**FORM 10-QSB**

 

**SECURITIESAND EXCHANGE COMMISSION**

 

**Washington, DC 20549**

 

 

 

**QUARTERLYREPORT**

**PURSUANTTO SECTION 13 OR 15(d) OF THE**

**SECURITIESEXCHANGE ACT OF 1934**

 

**For the quarterly period ended March 31, 2002**

 

**Commission file number 0-230 17**

 

**CHOICETELCOMMUNICATIONS, INC.**

(Exactname of registrant as specified in its charter)

 

| **Minnesota**                                      |   | **41-1649949**      |
|----------------------------------------------------|--------|---------------------|
| (State of jurisdiction or                          |   | IRS Employer ID No. |
| incorporation of organization)                     |   |                |
|                                               |   |                |
| **15500 Wayzata Blvd., #1029 Wayzata,  Minnesota** |   | **55391**           |
| (Address of principal executive offices)           |   | (Zip Code)          |

 

Registrant’stelephone number, including area code**  952-249-1801**

 

**    N/A**

(Former name, former addressand former fiscal year if changed from last report)

 

**   N/A**

(Former address of principalexecutive offices)                                         (Zip Code)

 

Registrant’sformer telephone number, including area code**  N/A**

 

**Indicateby check mark whether the registrant (1) has filed all reports required to befiled by Section 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.**

**                     Yes  ****ý****              No****o**

 

**As of date of filing, the Company has 3,035,735 sharesoutstanding.**

 

 

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**CHOICETEL COMMUNICATIONS, INC.**

 

**Form 10-QSB Index**

**May 15, 2002**

 

 

 

 

 

 

 

Part I:     Financial Information

 

Item 1.   Financial Statements

 

Consolidated Balance Sheet -

December 31, 2001 and March 31, 2002

 

Consolidated Statements ofOperations -

Three months ended March31, 2001 and 2002

 

Consolidated Statements of CashFlows -

Three months ended March31, 2001 and 2002

 

Notesto Consolidated Financial Statements

 

Item2.    Management’s Discussion andAnalysis

 

 

Part II:       Other Information

 

Item 1.    Legal Proceedings

 

Item 6.     Exhibits and Reports on Form 8-K

 

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|                               |   | CONDENSED****CONSOLIDATED |
|------------------------------------|--------|---------------------------|
| **CHOICETEL COMMUNICATIONS, INC.** |   | BALANCE SHEETS            |
| **AND  SUBSIDIARIES**              |   |                      |

 
|                                              |   | **(Unaudited)** |      |           |   |
|---------------------------------------------------|--------|-----------------|-----------|----------------|--------|
|                                              |   | **3/31/2002**   |      | **12/31/2001** |   |
| ***Assets:***                                     |   |            |      |           |   |
| Current assets:                                   |   |            |      |           |   |
| Cash and cash equivalents                         |   | $               | 2,755,450 |           | $      | 751,059 |   |
| Investments                                       |   |            |      | 2,454,084      |   |
| Receivables                                       |   | 287,956         |      | 278,066        |   |
| Prepaid and other assets                          |   | 157,174         |      | 325,354        |   |
| Deferred taxes                                    |   | 455,000         |      | 493,000        |   |
|                                              |   |            |      |           |   |
| Total current assets                              |   | 3,655,580       |      | 4,301,563      |   |
|                                              |   |            |      |           |   |
| Property and equipment, net                       |   | 1,783,298       |      | 1,843,101      |   |
| Restricted cash                                   |   | 800,000         |      |           |   |
| Other Assets                                      |   | 61,571          |      | 67,292         |   |
|                                              |   | $               | 6,300,450 |           | $      | 6,211,956 |   |
|                                              |   |            |      |           |   |
| ***Liabilities and  shareholders’ equity:*** |   |            |      |           |   |
| Current liabilities:                              |   |            |      |           |   |
| Accounts payable                                  |   | $               | 109,813   |           | $      | 15,468 |   |
| Accrued expenses                                  |   | 176,908         |      | 241,920        |   |
| Total current liabilities                         |   | 286,721         |      | 257,388        |   |
|                                              |   |            |      |           |   |
| Shareholders’ equity                         |   | 6,013,729       |      | 5,954,568      |   |
|                                              |   |            |      |           |   |
|                                              |   | $               | 6,300,450 |           | $      | 6,211,956 |   |

 

 

 

See notes tocondensed consolidated financial statements.

