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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended October 31, 1999
Commission file number 0-23598
NATIONAL WIRELESS HOLDINGS INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3735316
(State or other jurisdiction of incorporation)(IRS Employer Identification No.)
249 Royal Palm Way, Suite 301, Palm Beach, Florida 33480
(Address of principal executive offices and zip code)
(561) 822-9933
(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, $.01 Par Value
Rights to Purchase Series A Junior Preferred Stock
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.
Yes X No ___
---
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
statement incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X .
---
The aggregate market value of the voting stock held by non-affiliates
of the registrant was approximately $65,000,000 as of January 24, 2000, based
upon the last sales price per share of the Registrant's Common Stock, as
reported on the Nasdaq Small Cap Market on such date. As of January 24, 2000,
3,333,000 shares of Common Stock, $.01 par value, of the Registrant were
outstanding.
Portions of Registrant's Proxy Statement for use in connection with the
Annual Meeting of Stockholders scheduled to be held in April, 2000 are
incorporated by reference into Part III of this report, to the extent set
forth therein, if such Proxy Statement is filed with the Securities and
Exchange Commission on or before February 28, 2000. If such Proxy Statement
is not filed by such date, the information required to be presented in Part
III will be filed as an amendment to this report. The exhibits for this Form
10-K are listed on Page 27.
NATIONAL WIRELESS HOLDINGS INC.
FORM 10-K
FOR THE FISCAL YEAR ENDED OCTOBER 31, 1999
TABLE OF CONTENTS
Page
Part I
Item 1. Business 3
Item 2. Properties 16
Item 3. Legal Proceedings 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Part II
Item 5. Market for the Registrant's Common Equity
and Related Stockholder Matters 18
Item 6. Selected Financial Data 18
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 20
Item 8. Consolidated Financial Statements 24
Item 9. Changes in and Disagreements
on Accounting and Financial Disclosure 24
Part III
Item 10. Directors and Executive Officers of the Registrant 25
Item 11. Executive Compensation 25
Item 12. Security Ownership of Certain Beneficial Owners and
Management 25
Item 13. Certain Relations and Related Transactions 35
Part IV
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K 25
2
PART I
ITEM 1. BUSINESS
THE COMPANY
National Wireless Holdings Inc. ("NWH" or the "Company"), a Delaware
corporation organized on August 31, 1993, is a communications company focussing
primarily on acquisition and operation of telecommunications and other high tech
businesses. The Company currently owns and operates Electronic Data Submission
Systems, Inc. ("EDSS"), a business-to-business healthcare e-commerce data
interchange company, providing links between healthcare providers and third
party payers. In addition, the Company owns and operates a satellite programming
uplink facility. In addition to these businesses, the Company continues its
business of acquiring controlling interests in telecommunications, media and
other high tech areas. The Company may acquire or invest in other businesses. In
June 1997, the Company sold its wireless cable assets in Miami Florida in
exchange for common stock of BellSouth Corporation.
In July 1999, the Company acquired additional shares of EDSS, which
when combined with its existing share ownership represents approximately 84% of
the outstanding voting stock and control of EDSS.
The Company's executive offices are located at 249 Royal Palm Way,
Suite 301, Palm Beach, Florida 33480, telephone: (561) 822-9933.
ELECTRONIC DATA SUBMISSION SYSTEMS, INC.
GENERAL
NWH manages EDSS and owns 84% of EDSS' outstanding voting stock and 64%
of its equity. EDSS provides business-to-business e-commerce and Internet
products and services to a broad range of physicians and other healthcare
providers (collectively "Providers") and third party payers in the healthcare
industry (collectively, "Payers"). EDSS provides and supports Health-e
Network-TM-, a full cycle suite of products and services designed to increase
productivity by automating and streamlining workflow between Providers and
Payers, and facilitating the work of intermediaries such as third party
administrators, practice management companies and practice management software
suppliers.
The Company believes that EDSS' Health-e Network-TM-'s full-cycle suite of
products and services provides a unique capability for addressing 100% of the
issues involved in Provider/Payer transactions. These services are supported by
EDSS' more than 600 "back-end" connections to Payers, such as managed care
organizations, Blue Cross/Blue Shield plans, Medicare, and Medicaid. EDSS
delivers its Internet and e-commerce connectivity services
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nationally and currently processes transactions from more than 175,000
Providers, such as physicians, hospitals and clinics.
Health-e Network-TM-'s full-cycle e-commerce suite of products and
services ranges from physician front-end data capture/transmission software to
advanced pre-adjudication software developed to enhance Payers' administrative
efficiency to simple payer mailroom services. Health-e Network-TM- addresses
100% of Payers' claims clearing processes (both e-commerce and paper). As of
January 20, 2000, EDSS had seven customers, including third party administrators
and Payers, signed up for various versions of Health-e Network-TM-.
Health-e Network-TM- includes the following products and services (which are
also offered separately):
- - WinHECET-TM- and HECET-TM- are EDSS' proprietary front-end software systems
that are installed in the office of a healthcare Provider, usually a
physician's office. The system is available in Windows (WinHECET-TM-) and
DOS (HECET-TM-)-based platforms and operates either as a stand-alone system
or with any physician practice management software. This product suite is
available in e-commerce and Internet format. The software edits, formats
and provides secure transmission of claims from Provider offices to EDSS
thus facilitating the gathering, pre-adjudication, conversion to an
e-commerce format and pre-payment processing of medical, dental and
pharmacy claims on forms including the HCFA 1500s (physicians and
laboratories) and UB92s (hospitals).
- - Automated Document Services-TM- (ADS-TM-), which EDSS released in 1999,
provides for the conversion (imaging/scanning) of paper claims forms to an
electronic format by using proprietary software.
- - Pre-Adjudication Software System -TM- (PASS-TM-) is a proprietary software
solution, which EDSS introduced in 1999, offering a single entry point (a
software hub) to a Payer for all claims, including Internet, direct
connections, or paper. While channeling the claims, PASS-TM- conducts the
vital claims processing function of physician and member matching,
including real-time eligibility verification. PASS-TM- also provides
real-time eligibility and pre-adjudication checking, PASS-TM- can be used
by Payers in a stand-alone mode or in conjunction with ADS-TM-.
Additionally, Health-e NetworkTM provides for the processing of real-time
transactions including eligibility, referrals/authorizations and ECT (electronic
claims tracking) and a number of other services. Since electronic claims and
transactions cost Payers less to administer, Payers have an incentive to
increase the use of e-commerce. Health-e NetworkTM is also e-commerce-enabled
for the potential generation of revenue from the sale of products, services and
information to the professional Provider community, consumers and information
purchasers. With this suite of electronic commerce products, EDSS provides a
complete link between Payers and Providers in the processing of e-commerce and
paper claim transactions as well as real-time transactions such as eligibility,
determinations and referrals/authorizations.
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EDSS generates its revenues from the following sources: (1) physicians'
and other Providers' sites for monthly e-commerce processing, (2) back-end
revenues from various national and regional Payers, including regional and
national claims clearinghouses, third party administrators and practice
management software vendors, (3) the sale of its WinHECET Systems-TM- and
HECET-TM- software to the Providers, (4) pre-adjudication claim services
(PASS-TM-), (5) paper claims imaging services, (ADS-TM-), (6) real-time
transaction processing, and (7) mailroom services. In the future, EDSS plans
to generate additional e-commerce revenues from its Internet portal for
products, services and information marketed first to its Provider base, and
then to its Providers' patients.
EDSS was incorporated in Colorado on January 7, 1991 and re-incorporated in
Delaware on September 9, 1997.
INDUSTRY BACKGROUND
The rapid expansion of the healthcare industry over the last decade has led
to a significant increase in the complexity of processing claims for
reimbursement by Payers, as well as an increase in the number of claims. The
majority of these claims are still manually processed from paper, a cumbersome,
costly and inaccurate method. Recent advances in computer software,
telecommunications and microprocessor technology have facilitated the
development of on-line, real-time systems that electronically capture and
transmit information, replacing the recording and processing of transaction
information on paper. In addition to offering greater convenience, these
electronic systems reduce processing costs, decrease settlement delays and
prevent losses from fraudulent transactions.
The potential e-commerce healthcare market is very large and growing.
According to the Health Data Directory, in 1998 over 4.4 billion electronic and
paper claims were paid by all Payers. From 1994 to 1998, the proportion of
healthcare claims that were electronically processed increased from 47% to 62%.
The major unserved market segments are physician claims - only 38% were
processed using EDI, and dental claims - only 16% were processed using EDI.
The other major e-commerce opportunity with very low market penetration
(less than 20%) is the non-claim medical transaction area, specifically
eligibility verifications, enrollments, authorizations, claims tracking and
remittance transactions. The Company believes that the medical transaction
market is as large as the traditional claims processing market. The real time
nature of the Internet is ideally suited to processing these non-claim
transactions. The Company believes that Health-e Network-TM- is well
positioned to capture significant market share in this segment. According to
a recent DLJ report, another 30 billion transactions could be available
within the healthcare market.
Healthcare Providers initiate electronic transaction processing through
dedicated point-of-service terminals, stand-alone software or software
integrated with Providers' practice management systems. Providers aggregate and
edit claims, in real-time mode, throughout the
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day at the Provider's office and submit them electronically to EDSS (or its
competitors) in batch. Claims are sorted, formatted and edited a second time by
EDSS (or its competitors) and are then forwarded electronically to the Payer.
The Payer processes each claim, and the response, which includes an explanation
of benefits, is transmitted, electronically or by mail, back to the Provider. To
the extent required, the Payer sends payment to the Provider or, in certain
circumstances, initiates an electronic funds transfer to the Provider's account.
The Company subscribes to the dominant viewpoint that e-commerce and
Internet transaction processing offers a number of benefits to Payers and
Providers. The elimination or reduction of paper-based transactions generally
lowers claim processing costs for Payers significantly, and on-line encounter
and referral information provides more efficient medical cost management for
managed care organizations. In addition, Payers are able to detect fraudulent
procedures and screen for unusual utilization trends. Errors in transcriptions
by Payer examiners are virtually eliminated. From the healthcare Providers'
standpoint, information pertaining to authorization and reimbursement can be
more easily accessed and transmitted. By processing claims electronically,
Providers reduce overhead costs and staff time and improve accounts receivable
management.
The recent growth of managed care and governmental healthcare cost
containment efforts have increased the use of e-commerce real-time transaction
processing by hospitals and physicians. The majority of state Medicaid programs
permit Providers to verify Medicaid eligibility electronically on a real-time
basis, and certain managed care companies have encouraged their Provider
networks to utilize real-time e-commerce for authorizations, encounter reports
(for capitation plans), and referrals. EDSS believes that there are still
significant opportunities for further expansion of EDI transactions in the
healthcare market, including claims processing for managed care client
identification and for other purposes.
