U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-SB/A-2
General Form For Registration of Securities
of Small Business Issuers Under Section 12(b)
or 12(g) of the Securities Exchange Act of 1934
21ST CENTURY WIRELESS GROUP, INC.
(Name of Small Business Issuer in its charter)
Nevada 41-1824951
(State or Other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
406 Gateway Boulevard, Burnsville, MN 55337
(Address of principal executive offices) (Zip Code)
(Issuer's Telephone Number: (612) 890-8800 )
Securities to be registered under Section 12(b) of the Act:
Name of each exchange on
Title of each class which each class is to
to be so registered be registered
None
Securities to be registered under Section 12(g) of the Act:
Common Stock, $0.001 par value per share
(Title of Class)
(Title of Class)
[NOTE: PURSUANT TO INSTRUCTION E OF THE GENERAL INSTRUCTION TO FORM
10-SB, THE ISSUER HAS ELECTED TO PROVIDE INFORMATION IN PART I IN ACCORDANCE
WITH ALTERNATIVE 2. ITEMS IN PART I ARE NUMBERED AS IN FORM 10-SB BUT HAVE
TITLES AS IN FORM
1-A, Model B]
PART I
Item 1. DESCRIPTION OF BUSINESS
DEVELOPMENT OF BUSINESS
21ST CENTURY WIRELESS GROUP, INC. (the "Company") was incorporated in
Nevada as a shell corporation in 1994. The Company was incorporated at the
direction of members of the Management Committee of Twin Cities 3rd Mobile
Associates, a California general partnership ("TC3M"), to be used as a vehicle
for converting TC3M from a partnership to a corporation. The Company had no
assets or operations of any type until completion of TC3M's bankruptcy
proceeding (described below). Except as otherwise indicated or required by the
context, the term "Company" refers to 21st Century Wireless Group, Inc. and its
predecessor, TC3M.
TC3M was formed in 1993 by a group of promoters (the "Promoters") who
sold general partnership interests in TC3M to approximately 1,080 investors (the
"Investors") located in approximately 47 states, raising a total of $13,200,000.
The primary Promoter was Digital Communications, Inc. ("DCI"), a Nevada
corporation. DCI acted through a number of its officers, directors and
salespersons and through a number of other companies with which it contracted to
promote the sale of interests in TC3M. In connection with the formation of TC3M,
the Promoters transferred to TC3M cash of $2,500,000 and a 75% interest in
certain operating assets (described below). The Promoters retained the remaining
cash of $10,700,000 paid by the Investors and also retained for themselves a 25%
interest in all of the operating assets transferred to TC3M. The fair market
value of the 75% interest in the operating assets transferred to TC3M was
approximately $3,645,000
At the initial partnership meeting in November 1993, the Investors
elected a management committee (the "Management Committee") to manage the
business of TC3M. The Management Committee was specifically charged with
developing a business plan for TC3M and determining a basis for converting TC3M
into a limited liability entity.
The Management Committee determined that the original business plan for
TC3M described by the Promoters in the offering materials sent to Investors was
not workable. In particular, the Management Committee determined that the
equipment and technology touted by the Promoters as the means to convert the
TC3M system into a "digital" system with greatly enhanced capacity and signal
quality was not yet proven. Further, the Management Committee determined that
the cost of converting to digital technology once it became available would be
several times more expensive than represented by the Promoters. TC3M did not
have the necessary financial resources to pursue the conversion and had, and
still has, no realistic means of obtaining financing. Accordingly, the
Management Committee developed a revised business plan (described below) to
guide the future activities of TC3M.
The Management Committee also determined that TC3M should join in and
support a class action lawsuit (the "Class Action Lawsuit") against the
Promoters. The Class Action Lawsuit is described in Part II, Item 2.
Converting TC3M from a general partnership, which imposed full
liability on each Investor as a general partner, to a limited liability entity,
which would limit the personal exposure of each Investor, proved to be a
difficult task. After other approaches to attaining limited liability status
proved unworkable, several Investors filed an involuntary bankruptcy petition
against TC3M in the United States Bankruptcy Court for the Southern District of
Texas sitting in Houston, Texas (Case Number 95-41371-H3-11). On May 16, 1995,
the Bankruptcy Court entered its order for relief permitting the involuntary
bankruptcy case against TC3M to proceed.
By order dated November 22, 1995 and entered on November 24, 1995,
TC3M's Plan of Reorganization was approved by the Bankruptcy Court. The approval
order is now final. The Plan of Reorganization provides generally for a
continuation of TC3M's business by the Company. Pursuant to the Plan of
Reorganization, all assets of TC3M have been transferred to the Company in
exchange for shares of the Company's Common Stock, $0.001 par value per share,
plus warrants to purchase additional shares of Common Stock. TC3M has been
liquidated and, in connection with the liquidation, each Investor received
shares of Common Stock and warrants in proportion to the Investor's investment
in TC3M. Common Stock and warrants were issued under the Plan in connection with
the SMC acquisition (see discussion below in this Item under "Acquisition of SMC
and Peacock") and to certain members of the management of TC3M and the Company
(described below in Part I, Item 4). The shares of Common Stock and warrants
issued to Investors, to the management of TC3M and the Company and in connection
with the SMC acquisition are described below in this Item.
None of the Promoters and no persons affiliated with the Promoters is
an officer of the Company or on the Board of Directors of the Company. While the
Company is not aware that any of the Company's common stock is owned by any of
the Promoters or by any person affiliated with the Promoters, it is possible in
light of the large number of shareholders that shares of the Company's common
stock are owned by affiliates of the Promoters. The Company is aware that
persons who may have acted as salespersons for the Promoters own a small
percentage of the Company's common stock either for their own account or for the
account of others. As described in Part II, Item 2, upon approval of a proposed
settlement of a lawsuit against the Promoters, warrants to purchase 40,000
shares of the Company's common stock will be issued to certain of the Promoters.
BUSINESS OF ISSUER
The Company's principal business is providing telecommunication
services in the Minneapolis-St. Paul, Minnesota, metropolitan area. The Company
operates under specialized mobile radio ("SMR") licenses issued by the Federal
Communications Commission ("FCC"). The Company services approximately 4,000
subscribers on 58 SMR channels providing coverage in the Twin Cities area
(Minneapolis and St. Paul).
SMR provides communications services to vehicle-mounted and handheld
portable telephones and two-way radio units. Most SMR operators, including the
Company, transmit at high power from a tall antenna or a tall building. The
maximum signal range that an SMR operator can have is set by the FCC so that the
signal of one SMR operator does not interfere with the signal of an operator
using similar frequencies in an adjacent territory. The Company has a maximum
signal range radius of approximately 35 miles from each of its tower sites. In
light of the FCC restrictions on signal range, the Company cannot appreciably
increase its signal range without acquiring additional channels in adjacent
territories.
Although SMR operators can offer SMR service to virtually any customer,
the Company's subscribers are primarily business entities. A typical user of the
Company's services would be a company operating a fleet of vehicles which uses
the Company's services to communicate with the vehicles. The Company
concentrates on dispatch services at this time. The Company derives its revenues
primarily from access and airtime charges for SMR system usage. The Company also
provides ancillary services such as the sales and service of SMR communication
devices and the lease and sublease of excess antenna space.
SMR was created in 1970 when the FCC reallocated 115 MHz of radio
spectrum in the 800/900 MHz bands from use by the federal government and UHF
television to land mobile service use. 50 MHz were allocated for cellular mobile
telephone service and 46MHz were allocated for private mobile radio services,
including SMR. The remaining 19MHz were divided among six different mobile radio
services. Today the wireless telephone industry is principally made up of
cellular and SMR systems. SMR systems became operational in 1974 and have been
used primarily to meet the mobile communications needs of small and medium sized
businesses.
SMR is an alternative to cellular mobile telephone service, especially
for high-volume subscribers. It provides subscribers with both telephone
interconnect (mobile to public switched telephone network) and dispatch (base to
fleet) mobile communications. With its current equipment, the Company's SMR
system cannot effectively compete with the clarity and flexibility of cellular
systems, especially in urban areas where cellular systems have adequate
transmitters. The Company's SMR system has significant advantages over cellular
systems in two respects, however. First, in rural areas, the Company's
high-powered antennas permit it to provide service in areas not easily served
with low-powered cellular systems. Second, users who have a high volume of
relatively short transmissions find that SMR charges are much less than cellular
charges for comparable services.
SMR operators, including the Company, offer a broad range of mobile
communications services, including telephone interconnect, dispatch, data
transmission, and telemetry services.
The SMR system operated by the Company consists of the FCC channels,
several base station transmitters, several antennas and other radio equipment.
The Company's SMR system operates as follows: A subscriber sends a voice or data
message using the subscriber's 2-way mobile radio. The Company receives the
message through one of its antennas. The Company then completes the transmission
of the message either by routing it through the public telephone lines to the
intended recipient or by re-transmitting it through the Company's antennas to
the recipient's radio. All of the Company's equipment is analog equipment rather
than digital equipment.
