SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(D) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (NO FEE REQUIRED)
For the fiscal year ended December 31, 1996
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OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 (NO FEE REQUIRED)
For the transition period from ______________ to ______________
Commission file number 0-23228
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PORTACOM WIRELESS, INC.
(Exact Name of Registrant as Specified In Its Charter)
Delaware 33-0650673
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
8055 W. Manchester Avenue, Suite 730
Playa del Rey, California 90293
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(Address of principal (Zip Code)
executive offices)
(310) 448-4140
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(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock
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(Title of Class)
Indicate by check mark whether the registrant: (1) has 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.
(1) X YES ____ NO
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(2) X YES ____ NO
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Except where otherwise specified, all dollar amounts referenced in this
document are denominated in United States dollars.
As of January 31, 1997, the aggregate market value of the Registrant's
Common Stock held by non-affiliates was $42,843,950 based upon the last sales
price of C$5.00 (US$3.70) on the Vancouver Stock Exchange. The shares of Common
Stock are also traded on the NASD Electronic Bulletin Board. See "ITEM 5.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS."
As of January 31, 1997, there were 13,090,368 shares of the Registrant's
Common Stock issued and outstanding.
Transitional Small Business Disclosure Format (check one):
(1) ____ YES X NO
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DOCUMENTS INCORPORATED BY REFERENCE: NONE
PART I
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ITEM 1. BUSINESS
BACKGROUND
PortaCom Wireless, Inc. (formerly known as "Extreme Technologies, Inc." and
"International PCBX Systems, Inc." herein referred to alternatively as the
"Company" or the "Registrant") was formed as a British Columbia, Canada
corporation in 1989. On December 23, 1996, the Company reincorporated from
British Columbia to Wyoming pursuant to a procedure known as a "continuance",
and on December 24, 1996, the Company merged with its wholly owned Delaware
subsidiary and thereby reincorporated into Delaware. The Delaware subsidiary
had been formed in 1994 for the purpose of the merger, which had been postponed
for business reasons. See "Delaware Reincorporation." The Company presently
conducts business operations both directly and through one wholly owned U.S.
subsidiary, PortaCom International, Ltd. ("PIL"). The Company also has three
other wholly owned U.S. subsidiaries which are not presently operating: Extreme
Telecom, Inc. ("Telecom"), PCBX Systems, Inc. ("PCBX"), and Extreme
Laboratories, Inc., formerly known as Spheric Audio Laboratories, Inc.
("Laboratories").
Since 1994, both directly and through its PIL subsidiary, the Company has
engaged in initial stage efforts to evaluate the feasibility of, and attempt to
secure, licensing opportunities and joint venture arrangements for the operation
of wireless telephone networks as well as other state-of-the-art mobile radio
communication systems and new telephone technologies. Although the
establishment and operation of wireless telephone networks and other advanced
communications systems will be investigated by the Company wherever strategic
opportunities arise, its principal efforts are presently focused (as of the date
of this report) upon certain Eastern European and Asian emerging markets,
including Cambodia and Vietnam.
The Company, in December 1996, entered into a joint venture agreement as
the managing partner of a limited liability company which holds a twenty-five
(25) year renewable licence to develop a mobile wireless system in the Kingdom
of Cambodia. The Company also holds an ownership position in Metromedia Asia
Corporation ("MAC"), which is involved in the build-out of telecommunications
projects in China. The activities of the Company's PIL subsidiary to date have
produced no licences or joint venture opportunities, and management does not
believe that revenues will be realized by PIL in 1997. See below under the
sections "Business of PortaCom Wireless, Inc." and "Business of PortaCom
International, Ltd." for additional information.
PCBX Systems developed and marketed a personal computer branch exchange
("PCBX") which permitted the operation of a full-featured telephone network
control system from a centrally located personal computer. The PCBX systems
offered by the Company featured the Company's proprietary integrated circuit
board which fit into a personal computer and allowed a number of fundamental and
advanced features to be programmed into a telephone system. The principal
advantages of the Company's PCBX systems over competing systems were believed by
management to include low cost per feature, significant flexibility and
mobility, and relative ease of programming, upgrading and maintenance.
Telecom entered into an agreement with Nitsuko America Corporation
("Nitsuko America") to distribute telecommunications products manufactured by
Nitsuko America which were not then being distributed otherwise in the United
States.
Laboratories developed and marketed a line of high quality audio speakers,
as well as a proprietary audio recording and playback technology known as
"SphericSound"(TM). "SphericSound" represented a form of audio recording and
playback that featured multi-dimensional imaging that created the realistic
sensation of directional sound movement emanating from stationary speakers.
Because of substantial losses, the associated costs of continued
development, the lack of profitability by competitors and the uncertainty of
marketing costs associated with commercializing both proprietary technologies
and other manufacturers' products, management decided in 1995 to discontinue the
development and marketing activities of PCBX, Telecom and Laboratories.
Funding of the Company's operations since inception has been provided by:
(i) revenues from the sale of PCBX products, and, to a significantly lesser
extent, the products of Telecom and Laboratories; (ii) proceeds from the sale of
securities undertaken in a series of private placement transactions; (iii)
completion of an initial public offering on the Vancouver Stock Exchange during
October 1992; and (iv) revenues generated as a result of the recent AAT
transaction. (See "Metromedia Asia Corporation.")
DELAWARE REINCORPORATION
At an Extraordinary and Special Meeting of the Shareholders of the Company
held on December 23, 1996, the Company's shareholders, by an affirmative vote of
least 51% of the outstanding shares and at least 75% of the shares represented
at the meeting, approved a proposal by the Company's Board of Directors to
change the Company's domicile briefly to Wyoming by way of a continuation
pursuant to the Wyoming Business Corporation Act and, following confirmation of
such continuation, to change its domicile from Wyoming to Delaware by way of a
merger of the Company with and into its wholly owned Delaware subsidiary
("PortaCom Delaware"). Upon completion of the merger, (i) the Wyoming
corporation ceased to exist, (ii) the stockholders of the Wyoming corporation
became stockholders of the Delaware corporation, (iii) the stockholders' rights
became governed by Delaware law, the Restated Certificate of Incorporation of
PortaCom Delaware and PortaCom Delaware's Bylaws rather than by British
Columbia or Wyoming law and the Company's former British Columbia and Wyoming
governing documents, (iv) all options and rights to purchase shares of the
Company's common stock were automatically converted into options or rights to
acquire an equal number of equivalent shares in PortaCom Delaware, (v) no change
occurred in the name, physical location, business, management, assets,
liabilities or net worth of the Company and (vi) the incumbent directors and
officers of the Company continued to serve in their respective capacities as
directors and officers of PortaCom Delaware. See "Item 4: Submission of Matters
to a Vote of Security Holders."
INDUSTRY OVERVIEW
Demand For Communications Services in Developing Countries.
Many developing countries, including those in Southeast Asia and Eastern
Europe, are experiencing rapid economic growth. Often, the telecommunications
services presently available in these countries are inadequate to support
current demand let alone such growth. To address the latent demand for
communications services and to promote economic growth, governments in many
developing countries have begun deregulating their telecommunications industries
and encouraging the formation of private communications service providers. As a
result, the Company believes there is a substantial opportunity for privately
owned companies to provide wire line and wireless communications services in
these countries.
While the Company believes that the cellular telephony industry is well
established in the developed world, the industry in the developing world is
still in its infancy. The Company believes that wireless cellular telephony has
the potential to grow rapidly in developing countries because of the poor
quality of the existing wireline service, the unsatisfied demand for basic
telephone service and the increasing requirements of users who want the
convenience of cellular telephones. In some countries the cellular telephone
network provides significantly improved access, in terms of call quality and
service establishment time, to the local and international wireline network
compared with the existing wireline service. In addition, developing countries
are expected to benefit both from better technology and lower equipment costs
than those experienced at comparable stages of market development in developed
countries.
Wireline networks involve extensive outside infrastructure in the form of
buried or overhead cable networks, while cellular telephone systems do not
require the same level of construction activities. For developing countries,
cellular telephone systems can represent a faster and more cost-effective method
of expanding telecommunications infrastructure than deployment of traditional
wireline networks.
Role of Wireless Technologies.
A number of wireless technologies provide voice and data services that
address the communications needs of developing countries. These services include
cellular telephony, wireless local loop ("WLL") and paging. The Company believes
that existing and emerging wireless technologies generally compare favorably to
land-line technologies in terms of functions and service, yet provide lower
system deployment costs and the potential for more rapid deployment.
Cellular Telephony (Mobile Telephony).
Cellular telephony systems are capable of providing high quality voice and
data communications to and from vehicle-mounted and hand-held radio terminals
(cell phones) and are capable of handling a great number of calls at any one
time. Cellular telephony technology is based upon spatial diversity, the
division of a given geographical area into a number of overlapping cells and the
simultaneous re-use of radio channels in non-contiguous cells within the system.
Each cell contains a low power transmitter-receiver as part of a base station
that communicates by radio signal with cellular terminals in that cell. Each
cell is interconnected by wire lines or microwave to a central switching
point or Mobile Switching Center ("MSC") that controls the routing of calls and
which, in turn, is connected to the public switched telephone network. It is the
MSC that allows cellular telephone users to move freely from cell to cell while
continuing their calls.
Cellular telephone systems generally offer subscribers the features offered
by the most up-to-date wireline telephone services. Most cellular telephone
systems are interconnected with the wireline telephone network. Cellular
telephone system operators therefore require an interconnect arrangement with
the local wireline telephone companies and the terms of such arrangements are
material to the economic viability of the system.
Currently, most cellular systems use analog technologies such as AMPS (U.S.
standard), TACS (UK/European standard) or NMT ( a European standard). In some
high density markets analog systems are reaching their capacity limits and are
being supplemented with new digital technologies that offer greater capacity
than analog systems.
Several digital cellular technologies have been developed in the last three
to five years. D-AMPS has been introduced as a digital upgrade for operators of
existing AMPS systems. In Europe, the digital Global System for Mobile
Communication ("GSM") standard has been developed and is widely available
throughout Europe and Asia. GSM provides approximately two to three times the
capacity of analog systems and has the additional benefit of enabling
international roaming due to its broad availability, system compatibility, and
universal terminal compatibility.
Another new digital technology, Code Division Multiple Access ("CDMA"), is
being introduced in the U.S. and several other major countries. CDMA provides
the highest capacity of any digital cellular technology at this point, with six
to ten times analog system capacity in a mobile environment. Its first
commercial deployment in Hong Kong has been successful, and has been deployed in
Personal Communications Services ("PCS") networks in the United States and
elsewhere. The Company's license in Cambodia requires CDMA-based technology.
CDMA digital wireless technology provides a universal technology platform
for a wide range of services and applications, including digital cellular, PCS,
wireless local loop, mobile satellite systems, and other types of networks.
Because of its spread spectrum RF characteristic, CDMA is able to provide a mix
of higher data rates simultaneously with lower data rates than certain other
wireless technologies. CDMA also offers superior call and voice quality than
other wireless technologies.
The cellular telephone industry is typically characterized by high fixed
costs and low variable costs. Until technological limitations on total capacity
are approached, additional cellular system capacity can normally be added in
increments that closely match demand and at less than the proportionate cost of
the initial capacity. The industry has also seen declining equipment prices in
real terms. Once revenues exceed fixed costs, incremental revenues are expected
to yield a high incremental operating profit, giving cellular telephone system
operators an incentive to stimulate and satisfy demand for service in the
market. The amount of profit, if any, under such circumstances is
dependent on, among other things, prices and variable marketing costs, which, in
turn, are affected by the amount and extent of competition.
Wireless Local Loop.
WLL refers to a group of technologies designed to provide customer access
to the public switched telephone network using wireless radio technologies
rather than traditional wire or fiber optic lines. A WLL system typically
consists of a number of radio base stations (similar to cell sites used for
cellular telephone) covering the target market area, a switching center, and
fixed subscriber terminals on the subscriber's premises. On the fixed subscriber
terminal a standard telephone jack allows connection to standard telephone
equipment. In some systems portable handsets are available, providing the added
value of wide-area cordless telephone service to the subscriber.
The Company believes that WLL is an attractive technology for the rapid
expansion of telephone facilities in developing countries. The coverage in terms
of service area provided by a single base station can compare favorably with the
coverage of a single cellular base station. The use of digital technology
provides substantially greater capacity than analog alternatives which the
Company believes results in WLL being a cost-effective communications solution.
Several types of technology can be used to provide WLL, including CDMA
technology.
WLL networks provide subscribers with access to the standard land-line
telephone network through wireless transmission from land-line switch to the
telephone site in the home or business rather than through conventional land
lines. This is accomplished by placing small transceivers at the telephone site.
Functionally, WLL operates in the same way as a regular telephone, with the
added possibility of wide area "cordless telephone" use. WLL networks are
generally quicker to install and less expensive than deploying new land-line
systems.
Paging Technology
Paging is a method of wireless communication that uses an assigned radio
frequency to contact a subscriber virtually anywhere within a designated service
area. A subscriber carries a pager that receives messages by the broadcast of a
one-way radio signal. To send a message to a subscriber, a caller first dials an
access code and the subscribers designated pager number. The call is routed to
an electronic paging terminal which generates a signal that is sent to radio
transmitters in the services area. Depending upon the topography of the service
area, the operation radius of a radio transmitter typically ranges from 30 to 50
kilometers. The transmitters broadcast a signal that is received by the pager,
which alerts the subscriber by a tone, vibration or flash that there is a
message.
There are three basic types of paging services: numeric (digital display);
alphanumeric display and tone-only. Numeric paging services enable a caller,
using a touchtone telephone, to transmit to a subscriber a numeric message
consisting of a telephone number, an account number of coded information.
Numeric pagers have memory capability to store several numeric messages which
can be recalled by a subscriber when desired. Alphanumeric paging services
allow subscribers to receive and store messages consisting of both letters and
numbers. Alphanumeric pagers have sufficient memory to store between 500 and
5,000 characters. Advanced alphanumeric systems also permit the receiving
page, by using a low-power transmitter installed in the pager to send a brief
reply back to the sending pager. Tone-only paging service notifies the
subscriber that a call has been received by making a beeping sound or producing
a vibration, but does not display numbers or messages.
BUSINESS STRATEGY
The Company intends to become a pre-eminent provider of wireless
communications services in selected developing countries, typically either
through a joint venture with a local partner or as a significant participant in
a corporate local venture. In some cases the Company's local partners may have
previously been granted telecommunications licenses.
The Company typically, although not exclusively, will play an active role in the
development and management of its operating companies and developmental stage
projects, and the Company will attempt to negotiate shareholder agreements that
provide the Company with the right to approve key decisions at the operating
company or developmental stage project level.
The Company intends to operate mainly in developing markets, which it believes
offer long-term growth characteristics superior to those in more developed
markets. The economic growth in these markets is characterized by an expanding
need for telecommunications services.
BUSINESS OF PORTACOM WIRELESS, INC.
Metromedia Asia Corporation
On May 28, 1996, the Company announced an agreement to acquire, in exchange
for shares of common stock of the Company, all of the outstanding shares of
Asian American Telecommunications Corporation ("AAT"), a Cayman Islands
telecommunications services developer which has focused its business activities
on developing PSTN and wireless telecommunications services in China. On July
18, 1996, the Company announced that the terms of the acquisition had been
adjusted to take into account a $25,000,000 financing by AAT. As management
continued to review the proposed transaction, including analysis and discussion
with legal, tax and financial advisors, it was recognized that the proposed
transaction required further modification in order to avoid potentially adverse
tax consequences to both the Company and its shareholders. On September 18,
1996, the Company announced that, due to significant tax and regulatory
considerations, it had elected to receive a direct ownership position in AAT
consisting of 2,000,000 common shares and warrants to acquire 4,000,000 common
shares of AAT at a price of $4.00 per share, plus an immediate payment of
$1,000,000 in cash from AAT to the Company. The 2,000,000 common shares of AAT
are to be held in escrow until January 1, 1999 in the event of any claims
arising out of the original proposed acquisition or the modification and
subsequent termination of that agreement, although as of the date of this
report, management is not aware of any claims or potential claims.
