1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A-1
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended June 30, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ________________ to ______________
Commission file number: 0-20999
CHADMOORE WIRELESS GROUP, INC.
----------------------------------------
(Exact name of small business issuer as specified in its charter)
Colorado 84-1058165
- ------------------------------------------------------------ -------------
(State or other jurisdiction of incorporation or organization) (IRS Employer
Identification
No.)
4720 Polaris Street, Las Vegas, Nevada 89103
---------------------------------------------
(Address of principal executive offices)
(702) 891-5255
------------------------------
(Issuer's telephone number)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or 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 [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: As of December 31, 1996
17,823,446 shares of common stock, $.001 par value, outstanding.
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
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INDEX
PART I - FINANCIAL INFORMATION Page
------
Item 1. Financial Statements F1-F24
Item 2. Plan of Operation 2-4
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 5
Item 2. Changes in Securities 5
Item 3. Defaults upon Senior Securities 5
Item 4. Submission of Matters to a Vote of Securities Holders 5
Item 5. Other Information 5-7
Item 6. Exhibits and Reports on Form 8-K 5-7
SIGNATURES 8
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3
CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
(A Development Stage Company)
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
The audited Financial Statements of the Company for the Six Months ended
June 30, 1996, are located beginning at page F-1 following this page of the
Company's Interim Report of Form 10-QSB/A-1.
4
CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
(A Development Stage Company)
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INDEX TO FINANCIAL STATEMENTS
Page
----
Independent Auditors' Report F-2
Consolidated Balance Sheets as of June 30, 1996 and December 31, 1995 F-3
Consolidated Statements of Operations for the six months ended June 30, 1996 and 1995 and for the period from
January 1, 1994 through June 30, 1996 F-4
Consolidated Statements of Shareholders' Equity for the six months ended June 30, 1996 and for the period from
January 1, 1994 through June 30, 1996 F-5
Consolidated Statements of Cash Flows for the six months ended June 30, 1996 and 1995 and for the period from
January 1, 1994 through June 30, 1996 F-7
Notes to Consolidated Financial Statements F-9
F-1
5
INDEPENDENT AUDITORS' REPORT
The Shareholders
Chadmoore Wireless Group, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of
Chadmoore Wireless Group, Inc. and subsidiaries (formerly Capvest
Internationale, Ltd.), a development stage company, (the Company) as
of June 30, 1996 and December 31, 1995, and the related consolidated
statements of operations, shareholders' equity, and cash flows for
the six months ended June 30, 1996 and the period from January 1,
1994 through June 30, 1996. These consolidated financial statements
are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audits 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. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of Chadmoore Wireless Group, Inc. and subsidiaries (formerly
Capvest Internationale, Ltd.), a development stage company, as of
June 30, 1996, and the results of their operations and their cash
flows for the six months ended June 30, 1996 and the period from
January 1, 1994 through June 30, 1996, in conformity with generally
accepted accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that Chadmoore Wireless Group, Inc. and subsidiaries will
continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company's cumulative losses
during the development stage and the need to obtain substantial
additional funding to complete its development raises substantial
doubt about the entity's ability to continue as a going concern.
Management's plans and intentions with regard to these matters are
discussed in Note 1. The consolidated financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
The accompanying consolidated statements of operations and cash flows
for the six months ended June 30, 1995 were not audited by us and,
accordingly, we do not express an opinion on them.
/s/ KPMG Peat Marwick, LLP
Las Vegas, Nevada
December 20, 1996
F-2
6
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CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Balance Sheet
June 30, 1996 and December 31, 1995
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JUNE 30, DECEMBER 31,
1996 1995
- -----------------------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash $ 2,158,323 $ 188,029
Amounts held for shares issued (note 4) 250,000 675,000
Stock subscription receivable (note 5) 227,890 287,000
Accounts receivable 247,691 --
Inventory 140,549 --
Due from General Communications, Inc. -- 76,252
Prepaid property management rights (note 12) 100,453 117,813
Deposits 16,826 16,742
Other 26,641 7,813
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Total current assets 3,168,373 1,368,649
Investment in JJ&D, LLC (note 3) 600,000 --
Property and equipment, net (note 6) 1,695,059 353,942
FCC licenses, net (note 7) 1,433,601 1,321,336
Debt issuance costs, net of accumulated amortization of $5,833 (note 11) 414,167 --
Management agreements (notes 3 and 10) 22,725,442 --
Investment in license options (note 8) 2,926,976 2,007,958
Investment in options to acquire management agreements (notes 3 and 9) 9,771,445 --
Non-competition and consulting agreements, net of accumulated amortization
of $-0- and $94,838, respectively -- 258,121
Other 73,605 31,489
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Total Assets $ 42,808,668 $ 5,341,495
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LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Current installments of long-term debt (note 11) $ 45,263 $ 337,255
Accounts payable and accrued liabilities 649,780 361,641
Licenses - options payable 347,100 448,350
License option commission payable (note 8) 524,800 349,200
Notes payable 100,000 --
Non-compete and consulting agreement - current -- 119,225
Accrued interest 23,189 54,490
Other 26,370 --
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Total current liabilities 1,716,502 1,670,161
Noncompete and consulting agreements, excluding current installments -- 108,840
Convertible notes payable (note 11) 4,000,000 --
Capital lease obligations 29,157 --
Long-term debt, excluding current installments (note 11) 1,264,478 524,868
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Total liabilities 7,010,137 2,303,869
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Commitments and contingencies (note 15)
Shareholders' equity :
Preferred stock, $.001 par value. Authorized 40,000,000 shares; issued
and outstanding -0- shares -- --
Common stock, $.001 par value. Authorized 100,000,000 shares; issued and
outstanding 11,479,398 shares at June 30, 1996 and 8,387,064 shares at
December 31, 1995 11,480 8,387
Additional paid-in capital 43,917,789 10,564,852
Stock subscribed (note 5) 2,158,900 324,807
Deficit accumulated during the development stage (10,289,638) (7,860,420)
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Total shareholders' equity 35,798,531 3,037,626
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Total liabilities and shareholders' equity 42,808,668 5,341,495
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See accompanying notes to consolidated financial statements.
F-3
7
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CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Operations
For the Six Months Ended June 30, 1996 and 1995 and for the
Period from January 1, 1994 through June 30, 1996
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PERIOD FROM
JANUARY 1,
SIX MONTHS ENDED JUNE 30, 1994 THROUGH
---------------------------- JUNE 30,
1996 1995 1996
(Unaudited)
- --------------------------------------------------------------------------------------
Revenues:
Radio services $ 98,166 $ -- $ 98,166
Equipment sales 440,737 -- 440,737
Maintenance and installation 296,869 -- 296,869
Other 67,618 -- 67,618
903,390 -- 903,390
- --------------------------------------------------------------------------------------
Costs and expenses:
Cost of sales 518,625 -- 518,625
Salaries, wages and benefits 876,639 224,008 1,749,520
General and administrative 1,719,849 919,834 9,016,203
Depreciation and amortization 124,830 103,453 351,117
3,239,943 1,247,295 11,635,465
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Loss from operations (2,336,553) (1,247,295) (10,732,075)
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Other income (expense):
Management fees (notes 2 and 3) 100,198 87,528 472,611
Interest expense (76,038) (78,383) (234,363)
Gain on sale of assets -- -- 330,643
Loss on retirement of note payable -- -- (32,404)
Other, net (116,825) -- (94,050)
(92,665) 9,145 442,437
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Net loss $(2,429,218) $(1,238,150) $ (10,289,638)
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Weighted average number of common
shares outstanding 9,700,120 4,750,715 9,700,120
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Net loss per share $ (0.25) $ (0.26) $ (1.06)
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See accompanying notes to consolidated financial statements.
F-4
8
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CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Shareholders' Equity
For the period from January 1, 1994 to June 30, 1996
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===================================================================================================================================
EQUITY
(DEFICIT) TOTAL
PREFERRED STOCK COMMON STOCK ACCUMULATED SHARE-
--------------- --------------- ADDITIONAL DURING COMMON HOLDERS'
OUTSTANDING OUTSTANDING PAID-IN DEVELOPMENT STOCK EQUITY
SHARES AMOUNT SHARES AMOUNT CAPITAL STAGE SUBSCRIBED (DEFICIT)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at January 1, 1994 (notes 1 and 11) -- $ -- 325,000 $ 325 $ 146,546 $ (638,620) $ -- $ (491,749)
Net loss -- -- -- -- -- (35,383) -- (35,383)
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Balance at December 31, 1994, as previously stated -- -- 325,000 325 146,546 (674,003) -- (527,132)
Effect of Plan of Reorganization:
Eliminate Capvest accumulated deficit -- -- -- -- -- 674,003 -- 674,003
Shares issued through conversion of debt -- -- 175,000 175 538,134 -- -- 538,309
Shares issued to Chadmoore Communications, Inc. -- -- 4,000,000 4,000 (589,180) (827,095) -- (1,412,275)
- -----------------------------------------------------------------------------------------------------------------------------------
As adjusted for reorganization with Chadmoore
Communication, Inc. the acquirer -- -- 4,500,000 4,500 95,500 (827,095) -- (727,095)
Shares of Chadmoore Communications, Inc., issued
January 1995 -- -- -- -- 565,000 -- -- 565,000
Shares issued in exchange for Chadmoore
Communications, Inc. shares -- -- 30,000 30 44,970 -- -- 45,000
Shares issued in connection with the private placement -- -- 763,584 764 1,526,407 -- -- 1,527,171
Shares issued to investors for cash -- -- 400,000 400 399,200 -- -- 399,600
Shares issued under employee benefit and consulting
services plan -- -- 496,000 496 1,777,719 -- -- 1,778,215
Shares issued for legal fees -- -- 62,500 62 249,938 -- -- 250,000
Shares issued in conjunction with conversion of
advances -- -- 707,720 708 1,165,498 -- -- 1,166,206
Shares issued by license holders exercising options -- -- 562,260 562 859,696 -- -- 860,258
Shares issued by option holders -- -- 865,000 865 1,039,136 -- -- 1,040,001
Options issued in lieu of cash payments for legal,
consulting and financing fees -- -- -- -- 2,841,788 -- -- 2,841,788
Shares subscribed (note 4) -- -- -- -- -- -- 324,807 324,807
Net loss -- -- -- -- -- (7,033,325) -- (7,033,325)
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Balance at December 31, 1995 -- -- 8,387,064 8,387 10,564,852 (7,860,420) 324,807 3,037,626
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(Continued)
F-5
9
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CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Shareholders' Equity, Continued
For the period from January 1, 1994 to June 30, 1996
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EQUITY
(DEFICIT) TOTAL
PREFERRED STOCK COMMON STOCK ACCUMULATED SHARE-
--------------- ------------------ ADDITIONAL DURING COMMON HOLDERS'
OUTSTANDING OUTSTANDING PAID-IN DEVELOPMENT STOCK EQUITY
SHARES AMOUNT SHARES AMOUNT CAPITAL STAGE SUBSCRIBED (DEFICIT)
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Balance at December 31, 1995,
continued -- $ -- 8,387,064 $ 8,387 $10,564,852 $ (7,860,420) $ 324,807 $ 3,037,626
Shares issued in connection with the
private placement (note 12) -- -- 549,417 550 885,781 -- (324,807) 561,524
Shares issued to investors for cash
(note 12) -- -- 430,000 430 641,820 -- -- 642,250
Preferred shares issued to investors
for cash (note 12) 250,000 250 -- -- 2,273,457 -- -- 2,273,707
Preferred shares converted to common
shares (note 12) (250,000) (250) 977,057 977 (727) -- -- --
Shares issued for options exercised
(note 12) -- -- 750,000 750 1,173,000 -- -- 1,173,750
Shares issued for assets purchased
from General
Communications, Inc. (notes 3 and 12) -- -- 100,000 100 176,463 -- -- 176,563
Shares issued to license holders
(note 12) -- -- 285,860 286 821,564 -- -- 821,850
Options exercised but not issued
(note 5) -- -- -- -- -- -- 195,000 195,000
Options issued for 20% interest in
JJ&D, LLC (note 3) -- -- -- -- 400,000 -- -- 400,000
Options issued for CMRS and 800
Acquisition (note 3) -- -- -- -- 26,981,579 -- -- 26,981,579
Shares subscribed (note 5) -- -- -- -- -- -- 1,963,900 1,963,900
Net loss -- -- -- -- -- (2,429,218) -- (2,429,218)
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Balance at June 30, 1996 -- $ -- 11,479,398 $11,480 $43,917,789 $(10,289,638) $2,158,900 $35,798,531
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See accompanying notes to consolidated financial statements.