Twenty out of the Company's 21 SMR systems are trunked radio systems,
which maximize the number of users that can be supported. A trunked system
automatically searches for an open channel among all of the trunked channels for
each transmission. This search capability allows more users to be served per
radio channel because the probability that all channels in a large system will
be in use at one time is lower than the probability that a single given channel
will be in use. The number of channels that can be trunked together is limited
both by the capacity of individual pieces of transmitting equipment and by FCC
regulations. The Company currently trunks up to 20 channels together in urban
areas and a lesser number in rural areas. The capacity of a trunked 20-channel
system is approximately 400 radio units (depending upon the volume of usage of
each unit) for telephone interconnect and approximately 1600 units for dispatch
services (again depending upon the volume of usage of each unit). The efficiency
of trunked systems generally increases as additional channels are added to the
system.
The SMR industry in major metropolitan areas is currently characterized
by a shortage of channels and a resulting emphasis on dispatch service.
Traditional dispatch subscribers, such as taxicab and construction companies,
generally communicate in shorter transmissions than the telephone interconnect
firms. Accordingly, the economics of these SMR systems have dictated that more
dispatch units than telephone interconnect units be accommodated on them.
SMR operators in rural areas and small and medium-sized cities
typically have adequate channels available to them. This greater channel
availability enables SMR operators in these markets to provide telephone
interconnect services comparable to cellular mobile phone service to more users.
As a result, SMR operators in these areas have attracted a broad cross section
of subscribers. Many SMR subscribers in rural areas have limited cellular
service available to them or perceive a better value in SMR services.
STRATEGY
The Company's strategy is to concentrate on providing SMR services in
rural areas and small and medium-sized cities in the heartland of the United
States. This is the area from the Canadian border to the Gulf of Mexico,
generally following the Mississippi River. The Company's goal is to develop a
seamless area of coverage ("footprint") from Minnesota to Louisiana. The Company
plans to focus on these markets because, based on the experience of its officers
and of the members of it Board of Directors in the SMR industry, it believes
that in these markets (a) competition from other SMR operators and cellular
mobile telephone operators is less intense, (b) usage rates per capita are
higher and (c) SMR systems can be acquired at prices that are lower per channel
and per subscriber than in major metropolitan areas.
The Company's business strategy includes the following elements:
* Expansion of Footprint. The Company seeks to expand within its
existing markets and into contiguous or nearby markets both through
acquisition and startup operations. A continued expansion of its
footprint will enable the Company to offer users a substantially
greater coverage area than its competitors. The Company's wide-area
coverage will also allow it to meet the mobile telephone needs of large
wireless communications users, to provide service in areas not
currently covered by cellular operators and to capture a greater share
of the roaming charges from subscribers of other SMR systems. (Roaming
charges are paid when a subscriber travels from one SMR system to
another.)
* Internal Growth. Once the Company acquires SMR systems, it believes
it can add subscribers at a relatively low incremental cost. In
addition, the Company seeks to improve average revenues per subscriber
and resulting profitability by focusing its marketing efforts on
telephone interconnect services and increasing the use of airtime
charges.
* Operating Efficiencies. The Company believes that the SMR business
involves significant economies of scale that enable larger SMR
providers to generate higher levels of profitability. By consolidating
fragmented SMR operations, the Company hopes to achieve efficiencies in
administrative services, bulk equipment purchases and resource
utilization. Any resulting economies of scale would enhance overall
profitability and enable the Company to compete aggressively on price
with other wireless communications providers.
ACQUISITION OF SMC AND PEACOCK
The Company has purchased substantially all of the assets of an SMR
operation similar to that operated by the Company from Alan Hansel and Southern
Minnesota Communications ("SMC"). Mr. Hansel individually owned a portion of the
SMC operations and indirectly owned the remainder of the operations through his
wholly-owned corporation, Southern Minnesota Communications, Inc. SMC's
operations are located primarily in southern Minnesota and in adjacent portions
of Wisconsin and Iowa. The SMC operational area is directly to the south of the
Company's main operational territory in Minneapolis-St. Paul. A copy of the SMC
purchase agreement is included with this Registration Statement as Exhibit 8.2,
which is hereby incorporated by reference. Prior to the negotiation of the SMC
purchase agreement, neither TC3M nor the Company had any affiliation with SMC.
The SMC operation currently has approximately 2,000 customers. SMC has
63 SMR channels and transmits from 27 towers using analog equipment. The
purchase price for the SMC operation is $500,000 in cash and approximately 10%
of the common stock of the Company. The Company paid the current portion of the
cash purchase price from its cash resources and will issue the stock portion of
the purchase price under the terms of the Plan of Reorganization.
The Company has purchased 100% of the stock of Peacock's Radio and
Wild's Computer Service, Inc. ("Peacock"). Peacock operates an SMR operation
similar to that operated by the Company in the Memphis, Tennessee area. The
majority of the Peacock stock was owned by John Peacock and Johnny Wild. A copy
of the Peacock purchase agreement is included with this Registration Statement
as Exhibit 8.3, which is hereby incorporated by reference. Peacock filed a
voluntary Chapter 11 bankruptcy petition under the United States Bankruptcy Code
in 1992. The bankruptcy case was completed in 1993. Prior to the negotiation of
the Peacock purchase agreement, neither TC3M nor the Company had any affiliation
with Peacock.
The Peacock operation currently has approximately 1,200 customers.
Peacock has 90 SMR channels and transmits from 20 towers using analog equipment.
The purchase price for the Peacock operation was $621,653, all of which was paid
in common stock of the Company. The stock issued to pay the purchase price was
not issued under the Plan of Reorganization.
In connection with the SMC and Peacock acquisitions, Alan Hansel, a
principal of SMC, has become a vice president and director of the Company and
John Peacock, a principal of Peacock, has become a vice president of the
Company. The terms of the proposed employment contracts with Mr. Hansel and Mr.
Peacock are described in Item 3 below under the heading "Employment Agreements."
SALES AND MARKETING
Historically, the Company used independent agents to market the
Company's SMR services. Substantially all of the Company's arrangements with
these independent marketers have been informal, unwritten agreements. These
independent marketers do not sell exclusively for the Company and are free to
sell for competitors of the Company. The Company believes, however, that the
independent marketers that sell for the Company perform a majority of their
sales for the Company.
With the SMC and Peacock acquisitions (see discussion above in this
Item under "Acquisition of SMC and Peacock"), the Company has acquired an
internal sales staff to market the Company's products and services in some
areas. The Company will continue to use independent marketers for a substantial
portion of its sales.
PRODUCTS
The Company has on-going plans to upgrade its products or services and
add new products and services to enhance its existing system as necessary to
meet competitive challenges and adopt technical advances. The types of
enhancements planned by the Company include installing transmitting equipment
upgrades when made available by suppliers, offering improved hand-held units to
customers as those units become available, and, subject to FCC approval,
acquiring additional licenses that become available, moving channels from one
portion of the Company's system to another to make the best use of channel
capacity, adding height to towers to increase signal range and moving towers to
optimize signal coverage.
The Company anticipates that the planned enhancements will not involve
any substantial change to its existing system or services, will not require a
substantial use of the Company's cash resources and will not require the Company
to raise additional capital.
Major technical enhancements to the Company's SMR equipment to convert
the system from an analog system to a digital system may make substantially
enhanced services available in the future. A digital system could permit the
Company to provide a substantially improved signal quality while at the same
time accommodating additional customers without additional FCC licenses. Major
enhancements of this type are not currently feasible for the Company and none is
planned. There can be no assurance that the Company will ever be able to make
these major enhancements.
COMPETITION
The Company faces competition in each of its market areas from other
entities offering both SMR and other communication services. Competitors include
providers of hard-wire transmission (including fiber optic service and
traditional telephone service), cellular systems, personal communications
systems, other SMR operators and satellite communications. Some of these
competing products are currently in place; others are only in the proposal or
development stages. The Company anticipates that competition will be less
intense in the rural areas serviced by the Company where the high fixed costs of
installing new technological equipment is a substantial barrier to competition.
The wireless telecommunications industry is experiencing significant
technological change, as evidenced by the increasing pace of improvements in the
capacity and quality of digital technology, shorter cycles for new products and
enhancements and changes in consumer preferences and expectations. Accordingly,
the Company expects competition in the wireless communications industry to be
dynamic and intense as a result of the entrance of new competitors and the
development of new technologies, products and services.
Continuing technological advances in telecommunications and new FCC
policies that encourage the development of new technologies make it impossible
to predict the extent of future competition. The FCC has adopted rules that
authorize the award of a "pioneer's preference" to companies that develop
certain new communications technologies. Such a preference may encourage the
development of new technologies that compete with SMR service. In addition, the
Omnibus Budget Reconciliation Act of 1993 requires, among other things, the
allocation to commercial use of a portion of 200 MHz of the spectrum currently
reserved for government use. It is possible that some portion of the spectrum
that is reallocated will be used to create new services that will compete with
the Company's services.
The Company anticipates that market prices for wireless communications
services generally will decline in the future based upon increased competition.