On December 23, 1996 AAT agreed to enter into a Business Combination
Agreement with Metromedia Asia Corporation ("MAC") and Metromedia International
Telecommunications, Inc. ("MITI"). In connection with the Business Combination
Agreement, MAC consummated, on February 28, 1997 an exchange offer for all of
the outstanding shares and warrants of AAT (the "Exchange Offer"). The Company
agreed to exchange all of its shares and warrants pursuant to the
terms of the Exchange Offer. Under the terms of the Exchange Offer, each share
of AAT common stock was exchanged for one share of MAC regular common stock, and
each warrant to acquire AAT common stock at $4.00 per share was exchanged for a
warrant to acquire MAC common stock at $4.00 per share. In addition, immediately
prior to the Exchange Offer, MITI purchased additional shares of Class A common
stock, carrying three votes per share, plus warrants. Accordingly, based on
information supplied by AAT and MAC the Company owned 3.43% (9.16% on a fully
diluted basis assuming exercise of all of its warrants) of MAC immediately
following the consummation of the Exchange Offer. The 2,000,000 common shares of
MAC will be held in escrow under the same terms and conditions as were
applicable to the AAT shares which were tendered in the Exchange Offer.
The following information regarding MAC and AAT and their respective
operations is based on information announced by MAC. MAC is a subsidiary of
Metromedia International Group, Inc., a global communications media and
entertainment company ("MIG"). MAC was established to pursue the development and
exploitation of telecommunications systems in China and other countries in the
Pacific Rim. To further such objectives, MAC, through a joint venture contract
with Golden Cellular Communication Co. Ltd. of China, is licensed to supply
wireless telecommunications equipment, systems technology and software services
and maintenance to public and private telephone networks throughout China.
Moreover, MIG has entered into an agreement with DSC Communications Corporation
for exclusive rights to introduce a new generation of wireless local loop
telephony systems.
AAT, though a joint venture agreement, has a contract with China United
Telecommunications Corporation ("China Unicom") to develop wireless and wireline
telecommunications services in Sichuan Province, China. Separately, through a
joint venture with Ningbo United Telecommunications Investment Co. Ltd., AAT has
entered into a contract with China Unicom to construct and operate a GSM
telecommunications system within the city of Ningbo, located in China's Zhejiang
Province.
American Cambodian Telecommunications, Ltd.
The Company, on December 26, 1996 entered into a joint venture agreement
(the "Cambodian JVA") as the 86% managing partner of American Cambodian
Telecommunications Ltd. ("ACT"), a limited liability company which holds a
twenty-five (25) year renewable licence to develop a mobile wireless system in
the Kingdom of Cambodia. After December 26, 1997 ACT has agreed to buy back all
of the outstanding shares of its 14% joint venture partner, Khmer Sameky
Telecom, Ltd. Also after December 26, 1997, the capital structure of ACT will
change such that the Company will retain a 75% interest in ACT and the Ministry
of Posts and Telecommunications of Cambodia will hold a 25% interest in ACT and
will retain the right to purchase any new ACT shares issued in order to
maintain a 25% interest.
Specifically, ACT has been issued a license (the "Cambodian Licence")for
the provision and operation of a CDMA based telecommunications system which
includes the rights to install and operate base stations, cellular switch
exchanges and any other facilities and equipment directly involved in the
provision, development and operation of a PCS 1900 based mobile cellular system
and to sell any and all types of terminals, devices and handsets for use with
the CDMA PCS 1900 system. Further rights under the Cambodian Licence include
certain frequency allocations, telephone number allocations and network
interconnection rights for local and international telephone services with the
existing PSTN and other telecommunications operator networks and other
authorized international gateways. Although the Cambodian License covers the
entire territory of the Kingdom of Cambodia, initial coverage is intended to be
provided to Siem Reap, Phnom Penh, Kampong Som, and the highway connecting the
aforementioned areas/cities. The Company estimates that the total population
under licence is approximately 10,400,000.
There are currently four cellular telephone competitors using GSM, D-AMPS,
and NMT technology on a limited basis in the city of Phnom Penh, Cambodia.
Furthermore, additional cellular telephone licences may be awarded. The Company
expects to compete on the basis of operating a wireless telecommunication system
that employs the state-of-the-art CDMA system which it believes provides
significant advantages over the technology currently being employed in Cambodia.
The Company will require substantial additional capital investment to
pursue the development of its planned network in Cambodia which is expected to
require approximately $15 million in start-up costs for the first full year of
operations. The Company would also require substantial additional capital
investment should an operating license be issued by any of the countries in
which the Company is presently pursuing approvals or investments. Failure to
generate sufficient funds from the issuance of additional debt or equity on
favorable terms and conditions would have a material adverse effect on the
financial condition of the Company.
Terminated Acquisitions
On October 20, 1995, the Company announced that it had agreed to acquire
PortaCom Wireless Communications, Inc., a Delaware corporation ("PWC"), which
had been developing new business opportunities in wireless telecommunications
services in China, Burma, Laos, Bulgaria, Macedonia and certain other countries.
The acquisition was approved by the shareholders on November 20, 1995 and
remained subject to the approval of the Vancouver Stock Exchange ("VSE") and the
receipt of an acceptable valuation of PWC. Upon closing, the Company was
obligated to issue a total of 1,568,600 shares of common stock to the PWC
shareholders. On July 18, 1996, the Company announced that it had terminated
the acquisition as it had not yet received regulatory approval. The Company has
determined, however, that it will issue shares of its common stock to Messrs.
MacLellan and Stephens and to PJL, in the same amounts as previously provided in
the PWC Agreement, in the event it is permissible to do so without receiving
approval of the VSE.
BUSINESS OF PORTACOM INTERNATIONAL, LTD.
PIL was formed in 1994 to evaluate the feasibility of, and attempt to
secure, licensing and joint venture arrangements for the operation of wireless
telephone networks, and other communication systems and technologies. As of
December 31, 1996, the operations of PIL had produced no revenues or definitive
licensing arrangements and management believed these operations would likely
continue to remain limited in scope until certain valuable licensing
arrangements or joint venture participation could be secured. Since March 1994,
PIL has made efforts to acquire telecommunications concessions, primarily in
developing countries including Vietnam, China, and Honduras. In December 1994,
PIL entered into an agreement with certain
parties to form an entity of which PIL would own 40% of the authorized and
outstanding shares. This entity was incorporated in the State of Nevada on
January 10, 1995 under the name Telecommunications American International
("TAI"). In December 1994, under the name U.S. Telecommunications Consortium
("USA Telecom"), TAI entered into a Memorandum of Agreement with Saigon Postel
Corporation ("PTS"), a Vietnamese joint stock company. TAI and PTS have agreed
to form venture companies to effect different telecommunications business
operations in Vietnam.
As of December 31, 1996, TAI and PTS were negotiating Business Cooperation
Contracts in which TAI would have interests in both a mobile cellular services
venture and a PSTN services venture. Under the proposed agreements with PTS,
TAI would own 50% and PTS would own 50% of each venture, which arrangements
would remain in effect for up to 20 years. Although TAI and PTS are currently
seeking to complete the operating license issuance process, management believes
that the likelihood of an operating licence being issued has diminished
substantially due to prolonged delays and apparent lack of progress.
Furthermore, because of the uncertainty of operating costs associated with
continuing to pursue an operating licence in cooperation with PTS, management
has decided to discontinue funding of the development activities of TAI until
significant further progress is evident. Accordingly, due to TAI's substantially
exhausted financial resources, there is considerable doubt that a licence will
be obtained in the near term unless TAI is successful in obtaining additional
sources of capital.
As of October 31, 1995, the Company had entered into a stock purchase
agreement with certain stockholders of TAI which provided for the acquisition of
an additional 13.1% of the outstanding shares of TAI. This acquisition, which
was subject to the receipt of a professional valuation and the approval of the
VSE, would have resulted in the Company owning a majority interest of 53.1% of
TAI. In the interim, the agreements provided irrevocable proxies allowing the
Company to vote all of the shares subject to each agreement. On July 18, 1996,
however the Company terminated the acquisition as it had not yet received
regulatory approval.
SPECIAL CONSIDERATIONS
Early Stage of Development of Wireless Projects. The Company's wireless
projects are in the early stages of development. The successful development and
commercialization of the Company's projects will depend on a number of
significant financial, logistical, technical, marketing, legal and other
factors, the outcome of which cannot be predicted. The Company's projects will
require significant amounts of financing to fund capital expenditures, working
capital requirements and other cash needs, including the costs of obtaining
additional licenses. In addition, there can be no assurance that these projects
will not encounter engineering, design or other operational problems. There can
be no assurance that the Company can successfully develop any of its existing or
planned developmental stage projects or that any of these projects or any of its
operating companies will achieve commercial success.
Negative Operating Cash Flow; Dependence on Additional Financing; No Commitments
For Additional Financing. The Company has incurred net losses since its
inception and had an accumulated deficit of approximately $9.78 million as of
December 31, 1996. The Company
anticipates that its net losses will increase significantly in the foreseeable
future, and there can be no assurance as to whether or when the Company's
operations will become profitable. The Company used cash in operations and
investing activities of approximately $2.05 million in the year ended December
31, 1996, and expects such negative cash flows to continue and likely increase
in the foreseeable future. Because of such negative cash flow and negative
working capital and the capital intensive nature of the Company's business, the
Company will require continuing sources of outside debt and equity financing to
fund its working capital needs, investments and other cash requirements. In
addition, the Company intends to pursue aggressively additional opportunities
for wireless projects and anticipates that it will require additional sources of
financing in order to pursue those projects. However, the Company has no
commitments or arrangements for additional financing, and there can be no
assurance that any additional debt or equity financing will be available to the
Company on acceptable terms when required by the Company or at all. If adequate
sources of additional financing are not available, the Company will be forced to
delay, scale back or eliminate its projects or to liquidate its investments.
Joint Venture and Investment Arrangements. The Company intends to conduct its
business operations through joint ventures with local strategic partners and
through investments in local companies that have previously been granted
licenses . Its participation in each joint venture and investment will differ
from market to market and the Company may not have majority ownership interests
in some such joint ventures or investments. Even when the Company does have a
majority ownership interest, the Company's ability to withdraw funds, including
dividends, from its participation in, and to exercise management control over,
joint ventures and investments therein, will be dependent in some cases on
receiving the consent of the other participants, over which the Company may have
no control. While the precise terms of the arrangements will vary, the
Company's joint venture interests or investments may be adversely affected in
the event that disagreements develop with joint venture partners or majority
shareholders in a particular project.
Risks Inherent in Growth Strategy. The Company hopes to grow rapidly, subject
to the availability of additional financing, and is actively seeking and
evaluating new investment opportunities in foreign countries. This strategy
presents the risks inherent in assessing the value, strengths and weaknesses of
development opportunities, in evaluating the costs and uncertain returns of
building and expanding the facilities for operating systems and in integrating
and managing the operations of additional operating systems. The Company's
growth strategy will place significant demands on the Company's operational,
financial and marketing resources and on its management. Any failure to manage
the Company effectively could have a material adverse effect on the Company.
Technological Risk; Risk of Obsolescence. The Company's operating companies and
developmental stage projects generally use new and emerging technologies. For
example, the Company's Cambodian project will use CDMA, a cellular technology
that is not widely deployed on a commercial basis at the present time. Although
many of the technologies currently in use and to be used in the future by the
Company have been developed by large international telecommunications companies,
most are generally advanced technologies which have only recently been developed
and commercially introduced. There can be no assurance that the operating
companies and developmental stage projects will not experience technical
problems in the commercial deployment of these technologies, particularly
because they are being introduced in developing countries. In addition, the
technology used in wireless communications is evolving rapidly and one or more
of the technologies currently utilized or planned by the Company to be utilized
may be unpopular with its customers or may become obsolete, which in either case
would likely have a material adverse effect on the Company. There can be no
assurance that the Company will be able to keep pace with ongoing technological
changes in the wireless telecommunications industry.
Risk of Modification or Loss of Licenses; Uncertainty as to the Availability,
Cost and Terms of Licenses; Restrictions on Licenses. The Company's ability to
retain and exploit its existing telecommunications license and to renew it when
it expires, and to obtain new licenses in the future, is essential to the
Company's operations. However, these licenses are typically granted by
governmental agencies in developing countries, and there can be no assurance
that these governmental agencies will not seek to unilaterally limit, revoke or
otherwise adversely modify the terms of these licenses in the future, any of
which could have a material adverse effect on the Company, and the Company may
have limited or no legal recourse if any of these events were to occur. In
addition, there can be no assurance that renewals to these licenses will be
granted or, if renewed, that the renewal terms will not be substantially less
favorable to the Company than the original license terms, any of which could
have a material adverse effect on the Company. Likewise, there can be no
assurance that the Company's operating companies and developmental stage
projects will obtain all of the licenses necessary for their proposed
operations.
Dependence on Partners. The Company will generally continue to depend on its
local partners to obtain required licenses in all of its wireless projects. In
addition, the Company is often dependent on strategic partners with resources
beyond those of the Company to pursue larger scale projects, including certain
WLL projects. In WLL projects, the Company may require the participation of a
larger telecommunications company possessing the substantial capital and
operating resources required to finance and deploy a WLL system. The failure of
the Company to identify and enter into relationships with strong partners, or
the failure of those partners to provide these resources, may have a material
adverse effect on the Company.
Construction Risks. The operating companies and developmental stage projects in
which the Company invests typically will require substantial construction of new
wireless networks and additions to existing wireless networks. Construction
activity will require the operating companies and developmental stage projects
to obtain qualified subcontractors and necessary equipment on a timely basis,
the availability of which varies significantly from country to country.
Construction projects are subject to cost overruns and delays not within the
control of the operating company or the developmental stage project or its
subcontractors, such as those caused by acts of governmental entities, financing
delays and catastrophic occurrences. Delays also can arise from design changes
and material or equipment shortages or delays in delivery. Accordingly, there
can be no assurance that the operating companies or developmental stage projects
will be able to complete current or future construction projects for the amount
budgeted or within the time periods projected, or at all. Failure to complete
construction for the amount budgeted or on a timely basis could jeopardize
subscriber contracts, franchises or licenses and could have a material adverse
effect on the Company. In particular, telecommunications licenses often are
granted on the condition that network construction be completed or commercial
operations be commenced by a specified date. Failure to comply with these
deadlines could result in the loss or revocation of the licenses.
Competition. Although the implementation of advanced wireless technologies is
in the early stages of deployment in most developing countries, the Company
believes that its business will become increasingly competitive, particularly as
businesses and foreign governments realize the market potential of these
wireless technologies. In particular, the Company faces competition presently
in the Cambodian market from Millicom International Cellular, S.A., which is
already operational in that market along with other companies. A number of
large American, Japanese and European companies, including U.S.-based regional
Bell operating companies and large international telecommunications companies,
are actively engaged in programs to develop and commercialize wireless
technologies in developing counties. In many cases, the Company will also
compete against local land-line carriers, including government-owned telephone
companies. Most of these companies have substantially greater financial and
other resources, including research and development staffs and technical and
marketing capabilities than the Company. The Company anticipates that there will
be increasing competition for additional licenses and increased competition to
the extent such licenses are obtained by others. Although the Company intends to
employ relatively new technologies, there will be a continuing competitive
threat from even newer technologies which may render the technologies employed
by the Company obsolete. (See "Competition.")
Regulation. The wireless services of the Company's operating companies and
developmental stage projects are subject to governmental regulation, which may
change from time to time. There can be
no assurance that material and adverse changes in the regulation of the
Company's existing or future operating companies or developmental stage projects
will not occur in the future. Such regulations can encompass foreign ownership
restrictions, service requirements, restrictions on interconnection of wireless
systems to government-owned or private telephone networks, subscriber rate-
setting, technology and construction requirements, among others. These
regulations may be difficult to comply with, particularly given demographic,
geographic or other issues in a particular market. Further, changes in the
regulatory framework may limit the ability to add subscribers to developing
systems. An operating company's or developmental stage project's failure to
comply with applicable governmental regulations or operating requirements could
result in the loss of licenses or otherwise could have a material adverse effect
on the Company.
Inflation; Currency Devaluations and Fluctuations. Many developing countries
have experienced substantial, and in some periods extremely high, rates of
inflation and resulting high interest rates for many years. Inflation and rapid
fluctuations in inflation rates have had and may continue to have negative
effects on the economies and securities markets of certain developing countries
and could have an adverse effect on the operating companies and developmental
stage projects in those countries, including an adverse effect on their ability
to obtain financing. The value of the Company's investment in an operating
company or developmental stage project will be affected by the currency exchange
rate between the U.S. dollar and the applicable local currency. In general, the
Company does not hedge against foreign currency exchange rate risks. As a
result, the Company may experience economic loss with respect to its investments
and fluctuations in its results of operations solely as a result of currency
exchange rate fluctuations.
Foreign Corrupt Practices Act. The Company is subject to the Foreign Corrupt
Practices Act ("FCPA"), which generally prohibits U.S. companies and their
intermediaries from bribing foreign officials for the purpose of obtaining or
keeping business or licenses or otherwise obtaining favorable treatment.