F-6
10
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CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statement of Cash Flows
For the Six Months Ended June 30, 1996 and 1995 and for the
period from January 1, 1994 through June 30, 1996
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<Caption)
PERIOD FROM
JANUARY 1,
SIX MONTHS ENDED JUNE 30, 1994 THROUGH
-------------------------- JUNE 30,
1996 1995 1996
------------- ------------- -------------
(Unaudited)
Cash flows from operating activities:
Net loss $(2,429,218) $(932,762) $(10,289,637)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 124,829 80,519 351,116
Amortization of debt discount 63,372 -- 63,372
Gain on sale of assets held for resale -- -- (330,643)
Expense associated with:
Stock issued for services 220,833 -- 2,522,875
Options issued for services -- -- 2,841,788
Change in operating assets and liabilities:
Decrease in stock subscriptions receivable, net of
stock subscribed -- -- (637,193)
Increase in accounts receivable (79,228) -- (79,228)
Increase in inventory (62,568) -- (62,568)
Decrease in due from General Communications, Inc. 76,252 -- --
Increase (decrease) in prepaids 17,360 -- 17,360
Increase in other noncurrent assets -- -- (36,859)
Increase in deposits (84) -- (16,826)
Decrease in other current assets (18,828) -- (26,641)
Increase (decrease) in accounts payable 288,840 448,437 650,481
Increase in commission payable 175,600 -- 524,800
Increase in accrued interest 39,559 62,330 94,049
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Net cash used in operating activities (1,583,281) (341,476) (4,413,754)
- ------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchase of assets from General Communications, Inc. (363,870) -- (363,870)
20% investment in JJ&D, LLC (100,000) -- (100,000)
Purchase of Airtel Communications, Inc. assets (50,000) -- (50,000)
Purchase of CMRS and 800 SMR Network, Inc. (3,547,000) -- (3,547,000)
Purchase of SMR station licenses -- (20,450) (1,398,575)
Purchase of license options (186,850) (729,650) (886,200)
Increase in deposits of licenses (11,568) -- (11,568)
Increase (decrease) in license options payable -- -- --
Purchase of property and equipment (837,120) (69,009) (1,389,552)
Purchase of assets held for resale -- (149,650) (219,707)
Sale of assets held for resale -- -- 700,000
Increase in deposit on sale -- 325,000 --
- ------------------------------------------------------------------------------------------------------
Net cash used in investing activities (5,096,408) (643,759) (7,266,472)
- ------------------------------------------------------------------------------------------------------
(Continued)
F-7
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CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statement of Cash Flows, Continued
For the Six Months Ended June 30, 1996 and 1995 and for the
Period From January 1, 1994 through June 30, 1996
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PERIOD FROM
JANUARY 1,
SIX MONTHS ENDED JUNE 30, 1994 THROUGH
------------------------- JUNE 30,
1996 1995 1996
(Unaudited)
- ---------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds upon issuance of common stock $1,944,941 $1,214,500 $ 4,216,543
Proceeds upon issuance of preferred stock 2,273,707 -- 2,273,707
Proceeds upon exercise of options - related -- -- 62,500
Proceeds upon exercise of options - unrelated 923,750 -- 1,901,251
Purchase and conversion of CCI stock -- -- 45,000
Advances from related parties -- 114,205 767,734
Payment of advances from related parties -- (1,000) (73,000)
Payments on capital lease obligations (8,171) -- (8,171)
Payments of long-term debt (64,244) (43,305) (367,015)
Proceeds from issuance of notes payable -- -- 375,000
Repayment of note payable -- (75,000) --
Proceeds from issuance of long-term debt 3,580,000 -- 4,545,000
Proceeds from issuance of common stock -- -- 100,000
- ---------------------------------------------------------------------------------------------
Net cash provided by financing activities 8,649,983 1,209,400 13,838,549
- ---------------------------------------------------------------------------------------------
Net increase in cash 1,970,294 224,165 2,158,323
Cash at beginning of period 188,029 151,972 --
- ---------------------------------------------------------------------------------------------
Cash at end of period $2,158,323 $ 376,137 $ 2,158,323
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Supplemental disclosure of cash paid for:
Taxes $ -- $ -- $ --
Interest $ 107,339 $ -- $ 224,770
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NONCASH ACTIVITIES:
See Notes 8, 9, 11 and 13 for disclosure of non-cash transactions.
See accompanying notes to consolidated financial statements.
F-8
12
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CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements
June 30, 1996 and December 31, 1995
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(1) DESCRIPTION OF BUSINESS
A. THE COMPANY AND BASIS OF PRESENTATION
The accompanying financial statements include the accounts of Chadmoore
Wireless Group, Inc. and subsidiaries (the Company), which is a development
stage company. The Company commenced formal operations in the state of Nevada
on May 11, 1994 and was organized for the purpose of acquiring and operating
Specialized Mobile Radio (SMR) wireless communication systems. The Company's
current market area is primarily located in Tennessee and Arkansas.
In February 1995, the Company (formerly Capvest Internationale, Ltd. (Capvest),
a publicly held entity) entered into a Plan of Reorganization (Plan) whereby
the Company exchanged 89% of its issued and outstanding stock for 85% of
restricted common shares of Chadmoore Communications, Inc. (CCI). Capvest has
not had significant operations since its inception in 1988. Pursuant to the
Plan, Capvest changed its name to Chadmoore Wireless Group, Inc.
The transaction has been accounted for under the purchase method of accounting
as a reverse purchase acquisition whereby Chadmoore Wireless Group, Inc. is the
remaining legal entity and CCI is the acquirer and remaining operating entity.
Pursuant to this structure, the consolidated shareholders' equity (deficiency)
of the legal entity has been adjusted for the effect of the reorganization and
to reflect the shareholders' equity (deficiency) of the acquiring entity as of
December 31, 1994.
In addition, a development stage company is required to report the results of
its operations and cash flow from inception to date. However, Capvest has been
dormant since 1988 and CCI began operations on May 11, 1994. As a result, the
statements of operations, shareholders' equity (deficiency) and cash flows have
been presented from that date forward.
B. DEVELOPMENT STAGE AND LIQUIDITY
Through June 30, 1996, the Company has been engaged primarily in the
identification, development and acquisition of SMR systems SMR Stations and has
therefore not commenced normal operations nor generated significant revenues.
Accordingly, the Company has generated an accumulated net loss during its
development stage of approximately $10,289,638 from operations as of June 30,
1996. Management believes its acquisition of SMR Stations from CMRS Systems,
Inc. (CMRS) and 800 SMR Network, Inc. (800), consummated on June 14, 1996 and
SMR systems and other assets from General Communications, Inc. (General), which
was consummated on March 8, 1996 as described in Note 3, as well as other
associated system acquisitions, will provide the basis for the commencement of
normal operations in the future. In order to facilitate the funding opportunity
necessary to complete the acquisition and development of the SMR systems the
Company entered into an asset purchase agreement with General. Management
anticipates that this business combination will facilitate future additional
equity financing of SMR systems acquisition and development (see Note 3).
In addition, the Company entered into an asset purchase, subscription and
financing agreement with Motorola subject to certain criteria (see Note 16).
In June 1996, the Company issued $4,000,000 out of a $5,000,000 offering of 8%,
three year, convertible notes. The Company received 3,580,000, net of
placement fees of $420,000. In July 1996, the Company placed the remaining
$1,000,000 and received $900,000, net of placement fees of $100,000. In
addition, the Company received $925,000 from the exercise of options subsequent
to June 30, 1996.
Accordingly, based on the plans and intentions set forth above and assuming the
additional capital infusion as described above, management anticipates through
the establishment of operational SMR systems in conjunction with the ability to
provide both short-term funding of operations and long-term financing of
acquisition and development activities, that the Company expects to emerge from
the development stage and establish normal operations towards the end of 1996.