 

 

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|                               |   | CONDENSED  CONSOLIDATED      |
|------------------------------------|--------|------------------------------|
| **CHOICETEL COMMUNICATIONS, INC.** |   | STATEMENTS OF OPERATIONS     |
| **AND  SUBSIDIARIES**              |   | THREE MONTHS ENDED  MARCH 31 |
|                               |   | (Unaudited)                  |

                           
|                                           |   | **2002**  |    | **2001**  |   |
|------------------------------------------------|--------|-----------|---------|-----------|--------|
|                                           |   |      |    |      |   |
| Service revenue                                |   | $         | 763,699 |      | $      | 999,099 |   |
| Cost of service                                |   | 294,272   |    | 396,274   |   |
|                                           |   |      |    |      |   |
| Gross margin                                   |   | 469,427   |    | 602,825   |   |
|                                           |   |      |    |      |   |
| Selling, general and administrative expenses   |   | 382,900   |    | 707,604   |   |
|                                           |   |      |    |      |   |
| Operating income                               |   | 86,527    |    | (104,779  | )      |
|                                           |   |      |    |      |   |
| Other income (expense)                         |   |      |    |      |   |
| Investment income                              |   |      |    | 102,017   |   |
| Interest income, net                           |   | 10,633    |    | 5,512     |   |
|                                           |   |      |    |      |   |
| Income (loss) before income tax (benefit)      |   | 97,160    |    | 2,750     |   |
|                                           |   |      |    |      |   |
| Provision for income tax (benefit)             |   | 38,000    |    | (8,243    | )      |
|                                           |   |      |    |      |   |
| Net income (loss)                              |   | $         | 59,160  |      | $      | 10,993 |   |
|                                           |   |      |    |      |   |
| Earnings (loss) per share:                     |   |      |    |      |   |
| Net income, basic                              |   | $         | 0.02    |      | $      | 0.00 |   |
|                                           |   |      |    |      |   |
| Net income, diluted                            |   | $         | 0.02    |      | $      | 0.00 |   |
|                                           |   |      |    |      |   |
| Weighted average number of shares outstanding: |   |      |    |      |   |
| Basic                                          |   | 3,035,795 |    | 3,375,935 |   |
|                                           |   |      |    |      |   |
| Diluted                                        |   | 3,054,685 |    | 3,375,935 |   |

 

 

See notes to condensedconsolidated financial statements.

 

 

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|                               |   | CONDENSED  CONSOLIDATED      |
|------------------------------------|--------|------------------------------|
| **CHOICETEL COMMUNICATIONS, INC.** |   | STATEMENTS OF CASH FLOWS     |
| **AND  SUBSIDIARIES**              |   | THREE MONTHS ENDED  MARCH 31 |
|                               |   | (UNAUDITED)                  |

 
|                                                                                      |   | **2002**  |      | **2001** |   |
|-------------------------------------------------------------------------------------------|--------|-----------|-----------|----------|--------|
| Cash flows from operating activities:                                                     |   |      |      |     |   |
| Net income (loss)                                                                         |   | $         | 59,160    |     | $      | 10,993 |   |
| Adjustments to reconcile net income (loss) to net cash provided by  operating activities: |   |      |      |     |   |
| Deferred taxes                                                                            |   | 38,000    |      | 2,664    |   |
| Depreciation and amortization                                                             |   | 76,521    |      | 66,361   |   |
| Unrealized gain on investments                                                            |   |      |      | (102,017 | )      |
| Changes in operating assets and liabilities:                                              |   |      |      |     |   |
| Receivables                                                                               |   | (9,890    | )         | (125,866 | )      |
| Cash in phones                                                                            |   |      |      | 3,850    |   |
| Prepaids                                                                                  |   | 168,180   |      | 33,674   |   |
| Accounts payable                                                                          |   | 94,345    |      | (130,439 | )      |
| Accrued expenses                                                                          |   | (65,011   | )         | 231,340  |   |
| Net cash provided by (used in) operating activities                                       |   | 361,305   |      | (9,440   | )      |
|                                                                                      |   |      |      |     |   |
| Cash flows from investing activities:                                                     |   |      |      |     |   |
| Purchase of equipment                                                                     |   | (10,998   | )         | (111,863 | )      |
| Proceeds from sale of investment                                                          |   | 2,454,084 |      |     |   |
| Restricted cash                                                                           |   | (800,000  | )         |     |   |
| Proceeds from sale of equipment                                                           |   |      |      | 19,514   |   |
| Net cash provided by (used in) investing activities                                       |   | 1,643,086 |      | (92,349  | )      |
|                                                                                      |   |      |      |     |   |
| Cash flows from financing activities:                                                     |   |      |      |     |   |
| Issuance of short-term debt                                                               |   |      |      | 104,000  |   |
| Repurchase of common stock                                                                |   |      |      | (137,774 | )      |
| Net cash provided by (used in) financing activities                                       |   |      |      | (33,774  | )      |
|                                                                                      |   |      |      |     |   |
| Net increase (decrease) in cash and cash equivalents                                      |   | $         | 2,004,391 |     | $      | (135,563 | ) |
| Cash and cash equivalents, beginning                                                      |   | 751,059   |      | 495,312  |   |
| Cash and cash equivalents, ending                                                         |   | $         | 2,755,450 |     | $      | 359,749 |   |
|                                                                                      |   |      |      |     |   |
| Supplemental disclosure of cash flow information:                                         |   |      |      |     |   |
| Cash paid for interest                                                                    |   | $         |      |     | $      | 843 |   |