Although the Company has taken precautions to comply with the FCPA, there can be
no assurance that such precautions will protect the Company against liability
under the FCPA, particularly as a result of actions which may in the past have
been taken or which may be taken in the future by agents and other
intermediaries for whose actions the Company may be held liable under the FCPA.
In particular, the Company may be held responsible for actions taken by its
strategic or local partners even though such strategic or local partners are
themselves typically foreign companies which are not subject to the FCPA; and
the Company has no ability to control such strategic or local partners. Any
determination that the Company has violated the FCPA could have a material
adverse effect on the Company.
Possible Changes in Regulatory Agencies and Political Structure; Political
Instability. The Company intends to acquire interests in wireless telephone
licenses around the world, and will likely be subject to government regulation
in each market it enters. The governments of these countries are likely to
differ widely with respect to structure, constitution and stability, and some of
such countries may lack mature legal and regulatory systems. To the extent the
Company's operations depend on governmental approval and regulatory decisions,
the operations may be adversely affected by changes in the political structure
or government representatives in each of the markets in which the Company will
operate. No assurance can be given that factors such as these will not have a
material adverse effect on the Company's operations in particular countries.
Government actions in the future could have a significant adverse effect on
economic conditions in a developing country or may otherwise have a material
adverse effect on the Company and its operating companies and developmental
stage projects. Expropriation, confiscatory taxation, nationalization,
political, economic or social instability or other developments could materially
adversely affect the value of the Company's interests in operating companies and
developmental stage projects in particular developing countries. The Company
also may be adversely affected by political or social unrest or instability in
foreign countries. Such unrest or instability resulting from political,
economic, social or other conditions in foreign countries could have a material
adverse effect on the Company.
The Company does not have political risk insurance in the countries in
which it currently conducts business. Moreover, applicable agreements relating
to the Company's interests in its operating companies are frequently governed by
foreign law. As a result, in the event of a dispute, it may be difficult for the
Company to enforce its rights. Accordingly, the Company may have little or no
recourse upon the occurrence of any of these developments or if any of its
partners seek to re-negotiate existing or future agreements. To the extent that
any of the operating companies seeks to make a dividend or other distribution to
the Company, or to the extent that the Company seeks to liquidate its investment
in an operating company or developmental stage project and repatriate monies
from a relevant country, local taxes, foreign exchange controls or other
restrictions may effectively prevent the transfer of funds to the Company or the
exchange of local currency for U.S. dollars.
COMPETITION
Because the implementation of wireless technologies is at a early stage of
development in many developing countries, the Company believes there are
significant opportunities to form, develop and operate companies that deploy
these technologies. The Company believes its business will become increasingly
competitive, particularly as businesses and foreign governments realize the
market potential of wireless technologies. A number of large American, Japanese
and European companies, including regional Bell operating companies and major
international carriers, are actively engaged in programs to develop and
commercialize wireless technologies in developing countries. Most of these
companies have substantially greater financial and other resources, research and
development staffs and technical and marketing capabilities than the Company.
The Company's operating companies and developmental stage projects will
frequently compete against traditional land-line companies (i.e. local telephone
companies), cellular telephone companies and direct competitors using the same
wireless technologies as the operating companies. The Company's competitive
strategy depends on the service offered and the competitor. For example, the
Company's strategy is for its CDMA operating companies to compete against
cellular telephone service providers by offering greater functionality at lower
cost, particularly for business users, to compete against traditional land-line
carriers by offering better service, faster deployment and lower construction
costs and to compete against direct competitors, including those formed by large
American, Japanese and European companies, by relying on local partners to
obtain operating licenses and provide access to existing telecommunications
asset bases. There will, however, be increasing competition for licenses; and
there will be increased competition once licenses are obtained from both other
wireless operators and, in some cases, from government-owned telephone
companies. Although the Company intends to employ new technologies, there will
be a continuing competitive threat that even newer technologies will render the
wireless systems employed by certain operating companies obsolete. There is no
assurance that any of the Company's operating companies or developmental stage
projects will compete successfully in the marketplace.
PATENTS AND PROPRIETARY TECHNOLOGY
The Company has applied for, and subsequently elected to abandon
applications for, copyrights and patents on several of its products, and trade
names and trade marks related to discontinued lines of business which are no
longer material to the operations of the Company. The Company does not have or
use patents, trademarks, or proprietary technology in its current or projected
business operations.
EMPLOYEES
As of December 31, 1996, the Company employed six persons, including its
executive officers and administrative personnel. The Company's business strategy
entails employing substantially all personnel required for the Company's various
operations through its operating joint ventures.
The Company also engages a number of consultants and consulting firms in a
variety of management, administrative, engineering, legal and public relations
capacities. For example, substantially all engineering services are provided by
JMS North America, Inc. ("JMS"), an international engineering services
consulting firm with U.S. offices in the Washington, DC area and Texas, and
foreign offices in Amsterdam, Brussels, Dusseldorf, Madrid, New Delhi and
Singapore. JMS presently employs 145 persons worldwide on a full time basis, and
at least 100 persons on an independent contractor basis. As of the date of this
report, at least 10 employees from JMS are engaged in full time work on the
Company's projects.
ITEM 2. DESCRIPTION OF PROPERTY
The Registrant's executive offices and the offices of its PIL subsidiary
are located at 8055 W. Manchester Ave. Suite #730, Playa del Rey, CA. These
facilities, which consist of the rental of an office, are occupied on a month to
month arrangement at a rental expense of less than $2,000 per month.
The Registrant's Canadian administrative offices are located at 1155
Melville Street, Suite #11, Vancouver, British Columbia. These facilities,
which consist of the rental of an office and shared use of a conference room,
are occupied on a month to month arrangement at a rental expense of less than
$1,000 per month.
All of the Registrant's properties were, in the opinion of management as at
December 31, 1996, adequately covered by insurance.
ITEM 3. LEGAL PROCEEDINGS
As of December 31, 1996, neither the Registrant nor any of its subsidiaries
was a party to any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held an Extraordinary and Special General Meeting of
Stockholders on December 23, 1996 in Playa del Rey, California. Five proposals
were submitted as described in the Company's Proxy Statement dated November 20,
1996. Proposal 1 was a Special Resolution and, accordingly, was required to be
voted upon and approved by an affirmative vote of greater than 75% of shares
present and eligible to vote in accordance with British Columbia law. Following
the tabulation of votes with respect to Proposal 1, the meeting was briefly
suspended to permit the filing of documentation in Wyoming to give effect to the
proposal, whereupon the meeting was reconvened for the purpose of voting upon
Proposals 2-5. Proposals 2-5 were voted upon and approved by a majority of the
outstanding shares entitled to vote.
1. Changing the jurisdiction of incorporation of the Company from British
Columbia, Canada to Wyoming, U.S.A., by way of a continuation under the
Wyoming Business Corporation Act and the adoption by the Company of By-
laws under Wyoming corporate legislation in substitution of the
Company's current Memorandum;
2. Changing the domicile of the Company from Wyoming to Delaware to be
accomplished by the merger of the Company with and into a wholly owned
Delaware corporation formed solely for the purpose of completing the
merger;
3. The authorization of 5,000,000 shares of $.001 par value preferred
stock;
4. The elimination of the personal liability of directors to the fullest
extent allowed under Delaware law; and
5. Providing officers, directors, employees and agents of the Company
certain indemnification rights in addition to those currently provided.
The following table indicates the number of votes cast for, against, or
withheld, as well as the number of abstentions and broker non-votes, for each of
the proposals.
Proposal For Against Abstentions Broker
Non-
Votes
- -------------------------------------------------------------------------------
1. Change Jurisdiction 6,390,777 10,250 17,551 2,207,393
- -------------------------------------------------------------------------------
2. Change Domicile 6,392,877 10,150 1,800 2,221,144
- -------------------------------------------------------------------------------
3. Issued Preferred Stock 6,010,222 340,205 54,400 2,216,144
- -------------------------------------------------------------------------------
4. Eliminate Liability 7,876,564 554,775 193,632 1,000
- -------------------------------------------------------------------------------
5. Indemnification Rights 7,883,409 541,230 200,332 1,000
- -------------------------------------------------------------------------------
PART II
-------
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
A. MARKET INFORMATION
------------------
The Registrant's common stock is currently listed on the Vancouver Stock
Exchange under the symbol "PCW". The Registrant's securities became publicly
traded by virtue of an initial public offering of 1,000,000 shares on the
Vancouver Stock Exchange completed on October 1, 1992. On October 5, 1993, the
Registrant commenced trading of its Common Stock within the United States by
virtue of an exemption to the Securities Exchange Act of 1934 (the "Act") under
Rule 12 g 3-2(b) under the Act on the over the counter market on the NASD
Electronic Bulletin Board ("EBB") under the symbol "IPCBF". The Company
subsequently waived its exemption and registered under the Act. For the period
of July 30, 1996 to December 31, 1996, the trading symbol on the NASD Electronic
Bulletin Board was "PCWIF", and since December 31, 1996 has been "PCWR". The
following tables set forth the high and low sales prices of the Registrant's
common stock as reported by the Vancouver Stock Exchange daily trading summary
for the Registrant's last two fiscal years for the period ended December 31,
1996, the high and low bid prices as reported by the EBB for each quarterly
period in 1995, and the high and low sales prices as reported by the EBB for
each quarterly period in 1996. High and low bid prices for 1996 were not
available from the EBB. The high and low bid prices for the common stock for
each quarterly period in 1995 as reported by the EBB reflect inter-dealer
prices, without retail mark-up, mark-down or commission, and may not represent
actual transactions.
Vancouver Stock Exchange
------------------------
(Expressed in Canadian Dollars)
Calendar Quarter High Low
- ----------------------- ------ ------
First Quarter, 1995 $5.50 $1.90
Second Quarter, 1995 $4.00 $1.50
Third Quarter, 1995 $2.70 $1.45
Fourth Quarter, 1995 $2.30 $1.65
First Quarter, 1996 $4.00 $1.30
Second Quarter, 1996 $8.40 $3.20
Third Quarter, 1996 $6.25 $3.80
Fourth Quarter, 1996 $4.25 $2.75
United States Electronic Bulletin Board(1)
---------------------------------------
(Expressed in United States Dollars)
Calendar Quarter High Low
- ---------------- ---- ---
First Quarter, 1995 $ 3.625 $ 1.5
Second Quarter, 1995 $ 2.375 $ 1.25
Third Quarter, 1995 $ 1.875 $ 1.875
Fourth Quarter, 1995 $ 1.25 $ 1.25
First Quarter, 1996 $ 2.95 $ 1.0
Second Quarter, 1996 $ 7.45 $ 2.42
Third Quarter, 1996 $ 4.5 $ 2.75
Fourth Quarter, 1996 $ 3.32 $ 2.34
(1) The table sets forth the high and low bid prices as reported by the NASD
Electronic Bulletin Board for each quarterly period in 1995, and the high
and low sales prices as reported by the NASD Electronic Bulletin Board for
each quarterly period in 1996.
B. Holders
-------
The number of record holders of the Common Stock as of December 31, 1996
was 102. The Registrant believes it has over 2,000 beneficial holders of its
Common Stock.
C. Dividends
---------
The Registrant has not paid any cash dividends on its Common Stock to
date, and does not anticipate or contemplate paying cash dividends in the
foreseeable future. It is the present intention of management to utilize all
available funds for the development of the Registrant's business.
D. Recent Sales of Unregistered Securities
---------------------------------------
The Registrant has sold the following securities during 1996:
On March 11, 1996, 96,560 shares of Common Stock were issued to Maroon
Bells Capital Corporation in consideration for settlement of debt at a deemed
price of $1.25 per share.
On April 3, 1996, options to acquire an aggregate of 361,649 shares of
Common Stock were granted to six individuals who were directors and/or officers
at exercise prices of $3.00 per share and with expiration dates of April 2,
2001.
On April 12, 1996, 97,500 common shares at a price of $1.11 per share were
issued to two accredited investors, Warren Zee and Profektin AB, pursuant to
private placement subscriptions made in 1995.
On May 24, 1996, 1,256,561 common shares at a deemed price of $2.00 per
share were issued to various creditors in consideration for settlement of debt
aggregating $2,513,121 pursuant to debt settlement agreements.
On June 28, 1996, options to acquire 90,000 shares of common stock were
granted to R. Keith Alexander, a director, at an exercise price of $3.80 and
with an expiration date of June 28, 2001.
On September 27, 1996, 14,500 common shares were issued to Ronald Tupper,
an individual, in consideration for loans which had been made to the Company.
On December 19, 1996, an aggregate of 11,333 common shares were issued to
Rozell Holdings Ltd and to Mario Romano in consideration for loans which had
been made to the Company.
On December 30, 1996, options to acquire an aggregate of 290,000 shares of
Common Stock were granted to Douglas MacLellan and Stephen Leahy (who were
directors and/or officers) at exercise prices of $2.68 per share and with
expiration dates of December 30, 2001.
Between December 19, 1995 and December 11, 1996, the Company arranged the
private placements of convertible promissory notes to accredited investors
having an aggregate principal amount of $2,417,000. Of this amount, $1,817,000
was received subsequent to, and $600,000 was received prior to, December 31,
1995. The promissory notes were due and payable after two years which ranged to
December 1998, or after six months upon demand of the holder, and bore interest
at 10% per annum with interest payable upon maturity or conversion. The
promissory notes were convertible at the holders' option into shares of common
stock of the Company at conversion prices ranging from $1.49 to $3.25 per share.
Pursuant to the debt subscription agreements, the Company also agreed to issue
to the investors non-transferable warrants to purchase up to an aggregate of
461,203 shares of common stock of the Company for a period of two years at a
price equal to the conversion price of the notes. The conversion and warrant
exercise prices were based on the market price of the Company's common stock at
the date of the offering.
On December 31, 1996, convertible promissory notes aggregating $2,267,000
had been converted to 1,097,163 shares of common stock which were then issued as
consideration for the conversion of the convertible promissory notes.
The issuance of all such securities was exempt from registration under the
Securities Act of 1933 pursuant to Section 4(2) thereof and Regulation D
promulgated thereunder.
ITEM 6. SELECTED FINANCIAL DATA
The following selected historical financial information of the Company is
qualified by reference to and should be read in conjunction with the financial
statements and notes thereto included elsewhere herein. The selected financial
information set forth below for the fiscal year ended December 31, 1996, the
fiscal transition period ended December 31, 1995, and the fiscal year ended
March 31, 1995 is derived from the financial statements of the Company audited
by KPMG, independent public accountants, which are included elsewhere herein.
The selected financial information set forth below for the fiscal years ended
March 31, 1994 and 1993 is derived from the financial statements of the Company
audited by KPMG, independent public accountants, which are not included in this
report.
DECEMBER DECEMBER MARCH 31, MARCH 31, MARCH 31,
31, 1996 (1) 31, 1995 (2) 1995 1994 1993
--------------------------------------------------------------------
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AND WEIGHTED AVERAGE DATA)
Net sales or operating 9,014 56 (212) 375 161
revenues
Income (loss) from 4,732 (1,880) (7,145) (3,205) (1,887)
continuing operations
Income (loss) from 0.38 (0.20) (0.90) (0.48) (0.42)
continuing operations per
share of common stock
Weighted average common 12,622 9,000 7,975 6,742 4,511
shares and equivalents (3)
Total assets 8,226 988 337 2,331 1,723
Long term obligations -- -- -- 1,037 87
(1) Results for 1996 were significantly affected by the acquisition of cash and
common stock of MAC. See "Item 1.: Business; Business of PortaCom Wireless,
Inc."
(2) Nine month fiscal transition period ending December 31, 1995.
(3) Expressed in thousands of common shares.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION.
In 1995 the Company changed its fiscal year end from March 31 to December
31. Accordingly, the discussion set forth below includes a comparison of the
fiscal year ended December 31, 1996 to the nine month transition period ended
December 31, 1995 (the "Transition Period") and a comparison of the Transition
Period to the fiscal year ended March 31, 1995. Because the Company discontinued
its previous business in 1995, the Company does not believe such presentation is
meaningful and, in addition, the Company believes that historical results are
not indicative of future results.
RESULTS OF OPERATIONS
- ---------------------
Fiscal Year Ended December 31, 1996 Compared with the Nine Month Fiscal
- -----------------------------------------------------------------------
Transition Period Ended December 31, 1995 (the "Transition Period")
- -------------------------------------------------------------------
For the fiscal year ended December 31, 1996, the Company reported net
income of $5,139,662 with sales of $10,000 and other income of $9,003,943
compared to a loss in the Transition Period of $1,334,480 on sales of $143,652
and other income of nil. Expressed in terms of earnings (loss) per share of
common stock, results from operations for 1996 as compared with those for the
Transition Period were $0.41 per share and ($0.14) per share, respectively.