EDSS believes that three factors are likely to increase demand for
Health-e Network-TM- and other EDSS products and services. First, industry
legislation and rulemaking, especially the Health Insurance Portability and
Accountability Act (HIPAA), industry accreditation groups such as NCQA and
organized lobbies representing physician groups are requiring electronic claims
reimbursement to shorten the payment cycle. EDSS believes that HIPAA is likely
to accelerate the number of electronic claims and related real-time transactions
(such as eligibility, verification, and enrollment). A section of HIPAA, The
Administrative Simplification Act, requires Payers to receive medical claims
electronically in order to lower transaction costs. The Administrative
Simplification Act also requires Payers to use eight standardized real-time
transactions, including eligibility. One way Payers will be able to meet these
requirements is by outsourcing the claims processing function to companies such
as EDSS. Second, the Payer community is focusing on decreasing operating costs
and increasing profit margins. As a result, Payers are moving to outsource many
primary claims processing functions (such as paper claims, imaging/scanning,
e-commerce implementation, pre-adjudication, and mailroom services). Third,
managed care organizations are tightening reimbursement to Providers and, EDSS
believes, will require more electronic transaction processing for increased
accuracy and efficiency.
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RECENT DEVELOPMENTS - THE INTERNET
The major trend today in healthcare is e-health - the convergence of
Internet technology with the current predominantly legacy systems environment.
Although healthcare in general has historically been slow in adopting computer
technology, this industry is poised to be transformed by the rapid developments
in e-health, just as the financial services and retail industries have already
been greatly affected by Internet technology. EDSS provides, or intends soon to
provide, the following Internet based services:
- - REAL-TIME BATCH REFERRAL, AUTHORIZATIONS AND ELIGIBILITY. EDSS provides a
real-time batch referral and eligibility solution that addresses the
Payers' requirements for accurate and timely eligibility information and
the processing of authorizations and referrals. This real-time feature was
added during 1998; its Internet version was added in 1999.
- - BUSINESS-TO-BUSINESS CONNECTIVITY. EDSS began active Internet-based
transaction activity between its Payers and Providers during 1999.
- - ECT - INTERNET ELECTRONIC CLAIMS TRACKING. EDSS plans to offer by the end
of 2000 the tracking of the status on submitted claims via the Internet.
Current industry practices have at least a one-two day delay in this
information.
- - INTERNET AVAILABILITY OF PRODUCTS AND SERVICES TO PROVIDERS AND PAYERS.
Using its connectivity, proprietary technology and the Health-e NetworkTM
platform, EDSS plans on-line marketing to its network of Providers for
professional products and services, such as medical supplies, durable
medical equipment, etc. EDSS plans to establish appropriate strategic
alliances with various suppliers and wholesalers for the needed products
and services. EDSS has not yet offered these products or services either
directly or with partners, and there is no assurance it can provide them
efficiently or at all.
BUSINESS STRATEGY
EDSS' strategy is to continue to grow as a prime vendor of e-commerce
services to the healthcare industry by expanding the number of markets it serves
and broadening the e-commerce services provided. The key elements of this
strategy include:
- MARKET HEALTH-E NETWORK-TM-. EDSS believes that much of the information
that flows among each of the various participants in the healthcare market can
be transmitted electronically with greater efficiency and cost-effectiveness.
EDSS provides and supports Health-e Network-TM-, which is a full-cycle suite of
products and services designed to increase productivity by automating and
streamlining workflow between Providers and Payers. EDSS will seek to expand the
functional and transactional capability of Health-e Network-TM- through the
continued development and acquisition of related Internet applications and
software. In addition, EDSS will attempt to utilize the Health-e Network-TM- and
Internet technology to move efficiently secure information and transaction flows
among a wider range of healthcare businesses across all of
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their respective systems.
- DEVELOP AND MARKET INTERNET SOLUTIONS. EDSS' principal current Internet
offering allows administrators to enter claim data into a page on the firm's Web
site and transmit the information to an EDSS server. Currently, Providers'
offices are able to transmit encrypted claims data directly and securely over
the Internet to EDSS without having to input claims information manually.
Another EDSS Internet initiative will involve entering into possible
partnerships, joint ventures acquisitions to offer additional Internet products
and services to Providers. Payers can also be targeted as customers for
information mined in the course of EDSS' claims processing system. The
information, gathered with the approval of the Providers and Payers where
applicable, would of course be treated in a confidential fashion and safeguards
would be employed. In addition, EDSS plans partnering with on-line sources and
on-line portals for consumer health and beauty aids, prescription drugs and
wellness products. These relationships would provide consumers with the Internet
tools for managing their health, including convenient on-line prescription
fulfillment and shopping for drugstore needs. EDSS has targeted such potential
partners, joint ventures or acquisitions, but may not be able to secure the
required arrangements. Therefore the company may not be able to develop this
strategy without entering into the required arrangements. Such services are not
currently generating any revenue for EDSS
- EXPANDED CONNECTIVITY AND FUNCTIONALITY AT THE PROVIDER LEVEL. EDSS
intends to expand business through aggressive connectivity marketing at the
Provider level with its user-friendly WinHECET Systems-TM-and HECET Systems-TM-.
By installing these proprietary software products, EDSS maintains a competitive
advantage via direct relationships with each individual physician or other
healthcare Provider's office. Currently, the vast majority of the present market
connectivity emanates from systems vendors that forward the transactions to a
clearinghouse. The direct site connectivity created by WinHECET Systems-TM-and
HECET Systems-TM-affords EDSS a quick and reliable way to add e-commerce and
Internet functionality to its client's office while also providing technical
interface to its system environment. With a broader base of Providers, EDSS
expects to expand the network of Payers that it services. In addition, through
outsourcing relationships with its Payer clients, EDSS will attempt to leverage
the Provider customer base with follow-on opportunity sales both for its
front-end software products and for additional products and services through its
web site. There is no assurance EDSS can successfully carry out this strategy,
and it is not currently generating any revenue for EDSS.
- EXPANSION INTO ADDITIONAL GEOGRAPHIC MARKETS. In pursuit of greater
market share, EDSS plans to continue to expand beyond its current operations in
Colorado, Florida, Texas, and Illinois. A recent payer contract calls for the
processing of physician claims for all fifty states
- EXPANSION OF MARKETING TO POTENTIAL CLIENT GROUPS. EDSS will pursue an
aggressive program to market to high transaction volume systems vendors, Payers,
billing services, third party administrators and the new breed of Internet
claims aggregators. EDSS will also help Providers ensure that they are
submitting their claims electronically to all available Payers.
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- PURSUE STRATEGIC ACQUISITIONS AND ALLIANCES. EDSS will continue to seek
acquisitions of, or alliances with, other e-commerce businesses in order to
achieve greater economies of scale and to remain a cost-effective provider of
transaction processing services. EDSS will target for acquisition or alliance
companies having profitable transaction volumes and revenue producing
technologies. Particular emphasis will be placed on identifying partners that
offer products or services that can be marketed first to the professional
Provider community (business to business e-commerce) and secondly, to the
broader consumer market (consumer e-commerce).
- E-COMMERCE HUB SOLUTION. EDSS has adapted its products for use by claims
submitters who act as suppliers of Provider claims through a data processing hub
operated by EDSS.
- PROVIDER-MARKETING PROGRAM. EDSS offers a CD-ROM
presentation/installation program to Payers for marketing direct e-commerce
connectivity to their respective Provider communities. This EDSS program
represents the first mass distribution of WinHECET System-TM- within the
health care industry for claims processing. In addition, EDSS will seek to
increase the number of marketing seminars of WinHECET-TM- and HECET-TM-
front-end software that are co-sponsored by Payers. These seminars are one of
EDSS' most effective marketing tools.
The recurring revenue potential of healthcare e-commerce is significant and
growing. Increases are coming from transaction based activity, from uses of
clinical data (subject to confidentiality restraints) and from other information
required by Providers. Many of these same services could be easily delivered by
the existing direct connection to each present and future Provider site. Also,
with approximately 58% of all Provider claims nationwide in 1999 still being
submitted on paper (and perfectly suited for EDSS' PASS-TM- solution),
management believes EDSS' marketing efforts could lead to a significant increase
in revenue.
EDSS' services and products capabilities, include the following:
- - HEALTH-E NETWORK-TM-. Health-e Network-TM- is a full-cycle e-commerce suite
of products and services ranging from front-end data capture/transmission
software to advanced pre-adjudication software and simple Payer mailroom
services developed to enhance Payers' administrative efficiency. Health-e
Network-TM- addresses 100% of Payers' claims clearing processes (both
e-commerce and paper). Health-e Network-TM- includes the WinHECET
Systems-TM-, and HECET Systems-TM-, ADS-TM- and PASS-TM-.
- TRANSACTION PROCESSING. EDSS is a substantial processor of commercial
third-party Payer claims linking healthcare Providers and Payers across the
United States through EDSS' electronic network. Network transactions are
predominantly used to process reimbursement claims in traditional
fee-for-service commercial or government Payer systems and to process encounter
data in capitated environments. To submit claims, Providers collect data
throughout the day using software provided by EDSS. The Provider then forwards
these claims electronically to EDSS. EDSS electronically collects and verifies
receipt of the claims, performs
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Payer-specific edits, remaps each claim to conform to a particular Payer's
specifications, aggregates daily transactions by Payer and transmits claims to
Payers based upon each Payer's chosen communications protocols.
- INTERNET SERVICES. EDSS' principal current Internet offering allows
administrators to enter claim data into a page on the firm's Web site and
transmit the information to an EDSS server or to submit their batched claims via
an Internet connection. Currently, providers' offices are able to directly
transmit encrypted claims data securely over the Internet without having to
manually input claims information.
- E-COMMERCE INTERFACES. EDSS has developed a range of software interfaces
to facilitate the adoption of e-commerce by Providers and Payers. EDSS processed
an aggregate of approximately 11.5 million commercial third-party Payer claims
in the fiscal year ending September 30, 1999. EDSS' transaction network is
connected with over 600 of the approximately 1,500 commercial third party
Payers, including all of the top 20 commercial Payers (based upon the number of
members covered by such third party Payers).
- WINHECET SYSTEMS-TM- /HECET SYSTEMS-TM-. WinHECET Systems-TM- and HECET
Systems-TM-, EDSS' proprietary PC-based software products, are designed with
open application program interfaces ("APIs"). The APIs are established at the
operating system level and enable EDSS software to run on a wide variety of
operating systems including Windows, NT, DOS, and Novell. WinHECET
Systems-TM-and HECET Systems-TM- function as stand-alone editing, formatting and
communications software for Providers and Payers. The stand-alone versions of
WinHECET Systems-TM- and HECET Systems-TM- are offered directly to Providers for
a nominal price. WinHECET Systems-TM- and HECET Systems-TM- represent an
installed proprietary software presence for EDSS, reducing the likelihood that
its services will be replaced with a competing product or service. These
proprietary software products provide flexible formatting and mapping
capabilities matching current hardware and software configurations used by or
available to Providers.
- ADS-TM-. provides for the conversion (imaging/scanning) of paper claims
forms to an electronic format by using proprietary software. This service
differentiates EDSS from its competitors in that most healthcare EDI companies
only process electronic claims, and paper claims still constitute over 57% of
physician claims volume.
- PASS-TM-. This proprietary software solution offers a single entry point
(a software hub) to a payer for all claims, including Internet, direct
connections, or paper. While channeling the claims, PASS-TM- conducts the vital
claims processing function of physician and member matching, including real-time
eligibility verification. PASS-TM- provides real-time eligibility and
pre-adjudication checking, critical payer requirements for increased claims
paying accuracy and efficiency. In addition, very few, if any, of EDSS'
competitors can provide this service on a wide-scale basis as each payer system
is unique. EDSS' hub is an open, flexible solution that can be used with the
vast majority of today's operating environments.
