UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-27024
METRO ONE TELECOMMUNICATIONS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
OREGON 93-0995165
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
11200 MURRAY SCHOLLS PLACE, BEAVERTON, OREGON 97007
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(503) 643-9500
(ISSUER'S TELEPHONE NUMBER)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT HAS (1) FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO
--- ---
NUMBER OF SHARES OF COMMON STOCK OUTSTANDING AS OF OCTOBER 15, 1999: 11,409,877
SHARES, NO PAR VALUE PER SHARE
METRO ONE TELECOMMUNICATIONS, INC.
INDEX TO FORM 10-Q
PART I FINANCIAL INFORMATION PAGE NO.
Item 1. Financial Statements
Condensed Statements of Operations (Unaudited)
for the three and nine months ended September 30, 1999 and 1998 1
Condensed Balance Sheets
as of September 30, 1999 (Unaudited) and December 31, 1998 2
Condensed Statements of Cash Flows (Unaudited)
for the nine months ended September 30, 1999 and 1998 3
Notes to Condensed Financial Statements 4
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 6
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 10
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
METRO ONE TELECOMMUNICATIONS, INC.
STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, UNAUDITED)
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------- -------------------------------
1999 1998 1999 1998
----------- --------------- ------------ ------------
Revenues $ 20,469 $ 11,312 $ 52,113 $ 31,280
----------- --------------- ------------ ------------
Costs and expenses:
Direct operating 12,136 5,786 30,481 16,104
General and administrative 7,374 4,622 19,795 13,099
----------- --------------- ------------ ------------
19,510 10,408 50,276 29,203
----------- --------------- ------------ ------------
Income from operations 959 904 1,837 2,077
Other income (expense) (3) 102 112 248
Interest expense and loan fees (253) (75) (425) (255)
----------- --------------- ------------ ------------
Income before income taxes 703 931 1,524 2,070
Income tax expense 26 15 60 44
----------- --------------- ------------ ------------
Net income $ 677 $ 916 $ 1,464 $ 2,026
=========== =============== ============ ============
Income per common share
Basic $ .06 $ .08 $ .13 $ .18
Diluted $ .06 $ .08 $ .12 $ .18
The accompanying notes are an integral part of this statement.
1
METRO ONE TELECOMMUNICATIONS, INC.
BALANCE SHEETS (IN THOUSANDS)
- -------------------------------------------------------------------------------------------------------
SEPTEMBER 30, DECEMBER 31,
------------------ -----------------
1999 1998
------------------ -----------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ 3,491 $ 6,063
Short-term investments 400 1,507
Accounts receivable 8,700 7,428
Prepaid costs and other current assets 1,032 766
------------------ -----------------
Total current assets 13,623 15,764
Furniture, fixtures and equipment, net 33,660 19,982
Other assets 817 565
------------------ -----------------
$ 48,100 $ 36,311
================== =================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,245 $ 1,501
Accrued liabilities 2,731 1,992
Accrued payroll and related costs 2,427 1,852
Line of credit payable - 1,400
Current portion of capital lease obligations 193 365
Current portion of long-term debt 2,525 240
------------------ -----------------
Total current liabilities 10,121 7,350
Capital lease obligations 41 103
Long-term debt 6,439 616
------------------ -----------------
16,601 8,069
------------------ -----------------
Commitments and contingencies - -
Shareholders' equity:
Preferred stock, no par value; 10,000 shares
authorized, no shares issued or outstanding - -
Common stock, no par value; 50,000 shares
authorized, 11,410 and 11,188 shares,
respectively, issued and outstanding 40,270 38,477
Accumulated deficit (8,771) (10,235)
------------------ -----------------
Shareholders' equity 31,499 28,242
------------------ -----------------
$ 48,100 $ 36,311
================== =================
The accompanying notes are an integral part of this statement.
2
METRO ONE TELECOMMUNICATIONS, INC.