Other income is directly and solely attributable to an agreement between
the Company and AAT pursuant to which the Company received $1,000,000 in cash,
common stock (presently held in escrow) valued at $8,000,000 and 4,000,000
warrants to purchase common stock at $4.00 per share. Although the possibility
exists that the Company could enter into one or more similar transactions in
1997, no assurances can be given to this effect. Accordingly, the improvement in
the Company's financial condition resulting from the AAT transaction may not be,
and should not be construed to be, indicative of future results.
The reported decrease in net sales was due to the fact that the Company's
revenue-producing subsidiaries (which were also generating significant net
losses) were discontinued in 1995 and remained inactive throughout 1996.
Additionally, the Company's revenue-producing activities from ongoing
operations, with the exception of those directly related to the AAT agreement,
have remained limited in scope throughout 1996. Sales are expected to remain at
substantially the same level for the current year and the Company's operations
are not expected to generate revenues until 1998.
All of the 1996 sales were attributable to consulting activities of the
Company, whereas substantially all of the sales in the Transition Period were
attributable to the Company's PCBX systems and related products, with Telecom
and Laboratories accounting for a nominal portion of Transition Period Sales.
Cost of sales fell in 1996 to nil from $87,391 in the Transition Period.
This decline in cost of sales was primarily due to the Company's current
business development activities not including the manufacture or resale of
equipment as was the case in the Transition Period. Furthermore, the cost of
sales for 1996 is not comparable to that of prior periods due to the closure of
the Company's revenue producing subsidiaries in August 1995.
Operating expenses increased in 1996 to $4,281,558 from $1,936,665 in the
Transition Period, an increase of $2,344,893. Of this increase, the most
significant factor was a write down of promissory notes receivable and
investment related to TAI and PWC. See "Item 1. Business".
The increases in operating expenses were primarily related to the increase
in activities of the Company with respect to the acquisitions and proposed
acquisitions of wireless telecommunications interests in China, Cambodia, and
Vietnam as compared with a general reduction in these expense categories
throughout the Transition Period as a direct result of downsizing related to the
closure of the Company's revenue producing subsidiaries in August 1995.
During the fiscal year ended December 31, 1996, interest and bank charges
rose to $627,234 from $73,394 recorded in the Transition Period. This increase
was primarily related to interest accrued on the $2,417,000 in convertible
promissory notes.
Additional factors included increases in interest, legal and accounting,
consulting fees, general and administrative, and travel expenses. Legal and
accounting expenses increased to $727,882 from $273,665. Consulting expenses
increased to $619,292 from $327,132. General and administrative expenses
increased to $306,950 from $114,526. These increases were partially offset by
decreases in depreciation, bad debt, rent, wages and benefits, advertising and
promotion, and research and development expenses. The Company's operating
expenses as a percentage of sales in 1996 are not comparable to the prior period
due to the closure of the Company's revenue-producing subsidiaries in August
1995.
As at December 31, 1996, management does not believe that revenues will
likely be realized by the Company for the near term; however, the Company
expects that it will need to expend significant funds in order to develop the
Cambodian Licence and to obtain additional licenses and to form additional joint
ventures necessary for the Company or PIL to provide wireless communications
services in other markets where such opportunities are being sought, although
the Company would not generate any revenues until such licenses were obtained
and such joint ventures were operational. These activities would likely
necessitate a material increase in general office overhead and other general and
administrative costs.
The preceding paragraph contains certain forward looking statements that
are subject to inherent uncertainties. Among the factors resulting in such
uncertainties are those described in "Item 1: Business; Certain Considerations."
Transition Period Compared with Fiscal 1995
- -------------------------------------------
Sales in the nine month fiscal transition period ended December 31, 1995
were $143,652, a decrease of approximately 82% from the $780,839 reported for
the prior fiscal year ending March 31, 1995 ("Fiscal 1995"). Substantially all
of the Fiscal 1995 sales and most of the Transition Period sales were
attributable to the Company's PCBX Systems and related products, with Telecom
and Laboratories accounting for a nominal portion of Transition Period sales.
The Company incurred a loss of $1,334,480 in the Transition Period,
compared with a loss of $7,144,581 in Fiscal 1995, or $0.14 per share versus
$0.90 per share, respectively.
Cost of sales fell in the Transition Period to $87,391 from $992,807 in
Fiscal 1995, or 61% and 127% of sales, respectively. This decrease in cost of
sales, both in absolute terms and as a percentage of sales, was primarily due to
a combination of reduced component costs for the PCBX line of products, an
increase in the sale of software (PCBX's highest margin product).
Operating expenses fell in the Transition Period to $1,936,665 from
$6,932,613 in Fiscal 1995, a decrease of $4,995,948, or 72%. Of this decrease,
the most significant factors were (i) a decrease in consulting fees to $327,132
from $1,470,000, (predominantly paid to related parties; See Item 12: "Certain
Relationships and Related Transactions") related to downsizing, (ii) a decrease
in general and administrative costs to $114,526 from $499,165, related to
downsizing, (iii) a decrease in wages and benefits to $513,325 from $1,658,765,
and (iv) a decrease in bad debt expenses to $80,628 from $571,003, due primarily
to a drastic decrease in sales on account in favor of cash sales.
Fiscal 1995 Compared with Fiscal 1994
- -------------------------------------
Sales in the fiscal year ended March 31, 1995 ("Fiscal 1995") were
$780,839, a decrease of approximately 5.9% from the $829,844 reported for the
prior fiscal year ("Fiscal 1994"). Revenues were expected to decline throughout
the next fiscal year, if the Company was unable to obtain additional market
acceptance for its products. All of the Fiscal 1994 sales and substantially all
of the Fiscal 1995 sales were attributable to the Company's PCBX systems and
related products, with Telecom and Laboratories accounting for a nominal portion
of Fiscal 1995 sales.
The Company incurred a loss of $7,144,581 in Fiscal 1995, compared with a
loss of $3,205,237 in Fiscal 1994, or $0.90 per share versus $0.48 per share,
respectively.
Cost of sales rose in Fiscal 1995 to $992,807 from $454,383 in Fiscal 1994,
or 127% and 55% of sales, respectively. This increase in cost of sales, both in
absolute terms and as a percentage of sales, was primarily due to manufacturing
and product quality problems, which resulted in the Company having to
manufacture substantially more units in order to satisfy delivery requirements,
although part of the increase was attributable to product enhancements which
increased unit costs. The Company also experienced a substantial increase in
product returns.
Operating expenses rose in Fiscal 1995 to $6,932,613 from $3,580,698 in
Fiscal 1994, an increase of $3,351,915, or 93.6%. Of this increase, the most
significant factors were (i) an increase in consulting fees to $1,470,000 from
$380,433, (predominately paid to related parties; See Item 12: "Certain
Relationships and Related Transactions") (ii) an increase in general and
administrative costs to $499,165 from $261,422, (iii) an increase in wages and
benefits to $1,658,765 from $1,033,526, and (iv) an increase in bad debt
expenses to $571,003 from $86,129, due in each case primarily to the Company's
plans to launch its line of audio products, which did not occur as scheduled
(although bad debt expense increased primarily because of difficulty in
collecting accounts receivable due to customer dissatisfaction with the
Company's products). Legal and accounting costs increased principally as a
result of legal costs associated with organizational matters and other costs.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
During 1996, the Company's cash and cash equivalents decreased by $51,390.
Although the Company generated $4,870,145 from financing activities, the
Company's operations utilized a net of $1,911,481. The Company also used cash
of $2,871,000 in repayment of short-term debt and $139,054 in investments in
office equipment and in TAI and ACT. These activities contributed to a net
working capital position as of December 31, 1996 of ($685,858), which is up
$1,219,810 from ($1,905,668) at December 31, 1995. Working capital levels have
only been able to increase by virtue of the Company's continued offerings of
securities, its ability to secure short term loans, and the receipt of cash and
securities pursuant to its agreement with AAT.
The Company has incurred cumulative losses from inception through December
31, 1996 of $9,780,227 and has not achieved revenues sufficient to offset
direct expenses and corporate overhead.
Since inception, a substantial portion of the Company's operating capital
has been provided through financing activities which have included an initial
public offering and a series of private placements of common shares. During
1996, the Company sold 1,517,984 shares of common stock and 558,702 common stock
purchase warrants in private placement transactions and upon the exercise
outstanding stock options and warrants. The Company anticipates that it will
seek additional financing through the private placement of equity or debt
securities, although no assurances can be given as to the success of any future
offerings of securities.
Between December 19, 1995 and December 11, 1996, the Company arranged,
subject to regulatory approval, private placements of convertible promissory
notes having an aggregate principal amount of $2,417,000. Of this amount
$1,817,000 was received subsequent to, and $600,000 was received prior to,
December 31, 1995. The promissory notes were due and payable after two years
which ranged to December 1998, or after six months upon demand of the holder,
and bore interest at 10% per annum, with interest payable upon maturity or
conversion. The promissory notes were convertible into shares of common stock
of the Company at conversion prices ranging from $1.49 to $3.25 per share.
Pursuant to the debt subscription agreements, the Company also agreed to issue
to the investors non-transferable warrants to purchase an aggregate of up to
461,203 shares of common stock of the Company for a period of two years at a
price equal to the conversion price of the notes. The conversion and warrant
exercise prices were based on the market price of the Company's common shares at
the date of their offering. On December 16, 1996, regulatory approval was
received for the issuance of convertible promissory notes aggregating $2,417,000
and 461,203 warrants which were then issued by the Company. As of December
31, 1996, convertible notes aggregating $2,267,000 were converted to common
stock. As of the date of this report, the remaining convertible notes
aggregating $150,000 had also been converted to common stock. As of December
31, 1996 accrued interest on the convertible promissory notes aggregating
approximately $180,000 was payable by the Company.
As of December 31, 1996, the Company had 1,136,183 options and 725,703
warrants outstanding which, upon exercise, would yield to the Company additional
proceeds in excess of
$3.8 million. The exercise of existing options or warrants is impossible to
predict with any certainty. Accordingly, management can render no assurances
that any material funds will be realized upon the exercise of such options or
warrants, or whether such will be exercised at all.
Rental expense accounts for approximately $3,000 of fixed expenses on a
monthly basis. Personnel costs, which are expected to increase somewhat
throughout the year, are likely to account for between $75,000 and $100,000 of
fixed expenses on a monthly basis. Additional variable expenses, such as
consulting fees, legal and accounting, travel and entertainment, utilities and
miscellaneous equipment purchases (or rentals) are expected to account for
between approximately $50,000 and $75,000 per month.
In addition to fixed rental and certain personnel expenses, as of December
31, 1996, the Company anticipates capital expenditures of approximately $15
million during 1997 in connection with the establishment and expansion of ACT's
operations. The Company may also elect to exercise some or all of its MAC share
purchase warrants in 1997, the purchase price for which would be $16 million
assuming the exercise of all of its warrants.
Management does not believe that in the near term the Company's operations
will generate sufficient cash flow to finance its working capital and any
capital expenditure requirements. The Company's operations will remain
dependent on the Company's ability to obtain additional debt and equity
financing (including from the exercise of existing warrants). The Company has
been able to secure financing in the past through loans from certain
stockholders, although management has no reason to believe that similar
arrangements will be available in the future. While the Company will continue
to seek both debt and equity financing, there can be no assurance that any such
financing will be available on terms acceptable to the Company or at all.
Without such additional sources of financing, the Company will not be able to
continue as a going concern.
The political systems of the countries in which the Company has or may seek
to establish joint venture operations are in many cases emerging from legacies
of totalitarianism or civil unrest. In addition, many of the economies are weak,
volatile and reliant on foreign assistance. Free market reforms undertaken by
some of these countries face uncertain success and may lead to further economic
instability. These factors may adversely affect the Company's business
activities and results of operations. The laws, rules and regulations
applicable to the Company's activities in developing countries are generally
new, subject to change and incomplete. There can be no assurance that local
laws, rules and regulations will become stable or complete in the future, or
that changes thereto will not materially adversely affect the operations of the
Company. All of the Company's joint venture operations are and are expected to
be outside the United States. As a result, such operations are exposed to
currency fluctuations and the need to comply with a variety of foreign laws,
including laws that control currency exchanges and currency repatriation. The
Company does not hedge its foreign currency risks. There can be no assurance
that the Company's operations will not be adversely affected by such factors.
The preceding paragraphs contain certain forward looking statements that
are subject to inherent uncertainties. Among the factors resulting in such
uncertainties are those described in "Item 1: Business; Special Considerations."
Investment in TAI
Although the Company holds approximately a 41% interest in TAI, at year end
it was determined that this investment had experienced an other than temporary
decline in value and a significantly decreased likelihood that the $581,710 in
loans would be repaid. Accordingly, the investment and advances were written
down to their estimated fair value of $nil.
Debt Settlements
In October 1995, the Company began to enter into written agreements to
settle indebtedness in the aggregate amount of approximately $2,809,000 for cash
or share consideration. These agreements were subject to regulatory approval.
In May 1996, the Company received regulatory approval and completed the
settlement of $2,513,121 of such debt through the issuance of a total of
1,256,561 shares of common stock. As of January 31, 1997, 53,675 shares
continue to be reserved for issuance when allowable. In December 1995, the
Company agreed to the restructuring and settlement of claims of two parties
related to each other. The amount of the settlement was subsequently reduced
and fully paid by the Company in 1996. As of December 31, 1996, the outstanding
accounts payable of the Company's closed subsidiaries accounts for
approximately $90,000 of total accounts payable. The Company is continuing to
attempt to settle the outstanding debt on terms favorable to the Company,
although no assurances about such settlement terms can be given.
Cancellation of Performance Shares
In October 1995, certain shareholders agreed to surrender their 5,950,000
performance shares which were then held under an escrow arrangement. In
consideration therefor, the Company agreed to issue 314,762 common shares at a
deemed price of $2.00 per share. Although the performance shares have been
irrevocably canceled by the Company, as of the date of this filing, the issuance
of the 314,762 shares continues to be subject to the removal of the Company from
the jurisdiction of both the Vancouver Stock Exchange and the British Columbia
Securities Commission.
Bonus Shares and Warrants
In connection with the issuance of certain short-term debt by the Company
in January 1995 and May 1996, the Company has agreed to issue, subject to
regulatory approval, 85,590 "bonus" shares of common stock and 166,667 share
purchase warrants, exercisable at $3.30, expiring on May 31, 1997. During 1996,
regulatory approval was received for the issuance of 25,833 of these shares
which were then issued by the Company. As of December 31, 1996, the issuance of
the remaining 59,757 shares and 166,667 warrants continued to be subject to
regulatory approval.
EFFECTS OF INFLATION
- --------------------
The Company does not expect inflation to materially affect its results of
operations. However, it is expected that operating costs and the cost of capital
equipment to be acquired in the future may be subject to general economic and
inflationary pressures.
ITEM 8. FINANCIAL STATEMENTS
The consolidated financial statements and schedules required to be filed
under this item are presented on the following pages. The Company does not
believe that issued, but not yet effective, accounting standards will materially
impact its financial position or results of operations upon adoption.
Consolidated Financial Statements of
PORTACOM WIRELESS, INC.
(expressed in U.S. dollars)
Year ended December 31, 1996
Nine month period ended December 31, 1995
Year ended March 31, 1995
F-1
AUDITORS' REPORT TO THE SHAREHOLDERS
We have audited the consolidated balance sheets of PortaCom Wireless, Inc. as at
December 31, 1996 and 1995 and the consolidated statements of operations,
stockholders' equity (deficiency) and cash flows for the year ended December 31,
1996, the nine month period ended December 31, 1995 and the year ended March 31,
1995. 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
in Canada. Those standards require that we plan and perform an audit to obtain
reasonable assurance 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.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at December 31, 1996
and 1995 and the results of their operations and the changes in their cash flows
for the year ended December 31, 1996, the nine month period ended December 31,
1995 and the year ended March 31, 1995 in accordance with generally accepted
accounting principles in the United States.
/s/ KPMG
Chartered Accountants
Vancouver, Canada
January 15, 1997
COMMENTS BY AUDITOR FOR U.S. READERS ON CANADA-U.S. REPORTING DIFFERENCE
In the United States, reporting standards for auditors require the addition of
an explanatory paragraph (following the opinion paragraph) when the financial
statements are affected by conditions and events that cast substantial doubt on
the Company's ability to continue as a going concern, such as those described in
note 1 to the consolidated financial statements. Our report to the shareholders
dated January 15, 1997 is expressed in accordance with Canadian reporting
standards which do not permit a reference to such events and conditions in the
auditors' report when these are adequately disclosed in the financial
statements.