However, as of June 30, 1996, the success of achieving the objectives discussed
herein, as well as the ultimate profitability of the Company's operations once
the development stage has ended cannot presently be determined.
F-9
13
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(1) DESCRIPTION OF BUSINESS - CONCLUDED
C. USE OF ESTIMATES
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the financial statements of
Chadmoore Wireless Group, Inc. and its subsidiaries CMRS Systems, Inc. (CMRS),
800 SMR Network, Inc. (800), Chadmoore Construction Services, Inc. (CCSI), and
Chadmoore Communications, Inc. (CCI) and its wholly-owned subsidiaries
Chadmoore Communications of Tennessee (CCT) and Chadmoore Communications of
Memphis (a non-active entity). All significant intercompany balances and
transactions have been eliminated in consolidation.
B. CASH AND CASH EQUIVALENTS
The Company considers all short-term highly liquid investments with original
maturities of three months or less cash equivalents.
C. INVENTORY
Inventories, which consist of merchandise and parts are accounted for by the
lower of cost (using the first-in first-out method) on net realizable value.
D. DEPRECIATION
Property and equipment is stated at cost. Depreciation is calculated on the
straight-line method over the estimated useful lives of the assets, generally
5-10 years.
E. FCC LICENSES
FCC licenses are recorded at cost and consist of agreements with the Federal
Communications Commission (FCC) which allow the use of certain communications
frequencies. FCC licenses have a primary term of five years and are renewable
for additional five year periods for a nominal fee. Although there can be no
assurance that the licenses will be renewed, management expects that the
licenses will be renewed as they expire. FCC license costs and renewal fees
are amortized using the straight-line method over 20 years and 5 years,
respectively. The Company evaluates the recoverability of FCC licenses by
determining whether the unamortized balance of this asset is expected to be
recovered over its remaining life through projected undiscounted operating cash
flows.
F. INTANGIBLE ASSETS
Organization costs are stated at cost, net of accumulated amortization and
amortized over a five year period using the straight line method.
Goodwill, which is included in the investment in JJ&D, represents the excess of
purchase price over fair value of net assets acquired, is amortized on a
straight-line basis over the expected periods to be benefited, generally five
years. The Company assesses the recoverability of this intangible asset by
determining whether the amortization of the goodwill balance over its remaining
life can be recovered through undiscounted future operating cash flows of the
acquired operation. The amount of goodwill impairment, if any, is measured
based on projected discounted future operating cash flows using a discount rate
reflecting the Company's average cost of funds. The assessment of the
recoverability of goodwill be impacted if estimated future operating cash flows
are not achieved.
Non-competition and consulting agreements are stated at cost, net of
accumulated amortization and amortized over a three to five year period using
the straight line method.
F-10
14
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(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONCLUDED
G. FAIR VALUE OF FINANCIAL INSTRUMENTS
In December 1991, the FASB issued Statement of Financial Accounting Standards
No. 107 Disclosure About Fair Value of Financial Instruments (SFAS 107). SFAS
107 requires all entities to disclose the fair value of financial instruments,
both assets and liabilities recognized and not recognized on the balance sheet,
for which it is practicable to estimate fair value. SFAS 107 defines fair
value of a financial instrument as the amount at which the instrument could be
exchanged in a current transaction between willing parties. At June 30, 1996,
the carrying value of all financial instruments approximates fair value.
H. LONG-LIVED ASSETS
During fiscal 1996, the Company adopted Statement of Financial Accounting
Standards No. 121, Accounting for Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of (SFAS 121), which establishes accounting
standards for the recognition and measurement of impairment of long-lived
assets, certain identifiable intangibles and goodwill either to be held or
disposed of. The adoption of SFAS 121 did not have a material impact on the
Company's financial position or results of operations.
I. INCOME TAXES
The Company has adopted the provisions of Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes (SFAS 109), whereby deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply
to taxable income in the years in which those temporary differences are
expected to be recovered or settled. Under SFAS 109, the effect on deferred
tax assets and liabilities of a change in tax rates is recognized in income in
the period that includes the enactment date.
J. STOCK OPTION PLAN
Prior to January 1, 1996, the Company accounted for its stock option plan in
accordance with the provisions of Accounting Principles Board (APB) Opinion No.
25, Accounting for Stock Issued to Employees, and related interpretations. As
such, compensation expense would be recorded on the date of grant only if the
current market price of the underlying stock exceeded the exercise price. On
January 1, 1996, the Company adopted SFAS No. 123, Accounting for Stock-Based
Compensation, which permits entities to recognize as expense over the vesting
period the fair value of all stock-based awards on the date of grant.
Alternatively, SFAS No. 123 also allows entities to continue to apply the
provisions of APB Opinion No. 25 and provide pro forma net income and pro forma
earnings per share disclosures for employee stock option grants made in 1995
and future years as if the fair-value-based method defined in SFAS No. 123 had
been applied. The Company has elected to continue to apply the provisions of
APB Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No.
123.
K. REVENUES
The Company's only source of revenue through March 7, 1996 was management fee
income from General Communications Radio Sales and Services, Inc. In
connection with these services, the Company records a management fee equal to
the net cash flows of General. This revenue has been included as part of Other
Income and Expense in the Statement of Operations through March 7, 1996. On
March 8, 1996, the Company completed the asset purchase of General's assets and
in May 1996, the Company completed the acquisition of Airtel Communications,
Inc. and consummated Management and Option to Acquire Agreements with Airtel
SMR, Inc. (see note 3). As such, the Company now recognizes revenue from
monthly telephone interconnect and dispatch services based on monthly access
charges per radio, plus in the case of telephone interconnect service, revenue
is recognized based on air time charges as used. Revenue is also recognized
from equipment service upon acceptance by the customer of the work completed.
Revenue is also recognized from the sale of equipment when delivered.
L. LOSS PER SHARE
Loss per share is computed by dividing the net loss by the weighted average
number of common shares outstanding at June 30, 1996 and 1995. The inclusion
of equivalent shares in the form of stock options and warrants were not
included in a computation of fully dilutive loss per share as the results would
be anti-dilutive.
F-11
15
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(3) ACQUISITIONS
A. CMRS AND 800 STOCK PURCHASE AGREEMENT
On June 14, 1996, the Company executed a Stock Purchase Agreement with Libero
Limited ("Libero"). Pursuant to the agreement, the Company acquired from
Libero all the issued and outstanding common stock of CMRS Systems, Inc.
("CMRS") and 800 SMR Network, Inc. ("800") (jointly the "Management
Companies"). The Management Companies intend to engage in the business of
constructing and managing mobile radio stations (Stations). The management
Companies have entered into management agreements ("Management Agreements")
with certain companies (the "Companies"), pursuant to which CMRS or 800, as the
case may be, has agreed, in accordance with applicable Federal Communications
Commission ("FCC") rules, regulations and policies, to construct and manage all
of the Stations for which the Companies have received licenses from the FCC.
The respective shareholders of the Companies have granted to CMRS or 800, as
the case may be, options to acquire all of the stock of the Companies
("Options"), at such time as all conditions of such transfer of control have
been met, as set forth in the FCC rules, regulations and policies and as
required by Section 310 of the Communications Act of 1934, as amended by U.S.C.
310.
The Company consummated such acquisition for combined consideration valued at
$32,459,584. The Company has accounted for the acquisition under the purchase
method of accounting. The purchase price was paid with (1) an aggregate cash
consideration of $3,547,000; (2) 508,000 shares of the Company's restricted
common stock valued at $1,931,010, and (3) a grant of an option to purchase
8,323,857 shares of common stock for a period of ten years at an exercise price
of $.50 per share valued at $26,981,579. The Company obtained an independent
verification of the value of the securities issued in connection with the
acquisition. Combined consideration of $22,721,712 was allocated to management
agreements held by CMRS and 800 and combined consideration of $9,737,877 was
allocated to options to acquire the stock of the licensee corporations also
held by CMRS and 800. These allocations were based on an evaluation by an
independent consultant's estimate of the fair market value of the assets
exchanged. Additionally, preferred income tax assets of approximately
$10,000,000 realized from different tax bases for income tax and financial
reporting purposes have been fully reserved with a valuation allowance as the
realization of the deferred tax asset cannot be reasonably assumed. The
Company will begin amortizing the cost allocated to the management contracts
over the useful lives commencing upon the underlying Station being placed in
service not to extend past June 2006. The Company had sufficient cash on hand
for the cash consideration paid. Pro forma information has not been shown as
operations have not yet commenced.
B. GENERAL COMMUNICATIONS ASSET PURCHASE AGREEMENT
On March 8, 1996, the Company renegotiated and finalized the purchase of Phases
2-5 of the General Communications Asset Purchase Agreement. In conjunction
with this transaction, the Company purchased certain SMR equipment, land,
building, other fixed assets, accounts receivable, inventory and FCC licenses
for SMR channels in Memphis, Tennessee from General Communications Radio Sales
and Service, Inc. (General). Prior to the asset purchase and since November
1994, the Company was managing the daily operations of General for a management
fee equal to the net cash flows of General.
The acquired assets were recorded at $834,569. The Company paid $345,609 in
cash and issued 100,000 shares of restricted common stock with a fair market
value on March 8, 1996 of $176,563, based on the discounted average closing bid
and ask price of the Company's common stock trading on the NASD Electronic
Bulletin Board. The Company's non-competition, consulting agreement and note
payable liabilities to General with a balance totaling $906,687, net of the
corresponding non-competition and consulting agreement asset of $244,571 were
canceled and a new note payable was issued. The new note is a 25 year,
unsecured, noninterest bearing, negotiable promissory note face amount of
$4,110,000, scheduled to be repaid in 300 monthly installments.
The notes monthly payments are subject to Consumer Price Index (CPI) increases
in years three through thirteen. The Company has assumed a CPI increase of
2.5% for recording purposes thereby reflecting the gross value of the note
equal to $5,024,198. Interest on the note has been imputed at 9% giving a net
present value of $1,208,869, net of unamortized discount of $3,815,329
amortized on the straight line method over the term of the note.