STATEMENTS OF CASH FLOWS (IN THOUSANDS, UNAUDITED)
- ---------------------------------------------------------------------------------------------------------------------------
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------------
1999 1998
------------------ -----------------
Cash flows from operating activities:
Net income $ 1,464 $ 2,026
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 4,293 2,706
Loss on disposal of fixed assets 48 32
Changes in certain assets and liabilities:
Accounts receivable (1,272) (830)
Prepaid expenses and other assets (608) (126)
Accounts payable, accrued liabilities and payroll costs 2,058 1,457
------------------ -----------------
Net cash provided by operating activities 5,983 5,265
------------------ -----------------
Cash flows from investing activities:
Capital expenditures (17,929) (5,371)
Sale of short-term investments 1,107 -
------------------ -----------------
Net cash used in investing activities (16,822) (5,371)
------------------ -----------------
Cash flows from financing activities:
Net payment on line of credit (1,400) -
Repayment of debt (1,142) (22)
Repayment of capital lease obligations (234) (643)
Proceeds from issuance of long-term debt 9,250 -
Proceeds from issuance of common stock upon exercise
of warrants and options 1,793 465
------------------ -----------------
Net cash provided by (used in) financing activities 8,267 (200)
------------------ -----------------
Net decrease in cash and cash equivalents (2,572) (306)
Cash and cash equivalents, beginning of period 6,063 8,554
------------------ -----------------
Cash and cash equivalents, end of period $ 3,491 $ 8,248
================== =================
The accompanying notes are an integral part of this statement.
3
METRO ONE TELECOMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (Unaudited)
- -------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
We have prepared the accompanying interim condensed financial statements
without audit and in conformity with generally accepted accounting principles
for interim financial information. Accordingly, certain financial information
and footnotes have been omitted or condensed. In our opinion, the condensed
financial statements include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair statement of the results for the
interim periods. These condensed financial statements and notes thereto
should be read in conjunction with the audited financial statements included
in our Annual Report on Form 10-K for the year ended December 31, 1998. The
results of operations for the interim period shown in this report are not
necessarily indicative of results for any future interim period or the entire
fiscal year.
2. EARNINGS PER SHARE
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share," requires dual presentation of basic and diluted earnings per share
("EPS"). Basic EPS is based on the weighted average number of common shares
outstanding. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or
converted into common stock. There were no adjustments to net income for the
calculation of both basic and diluted earnings per share for all periods.
The calculation of weighted-average outstanding shares is as follows:
(In thousands) THREE MONTHS ENDED SEPT. 30, NINE MONTHS ENDED SEPT. 30,
---------------------------- ----------------------------
1999 1998 1999 1998
-------- --------- ----------- -----------
Weighted average common shares outstanding
(used in computing Basic EPS) 11,405 11,062 11,383 11,039
Common stock equivalents 611 - 629 190
-------- --------- ----------- -----------
Weighted average common shares outstanding
(used in computing Diluted EPS) 12,016 11,062 12,012 11,229
======== ========= =========== ===========
3. COMMITMENTS AND CONTINGENCIES
We are party to various legal actions and administrative proceedings arising
in the ordinary course of business. We believe the disposition of these
matters will not have a material adverse effect on our financial position,
results of operations or net cash flows.
4. SUPPLEMENTAL CASH FLOW INFORMATION
(In thousands) NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------
1999 1998
-------------- -------------
Cash paid for interest expense $ 347 $ 246
Cash paid for income taxes 59 55
4
METRO ONE TELECOMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (Unaudited)
- -------------------------------------------------------------------------------
5. INCOME TAXES
At December 31, 1998, we had approximately $13.3 million of net operating
loss carryforwards expiring during the years 2005 to 2010. Ownership changes
as defined by section 382 of the Internal Revenue Code could limit the amount
of net operating loss carryforwards used in any one year or in the aggregate.
During the quarter, we reduced our deferred tax valuation allowance to
reflect deferred tax assets used to reduce current year income taxes. Our
quarterly and annual operating results have in the past and may in the future
vary significantly depending on factors such as changes in the
telecommunications market, the addition or expiration of contracts, increased
competition, changes in pricing policies by us or our competitors, lengthy
sales cycles, lack of market acceptance or delays in the introduction of new
versions of our product or features, the timing of initiation of contracted
Enhanced Directory Assistance services, the timing of the initiation of
wireless services or their acceptance in new market areas by
telecommunications customers, the timing and expense of the expansion of our
national call center network, general economic conditions and other factors.