/s/ KPMG
Chartered Accountants
Vancouver, Canada
January 15, 1997
F-2
PORTACOM WIRELESS, INC.
Consolidated Balance Sheets
(expressed in U.S. dollars)
- ------------------------------------------------------------------------------------
December 31, December 31,
1996 1995
- ------------------------------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents $ 114,275 $ 165,665
Accounts receivable - 7,093
-----------------------------------------------------------------------------------
114,275 172,758
Promissory notes receivable (note 4) - 815,400
Investments (note 5) 8,099,500 -
Equipment, net 12,427 -
- ------------------------------------------------------------------------------------
$8,226,202 $ 988,158
- ------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity (Deficiency)
Current liabilities:
Accounts payable and accrued liabilities (note 6) $ 650,133 $ 1,107,426
Loans payable (note 7) 150,000 971,000
-----------------------------------------------------------------------------------
800,133 2,078,426
Stockholders' equity (deficiency):
Share capital (note 8):
Issued:
Common stock (1996 - 13,118,181;
1995 - 17,496,522) 13,118 17,496
Other paid-in capital 17,193,178 13,812,125
Deficit (9,780,227) (14,919,889)
-----------------------------------------------------------------------------------
7,426,069 (1,090,268)
Future operations (note 1)
Contingent liabilities (notes 5(a) and 9)
- ------------------------------------------------------------------------------------
$8,226,202 $ 988,158
- ------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
On behalf of the Board:
/s/ Stephen Leahy Director
- ------------------------
/s/ Douglas MacLellan Director
- ------------------------
F-3
PORTACOM WIRELESS, INC.
Consolidated Statements of Operations
(expressed in U.S. dollars)
- ------------------------------------------------------------------------------------------
Nine months
Year ended ended Year ended
December 31, December 31, March 31,
1996 1995 1995
- ------------------------------------------------------------------------------------------
Income:
Sales, net $ 10,000 $ 143,652 $ 780,839
Cost of sales - 87,391 992,807
-----------------------------------------------------------------------------------------
10,000 56,261 (211,968)
Other income (note 5(a)) 9,003,943 - -
- ------------------------------------------------------------------------------------------
9,013,943 56,261 (211,968)
Expenses:
Advertising and promotion 3,545 60,820 281,649
Bad debts 2,513 80,628 571,003
Consulting fees (note 10) 619,292 327,132 1,470,000
Depreciation 2,127 143,786 210,052
General and administrative 306,950 114,526 499,165
Interest, bank charges and financing
charges (note 7) 627,234 73,394 134,198
Legal and accounting 727,882 273,665 469,922
Management fees (note 10) 86,013 49,436 360,505
Placement fees 106,000 - -
Rent 40,371 141,568 267,165
Research and development 4,530 60,437 570,441
Travel 273,726 97,948 439,748
Wages and benefits 434,665 513,325 1,658,765
Write-down of promissory notes receivable
and investment ( note 10(f) ) 1,046,710 - -
-----------------------------------------------------------------------------------------
4,281,558 1,936,665 6,932,613
- ------------------------------------------------------------------------------------------
Income (loss) before extraordinary item 4,732,385 (1,880,404) (7,144,581)
Gain on settlement of debt 407,277 545,924 -
- ------------------------------------------------------------------------------------------
Net income (loss) for the period $ 5,139,662 $(1,334,480) $(7,144,581)
- ------------------------------------------------------------------------------------------
Net income (loss) per share (note 3(g)) $ 0.41 $ (0.14) $ (0.90)
- ------------------------------------------------------------------------------------------
Weighted average number of common
stock outstanding (note 3(g)) 12,621,945 8,999,863 7,974,845
- ------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-4
PORTACOM WIRELESS, INC.
Consolidated Statement of Stockholders' Equity (Deficiency)
(expressed in U.S. dollars)
- ---------------------------------------------------------------------------------------
Common Other Paid-in
stock capital Deficit
- ---------------------------------------------------------------------------------------
Balance, March 31, 1994 after giving
retroactive effect to change in authorized
common stock (note 8(b)) $13,835 $ 6,962,626 $ (6,440,828)
Year ended March 31, 1995:
Common stock issued for cash 1,380 3,107,829 -
Net loss for the year - - (7,144,581)
- ---------------------------------------------------------------------------------------
Balance, March 31, 1995 15,215 10,070,455 (13,585,409)
Nine months ended December 31, 1995:
Common stock issued:
For cash 1,025 1,229,806 -
On settlement of debt 1,256 2,511,864 -
Net loss for the period - - (1,334,480)
- ---------------------------------------------------------------------------------------
Balance, December 31, 1995 17,496 13,812,125 (14,919,889)
Year ended December 31, 1996:
Common stock issued:
For cash 299 552,847 -
On settlement of liabilities 176 306,353 -
On conversion of promissory notes 1,097 2,265,903 -
Common stock cancelled (5,950) 5,950 -
Value ascribed to warrants (note 7(b)) - 250,000 -
Net income for the year - - 5,139,662
- ---------------------------------------------------------------------------------------
Balance, December 31, 1996 $13,118 $17,193,178 $ (9,780,227)
- ---------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-5
PORTACOM WIRELESS, INC.
Consolidated Statements of Cash Flows
(expressed in U.S. dollars)
- ---------------------------------------------------------------------------------------------------------
Nine months
Year ended ended Year ended
December 31, December 31, March 31,
1996 1995 1995
- ---------------------------------------------------------------------------------------------------------
Cash provided by (used in):
Cash flows from operating activities:
Net income (loss) for the period $ 5,139,662 $(1,334,480) $(7,144,581)
Items not involving cash
Depreciation 2,127 143,786 210,052
Fair value of investments received
on settlement (note 5(a)) (8,000,000) - -
Write-down of promissory notes
receivable and investment 1,046,710 - -
Share capital issuable in settlement
of financing charges 328,399 - -
Changes in operating assets and liabilities:
Accounts and promissory notes
receivable (199,527) (782,060) 24,314
Inventory - 58,852 327,995
Prepaid expenses - 6,680 62,260
Employee loans (note 10(c)) - - 147,209
Accounts payable and accrued
liabilities (228,852) 1,405,889 1,657,069
- --------------------------------------------------------------------------------------------------------
Net cash used by operating activities (1,911,481) (501,333) (4,715,682)
Cash flows from financing activities:
Issue of and to be issued for common
stock for cash 553,145 1,230,830 3,109,209
Bridge Financing 2,500,000 - -
Repayment of Bridge Financing (2,500,000) - -
Convertible promissory notes 1,817,000 600,000 -
Repayment of note payable - - (150,000)
Repayment of promissory note payable - (37,500) (50,000)
Loans payable (371,000) (1,213,508) 584,508
- --------------------------------------------------------------------------------------------------------
Net cash generated by financing activities 1,999,145 579,822 3,493,717
Cash flows from investing activities:
Equipment, net (14,554) 13,792 (92,379)
Patents, trademarks and other assets - - (80,855)
Investments (note 5) (124,500) - -
- --------------------------------------------------------------------------------------------------------
Net cash generated (used) by investing activities (139,054) 13,792 (173,234)
- --------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and
cash equivalents (51,390) 92,281 (1,395,199)
Cash and cash equivalents,
beginning of period 165,665 73,384 1,468,583
- --------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 114,275 $ 165,665 $ 73,384
- --------------------------------------------------------------------------------------------------------
Supplementary information:
Interest paid $ 25,000 $ - $ -
Income taxes paid - - -
Non-cash transactions (note 11)
- --------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-6
PORTACOM WIRELESS, INC.
Notes to Consolidated Financial Statements
(expressed in U.S. dollars)
- --------------------------------------------------------------------------------
1. FUTURE OPERATIONS:
PortaCom Wireless Inc. (the "Company") was incorporated on July 7, 1989
under the Company Act (British Columbia) and was inactive until April 1990.
Effective December 24, 1996, the Company emigrated its corporate charter
from British Columbia to Delaware. This resulted in the restatement of the
Company's authorized common and preferred stock (note 8).
The Company is currently pursuing business ventures as a developer,
financier and operator of companies providing cellular, wireless and PSTN
telecommunications services in selected developing world markets. The
Company intends to make investments primarily in wireless, cellular, PSTN
and long distance networks in order to provide coverage and high-quality
service in selected emerging markets. The Company's principal interests are
focused on these technologies in Cambodia and other emerging markets which
represents a single industry segment.
The Company entered into a joint venture on December 26, 1996 as the
managing partner of American Cambodian Telecom Ltd. ( "ACT" ) a limited
liability company which holds a twenty-five year renewable license to
develop a mobile wireless system in the Kingdom of Cambodia. The Company
also holds a 3.43% interest in Metromedia Asia Corporation ( "MAC" ), which
is active in the build-out of telecommunications in China.
At December 31, 1996 the Company had a working capital deficiency of
$685,858. At the date of these consolidated financial statements, the
Company has not generated cash flow from recurring operating activities and
it is uncertain when it will commence to generate such a cash flow. In
addition, the Company's largest recorded asset is restricted until January
1, 1999 (note 5(a)). Accordingly, there can be considered to be doubt as to
the nature and extent of the Company's future operations.
The accompanying consolidated financial statements have been prepared
assuming the Company will continue to operate as a going concern which
requires the realization of assets and settlement of liabilities in the
ordinary course of business. The Company's viability as a going concern is
dependent upon the continued restructuring of its asset base, the financial
support of shareholders and creditors and, ultimately, the generation of
profitable operations. Although it is management's intention to pursue these
options, there can be no assurance that these events will or can occur. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
2. CHANGE IN FISCAL YEAR:
In 1995, the Company changed the date on which its fiscal year ends from
March 31 to December 31, 1995. Accordingly, results of operations and cash
flows for the transition period which ended December 31, 1995 cover a nine-
month period.
F-7
PORTACOM WIRELESS, INC.
Notes to Consolidated Financial Statements, page 2
(expressed in U.S. dollars)
- --------------------------------------------------------------------------------
3. SIGNIFICANT ACCOUNTING POLICIES:
(a) Basis of presentation:
These consolidated financial statements are prepared in accordance with
generally accepted accounting principles in the United States. In prior
years, as a company incorporated in Canada, it reported to its
shareholders based on Canadian accounting principles. Due to the
emigration to Delaware, the Company is now required to file regulatory
reports under United States accounting principles. The change from
Canadian to United States generally accepted accounting principles did
not impact reported amounts for total assets, stockholders' equity
(deficiency) or net income (loss) for either the 1996 or prior
reporting periods. Under Canadian accounting principles earnings (loss)
per share would be calculated including escrowed shares as indicated in
note 3(g).
(b) Basis of consolidation:
These consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries, PortaCom International,
Ltd., PCBX Systems, Inc., Extreme Laboratories, Inc. and Extreme
TeleCom, Inc. The Company's interest in ACT (note 5(b)) is accounted
for by the equity method. All material intercompany accounts and
transactions have been eliminated.
Other investments are accounted for at cost.
(c) Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements, and the reported amounts of revenues
and expenses during the reporting period. With respect to the Company's
operations, these estimates primarily relate to the underlying value of
investments which will only be determinable based upon future events.
Management has applied its judgment to the information available to the
date of the issuance of these consolidated financial statements in
making such judgment.
Actual results could differ from estimates made in preparing these
consolidated financial statements.
(d) Cash and cash equivalents:
Cash equivalents are highly liquid investments, such as term deposits,
having original maturities of three months or less, that are readily
convertible to contracted amounts of cash.
(e) Equipment:
Equipment is recorded at cost. Depreciation is provided at rates which
are calculated to amortize the cost of these assets over their
estimated useful lives.
F-8
PORTACOM WIRELESS, INC.
Notes to Consolidated Financial Statements, page 3
(expressed in U.S. dollars)
- --------------------------------------------------------------------------------
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(f) Income taxes:
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes"
("Statement 109"). Under Statement 109, deferred tax assets and
liabilities are recognized based on the estimated future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates in effect for the year in which those temporary
differences are expected to be recovered or settled. Under Statement
109, the effect of deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes the
enactment date.
(g) Net income (loss) per share:
Net income (loss) per share is computed based on the weighted average
number of shares outstanding during the year, which number of shares
excludes escrowed shares that are contingently returnable to the
Company's treasury. If the escrowed shares had been included, net
income (loss) per share would have been $0.39 (December 31, 1995 -
$(0.09); March 31, 1995 - $(0.49)). If the escrowed shares become
issuable, net income (loss) per share will be retroactively restated.
Fully diluted net income (loss) per share has not been presented as the
effect is either not materially dilutive or are anti-dilutive.
(h) Currency:
As the majority of the Company's activities are in U.S. dollars, these
consolidated financial statements are stated in U.S. dollars, except
where otherwise indicated. Translation of Canadian dollar transactions
has taken place at the exchange rate in effect at the transaction date.
There have been no material foreign exchange gains or losses through
the date of these consolidated financial statements.
(i) Fair value of financial instruments:
Financial instruments include cash, investments, accounts payable and
accrued liabilities and loans payable. In all cases, management's best
estimate of their fair value is not materially different from carrying
value.
(j) Stock options:
As described in note 8(d), from time-to-time the Company issues stock
options to directors, officers and employees. These options are granted
having exercise prices based on the market price of the Company's
common shares at the date of grant. Stock options are accounted for in
accordance with SFAS No. 123. As allowed under SFAS No. 123, the
Company recognizes stock options granted in accordance with APB Opinion
No. 25.
(k) Revenue recognition:
The Company recognizes revenue when the customer accepts delivery of
the product and there is reasonable assurance as to the collectibility
of any receivables.
F-9
PORTACOM WIRELESS, INC.
Notes to Consolidated Financial Statements, page 4
(expressed in U.S. dollars)
- --------------------------------------------------------------------------------
4. PROMISSORY NOTES RECEIVABLE:
At December 31, 1995, promissory notes receivable bore interest at 10% per
annum, were unsecured and without specific dates for repayment. The
promissory notes receivable were due from entities which are related to the
Company through common directors and management. All amounts have been
written off in the current year as they were determined to be uncollectible.
5. INVESTMENTS:
- -------------------------------------------------------------------------------------
December 31, December 31,
1996 1995
- -------------------------------------------------------------------------------------
Asian American Telecommunications Corporation,
17% interest $8,000,000 $ -
American Cambodian Telecom Ltd., a joint venture,
86% interest 99,500
Telecommunications American International,
41% interest - -
- -------------------------------------------------------------------------------------
$8,099,500 $ -
- -------------------------------------------------------------------------------------
(a) On May 28, 1996, the Company announced that it had entered into a
contract to acquire all of the outstanding shares of Asian American
Telecommunications Corporation ("AAT"), an unrelated Los Angeles-based
telecommunications services developer. By an agreement made as of
September 11, 1996, AAT and the Company agreed to terminate all rights
and obligations of either party under the proposed business combination.
As consideration for this termination, AAT issued to the Company
2,000,000 restricted common shares, and issued to the Company warrants to
acquire 4,000,000 common shares of AAT for a period of three years at a
price of $4.00 per share. The Company paid no cash consideration for
these shares or warrants. The Company's investment is recorded at the
estimated fair value of the assets received in excess of the
consideration payable to exercise the warrants. This fair value was
established by reference to capital stock issuances made by AAT for cash
consideration. In addition, AAT paid the Company non-refundable cash
consideration of $1,000,000 as part of this termination agreement.
The 2,000,000 common shares have been pledged by the Company to AAT until
January 1, 1999 pursuant to the Company's indemnification obligations
under the termination agreement. These indemnification obligations
provide that the Company grants to AAT a first priority lien on the
common shares against any costs or losses arising to AAT, or specified
related parties, arising from certain claims or potential claims related
to the original proposed acquisition or the termination agreement. At the
date of these consolidated financial statements, no claims under this
indemnification agreement have arisen and the likelihood is considered to
be remote.
The receipt of cash and common stock pursuant to the termination
agreement has been recorded as income in the consolidated statement of
operations.
On December 23, 1996, AAT entered into a business combination agreement
with MAC. In connection with the Agreement, MAC offered to exchange all
outstanding shares of AAT capital stock and all warrants to purchase
shares of AAT capital stock for shares and warrants of MAC.
F-10
PORTACOM WIRELESS, INC.