F-12
16
================================================================================
(3) ACQUISITIONS - CONCLUDED
B. GENERAL COMMUNICATIONS ASSET PURCHASE AGREEMENT - CONCLUDED
The following unaudited pro forma results of operations assume the acquisition
occurred as of January 1, 1995:
SIX MONTHS
ENDED YEAR ENDED
UNAUDITED PRO FORMA INFORMATION JUNE 30, 1996 DECEMBER 31, 1995
- ----------------------------------------------------------------------
Revenue sales $ 1,216,361 $ 2,146,584
Net loss (2,086,368) (7,098,494)
Net loss per common share $ (0.23) $ (1.28)
The pro forma financial information is not necessarily indicative of the
operating results that would have occurred had the General acquisition been
consummated as of January 1, 1995, nor are they necessarily indicative of
future operating results.
C. JJ&D, LLC INVESTMENT
On May 11, 1996 the Company purchased a 20% investment in JJ&D, LLC (JJ&D) by
tendering $100,000 in cash, issuing a $100,000 noninterest bearing 120 day note
and issuing 298,507 options to purchase the Company's restricted common stock.
The options are exerciseable for three years at $1.00 per share. JJ&D has
obtained the exclusive rights from A Communications, LLC to market, in the
United States, A Communications' proprietary SMR frequency agile quick start
module. This investment is being accounted for using the equity method of
accounting. All significant intercompany transactions have been eliminated.
Amortization of goodwill and equity in earnings of investee are not material
through June 30, 1996. Condensed financial information of JJ&D for the six
months ended June 30, 1996 is summarized below:
CONDENSED FINANCIAL INFORMATION
- ----------------------------------------
Current assets $19,908
Non-current assets --
Current liabilities 16,065
Shareholders' Equity 3,843
Net income --
D. AIRTEL SMR, INC. MANAGEMENT AND OPTION TO ACQUIRE AGREEMENT
On May 11, 1996, the Company completed a Management and Option to Acquire
Agreement with Airtel SMR, Inc., an operator of SMR stations. The Company
assumed a $100,000 note payable, due May 1998 with interest at 12%. The Company
received SMR equipment valued at $62,702, Management Agreements for one year
valued at $3,730 and an Option to Acquire the common stock of Airtel SMR, Inc.
valued at $33,568. The allocated valuations of the Management Agreement and
Option to Acquire Agreement were based on management's estimates.
E. AIRTEL COMMUNICATIONS, INC. ASSET PURCHASE AGREEMENT
On May 11, 1996, the Company completed an Asset Purchase Agreement with Airtel
Communications, Inc., an SMR sales organization. The Company paid $50,000 and
received certain office equipment and rights to a customer list valued at
$47,788. The customer list will be amortized on a straight-line basis over its
useful life estimated to be two years. The accumulated amortization at June
30, 1996 was $3,982.
F-13
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(4) AMOUNTS HELD FOR SHARES ISSUED
During the second quarter of 1996, certain option holders exercised options to
purchase 100,000 shares of common stock at $2.50 per share. The proceeds of
$250,000 were held by the Company's corporate counsel at June 30, 1996. In
July 1996, the funds were received by the Company.
On December 29, 1995, certain option holders exercised options to purchase
450,000 shares of common stock at $1.50 per share. The proceeds of $675,000
were held by the Company's corporate counsel at December 31, 1995. In January
1996, the funds were received by the Company.
(5) STOCK SUBSCRIPTIONS RECEIVABLE AND SUBSCRIBED
In the second quarter of 1996, the Company received $195,000 for the purchase
of 145,000 shares of common stock. The shares were not issued until July 1996.
As a result, the funds were held in an escrow account at June 30, 1996. The
Company received the funds when the shares were issued in July 1996. In
addition, the Company made a down payment on approximately 8 of certain license
options and agreed to issue 11,440 shares of its common stock as payment of 40%
of the purchase price of these licenses valued at $32,890. The value of these
shares is recorded as stock subscribed and subscriptions receivable at June 30,
1996.
The 508,000 shares pursuant to the CMRS and 800 stock purchase agreement (see
note 3), valued at $1,931,010 were also unissued at June 30, 1996. The value
of the unissued shares has been combined with other consideration and allocated
to management agreements and options to acquire stock.
The value of the above mentioned unissued shares is classified as common stock
subscribed in shareholders' equity at June 30, 1996.
In 1995, the Company received $287,000 for the sale by the Company of 191,333
shares of common stock. The shares were not issued until January 1996. As a
result, the funds were held in an escrow account at December 31, 1995. The
Company received the funds when the shares were issued in January 1996.
In addition, in December 1995 the Company received cash of $37,807 for 17,500
shares that had not been issued at December 31, 1995.
The value of the unissued shares is classified as common stock subscribed in
shareholders' deficiency at December 31, 1995.
(6) PROPERTY AND EQUIPMENT
Property and equipment, which is recorded at cost and depreciated over their
estimated useful lives, generally 5-10 years, consists primarily of SMR system
components and related acquisition costs. The recorded amount of property and
equipment capitalized and related accumulated depreciation is as follows:
JUNE 30, DECEMBER 31,
1996 1995
- -----------------------------------------------------------
SMR systems and equipment $1,257,856 $292,901
Buildings and improvements 345,665 109,870
Land 102,500 --
Furniture and office equipment 100,186 --
- -----------------------------------------------------------
1,806,207 402,771
Less accumulated depreciation (111,148) (48,829)
- -----------------------------------------------------------
$1,695,059 $353,942
===========================================================
F-14
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(7) FCC LICENSES
FCC licenses consist of the following:
JUNE 30, DECEMBER 31,
1996 1995
- ---------------------------------------------------------------
FCC licenses $1,548,299 $1,398,574
Less accumulated amortization (114,698) (77,238)
- --------------------------------------------------------------
$1,433,601 $1,321,336
==============================================================
(8) INVESTMENT IN LICENSE OPTIONS
The Company has entered into various option agreements to acquire FCC radio
licenses for SMR channels and also entered into management agreements with the
licensees of the SMR channels. Depending on the size of the market in which
the channel is located, the Company paid $100 to $1,500 for each option. As of
June 30, 1996, the Company has invested $2,926,976 in license options. The
total purchase price of the licenses under option, including commissions,
amount to approximately $32,802,931 and $43,000,000 at June 30, 1996 and
December 31, 1995, respectively. The agreements allow the Company to purchase
licenses within a specified period of time after the agreement is signed. On
February 2, 1996, the Company made a down payment on approximately 140 license
options and issued 285,860 restricted shares of its common stock as payment of
40% of the purchase price of these licenses (see Note 12). The issuance of the
stock valued, at $821,848, has been recorded as an investment in license
options on June 30, 1996. In addition, the Company made a down payment on
approximately 8 license options and agreed to issue 11,440 restricted shares of
its common stock as payment of 40% of the purchase price of these licenses.
The shares have been valued at $32,890 and have been recorded as Stock
Subscriptions Receivable at June 30, 1996.
In December 1995, the Company issued 562,260 restricted common shares as down
payment for the exercise of the option to purchase 347 licenses under the
license option agreements. The issuance of the stock represents 40% of the
purchase price. The amount capitalized as down payment of these licenses was
based on the fair market value of the stock on the date of issuance and totaled
$860,258.
Certain options required down payments in January 1996. The Company has
submitted an amendment to the option holders which would increase the down
payment and move the date to September 9, 1996. Of the options the Company
desires to amend, approximately 94% of the option holders executed the
amendments. With respect to the remaining options on which a holder has not
executed an amendment, the Company is in default of the terms thereof. The
holders of such options have not yet, however, elected to terminate the options
based on this default. Notwithstanding this failure to act, such holders may
at any time terminate their options or exercise other remedies with respect
thereto, unless the amendment is executed or the Company is able to meet its
monetary obligations thereon.
Upon entering into an option agreement, the Company also enters into a
management agreement with the licensee. The management agreements give the
Company the right to manage the SMR systems for the period stated in the
agreements, usually 2 to 5 years. During this period revenues received are
shared with the licensee after certain agreed upon costs to construct the
channels have been recovered. The Company has not recognized any revenue from
these agreements during the six months ended June 30, 1996 and 1995, as none of
the systems under option are revenue producing.
A. COMMISSION PAYABLE
In connection with the exercise of the options to purchase licenses, the
Company is required to pay an allocated portion of the payment to a certain
third party. As a result of the down payment made on December 29, 1995 to
purchase 30% of licenses, the Company accrued $349,200 of commissions payable
which represents 40% of the total commission to be paid when these licenses are
fully paid for by the Company.
In connection with the exercise of the options to purchase licenses, the
Company is required to pay an allocated portion of the payment to a certain
third party. As a result of the down payment made on February 2, 1996 to
purchase 140 of licenses, the Company accrued $175,600 of commissions payable
which represents 40% of the total commission to be paid when these licenses are
fully paid for by the Company.
F-15
19
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(9) INVESTMENT IN OPTIONS TO PURCHASE STOCK OF
UNDERLYING LICENSEE CORPORATION
The Company has allocated $9,925,634 of combined consideration tendered in the
acquisition of CMRS and 800 to the options to acquire the stock of the licensee
corporations (the "Companies") held by CMRS and 800. This allocation was based
on an evaluation by an independent consultant's estimate of the fair market
value of the assets exchanged (see Note 3). The respective shareholders of the
Companies have granted to CMRS or 800, as the case may be, options to acquire
all of the stock of the Companies, at such time as all conditions of such
transfer of control have been met, as set forth in the FCC rules, regulations
and policies and as required by Section 310 of the Communications Act of 1934,
as amended by 47 U.S.C. Section 310.
(10) MANAGEMENT AGREEMENTS
The Company has allocated $23,159,812 of combined consideration tendered in
the acquisition of CMRS and 800 to the ten year Management Agreements held by
CMRS and 800. This allocation was based on an evaluation by an independent
consultant's estimate of the fair market value of the assets exchanged (see
Note 3). The Management Companies have entered into management agreements with
certain companies, pursuant to which CMRS or 800, as the case may be, has
agreed, in accordance with applicable Federal Communications Commission ("FCC")
rules, regulations and policies, to construct and manage all of the Stations
for which the Companies have received licenses from the FCC. The Company will
begin amortizing the cost allocated to the management contracts over the useful
lives commencing upon the underlying Station being placed in service not to
extend past June 2006.