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- CUSTOMER SERVICE. As an adjunct to its transaction processing services,
EDSS maintains customer service facilities with help desks for real-time
customer inquiries. Client support employs a modern call tracking and response
system that is directly connected to the processing center. Customer support
services, available via telephone, are frequently included in the contract price
for transaction processing services, but may also be billed separately,
depending upon the specific contract terms. EDSS also offers other services,
such as on-site product training and installation.
SALES AND MARKETING
EDSS develops and maintains Payer, Provider and vendor relationships
through its sales and marketing personnel located in five geographic regions.
EDSS' sales and marketing strategy focuses on selling its services to Providers
either directly, through sales representatives and through organizations, such
as healthcare finance consulting firms, practice management software firms and
third party administrators that have relationships with or access to a large
number of Providers. EDSS develops relationships with third party Payers and
other large submitters of claims. In addition, EDSS works closely with practice
management system vendors to provide an integrated solution to Providers.
Some of EDSS' Payers co-sponsor marketing seminars of WinHECET-TM- and
HECET-TM- front-end software. These seminars are one of EDSS' most effective
marketing tools, second only to its interactive demonstration and installation
CD-ROM that is mailed out to paper-submitting Providers. As of January 20, 2000,
approximately 14,000 physicians were actively submitting claims via EDSS'
Health-e Network-TM- with scheduled installation backlog of 1800 Providors for
its WinHECET-TM- product.
CUSTOMERS
EDSS' principal customers consist of healthcare Providers, such as
physicians, hospitals, clinics and billing services, and third-party Payers,
such as indemnity insurers, managed care organizations, preferred provider
organizations, claims submitters and state/federal governmental agencies. In
addition, EDSS markets its services indirectly to Providers and Payers through
third party administrators, aggregators, consultants and accountants. No
customer accounted for 15% or more of the Company's revenues during fiscal 1999
or 1998.
EDSS typically provides real-time services to customers under contracts
that are not exclusive and generally do not guarantee a specific transaction
volume or revenue stream. The pricing of EDSS' services both on a monthly and
per-claim basis is set under contracts typically having terms of one to seven
years, subject to a variety of early cancellation arrangements.
EDSS enters into contracts with Providers, Payers and other claim
submitters, such as third party administrators, practice management system
vendors, clearinghouses and billing services. Claim submitter contracts with
EDSS often contain exclusivity provisions whereby the
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submitter agrees to process all claims through EDSS, provided that EDSS has
network access to the Payer.
OPERATIONS
EDSS delivers its real-time services through an integrated electronic
transaction processing system, which includes EDSS-designed software, host
computer hardware, network management, switching service, and the ability to
interact with the customers' personal computers.
EDSS' real-time Internet services consist of advanced computer networks
designed and configured to operate 24 hours a day, seven days a week. These
networks are configured to expand to meet increased transaction volume. The
networks are designed and manufactured to accommodate a fault-tolerant, nonstop
environment by maintaining on-line standby computers. The data center is further
protected by uninterruptible power supply systems. The software and related data
files are backed up nightly and stored off-site.
EDSS' communications network consists of dedicated circuits, T-l
facilities and dial modem ports, which facilitate electronic real-time
communication among Payers, Providers and other users of time-sensitive
healthcare information. This private intranet communications network is designed
to provide a low-cost, multipath host access from a computer modem with a high
degree of accuracy and integrity. EDSS uses a number of different nationwide
public communications networks to provide access to substantially all potential
domestic customers.
PROPRIETARY RIGHTS
EDSS owns certain of the software and systems designs that it uses and
has a limited, perpetual, nonexclusive, royalty-free license to use other
software and systems designs. The Company also licenses certain other software
from third parties.
EDSS' success is dependent in part upon electronic transaction
processing technology developed by EDSS. A combination of trade secrets, service
mark and contract protection is used to establish and protect that technology.
There can be no assurance these legal protections and the precautions taken by
EDSS will be adequate to prevent misappropriation of technology used by EDSS.
Furthermore, the legal protections do not prevent independent third-party
development of competitive technology.
COMPETITION
EDSS faces potential competition in the healthcare e-commerce market
not only from other companies that are similarly specialized, but also from
companies involved in other, more highly developed sectors of the electronic
transaction processing market. Such companies could enter into, or focus more
attention on, the healthcare transaction processing market as it develops.
Growing interest in healthcare administrative and financial transactions has
resulted
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from the anticipated lower costs of using the Internet. These new entrants
include Healtheon/WebMD and Claimsnet. In addition, EDSS faces competition by
selected Providers bypassing EDSS' electronic network and going directly to the
Payer. Many of EDSS' existing and potential competitors have greater financial,
marketing and technological resources. EDSS' principal competitors include ENVOY
(a division of Quintiles), National Data Corp., Per Se Technologies, ProxyMed,
and Health Data Exchange (a division of Shared Medical Systems). There is no
assurance that EDSS can continue to compete successfully with its existing and
potential competitors in the healthcare e-commerce market.
Factors influencing competition in the healthcare market include (i)
compatibility with the Provider's software and inclusion in practice management
products and (ii) relationships with third-party Payers, including managed care
organizations. EDSS believes that the breadth, price and quality of its products
and services and Provider level support are the most significant factors in
developing and maintaining relationships with its customers.
GOVERNMENT REGULATION AND HEALTHCARE REFORM
The healthcare industry is highly regulated and subject to changing
political, economic and regulatory influences that may affect the procurement
practices and operation of healthcare organizations. EDSS' products are designed
to function within the structure of the healthcare financing and reimbursement
system currently being used in the United States. Changes in such systems could
result in the need for unplanned product enhancements, delays or cancellations
of product orders or shipments, or the revocation of endorsement of EDSS'
products by hospital associations or other customers. Any of such occurrences
could have a materially adverse effect on EDSS' business, financial condition
and results of operations. During the past several years, the United States
healthcare industry has been subject to an increase in governmental regulation
of, among other things, reimbursement rates. Certain proposals to reform the
U.S. healthcare system are periodically considered by Congress and certain state
legislatures. These programs may contain proposals to increase governmental
involvement in healthcare or otherwise change the operating environment for
EDSS' current and potential customers. Healthcare organizations may react to
these proposals and the uncertainty surrounding such proposals by curtailing or
deferring investments, including those for EDSS' products. On the other hand,
changes in the regulatory environment have increased and may continue to
increase the needs of healthcare organizations for cost-effective information
management and thereby enhance the marketability of EDSS' products and services.
EDSS cannot predict with any certainty what impact, if any, such proposals or
reforms might have on EDSS' business, results of operations and financial
condition. In addition, many Providers are consolidating to create integrated
healthcare delivery systems with greater regional market power. As a result,
these emerging systems could have greater bargaining power, which may lead to
price erosion of EDSS' products. The failure of EDSS to maintain adequate price
levels would have a materially adverse effect on EDSS' business, financial
condition and results of operations. Other legislative or market-driven reforms
could have unpredictable effects on EDSS' business, financial condition and
results of operations.
13
Recent government and industry legislation and rulemaking, especially
the Health Insurance Portability and Accountability Act (HIPAA), the Joint
Commission on Accreditation of Healthcare Organizations (JCAHO), industry
accreditation groups such as NCQA and organized lobbies representing physician
groups are requiring electronic claims reimbursement to shorten the payment
cycle. HIPAA should accelerate the number of electronic claims and related
real-time transactions, such as eligibility, verification, enrollment, etc. A
section of HIPAA, The Administrative Simplification Act, requires payers to
receive medical claims electronically in order to lower transaction costs. The
Administrative Simplification Act also requires payers to use eight standardized
real-time transactions, including eligibility. Payers should be able to meet
these requirements by outsourcing the claims processing function to third
parties such as EDSS.
The United States Food and Drug Administration (the "FDA") is
responsible for assuring the safety and effectiveness of medical devices under
the Federal Food, Drug and Cosmetic Act. Computer products are subject to
regulation when they are used or are intended to be used in the diagnosis of
disease or other conditions, or in the cure, mitigation, treatment or prevention
of disease, or are intended to affect the structure or function of the body. The
FDA could determine in the future that any predictive aspects of EDSS' products
make them clinical decision tools subject to FDA regulation. Compliance with
these regulations could be burdensome, time-consuming and expensive. EDSS also
could become subject to future legislation and regulations concerning the
development and marketing of healthcare software systems. These could increase
the cost and time necessary to market new products and could affect EDSS in
other respects not presently foreseeable. EDSS cannot predict the effect of
possible future legislation and regulation.
The confidentiality of patient records and the circumstances under
which such records may be released for inclusion in EDSS' databases are subject
to substantial regulation by state and federal governments. These state laws and
regulations govern both the disclosure and the use of confidential patient
medical record information. Although compliance with these laws and regulations
is at present principally the responsibility of the hospital, physician or other
Provider, regulations governing patient confidentiality rights are evolving
rapidly. Additional legislation governing the dissemination of medical record
information has been proposed at both the state and federal level. This
legislation may require holders of such information to implement security
measures that may require substantial expenditures by EDSS. There can be no
assurance that changes to state or federal laws will not materially restrict the
ability of Providers to submit information from patient records using EDSS'
products.
FACILITIES
EDSS' executive and corporate offices are located in Colorado Springs,
Colorado in approximately 13,000 square feet of office space under a lease that
expires June 14, 2003. EDSS has a second Colorado processing center that
occupies approximately 11,000 square feet. EDSS also maintains offices in Ft.
Lauderdale, FL, Orlando, FL, Tampa, FL, and Pueblo, CO and Chicago, IL. EDSS
believes that its facilities are adequate for its current operations.
EMPLOYEES
14
As of January 1, 2000, EDSS had approximately 268 employees, including
approximately 63 salaried and 205 hourly employees (including temporary
employees). None of these employees is represented by a union or other
collective bargaining group. EDSS believes its relationship with its employees
is good.
LITIGATION
EDSS is not currently party to any litigation.
TELECOMMUNICATIONS
WIRELESS CABLE
Wireless cable television is provided to subscribers by transmitting
microwave frequencies over the air on a direct "line-of-sight" from the
transmission facility to a small receiving antenna at each subscriber's
location. Local off-air VHF/UHF broadcasts can be provided to a subscriber by
retransmission of the broadcast over a wireless frequency or by installation of
an off-air antenna in conjunction with the wireless antenna located on the
subscriber's home or building. To the subscriber, a wireless cable system
generally operates in the same fashion as a hard-wire cable system. Like the
hard-wire cable systems, wireless cable systems, in exchange for monthly fees,
typically offer local off-air broadcast channels, as well as programming such as
HBO, ESPN, CNN, USA, WGN, WTBS, A&E, Nickelodeon, Discovery, Disney, MTV and
other programming services such as pay-per-view.
In June 1997 the Company completed the sale of its subsidiary, South
Florida Television Inc., which held its rights to provide wireless cable TV
service in Miami, to BellSouth Corporation (NYSE: BLS) for 1,048,321 shares of
BellSouth common stock, based on a $48 million purchase price. The Company does
not currently own any wireless cable systems or channels, and, while the Company
continues to seek and review opportunities in this area, it has no specific
agreements or understandings to acquire any such assets.