 

 

See notes tocondensed consolidated financial statements.

 

 

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## **CHOICETEL COMMUNICATIONS, INC. AND SUBSIDIARIES**

**Notesto Condensed Consolidated Financial Statements**

 

 

1.                    Basis of presentation, nature of business:

 

Basis ofPresentation:

Thecondensed consolidated financial statements of the Company for the three monthperiods ended March 31, 2002 and 2001 have been prepared by the Company withoutaudit by the Company’s independent auditors. In the opinion of the Company’s management, all adjustments necessary topresent fairly the financial position, results of operations, and cash flows ofthe Company as of March 31, 2002 and for the periods then ended have beenmade.  Those adjustments consist only ofnormal and recurring adjustments. The condensed consolidated balance sheet ofthe Company as of December 31, 2001 has been derived from the auditedconsolidated balance sheet of the Company as of that date.

 

Certain information and note disclosures normallyincluded in the Company’s annual financial statements have been condensed oromitted. These condensed consolidated financial statements should be read inconjunction with a reading of the financial statements and notes theretoincluded in the Company Form 10-KSB annual report for 2001 filed with theSecurities and Exchange Commission.

 

The results of operations for the three month periodended March 31, 2002 are not necessarily indicative of the results to beexpected in a full year.

 

Nature ofbusiness:

ChoiceTel Communications, Inc., and Subsidiary (theCompany) included an 80% owned subsidiary, Advants, Inc. (formerly PublicInternet Access Holdings Corporation) until May 8, 2001.  The Company was in the business of providingpay phone services in several states and Puerto Rico. In December 1999 theCompany decided to sell its pay phone operations.  Advants was formed to provide public internet access throughkiosks located in high traffic areas such as gas stations andsupermarkets.  Advants had minimalrevenue since inception and incurred large expenses for hardware and softwaredevelopment.  In February 2001, theCompany decided to cease funding Advants and liquidate its investment.

 

On May 8, 2001, the Company sold its investment inAdvants to an unrelated party recording a gain of $1,129,000.

 

During 2001, the Company’s financial statementsclassified the results of its payphone operations as results of discontinuedoperations, this practice was discontinued as of December 31, 2001 andconsequently, the Company has reclassified items which were reported in 2000 asdiscontinued operations as continuing.

 

On February 28, 2002, the Company announced that ithad entered into an Agreement and Plan of Reorganization, dated as of February27, 2002, with Sontra Medical, Inc., a Delaware corporation.  Pursuant to the Merger Agreement, theCompany’s recently 

 

 

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incorporated, wholly-owned subsidiary, CC MergerCorp., a Delaware corporation, will merge with and into Sontra Medical.  Sontra Medical will be the survivingcorporation and become a wholly-owned subsidiary of ChoiceTel.  On the closing date of the Merger, theoutstanding shares of Sontra Medical’s stock will be converted into the rightto receive newly-issued shares of ChoiceTel common stock based on an exchangeratio of 0.2347 shares of ChoiceTel common stock for each share of SontraMedical stock.  The exchange ratio issubject to adjustment in certain circumstances as set forth in the MergerAgreement.  After completion of thetransaction, the shareholders of Sontra Medical will own approximately 71% ofChoiceTel and ChoiceTel shareholders will own approximately 29% ofChoiceTel.  Outstanding rights topurchase stock of Sontra Medical will also be converted into the right topurchase ChoiceTel common stock at the same exchange ratio.