The Company will compete to attract and retain customers principally on the
basis of services and enhancements, its customer service, the size and location
of its service areas and pricing. The Company's ability to compete successfully
will also depend, in part, on its ability to anticipate and respond to various
competitive factors affecting the industry, including new services that may be
introduced, changes in consumer preferences, demographic trends, economic
conditions and discount pricing strategies by competitors, which could adversely
affect the Company's profitability. Many of the Company's competitors may have
better access than the Company to the capital and technology necessary to
compete in the industry.
SOURCES OF SUPPLIES
The Company obtains transmitting equipment and two-way radio units from
several different sources. Primary suppliers include Motorola, E.F. Johnson
Company and Ericsson. The Company does not have written supply agreements or
contracts with any of these suppliers. The Company does not anticipate that it
will become unduly dependent on any single supplier but it does currently obtain
more than 10% of its equipment from E.F. Johnson Company.
REGULATION
The Company holds FCC licenses to provide SMR services. These licenses
are indispensible to the Company's operations. So long as the Company complies
with applicable FCC rules and regulations, the Company anticipates that its FCC
licenses effectively have an indefinite duration. The Company's FCC licenses and
operations are subject to extensive FCC regulations. The Company believes that
it is in compliance with FCC regulations in all material respects. If the
Company fails to maintain substantial compliance with FCC regulations, it could
lose its FCC licenses.
The Company's leased and owned transmission towers are subject to
substantial safety and land use regulations. The Company believes it is in
substantial compliance with all such regulations.
TRADENAMES
The Company operates under a number of trade names including "21st
Century Wireless" and "Minnesota Wireless." The Company believes that it has the
legal right to use these trade names in its service areas. The "Minnesota
Wireless" name is held by TC3M, Incorporated, a Minnesota corporation all of the
stock of which is owned by the Company. TC3M, Incorporated has authorized the
Company to use the "Minnesota Wireless" name without charge. None of the
Company's existing trade names is crucial to the Company's operations. As noted
in Part II, Item 2, TC3M, Incorporated has commenced and successfully resolved a
lawsuit to challenge an infringing use of the "Minnesota Wireless" name.
RESEARCH AND DEVELOPMENT
The Company has not engaged in any substantial research and development
activities in the last two years.
ENVIRONMENTAL REGULATION
The Company does not incur any substantial costs in maintaining
compliance with applicable federal, state and local environmental laws.
EMPLOYEES
With completion of the SMC and Peacock acquisitions (see discussion
above in this Item under "Acquisition of SMC and Peacock"), the Company has
approximately 24 full-time employees, of which 8 are associated with the SMC
operations and 10 are associated with the Peacock operations. None of the
Company's employees is subject to a collective bargaining agreement and the
Company's management considers its relations with its employees to be good.
ITEM 2. DESCRIPTION OF PROPERTY
The Company owns one small parcel of land on which a transmission tower
owned by the Company is located. The Company leases an additional parcel on
which a second transmission tower owned by the Company is located. The Company
also leases antenna space on three transmission towers owned by others. The
leases have the following terms:
Location Initial Term Renewal Options
- -------- ------------ ---------------
Bloomington, MN 4/94 - 4/97 Multiple 3-year
options
Elk River, MN Unwritten; month-to-month Not applicable
Minneapolis, MN
(Norwest Tower) 1/95 - 12/99 Multiple 1-year
options
Woodbury, MN Unwritten; month-to-month Not applicable
The leased real estate and antenna spaces are subject to cancellation but the
Company does not believe any of the leases are in danger of being terminated.
The Company conducts its management operations out of leased office facilities
of approximately 2,465 square feet located at 406 Gateway Boulevard, Burnsville,
Minnesota. A copy of the office lease is attached as Exhibit 6.3 hereto, which
is hereby incorporated by reference. The Company previously leased office space
in Edina, Minnesota. A copy of that lease is attached as Exhibit 6.2. hereto,
which is hereby incorporated by reference. The Company's financial obligations
under its leases are described in Footnote 6 to Exhibit FS.1 hereto, which is
hereby incorporated by reference.
With the acquisition of SMC (see discussion in Part I, Item 1 under
"Acquisition of SMC and Peacock"), the Company acquired, directly or indirectly,
17 owned and 10 leased transmission sites throughout southern Minnesota and
adjoining states. With completion of the acquisition of Peacock, the Company
acquired, directly or indirectly, 8 owned and 12 leased antenna sites in the
Memphis, Tennessee area.
The Company believes that its properties are suitable and adequate for
the Company's current operations and are adequate to accommodate the Company's
anticipated growth. The Company currently leases and subleases excess space on
some of its antenna sites to third parties. The Company anticipates continuing
to use excess space in this manner but does not anticipate that the revenues
generated in this manner will have a substantial impact on its financial
operations. The Company believes that the SMC and Peacock acquisitions add
suitable and adequate properties to serve the additional business acquired in
those acquisitions.
ITEM 3. DIRECTORS, EXECUTIVE OFFICERS, AND SIGNIFICANT EMPLOYEES
The following table sets forth certain information with respect to each of the
officers and directors of the Company.
<TABLE>
<CAPTION>
POSITION(S) HELD WITH COMPANY
(DATE OF ELECTION OR APPOINTMENT
NAME AGE AND TERM)
- ---- --- ---------------------------------
<S> <C> <C>
James E. LaFayette 57 Chairman of the Board
and Chief Executive Officer
Date elected: 9/1/96
Term on Board expires: 1996
Thomas Venable 35 Director and Secretary
Date elected: 11/15/95
Term on Board expires: 1997
Rodney H. Hutt 47 President and Chief Operating Officer
Date elected: 9/1/96
Alan M. Hansel 56 Director and Vice President
John Peacock 56 Vice President
Kenneth B. Thomson 53 Director
Date elected: 11/15/95
Term on Board expires: 1998
Galen L. McCord 51 Director
Date elected: 11/15/95
Term on Board expires: 1998
Mark E. Seely 30 Director
Date elected: 11/15/95
Term on the Board expires: 1996
Stephen J. Mocol 45 Vice President and
Chief Financial Officer
Date elected: 7/15/96
Harold O'Dell 54 Director
Date elected: 8/1/96
</TABLE>
James E. LaFayette became Secretary of TC3M on November 1, 1993 at the
formation of TC3M. Mr. LaFayette was elected Chairman of the Board effective
September 1, 1996. From 1994 through the date hereof, Mr. LaFayette has devoted
his efforts full time to the operations of TC3M and the Company. From 1992 to
1994, Mr. LaFayette was a self-employed communications consultant and stock
broker. From 1984 to 1991, Mr. LaFayette was a Sales Vice President with Pacific
Bell, a Pacific Telesis telecommunications company located in California.
Thomas M. Venable became Treasurer of TC3M on November 1, 1993 at the
formation of TC3M. From October 1991 to October 1993, Mr. Venable was a regional
sales manager for Beyond, Inc., an electronic messaging software development
company headquartered in Cambridge, MA. From July 1993 to July 1994, Mr. Venable
was a principal of Electronic Commerce, Inc., an electronic messaging consulting
company located in Eden Prairie, MN. From November 1993 to the present, Mr.
Venable has been employed as a regional sales manager for WorldTalk Corporation,
headquartered in Santa Clara, CA. WorldTalk provides consulting services to
businesses across the country to permit communication among non-integrated
E-Mail systems. Mr. Venable devotes approximately four hours per week to Company
business.
Rodney H. Hutt became executive vice president and chief operating
officer of TC3M in 1994 and was promoted to President effective September 1,
1996. From 1992 to 1994, Mr. Hutt was employed as a Director of North American
sales for the E.F. Johnson Company. From 1984 to 1992, Mr. Hutt was employed as
a sales person and regional sales manager for Motorola Communications &
Electronics, Inc. Both E.F. Johnson and Motorola manufacture and sell
communications equipment, including SMR equipment.
Alan M. Hansel has been president and owner of Southern Minnesota
Communications for more than 25 years. His company is described in Part I, Item
1 under "Acquisition of SMC and Peacock."
Kenneth B. Thomson became Chairman of TC3M on November 1, 1993 at the
formation of TC3M and resigned effective September 1, 1996. Prior to 1990, Mr.
Thomson was the owner and president of Kenneth B. Thomson, Inc., P.C., a public
accounting firm. From 1990 to 1995, Mr. Thomson was a comptroller for AVA
Vending, Inc, a vending machine supply company located in Texas. Since 1990 Mr.
Thomson has been a part-time comptroller (currently 2 days a month) for Griffin
Oil Company, a wholesale and retail oil and gasoline distributor located in
Texas.
John Peacock has been Vice President of Peacock's Radio and Wild's
Computer Service, Inc. for the past 15 years. His company is described in Part
I, Item 1 under "Acquisition of SMC and Peacock."
Galen L. McCord became a member of the Management Committee of TC3M on
November 1, 1993 at the formation of TC3M. Since 1992, Mr. McCord has been the
owner and an officer of the Wireless Office, a company located in Rocklin,
California, which provides cellular, SMR, mobile office and other wireless
communication services throughout Northern California. Since 1994, Mr. McCord
has been president of Totally Wireless Communications, a telecommunications
development company, headquartered in Rocklin, California.