Notes to Consolidated Financial Statements, page 5
(expressed in U.S. dollars)
- --------------------------------------------------------------------------------
5. INVESTMENTS (CONTINUED):
Subsequent to year end, the Company agreed to exchange these shares and
warrants of AAT for equivalent shares and warrants of MAC. Based on
representations by MAC, these shares gave the Company a 3.43% interest
in MAC immediately following the consummation of the exchange offer
(9.16% interest calculated on a fully diluted basis if the Company
exercises all warrants and no other outstanding warrants are exercised).
(b) On December 26, 1996, the Company acquired an 86% non-controlling
ownership interest in American Cambodian Telecom Ltd. ("ACT"), a newly
formed Joint Venture agreement with another party under the consent of
the Ministry of Posts and Telecommunications in Cambodia. ACT has been
inactive to December 31, 1996.
Under the Joint Venture agreement, the Company is required to contribute
capital to ACT of at least 50 million Cambodian Riel (approximately
$20,000). In addition, the Company is required to provide a refundable
deposit of $200,000 within 45 business days of December 31, 1996. As of
December 31, 1996 no capital or deposit had been contributed.
(c) On August 5, 1996, the Company agreed to purchase 250 shares of the
common stock of Telecommunications American International ("TAI") from a
shareholder for the sum of $25,000. In addition, the Company had
advanced an aggregate of $ 556,710 to TAI. In the year ended December
31, 1996, it was determined that the investment and advances had
experienced an other than temporary decline in value and therefore they
have been written down to their estimated fair value of $nil. This write
down is included in the consolidated statement of operations.
(d) The Company reviews the underlying value of all investments on an
ongoing basis and provides for declines in value that are other than
temporary as they are identified. Any impairments are charged to
earnings and a new cost basis for the security is established. At
December 31, 1996, no such impairments have been identified in the
investments in AAT and ACT.
6. ACCRUED LIABILITIES:
Management fees due to a director (formerly an officer) of the Company
previously included in accrued liabilities ceased to accrue as at October
31, 1995. This liability was settled for common stock in the nine month
period ended December 31, 1995.
7. LOANS PAYABLE:
- -----------------------------------------------------------------------------------------------------------------------------
December 31, December 31,
1996 1995
- -----------------------------------------------------------------------------------------------------------------------------
Convertible promissory notes (a) $150,000 $ 600,000
Note payable to former officer due December 31, 1996 - 200,000
Note payable to former services vendor, due as to $100,000 on or before April 5, 1996 (paid) and
$71,000 on or before June 28, 1996 (paid) - 171,000
- ----------------------------------------------------------------------------------------------------------------------------
$150,000 $ 971,000
- ----------------------------------------------------------------------------------------------------------------------------
F-11
PORTACOM WIRELESS, INC.
Notes to Consolidated Financial Statements, page 6
(expressed in U.S. dollars)
- --------------------------------------------------------------------------------
7. LOANS PAYABLE (CONTINUED):
(a) Convertible promissory notes:
Between December 19, 1995 and December 11, 1996, the Company arranged,
private placements of convertible promissory notes having an aggregate
principal amount of $2,417,000. Of this amount, $1,817,000 was received
subsequent to, and $600,000 was received prior to, December 31, 1995.
The promissory notes are due and payable after two years which range to
December 1998, or after six months upon demand of the holder, and bear
interest at 10% per annum with interest payable upon maturity or
conversion. The promissory notes are convertible at the holders' option
into shares of common stock of the Company at conversion prices ranging
from $1.49 to $3.25 per share. Pursuant to the debt subscription
agreements, the Company also agreed to issue to the investors non-
transferable warrants to purchase up to an aggregate of 461,203 shares
of common stock of the Company for a period of two years at a price
equal to the conversion price of the notes. The conversion and warrant
exercise prices are based on the market price of the Company's common
stock at the date of the offering.
To December 31, 1996, convertible notes aggregating $2,267,000 were
converted to common stock (note 8(b)).
(b) Bridge Financing:
During 1996, the Company completed a Bridge Financing to raise
$2,500,000 to provide interim financing pending the completion of a
private placement of the convertible promissory notes described in (a).
The Bridge Financing was due on demand after 30 days and bore interest
at 12% per annum. In addition, 166,667 warrants were issuable to the
lenders (notes 8(e) and (g)).
For accounting purposes, the warrants have been recorded at their
estimated fair value of $250,000 with a corresponding reduction in the
recorded value of the Notes. This resulted in deemed interest expense
of $250,000 in the year ended December 31, 1996 as all of the Notes
were repaid. This deemed interest is included in interest expense in
the consolidated statement of operations.
8. SHARE CAPITAL:
(a) Authorized:
Authorized share capital is as follows:
100,000,000 shares of common stock with a par value of $0.001 per
share
5,000,000 shares of preferred stock with a par value of $0.001 per
share
F-12
PORTACOM WIRELESS, INC.
Notes to Consolidated Financial Statements, page 7
(expressed in U.S. dollars)
- ------------------------------------------------------------------------------
8. SHARE CAPITAL (CONTINUED):
(b) Issued common stock:
- ------------------------------------------------------------------------------------------------------
Number Per share Total
of shares consideration consideration
- ------------------------------------------------------------------------------------------------------
Balance, March 31, 1994 13,834,872 $6,976,461
Issued for cash:
Free-trading shares, net of share
issuance costs paid of $354,047 (f) 656,457 3.38 2,220,353
On exercise of stock options 266,000 1.61 427,325
On exercise of warrants 373,747 1.23 461,531
Issued as a finders fee in connection
with issuance of the free trading
common stock 83,742 - -
- ---------------------------------------------------------------------------------------------------
Balance, March 31, 1995 15,214,818 10,085,670
Issued for cash:
Free-trading shares 204,878 1.36 277,490
On exercise of stock options 820,267 1.16 953,340
Issued on settlement of debt (f) 1,256,559 2.00 2,513,121
- ---------------------------------------------------------------------------------------------------
Balance, December 31, 1995 17,496,522 13,829,621
Cancelled (c) (5,950,000) -
Issued for cash:
Free-trading shares 97,500 1.11 108,225
On exercise of warrants 97,878 2.98 291,500
On exercise of stock options 103,050 1.49 153,420
Issued as consideration for:
Loans payable (g) 25,833 3.03 78,400
Settlement of debt 96,560 1.25 120,780
Convertible Promissory Notes 1,097,163 2.07 2,267,000
Fair value of warrants issuable in consideration
for Bridge Financing (e) - 250,000
To be issued on settlement of debt (f) 53,675 2.00 107,350
- ---------------------------------------------------------------------------------------------------
Balance, December 31, 1996 13,118,181 $17,206,296
- ---------------------------------------------------------------------------------------------------
Upon emigration to Delaware (note 1), the Company's authorized common stock
was changed from 94,050,000 common shares without par value to 100,000,000
shares of capital stock with a par value of $0.001 per share.
F-13
PORTACOM WIRELESS, INC.
Notes to Consolidated Financial Statements, page 8
(expressed in U.S. dollars)
- --------------------------------------------------------------------------------
8. SHARE CAPITAL (CONTINUED):
(b) Issued common stock (continued):
After giving effect to this adjustment to the authorized share capital
on a retroactive basis, the total consideration at December 31, 1996 and
1995 is allocated as follows:
- --------------------------------------------------------
1996 1995
- --------------------------------------------------------
Common stock $ 13,118 $ 17,496
Contributed surplus 17,193,178 13,812,125
- --------------------------------------------------------
$17,206,296 $13,829,621
- --------------------------------------------------------
(c) Performance shares:
Included in the issued and outstanding common stock are 600,000
shares which are subject to an escrow agreement. These shares are
releasable from escrow on satisfaction of certain predetermined tests
set out by regulatory authorities related to the generation of positive
cash flow from operations. Shares not released from escrow by September
9, 2002 will be cancelled. Pursuant to the escrow agreement, holders of
the shares may exercise all voting rights attached thereto except on a
resolution to cancel any of the shares, and have waived their rights to
receive dividends or to participate in the assets and property of the
Company on a winding-up or dissolution of the Company. Upon release of
the shares from escrow, compensation expense will be recorded.
In October 1995, certain shareholders agreed to surrender their
5,950,000 escrowed shares which were then held under the escrow
arrangement. In consideration therefor, the Company agreed to issue
314,762 shares of common stock at a deemed price of $2.00 per share.
Although the escrowed shares have been irrevocably cancelled by the
Company during 1996, the issuance of the 314,762 shares continues to be
subject to the removal of the Company from the jurisdiction of both the
Vancouver Stock Exchange and the British Columbia Securities
Commission.
F-14
PORTACOM WIRELESS, INC.
Notes to Consolidated Financial Statements, page 9
(expressed in U.S. dollars)
- --------------------------------------------------------------------------------
8. SHARE CAPITAL (CONTINUED):
(d) Stock options:
Option changes for the period April 1, 1994 to December 31, 1996 were as
follows:
Outstanding and exercisable as at March 31, 1994... 1,235,200
Granted at C$5.68 per share 274,800
Exercised at C$4.45 per share (80,000)
Exercised at C$1.25 per share (186,000)
---------------------------------------------------------------
Outstanding and exercisable as at March 31, 1995 1,244,000
Granted at C$1.90 per share 75,000
Granted at C$2.09 per share 400,000
Granted at C$2.41 per share 150,000
Exercised at C$1.25 per share (461,767)
Exercised at C$2.09 per share (358,500)
Cancelled (431,300)
---------------------------------------------------------------
Outstanding and exercisable as at December 31,
1995 617,433
Granted at U$3.80 90,000
Granted at U$3.00 472,899
Granted at U$2.68 290,000
Exercised at C$1.25 (16,800)
Exercised at C$1.90 (75,000)
Exercised at U$3.00 (11,250)
Cancelled (231,099)
---------------------------------------------------------------
Outstanding and exercisable at December 31, 1996 1,136,183
---------------------------------------------------------------
Stock options are issued at the average market price per share for the ten
trading days prior to the date of issuance. Accordingly, no compensation
cost has been recognized for options granted. Had compensation cost for the
Company's stock options for 1996 and 1995 grants been determined consistent
with FASB No. 123, the Company's net income (loss) and loss per share would
have been adjusted to the pro forma amounts indicated below:
- ------------------------------------------------------------------
Nine months
Year ended ended
December 31, December 31,
1996 1995
- ------------------------------------------------------------------
Net income (loss):
As reported $5,139,662 $(1,334,480)
Pro forma 4,289,482 (1,659,480)
Net income (loss) per share:
As reported $ 0.41 $ (0.14)
Pro forma 0.34 (0.18)
F-15
PORTACOM WIRELESS, INC.
Notes to Consolidated Financial Statements, page 10
(expressed in U.S. dollars)
- --------------------------------------------------------------------------------
8. SHARE CAPITAL (CONTINUED):
(e) Warrants:
During the year ended March 31, 1995, the Company, in connection with
private placements of common stock, issued warrants to purchase 483,457
shares of common stock at U$3.50 per share if exercised by October 1995
and at U$4.03 per share if exercised thereafter to October 1996. Of
these warrants, 60,000 were exercised during 1996 and the balance
expired.
During the nine months ended December 31, 1995, the Company, in
connection with a private placement, issued warrants to purchase
211,500 shares of common stock at U$5.10 per share if exercised by June
1995 and U$5.87 if exercised thereafter to June 1996. These warrants
expired during the year. In addition, the Company, in connection with a
number of private placements of common stock, issued warrants to
purchase up to 204,878 shares of common stock at prices of between
U$1.28 and U$1.47 per share if exercised by August 1996 and U$1.47 and
U$1.69 if exercised thereafter to August 1997. Of these warrants,
37,878 were exercised during 1996 and 167,000 remain outstanding.
During the year ended December 31, 1996, the Company, issued warrants
to purchase 97,500 shares of common stock at U$1.11 per share if
exercised by November 1996 and U$1.28 if exercised thereafter to
November 1997. In addition, the Company issued 461,203 warrants
attached to convertible promissory notes at prices ranging from U$1.49
to U$3.25 per share if exercised by dates ranging from December 19,
1997 to May, 7 1998. None of these warrants had been exercised at
December 31, 1996; subsequent to year end, 20,134 of these warrants
were exercised at $1.49 per share.
In addition, pursuant to the Bridge Financing (note 7), 166,667 share
purchase warrants exercisable at U $3.30 per share to May 31, 1997 are
issuable. The warrants have been recorded at their estimated fair value
of $250,000. At December 31, 1996, no warrants have been exercised.
(f) Shares issued on settlement of debt:
During the period ended December 31, 1995, the Company entered into
agreements to issue 1,256,561 shares of common stock at their estimated
fair value of $2.00 per share to settle outstanding liabilities
aggregating $2,513,121. As the agreements were entered into prior to
December 31, 1995, these settlements have been recorded in that period.
The Company has further agreed to issue an additional 53,675 shares of
common stock at their estimated fair value of $2.00 per share to settle
additional outstanding liabilities aggregating $107,350. These
issuances are subject to regulatory approval.
F-16
PORTACOM WIRELESS, INC.
Notes to Consolidated Financial Statements, page 11
(expressed in U.S. dollars)
- --------------------------------------------------------------------------------
8. SHARE CAPITAL (CONTINUED):
(g) Shares to be issued for loans:
In connection with the issuance of certain short-term debt by the
Company in January 1995 and May 1996, the Company agreed to issue,
subject to regulatory approval, 85,590 shares of common stock and
166,667 share purchase warrants, exercisable at $3.30 per share until
May 31, 1997. During the current period, regulatory approval was
received for the issuance of 25,833 of these shares which were then
issued by the Company. At December 31, 1996, the issuance of the
remaining 59,757 shares and 166,667 warrants continued to be subject to
receipt of regulatory approval. Subsequent to December 31, 1996,
regulatory approval was received for the issuance of 42,757 shares
which were then issued by the Company. The fair value of the shares
issuable are recognized as the Company becomes liable to meet the
obligations.
9. CONTINGENT LIABILITY:
During the year ended December 31, 1996, the Company emigrated from Canada
as discussed in note 1. Subject to final determination by the income tax
authorities in Canada, no tax liability arose on the emigration, and no
income tax liability is currently outstanding in Canada.
The Company has loss carry forwards in the United States of approximately
$9,000,000 available to 2011. The potential benefit of these losses of
approximately $3,600,000 has been fully offset by a valuation reserve.
Accordingly, the accompanying consolidated financial statements reflect no
provision for income taxes.
10. RELATED PARTY TRANSACTIONS:
Related party transactions not disclosed elsewhere in these consolidated
financial statements include:
(a) Included in accounts payable at December 31, 1996 is approximately
$24,000 (December 31, 1995 - $25,000) owing to related parties.
(b) Management and consulting fees have predominantly been charged by
related parties.
(c) Included in bad debts expense for the year ended December 31, 1996 is
$nil (period ended December 31, 1995 - $21,386; year ended March 31,
1995 -$227,000) recorded as provisions against employee loans.
(d) The Company has reimbursed expenses incurred by directors and officers
on its behalf during the periods presented.
(e) In addition to amounts included in consulting paid to a director,
expenses of approximately $50,000 are included in various other accounts
for the year ended December 31, 1996 (nine months ended December 31,
1995 and year ended March 31, 1995 - $nil).
(f) The write-down of promissory notes receivable and investment for the
year ended December 31, 1996 of $1,046,710, represents a write-down of
notes receivable and investment in TAI aggregating $ 581,710 (note 5(c))
and a write-down of other promissory notes receivable from a related
party aggregating $ 465,000.
F-17
PORTACOM WIRELESS, INC.
Notes to Consolidated Financial Statements, page 12
(expressed in U.S. dollars)
- --------------------------------------------------------------------------------
11. CONSOLIDATED STATEMENTS OF CASH FLOWS:
During the periods presented the Company has entered into non-cash
financing and investing transactions which are not disclosed in the
consolidated statements of cash flows. For each of the periods presented
these are as follows:
(a) in the year ended December 31, 1996, the Company issued common stock as
consideration for financing costs on loans payable, in settlement of
debt and on conversion of promissory notes, all in the amounts as set
out in note 8(b);
(b) in the nine months ended December 31, 1995, the Company issued 1,256,559
common stock having an assigned value of $2,513,121 in settlement of
indebtedness in an equivalent amount; and
(c) in the year ended March 31, 1995, the Company issued common stock as a
finder's fee related to the issuance of free-trading shares for cash
consideration.
12. CONCENTRATIONS OF CREDIT RISK:
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist primarily of cash equivalents. The
Company maintains cash equivalents with various financial institutions.
These financial institutions are located in Canada and the United States.
The Company's policy is to limit the exposure at any one financial
institution and to invest solely in highly liquid investments that are
readily convertible to contracted amounts of cash.