Given the variability in operating results, we will continue to review the
valuation allowance on a quarterly basis and make adjustments as appropriate.
5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
All statements and trend analyses contained in this item and
elsewhere in this report on Form 10-Q relative to the future constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. These forward-looking statements are subject
to the business and economic risks faced by our company and our actual
results of operations may differ materially from those contained in the
forward looking statements. Readers are cautioned not to place undue reliance
on these forward-looking statements, which speak only as of the date hereof.
We undertake no obligation to publicly release any revisions to these
forward-looking statements to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events.
Results of operations for the periods discussed below should not be
considered indicative of the results to be expected in any future period and
fluctuations in operating results may also result in fluctuations in the
market price of our common stock. Our quarterly and annual operating results
have in the past and may in the future vary significantly depending on
factors such as changes in the telecommunications market, the addition or
expiration of Enhanced Directory Assistance(R) ("EDA") contracts, increased
competition, changes in pricing policies by us or our competitors, lengthy
sales cycles, lack of market acceptance or delays in the introduction of new
versions of our product or features, the timing of initiation of contracted
EDA services, the timing of the initiation of wireless services or their
acceptance in new market areas by telecommunications customers, the timing
and expense of the expansion of our national call center network, general
economic conditions and other factors.
OVERVIEW
We are a leading independent developer and provider of enhanced directory
assistance and information services for the telecommunications industry. We
primarily contract with wireless carriers to provide enhanced directory
assistance and information services to their subscribers.
Under our contracts, the carriers agree to route some or all of their directory
assistance and/or text messaging calls to us. We are also able to offer our
services to multiple carriers within the same market. When a carrier's
subscribers dial a typical directory assistance number, such as "411,"
"555-1212" or "00," the calls are answered by our operators identifying the
service by that carrier's brand name, such as "AT&T Connect," "AirTouch 411
Connect" or "Sprint PCS Directory Assistance."
Each carrier establishes its own directory assistance fee structure for its
subscribers. Wireless subscribers typically pay fees ranging from $0.75 to $1.10
plus airtime charges for our services. We bear no subscriber collection risk.
We charge our carriers directly on a per call basis, with prices varying in
some cases based on call volume. Our long-term strategy is based in part on
reducing the price we charge our customers. We expect that our average price
per call will decrease in 1999 and 2000 as call volumes increase. We believe
this reduced pricing better positions us to retain and expand service with
existing carrier customers, to attract new wireless and landline carriers,
and to achieve, if we are able to increase call volume without incurring
substantial additional expense, greater operating margins over time.
In the fourth quarter of 1999, we will continue our aggressive call center
and network build out to prepare for significant new call volume from Nextel
Communications, AT&T Wireless Services and other carriers. We will also
continue to opportunistically pursue additional significant new business.
This build out will significantly increase our local service coverage and our
capacity to process additional call volume.
Our rapid growth plan involves both capital expenditures and operating expenses,
as we build infrastructure and recruit and train qualified personnel. To better
serve our customers and strengthen our relationships, we maintain the operating
readiness of our call centers even when our carrier customers experience
unexpected delays in transitioning call volume to us. Some of our carrier
customers have recently experienced these types of delays and may experience
some additional delays in the future. These delays increase our ongoing
operating expenses with no corresponding increase in revenues. The result under
these conditions has been, and will likely continue to be, near-term reported
earnings that vary widely. However, we intend to continue to pursue and prepare
for significant additional call volume in order to seek to achieve greater
earnings over the long-term.
On October 21, 1999, we announced that we entered into a multi-year contract
with ALLTEL Communications, Inc. to provide our enhanced directory assistance
services to substantially all of its wireless subscribers. Previously, we had
provided service to a limited number of ALLTEL subscribers.
6
`
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the items of
our statements of operations as a percentage of revenues.