Mark E. Seely became a member of the Management Committee of TC3M on
November 1, 1993 at the formation of TC3M. Since 1987, Mr. Seely has served on
active duty in a number of different capacities for the United States Navy. Mr.
Seely is currently employed by Qualcomm Corp.
Stephen J. Mocol became Vice President and Chief Financial Officer in
1996. From 1989 through 1996, Mr. Mocol was employed in various financial
management functions with E.F. Johnson Company, a leading supplier of SMR
equipment. Prior to that, Mr. Mocol spent 15 years with Honeywell, Inc., a
leading high tech manufacturer.
Harold O'Dell has been president and owner of LaFlore Communications of
Greenwood, MI. for over 20 years.
One-third of the directors of the Company are elected each year to
serve three-year terms or until their successors are duly elected and qualified.
ITEM 4. REMUNERATION OF DIRECTORS AND OFFICERS
In connection with the operation of TC3M, and as approved by the
Bankruptcy Court, directors and officers of the Company have been awarded Common
Stock in the Company in compensation for work performed by them for TC3M. The
number of shares to be issued to each is listed in the chart below. (See
"Executive Security Plan"). These officers and directors also received
reimbursement for expenses and a $500 per day payment from TC3M while traveling
on TC3M business. In addition, the Company intends to enter into an Executive
Security Plan, substantially in the form of Exhibit 6.1, which is hereby
incorporated by reference, with certain of its officers and directors.
21ST CENTURY WIRELESS GROUP, INC. is newly formed and did not begin to
compensate its executive officers or directors until January 1, 1996. The
Company anticipates that the base compensation of its three highest paid
executive officers and all officers and directors as a group in 1996 will be as
follows:
Name of Capacity In Which Possible
Individual or Remuneration Incentive
Identity of Group Will be Received Base Salary Bonus
- ----------------- ---------------- ----------- -----
James E. LaFayette Director & President $ 48,000 $ 48,000
Rodney H. Hutt Executive Vice President $ 85,000 $ 9,000
& General Manager
Stephen J. Mocol Vice President & $ 65,000 $ 20,000
Chief Financial Officer
All Officers & Directors as a group (10 persons) $293,000 $105,000
There are no other compensation plans or arrangements with any of the
executive officers except that (i) pursuant to the Plan of Reorganization, each
officer and director who is an Investor received his pro rata share of the
Common Stock and warrants to purchase Common Stock issued to Investors, but
solely in his capacity as an Investor, (ii) Mr. Venable will be entitled to
reasonable hourly compensation for the work he actually performs for the Company
as secretary and (iii) the Company has issued stock to certain officers and
directors under the Executive Security Plan as described below.
EMPLOYMENT AGREEMENTS
The Company anticipates that it will enter into an employment contract
with Alan Hansel as a vice president of engineering in connection with the SMC
acquisition (see discussion in Part I, Item 1 under "Acquisition of SMC and
Peacock"). Mr. Hansel's contract will provide for base compensation of
approximately $72,000 and will, subject to certain termination rights, run for
three years from the date of execution.
The Company has entered into an employment contract with John Peacock
as a vice president of FCC licensing in connection with the Peacock acquisition
(see discussion in Part I, Item 1 under "Acquisition of SMC and Peacock"). Mr.
Peacock's employment contract provides for base compensation of approximately
$40,000 and, subject to certain termination rights, runs until all deferred
payments under the Peacock purchase contract have been paid.
The Company has entered into an employment contract with Stephen J.
Mocol as Vice President and Chief Financial Officer. Mr. Mocol's employment
contract provides for base compensation of approximately $65,000 and subject to
certain termination rights, runs until January 15, 1998.
SHARES ISSUED TO OFFICERS AND DIRECTORS UNDER EXECUTIVE SECURITY PLAN AND FOR
SERVICES PROVIDED TO TC3M
1. Executive Security Plan. Under the Executive Security Plan, a copy
of which is attached hereto as Exhibit 6.1 and hereby incorporated by reference,
the Company issued a total of 100,000 shares of Common Stock to the persons who
have provided management services to TC3M and to the Company. The President of
the Company appointed a committee consisting of Kenneth Thomson, Thomas Venable
and Clair Hill to determine the allocation of the Common Stock among the
participants. All participants in the Executive Security Plan voted to approve
the allocation that was made by the committee. Subject to the restrictions on
sale imposed by Rule 144 (see discussion in Part II, Item 1), the stock issued
under the Executive Security Plan will be freely tradeable by the participants
in the Plan. The number of shares to be issued to each participant who is an
officer or director of the Company is noted in the chart below.
2. Additional Shares Issued For TC3M Services. Each of the directors of
the Company provided a substantial amount of services to TC3M without
compensation prior to and during TC3M's bankruptcy case. Other members of the
TC3M Management Committee who are not directors of the Company also provided
such services without compensation. The extent of the services required from
these individuals far exceeded the services that the Promoters originally
projected would be required. The shares issued for TC3M services are intended to
provide some compensation to the recipients without depleting the cash resources
of the Company.
3. General Discussion. The total number of shares of Common Stock that
were issued to the Company's officers and directors under the Executive Security
Plan and for work performed for TC3M is as follows:
Shares Issued Shares Issued
Under Security For TC3M
Name Position Held Plan Services
---- ------------- -------------- -------------
Kenneth B. Thomson Director 20,288 12,500
James E. LaFayette Chairman of Board & 20,288 12,500
Chief Executive Officer
Thomas M. Venable Director and Secretary 8,927 5,500
Galen L. McCord Director 8,927 5,500
Mark E. Seely Director 8,927 5,500
Other persons who are not officers or directors of the Company, but who provided
management services to TC3M or the Company, received, in the aggregate, 32,643
shares under the Executive Security Plan and 17,500 shares for services provided
to TC3M.
COMPENSATION OF DIRECTORS
The Company anticipates compensating the members of its Board of
Directors as follows. Directors of the Company who are salaried employees (Mr.
Thomson and Mr. LaFayette) will not be entitled to any compensation for their
service as directors. Directors of the Company who are not salaried employees
(including Mr. Venable) will be paid the following compensation for service as
directors in 1996: (i) 1,000 unregistered shares of the Company's Common Stock
to be issued at the end of 1996 assuming that the director remains a director
during all of 1996; (ii) $500 for each day spent attending Board meetings; (iii)
reimbursement of normal expenses incurred in providing service as a director;
and (iv) an option to purchase 1,000 unregistered shares of the Company's Common
Stock.
The options issued to non-employee Directors under clause (iv) of the
immediately preceding paragraph may be exercised at any time within 10 years of
issuance at an option price equal to the closing bid price of the Common Stock
on the later of the date of issuance of the option or the date the Common Stock
first trades on a national, regional or over-the-counter stock exchange.
ITEM 5. SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN SECURITYHOLDERS.
The following table sets forth certain information regarding shares of
the Company's Common Stock that will be held by (i) each person known by the
Company to own more than 10% of the Company's outstanding Common Stock, (ii)
each executive officer and director of the Company, and (iii) all officers and
directors of the Company as a group upon completion of the Plan of
Reorganization. Each person will have sole voting and investment power with
respect to the shares listed.
NUMBER OF
PERCENT OF SHARES SUBJECT
NAME AND NUMBER OF CLASS TO OUTSTANDING
ADDRESS OF OWNER SHARES OWNED(1) OWNED WARRANTS(2)
- ---------------- --------------- ---------- --------------
Kenneth B. Thomson 38,488 1.75% 3,600
P.O. Box 2730
Texas City, TX 77592-2730
James E. LaFayette 37,988 1.73% 2,800
2419 Alamo Glen Dr.
Danville, CA 94526
Thomas M. Venable 15,627 0.71% 2,900
World Talk
5200 W. 73rd St
Edina, MN 55429
Rodney H. Hutt 4,300 0.20% None
406 Gateway Boulevard
Burnsville, MN 55337
Galen L. McCord 16,227 0.73% 3,000
152 Kenmas Ave
Auburn, CA 95603
Mark E. Seely 15,427 0.70% 3,000
9277 Carthay Circle
Spring Valley, CA 91977
Alan M. Hansel(4) 211,100 9.60% 30,100
c/o Southern Minnesota
Communications
615 5th Ave. S.W
Waseca, MN 56093
John Peacock(5) 43,751 1.99% None
c/o Radio & Wild's
Computer Service, Inc.
310 E. Polk St.
West Memphis, AR 72301
All officers 382,908 17.5% 45,400
and directors as
a group (10 persons)
(1) Includes shares of Common Stock, if any, acquired as an Investor.
(2) For description of warrants, see Part I, Item 7.
ITEM 6. INTEREST OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS
TRANSACTIONS WITH INSIDERS
Except as described below, in the past two years the Company has not
had any significant transactions with any director or executive officer of the
Company, any person nominated for election as a director, any significant
shareholder or any member of the immediate family of any of the foregoing.
As described in Part I, Item 4, the Company has issued shares of Common
Stock to certain insiders for services provided to TC3M and the Company.