F-18
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
--------
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
IDENTIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS
- --------------------------------------------------
The following table identifies all of the current directors and executive
officers of the Registrant and its subsidiaries. Directors serve until the next
annual meeting or until their successors are elected and qualified. Officers
serve at the discretion of the Board of Directors.
NAME AGE POSITION
- ---- --- --------
Douglas C. MacLellan 41 President, Chief Executive Officer and
Director of the Registrant
Stephen M. Leahy 40 Secretary and Director of the Registrant
Morris J. Magid 64 Treasurer of the Registrant; Director and
Secretary of PCBX, Telecom and
Laboratories
Michael A. Richard 28 Vice President, Accounting of the
Registrant, and Secretary, Treasurer and a
Director of PIL
R. Keith Alexander 66 Director
Robert G. Flitton 34 Director
Howard B. Frantom 62 Director
Keith A.J. Hay 59 Director
Stephen O. Stephens 66 Director
Paul Robert Carr 53 Vice President, Asia-Pacific
Thomas P. Scichili 37 Vice President, General Counsel
Thomas P. Madden 39 Vice President, Investor Relations
DOUGLAS C. MACLELLAN
--------------------
Mr. MacLellan has been President, Chief Executive Officer and Director of
the Registrant since November 1995. Mr. MacLellan expends a majority of his
professional time on behalf of the Registrant. Mr. MacLellan is a founder of
PWC (see "Item 13. Certain Relationships and Related Transactions"), and has
been President of PWC since July, 1995. From 1992 to the present Mr. MacLellan
has been President of The MacLellan Group, Inc., a consulting firm providing a
broad range of financial and management advisory services. From 1993 to 1995,
Mr. MacLellan was a principal and co-founder of Maroon Bells Capital Partners,
Inc., a merchant banking firm which specializes in providing corporate finance
services to companies in the international and domestic telecommunications and
media industries. From 1989 to 1992 Mr. MacLellan was Vice President (1989 to
1990) and President (1991 to 1992) of American Business Ventures, Inc., a
venture capital, management consulting, and mergers and acquisition firm.
Mr. MacLellan currently is a member of the board of directors and co-
founder of InterAmericas Communications Corporation, a public reporting
international telecommunications company which operates a competitive access
fiber and satellite network in Latin America, and serves as a director of AMDL,
Inc., a publicly held development stage biotechnology firm. Mr. MacLellan was
educated at the University of Southern California in economics and finance, with
advanced training in classical economic theory.
PAUL ROBERT CARR
----------------
Mr. Carr has been Vice President, Asia-Pacific of the Registrant since
April, 1996 and has served in a business development position since June, 1995.
Mr. Carr is also managing director of ACT. From April, 1992 to 1995, Mr. Carr
was a self employed consultant in the real estate industry. From 1988 to 1992,
Mr. Carr was Senior Real Estate Coordinator and Civil Manager for Los Angeles
Cellular Telephone Company. Mr. Carr holds a JD degree from Oakland State
College, Flint, Michigan.
STEPHEN M. LEAHY
----------------
Mr. Leahy is the Secretary of the Registrant, and has been a director since
September 1991. Mr. Leahy has been President and a director of Delpet Resources,
Ltd. since May, 1985 and is presently its Chairman. He has also been President
and a director of North American Tungsten Corporation since June, 1995, of
First Silver Reserve, Ltd. since June, 1988 and of United Sartis Enterprises,
Inc. since January, 1993.
THOMAS P. MADDEN
----------------
Mr. Madden has been Vice President-Investor Relations of the Registrant
since September 1995. Since February, 1992, Mr. Madden has been an Investor
Relations Consultant as President of Madden Consulting.
MORRIS J. MAGID
---------------
Mr. Magid has been Treasurer of the Registrant since November 1995 and is
also a director of PCBX Systems, Telecom, and Laboratories. Mr. Magid is an
active investor and real estate developer with extensive experience in the
pharmaceutical industry.
MICHAEL A. RICHARD
------------------
Mr. Richard has been the Vice President, Accounting of the Registrant
since October 1996 and has been with the Company since 1991, serving as its
Controller (1995 to 1996) and as an Accounting Manager for PCBX, Telecom and PIL
(1991 to 1995). He has also served as Treasurer (1994 to present), Secretary
(1996 to present) and as a Director of PIL (1996 to present).
THOMAS P. SCICHILI
------------------
Mr. Scichili was appointed Vice President, General Counsel of the
Registrant in March, 1997. Mr. Scichili has been an attorney in private practice
since 1990 emphasizing business and corporate law and financial planning. From
1987 to 1990, Mr. Scichili held various positions at REFCO, Inc. and REFCO, S.A.
R. KEITH ALEXANDER
------------------
Mr. Alexander has been a Director of the Registrant since June, 1996. From
1992 to 1996 he was an independent financial consultant. From 1984 to 1992 he
was a Vice President of RBC Dominion Securities Ltd. He was a director of the
Investment Dealers Association of Alberta from 1977-1985 and Governor of the
Alberta Stock Exchange from 1980-1981.
ROBERT G. FLITTON
-----------------
Mr. Flitton has been a Director of the Registrant since February, 1996.
Mr. Flitton has been a partner in Flitton Industries since July, 1992, where he
specializes in acquisitions, financing arrangements, development approvals and
troubleshooting for large residential and commercial projects in British
Columbia, Washington and Colorado.
HOWARD B. FRANTOM
-----------------
Mr. Frantom has been a director of the Company since June, 1996 and served
as its Chief Technical Officer from June, 1996 to November, 1996. He was the
Company's Chairman of the
Board and Chief Operating Officer from November, 1995 until June, 1996 and the
Chief Executive Officer from June, 1995 to November, 1995. Mr. Frantom was
President and Chief Executive Officer of PIL from March, 1994 to November, 1996.
From 1992 to 1994, Mr. Frantom was President and CEO of PCBX. From 1990 to 1992,
Mr. Frantom was President of Worldwide Cellular & Telecommunications Company,
which contracted for the engineering and operations of a cellular system in
Mexico. From 1988 to 1990, Mr. Frantom served as acting President and Vice
President of Engineering and Operations (chief engineer) of Los Angeles Cellular
Telephone Company.
KEITH A.J. HAY
--------------
Mr. Hay has been a Director of the Registrant since November, 1995. Since
1978 Mr. Hay has been President of Econolynx International Ltd. of Ottawa,
Ontario, a consulting firm. He has been a Professor of Economics at Carleton
University, Ottawa, since 1975, and a consultant to several Canadian government
departments, multinational corporations and banks. Presently, Mr. Hay is
advisor to the World Bank on economic reform in Guyana and to the Canadian
International Development Agency on development policy in Southern Africa. He
is also the principal consultant to the Canadian Association of Power Systems
Exporters on export marketing of hydro electric power machinery and equipment.
STEPHEN O. STEPHENS
-------------------
Mr. Stephens has been a Director of the Registrant since August, 1995.
Since 1969 Mr. Stephens has been President of Stephens International, Ltd., a
diversified investment company. From 1993 to 1995 Mr. Stephens served as
assistant to the Chairman of the Board of Stephens Group, from 1986 to 1995 he
served as director of corporate communications for Stephens Inc. and from 1993
to 1995 he served as President of Stephens Entertainment, Inc.
SECTION 16(A) REPORTS
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and any persons who own more than 10% of a
registered class of the Company's equity securities to file with the Securities
and Exchange Commission reports of ownership and changes in ownership of Common
Stock and other equity securities of the Company. Officers, directors and
greater than 10% shareholders are required by Securities and Exchange Commission
regulation to furnish the Company with copies of all Section 16(a) forms they
file. Based on the fact that the Company has not received any such filings, the
Company believes that, during the period covered by this report, none of the
filing requirements applicable to its officers, directors and greater than 10%
beneficial owners were complied with. The Company intends to implement a
program to enhance compliance by directors and officers with future 16(a)
reporting obligations, which will be under the supervision of the Company's Vice
President, Accounting.
ITEM 11. EXECUTIVE COMPENSATION
The following table discloses, for the fiscal years ended December 31,
1996, 1995 and 1994, individual compensation information relating to the
Company's Chief Executive Officers serving during the period. No other
executive officers earned more than $100,000.
Summary Compensation Table
==================================================================================================================================
Annual Compensation Long-Term Compensation
------------------- -----------------------------------
Awards Payouts
- ----------------------------------------------------------------------------------------------------------------------------------
All Other
Name and Other Securities Compen-
Principal Annual Restricted Underlying sation ($)
Position of Fiscal Compen- Stock Options/ LTIP
Executive Year or Salary Bonus sation Awards SARS Payouts
Officer Transition ($) ($) ($) ($) (#) ($)
Period
Ending
- ----------------------------------------------------------------------------------------------------------------------------------
Howard B. (1) Frantom, Past Dec 31,
Chief Operating Officer of 1996 138,306 nil nil nil nil nil nil
the Registrant, Past
President of PIL, Past Dec. 31,
Chief Executive Officer of 1995 115,200 nil nil nil nil nil nil
the Registrant, Director of
the Registrant March 31,
1995 120,000 nil nil nil nil nil nil
March 31,
1994 120,000 nil nil nil nil nil nil
March 31,
1993 120,000 nil nil nil nil nil nil
Douglas C. MacLellan, Dec 31,
President and CEO of the 1996 168,000 nil 30,000 nil 200,000 nil nil
Registrant (2)
Dec 31,
1995 28,000 nil nil nil nil nil nil
==================================================================================================================================
(1) Mr. Frantom served as Chief Executive Officer from June 1995 to
November 1995.
(2) Mr. MacLellan has served as Chief Executive Officer from November 1995.
The terms and conditions of the employment contracts or arrangements with the
above mentioned executive officers are as follows:
No LTIP has been instituted by the Company and none are proposed at this
time. Accordingly, there is no LTIP Awards Table set out in this Annual Report.
No pension plans or retirement benefit plans have been instituted by the
Company and none are proposed at this time. Accordingly, there is no Pension
Plan Table set out in this Annual Report.
The Company currently has a Compensation Committee comprised of Messrs.
Hay, Leahy and Stephens. The directors of the Company and its Compensation
Committee do not have any specific policies for determining compensation of
executive officers. Rather, the Company has historically determined executive
compensation based on salaries paid to comparable executives in similar
companies. The Compensation Committee met once in the fiscal year ended
December 31, 1996 to consider and recommend stock option grants to Messrs. Leahy
and MacLellan. It is expected that the Company's Compensation Committee will
meet in Fiscal 1997 to formulate more detailed policies with respect to officer
compensation.
Although the Company has no contractual bonus arrangements, bonuses are
granted at the discretion of management.
On June 19, 1992, PCBX Systems entered into an employment agreement (the
"Employment Agreement") with Howard B. Frantom, whereby he was to be employed as
its President and Chief Executive Officer for a term of five years. In addition
to his salary, Mr. Frantom received 250,000 "Performance Shares" of the
Registrant for $.01 per share (which were subsequently canceled), and stock
options to purchase 250,000 additional shares of the Registrant at C$1.25 per
share. In April, 1994 the terms of the Agreement were incorporated into a new
Agreement whereby Mr. Frantom became employed by PIL, a subsidiary of the
Company. The term of employment was extended to 1999. Effective July 26, 1996,
Mr. Frantom's employment agreement was terminated by mutual agreement, although
Mr. Frantom continued to be employed by the Registrant and received a salary
until November 1996.
In January, 1997, the Registrant entered into an employment agreement with
Douglas C. MacLellan , whereby he is to be employed as its President and Chief
Executive Officer on a month to month basis, and, subject to the approval of the
Vancouver Stock Exchange, shall be paid a base salary of $192,000 per annum plus
reimbursement of expenses. Additionally, in the event it is permissible to do so
without receiving approval of the Vancouver Stock Exchange, Mr. MacLellan is to
be paid compensation equivalent to four month's salary in the event that his
employment is terminated by the Company. In November 1995, the Registrant had
entered into a verbal employment agreement with Mr. MacLellan whereby he was
employed under similar terms to those in the January, 1997 agreement except that
the base salary to be paid was $168,000 per annum and there was no provision for
additional compensation upon termination.
GRANTS OF STOCK OPTIONS
The following table provides the specified information concerning grants of
options to purchase the Company's Common Stock made during the fiscal year ended
December 31, 1996 to the persons named in the Summary Compensation Table.
- -------------------------------------------------------------------------------------------------
INDIVIDUAL GRANTS POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES OF
STOCK PRICE APPRECIATION
FOR OPTION TERM
- -------------------------------------------------------------------------------------------------
Number of Percent of
Name securities total Exercise Expiration 5% ($) 10% ($)
underlying options/ or base date
Options/SARs SARs price ($/
granted (#) granted to Sh)
employees
in fiscal
year
- ----------------------------------------------------------------------------------------------
Douglas 200,000 23.00 2.68 12/30/01 $116,000 $286,000
MacLellan
- ----------------------------------------------------------------------------------------------
(1) Stock options exercisable into 852,899 shares of the Company's common stock
were granted to certain directors, senior officers, and employees of the
Company during the fiscal year ended December 31, 1996.
(2) Pursuant to the policies of the Vancouver Stock Exchange, incentive stock
options were granted at the average market price per share of the Company's
common stock for the ten trading days prior to the date of issuance.
(3) The dollar amounts under the potential realizable values columns use the 5%
and 10% rates of appreciation permitted by the SEC, and are not intended to
forecast actual future appreciation in the stock price. Actual gains, if
any, on stock option exercises are dependent on the future performance of
the Company's common stock. There can be no assurance that the amounts
reflected in this table will be achieved. The assumed rates are compounded
annually to the full five-year term of the options.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES TABLE
The following table shows information regarding the exercise of stock
options during the 1996 by the named executive officers and the number and value
of any unexercised stock options held by them as of December 31, 1996:
- --------------------------------------------------------------------------------------
Number of
securities Value of
underlying unexercised in-
unexercised the- money
options/SARs options/SARs at
fiscal year end fiscal year end
(#) ($)
-------------------------------------------
Name
Shares Value Exercisable/ Exercisable/
acquired on Realized unexercisable unexercisable
exercise (#) ($)
(a)
(b) (c) (d) (e)
- ---------------------------------------------------------------------------------------
Howard Frantom 0 0 250,000/0 $692,500(1)
- ---------------------------------------------------------------------------------------
Douglas MacLellan 0 0 200,000/0 $204,000(1)
- ---------------------------------------------------------------------------------------
(1) The value of the options is calculated based upon the market price
of the Company's Common Stock as of December 31, 1995 of $3.70
(C$5.00) per share, as reported by the Vancouver Stock Exchange.
DIRECTORS FEES
The Company does not pay independent directors who attend a regularly
scheduled or special meeting of its Board of Directors. None of the directors
of the Company were compensated by the Company or its subsidiaries during the
most recently completed financial year for their services in their capacity as
directors. Messrs. Hay and Stephens were each paid consulting fees of $2,500
per month for their services as consultants or experts independent of their
attendance at meetings of the Company's Board of Directors. Furthermore, Mr.
Leahy owns 50% of Mustang Management Ltd., which received approximately $35,000
for management and administrative services during 1996.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
For the fiscal year ended December 31, 1996, Messrs. Hay, Leahy and
Stephens, all of whom are also directors of the Company, were the members of the
Company's compensation committee. Mr. Leahy is also the Secretary of the
Company.
During the fiscal year ended December 31, 1996, Mr. Leahy was granted
90,000 incentive stock options at an exercise price of $2.68 and expiring
December 30, 2001. Mr. Leahy abstained from voting on the approval of such
options to himself.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of January 31, 1997, information
with respect to the securities holdings of all persons which the Registrant has
reason to believe may be deemed the beneficial owners of more than 5% of the
Registrant's outstanding Common Stock. The following table indicates the
beneficial ownership of such individuals numerically calculated based upon the
total number of shares of Common Stock outstanding. Also set forth in the table
is the beneficial ownership of all shares of the Registrant's outstanding stock,
as of such date, of all directors and named executive officers, individually,
and all directors and executive officers as a group.