 

On May 1, 2002 the Company sold its Puerto RicoAssets, see note 5 below

 

2.               Propertyand equipment as of:
|                     |   | **March 31,  2002** |   | **December  31, 2001** |   |
|--------------------------|--------|---------------------|--------|------------------------|--------|
| Office equipment         |   | 97,868              |   | 97,868                 |   |
| Telephones and equipment |   | 2,340,872           |   | 2,335,739              |   |
| Accumulated Depreciation |   | (655,442            | )      | (590,506               | )      |
| Total                    |   | 1,783,298           |   | 1,843,101              |   |

 

3.       Commitments and contingencies:

 

Phone locations:

The Company rentsphone locations from merchants and property owners under varying lease terms,usually ten years, generally cancelable by the Company upon 30 days notice.

 

Leases:

The Company leasesits offices in Puerto Rico and Wayzata, Minnesota under a lease which ismonth-to-month.  Rent expense was$44,132 for the year ended December 31, 2001.

 

Contingencies:

Puerto Rico linecharges:

The Company has anongoing dispute with the Puerto Rican Telephone Company (PRTC) related to theperiod July 2001 to the present.

 

 

4.       Legal Proceedings

 

TomatoLand Display Systems, Inc. filed a suit against the Company and its formersubsidiary, Advants, Inc. on April 3, 2001 in Ramsey County, Minnesota DistrictCourt seeking damages in excess of $50,000 from Advants for alleged servicesprovided.  While the Company was not aparty to the transaction, the plaintiff was seeking to hold the Company liablefor the alleged debt of Advants.  TomatoLand subsequently agreed to dismiss this action and pursue its claims in theLeaf Industries claim, discussed below.

 

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Leaf Industries,Inc. filed a claim on June 4, 2001 in Hennepin County, Minnesota District Courtagainst the Company and Advants, seeking damages in excess of $50,000 fromAdvants based on a corporate guarantee whereby Advants allegedly guaranteedamounts owed by Tomato Land to Leaf Industries.  Leaf also is seeking to pierce the corporate veil and hold theCompany responsible for Advants' debts. Tomato Land is also a defendant in this action and has filed crossclaims against Company identical to its claims in the Ramsey County action,discussed above.  The Company is defendingthe action.  In May 2002, the Courtdenied the Company's Motion for Summary Judgment, and a trial in this matter isanticipated to commence in September 2002. The Company has not accrued any amounts related to these items, since inmanagement's view, an unfavorable outcome is unlikely.

 

5.               Subsequent Events:

On May 1, 2002 theCompany sold its Puerto Rico assets to Choicetel Acquisitions, Inc. (anunrelated third party) for $2,173,500, of which $2,123,500 was paid in cashwith a $50,000 accounts receivable due 60 days from closing.  As a result of this transaction, the Companyrecorded a gain before tax of approximately $330,000 and after tax income ofapproximately $190,000 or $0.07 per share.

 

The followingproforma table shows the effect on the March 31, 2002 financial statements asif the sale of the Puerto Rico assets had occurred on March 31, 2001.

 
|                                  |   | **3/31/02** |      | **Proforma  adjustments** |   | **Adjusted  3/31/02** |   |
|---------------------------------------|--------|-------------|-----------|---------------------------|--------|-----------------------|--------|
| Cash                                  |   | $           | 2,755,450 |                      | $      | 2,123,470             |   | $ | 4,878,920 |   |
| Receivables                           |   | 287,956     |      | 50,000                    |   | 337,956               |   |
| Prepaid expenses                      |   | 157,174     |      |                      |   | 157,174               |   |
| Deferred Taxes                        |   | 455,000     |      | -131,000                  |   | 324,000               |   |
| Property, equipment, and other assets |   | 1,844,869   |      | -1,844,869                |   | 0                     |   |
| Restricted cash                       |   | 800,000     |      |                      |   | 800,000               |   |
| Total Assets                          |   | $           | 6,300,450 |                      | $      | 197,601               |   | $ | 6,498,050 |   |
|                                  |   |        |      |                      |   |                  |   |
| Current liabilities                   |   | 286,721     |      |                      |   | 286,721               |   |
| Shareholder Equity                    |   | 6,013,729   |      | 197,601                   |   | 6,211,330             |   |
| Total                                 |   | $           | 6,300,450 |                      | $      | 197,601               |   | $ | 6,498,050 |   |
|                                  |   |        |      |                      |   |                  |   |
| Operating income                      |   | $           | 86,527    |                      |   |                  | $      | 86,527 |   |
| Other income                          |   | 10,633      |      | 328,601                   |   | 339,234               |   |
| Income before income tax              |   | 97,160      |      | 328,601                   |   | 425,761               |   |
| Provision for income tax              |   | 38,000      |      | 131,000                   |   | 169,000               |   |
| Net income                            |   | 59,160      |      | 197,601                   |   | 256,761               |   |
| EPS, basic                            |   | $           | 0.02      |                      | $      | 0.07                  |   | $ | 0.08 |   |
| EPS, diluted                          |   | $           | 0.02      |                      | $      | 0.06                  |   | $ | 0.08 |   |