As described in Part I, Item 1, the Company has purchased SMC and
Peacock. In connection with those acquisitions, the Company has added Alan
Hansel as a director and John Peacock as a Vice President and each is a
substantial shareholder as described in Part I, Item 5. Because the acquisitions
of SMC and Peacock were first agreed to prior to the commencement of TC3M's
bankruptcy case, SMC and Peacock each held claims in the bankruptcy case based
on their uncompleted agreements. TC3M's Plan of Reorganization provided for
completion of both acquisitions by the Company as TC3M's successor-in-interest.
TC3M did employ Lawrence Venable, an Investor and the father of Thomas
Venable (a director), as a manager for nine months in 1994. Mr. Venable's total
compensation was $58,500, which was comparable to salaries paid by similar
companies for similar services. In addition, TC3M employed Field Engineering
Support Services, a company with which William Wiley (a director) is affiliated,
to perform some technical services for TC3M at Field Engineering's standard
rates. The total compensation paid to Field Engineering was $7,500.
TRANSACTIONS WITH PROMOTERS
The Promoters of TC3M entered into an Asset Purchase Agreement
(described in Part I, Item 1) with TC3M pursuant to which a substantial portion
of the Company's operating assets were transferred to TC3M along with $2,500,000
out of the net proceeds of the sale of the partnership interests. Pursuant to
the Asset Purchase Agreement, the Promoters retained a 25% interest in the
assets transferred. The Company believes that the Promoters added an undisclosed
profit of at least $5,000,000 when they calculated the amount to be charged to
TC3M for the assets under the Asset Purchase Agreement and retained the
$5,000,000 profit for their own benefit. TC3M and the Investors were engaged in
a class action lawsuit with the Promoters described in Part II, Item 2.
ITEM 7. DESCRIPTION OF SECURITIES
The Company's authorized capital stock consists of 25,000,000 shares of
Common Stock, $.001 par value per share, and 500,000 shares of Undesignated
Stock, with no designated par value. In connection with the Reorganization, the
Company issued 2,010,000 shares of Common Stock and warrants to purchase an
additional 402,000 shares of Common Stock. Prior to September 1, 1996, 79,200
additional shares of Common Stock have been issued upon exercise of warrants. On
September 1, 1996 the Company completed a 3-for-2 stock split which increased
the number of shares outstanding to 3,308,541.
COMMON STOCK
There are no preemptive, subscription, conversion or redemption rights
pertaining to the Common Stock. Holders of Common Stock are entitled to receive
such dividends as may be declared by the Board of Directors out of assets
legally available therefor and to share ratably in the assets of the Company
upon liquidation, subject to rights of holders of Undesignated Stock, if any.
Each share of Common Stock is entitled to one vote for all purposes and
cumulative voting is not permitted in the election of directors. Accordingly,
the holders of more than 50% of all of the outstanding shares of Common Stock
can elect all of the directors. Significant corporate transactions such as
amendments to the Articles of Incorporation, mergers, sales of assets and
dissolution or liquidation require approval by the affirmative vote of the
majority of the outstanding shares of Common Stock. Upon the issuance of the
Common Stock described herein, the Company's directors and officers own
approximately 7.9% of the Common Stock. Upon completion of the SMC and Peacock
acquisitions (see discussion in Part I, Item 1 under "Acquisition of SMC and
Peacock"), the Company's directors and officers own approximately 17.5% of the
Common Stock. Accordingly, the Company's directors and officers have, and will
continue to have, significant voting influence in connection with election of
the directors of the Company and other aspects of the Company's business and
affairs.
WARRANTS
Each share of Common Stock issued under the Company's Plan of
Reorganization is accompanied by warrants to purchase additional Common Stock.
The description of the warrants herein is subject to the detailed provisions of
the Warrant Agreement between the Company and the Warrant Agent, an unexecuted,
draft copy of which is filed herewith as Exhibit 3.1 and incorporated herein by
reference. For each full partnership unit in TC3M owned by an Investor, the
Investor received 1,000 shares of Common Stock and 2 warrants, each of which
will entitle the holder to purchase an additional 100 shares of Common Stock.
Shares of Common Stock issued to management and in connection with the SMC
acquisition (see discussion in Part I, Item 1 under "Acquisition of SMC and
Peacock") are also accompanied by warrants to purchase a number of shares of
Common Stock equal to 20% of the number of shares to which they relate.
The warrant exercise price will be based on a Reference Price equal to the
lesser of (a) the opening offer price set by the Company's management with the
advice of market makers on the first day of public trading of the Common Stock
or (b) the closing bid price for the Common Stock on that first day of public
trading. The "first day of public trading" will be the day when a trade of the
Company's Common Stock is first executed through a member of the National
Association of Securities Dealers, Inc. As soon as possible after the first day
of public trading, the Company will inform all registered holders of warrants of
(a) the duration of the exercise period and (b) the Reference Price. The
exercise price per share will be 85% of the Reference Price if the warrant is
exercised within 90 days after the first day of public trading and 100% of the
Reference Price if the warrant is exercised more than 90 but not more than 180
days after the first day of public trading. (On July 12, 1996, the Company
offered each warrant holder the opportunity to exercise warrants early at a
price of $6.00. 79,200 shares of Common Stock were issued under this offer.)
Should the stock price, on the first date of public trading, cause the exercise
price, adjusted for stock splits, to be less than $6 per share, the Company will
refund the difference.
Each warrant is exercisable by surrendering the warrant prior to
expiration at the offices of the Warrant Agent accompanied by payment of the
full purchase price by cashier's or certified check. A warrant is not
exercisable in part. The warrants are not subject to redemption by the Company.
The warrants are entitled to certain anti-dilution adjustments under certain
circumstances as described in the Warrant Agreement. All nonexercised warrants
expire 180 days after the first day of public trading of the Company's Common
Stock.
Because there has been no established public market for the Common
Stock, the Company is unable to predict the effect that the exercise of warrants
may have on the prevailing market price of the Common Stock. Nevertheless, if a
substantial amount of Common Stock is issued upon exercise of warrants or if
there is a perception that a substantial number of warrants might be exercised,
there could be an adverse effect on the market price of the Common Stock if and
when a public market exists.
The warrants are transferable but will not be listed on any stock
exchange. The holders of warrants are not entitled to vote, receive dividends or
exercise any of the rights of holders of Common Stock for any purpose.
UNDESIGNATED STOCK
The Articles of Incorporation of the Company permit the Board of
Directors to establish other classes of stock from the Undesignated Stock from
time to time with such terms, including preferences as to dividends and
liquidation rights, as the Board of Directors shall deem appropriate.
LIMITATION ON LIABILITY
The Articles of Incorporation provide that no director of the Company
will be liable to the Company or its shareholders for monetary damages for
breach of a fiduciary duty as a director, except for (i) any acts or omissions
which involve intentional misconduct, fraud or a knowing violation of law and
(ii) approval of certain unlawful dividends.
ANTITAKEOVER PROVISIONS
As described in following paragraphs, certain provisions of Nevada law
and the Articles of Incorporation and Bylaws of the Company could have the
effect of discouraging certain attempts to acquire the Company, including a
hostile takeover, or to remove incumbent management even if some or a majority
of the Company's shareholders were to deem such an attempt to be in their best
interest, including an attempt that might result in the payment of a premium
over the market price for the shares of Common Stock held by the Company's
shareholders.
Section 78.335 of the Nevada Revised Statutes ("Nevada Law") provides
that directors may be removed only by the affirmative vote of the holders of at
least two-thirds of the voting power of all of the outstanding shares of Common
Stock entitled to vote for the election of directors. In addition, vacancies,
whether created by resignation, death, removal or an increase in the number of
directors, may be filled by a vote of a majority of directors then in office,
even though less than a quorum. The foregoing provisions could prevent
shareholders from removing incumbent directors and filling the resulting
vacancies with their own nominees.
Section 78.438 of Nevada Law generally prohibits any shareholder that
purchases 10% or more of the Company's voting shares (an "interested
shareholder") from entering into any business combination with the Company
within three years following such interested shareholder's share acquisition
date, unless the business combination is approved by the Board of Directors of
the Company before the interested shareholder's share acquisition.
The issuance of Undesignated Stock by the Company may have the effect
of delaying, deferring, or preventing a change in control of the Company without
further action by the shareholders of the Company. Undesignated Stock issued
with voting, conversion, or redemption rights may adversely affect the voting
power of the holders of Common Stock and could discourage any attempt to obtain
control of the Company. As of the date hereof, the Board of Directors has not
authorized any series of Undesignated Stock and currently has no plan or
intention to issue any Undesignated Stock.
TRANSFER AND WARRANT AGENT
The Transfer Agent for the Common Stock and the Warrant Agent is Nevada
Agency & Trust Co., 50 West Liberty Street, Reno, NV 89501.
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS
The Company is newly formed and prior to the filing of this
Registration Statement, there has been no public trading market for the
Company's Common Stock. Following effectiveness of this Registration Statement,
the Company intends to apply for listing of its Common Stock on the Nasdaq
Small-Cap Market ("Nasdaq") under the symbol TCWG. In order to be approved for
listing, the Company must satisfy several criteria and, to maintain the listing,
must continue to satisfy additional criteria related to financial performance
and trading price.