Three Months Ended September 30, Nine Months Ended September 30,
--------------------------------- ---------------------------------
1999 1998 1999 1998
---------------- --------------- --------------- ----------------
Revenues 100.0% 100.0% 100.0% 100.0%
Direct operating costs 59.3 51.1 58.5 51.5
General and administrative costs 36.0 40.9 38.0 41.9
------ ------ ------ ------
Income from operations 4.7 8.0 3.5 6.6
Other income 0.0 0.9 0.2 0.8
Interest and loan fees (1.3) (0.7) (0.8) (0.8)
------ ------ ------ ------
Income before income taxes 3.4 8.2 2.9 6.6
Income tax expense 0.1 0.1 0.1 0.1
------ ------ ------ ------
Net income 3.3 8.1 2.8 6.5
====== ====== ====== ======
COMPARISON OF THIRD QUARTER OF 1999 TO THIRD QUARTER OF 1998
Revenues increased 80.9% from $11.3 million to $20.5 million. Call
volume grew from approximately 17 million calls in the third quarter of 1998
to approximately 37 million calls during the third quarter of 1999. The
increase in revenues was due primarily to increased call volume under
existing contracts and call volume from new contracts that commenced service
during the second half of 1998 and the third quarter of 1999.
Direct operating costs increased 109.7% from $5.8 million to $12.1
million. This increase was primarily due to servicing increased call volumes
and the cost of operating additional call centers in 1999. In addition,
during the third quarter of 1999 we incurred increased staffing and
infrastructure expenditures in preparation for additional scheduled call
volumes, some of which did not arrive as anticipated. As a percentage of
revenues, direct operating costs increased from 51.1% to 59.3%, due primarily
to increased personnel and data costs associated with the start-up of new
call centers, the increase in staffing in anticipation of additional call
volume from existing and new customers and a reduction in average price per
call.
General and administrative costs increased 59.5% from $4.6 million
to $7.4 million. This increase resulted primarily from the costs associated
with the start-up of new call centers and the investment in infrastructure
necessary to support additional call centers. As a percentage of revenues,
general and administrative costs decreased from 40.9% to 36.0%. This decrease
resulted primarily from efficiencies associated with the expansion of our
operations.
Depreciation and amortization increased by 69.3% from $1.0 million
to $1.6 million due primarily to equipment purchased for new call centers, for
upgrades for existing call centers and for corporate operations.
Other expense for the three months ended September 30, 1999 was
$3,000 and consisted primarily of losses upon disposition of assets offset by
interest income. Other income for the three months ended September 30, 1998
was $102,000 and consisted primarily of interest income.
Interest expense and loan fees increased 237.3% from $75,000 to
$253,000. This increase was attributable to the increase in average debt
outstanding, as we incurred borrowings under credit facilities to help fund
the expansion of our call center network.
Income tax expense for the three months ended September 30, 1999 was
$26,000, for an effective tax rate of approximately 3.7%. Income tax expense
for the three months ended September 30, 1998 was $15,000, for an effective
tax rate of approximately 1.6%. These rates differ from the combined federal
and state statutory rate of approximately 39% due to the use of net operating
loss carryforwards.
COMPARISON OF THE FIRST NINE MONTHS OF 1999 TO THE FIRST NINE MONTHS OF 1998
7
Revenues increased 66.6%, from $31.3 million to $52.1 million. Call
volume grew from approximately 49 million calls to over 93 million calls.
This increase was due primarily to increased call volume under existing
contracts and call volume from new contracts that commenced service during
the second half of 1998 and the third quarter of 1999.
Direct operating costs increased 89.3%, from $16.1 million to $30.5
million. This increase was primarily due to servicing increased call volumes
and the cost of operating additional call centers in 1999. In addition,
during the second and third quarters of 1999 we elected to take on an
increased amount of staffing and infrastructure expenditures in preparation
for additional scheduled call volume, some of which did not arrive as
anticipated. As a percentage of revenues, direct operating costs increased
from 51.5% to 58.5%, due primarily to increased personnel and data costs
associated with the start-up of new call centers, the increase in staffing in
anticipation of additional call volume from existing customers and a
reduction in average price per call.
General and administrative costs increased 51.1%, from $13.1 million
to $19.8 million. This increase resulted primarily from the costs associated
with the start-up of new call centers and the investment in infrastructure
necessary to support, and the increase in depreciation expense associated
with, additional call centers. As a percentage of revenues, general and
administrative costs decreased from 41.9% to 38.0%. This decrease resulted
primarily from efficiencies associated with the expansion of our operations.