STRATEGIC ALLIANCES AND INVESTMENTS
DEVELOPING TECHNOLOGY. The Company is reviewing on a preliminary basis
investments in or acquisitions of telecommunications technology companies.
TLC PRODUCTIONS. TLC Productions, Inc. ("TLC"), acquired by the Company
in 1995, is a full-service teleport and uplink facility located in North Miami,
Florida, that provides satellite uplink services to clients who then are able to
rebroadcast signals to video programming distributors. Additionally, TLC's
fully-equipped television studio is used for live teleconferencing and special
interviews for such networks as CNN and ESPN.
OTHER OPERATIONS
15
ACQUISITIONS. The Company is actively seeking to acquire other
businesses in telecommunications, e-health, media and unrelated areas, but
currently has no specific agreements or arrangements to acquire any such
businesses. The Company invested over $280,000 in 1999 in connection with an
abandoned acquisition of a telecommunications company.
ANAGRAM INTERNATIONAL COMMUNICATIONS LTD. Anagram was organized in 1995
to engage in, among other things, the business of acquiring television
programming for distribution in the United States and abroad. The Company has
invested an aggregate of $636,875 in Anagram. Anagram ceased doing business in
1999 and is currently being liquidated. Through October 31, 1999, the Company
has expensed its investment in this company.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this Annual Report on Form 10-K,
including, without limitation, statements containing the words "believes,"
"anticipates," "expects" and words of similar import, constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements involve known and
unknown risks, uncertainties and other factors that may cause the actual
results, performance or achievements of the Company, or industry results, to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
among others, the following: the limited nature of the Company's operations and
its history of losses; the uncertain acceptance of EDI; competition; the risk of
the Company's failure to acquire additional businesses; existing government
regulations and changes in, or the failure to comply with, government
regulations; the ability of the Company to sustain, manage or forecast its
growth; dependence on significant suppliers and marketers and the potential loss
thereof; the ability to attract and retain qualified personnel; retention of
earnings; and other factors referenced in this Annual Report on Form 10-K.
Certain of these factors are discussed in more detail elsewhere in this Annual
Report on Form 10-K, including, without limitation, under the captions "Selected
Financial Data," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business." Given these uncertainties, undue
reliance should not be placed on such forward-looking statements. The Company
disclaims any obligation to update any such factors or to publicly announce the
result of any revisions to any of the forward-looking statements contained or
incorporated by reference herein to reflect future events or developments.
ITEM 2. PROPERTIES
The Company generally leases the real estate where its business,
offices and wireless cable transmitters are located. The Company leases space
for its executive offices in Palm Beach, Florida at $760 a month pursuant to a
lease terminating May 31, 2000. In June 1994, a subsidiary of the Company
entered into an 8-year operating lease of office space for its offices in New
York at a rate of $7,892 per month. The Company and certain subsidiaries lease
office space in Rantoul, Illinois from a company which is owned by the Chairman
of the Board of the Company, at an aggregate rental of $1,750 per month. The
lease agreement is on a month-to-
16
month basis based on the needs of the Company. The Company's subsidiary, EDSS,
leases approximately 6,500 square feet of office space under a lease that
expires June 14, 2003 at a rate of $13,347 per month. EDSS also maintains
offices at Ft. Lauderdale, FL, Orlando, FL, Tampa, FL, and Dallas, TX. The
Company's subsidiary, TLC, leases approximately 6,500 square feet of office
space on a month to month basis. The total lease payments for the year ended
October 31, 1999 were approximately $395,000 (net of $55,000 of rental income)
as compared to approximately $247,000 for the year ended October 31, 1998. The
Company believes its properties are adequate for its current needs.
ITEM 3. LEGAL PROCEEDINGS
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
17
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock, $.01 par value, is traded on the Nasdaq
Small Cap Market ("Nasdaq") under the symbol "NWIR". The following table sets
forth the range of high and low sale price information for the Common Stock for
each full fiscal quarterly period for the last two years as reported by Nasdaq.
1998 1999
--------------- -------------------
Quarter High Low High Low
- ------- ---- --- ---- ---
First 15 13-1/4 19-5/8 14
Second 18-3/4 13-1/2 20 13-1/4
Third 18-7/8 15-1/2 17-5/8 15-1/8
Fourth 17-7/8 14 16 13
As of January 24, 2000, there were approximately 1,000 beneficial
holders of Common Stock.
The Company paid a cash dividend of $1.30 on the Common Stock in fiscal
1997; however, the Company does not anticipate paying cash dividends on the
Common Stock in the foreseeable future. The payment of cash dividends on shares
of Common Stock will be within the discretion of the Company's Board of
Directors and will depend upon the earnings of the Company, the Company's
capital requirements and other financial factors which are considered relevant
by the Company's Board of Directors.
ITEM 6. SELECTED FINANCIAL DATA
The selected historical financial data for the Company presented below
under the captions "Operating Data" and "Balance Sheet Data" as of October 31,
1995, 1996, 1997, 1998 and 1999, and for the years ended October 31, 1995, 1996,
1997, 1998 and 1999 are derived from the Company's consolidated financial
statements. The selected financial data should be read in conjunction with
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS."
18
Year Ended Year Ended Year Ended Year Ended Year Ended
October 31, October 31, October 31, October 31, October 31,
----------- ----------- ----------- ----------- -----------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Operating Data:
Total Revenue $ 6,992,256 $ 6,801,632 $ 4,717,681 $ 2,317,734 $ 2,100,289
Service Revenue 5,325,505 4,492,991 3,308,080 1,223,561 945,616
Expenses 8,585,068 7,699,825 6,055,033 3,334,558 2,740,370
Net Loss on securities transactions (1,283,451) (4,116,031) -- -- --
Gain on Sale of SFTV(1) -- 44,196,516 -- --
Net Income (Loss) (1,376,263) (3,314,224) 25,969,164 (1,016,824) (640,081)
Net Income (Loss) per common share-Basic (2) (.42) (1.01) 7.96 (0.31) (0.20)
Weighted average number of common
shares outstanding-Basic (2) 3,293,274 3,283,000 3,259,923 3,253,000 3,222,863
Balance Sheet Data:
Cash and cash equivalents 24,754,663 $ 27,359,353 $ 21,256,356 $ 14,788,765 $ 4,888,240
Marketable securities 30,988,890 32,541,020 49,598,687 0 11,964,634
Total assets 64,226,219 66,628,350 79,085,656 21,583,552 22,981,237
Total liabilities 16,898,016 20,273,317 36,016,130 1,391,064 1,771,925
Total stockholders' equity 47,328,203 46,355,033 43,069,526 20,192,488 21,209,312
(1) See Note 3 to Consolidated Financial Statements
(2) See Note 2 to Consolidated Financial Statements
19
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
National Wireless Holdings Inc. ("NWH" or the "Company") is a
communications company focussing primarily on acquisition and operation of
telecommunications and other high tech businesses. The Company currently owns
and operates a business-to-business healthcare e-commerce data interchange
company, providing links between healthcare Providers and third party Payers. In
addition, the Company owns and operates a satellite programming uplink facility
and other early stage businesses. In addition to these businesses, the Company
continues its business of acquiring controlling interests in telecommunications,
media and other high tech areas. The Company may acquire or invest in other
businesses. In June 1997, the Company sold its wireless cable assets in Miami,
Florida in exchange for common stock of BellSouth Corporation.
The Company was incorporated in Delaware on August 31, 1993. The
Company's fiscal year ends on October 31.
Certain statements contained in this Annual Report on Form 10-K
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Such forward-looking statements
involve known and unknown risks, uncertainties and other factors that may cause
the actual results, performance or achievements of the Company, or industry
results, to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. Given
these uncertainties, prospective investors are cautioned not to place undue
reliance on such forward-looking statements. See "Business--Special Note
Regarding Forward-Looking Statements" and the Financial Statements.
RESULTS OF OPERATIONS
1999 AS COMPARED TO 1998:
Service Revenue:
Service revenue increased from $4,492,991 in 1998 to $5,325,505 in 1999 as a
result primarily of increased revenues of EDSS in 1999.
Interest and Dividend Income:
Interest income decreased from $1,829,378 in 1998 to $1,079,128 in 1999 as a
result of a reduction in funds invested in interest bearing instruments due to
net cash used in operating activities. Dividend income increased from 479,263 in
1998 to 587,623 in 1999 as a result of a dividend increase by Bell South.
Cost of Services:
Cost of services increased from $2,606,475 in 1998 to $2,918,976 in 1999 as a
result of increased costs of operation of EDSS.
20
Wireless Market and Technology Development:
Wireless market and technology development expenses decreased from $858,000 in
1998 to $0 in 1999 as a result of sale of its wireless assets in the Miami
market.
Professional Fees:
Professional fees decreased from $735,491 in 1998 to $725,708 in 1999 as a
result of less transaction activity in 1999. Professional fees included
approximately $55,134 in 1998 and $181,000 in 1999 for a successful defense of
an Internal Revenue Service audit.
General and Administrative:
General and administrative expense increased from $2,664,329 in 1998 to
$3,783,442 in 1999 as the Company incurred additional costs at EDSS.
Depreciation and Amortization:
Depreciation and amortization increased from $777,823 in 1998 to $1,087,386 in
1999 as a result of additional capital expenditures, principally at EDSS.
Interest Expense:
Interest expense increased from $57,707 in 1998 to $69,556 in 1999, reflecting
borrowings by EDSS.
Loss from Operations:
As a result of the foregoing events, loss from operations was ($1,592,812) in
1999 as compared to a loss from operations of ($898,193) in 1998.
Realized Loss on Securities Transactions, Net:
The Company realized a net loss for 1999 of ($1,283,451), as compared to
($4,116,031) in 1998. The effect of unrealized gains on marketable securities as
reflected in Other Comprehensive Income amounts to $1,924,433, net of related
income taxes, in 1999 and $6,599,731 for 1998.
Provision (benefit) for income taxes:
The 1999 benefit for income taxes includes the reversal of prior year income
taxes of approximately $391,000 as a result of settlement of a tax examination.
Net Loss
As a result of each of the foregoing events, net loss decreased from
($3,314,224) in 1998 to ($1,376,263) in 1999.
1998 AS COMPARED TO 1997
Service Revenue:
Service revenue increased from $3,308,080 in 1997 to $4,492,991 in 1998
primarily as a result of increased revenues of EDSS (as described below), a
majority owned subsidiary acquired in December 1996.
21
Interest and Dividend Income:
Interest income increased from $870,810 in 1997 to $1,829,378 in 1998 primarily
as a result of increased cash balances. Dividend income decreased from $538,791
in 1997 to $479,263 in 1998 as a result of the sale in 1998 of a portion of the
Company's BellSouth common stock, which was acquired in June 1997.
Cost of Services:
Cost of services increased from $1,626,661 in 1997 to $2,606,475 in 1998 as a
result of increased operating costs and the acquisition referred to above.
Wireless Market and Technology Development:
Wireless market and technology development expenses increased from $555,422 in
1997 to $858,000 in 1998 primarily as a result of expenses relating to the sale
of the Company's South Florida wireless cable subsidiary as described below,
Anagram marketing and operational expenses and expenses relating to
acquisitions.