The Nasdaq Small-Cap Market criteria for initial and continued listing
include:
Initial Continued
Listing Listing
------- ---------
Minimum Total Assets: $4,000,000 $2,000,000
Minimum Capital and Surplus: $2,000,000 $1,000,000
Minimum Number of Shares not
Held by Insiders: 100,000 100,000
Market Value of Shares not
Held by Insiders: $1,000,000 $200,000
Minimum Number of
Shareholders: 300 300
Minimum Bid Price
Per Share: $3.00 $1.00
Minimum Number of
Market Makers: 2 2
There can be no assurance that the Company will be able to qualify for,
or, if it qualifies, to maintain, a listing on Nasdaq.
In connection with the implementation of the Company's Plan of
Reorganization (including the completion of the SMC acquisition and the issuance
of shares to the Company's management), the Company issued shares of Common
Stock and warrants to purchase shares of Common Stock to the Investors and to
certain members of management. Upon completion of the SMC acquisition (see
discussion in Part I, Item 1 under "Acquisition of SMC and Peacock"), the
Company issued shares of Common Stock and warrants to purchase Common Stock to
Alan Hansel. The Company will have approximately 1,100 holders of record of its
Common Stock.
The 2,010,000 shares of the Company's Common Stock issued to the
Investors, the Company's management and SMC under the Company's Plan of
Reorganization and the 402,000 shares of Common Stock that may be issued upon
exercise of the warrants also being issued pursuant to the Plan of
Reorganization are exempt from registration under the Securities Act of 1933, as
amended (the "Securities Act"), by virtue of the provisions of Section 1145 of
the United States Bankruptcy Code. Accordingly, such shares and warrants will be
freely transferable without restriction or further registration under the
Securities Act, except for any such shares or warrants that are issued to an
"affiliate" of the Company (as defined under the Securities Act). Shares of
Common Stock and warrants issued to an affiliate of the Company will be deemed
restricted securities as defined in Rule 144 under the Securities Act. The
Company has not agreed to register under the Securities Act the Common Stock
issued in connection with the Peacock acquisition (see discussion in Part I,
Item 1 under "Acquisition of SMC and Peacock"). Accordingly, the Common Stock
issued in connection with the Peacock acquisition constitutes restricted
securities as defined in Rule 144.
Restricted securities may not be sold unless they are registered under
the Securities Act or are sold pursuant to an applicable exemption from
registration, including an exemption under Rule 144, as currently in effect.
Under Rule 144, any sale of restricted securities is subject to a number of
restrictions unless another exemption applicable to the sale is available.
Generally, any person who holds restricted securities that were acquired and for
which full consideration was paid at least two years prior to the proposed sale
may sell within any three-month period, a number of shares of Common Stock that
does not exceed the greater of (i) 1% (approximately 20,100 shares following
initial issuance of shares in the Reorganization) of the then outstanding shares
of Common Stock of the Company or (ii) the average weekly trading volume in the
Common Stock during the four calendar weeks preceding such sale. All shares of
Common Stock held by an affiliate are also subject to such volume restrictions.
Sales under Rule 144 are also subject to certain requirements regarding manner
of sale, notice and availability of current public information about the
Company. A person who at the time of the sale has not been an affiliate of the
Company for at least three months and whose shares were acquired and for which
full consideration was paid at least three years prior to any proposed sale is
entitled to sell such shares under Rule 144 without regard to the volume
limitations or other requirements described above.
Because there has been no established public market for the Common
Stock, the Company is unable to predict the effect that sales made under Rule
144, or otherwise, may have on the prevailing market price of the Common Stock.
Nevertheless, sales of a substantial amount of Common Stock in the public market
or the perception that such sales might occur could adversely affect the market
price of the Common Stock if and when a public market exists.
The Company has never declared or paid any dividends on its Common
Stock. The Board of Directors currently intends to retain all earnings, if any,
for use in the Company's business for the foreseeable future. Any future
determination as to declaration and payment of dividends will be made at the
discretion of the Board of Directors. If the Company enters into any substantial
lending transaction in the future, the lender may restrict the Company's ability
to declare or pay dividends.
ITEM 2. LEGAL PROCEEDINGS
The Company is currently not a party to, and its properties are not
currently the subject of, any material pending legal proceedings.
In September 1994, four TC3M Investors, proposing to represent a class
consisting of all of the Investors, and TC3M commenced an action in the United
States District Court, District of Minnesota (Civil Case No. 4-94-833) against
several corporations and individuals who participated in the selling of TC3M
general partnership units to Investors. The defendants (the "Promoters") include
Digital Communications, Inc. and Digital Communications of Denver, Inc. and
several of their officers and directors. TC3M seeks monetary damages and the
proposed class seeks monetary damages and a right of rescission.
The plaintiffs alleged that the Promoters acted illegally and
wrongfully in connection with the formation of TC3M and the sale of equity
interest in TC3M. The court has approved a settlement with certain of the
Promoters pursuant to which the settling Promoters will forgo 92% of the 25%
interest in TC3M's assets retained by them in exchange for a release of all
claims against the settling Promoters by the plaintiffs. The release is not on a
"class action" basis and the settling Promoters remain subject to claims by TC3M
Investors other than those four Investors who commenced the lawsuit. The
settling Promoters will also receive warrants to purchase up to 40,000 shares of
the Common Stock of the Company at a price equal to the initial price of the
Common Stock on the first day of public trading. The warrants will expire three
years after the first day of public trading. The Promoters who did not
settle were dismissed from the lawsuit. These non-settling Promoters, who claim
to hold 8% of the 25% interest in TC3M's assets retained by the Promoters,
received no release and remain subject to claims by TC3M and by all TC3M
Investors. While the Company was not formally substituted for TC3M as a
plaintiff in the lawsuit, the Company did acquire TC3M's rights in the lawsuit
under the Plan of Reorganization and pursued the settlement for itself and TC3M.
In December, 1995, TC3M, Incorporated commenced an action in United
States District Court, District of Minnesota, against an entity known as
"Minnesota Wireless Communications, Inc." claiming that the entity's use of the
"Minnesota Wireless" name infringes on TC3M, Incorporated's tradename. TC3M,
Incorporated has requested that the Court issue an injunction against use of the
infringing name. The injunction has been issued.
As described above in Part I, Item 1, TC3M was the subject of a
bankruptcy proceeding under which the Plan of Reorganization has been finally
approved. The Company acquired its assets from TC3M in accordance with the
provisions of the Plan of Reorganization in that bankruptcy proceeding.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Not applicable.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
Set forth below, is information regarding all sales of securities by
the Company during the last three years.
A. Pursuant to the Plan of Reorganization the Company issued 2,010,000
shares of Common Stock and warrants to purchase 402,000 shares of Common Stock
to the Investors, members of the Company's management and SMC. The Company
claims the exemption provided by Section 1145 of the United States Bankruptcy
Code for these transactions.
The securities issued by the Company pursuant to the Plan of
Reorganization are as follows:
1. 1,650,000 shares of Common Stock and warrants to purchase an
additional 330,000 shares of Common Stock to TC3M which, in
turn, will distribute such shares and warrants to the
Investors. Each Investor will receive 1,000 shares of Common
Stock and warrants to purchase an additional 200 shares of
Common Stock for each full partnership unit in TC3M owned by
that Investor.
2. 159,000 shares of Common Stock and warrants to purchase an
additional 31,800 shares of Common Stock to officers and
directors of the Company and the TC3M Management Committee.
3. 201,000 shares of Common Stock and warrants to purchase an
additional 40,200 shares of Common Stock to SMC or its
principals when the SMC acquisition is completed.
In consideration for the issuance of such shares of Common Stock and warrants,
TC3M transferred substantially all of its assets to the Company. No underwriter
participated or will participate in the issuance of the foregoing Common Stock
or warrants.
B. The units of general partnership interest in TC3M were sold to the
approximately 1,080 Investors by the Promoters between February 1993 and October
1993. Investors, located in approximately 47 states, paid an aggregate purchase
price of $13,200,000. The TC3M partnership interests were not registered under
the Securities Act. The Promoters have contended that because the units were
general partnership interests they were not securities. TC3M and the Investors
have disputed this contention.
C. As noted above under "Acquisition of SMC and Peacock", 108,750
shares of the Company's Common Stock have been issued to shareholders of
Peacock. These shares are unregistered and are restricted.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Section 78.751 of Nevada Law the officers and directors of the
Company are entitled to indemnification for certain claims brought against them,
subject to certain restrictions. In general, indemnification applies to any
civil, criminal, administrative or investigative proceeding in which an officer
or director of the Company is made a party or is threatened to be made a party
by reason of the fact that he or she was an officer or director.
If the officer or director prevails in the proceeding and shows that he
or she acted in good faith and in a manner believed to be in, or not opposed to,
the best interests of the Company, the officer or director will be entitled to
be paid by the Company for all expenses, including attorneys' fees, actually and
reasonably incurred in the proceeding. If the officer or director does not
prevail in the proceeding but is nevertheless able to show that he or she acted
in good faith and in a manner believed to be in, or not opposed to, the best
interests of the Company, the Company may, but is not required to, indemnify the
officer or director. In any proceeding against an officer or director by, or on
behalf of, the Company, the ability and obligation of the Company to indemnify
the officer or director is further restricted by statute.