 

 

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**Item 2.**

**MANAGEMENT’S DISCUSSION AND ANALYSISOF**

**FINANCIAL CONDITION AND RESULTS OFOPERATIONS**

 

*Exceptfor historical information contained in this Report, information contained inthis Form 10-KSB contains “forward–looking statements” within the meaningof the Private Securities Litigation Reform Act of 1995, which can beidentified by the use of forward-looking terminology such as “may”, “will”,“expect”, “plan”, “estimate”, or “continue” or the negative thereof or other variationsthereon or comparable terminology. There are certain important factors that could cause results to differmaterially from those anticipated by some of these forward-looking statements,including without limitation, the effects of changes in economic conditions andcertain of the “Risk Factors” entitled “Competition,” “Other RegulatoryFactors,” “Technological Change and New Services,” “Dependence Upon Third-PartyProviders,” “Service Interruptions; Equipment Failures,” “Reliance on SingleBrand of Payphones,” and “Reliance on Key Personnel” contained in the Company’sProspectus dated November 10, 1997 included in the Registration Statement onForm SB-2 filed with the Securities and Exchange Commission (Registration No.333-29969).  Such “Risk Factors” areincorporated herein by reference. Investors are cautioned  that allforward-looking statements involve risk and uncertainty.*

 

### **General**

 

The Company derives revenue from three principalsources: coin calls, non-coin calls and dial-around calls.  Coin calls represent calls paid for withcoins deposited in the telephone.  TheCompany recognizes coin revenue in the amount deposited.  Non-coin calls are calls charged to a customercredit card or billed to the called party (collect calls). These calls arerouted to and processed by an operator service provider (“OSP”). Compensationfor Dial-Around calls is paid by long-distance carriers when consumers access along-distance carrier directly by dialing an access number, or by dialing an800 number, or by using a non-billable calling card.

The principal costs related to ongoing operation ofthe Company’s payphones include telephone line charges, consisting of paymentsmade by the Company to telephone companies and long-distance carriers foraccess charges and use of their networks; commission payments to SiteProviders; and service, repair and maintenance costs.

The Company’s formerly80% owned subsidiary (Advants, Inc.) derived revenue from three principalsources: sales of kiosks to third-party venders, user fees collected in cash orcredit card at the kiosk, and sponsorship revenues from affiliates, sponsorsand advertisers.  All revenue isrecognized as received, net of processing charges.  The principal costs related to ongoing operation includetelephone line charges, connectivity charges for internet access and commissionpayments to site providers.  In February2001, the Company decided to cease funding Advants and to liquidate itsinvestment, and on May 8, 2001, the Company sold its stock in Advants for anominal amount and ceased consolidating Advants operating results as of thatdate.

 

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**Threemonths ended March 31, 2002 compared to March 31 2001**.

The after tax income forthe three months ended March 31, 2002 was $59,000 compared to $11,000 in theperiod ended March 31, 2001.  Thisincludes the effect of consolidating Advants Inc.’s operations with theCompany’s payphone activities until May 2001, when the Company sold its stockholdings to a third party.

 

**Revenue**

                Totalrevenues for the period ended March 31, 2002 were $764,000 compared to $999,000in the period ended March 31, 2001. During the 2002 period, the company operated an average of 1,450payphones compared to an average of 1,500 payphones in the 2001 period.

Advants’ revenue in 2001was $15,000.

Coin revenues in 2002were $485,000 compared to $517,000 a decrease of $32,000 or 6.3%.  Non-coin revenues were $156,000 compared to$208,000 a decrease of $53,000 or 25.2%, and dial around revenues were $123,000compared to $259,000 a decrease of $136,000 or 52.4%.

 

**DirectExpenses**

                Totaldirect expenses for the period ended March 31, 20021 were $294,000 compared to$396,000 in the period ended March 31, 2001. Direct expenses for Advants were $65,000 in 2001.

