lender used to finance equipment purchases. This
borrowing bears interest at various fixed rates ranging from 8.77% to 10.09% and
is secured by the purchased equipment. As of the date of this filing, the
Company has additional borrowing capacity under available equipment financing
agreements of approximately $16.5 million.
During the third quarter of 2000, the Company negotiated an increase of
$5.0 million to its operating line of credit with a bank, from $10.0 million of
available borrowing to $15.0 million. This increase is effective through
December 31, 2000. The Company is in the process of renegotiating its line of
credit to effect a long-term increase to $15.0 million. As of the date of this
filing, the Company has $10.5 million of available borrowing capacity under the
operating line of credit.
9
<PAGE>
As of September 30, 2000, the Company was out of compliance with the
debt-to-equity ratio covenant in its line of credit agreement with the bank. The
Company has subsequently obtained a waiver of this covenant violation and has
reduced the amount outstanding on the line of credit by $7.0 million, from $11.5
million to $4.5 million as of the date of this filing.
FUTURE CAPITAL NEEDS AND RESOURCES. The primary uses of capital are
expected to be related to equipment and facilities costs needed to build-out new
call centers and expand existing facilities, including initial operating
expenses. In addition, the Company expects to invest funds in upgrading and
expanding its corporate systems infrastructure in order to support its call
center network. Capital will also be used to pay principal and interest on
indebtedness. The Company anticipates that its capital expenditures will total
approximately $24 to $26 million for the year 2000, resulting primarily from
projected expansion and planned improvements.
In November 2000, the Company entered into a definitive agreement
with Sonera a world leader in developing and providing mobile value-added
services, whereby Sonera will purchase four million newly-issued shares of
the Company's common stock at a price of $17.00 per share. The purchase of
common stock by Sonera will be in an aggregate amount of $68 million. After
paying costs of the transaction and retiring approximately $35 million of
debt, the Company intends to utilize the remaining approximately $30 million
for infrastructure and capacity expansion as well as for other corporate
purposes. The agreement is expected to close in December 2000. The
transaction is subject to regulatory filings and possibly other approvals.
The Company believes its existing cash and cash equivalents, credit
facilities and cash from operations and the investment by Sonera will be
sufficient to fund its operations for the next twelve months.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Substantially all of the Company's 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 the Company's liquid investments mature within six months.
As a result, the Company believes that the market risk arising from its holdings
of financial instruments is minimal.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
27.1 Financial data schedule
(b) REPORTS FILED ON FORM 8-K
There were no reports filed on Form 8-K during the quarter ended
September 30, 2000.
10
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Metro One Telecommunications, Inc.
----------------------------------
Registrant
Date: November 14, 2000
/s/ Duane C. Fromhart
----------------------------------
Duane C. Fromhart
Vice President, Finance
(Principal Accounting Officer)
11