(11) LONG-TERM DEBT
Long-term debt consists of the following:
JUNE 30, DECEMBER 31,
1996 1995
- -----------------------------------------------------------------------------
Note payable in connection with the asset
purchase of General (see Note 3), payable in
monthly installments of $12,500 through
February 1997; $13,750 through February 1998;
thereafter, monthly payments are subject to
annual CPI increases through February 2008 at
which time the monthly payments are capped
through February 2021. Management has
assumed annual CPI increases to be 2.5%.
Noninterest bearing with interest imputed at
9%, net of unamortized discount of $3,764,451 $1,209,741 $ --
as of June 30, 1996.
Note payable to Bortex Trust in connection
with asset purchase (see note 3) payable in
monthly installments of $4,707 through May
1998, including interest at 12%. 100,000 --
Note payable in connection with purchase of
SMR stations from General (see note 3),
payable in semi-annual installments of
$146,303 through November 1996, thereafter,
$280,278 semiannually through November 1997
including interest at 9%, secured by stock
pledge agreement. -- 862,123
$410,000 note payable associated with
non-competition and consulting agreements
obligation, from General acquisition (see
note 3), payable in 36 monthly installments
of $11,389 through November 1997, noninterest
bearing with interest imputed at 10% net of
discount of approximately $54,000. -- 228,065
- -----------------------------------------------------------------------------
1,309,741 1,090,188
Less current installments (45,263) (456,480)
- -----------------------------------------------------------------------------
$1,264,478 $ 633,708
=============================================================================
F-16
20
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Aggregate maturity of debt, net of discount, for the next five years is as
follows:
- --------------------------------------------------------------------------------
Year ended June 30
1997 $ 45,262
1998 70,880
1999 17,921
2000 22,185
2001 26,555
Thereafter 1,126,937
- --------------------------------------------------------------------------------
$1,309,741
================================================================================
A. DEBT ISSUANCE
In June 1996, the Company issued $4,000,000 out of a $5,000,000 offering of 8%,
three year, convertible notes payable. The Company received $3,580,000, net of
placement fees of $420,000, which are accounted as a reduction of the
obligation amortized on the straight-line which approximates effective interest
method. Subsequent to year end, the Company placed the remaining $1,000,000
convertible notes and received $900,000, net of placement fees of $100,000.
B. LEASE COMMITMENTS
Commencing in March 1995, the Company leases its corporate offices and
warehouse facilities in Las Vegas, Nevada under a noncancelable operating lease
agreement which expires in March 1997. Terms of the lease provide for minimum
monthly payments of $5,560 including operating expenses. The agreement
provides for one two year renewal period in which the lease payment shall be
adjusted for changes in the consumer price index as defined therein.
The Company is obligated under a capital lease for various SMR equipment.
In addition, the Company leases certain antenna sites for transmission of SMR
services. The terms of these leases range from month to month to 5 years, with
options to renew. Most of the leases provide for a termination period of 30 to
60 days by the Company or the site owner.
Future minimum payments associated with the leases described herein including
renewal options are as follows:
CAPITAL OPERATING
LEASES LEASES
- -------------------------------------------------------------------------------
Six months ended June 30:
1997 $ 28,708 $206,460
1998 31,927 94,918
1999 782 55,767
2000 -- 34,582
2001 -- 12,416
- ------------------------------------------------------------------------------
$ 61,417 $404,143
==============================================================================
Total minimum lease payments $ 61,249
Imputed interest (6,417)
- ------------------------------------------------------------------------------
Present value of minimum capitalized lease payments 54,832
Less current portion (25,675)
- ------------------------------------------------------------------------------
Long-term capitalized lease obligations $ 29,157
==============================================================================
Total rent expense for the six months ended June 30, 1996 and 1995 amounted to
$33,364 and $66,726, respectively.
F-17
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(12) EQUITY TRANSACTIONS
A. PRIVATE PLACEMENT
In August 1995, the Company prepared a Private Placement Memorandum (PPM) and
offered 1,000,000 units at a price of $2.00 per unit. Each unit consisted of
one share of the Company's common stock and one common stock purchase warrant.
One warrant entitles the holder to purchase one share of common stock at $5.00
per share for a period of three years from the date of issuance. In connection
with the PPM the Company issued 763,584 shares of restricted common shares and
received proceeds of $1,527,171 net of issuance costs of $54,210. In October
1995, the Company reduced the price of the units in the PPM to $1.50 per unit
with the same warrant terms.
In March 1996, 549,417 shares of the PPM units were sold. 441,666 of those
shares were sold at a discount of $.50. As a result, the Company expensed
$220,833 in connection with the sale of these units and has included it in
general and administrative expense in the statement of operations at June 30,
1996.
The Company also sold 400,000 shares of restricted common stock to three
foreign investors and received proceeds of $399,000.
B. PREFERRED OFFERING
On April 4, 1996, the Company issued 250,000 shares of preferred stock in
exchange for $2,273,457, net of expenses of $226,293. In addition, during June
1996 the Company issued warrants to purchase 50,000 shares of common stock as
prescribed under the agreement. The preferred stock was converted to 977,057
shares of common stock in June 1996.
C. LICENSE PURCHASE
During 1995, the Company purchased options to buy licenses from individuals
ranging between $100 to $1,500 per option. In February 1996, the Company
issued 285,860 restricted common shares as down payment for the exercise of the
option to purchase 140 licenses under the license option agreements (see Note
8). The issuance of the stock represented 40% of the purchase price. The
amount capitalized as down payment of these licenses was based on management's
estimate of the fair market value of the stock on the date of issuance and
totaled $821,850.
D. DEBT CONVERSIONS
o RELATED PARTIES -- In connection with the Plan of Reorganization, the
Company issued to certain former Capvest officers, directors and creditors
175,000 shares of the Company's common stock in lieu of cash payments on
obligations of $538,309 owed by the Company. No gain or loss was
recognized in the transaction.
On March 9, 1995, a significant shareholder and officer of the Company
converted advances totaling $116,329 into 46,532 shares of the Company's
restricted common stock at a rate of $2.50 per share. In addition, 46,352
options were issued at an exercised price of $4 per share, exercisable for
three years from the date of grant. No gain or loss was recognized in the
transaction.
On March 24, 1995, a trust formed by a significant shareholder and officer
of the Company converted advances totaling $578,405 into 385,604 shares of
the Company's restricted common stock at a rate of $1.50 per share. In
addition, 385,604 options were issued at an exercise price of $4 per
share, exercisable for three years from the date of grant. No gain or
loss was recognized in the transaction.
o UNRELATED PARTIES -- In connection with a note payable to a third party
with an original balance of $350,000, the Company issued 171,917 shares of
restricted common stock in lieu of a cash payment of $275,000. The
Company recognized a loss of $20,904 as a result of this transaction based
on the fair market value of the stock at the date of conversion. The loss
is included in general and administrative expense in the statement of
operations at December 31, 1995.
In connection with a note payable with an original balance of $23,000 to
an individual, the Company issued 16,667 shares of restricted common
shares in lieu of a cash payment in full satisfaction of the debt. The
Company recognized a loss of $11,500 as a result of this transaction based
on the fair market value of the stock at the date of conversion. The loss
is included in general and administrative expense in the statement of
operations at December 31, 1995.
F-18
22
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(12) EQUITY TRANSACTIONS - CONTINUED
E. CONSULTING
o RELATED PARTIES -- The Company issued 60,000 unrestricted shares to an
employee for consulting services valued at $.25 per share in lieu of cash
payment of $15,000. The expense associated with the shares was based on
the fair market value at the date of grant and totaled $285,000. This
amount has been included in general and administrative expense in the
statement of operations at December 31, 1995.
o UNRELATED PARTIES -- The Company also issued 215,000 shares of
unrestricted common stock and 221,000 shares of restricted common stock
valued at $.25 per share in lieu of cash payment of $121,000 for
consulting services. The expense related to the shares was based on the
fair market value at the date of grant and totaled $1,493,215. This amount
was expensed during the year ended December 31, 1995 and is included in
the statement of operations as general and administrative expense.
The Company also issued 62,500 shares of restricted common stock valued at
$1.00 per share in lieu of cash payment of $62,500 for legal services. The
expense related to the shares was based on the fair market value at the
date of grant and totaled $62,500. This amount was expensed during the six
months ended June 30, 1996 and is included in the statement of operations
as general and administrative expense.
F. PENALTY FEES
In connection with the note payable to the owner of General (see Notes 10 and
14), the Company issued 10,000 restricted shares of common stock as late fees
on their monthly payments of the note payable. The shares were valued at $.25
per share. The fair market value at the date of grant totaled $18,750 and is
included in general and administrative expense in the statement of operations
at December 31, 1995.
G. PREPAID MANAGEMENT RIGHT FEES
On December 29, 1995, in connection with an agreement for the management of
certain SMR stations, the Company issued 77,002 shares of restricted common
stock valued at $1.50 per share. The agreement called for the Company to
receive a percentage of the net revenues generated over the next five years.
The number of shares issued was determined based on the present value of an
estimate of the future cash flows to be received under the management
agreement. The expense related to this transaction was based on the fair
market value of the stock at the date of grant and totaled $117,813 at December
31, 1995. The total amount was capitalized as prepaid expense in the
consolidated balance sheet at December 31, 1995, and is being amortized over
the management agreement period.
H. OPTIONS
During 1996, the Company granted stock options to purchase 9,642,364 shares of
the Company's restricted common stock. The options have been issued to
shareholders, consultants, investors and third parties through acquisitions are
exercisable for three to ten years from date of issuance.
NUMBER
STOCK OPTIONS OF SHARES
- ---------------------------------------------------
Outstanding at December 31, 1994 --
Granted at $0.50-$5.50 per share 3,937,136
Less exercised at $0.50-$1.50 per share (865,000)
Lapsed or canceled --
- ---------------------------------------------------
Outstanding at December 31, 1995 3,072,136
Granted at $.50-$6.00 per share 9,642,364
Less exercised at $0.50-$2.50 per share (895,000)
Lapsed or canceled (205,000)
- ---------------------------------------------------
Outstanding at June 30, 1996 11,614,500
===================================================
F-19
23
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(12) EQUITY TRANSACTIONS - CONTINUED
The Company applied APB Opinion No. 25 in accounting for its Plan and,
accordingly, no compensation cost has been recognized for its stock options in
the financial statements. Had the Company determined compensation cost based
on the fair value at the grant date for its stock options under SFAS No. 123,
the Company's net income would have been reduced to the pro forma amount
indicated below:
JUNE 30, 1996 JUNE 30, 1995
- -----------------------------------------------------
Net income As reported $(2,429,218) $(1,238,150)
Pro forma (4,291,440) (1,238,150)
EPS As reported (.25) (.26)
Pro forma (.44) (.26)
Pro forma net income reflects only options granted in 1996 and 1995.