Professional Fees:
Professional fees increased from $473,430 in 1997 to $735,491 in 1998, primarily
as a result of activity on proposed acquisitions. Professional fees also reflect
continued activity relating to subsidiaries and corporate actions.
General and Administrative:
General and administrative expense increased from $2,459,347 in 1997 to
$2,664,329 in 1998 primarily as a result of increased costs to support the
growth of EDSS.
Depreciation and Amortization:
Depreciation and amortization decreased from $832,413 in 1997 to $777,823 in
1998 primarily as a result of the sale of the Company's South Florida wireless
cable subsidiary as described below.
Interest Expense:
Interest expense decreased from $107,760 in 1997 to $57,707 in 1998 due to
payment of long-term debt.
Loss from Operations:
As a result of the foregoing events, loss from operations was ($898,193) in 1998
as compared to a loss from operations of ($1,337,352) in 1997.
Realized Loss on Securities Transactions, Net:
As a consequence of closing of hedge positions on certain marketable securities
in the fourth quarter of 1998, the Company realized a net loss for 1998 of
($4,116,031), as compared to $0 in 1997.
Net Income:
Net loss in 1998 was ($3,314,224) as compared to net income of $25,959,164 in
1997 due to
22
realization of losses on hedge positions on marketable securities in 1998 and
the sale in June 1997 of the Company's South Florida wireless cable subsidiary
as described below.
EDSS RESULTS OF OPERATIONS:
EDSS, on a stand-alone basis, has incurred operating losses of
($3,673,969) on a cumulative basis through September 30, 1999, including
($637,312) of loss in 1999, and ($681,605) of loss in 1998. Such losses have
been financed principally through a $200,000 loan from EDSS' President and a
$1,800,000 line of credit from the Company pursuant to a loan agreement, which
has been substantially utilized as of October 31, 1999. Based upon existing
contracts with physicians and other Providers and current expense levels,
management believes that EDSS would achieve positive cash flow from operations
for fiscal 2000 without the need to obtain additional financing. EDSS, however,
currently plans to obtain additional financing, and the Company may provide
additional funds, to accelerate EDSS' strategic business plan.
LIQUIDITY AND CAPITAL RESOURCES
The Company funds its operations with the net proceeds from its initial
public offering in 1994 of 2,000,000 shares of Common Stock aggregating, after
payment of offering costs, approximately $22,000,000 and the June 1997 sale of
its South Florida wireless cable subsidiary for $48 million in BellSouth common
stock. The proceeds have been used for, and are currently reserved to fund
acquisitions of healthcare e-commerce investments, telecommunications assets,
media businesses, development of the Company's other businesses and development
and acquisition of new technologies and businesses in other areas. Such amount,
with interest thereon, is expected to be sufficient to implement this business
plan through October 2000, or for a shorter period if the Company determines to
invest a substantial portion of its assets in major acquisitions or equity
investments.
As of October 31, 1999, the Company had approximately $55.7 million in
cash and marketable BellSouth common stock, as well as its interest in EDSS, its
full-service teleport and satellite uplink facility in Miami and investments in
other early stage companies.
During the year ended October 31, 1999, the Company sold portions of
its position in BellSouth common stock. While the Company continues to review
its position in BellSouth common stock and from time to time has sold and
purchased shares and options on the position, it has not yet determined whether
it will sell or hedge its remaining BellSouth securities in the near future or
how it will invest the proceeds of any such sale.
In July 1999 the Company purchased additional shares of Common Stock of
Electronic Data Submission Systems, Inc. ("EDSS"), which when combined with its
existing share ownership represents 64% of the outstanding diluted common stock
and, with additional voting rights, 84% control of EDSS. The Company paid for
such securities with $513,450 in cash. At October 31, 1999, the Company had
outstanding loans to EDSS of $1,788,000. The outstanding balance under this loan
agreement was eliminated from the balance sheet in consolidation. On January 18,
2000, the Company increased the loan to EDSS by $350,000 to $2,138,000, and
23
increased EDSS' line of credit to $2,800,000. The Company may invest additional
amounts in EDSS to finance sales growth. Operating overhead costs of EDSS have
increased in order to support its continued growth. The Company anticipates
related increased revenues at EDSS in the next three to nine months.
Following completion of the sale of its South Florida wireless cable
assets, the Company has allocated its capital to development of its other
businesses and to acquisitions; and the Company actively seeks to acquire or
invest in other businesses in telecommunications, media or in unrelated areas.
The Company has no specific arrangements with respect to any such acquisitions
or investments at the present time. There can be no assurance that any such
acquisitions or investments will be made.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS
Information with respect to this item is contained in the financial
statements appearing in Item 14 of this report. Such information is incorporated
by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
24
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item with respect to the executive
officers and directors of the Company is incorporated herein by reference to the
sections entitled "Executive Officers of the Company and Election of Directors"
in the Company's definitive proxy statement for its Annual Meeting of
Stockholders to be held in April, 2000.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item with respect to executive
compensation is incorporated herein by reference to the section entitled
"Executive Compensation" in the Company's definitive proxy statement for its
Annual Meeting of Stockholders to be held in April, 2000.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item with respect to executive
compensation is incorporated herein by reference to the section entitled
"Security Ownership of Directors and Executive Officers" in the Company's
definitive proxy statement for its Annual Meeting of Stockholders to be held in
April, 2000.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated herein by
reference to the section entitled "Certain Transactions" in the Company's
definitive proxy statement for its Annual Meeting of Stockholders to be held in
April, 2000.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1. The financial statements:
The consolidated financial statements included in this item are
indexed on page F - 1 "Index to Financial Statements".
2. Financial Statement schedules:
None
3. Exhibit list.
25
The following exhibits were previously filed as indicated or
are filed herewith.
3.1(1) Certificate of Incorporation and By-laws of Registrant.
See Exhibit 4-3-Exhibit A.
3.1(a)(3) Amendment, dated June 29, 1995, to the Company's By-Laws.
3.1(a)(9) Amendment to Certificate of Incorporation, dated June 10, 1997.
3.1(b)(9) Amendment to By Laws, dated June 10, 1997.
4(6) Rights Agreement, dated as of December 12, 1996, between
National Wireless Holdings Inc. and Continental Stock Transfer
and Trust Company, as Rights Agent, which includes as Exhibit A
the Form of Certificate of Designations designating the
relative rights, preferences and limitations of the Series A
Junior Preferred Stock, as Exhibit B the Form of Right
Certificate, and as Exhibit C the Summary of Rights to Purchase
Preferred Shares.
4.1(2) Specimen of Common Stock Certificate.
4.2(1) Form of Representative Warrant Agreement with form of
Representative's Warrant attached.
10.1(1) Terrence S. Cassidy Employment Agreement, dated
September 22, 1993.
10.3(1) Withdrawn.
10.4(1) Registrant's 1993 Stock Option Plan.
10.6 Withdrawn.
10.28 Withdrawn.
10.29 Withdrawn.
10.30 Withdrawn.
10.33 Withdrawn.
10.34 Withdrawn.
10.35(4) Agreement dated November 8, 1995 between Registrant and
Wireless Broadcasting Systems of America, Inc.
10.36 Withdrawn.
10.37(a)(5) Severance Benefit Agreement, dated December 12, 1996, with
Terrence S. Cassidy.
10.37(b)(5) Severance Benefit Agreement, dated December 12, 1996, with
Michael J. Specchio.
10.38(6) Press Release, dated February 27, 1997.
10.38(7) Consulting Agreement, dated February 28, 1997, with
Michael J. Specchio, Inc.
10.39(8) Consulting Agreement, dated April 1, 1997, between the
registrant and BellSouth Wireless Cable, Inc.
10.40(9) Form of Director Indemnification Agreement.
10.41(a) Withdrawn.
10.41(b) Withdrawn.
10.42(9) 1997 Equity Incentive Plan.
10.43(9) Restated Stockholders Agreement, dated September 10, 1997,
between the Company, Joseph D. Truscelli and Electronic Data
Submission Systems, Inc.
10.45(11) Subscription Agreement, dated March 4, 1998, between the
Company, Joseph D. Truscelli, and Electronic Data Submissions
Systems, Inc.
26
10.47 Loan Documentation relating to the EDSS Credit Facility.
(a) Restated Loan Agreement(12).
(b) Note(12).
(c) Amendment No. 1(13).
(d) Bridge Note(13).
21(10) Subsidiaries of Registrant.
(b) Reports on Form 8-K: Not applicable.
A Definitive Proxy Statement for the Annual Meeting of Stockholders to be held
in April 2000 will be filed by amendment.
- ---------------------------
(1) - Filed with the initial filing of the Registrant's Registration Statement
on Form S-1, File No. 33-7914.
(2) - Filed with Amendment No. 3 to the Registrant's Registration Statement.
(3) - Filed with Form 10-Q for the Quarter ended July 31, 1995.
(4) - Filed with Form 10-K for the Fiscal Year ended October 31, 1995.
(5) - Filed with Form 8-K dated December 12, 1996.
(6) - Filed with Form 8-K dated February 26, 1997.
(7) - Filed with Form 10-Q for the Quarter ended January 31, 1997.
(8) - Filed with Form 10-Q for the Quarter ended April 30, 1997.
(9) - Filed with Form 10-Q for the Quarter ended July 31, 1997.
(10) - Filed with Form 10-K for the Fiscal Year ended October 31, 1997.
(11) - Filed with Form 10-Q for the Quarter ended January 31, 1998.
(12) - Filed with Form 10-Q for the Quarter ended April 30, 1999.
(13) - Filed herewith.
27
NATIONAL WIRELESS HOLDINGS INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Page
Report of Independent Accountants.............................................................. F2
Consolidated Balance Sheets as of October 31, 1999 and 1998.................................... F3
Consolidated Statements of Operations for the years ended October 31, 1999,
1998 and 1997............................................................................... F4
Consolidated Statements of Comprehensive Income (loss) for the years ended October 31, 1999,
1998 and 1997............................................................................... F5
Consolidated Statements of Stockholders' Equity for the years ended October 31,
1999, 1998 and 1997......................................................................... F6
Consolidated Statements of Cash Flows for the years ended October 31, 1999,
1998 and 1997............................................................................... F7
Notes to Consolidated Financial Statements..................................................... F8
F-1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
National Wireless Holdings Inc.:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, comprehensive income (loss),
stockholders' equity and cash flows present fairly, in all material respects,
the financial position of National Wireless Holdings Inc. and its subsidiaries
at October 31, 1999 and 1998, and the results of their operations and their cash
flows for each of the three years in the period ended October 31, 1999, in
conformity with generally accepted accounting principles. 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 of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
December 10, 1999
F-2
NATIONAL WIRELESS HOLDINGS INC.
