Despite being the target of a federal securities investigation and an auditor's warning about its finances, USATalks.com apparently has found someone willing to loan the company some money.
The San Diego-based outfit, which is marketing an Internet-based long-distance telephone service, is in the process of inking a deal with IntelliNet, a Washington, D.C.-based telemarketing firm, for up to $20 million in financing in return for allowing IntelliNet to sign up as many as 100,000 new subscribers to USATalks.com's service each month. The money, according to the company's CEO, would be used to further expand its service, which routes long-distance telephone calls over the Internet for a fixed rate each month.
But the extent of the company's business operations, including the size of its network, are still the subject of an investigation by the Securities and Exchange Commission. In January, the agency suspended trading on the company's then-high-flying stock and announced it was looking into the accuracy of information disclosed to the public by the company.
The suspension was lifted in February, and the company's share price tumbled more than 55 percent the following day. Recent listings for the company's stock, which traded on the OTC Bulletin Board, could not be found.
Since then, the company has been battling one challenge after another. The firm was hit with lawsuits by shareholders, who charged they were mislead by statements about the company. Last month, the company reported it dismissed its accounting firm, Crouch Bierwolf & Chisolm, and hired Singer Lewak Greenbaum & Goldstein LLP as a replacement. The firm denied the move was related to the SEC investigation.
Earlier this month, USATalks.com posted a net loss for 1998 of $6.1 million, or 11 cents a share, with no revenues. In the earnings filing with the SEC, auditors warned that the company's finances left doubt that the firm would be able to continue "as a going concern."
In the same filing, the company said it still was being investigated by the SEC. Allen Portnoy, chief executive for USATalks.com, said Monday the firm has received no further updates on the matter.
"I don't know what the status is," Portnoy said. "They just tell us they are investigating, then they stopped asking questions. I wish I knew what was going on, but I don't."
Under the letter of intent signed with IntelliNet, which is an affiliate of The InterBank Cos., USATalks will gain access to as much as $20 million in lease financing. Portnoy said the money will be used to add additional points of presence (POPs), which allow it to link its network to local phone service providers. The deal is expected to be closed by the second quarter, the company said.
Hopefully Mother Russia is kinder to Qualcomm's latest offspring than she was to the parent firm.
Leap Wireless International Inc., which was spun off from Qualcomm last year, and its Britain-based partner have launched a wireless local-loop network to serve the region around St. Petersburg. The companies say the service initially will bring local telephone service to about 10,000 residents of the area, with more to be added later.
The service will be operated by Metrosvyaz, a Russia-based joint venture owned by Leap and the Tiller Groupof England. The companies plan to expand the service to at least eight other areas within Russia during 1999, with the next operations scheduled for launch in the cities of Tartarstan, Saratov and Krasnodar.
The business is not to be had on the cheap. As part of the joint-venture agreement, Leap says it is providing $72.5 million in working capital for Metrosvyaz. The company said Metrosvyaz, which has already committed $175 million, expects to raise and invest $500 million in Russian networks over the next two years.
Wireless local loop services are used to bring local telephone service to under-served areas by linking wireless mobile units to nearby base stations. The services are seen as a cheaper alternative to stringing telephone lines across sparsely populated rural areas.
In Russia, less than 20 percent of residents have a telephone, compared to 60 percent in the United States. The Russian government has set a goal of adding 30 million telephone lines over the next 10 years, a potential windfall of opportunity for telecommunications providers.
The country, however, can pose some unique challenges to U.S. firms, as Qualcomm found out recently. In late 1997, a field technician for the San Diego-based firm was arrested and imprisoned allegedly for espionage activities. Qualcomm said the technician was using satellite-positioning equipment to locate weak spots in a wireless network; Russian security officials claimed he was taking geographical information of "sensitive sites."
Other companies have had to cope with problems such as kidnappings and shakedowns by mob agents or government officials.
"We believe the demand for phone lines in Russia remains strong, and improving infrastructure -- including telecommunications, transportation and power -- is the cornerstone to building a healthy, stable economy," said Tom Bernard, executive vice president of Leap and a director of Metrosvyaz, in a statement Monday.