Therefore, the full impact of calculating compensation cost for stock options
under SFAS No. 123 is not reflected in the pro forma net income amounts
presented above because compensation cost is reflected over the options'
vesting period of two years and compensation cost for options granted prior to
January 1, 1995 is not considered.
I. WARRANTS
During the six months ended June 30, 1996, the Company issued warrants in
conjunction with the following transactions:
o 549,417 issued in connection with the private placement unit sales
(see "private placement").
o 50,000 issued in connection with the preferred stock placement.
During the year ended December 31, 1995, the Company issued warrants in
conjunction with the following transactions:
o 972,417 issued in connection with the private placement unit sales
(see "private placement").
o 30,000 issued as part of the conversion of CCI common stock to CWG common
stock (see "conversion of CCI shares").
o 51,667 issued in addition to common shares issued lieu of cash payment on
notes payable (Note 9).
o 55,250 issued in lieu of cash payment for consulting services.
Each warrant can be exercised for one share of the Company's common stock.
The following is a summary of warrants outstanding and their terms as of June
30, 1996:
NUMBER
WARRANTS OF SHARES
- -------------------------------------------
Outstanding at December 31, 1994 --
Granted at $2.50-$5.00 per share 1,109,334
Less exercised --
Lapsed or canceled --
- -------------------------------------------
Outstanding at December 31, 1995 1,109,334
Granted at $5.00 per share 599,417
Less exercised --
Lapsed or canceled --
- -------------------------------------------
Outstanding at June 30, 1996 1,708,751
===========================================
F-20
24
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J. MINORITY INTEREST
Prior to the reverse merger, the Company sold restricted common stock in its
subsidiary, CCI, to a third party totaling 700,000 shares. The holder of such
shares has not yet elected to convert these shares of CCI to shares of
Chadmoore Wireless Group, Inc. As per the amended and restated stock
subscription agreement dated January 13, 1995, the third party has options to
purchase 2,100,000 shares of restricted common stock of CCI. The options are
exercisable six months from the closing date of the amended and restated stock
subscription agreement through eight years from this date. As such, by July
13, 1995, 700,000 options that were exercisable at $1.50 per share were
unexercised by the third party and thus expired on that date. Options to
purchase 1,400,000 shares of CCI remained outstanding at June 30, 1996 at the
following exercise prices:
NUMBER OPTION
OF OPTIONS OPTION TYPE EXERCISE PRICE EXPIRATION DATE
- --------------------------------------------------------
700,000 A $2.50 1/13/2000
700,000 B $4.00 1/13/2003
In addition, subsequent to the merger, the Company sold common stock in CCI to
third parties totaling 30,000 shares with net proceeds of $45,000. At December
31, 1995 these 30,000 shares of CCI's common stock were converted to an equal
number of Chadmoore Wireless Group, Inc.'s restricted common stock and these
shareholders were granted warrants to purchase 30,000 shares of common stock at
$5 per share.
As a result of the reverse purchase acquisition and Plan of Reorganization as
described in Note 1, the third party shareholders of CCI shares are not
considered a minority interest in the Company for accounting purposes as CCI is
treated as the acquiring entity.
However, for accounting purpose, the original shareholders of Capvest would be
a minority interest. Due to the net losses of the Company incurred to date, no
minority interest is presented in the accompanying consolidated financial
statements.
(13) INCOME TAXES
Since inception, the Company has incurred net operating losses for both
financial reporting and income tax purposes. As of June 30, 1996, the Company
has net operating loss carryforwards for income tax reporting purposes totaling
approximately $10,000,000. A deferred tax asset is provided when, in
management's opinion, it is more likely than not that the deferred tax asset
will be realized. To the extent the Company is not able to determine that it
is more likely than not that net deferred tax assets will be realized prior to
expiration, a valuation allowance is recorded to reduce the net deferred tax
asset to the amount which is more likely than not to be realized. A valuation
allowance has been provided for 100% of such asset since the likelihood of
realization cannot be determined.
Total income tax expense (benefit) differed from the "expected" income tax
expense (benefit) determined by applying the statutory federal income tax rate
of 34% as follows:
- ------------------------------------------------------------------------------------
"Expected" statutory tax expense (benefit) $(826,000)
Increase (reduction) in income taxes (benefit) resulting from:
Change in the beginning of year balance of the valuation allowance
for deferred tax assets allocated to income tax expense (benefit) 826,000
- ------------------------------------------------------------------------------------
$ --
====================================================================================
F-20
25
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(14) RELATED PARTY TRANSACTIONS
Related party transactions consist of the following at June 30:
1996 1995
- --------------------------------------------------------------------------------
Note payable to JJ&D, noninterest bearing, due
September 8, 1996 (see Note 3) $100,000 $ --
Advances from a significant shareholder and
officer of the Company, noninterest bearing and due
on demand. -- 22,000
Advances from a significant shareholder and officer
of the Company, interest at 7%, unsecured,
principal and interest
due October 15, 1995. -- 50,000
- --------------------------------------------------------------------------------
$100,000 $72,000
================================================================================
In connection with the note payable to a third party, in 1995 the Company paid
cash of $75,000 and issued 171,917 shares of restricted common stock. In
addition, the Company issued warrants to purchase 35,000 shares of restricted
common stock at an exercise price of $5 per share. These warrants expire
December 29, 1998.
In connection with the note payable to an individual, in 1995 the Company
issued 16,667 shares of restricted common stock. In addition, the Company
issued warrants to purchase 16,667 shares of restricted common stock at an
exercise price of $5 per share. These warrants expire September 22, 1998.
On March 24, 1995, a trust created by a significant shareholder and officer of
the Company converted advances totaling $578,405 into 385,604 shares of the
Company's restricted common stock at a rate of $1.50 per share and options to
purchase 385,604 shares at $4 per share, in accordance with existing debt
agreements, in full satisfaction of the advances.
On March 9, 1995, a significant shareholder and officer of the Company
converted advances totaling $116,329 into 46,532 shares of the Company's
restricted common stock at a rate of $2.50 per share in full satisfaction of
the advances. In addition, 46,532 options were issued, exercisable at $4 per
share and expiring March 9, 1998.
(15) COMMITMENTS AND CONTINGENCIES
A. LICENSE OPTION CONTINGENCIES
Once an SMR channel is operating, the Company may exercise its option to
acquire the license at any time prior to the expiration of the option.
Although, the Company presently intends to exercise all options, the exercise
is subject to a number of contingencies. These contingencies include
constructing the license within the time period allotted by the FCC,
maintaining the channel once constructed, the Company having the ability to
purchase the license and the FCC approval of the transfer.
B. LEGAL PROCEEDINGS
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's consolidated financial position, results of operations or liquidity.
F-22
26
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(16) SUBSEQUENT EVENTS
A. CONSULTING AGREEMENT
On July 8, 1996, the Company's Board of Directors approved and issued 450,000
shares of unrestricted common stock valued at $.37 per share in lieu of cash
payment of $153,000. The fair market value at the date of grant is
approximately $891,000.
B. MOTOROLA PURCHASE AND FINANCE AGREEMENTS
On October 25, 1996, the Company's subsidiary CCI signed a purchase agreement
with Motorola to purchase approximately $10,000,000 of Motorola's radio
communications equipment, including a Smartnet II trunked radio system. The
agreement requires that the equipment be purchased within 30 months of the
effective date of the agreement (initial shipping of the equipment).
In connection with this purchase agreement, CCI entered into a financing and
security agreement with Motorola for the equipment stated above. This
agreement allows CCI to borrow up to a total of $5,000,000 (the Loan Facility).
This Loan Facility is available for draw downs during the effective date of
the purchase agreement. The facility allows no more than one draw down per
month. Each of the draw downs will be evidenced by a promissory note (the
Promissory Note). Principle and interest on the Promissory Note are payable in
arrears monthly from the date of each funding for a period of 36 months from
the fund date. The agreement closed on October 25, 1996 and is subject to
certain pledges, representations, warrants and covenants.
C. DEBT ISSUANCE
In September 1996, the Company issued a new debt offering of $3,000,000 of 8%,
two year convertible notes. The Company received $2,700,000, net of placement
fees of $300,000.
D. DEBT CONVERSION
During the 1996 third quarter, holders tendered $3,015,000 of the three year,
8% debentures for conversion into 1,883,049 common shares of the Company (see
Note 11). The value of the notes converted plus interest amounted to
$4,079,843.
E. AMERICAN CREDIT CORP. LETTER OF INTENT
In October 1996, the Company entered into an agreement with American Credit
Corp. (AMC Corp.) to establish a $16,500,000 equipment financing facility for
the purpose of purchasing analog systems and related equipment. The equipment
will be purchased by AMC Corp. (the Lessor) and leased to the Company. The
financing facility will act as a draw down account with each draw representing
a funding date. The agreement calls for a basic lease term of five years,
beginning on the basic lease commencement date. There will be two basic lease
commencement dates, July 1, 1997 for all equipment with funding dates on or
before December 31, 1996, and January 5, 1998 for funding on or before December
31, 1997. The leases are paid in advance starting on the basic lease
commencement date and continuing until the end of the term. At the expiration
of the basic lease term the Company will have the right (a "Purchase Option")
to purchase all, but not less than all, of such equipment at a purchase price
equal to the fair market value of such equipment.
F. CANCELED AGREEMENTS
In October 1996, the Company entered into mutual settlement and release
agreements (the "Settlement Agreements") with certain parties to an SMR System
Management Agreement and Option to Acquire ("Underlying Agreements"). The
parties agreed to nullify and render void the Underlying Agreements and as
additional consideration for the Settlement Agreements, the Company agreed to
issue shares of the Corporation's restricted common stock. Pursuant to the
terms in the Settlement Agreements, the Company has authorized the issuance of
an aggregate of 43,100 shares of its restricted common stock, the value of
which will be reflected in other income and expenses in the Company's income
statement.