Depreciation and amortization increased by 58.6%, from $2.7 million
to $4.3 million, due primarily to equipment purchased for new call centers,
for upgrades for existing call centers and for corporate operations.
Other income for the first nine months of 1999 was $112,000 and
consisted primarily of interest income offset by losses upon the disposition
of assets. Other income for the first nine months of 1998 was $248,000 and
consisted primarily of interest income offset by losses upon the disposition
of assets.
Interest expense and loan fees increased 66.7%, from $255,000 to
$425,000. This increase was attributable to an increase in average debt
outstanding during 1999.
Income tax expense for the first nine months of 1999 was $60,000,
for an effective tax rate of approximately 3.9%. Income tax expense for the
first nine months of 1998 was $44,000, for an effective tax rate of
approximately 2.1%. These rates differ from the combined federal and state
statutory rate of approximately 39% due to the use of net operating loss
carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
Our cash and cash equivalents and short-term investments are
recorded at cost that approximates their fair market value. As of September
30, 1999, we had $3.9 million in cash and cash equivalents and short-term
investments compared to $7.6 million at December 31, 1998, a decrease of $3.7
million primarily from capital expenditures incurred as part of the expansion
of our national call center network. Total capital expenditures were $17.9
million for the first nine months of 1999. We have funded the expansion of
our call center and network capacity with cash on hand, cash provided by
operating activities, proceeds from the exercise of options and borrowings
under credit facilities.
Working capital was $3.5 million at September 30, 1999 as compared
with $8.4 million at December 31, 1998. Our current ratio was 1.3:1 at
September 30, 1999 as compared with 2.1:1 at December 31, 1998. These
decreases were due primarily to costs associated with the continuing
build-out of our national network of call centers.
During the third quarter of 1999, we entered into a new loan
agreement with an equipment financing lender. The loan agreement provides us
with $10 million of borrowing capacity to fund the expansion of our call
center network and for other equipment needs. The agreement provides for
fixed or floating rate options and all assets purchased pursuant to the
agreement are pledged as collateral. Borrowings under the agreement have a
term of 48 months, and prepayment of outstanding borrowings is allowable
12 months after the funding date.
During the second quarter of 1999, we entered into a new loan
agreement with a commercial bank. The loan agreement consists of a $10
million revolving line of credit plus a $7.5 million equipment line. Total
borrowings under the two
8
lines cannot exceed $15 million. The revolving line of credit expires in
April 2001 and advances under the equipment line are available through April
2000. Outstanding borrowings bear interest at the prime rate (8.25% at
September 30, 1999) and all of our assets are pledged to the bank as
collateral, other than assets previously pledged under existing financing and
lease agreements and assets that may be pledged pursuant to purchase money
agreements. The agreement contains minimum net worth, working capital and
profitability requirements, as well as certain other restrictive covenants,
and prohibits the payment of any dividends and other distributions and
redemptions of our stock exceeding 10% of our tangible net worth. As of
September 30, 1999, we did not meet one of the financial requirements under
this agreement. However we have received a waiver of this requirement for the
third quarter of 1999 from our bank.
CASH FLOW FROM OPERATIONS. Net cash from operations for the nine
months ended September 30, 1999 was $6.0 million, resulting primarily from
net income and the effect of non-cash depreciation and amortization.
CASH FLOW FROM INVESTING ACTIVITIES. Cash used in investing
activities was $16.8 million for the nine months ended September 30, 1999 and
was related primarily to capital expenditures for the purchase of equipment
for new call centers, the upgrade and expansion of existing call centers,
investment in corporate operations and our relocation to expanded corporate
headquarters. Cash used in investing activities was offset by proceeds from
the sale of short-term investments.
CASH FLOW FROM FINANCING ACTIVITIES. Net cash provided by financing
activities was $8.3 million for the nine months ended September 30, 1999,
resulting from the borrowing of $9.3 million under credit facilities and the
repayment of $2.8 million of debt obligations, and the receipt of cash
proceeds of $1.8 million from the exercise of options.