PART F/S
The Company was organized for the purpose of serving as a successor in
interest to the business of TC3M. Accordingly, combined audited financial
statements for the Company and TC3M are included in this Registration Statement.
The audited financial statements of the Company and TC3M for 1994 and 1995 and
the unaudited financial statements of the Company for the first six months of
1996 are filed as Exhibit FS.1 hereto, and hereby incorporated by reference.
Since the dates of those financial statements there have not been any
material subsequent events or contingencies, significant dispositions or
business purchases or any material accounting changes except that the Company
settled the lawsuit brought by TC3M and its Investors against the Promoters.
(See Part II, Item 2).
Also attached as exhibits, and incorporated by reference, are financial
statements of SMC (Exhibit FS.2) and Peacock (Exhibit FS.3) and pro forma
combined condensed financial statements (Exhibit FS.4) showing the effect of the
SMC and Peacock acquisitions on the operations of the Company.
The financial statements presented for Peacock are unaudited because
the Peacock acquisition is not of a magnitude to require presentation of audited
financial statements under the standards established in Item 310 of Regulation
S-B. The pro forma combined condensed financial statements showing the impact of
the SMC and Peacock acquisitions are unaudited.
INDEX TO FINANCIAL STATEMENTS
FS.1 21ST CENTURY WIRELESS GROUP, INC. AND
TWIN CITIES 3RD MOBILE ASSOCIATES
Independent Auditor's Report
Combined balance sheets as of December 31, 1995 and
June 30, 1996 (unaudited)
Combined statements of operations for the years ended
December 31, 1994 and 1995 and the six months
ended June 30, 1995 and 1996 (unaudited)
Combined statements of changes in equity for the years
ended December 31, 1994 and 1995 and the six
months ended June 30, 1995 and 1996 (unaudited)
Combined statements of cash flows for the years ended
December 31, 1994 and 1995 and the six months ended
June 30, 1995 and 1996 (unaudited)
Notes to combined financial statements
FS.2 ALAN M. HANSEL d/b/a SMC
Independent Auditor's Report
Balance sheet as of December 31, 1995
Statements of income and proprietor's capital
for the years ended December 31, 1994 and 1995
Statements of cash flows for the years ended
December 31, 1994 and 1995
Notes to financial statements
FS.3 PEACOCK'S RADIO & WILD'S COMPUTER SERVICE, INCORPORATED
Accountant's Compilation Report
Balance sheets (unaudited) as of December 31, 1995 and
June 30, 1996
Statements of operations and retained earnings (unaudited)
for the years ended December 31, 1994 and 1995 and the
six months ended June 30, 1995 and 1996
Statements of cash flows (unaudited) for the years ended
December 31, 1994 and 1995 and the six months ended
June 30, 1995 and 1996
Note to unaudited financial statements
FS.4 21ST CENTURY WIRELESS GROUP, INC.
Unaudited pro forma combined condensed balance sheet as
of June 30, 1996
Unaudited pro forma combined condensed statements of
operations for the year ended December 31, 1995 and
for the six months ended June 30, 1996
Notes to unaudited pro forma combined condensed financial
statements
PART III
Item 1. LIST OF EXHIBITS
The following is a list of all Exhibits attached to this Registration
Statement. An index to the Exhibits showing the sequential page numbers is
provided below as the first sheet to the separately bound book of Exhibits.
EXHIBIT
* 2.1 Articles of Incorporation of the Company, as amended
* 2.2 By-Laws of the Company
* 3.1 Specimen Certificate of Common Stock
* 3.2 Form of Warrant Agreement
* 6.1 Executive Security Plan
* 6.2 Former Office Lease dated July 29, 1994 for previous
executive offices
* 6.3 Office Lease dated March 6, 1996 for executive
offices
* 8.1 Plan of Reorganization of TC3M
* 8.2 Asset Purchase Agreement With Alan Hansel and
Southern Minnesota Communications, Inc. dated
February 9, 1996
* 8.3 Stock Purchase Agreement With Peacock's Radio &
Wild's Computer Service Inc, dated January 11, 1996
8.4 Supplement to the stock purchase agreement with Peacock's
Radio and Wild's Computer Service, dated August 21, 1996.
* Filed Previously
Item 2. DESCRIPTION OF EXHIBITS
See Item 1.
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the registrant caused this amended registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized.
21ST CENTURY WIRELESS GROUP, INC.
Date October 22, 1996 By
Stephen J. Mocol
Chief Financial Officer
INDEPENDENT AUDITOR'S CONSENT
We consent to the use in this Amendment No. 2 to General Form For Registration
of Securities of Small Business Issuers relating to 2,010,000 shares of common
stock and warrants to purchase 402,000 shares of common stock of 21ST CENTURY
WIRELESS GROUP, INC. on Form 10-SB/A-2 of our combined report on 21ST CENTURY
WIRELESS GROUP, INC. and Twin Cities 3rd Mobile Associates dated February 29,
1996, except for the first paragraph of Note 8, for which the date is March 15,
1996, and Note 10, for which the date is September 6, 1996.
LURIE, BESIKOF, LAPIDUS & CO., LLP
Minneapolis, Minnesota
October 22, 1996
FS.1
INDEPENDENT AUDITOR'S REPORT
Management Committee
21ST CENTURY WIRELESS GROUP, INC. and
Twin Cities 3rd Mobile Associates
Burnsville, Minnesota
We have audited the accompanying combined balance sheet of 21ST CENTURY WIRELESS
GROUP, INC. and TWIN CITIES 3RD MOBILE ASSOCIATES (a California general
partnership) as of December 31, 1995, and the related combined statements of
operations, changes in equity and cash flows for the years ended December 31,
1994 and 1995. These combined financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
combined 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 audit to obtain
reasonable assurance about whether the combined financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the combined 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 combined financial statements referred to above present
fairly, in all material respects, the financial position of 21ST CENTURY
WIRELESS GROUP, INC. and TWIN CITIES 3RD MOBILE ASSOCIATES as of December 31,
1995, and the results of their operations and their cash flows for the years
ended December 31, 1994 and 1995, in conformity with generally accepted
accounting principles.
LURIE, BESIKOF, LAPIDUS & CO., LLP
Minneapolis, Minnesota
February 29, 1996, except for the first paragraph of Note 8, for which the date
is March 15, 1996, and Note 10, for which the date is September 6, 1996
<TABLE>
<CAPTION>
21ST CENTURY WIRELESS GROUP, INC. AND
TWIN CITIES 3RD MOBILE ASSOCIATES
COMBINED BALANCE SHEETS
December 31, June 30,
ASSETS 1995 1996
------------ -----------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 763,822 $ 207,164
Accounts receivable 29,635 105,479
Inventories 22,864 61,182
Prepaid expenses and other 8,461 6,997
----------- -----------
TOTAL CURRENT ASSETS 824,782 380,822
----------- -----------
PROPERTY AND EQUIPMENT 963,524 1,963,249
----------- -----------
OTHER ASSETS
Intangible assets, net of accumulated amortization
of $292,934 and $428,820, respectively 2,992,380 3,700,740
Prepaid acquisition costs and other 168,041 127,368
----------- -----------
3,160,421 3,828,108
----------- -----------
$ 4,948,727 $ 6,172,179
=========== ===========
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Notes payable $ -- $ 150,000
Accounts payable 71,145 187,679
Accrued compensation 388,875 55,000
Accrued expenses - other 5,830 13,501
----------- -----------
TOTAL CURRENT LIABILITIES 465,850 406,180
----------- -----------
NOTES PAYABLE, net of current maturities -- 300,000
----------- -----------
COMMITMENTS AND CONTINGENCIES
EQUITY
Partnership capital 4,482,877 --
Common stock ($.001 par value, 25,000,000
shares authorized, 2,010,000 issued) -- 2,010
Additional paid-in capital -- 5,997,352
Accumulated deficit -- (533,363)
----------- -----------
4,482,877 5,465,999
----------- -----------
$ 4,948,727 $ 6,172,179
=========== ===========
See notes to combined financial statements.
</TABLE>
<TABLE>
<CAPTION>
21ST CENTURY WIRELESS GROUP, INC. AND
TWIN CITIES 3RD MOBILE ASSOCIATES
COMBINED STATEMENTS OF OPERATIONS
Year Ended Six Months
December 31, Ended June 30,
--------------------------- ---------------------------
1994 1995 1995 1996
----------- ----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C> <C>
REVENUE $ 277,829 $ 509,778 $ 236,479 $ 734,976
COST OF REVENUE 50,568 97,952 111,195 408,638
----------- ----------- ----------- -----------
GROSS PROFIT 227,261 411,826 125,284 326,338
----------- ----------- ----------- -----------
OPERATING EXPENSES
Selling 44,020 82,865 35,743 137,859
General and administrative 409,027 904,847 414,716 726,698
Partnership management fees 530,761 142,363 63,441 --
----------- ----------- ----------- -----------
983,808 1,130,075 513,900 864,557
----------- ----------- ----------- -----------
OPERATING LOSS (756,547) (718,249) (388,616) (538,219)
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE)
Interest income 66,737 52,159 34,544 11,606
Interest expense -- -- -- (6,750)
Legal fees (93,440) (118,206) (99,413) --
Restructuring expenses -- (62,541) (26,541) --
----------- ----------- ----------- -----------
(26,703) (128,588) (91,410) 4,856
----------- ----------- ----------- -----------
NET LOSS $ (783,250) $ (846,837) $ (480,026) $ (533,363)
=========== =========== =========== ===========
NET LOSS PER SHARE $ -- $ -- $ -- $ (0.28)
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 1,918,878
See notes to combined financial statements.