F-23
27
================================================================================
(16) SUBSEQUENT EVENTS - CONCLUDED
G. JJ&D MASTER PURCHASE AGREEMENT
On September 13, 1996, the Company signed a purchase agreement with JJ&D, a
related party (see Note 3). The agreement states the Company is to purchase,
within one year from the date of this agreement, SMR equipment from JJ&D valued
at approximately $885,000, a portion of which is to be paid with the issuance
of common stock of the Company. In September 1996, the Company issued 295,000
options in connection with the agreement valued at $1.60 per share totaling
$472,000. This valuation is calculated as follows: average market price of
shares on date of closing (9/13/96 5.19) multiplied by 50% for restriction
minus the option price ($1.00) and is included in the balance sheet as deposit
on purchases. The options vest at 1,000 per unit as the equipment is shipped
and the value will be removed from deposit on purchase and placed in property
and equipment on the Company's balance sheet. The agreement also takes into
consideration equipment previously purchased and shipped of 35 units, therefore
at September 30, 1996, 35,000 option shares have vested and $56,000 of the
original amount has been reclassified into property and equipment.
H. GAIN ON FORGIVENESS OF DEBT
In September 1996, one of the Company's vendors, signed a release agreement to
except $90,000 as full payment of all the Company's outstanding liability to
them. Total outstanding liability at this time was $137,450. The resulting
gain of $47,450 will be reflected in the Company's statement of operations
under gain on forgiveness of debt.
I. STOCK RETIREMENT
In September 1996, in connection with the options granted to Libero for the
purchase of CMRS & 800 MHz, the Company booked a liability for prepaid options
in the amount of $2,082,116. Libero tendered the funds to prepay future option
exercises. The amount was tendered to a third party to purchase back 1,514,266
shares of the Company's stock from a former officer/director. The shares were
then tendered to the Company and subsequently canceled.
F-24
28
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CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
ITEM 2. PLAN OF OPERATION
The Company's objectives over the next 12 months are to construct analog
channels in selected markets, construct an initial digital SMR network,
establish distribution, institute its marketing plan, and increase recurring
revenues through the addition of subscribers in all markets and construct an
initial digital SMR network. Through acquisition and management of existing
operating systems and construction of newly licensed SMR stations, the Company
intends to increase the customer base and corresponding revenues within each
market. The plan is to select markets where the Company has adequate available
channel density, where there is lack of current capacity with existing
operations to serve market needs, where there is immediate distribution through
existing SMR sales and service providers, and where there is significant
population base to market its services to and generate sufficient revenues to
justify the capital necessary to provide service.
To date, the Company's activities have been limited to raising capital for
operations and acquisitions, hiring a core team of employees, and managing and
acquiring initial operating systems. In March 1996, the Company acquired its
initial operating SMR system in Memphis, Tennessee which currently has
annualized gross revenues in excess of $2,000,000. The Company currently offers
two types of wireless communication services in Memphis, Tenn.: SMR dispatch
(two-way) and telephone interconnect. Both services utilize analog SMR
technology. The Company sells analog SMR equipment to subscribers and provides
the system and services on which customers can use their equipment. This
operation serves a population of approximately 1,100,000.
The Company has also entered into five year option to acquire and management
agreements with over 1,250 licensees, comprising over 2,300 channels licensed
by the FCC, in over sixty cities throughout the mid-South and mid-West regions
of the United States covering areas with a total combined population in excess
of 40,000,000.
In June, 1996, the Company acquired all the issued and outstanding common stock
of CMRS Systems, Inc. ("CMRS") and 800 SMR Network, Inc. ("800") (jointly the
"Management Companies"). The Management Companies have entered into management
agreements with certain companies ("Companies") pursuant to which CMRS or 800
have agreed to construct and manage all of the channels for which the Companies
have received licenses from the FCC. The respective shareholders of the
Companies have granted to CMRS or 800 options to acquire all of the stock of
the Companies, at such time as all conditions of such transfer of control have
been met, as set forth in the FCC rules, regulations and policies. The
Management Companies intend to engage in the business of constructing and
managing multi-channel trunked 800 MHz trunked Specialized Mobile Radio SMR
stations.
The acquisition is significant to the Company in that such acquisition
substantially increases the total number of channels under management to over
7,000 channels and expands the service footprint to over two hundred markets
located in forty-seven States and the U.S. Territories of Puerto Rico and the
Virgin Islands covering areas with a total combined population in excess of
60,000,000. Additionally, the Company has formed dealer agreements with
independent SMR operators, and has begun to develop, construct and market SMR
services.
The Company plans to offer analog and digital wireless communication services
ranging from two-way dispatch, and telephone interconnect, to services
comparable in quality to those provided by current cellular telephone
operators. In addition, the Company plans to offer in a single handset,
services and combinations of services currently not previously available in its
operating areas. These services will include combined mobile telephone,
dispatch and data transmission. When Chadmoore begins the implementation of
digital technology, it plans to use Motorola's integrated Dispatch Enhanced
Network ("iDEN") technology and subscriber equipment in phased digital network
deployment. The implementation of iDEN technology will afford the Company the
benefits of dramatically expanding existing system capacity and provide
advanced features, call clarity, and call security to its subscribers. As the
Company develops its digital wireless network, it intends to selectively
convert analog SMR channels to iDEN technology as capacity shortfalls and
marketplace demands for additional features dictate.
The Company plans to use leased facilities on existing towers wherever possible
to avoid the cost of tower and shelter construction. Management believes this
approach will also expedite the construction process and avoid time delays
associated with local zoning and permit issues. The Company expects
approximately 33% of the planned sites will need to be constructed. In the
cases where construction is necessary, the Company will be required to bear the
costs of constructing a site which may include: access road development, land
acquisition, shelter costs, foundation and tower construction.
2
29
================================================================================
CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
ITEM 2. PLAN OF OPERATION - CONCLUDED
Over the next 12 months, the marketing objective is to activate customers on
the Company's channels as constructed and position the Company as a leader in
new wireless communication technology and service. Management believes that
Motorola's brand name recognition, combined with the Company's targeted
marketing approach, will assist in developing customer interest in the analog
and digital wireless services offered. The strategy is to increase Company
revenues with the smallest possible incremental marketing expense, using
existing dealers and operators in its footprint.
It is anticipated that the Company's recurring revenues will consist primarily
of subscriber network usage revenues, which consist of monthly access fees per
unit, incremental charges based on minutes of use, and lease revenues from site
operations where the Company owns or manages a transmission facility and leases
space to a third party. Lease revenues, while not a primary source of revenue,
offer increased cash flow opportunities for little additional cost. From time
to time, changes in the Company's plans may dictate that facilities, originally
acquired to be included in an operating system, will be sold, traded or used in
partnership with existing service providers in a particular market to provide
either additional cash flow for growth or to begin or strengthen specific
strategic alliances.
The Company has elected to develop two channels of distribution: independent
agents and, to a lesser extent, direct sales representatives. Independent
agents will be established in each of the markets as available. The Company
intends to attract high quality agents through innovative compensation plans.
The Company will also establish a sales presence in markets where adequate
independent agents are not available. It is anticipated that each sales office
will have a minimal retail presence for walk-in customer traffic. In addition,
the Company's management team recognizes that additional staff will be required
to properly support marketing, sales, engineering, and accounting. The Company
intends to minimize overhead costs through centralization and automation of
support services, such as activations, billing and collections.
LIQUIDITY AND CAPITAL RESOURCES
The Company's sources of capital are the proceeds from the sale of common stock
from private placement(s), registered offering(s) of stock to the general
public, vendor financing, debt or convertible debt and the anticipated cash
from future operating revenue and the possible receipt of proceeds from the
exercise of the Company's options and warrants. There is no assurance that the
Company will be able to obtain such additional financing or, if available, that
the terms of the financing would be advantageous to the Company or its
shareholders.
On February 28, 1996, the Company executed with Motorola a purchase agreement
for its iDEN product. The agreement is conditional upon the Company acquiring
acceptable financing. The Company intends to obtain the required financing
through Motorola's Financing Division. The Company has delayed the
implementation of its initial iDEN system, due to the need for in-depth
engineering and operational analysis of the market positions it now controls as
well as the impact of possible strategic relationships. Upon completion of the
analysis, the Company has determined that the most feasible way to construct
and operate its channels on such a wide scale basis is to utilize Motorola's
advance analog equipment, including Smartnet II radio systems and has deferred
the implementation of iDEN equipment until the analog systems are unable to
accommodate market demand. On October 25, 1996, the Company's subsidiary,
Chadmoore Communications, Inc. ("CCI") signed a purchase agreement with
Motorola to purchase approximately $10 million of Motorola's radio
communications equipment, including a Smartnet II radio system. The equipment
is to be purchased within 30 months of the effective date of the agreement. In
connection with this purchase agreement, CCI entered into a financing and
security agreement ("Loan Facility") with Motorola. This agreement allows CCI
to borrow up to a total of $5 million. This loan Facility is available for
draw downs during the effective date of the purchase agreement. Principle and
interest on the Promissory Note are payable in arrears monthly from the date of
each funding for a period of 36 months from the fund date.
In April 1996, the Company issued 250,000 shares of its Convertible Series A
Preferred Stock for net proceeds of $2,275,956.
In June 1996, the Company issued $4 million out of a $5 million offering of 8%,
three year, convertible notes, and received $3,580,000, net of placement fees
of $420,000. In July 1996, the Company placed the remaining $1 million of
convertible notes and received $900,000, net of placement fees of $100,000.
3
30
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CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
LIQUIDITY AND CAPITAL RESOURCES - CONCLUDED
In September 1996, the Company issued a new debt offering of $3 million of 8%,
two year convertible notes. The Company received $2,700,000, net of placement
fees of $300,000.
During the next 12 months, the Company will require access to sufficient
capital to enable it to act quickly on opportunities that present themselves in
the Company's target markets. The Company believes that in the next 12 months
it will require approximately $11.0 million for capital expenditures associated
with the leased and capital assets necessary for the construction of systems.