FUTURE CAPITAL NEEDS AND RESOURCES. The primary uses of our capital
in the near future are expected to be the development or acquisition of
technologies, services, features and content complementary to our business;
the funding of the expansion of our call center and network capacity to serve
existing and potential customers; the repayment of certain outstanding
indebtedness; and for general corporate purposes, including corporate
development activities and working capital. Under the terms of certain
contracts, we are required to open additional call centers in major
metropolitan areas in 1999 and 2000. We anticipate that our capital
expenditures will be approximately $21 million to $22 million in 1999 and
approximately $14 million to $16 million in 2000, resulting primarily from
the projected expansion and planned improvements. We believe our existing
cash and cash equivalents, credit facilities and cash from operations will be
sufficient to fund our operations through the end of fiscal 2000.
YEAR 2000 READINESS DISCLOSURE. The year 2000 issue exists because
many computer systems and applications, including those imbedded in equipment
and facilities, use two-digit rather than four-digit date fields to designate
an applicable year. As a result, the systems and applications many not
properly recognize the year 2000 or process data that includes it,
potentially causing data miscalculations or inaccuracies or operational
malfunctions or failures.
We recognize the importance of the year 2000 issue and have given
high priority to it. In the first quarter of 1998, we created a
corporate-wide year 2000 project, called the Y2K Program, to identify, fix,
test and develop contingency plans for the year 2000 issue.
The Y2K Program includes a review of:
- Information and other technology systems used in our internal
business;
- Our hardware and software products used to deliver service to
customers; and
- Applications and products provided by third party manufacturers and
suppliers.
System-level testing of the call center application configuration,
as designed for Metro One's nationwide network of call centers, was completed
in the third quarter of 1999. This configuration satisfied the requirements
of Metro One's year 2000 compliance testing program. Deployment of the
compliant, tested configuration into all of Metro One's call centers will be
completed during the remainder of 1999.
We do not separately track the internal costs incurred for the Y2K
Program, because there is little differentiation between costs that relate to
the normal upgrade and replacement of our operating systems and costs that
relate solely to year 2000 compliance-related issues. However, we do not
believe that the historical or anticipated costs of remediation have had, or
will have, a material effect on our financial condition or results of
operations.
9
We intend to continue to monitor and test year 2000 compliance in
all of our new and existing business critical systems. The failure of our
systems, the systems of an entity that provides us essential services or
goods, or the systems of our carrier customers may have a material adverse
impact on our business, financial condition and results of operations. These
material adverse effects could include the delay or loss of revenue,
cancellation of customer contracts, diversion of development resources,
damage to our reputation and litigation costs.
Contingency plans are being developed in the event of a failure of
an entity that provides services or goods, such as a local electric
company. These plans will be finalized and implemented during the remainder
of 1999.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Substantially all of our liquid investments are invested in money
market instruments, and therefore the fair market value of these investments
is affected by changes in market interest rates. However, substantially all
of our liquid investments mature within nine months. As a result, we believe
the market risk arising from our holdings of financial instruments is
minimal. In addition, we are exposed to interest rate risk primarily though
our use of short-term and long-term borrowings to finance operations. A
hypothetical 1% fluctuation in interest rates would not have a material
adverse effect on our financial position, results of operations or cash flows.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
10.1 Form of Enhanced Directory Assistance Agreement
10.14 Agreement for Enhanced Directory Assistance Services between
Metro One and AT&T Wireless Services, Inc. dated
May 2, 1997(1)
10.15 Loan Agreement with General Electric Capital Corporation,
dated September 10, 1999
27.1 Financial data schedule
(1) Certain portions of Exhibit 10.14 are the subject of a request
for confidential treatment and have been omitted from the Exhibit
and have been filed separately with the Commission
(b) REPORTS FILED ON FORM 8-K
There were no reports filed on Form 8-K during the quarter ended
September 30, 1999.
10
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
METRO ONE TELECOMMUNICATIONS, INC.
Registrant
Date: October 22, 1999
/s/ Stebbins B. Chandor, Jr.
-------------------------------------
Stebbins B. Chandor, Jr.
Senior Vice President
Chief Financial Officer
/s/ R. Tod Hutchinson
-------------------------------------
R. Tod Hutchinson
Vice President, Finance
Chief Accounting Officer
11