                Telephoneline charges were $232,000 in 2002 compared to $261,000 in 2001 a decrease of$30,000 or 11.3%.  Commissions to siteproviders were $63,000 in 2002 compared to $70,000 in 2001 a decrease of $7,000or 10.5%.

 

**SalesGeneral and Admin Expenses**

                Totalsales, general and admin expenses (SG&A) for the period ended March 31,2002 were $383,000 compared to $708,000 in 2001.  SG&A expenses for Advants were $285,000 in 2001.

                Service and collection expenseswere $101,000 in 2002 compared to $122,000 in 2001 a decrease of $22,000 or17.6%.  Marketing expenses were $6,000in 2002 compared to $18,000 in 2001 a decrease of $13,000 or 68.2%.  Admin office and overhead expenses were$73,000 in 2002 compared to $63,000 in 2001 an increase of $10,000 or 15.9%.

Corporate SG&Aincludes the cost of Corporate officers, the Corporate offices, and otherrecurring expenses related to maintaining the corporate entity, such asdirectors’ compensation, shareholder services, and audit and reportingexpenses.  Corporate SG&A in 2002was $127,000 compared to $153,000 in 2001, a decrease of $26,000 or 16.9%.  Depreciation and amortization totaled$77,000 in 2002 compared to $66,000 in 2001.

 

**OtherIncome and Expense**

During 2002, other incomeand expense includes $11,000 interest earned from investing excess cashbalances in money market accounts

 

During 2001, other incomeand expense includes $102,000 earned by Choicetel on its investment in WhiteboxArbitrage Trading LLP, and $6,000 interest earned by Choicetel from investingexcess cash balances in money market accounts

 

**Liquidity and Capital Resources**

For the threemonths ended March 31, 2002 the Company’s operating activitiesprovided  $361,000 and the proceeds fromsales of investments provided $2,454,000. The Company used $11,000 to purchaseequipment and $800,000 was put into escrow as required by the Sontra Mergeragreement.  This resulted in a$2,004,000 increase in cash balances.

 

 

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Item 1. Legal Proceedings

A suit was filed on April 3, 2001 in Ramsey County, Minnesota DistrictCourt by Tomato Land Displays seeking damages in excess of $50,000 from Advantsfor alleged services provided.  Whilethe Company was not a party to the transaction, the plaintiff was seeking tohold the Company liable for the alleged debt of Advants.  Tomato Land subsequently agreed to dismissthis action and pursue its claims in the Leaf Industries claim, discussedbelow.

 

Anadditional suit was filed on June 4, 2001in Hennepin County, Minnesota DistrictCourt by Leaf Industries, seeking to pierce the corporate veil, hold Choicetelresponsible for Advants’ debts, and seeking damages in excess of $50,000 fromAdvants for alleged services provided. Tomato Land Displays is also a defendant in this action and has filedcross claims against Choicetel in this action. The Company is defending theaction.

 

The Company has not accrued any amounts relating to these items, sincein management’s view, an unfavorable outcome is unlikely.

 

 

Item 6.  Reports on Form 8-K

                On March 5, 2002,the Company reported that it had entered into an Agreement and Plan ofReorganization, dated as of February 27, 2002, with Sontra Medical, Inc.  Pursuant to the Merger Agreement, theCompany will merge with and into Sontra Medical, with Sontra Medical as thesurviving corporation.  On the closingdate of the Merger, the outstanding shares of Sontra Medical’s stock will beconverted into the right to receive newly-issued shares of ChoiceTel commonstock based on an exchange ratio of 0.2347 shares of ChoiceTel common stock foreach share of Sontra Medical stock, which exchange ratio is subject toadjustment in certain circumstances as set forth in the Merger Agreement. Aftercompletion of the transaction, the shareholders of Sontra Medical will ownapproximately 71% of ChoiceTel and ChoiceTel shareholders will ownapproximately 29% of ChoiceTel. Outstanding rights to purchase stock of SontraMedical will also be converted into the right to purchase ChoiceTel commonstock at the same exchange ratio.

 

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Signature

 

Pursuant to the requirements of the SecuritiesExchange Act of 1934, the Registrant has duly caused this report to be signedon its behalf by the undersigned thereunto duly authorized.

 

 
|               |   | CHOICETEL  COMMUNICATIONS, INC.             |
|--------------------|--------|---------------------------------------------|
|               |   |                                        |   |   |   |   |
| Date: May 14, 2002 | By:    | /s/ Jack S. Kohler                          |
|               |   | Jack S. Kohler                              |
|               |   | Vice President  and Chief Financial Officer |
|               |   |                                        |   |   |   |   |

 

 

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