CONSOLIDATED BALANCE SHEETS
AS OF OCTOBER 31, 1999 AND 1998
- --------------------------------------------------------------------------------
1999 1998
ASSETS
Current assets:
Cash and cash equivalents $24,754,663 $27,359,353
Marketable securities 30,988,890 32,541,020
Trade and other receivables 1,921,497 751,413
Refundable income taxes 556,870 -
Prepaid expenses and other current assets 114,841 136,085
-------------- ---------------
TOTAL CURRENT ASSETS 58,336,761 60,787,871
Wireless frequency license and acquisition costs, net of accumulated
amortization of $182,507 and $144,336, respectively 199,204 237,375
Transmission and related equipment, net of accumulated depreciation
of $754,544 and $526,385, respectively 802,107 932,169
Leasehold improvements, office equipment and service vehicles, net of
accumulated depreciation of $970,099 and $607,921, respectively 1,022,693 789,033
Intangible assets, net of accumulated amortization of $1,004,755 and
$686,920, respectively 3,662,709 3,594,215
Investments and other assets 202,745 287,687
-------------- ---------------
TOTAL ASSETS $64,226,219 $66,628,350
-------------- ---------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 4,725,898 $ 4,819,901
Current maturities of long-term debt 79,472 88,449
Current income taxes - 3,900,000
Deferred income taxes 11,750,000 10,930,000
-------------- ---------------
TOTAL CURRENT LIABILITIES 16,555,370 19,738,350
Note payable to related party 140,000 200,000
Long-term debt 202,646 334,967
-------------- ---------------
TOTAL LIABILITIES 16,898,016 20,273,317
-------------- ---------------
Commitments
Stockholders' equity:
Preferred stock, $.01 par value; 1,000,000 shares authorized;
no shares issued or outstanding - -
Common stock, $.01 par value; 20,000,000 shares authorized; 3,333,000
and 3,283,000 shares issued and outstanding, respectively 33,330 32,830
Additional paid-in capital 23,071,872 22,647,372
Retained earnings 14,739,562 16,115,825
Accumulated other comprehensive income 9,483,439 7,559,006
-------------- ---------------
TOTAL STOCKHOLDERS' EQUITY 47,328,203 46,355,033
-------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $64,226,219 $66,628,350
-------------- ---------------
See accompanying notes to consolidated financial statements.
F-3
NATIONAL WIRELESS HOLDINGS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED OCTOBER 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
1999 1998 1997
Revenue:
Service revenue $ 5,325,505 $ 4,492,991 $ 3,308,080
Interest income 1,079,128 1,829,378 870,810
Dividend income 587,623 479,263 538,791
---------------- ----------------- ----------------
TOTAL REVENUE 6,992,256 6,801,632 4,717,681
---------------- ----------------- ----------------
Expenses:
Cost of services 2,918,976 2,606,475 1,626,661
Wireless market and technology development - 858,000 555,422
Professional fees 725,708 735,491 473,430
General and administrative 3,783,442 2,664,329 2,459,347
Depreciation and amortization 1,087,386 777,823 832,413
Interest 69,556 57,707 107,760
---------------- ----------------- ----------------
TOTAL EXPENSES 8,585,068 7,699,825 6,055,033
---------------- ----------------- ----------------
Loss from operations (1,592,812) (898,193) (1,337,352)
Loss on securities transactions, net (1,283,451) (4,116,031) -
Gain on sale of SFTV - 44,196,516
---------------- ----------------- ----------------
INCOME (LOSS) BEFORE PROVISION FOR
INCOME TAXES (2,876,263) (5,014,224) 42,859,164
Provision (benefit) for income taxes (1,500,000) (1,700,000) 16,900,000
---------------- ----------------- ----------------
NET INCOME (LOSS) $ (1,376,263) $ (3,314,224) $ 25,959,164
---------------- ----------------- ----------------
Net income (loss) per common share:
Basic $ (.42) $ (1.01) $ 7.96
---------------- ----------------- ----------------
Diluted $ (.42) $ (1.01) $ 7.92
---------------- ----------------- ----------------
Weighted average number of common:
shares outstanding:
Basic 3,293,274 3,283,000 3,259,923
---------------- ----------------- ----------------
Diluted 3,293,274 3,283,000 3,277,837
---------------- ----------------- ----------------
See accompanying notes to consolidated financial statements.
F-4
NATIONAL WIRELESS HOLDINGS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED OCTOBER 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
1999 1998 1997
Net income (loss) $ (1,376,263) $ (3,314,224)$ 25,959,164
Other comprehensive income:
Net holding gain on marketable securities
arising during the period, net of income taxes
of $1,010,230, $2,952,130 and $0, respectively 1,135,111 4,027,212 959,275
Reclassification adjustment for (gains)
losses recognized in net income (loss), net of income
taxes of $494,129, $1,543,512 and $0,
respectively 789,322 2,572,519 -
---------------- ----------------- ----------------
1,924,433 6,599,731 959,275
---------------- ----------------- ----------------
COMPREHENSIVE INCOME $ 548,170 $ 3,285,507 $ 26,918,439
---------------- ----------------- ----------------
See accompanying notes to consolidated financial statements.
F-5
NATIONAL WIRELESS HOLDINGS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED OCTOBER 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
RETAINED ACCUMULATED
ADDITIONAL EARNINGS OTHER
COMMON PAID-IN (ACCUMULATED COMPREHENSIVE
STOCK CAPITAL DEFICIT) INCOME TOTAL
Balance, October 31, 1996 $ 32,530 $22,421,173 $ (2,261,215) $ 20,192,488
Options exercised to acquire 30,000
shares of common stock 300 226,199 - 226,499
Dividends Paid - - (4,267,900) (4,267,900)
Net income - - 25,959,164 25,959,164
Unrealized gain on marketable
securities, net - - - $ 959,275 $ 959,275
----------- ------------- ----------------- -------------- -------------
BALANCE, OCTOBER 31, 1997 32,830 22,647,372 19,430,049 959,275 43,069,526
Net loss - - (3,314,224) - (3,314,224)
Unrealized gain on marketable
securities, net - - - 6,599,731 6,599,731
----------- ------------- ----------------- -------------- -------------
BALANCE, OCTOBER 31, 1998 32,830 22,647,372 16,115,825 7,559,006 46,355,033
Net loss - - (1,376,263) - (1,376,263)
Options exercised to acquire 50,000
shares of common stock 500 424,500 - - 425,000
Unrealized gain on marketable
securities, net - - - 1,924,433 1,924,433
----------- ------------- ----------------- -------------- -------------
BALANCE, OCTOBER 31, 1999 $ 33,330 $23,071,872 $ 14,739,562 $ 9,483,439 $ 47,328,203
----------- ------------- ----------------- -------------- -------------
See accompanying notes to consolidated financial statements.
F-6
NATIONAL WIRELESS HOLDINGS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED OCTOBER 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
1999 1998 1997
Cash flows from operating activities:
Net income (loss) $ (1,376,263) $ (3,314,224) $ 25,959,164
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Depreciation and amortization 1,087,386 777,823 832,413
Accretion of interest income - - (306,100)
Gain on sale of SFTV - - (44,196,516)
Loss on securities transactions, net 1,283,451 4,116,031 -
Deferred income taxes (1,401,707) (10,470,000) 16,900,000
Bad debt expense 98,753 -
Change in assets and liabilities:
Receivables (1,268,837) 142,085 (574,656)
PrepRefundableeincomeotaxescurrent assets (556,870) -
Prepaid expenses and other current assets 21,243 (83,638) 4,749
Investments and other assets (43,932) (43,802) 187,635
Accounts payable and accrued expenses (28,153) (441,352) (43,846)
Current income taxes payable (3,900,000) 3,900,000 -
Other - 1,183,068 -
-------------- -------------- ---------------
-------------- -------------- ---------------
NET CASH USED IN OPERATING ACTIVITIES (6,084,929) (4,234,009) (1,237,157)
-------------- -------------- ---------------
Cash flows from investing activities:
Wireless frequency license and acquisition costs - - (170,190)
Acquisition of transmission and related equipment (106,395) (276,026) (40,900)
Acquisition of leasehold improvements,
office equipment and service vehicles (587,540) (182,478) (183,261)
Purchases of U.S. treasury securities - - (15,693,040)
Proceeds from redemption of U.S. treasury securities - - 15,999,140
Acquisition of marketable securities (14,574,540) (33,463,975) -
Proceeds from sale of marketable securities 18,978,461 31,439,714 -
Proceeds of marketable securities - short sale - 12,132,048 15,919,961
Investments - (94,702) (277,173)
Acquisition of common stock of EDSS (513,450) - (2,293,700)
Repayments from (advance to) related party - 1,100,000 (1,105,093)
-------------- -------------- ---------------
-------------- -------------- ---------------
NET CASH PROVIDED BY INVESTING ACTIVITIES 3,196,536 10,654,581 12,155,744
-------------- -------------- ---------------
Cash flows from financing activities:
Dividends paid - (4,267,900)
Exercise of stock options 425,000 - 226,499
Proceeds of long term debt - 100,000
Principal payments of long-term debt (141,297) (317,575) (509,595)
-------------- -------------- ---------------
-------------- -------------- ---------------
NET CASH USED IN FINANCING ACTIVITIES 283,703 (317,575) (4,450,996)
-------------- -------------- ---------------
NET INCREASE IN CASH AND CASH EQUIVALENTS (2,604,690) 6,102,997 6,467,591
Cash and cash equivalents, beginning of year 27,359,353 21,256,356 14,788,765
-------------- -------------- ---------------
-------------- -------------- ---------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 24,754,663 $ 27,359,353 $ 21,256,356
-------------- -------------- ---------------
Supplemental disclosure of cash flow information:
Cash paid for interest $ 69,556 $ 57,707 $ 107,760
Cash paid for taxes 4,306,870 4,500,000
Capital lease assets acquired and obligations incurred 26,987 505,567
Non-cash financing and investing activities:
In 1997, the Company sold South Florida Television Inc. for $48,000,000
in BellSouth Common Stock.
In 1998, the Company closed 400,000 shares of its short sale position
by delivery of marketable securities
See accompanying notes to consolidated financial statements.
F-7
NATIONAL WIRELESS HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. COMPANY OPERATIONS AND BASIS OF PRESENTATION
National Wireless Holdings Inc. ("NWH" or the "Company"), a Delaware
corporation organized on August 31, 1993, is a communications company
focussing primarily on acquisition and operation of telecommunications and
other high tech businesses. The Company currently owns and operates
Electronic Data Submission Systems, Inc. ("EDSS"), a business-to-business
healthcare e-commerce data interchange company, providing links between
healthcare providers and third party payors. In addition, the Company owns
and operates a satellite programming uplink facility. In addition to these
businesses, the Company continues its business of acquiring controlling
interests in telecommunications, media and other high tech areas. The
Company may acquire or invest in other businesses. In June 1997, the
Company sold its wireless cable assets in Miami, Florida in exchange for
common stock of BellSouth Corporation (see Note 3).
The consolidated financial statements include the accounts of NWH and its
majority-owned subsidiaries. All significant intercompany transactions and
balances have been eliminated in consolidation.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH EQUIVALENTS
The Company considers all highly liquid investments with maturities, when
purchased, of three months or less to be cash equivalents. Cash equivalents
consist primarily of investments in various money market funds.
MARKETABLE SECURITIES
The Company's marketable securities consist of an investment in BellSouth
Corporation common stock. The Company's marketable equity securities have
been classified as available for sale. Available for sale securities are
carried at fair value, with unrealized gains and losses, net of tax
effects, reported as a separate component of stockholders' equity, until
realized.