Name and Address of Amount and Nature % of
Beneficial Owner of Beneficial Ownership Ownership
- ----------------- ----------------------- ---------
R. Keith Alexander 90,100 (1) *
North Bolero Bend
Rio Verde, AZ 85263
Robert G. Flitton 45,000 (2) *
1 St. Andres Ct.
Pueblo, CO 81001
Howard Frantom 285,297 (3) 2.1%
31112 Allview Drive
Running Springs, CA 92382
Keith A.J. Hay 90,000 (4) *
7 Briggs Avenue
Nepean, ON K2E 6W2
Stephen Leahy 107,100 (5) *
1055 W. Hastings St., Ste. 1010
Vancouver, BC V6E 2E9
Douglas C. MacLellan 208,000 (6) 1.6%
224 Redlands St.
Playa del Rey, CA 90293
Morris J. Magid 1,046,028 (7) 8.0%
1054 N. Selby Avenue
Los Angeles, CA 90024
Michael Marcus 963,160 (8) 7.3%
300 South 4th. Street
Suite 1100
Las Vegas, NV 89101
Stephen O. Stephens 90,000 (9) *
700 East Ninth St., Suite 11-L
Little Rock, AR 72202
All Directors and Executive 2,233,025 (10) 15.6%
Officers as a group (11 persons)
_______________________
(1) Includes options to purchase 90,000 shares of common stock of the
Registrant, which are exercisable within sixty days.
(2) Includes options to purchase 33,750 shares of common stock of the
Registrant, which are exercisable within sixty days.
(3) Includes options to purchase 250,000 shares of common stock of the
Registrant, which are exercisable within sixty days.
(4) Comprised of options to purchase 90,000 shares of common stock of the
Registrant, which are exercisable within sixty days.
(5) Includes options to purchase 90,000 shares of common stock of the
Registrant, which are exercisable within sixty days.
(6) Includes options to purchase 200,000 shares of common stock of the
Registrant, which are exercisable within sixty days.
(7) Includes 384,928 shares held by 380144 B.C. Ltd., a British Columbia
corporation owned 60% by Morris Magid and 40% by Marvin Magid. Morris
and Marvin Magid are brothers. Includes options to purchase 67,433
shares of common stock of the Registrant, which are exercisable within
sixty days.
(8) Includes options to purchase 45,000 shares of common stock of the
Registrant, which are exercisable within sixty days. Includes warrants
to purchase 459,080 shares of common stock of the Registrant purchased
in private placement transactions.
(9) Comprised of options to purchase 90,000 shares of common stock of the
Registrant, which are exercisable within sixty days.
(10) Includes options or warrants to purchase 1,181,183 shares of common
stock of the Company, which are exercisable within sixty days.
* Less than 1%.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
1. MAC Transaction
---------------
Douglas C. MacLellan owns 500,000 shares of MAC. See "Item 1:
Business; Business of PortaCom Wireless, Inc.; Metromedia Asia Corporation."
2. Acquisition of PWC
------------------
Pursuant to an agreement dated November 3, 1995 (the "PWC Agreement"),
the Registrant agreed to acquire PortaCom Wireless Communications, Inc., a
Delaware corporation, in exchange for shares of the Registrant's common stock.
Of the shareholders of PWC, Douglas C. MacLellan, the President and a director
of the Registrant, was to receive 682,000 shares, Stephen O. Stephens, a
director of the Registrant , was to receive 136,400 shares, J. Michael
Christianson, the former Chief Financial Officer of the Registrant, was to
receive 341,000, and PJL Communications, Inc., was to receive 409,200 shares. On
July 18, 1996, the Registrant terminated the acquisition of PWC as it had not
yet received regulatory approval. The Registrant has determined, however, that
it will issue shares of its common stock to Messrs. MacLellan and Stephens and
to PJL, in the same amounts as previously provided in the PWC Agreement, in the
event it is permissible to do so without receiving approval of the Vancouver
Stock Exchange.
3. PortaCom International, Ltd.
---------------------------
Asia Telecom, Inc., which owns 10% of TAI, is owned 100% by Howard
Frantom's spouse, Vera Frantom.
4. Funds Advanced and Repaid
-------------------------
On or about February 24, 1993, the Registrant repaid advances to
Morris Magid ($384,000) and Marvin Magid ($57,000), brothers of Robert Magid.
During 1993, the Registrant also used part of the net proceeds from the public
offering to repay a loan from Robert Alexander ($30,000 (Cdn)). Such advances
and loans were made to provide working capital to the Company until additional
equity capital was obtained. On or about July 28, Morris Magid provided a
$300,000 line of credit available to the Company for a sixty day period to be
used as a bridge loan until a private placement of Common Stock could be
completed. As of March 31, 1995, $140,000 remained outstanding under this line
of credit. On July 21, 1995, at Mr. Magid's request, the Company applied the
amount due, plus interest of approximately $10,000, towards the payment due to
the Company by Mr. Magid pursuant to the exercise of 168,000 options at C$1.25
per share. In January 1994, a company controlled by Mr. Magid pledged 1,128,415
shares of common stock to guarantee a loan for the benefit of the Company. In
connection with such advances and loans, the Company agreed, subject to
regulatory approval, to issue a total of 42,757 bonus shares to Mr. Magid. As
of the date of this report, regulatory approval for the issuance of 42,757
shares had been received and the Company had issued the shares.
5. Compensatory shares pursuant to cancellation of performance shares
------------------------------------------------------------------
As compensation for the agreement by Messrs. Morris Magid, Robert
Alexander and Howard Frantom to surrender their 5,950,000 performance shares
which were held under an escrow agreement, the Registrant has agreed to issue,
at a deemed price of $2.00 per share, 43,516 common shares, 271,245 common
shares and 1 common share each to Mr. Magid, Mr. Alexander, and Mr. Frantom,
respectively. As of the date of this filing, none of the aforementioned shares
have been issued. The Registrant does not expect to issue any of the
compensatory shares while it remains subject to the jurisdiction of the
Vancouver Stock Exchange and the British Columbia Securities Commission.
ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following Exhibits are filed as part of this Report:
Exhibit Description
No.
3.1 Certificate of Incorporation of the Registrant /(1)/
3.2 Amendment to Certificate of Incorporation dated May 1, 1990/(2)/
3.3 Amendment to Certificate of Incorporation dated September 10, 1991/
(3)/
3.4 Amendment to Certificate of Incorporation dated November 1, 1994/(4)/
3.5 Amendment to Certificate of Incorporation dated December 5, 1995/(5)/
3.6 Amended and Restated Certificate of Incorporation dated December 10,
1996*
3.7 By-Laws of the Registrant *
4.1 Specimen Stock Certificate *
4.2 Form of Escrow Agreement dated September 30, 1991 /(6)/
4.3 Form of Escrow Agreement dated June 30, 1992 /(7)/
10.1 Employment Agreement between PIL and Howard B. Frantom /(8)/
10.2 Acquisition Agreement and Plan of Reorganization between the Registrant
and Asian American Telecommunications Corporation ("AAT")/(9)/
10.3 Form of First Amendment to Acquisition Agreement and Plan of
Reorganization between the Registrant and Asian American
Telecommunications Corporation ("AAT")/(10)/
10.4 Second Amendment to Acquisition Agreement and Plan of Reorganization
between the Registrant and Asian American Telecommunications
Corporation ("AAT")/(11)/
10.5 Participation Agreement between Hoang Ly Huu, Sonny Luu, CMC
International, Inc., Asia Telecom, Inc., and the Registrant /(12)/
10.6 Stock Purchase Agreement between the Registrant, PortaCom
International, Ltd., and Asia Telecom, Inc., Franklin A. Vincent, Jr.,
and Donald E. Thompson and Victoria L. Thompson /(13)/
10.7 Form of Agreement For Cancellation of Stock Purchase Agreement between
the Registrant, PortaCom International, Ltd., and Asia Telecom, Inc.,
Franklin A. Vincent, Jr., and Donald E. Thompson and Victoria L.
Thompson /(14)/
10.8 Agreement For Cancellation of Performance Shares between the Registrant
and Morris J. Magid, Robert B. Alexander, and Howard B. Frantom /(15)/
10.9 Form of Stock Purchase Agreement between the Registrant and Stephen O.
Stephens, Douglas C. MacLellan, J. Michael Christiansen, PJL
Communications, Inc., and PortaCom Wireless Communications, Inc./(16)/
10.10 Separation and Consulting Agreement between the Registrant and Francis
T. Phalen /(17)/
10.11 Letter of Agreement Regarding Employment between the Registrant and
Scott A. Mednick /(18)/
10.12 Restructuring and Settlement Agreement between the Registrant and Scott
A. Mednick and Associates, Inc. (dba The Mednick Group)/(19)/
10.13 Amendment to Restructuring and Settlement Agreement between the
Registrant and Scott A. Mednick and Associates, Inc. (dba The Mednick
Group)/(20)/
10.14 Restructuring and Settlement Agreement between the Registrant and Scott
A. Mednick /(21)/
10.15 Amendment to Restructuring and Settlement Agreement between the
Registrant and Scott A. Mednick /(22)/
10.16 Engagement Letter between the Registrant and Rozel International
Holdings Ltd./(23)/
10.17 Stock Option Agreement between the Registrant and Keith A.J. Hay /(24)/
10.18 Stock Option Agreement between the Registrant and Robert Flitton /(25)/
10.19 Stock Option Agreement between the Registrant and Stephen O. Stephens
/(26)/
10.20 Agreement between the Registrant and Howard B. Frantom acknowledging
cancellation of Employment Agreement/(27)/
10.21 Agreement between the Registrant, PIL, and certain shareholders of TAI
to cancel the Stock Purchase Agreement dated as of October 31,
1995/(28)/
10.22 Form of Second Amendment to Acquisition Agreement and Plan of
Reorganization between the Registrant and Asian American
Telecommunications Corporation./(29)/
10.23 Form of Termination Agreement between the Registrant and Asian American
Telecommunications Corporation/(30)/
10.24 Form of Employment Agreement between the Registrant and Douglas C.
MacLellan *
10.25 Form of Employment Agreement between the Registrant and Michael A.
Richard *
10.26 Joint Venture Agreement for the Establishment of a Joint Venture
Enterprise for a CDMA Based Telecommunications System in the Kingdom of
Cambodia *
10.27 License for the Provision and Operation of a CDMA Based
Telecommunications System Within the Kingdom of Cambodia *
10.28 Stock Option Agreement between the Registrant and R. Keith Alexander *
10.29 Stock Option Agreement between the Registrant and Douglas C. MacLellan
*
10.30 Stock Option Agreement between the Registrant and Stephen M. Leahy *
10.31 Employment Agreement between the Registrant and Thomas P. Scichili. A
verbal agreement was entered into between the Registrant and Thomas P.
Scichili whereby the Registrant agreed to pay Mr. Scichili a salary of
up to $8,000 per month on a month-to-month basis, plus reimbursement of
reasonable expenses, terminable mutually at will, to serve as the
Registrant's Vice President-General Counsel.
10.32 Employment Agreement between the Registrant and Paul Robert Carr. A
verbal agreement was entered into in March 1997 between the Registrant
and Paul Robert Carr whereby the Registrant agreed to pay Mr. Carr a
salary of $6,000 per month on a month-to-month basis, plus
reimbursement of reasonable expenses, terminable mutually at will, to
serve as the Registrant's Vice President-Asia Pacific.
10.33 Employment Agreement between the Registrant and Thomas P. Madden. A
verbal agreement was entered into in March 1997 between the Registrant
and Thomas P. Madden whereby the Registrant agreed to pay Mr. Madden a
salary of $6,000 per month on a month-to-month basis, plus
reimbursement of reasonable expenses, terminable mutually at will, to
serve as the Registrant's Vice President-Investor Relations.
21 Subsidiaries of the Registrant*
27 Financial Data Schedule*
* Filed herewith
(1)Incorporated by reference to Exhibit 3.1 to Form 10-SB filed with the
Securities and Exchange Commission on January 18, 1994 (the "Form 10-SB").
(2)Incorporated by reference to Exhibit 3.3 to Amendment #1 to Form 10-SB filed
with the Securities and Exchange Commission on September 8, 1994 (the
"Amendment #1 to Form 10-SB").
(3)Incorporated by reference to Exhibit 3.4 to Amendment #1 to Form 10-
SB.
(4)Incorporated by reference to Exhibit 3.4 to Form 10-KSB for the
fiscal year ended March 31, 1995.
(5)Incorporated by reference to Exhibit 3.5 to Form 10-KSB for the
fiscal year ended March 31, 1995.
(6)Incorporated by reference to Exhibit 4.5 to Form 10-SB.
(7)Incorporated by reference to Exhibit 4.6 to Form 10-SB.
(8)Incorporated by reference to Exhibit 10.3 to Amendment #1 to Form
10-SB.
(9)Incorporated by reference to Exhibit 10.2 to Form 10-KSB for the
fiscal year ended March 31, 1995.
(10)Incorporated by reference to Exhibit 10.3 to Form 10-KSB for the
fiscal year ended March 31, 1995.
(11)Incorporated by reference to Exhibit 10.4 to Form 10-KSB for the
fiscal year ended March 31, 1995.
(12)Incorporated by reference to Exhibit 10.5 to Form 10-KSB for the
fiscal year ended March 31, 1995.
(13)Incorporated by reference to Exhibit 10.6 to Form 10-KSB for the
fiscal year ended March 31, 1995.
(14)Incorporated by reference to Exhibit 10.7 to Form 10-KSB for the
fiscal year ended March 31, 1995.
(15)Incorporated by reference to Exhibit 10.8 to Form 10-KSB for the
fiscal year ended March 31, 1995.
(16)Incorporated by reference to Exhibit 10.9 to Form 10-KSB for the
fiscal year ended March 31, 1995.
(17)Incorporated by reference to Exhibit 10.10 to Form 10-KSB for the
fiscal year ended March 31, 1995.
(18)Incorporated by reference to Exhibit 10.11 to Form 10-KSB for the
fiscal year ended March 31, 1995.
(19)Incorporated by reference to Exhibit 10.12 to Form 10-KSB for the
fiscal year ended March 31, 1995.
(20)Incorporated by reference to Exhibit 10.13 to Form 10-KSB for the
fiscal year ended March 31, 1995.
(21)Incorporated by reference to Exhibit 10.14 to Form 10-KSB for the
fiscal year ended March 31, 1995.
(22)Incorporated by reference to Exhibit 10.15 to Form 10-KSB for the
fiscal year ended March 31, 1995.
(23)Incorporated by reference to Exhibit 10.16 to Form 10-KSB for the
fiscal year ended March 31, 1995.
(24)Incorporated by reference to Exhibit 10.17 to Form 10-KSB for the
fiscal year ended March 31, 1995.
(25)Incorporated by reference to Exhibit 10.18 to Form 10-KSB for the
fiscal year ended March 31, 1995.
(26)Incorporated by reference to Exhibit 10.19 to Form 10-KSB for the
fiscal year ended March 31, 1995.
(27)Incorporated by reference to Exhibit 10.20 to Form 10-KSB for the
fiscal year ended March 31, 1995.
(28)Incorporated by reference to Exhibit 10.21 to Form 10-KSB for the
fiscal year ended March 31, 1995.
(29)Incorporated by reference to Exhibit 10.01 to Form 10-QSB for the
quarter and nine months ended September 30, 1996.
(30)Incorporated by reference to Exhibit 10.02 to Form 10-QSB for the
quarter and nine months ended September 30, 1996.
(b) Reports on Form 8-K:
The following reports on Form 8-K were filed during the last quarter
of the period covered by this Report:
Date of Report Subject Matter
-------------- --------------
5/21/96 $20 million private placement of special warrants
9/20/96 Change of name
9/20/96 Change of fiscal year end
9/20/96 Unaudited financial statements for the nine months ended
September 30, 1996
10/22/96 Unaudited financial statements for the nine months ended
September 30, 1996
10/24/96 Unaudited financial statements for the nine months ended
September 30, 1996, as corrected
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange
Act of 1934, the Registrant has duly caused this report on Form 10-K for the
fiscal year ended December 31, 1996 to be signed on its behalf by the
undersigned, thereunto duly authorized, in Playa del Rey, California, on March
27, 1997.
PORTACOM WIRELESS, INC.
By: /s/ Douglas C. MacLellan
-------------------------------------
Douglas C. MacLellan
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report on Form 10-K for the fiscal year ended December 31, 1996 has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Douglas C. MacLellan Director, President and March 27, 1997
- --------------------------- Chief Executive Officer
Douglas C. MacLellan
/s/ Michael A. Richard Vice President, Accounting March 26, 1997
- --------------------------- (principal financial officer)
Michael A. Richard
/s/ R. Keith Alexander Director March 26, 1997
- ---------------------------
R. Keith Alexander
Director March , 1997
- --------------------------- --
Robert G. Flitton
Director March , 1997
- --------------------------- --
Howard B. Frantom
/s/ Keith A.J. Hay Director March 26, 1997
- ---------------------------
Keith A.J. Hay
/s/ Stephen M. Leahy
- --------------------------- Secretary and Director March 26, 1997
Stephen M. Leahy
/s/ Stephen O. Stephens
- --------------------------- Director March 26, 1997
Stephen O. Stephens