In addition, the Company expects to require an additional $5.3 million to meet
operating expenses. When the Company commences the staged conversion of its
analog SMR systems to a Digital Mobile format, it will require significant
additional capital.
The Company intends to seek additional cash financing in exchange for one or
more of the following: financing provided by the vendor of the analog and
digital mobile equipment, incurring additional indebtedness, which may include
the issuance of debt securities convertible into shares of the Company's common
stock, issuing additional shares of preferred stock, which may include
preferred stock convertible into shares of the Company's common stock, and
issuing additional shares of common stock pursuant to one or more privately
negotiated transactions or public offerings. In the event that the Company
issues convertible debt securities or preferred stock convertible into shares
of its common stock, the effective price at which such shares of common stock
may be issued and sold by the Company may be lower than the prevailing market
prices for the Company's common stock at the time of such conversion and/or at
the time of issuance of such convertible debt or preferred stock.
In October 1996, the Company entered into an agreement with American Credit
Corp to establish a $16.5 million equipment financing facility for the purpose
of purchasing analog systems and related equipment. The equipment will be
purchased by AMC Corp (the "Lessor") and leased to the Company. The agreement
calls for a basic lease term of five years. At the expiration of the lease,
the Company will have the right to purchase all, but not less than all, of such
equipment at a purchase price equal to the fair market value of such equipment.
The Company has held discussions with potential underwriters for a potential
public offering of the Company's securities. As of the date of this report,
however, the Company does not have a signed letter of intent from any
underwriter for a public offering of its securities, and there can be no
assurance that the Company will be able to obtain a signed letter of intent
from an underwriter or that it will be able to raise the capital necessary to
construct the channels for its proposed SMR network.
Accordingly, based on the plans and intentions set forth above, management
anticipates that through the establishment of operational SMR systems in
conjunction with the ability to provide both short term funding of operations
and long term acquisition and development activities, the Company expects to
emerge from the development stage and establish normal operations in 1996.
However, as of June 30, 1996, the success of achieving the objectives discussed
herein, as well as the overall profitability of the Company's operations once
the development stage has ended, cannot presently be determined.
4
31
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CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
As reported in the Company's Quarterly Report on Form 10-QSB for the
Quarterly Period Ended March 31, 1996, a lawsuit titled Key
Communications Group, Inc. v. Robert Moore, David Chadwick, Chadmoore
Communications, Inc. and Chadmoore Communications of Tennessee, Inc.,
Civil Action No. 94-CV-4196, was filed in the District Court, City and
County of Denver, State of Colorado, on August 31, 1994. This lawsuit
was settled during the period covered by this Report and was dismissed
with prejudice pursuant to an order of the Court dated July 9, 1996.
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Securities Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
2.1 Agreement and Plan of Reorganization dated February 2, 1995, by
and between the Company (f/k/a CapVest Internationale, Ltd.) and
Chadmoore Communications, Inc.(1)
2.2 Addendum to the Agreement and Plan of Reorganization, dated
February 21, 1995, by and between the Company (f/k/a CapVest
Internationale, Ltd.) and Chadmoore Communications, Inc.(1)
2.3 Addendum No. 2 to the Agreement and Plan of Reorganization, dated
March 31, 1995, by and between the Company (f/k/a CapVest
Internationale, Ltd.) and Chadmoore Communications , Inc.(1)
3.1 Articles of Incorporation(2)
3.2 Articles of Amendment to the Articles of Incorporation filed
November 1, 1988(3)
3.3 Articles of Amendment to the Articles of Incorporation filed April
28, 1995(4)
3.4 Articles of Amendment to the Articles of Incorporation filed April
1, 1996(5)
3.5 Articles of Amendment to the Articles of Incorporation filed April
11, 1996(6)
3.6 Bylaws(2)
4.1 Form of Warrant Certificate, together with the Terms of Warrants(7)
4.2 Registration Rights Agreement(8)
Certificate of Designation of Rights and Preferences of Series A Convertible
Preferred Stock of the Company(9)
- --------------
(1) Incorporated by reference to Exhibit 1 in the Company's Form 8-K, under
Item 2, date of earliest event reported--February 21, 1995
(2) Incorporated by reference to Exhibit 3 to the Company's Registration
Statement on Form S-18 (33-14841-D)
(3) Incorporated by reference to Exhibit 3.2 to the Company's Form 10-KSB for
the year ended December 31, 1995
(4) Incorporated by reference to Exhibit 3.3 to the Company's Form 10-KSB for
the year ended December 31, 1995
(5) Incorporated by reference to Exhibit 3.4 to the Company's Form 10-KSB for
the year ended December 31, 1995
(6) Incorporated by reference to Exhibit 3.5 to the Company's Form 10-KSB for
the year ended December 31, 1995
(7) Incorporated by reference to Exhibit 4.1 to the Company's Form 10-KSB for
the year ended December 31, 1995
(8) Incorporated by reference to Exhibit 4.2 to the Company's Form 10-KSB for
the year ended December 31, 1995
(9) Incorporated by reference to Exhibit 3.4 to the Company's Form 10-KSB for
the year ended December 31, 1995
5
32
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CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
PART II - OTHER INFORMATION - CONTINUED
(a) Exhibits - concluded
10.1 Amended Nonqualified Stock Option Plan dated October 12, 1995
(employee stock option plan covering 1,500,000 shares)(10)
10.2 Employee Benefit and Consulting Services Plan dated July 7, 1995(11)
10.3 First Amendment to the Employee Benefit and Consulting Services Plan
dated December 8, 1995(12)
10.4 Employment Agreement between the Company and Robert W. Moore
effective as of April 21, 1995(12)
10.5 Employment Agreement between the Company and David J. Chadwick
effective as of April 21, 1995(13)
10.6 Employment Agreement between the Company and William C. Bossung
effective as of April 21, 1995(14)
10.7 Integrated Dispatched Enhanced Network ("iDEN") Purchase Agreement
dated February 28, 1996, by and between the Company and Motorola,
Inc.(15)
10.8 Amendment Number 001 to the Integrated Dispatched Enhanced Network
("iDEN") Purchase Agreement dated March 25, 1996(16)
10.9 Asset Purchase Agreement dated November 2, 1994 by and between
Chadmoore Communications, Inc. and General Communications Radio
Sales and Service, Inc., General Electronics, Inc. and Richard Day
with Exhibits(17)
10.10 Modification to Asset Purchase Agreement dated March 8, 1996, by
and between Chadmoore Communications Inc., the Company and
Chadmoore Communications of Tennessee, Inc. and General
Communications Radio Sales and Service, Inc., General Electronics,
Inc. and Richard Day with Exhibits(18)
10.11 Stock Purchase Agreement dated June 14, 1996, by and between
Chadmoore Wireless Group, Inc. and Libero Limited(19)
11.1 Earnings Per Share (see notes to Consolidated Financial Statements)
(20)
27.1 Financial Data Schedule
- ---------------
(10) Incorporated by reference to Exhibit 10.1 to the Company's Form 10-KSB for
the year ended December 31, 1995
(11) Incorporated by reference to Exhibit 4.1 in the Registration Statement on
Form S-8 effective July 12, 1995 (file no.33-94508)
(12) Incorporated by reference to Exhibit 10.4 to the Company's Form 10-KSB for
the year ended December 31, 1995
(13) Incorporated by reference to Exhibit 10.5 to the Company's Form 10-KSB for
the year ended December 31, 1995
(14) Incorporated by reference to Exhibit 10.6 to the Company's Form 10-KSB for
the year ended December 31, 1995
(15) Incorporated by reference to Exhibit 10.7 to the Company's Form 10-KSB for
the year ended December 31, 1995
(16) Incorporated by reference to Exhibit 10.8 to the Company's Form 10-KSB for
the year ended December 31, 1995
(17) Incorporated by reference to Exhibit 2.2 in the Company's Form 8-K, under
Item 2, date of earliest event reported--March 8, 1996
(18) Incorporated by reference to Exhibit 2.1 in the Company's Form 8-K, under
Item 2, date of earliest event reported--March 8, 1996
(19) Incorporated by reference to Exhibit 2.2 in the Company's Form 8-K, under
Item 2, date of earliest event reported--June 14, 1996
(20) Incorporated by reference to Exhibit 11.1 to the Company's Form 10-KSB for
the year ended December 31, 1995
6
33
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CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
PART II - OTHER INFORMATION - CONCLUDED
(b) Reports on Form 8-K
(i) Current Report Form 8-K filed March 22, 1996 reporting consummation of
the Modification to Asset Purchase Agreement dated March 8, 1996 by
and between Chadmoore Communications of Tennessee, Inc. and General
Communications Radio Sales and Service, Inc., General Electronics,
Inc. and Richard Day with Exhibits
(ii) Current Report of Form 8-K filed May 14, 1996 reporting the
resignation, effective April 30, 1996, of David Chadwick as Executive
Officer and Director of the Company and similar positions with
affiliates of the Company with Exhibit.
(iii) Current Report on Form 8-K filed June 28, 1996, reporting the
execution of the Stock Purchase Agreement dated June 14, 1996 by and
between Chadmoore Wireless Group, Inc. and Libero Limited with Exhibit
and amendment there on Form 8-K/A-1 filed July 30, 1996
(iv) Current Report on Form 8-K filed July 11, 1996, reporting a private
placement conducted in accordance with the Regulation S of the
Registrant's 8% Convertible Notes due June 5, 1999 in the amount
of $5,000,000.
(v) Current Report on Form 8-K filed December 31, 1996; reporting
shares of Registrant's common stock issued pursuant to Regulation S
since November 3, 1996, upon conversion of debentures and exercise of
options, reported pursuant to the SEC's Division of Corporation
Finance's interpretation of the new disclosure requirements set forth
in SEC Release No. 34-37801.
(vi) Current Report on Form 8-K filed January 13, 1997, reporting
shares of Registrant's common stock issued pursuant to Regulation S
since December 27, 1996, upon conversion of debenture(s) and
conversion of note(s), reported pursuant to the SEC's Division of
Corporation Finance's interpretation of the new disclosure
requirements set forth in SEC Release No. 34-37801.
7
34
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CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CHADMOORE WIRELESS GROUP, INC.
By: /s/ Gary L. Killoran
------------------------------------------
Gary L. Killoran, Chief Financial Officer
DATE: January 15, 1997
8