WIRELESS FREQUENCY LICENSE AND ACQUISITION COSTS
Wireless frequency license and acquisition costs are capitalized and
amortized on the straight-line method over the life of the related
agreements, which range from 5 to 10 years.
EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment is recorded at cost and depreciation expense is provided under
the straight-line method over the estimated useful lives of the related
assets, which range from 5 to 10 years; leasehold improvements are
amortized over the shorter of the life of the improvements or the related
lease term.
INTANGIBLE ASSETS
Intangible assets consist primarily of goodwill. Goodwill represents the
excess of the purchase price over the net assets of acquired companies and
is being amortized on the straight-line method over 10 to 15 years.
F-8
NATIONAL WIRELESS HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
LONG-LIVED ASSETS
Based upon events or changes in circumstances, the Company assesses any
impairment in value of its long-lived assets, including intangible assets,
by making a comparison of the current and projected operating cash flows of
each of its assets over its remaining useful life, on an undiscounted
basis, to the carrying amount of the related assets. Such carrying amounts
would be adjusted, if necessary, to reflect any impairment in value.
REVENUE RECOGNITION
Service revenue is recognized as earned in the period the services are
provided. Service revenue for EDSS (see Note 4) includes revenue associated
with electronic transactions to and from physicians, hospital networks and
health insurance carriers and installation revenue. Installation revenue is
recognized over a twelve month period corresponding with the term of the
service contract.
INCOME TAXES
The Company accounts for income taxes under the liability method of
accounting. Under the liability method, deferred taxes are determined based
on differences between the financial statement and tax bases of assets and
liabilities at enacted tax rates in effect in the year in which the
differences are expected to reverse. Valuation allowances are established,
when necessary, to reduce deferred tax assets to the amounts expected to be
realized.
NET INCOME (LOSS) PER SHARE DATA
Basic earnings per share is computed by dividing net income (loss) by the
weighted average number of common shares outstanding during the period.
Diluted earnings per share is computed by dividing net income by the sum of
the weighted average number of common shares outstanding plus all
additional common shares that would have been outstanding if potentially
dilutive common shares had been issued. No potential common shares were
included in the computation of diluted earnings per share when a net loss
existed for the period, as potentially dilutive common shares would have an
antidilutive effect on earnings per share
Computations of net income (loss) per share are as follows:
Year Ended Year Ended Year Ended
October 31, October 31, October 31,
1999 1998 1997
Net income (loss) $ (1,376,263) $ (3,314,224) $ 25,959,164
-------------- -------------- --------------
Weighted average common shares outstanding:
Basic:
Shares of Common Stock outstanding 3,293,274 3,283,000 3,259,923
-------------- -------------- --------------
Fully diluted:
Shares of Common Stock outstanding 3,293,274 3,283,000 3,259,923
Dilutive effect of stock options 17,914
-------------- -------------- --------------
-------------- -------------- --------------
3,293,274 3,283,000 3,277,837
-------------- -------------- --------------
Income (loss) per share - basic $ (0.42) $ (1.01) $ 7.96
Income (loss) per share - diluted $ (0.42) $ (1.01) $ 7.92
F-9
NATIONAL WIRELESS HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
ESTIMATES
The presentation of financial statements in conformity with generally
accepted accounting principles requires the Company's 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 revenue and
expenses during the reporting period. Actual results could differ from
those estimates.
COMPREHENSIVE INCOME
The Company adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income," effective November 1, 1998. This
statement established standards for reporting comprehensive income and its
components in financial statements. Comprehensive income includes all
changes, net of tax, in shareholders' equity that result from recognized
transactions and other economic events of the period other than
transactions of shareholders in their capacities as shareholders.
SEGMENT INFORMATION
Effective August 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 131 "Disclosures about Segments of an Enterprise
and Related Information." This statement replaced the industry segment
approach with the management approach for determining reportable segments.
The management approach is that basis on which management of the Company
makes operating decisions and assesses performance.
RECENTLY ISSUED PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No.133, Accounting for Derivative
Instruments and Hedging Activities. SFAS 133, effective for all fiscal
quarters of fiscal years beginning after June 15, 2000, establishes new
accounting and reporting standards for derivative financial instruments and
for hedging activities. The effect of the future adoption of this
pronouncement is not presently determinable.
3. SALE OF SFTV
On February 26, 1997, the Company and its wholly-owned subsidiary, South
Florida Television, Inc. ("SFTV") entered into an Agreement and Plan of
Reorganization, as amended, (the "Merger Agreement") which became effective
on June 27, 1997 with BellSouth Corporation ("BellSouth") and its
wholly-owned subsidiary, Bell South South Florida Merger Subsidiary, Inc.
("BellSouth Sub"), pursuant to which BellSouth Sub merged into SFTV. SFTV
became a wholly-owned subsidiary of BellSouth and the Company received an
aggregate of $48,000,000 in BellSouth common stock (the "Merger") which
resulted in a pre-tax gain of approximately $44,200,000. The Merger has
been treated as a tax-free reorganization. The BellSouth common stock is
reflected as available for sale marketable securities in the accompanying
consolidated balance sheets.
F-10
NATIONAL WIRELESS HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
4. EDSS
In August 1996, the Company completed a partial exercise of its option to
acquire a 50% interest in Electronic Data Submission Systems, Inc. ("EDSS")
by purchasing 11% of EDSS voting common stock for $343,800 in cash.
On December 13, 1996, the Company exercised a warrant and an option to
purchase additional shares of the common stock of EDSS, which when combined
with its existing share ownership represented 50% of the outstanding common
stock and, pursuant to the EDSS Shareholders Agreement, dated as of July
25, 1996, control of EDSS. On September 10, 1997, the Company purchased an
additional 5% of the common stock of EDSS from the principal stockholder of
EDSS for $750,000. The aggregate purchase price for the EDSS shares was
$1,887,500, of which an aggregate of $887,500 was paid to EDSS and
$1,000,000 was paid to the principal stockholder of EDSS. On September 10,
1997, the Company purchased an additional 5% of the common stock of EDSS
from the principal stockholder of EDSS for $750,000. The acquisition has
been accounted for under the purchase method of accounting and the results
of operations from the date of purchase have been reflected in the
consolidated statement of operations. The purchase price has been allocated
principally to intangible assets (goodwill) and is being amortized over 15
years.
On July 31, 1998, the Company completed the purchase for $1,200,000 of
shares of Series A Preferred stock of EDSS, which when combined with its
existing share ownership represents 58% of the outstanding common stock
and, with additional voting rights, 82% control of EDSS. The Company paid
for such securities with $1,000,000 in cash and $200,000 reduction in the
principal amount of a note outstanding pursuant to a loan agreement between
EDSS and the Company, dated June 19, 1995. After such transaction, the
Company had outstanding loans to EDSS of $788,000. The principal
stockholder of EDSS also agreed to convert $200,000 of indebtedness owed to
him by EDSS into Series B Convertible Preferred Stock of EDSS.
During fiscal 1999, the Company agreed to amend its loan agreement with
EDSS, a majority-owned subsidiary, to increase the limit to $1,800,000 and
advanced an additional $1,000,000 under the loan agreement. The Company has
outstanding loans to EDSS of $1,788,000 as of October 31, 1999.
On July 15, 1999, the Company purchased for $513,450 from the principal
stockholder an additional 6.4% of the fully diluted common stock of EDSS,
which when considered with its existing ownership represents approximately
64% of the fully diluted common stock of EDSS, constituting approximately
84% of the voting interest.
EDSS developed a comprehensive software system, referred to as HECET
Systems-TM- in 1993, which is DOS-based, and released a new Windows
version, WinHECET Systems-TM- in 1998, that enables physicians, clinics,
managed care organizations, HMO's, PPOs, major insurance companies
including Blue Cross/Blue Shield, Medicare, Medicaid, and commercial payors
to communicate electronically the information needed to process and pay
insurance claims, check patient eligibility, make claim status inquiries,
and provide comprehensive reporting on those claims. HECET Systems-TM- and
WinHECET Systems-TM- enables health care professionals throughout the
country to reduce the need for paper claims processing while enhancing the
payment process.
F-11
NATIONAL WIRELESS HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
EDSS has incurred operating losses of $3,673,769 on a cumulative basis
through September 30, 1999. Based upon existing contracts with physicians
and providers and current expense levels, management of EDSS believes that
it will achieve positive cash flow from operations for fiscal 2000 without
the need to obtain additional financing. The Company, however, may seek to
obtain additional financing to accelerate its strategic business plan.
5. LEASE COMMITMENTS
The Company leases administrative facilities and office equipment under
operating leases that expire between 2000 and 2003. Certain of the leases
contain escalation clauses providing for increased rentals based on
operating expenses or the consumer price index. Rent expense, net of rental
income, under operating leases was approximately $395,000, $247,000 and
$243,000 for the years ended October 31, 1999, 1998 and 1997, respectively.
Future annual minimum rental payments as of October 31, 1999 under
noncancellable operating leases for the next five years are as follows:
2000 $ 319,000
2001 315,000
2002 246,000
2003 150,000
---------------
$1,030,000
---------------
6. CONSULTING AND EMPLOYMENT AGREEMENTS
On February 28, 1997, the Company entered into a consulting agreement with
Michael J. Specchio, Inc. ("MJS Inc.") which is owned and managed by
Michael J. Specchio, Chairman of the Company, and simultaneously terminated
its employment agreement with Mr. Specchio. Under the consulting agreement,
MJS Inc. is retained as a consultant and is obliged to provide the services
of Mr. Specchio on substantially a full-time basis for a term ending
September 2001 for annual compensation of $180,000, on substantially the
same terms as Mr. Specchio was previously employed under the employment
agreement. Under the consulting agreement, MJS Inc. also has the same
severance benefits as previously provided to Mr. Specchio.
The Company has entered into employment agreements, as amended in December
1996, with other executive officers and directors which expire between 2000
and 2001, aggregating approximately $262,000 annually.
During the years ended October 31, 1999, 1998 and 1997, salaries and
consulting fees of approximately $780,000, $768,000, and $1,087,000,
respectively, were incurred under these contracts.
During fiscal 1997, EDSS entered into an employment agreement with the
president of EDSS for a period of five years with an initial annual base
salary of $180,000 for years one and two and increasing to $220,000 in
years three through five.
F-12
NATIONAL WIRELESS HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
7. LONG-TERM DEBT
1999 1998
Long-term debt comprises:
Obligations under capital leases (with interest rates
ranging from 11.8% to
16.02% and expiring through
2003) $ 282,118 $ 423,416
Less, current maturities 79,472 88,449
--------------- --------------
$ 202,646 $ 334,967
--------------- --------------
8. INCOME TAXES
The provision (benefit) for income taxes comprises:
1999 1998 1997
Federal:
Current $ (80,293) $7,981,000 $ -
Deferred (835,520) (9,528,000) 15,000,700
State and Local:
Current (18,000) 789,000 -
Deferred (175,000) (942,000) 1,899,300
Reversal of prior year income taxes (391,187) - -
---------------- --------------- ----------------
$ (1,500,000) $(1,700,000) $ 16,900,000
---------------- --------------- ----------------
---------------- --------------- ----------------
As of October 31, 1999 and 1998, the deferred income tax liability relates
to marketable securities received from the sale of SFTV comprising the gain
not yet recognized for income tax purposes and the unrealized gain on such
securities since the sale. During 1997, NOL's which had been offset by a
100% valuation allowance in prior years were either utilized to reduce
taxable income or were transferred to BellSouth as part of the sale of
SFTV.
During fiscal 1999, the Company completed a tax examination by the Internal
Revenue Service for fiscal years 1995 through 1997. Such examination
resulted in no material adjustments and the Company reversed tax
liabilities in 1999 of approximately $392,000 recorded in prior years for
possible adjustments from such examination.
The difference between the actual provision (benefit) for income taxes and
the provision (benefit) for income taxes computed by applying the statutory
federal rate to income (loss) before provision for income taxes is
principally attributable to state and local taxes, net of federal income
tax benefit, and the reversal in 1999 of prior year taxes relating to
possible IRS tax adjustments.
F-13
NATIONAL WIRELESS HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
9. CAPITAL STOCK
The Company is authorized to issue 1,000,000 shares of Serial Preferred
Stock, par value $.01 per share with dividend and liquidation preferences
over the common stock.
10. STOCK OPTION PLAN
The 1993 Stock Option Plan, as amended, and the 1997 Equity Incentive Plan
(the "Plans") have participants which include key employees (including
officers), directors, advisors, and independent consultants to the Company
or to any of its subsidiaries. The Company has reserved 80,000 and 200,000
shares of common stock for issuance under the 1993 and 1997 Plans,
respectively. Options granted to employees may be designated as incentive
stock options ("ISO's") or non-qualified stock options ("NQSO's"), as
defined by the Internal Revenue Service. Options granted to independent
consultants and other non-employees may only be designated NQSO's. Options
granted pursuant to the Plans which are ISO's will enjoy the attendant tax
benefits provided under Sections 421 and 422 of the Internal Revenue Code
of 1986, as amended.
The exercise price of options granted under the Plans may not be less than
100% of the fair market value of the common stock on the date of grant.
Generally, options will be exercisable for a term that will not exceed ten
years from the date of grant.
During fiscal 1997, the Company granted 100,000 five-year options under the
Plans, one third of which vested immediately while the remaining vest
ratably over two years.
Information with respect to shares under option is summarized below:
EXERCISE
PRICE
ISO'S NQSO'S PER SHARE
Balance, October 31, 1996 11,750 68,250 $6.50-$8.50
Granted 11,730 88,270 $17.05
Exercised - (30,000) $6.50-$8.50
-------------- --------------
Balance, October, 31, 1997 23,480 126,520 $8.50-$17.05
Granted - -
Exercised - -
-------------- --------------
Balance, October 31, 1998 23,480 126,520 $8.50-$17.05
Granted - -
Exercised (11,750) (38,250) $8.50
-------------- --------------
Balance, October 31, 1999 11,730 88,270 $8.50-$17.05
-------------- --------------
Exercisable, October 31, 1999 11,730 88,270 $17.05
-------------- --------------
F-14
NATIONAL WIRELESS HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
No options were forfeited or expired during any period presented. The
remaining weighted average contractual life of options outstanding at
October 31, 1999 was 2.17 years.
The Company has elected to adopt the disclosure-only provisions of
Statement of Financial Accounting Standards No. 123 "Accounting for
Stock-Based Compensation". Accordingly, no compensation cost has been
recognized with regard to options granted under the Plan in the
accompanying financial statements. If stock-based compensation costs had
been recognized based on the estimated fair values at the dates of grant
for options awarded during 1997, net loss and net loss per common share for
1999 would have been increased by approximately $15,000 or $.01 per share
(basic and diluted), 1998 net loss and net loss per common shares would
have been increased by $156,000 or $.05 per share (basic and diluted) and
1997 net income and net income per common share would have been reduced by
$125,000 or $.04 per share (basic and diluted).
These pro forma adjustments to net income and net income per common share
assume fair values of each option grant estimated using the Black-Scholes
option pricing formula. The more significant assumptions underlying the
determination of such fair value for options granted during 1997 include:
(i) weighted average risk-free interest rates of 5.92%; (ii) weighted
average expected option life of 5 years; (iii) an expected volatility of
41%, and (iv) an expected dividend yield of 0%. The per share weighted
average fair value at the dates of grant for options awarded during 1997
was $4.67 and there were no options granted for the years ended October 31,
1998 and 1999.
11. RELATED-PARTY TRANSACTIONS
On July 9, 1997 the Company loaned $1,100,000 to an officer of the Company
under a note receivable which bore interest at 8% and was paid on June 26,
1998.
The note payable to related party of $140,000 as of October 31, 1999
represents a loan from EDSS to the president of EDSS. The note bears
interest at 8% and is due on demand after the full payment of an
intercompany loan of $1,788,000 due from EDSS to the Company.
In fiscal 1999, 1998 and 1997, the Company purchased new service vehicles
from an automobile dealership which is owned by the Chairman of the Company
for approximately $24,300, $4,500 and $29,000, respectively.
The Company leases office space in Rantoul, Illinois from a company which
is owned jointly by the Chairman and an officer of the Company, for $1,750
per month. The lease agreement is on a month-to-month basis based on the
needs of the Company. The Company also subleases office space in New York
to a company owned by a director of the Company for $800 per month. The
sublease, which commenced December 1, 1994, is on a month-to-month basis
based on the needs of the Company.
12. OPERATING SEGMENTS
The Company currently operates in two operating segments: the holding
company, including certain investments which are not currently material;
and, its investment in EDSS (see Note 4). All operations are currently
conducted in the United States.
F-15
NATIONAL WIRELESS HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Information with respect to the segments is as follows:
NWH AND
OTHER EDSS ELIMINATIONS TOTAL
YEAR-ENDED OCTOBER 31, 1999:
Revenues
Service $ 639,557 $ 4,685,948 $ 5,325,505
Interest and dividends 1,752,829 13,922 $ (100,000) 1,666,751
Expenses
Interest - (169,556) 100,000 (69,556)
Depreciation and amortization (537,510) (549,876) (1,087,386)
Other (2,535,376) (4,892,750) (7,428,126)
-------------- -------------- --------------- --------------
Loss from operations $ (680,500) $ (912,312) $ - $(1,592,812)
-------------- -------------- --------------- --------------
Total assets $60,671,642 $ 5,342,577 $(1,788,000) $64,226,219
-------------- -------------- --------------- --------------
Capital expenditures for leasehold
improvements, office equipment,
service vehicles and
transmission equipment $ 172,185 $ 548,737 $ - $ 720,922
-------------- -------------- --------------- --------------
YEAR-ENDED OCTOBER 31, 1998:
Revenues
Service $ 1,218,747 $ 3,274,244 $ 4,492,991
Interest and dividends 2,383,641 - $ (75,000) 2,308,641
Expenses
Interest (6,823) (125,884) 75,000 (57,707)
Depreciation and amortization (394,830) (382,993) (777,823)
Other (3,280,416) (3,583,879) (6,864,295)
-------------- -------------- --------------- --------------
Loss from operations $ (79,681) $ (818,512) $ - $ (898,193)
-------------- -------------- --------------- --------------
Total assets $62,920,622 $ 4,495,728 $ (788,000) $66,628,350
-------------- -------------- --------------- --------------
Capital expenditures for leasehold
improvements, office equipment,
service vehicles and transmission
equipment $ 301,848 $ 662,223 $ - $ 964,071
-------------- -------------- --------------- --------------
YEAR-ENDED OCTOBER 31, 1997:
Revenues
Service $ 1,197,901 $ 2,110,179 $ 3,308,080
Interest and dividends 1,517,002 7,599 $ (115,000) 1,409,601
Expenses
Interest (63,417) (159,343) 115,000 (107,760)
Depreciation and amortization (531,681) (300,732) (832,413)
Other (3,164,635) (1,950,225) (5,114,860)
-------------- -------------- --------------- --------------
Loss from operations $(1,044,830) $ (292,522) $ - $(1,337,352)
-------------- -------------- --------------- --------------
Capital expenditures for leasehold
improvements, office equipment,
and service vehicles and transmission
equipment $ 94,920 $ 129,241 $ - $ 224,161
-------------- -------------- --------------- --------------
F-16
NATIONAL WIRELESS HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
13. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each category of financial instruments:
CASH AND CASH EQUIVALENTS:
Cash equivalents comprise money market funds whose carrying amounts
approximate fair value due to the short-term maturity of the instruments.
LONG-TERM DEBT AND NOTE PAYABLE:
Long-term debt relates principally to equipment lease obligations, service
vehicle loans payable and a note payable to a related party. Interest rates
on the debt approximate the rates available at October 31, 1999 and the
Company believes that their carrying value of debt at October 31, 1999
approximates fair value.
MARKETABLE SECURITIES
Marketable securities are reflected at fair value in the accompanying
consolidated balance sheet at October 31, 1999.
F-17
NATIONAL WIRELESS HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
14. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Quarterly information for 1999, 1998 and 1997 is set forth in the table
below:
Quarter Ended
--------------------- ----------------- ---------------- ---------------------
January 31 April 30 July 31 October 31
--------------------- ----------------- ---------------- ---------------------
1999:
Revenue $ 1,551,503 $ 1,493,203 $ 1,861,922 $ 2,085,628
Net (loss) income (1,920,333) (218,702) 336,425 426,347
Net (loss) income per
common share:
Basic (.58) (.07) .10 .13
Diluted (.58) (.07) .10 .13
1998:
Revenue 1,624,000 1,722,196 1,730,503 1,724,933
Net (loss) income 212,614 248,620 228,207 (4,003,665)
Net (loss) income per
common share:
Basic 0.06 0.08 0.07 (1.22)
Diluted 0.06 0.08 0.07 (1.22)
1997:
Revenue 701,760 996,263 1,429,088 1,590,570
Net (loss) income (540,558) (328,522) 27,085,670 (257,426)
Net (loss) income
per common share:
Basic (0.17) (0.10) 8.33 (0.08)
Diluted (0.17) (0.10) 8.23 (0.08)
The sum of the quarterly net income (loss) per common share amounts do not
necessarily equal the full year amount primarily because the computations
of the denominator for basic and diluted earnings per share for each
quarter and the full year are made independently.
The loss for the quarter ended October 31, 1998 is principally attributable
to the loss on securities transactions during that quarter.
F-18
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
NATIONAL WIRELESS HOLDINGS INC.
-------------------------------
(Registrant)
Date: January 28, 2000 By: /s/ Terrence S. Cassidy
---------------------------
Terrence S. Cassidy, Principal Executive
Officer, Principal Financial Officer and
Principal Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
Signature Title Date
/s/ Terrence S. Cassidy
- -----------------------
Terrence S. Cassidy Director January 28, 2000
/s/ Thomas R. DiBenedetto
- -------------------------
Thomas R. DiBenedetto Director January 28, 2000
/s/ Louis B. Lloyd
- ------------------
Louis B. Lloyd Director January 28, 2000
/s/ Michael A. McManus, Jr.
- ---------------------------
Michael A. McManus, Jr. Director January 28, 2000
/s/ Michael J. Specchio
- -----------------------
Michael J. Specchio Director January 28, 2000
28