</TABLE>
<TABLE>
<CAPTION>
21ST CENTURY WIRELESS GROUP, INC. AND
TWIN CITIES 3RD MOBILE ASSOCIATES
COMBINED STATEMENTS OF CHANGES IN EQUITY
21ST CENTURY WIRELESS GROUP, INC.
Twin Cities ------------------------------------------------------------------------
3rd Mobile Additional
Associates Shares Paid-in Accumulated
Capital Issued Amount Capital Deficit Equity
------------ ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1993 $ 6,112,964 -- $ -- $ -- $ -- $ 6,112,964
Net loss (783,250) -- -- -- -- (783,250)
----------- ----------- ----------- ----------- ----------- -----------
BALANCE, December 31, 1994 5,329,714 -- -- -- -- 5,329,714
Net loss (846,837) -- -- -- -- (846,837)
----------- ----------- ----------- ----------- ----------- -----------
BALANCE, December 31, 1995 4,482,877 -- -- -- -- 4,482,877
Conversion of partnership
capital to common stock
(unaudited) (4,482,877) 1,650,000 1,650 4,481,227 -- --
Issuance of common stock for
accrued compensation
(unaudited) -- 159,000 159 388,716 -- 388,875
Issuance of common stock for
the acquisition of SMC -- 201,000 201 1,127,409 -- 1,127,610
Net loss for six months
ended June 30, 1996
(unaudited) -- -- -- -- (533,363) (533,363)
----------- ----------- ----------- ----------- ----------- -----------
BALANCE, June 30, 1996
(unaudited) $ -- 2,010,000 $ 2,010 $ 5,997,352 $ (533,363) $ 5,465,999
=========== =========== =========== =========== =========== ===========
See notes to combined financial statements.
</TABLE>
<TABLE>
<CAPTION>
21ST CENTURY WIRELESS GROUP, INC. AND
TWIN CITIES 3RD MOBILE ASSOCIATES
COMBINED STATEMENTS OF CASH FLOWS
Year Ended Six Months
December 31, Ended June 30,
--------------------------- ----------------------------
1994 1995 1995 1996
----------- ------------ ----------- ------------
(Unaudited)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $ (783,250) $ (846,837) $ (480,026) $ (533,363)
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation 52,057 115,853 61,500 106,780
Amortization 114,021 178,913 90,000 135,886
Interest income amortized on short-
term investments (24,428) -- -- --
Changes in operating assets and
liabilities:
Accounts receivable (33,260) 3,625 (7,392) (75,844)
Inventories -- (22,864) -- (38,318)
Prepaid expenses and other 10,520 1,169 9,630 1,464
Accounts payable 19,947 33,073 (24,589) 116,534
Accrued compensation 300,000 88,875 32,000 55,000
Accrued expenses - other -- 5,830 3,856 7,671
----------- ----------- ----------- -----------
Net cash used by
operating activities (344,393) (442,363) (315,021) (224,190)
----------- ----------- ----------- -----------
INVESTING ACTIVITIES
Proceeds from sale of short-term
investments 1,600,000 -- -- --
Purchases of property and equipment (363,069) (252,115) (214,867) (271,516)
Proceeds from sale of property and
equipment 125,000 -- -- --
Expenditures for intangible assets (200,176) (66,547) -- (29,870)
Expenditures for prepaid acquisition
costs and other assets -- (168,041) -- (31,082)
----------- ----------- ----------- -----------
Net cash provided (used) by
investing activities 1,161,755 (486,703) (214,867) (332,468)
----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS 817,362 (929,066) (529,888) (556,658)
CASH AND CASH EQUIVALENTS
Beginning of period 875,526 1,692,888 1,692,888 763,822
----------- ----------- ----------- -----------
End of period $ 1,692,888 $ 763,822 $ 1,163,000 $ 207,164
=========== =========== =========== ===========
(continued)
See notes to combined financial statements.
</TABLE>
21ST CENTURY WIRELESS GROUP, INC. AND
TWIN CITIES 3RD MOBILE ASSOCIATES
COMBINED STATEMENTS OF CASH FLOWS (continued)
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES
At December 31, 1994, property and equipment of $113,093 was acquired
through open accounts payable, which were paid in 1995.
During the six months ended June 30, 1996, the Company issued stock as
payment for accrued compensation totaling $388,875.
Effective January 1, 1996, the Company issued 201,000 shares of common stock
and $450,000 of notes payable to Alan M. Hansel d/b/a SMC for substantially
all of SMC's Specialized Mobile Radio equipment and licenses valued at
$1,649,365 (Note 10). In connection with the acquisition, the Company paid
$50,000 towards the purchase price and capitalized $21,755 in additional
acquisition costs which were included in prepaid acquisition costs at
December 31, 1995.
See notes to combined financial statements.
21ST CENTURY WIRELESS GROUP, INC. AND
TWIN CITIES 3RD MOBILE ASSOCIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
December 31, 1995
1. Description of the Company and Summary of Significant Accounting
Policies -
The Company
Twin Cities 3rd Mobile Associates, a California general partnership (the
Partnership), doing business as Minnesota Wireless, is a provider of
Specialized Mobile Radio (SMR) wireless communications in Minnesota. 21ST
CENTURY WIRELESS GROUP, INC. (21ST CENTURY) was formed as a result of the
bankruptcy proceedings described in Note 3. As of December 31, 1995, 21ST
CENTURY had 25,000,000 shares of $.001 par value common stock authorized
and no shares issued or outstanding. Effective January 1, 1996, all
assets and liabilities of the Partnership were transferred to 21ST
CENTURY in exchange for 1,650,000 shares of its common stock and warrants
to purchase 330,000 shares of additional common stock in 21ST CENTURY.
The Partnership was dissolved upon the distribution of the stock to the
partners.
The combined financial statements (the Company) include the operations of
the Partnership through December 31, 1995, and the operations of 21ST
CENTURY beginning January 1, 1996. The Company began operations on June
6, 1994, and currently services approximately 4,000 subscriber units on
58 SMR channels in the Minneapolis and St. Paul, Minnesota area.
Unaudited Interim Financial Statements
In the opinion of management, the unaudited combined financial statements
for the six months ended June 30, 1995 and 1996, are presented on a basis
consistent with the audited combined financial statements and reflect all
adjustments, consisting of only normal recurring adjustments, necessary
for a fair presentation.
The results of operations for interim periods are not necessarily
indicative of the results to be expected for the entire year.
Net Loss Per Share
Net loss per share is computed based upon the weighted average number of
common and dilutive common equivalent shares outstanding during the
period. Fully diluted and primary earnings per share are the same for
each of the periods presented.
Use of Estimates
The preparation of these combined financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that may affect certain reported amounts and
disclosures at the date of and during the combined financial statements
reporting periods. Actual results could differ from these estimates. The
most significant areas which require the use of management's estimates
relate to the initial appraisal values assigned to property and equipment
and intangible assets, depreciable lives for property and equipment, and
amortization periods for intangible assets.
Revenue Recognition
Revenue is recognized for air-time and other services during the period
utilized.
Cash Equivalents
The Company considers all highly liquid investments purchased with a
maturity of three months or less to be cash equivalents.
Inventories
Inventories are stated at the lower of cost, determined on the first-in,
first-out method, or market.
Property and Equipment
Property and equipment are stated at the lower of cost or fair market
value at the time of acquisition, less accumulated depreciation.
Depreciation is provided using the straight-line method over the
estimated useful lives of the assets, ranging from three to ten years.
Intangible Assets
Intangible assets are recorded at the lower of cost or fair market value
at the time of acquisition, less accumulated amortization. Intangible
assets, which are primarily FCC licenses, are amortized using the
straight-line method over their estimated useful lives of twenty years.
Income Taxes
Income and losses of the Partnership are reported on the tax returns of
the individual partners. Accordingly, no provision for income taxes is
included in these combined financial statements at December 31, 1995.
Beginning January 1, 1996, the Company is taxed as a corporation.
2. Formation of Partnership -
During 1993, Digital Communications, Inc. (DCI) purchased certain radio
frequencies and transmitting equipment in the Twin Cities metropolitan
area. To finance the acquisition, DCI sold 1,650 units to approximately
1,100 partners of the Partnership at $8,000 per unit. In October 1993,
DCI transferred cash to the Partnership totaling $2,500,000, a 75%
interest in 57 radio channels, Federal Communication Commission (FCC)
licenses, and transmitting equipment, as well as all related Partnership
units. The FCC approved the transfer of the 57 radio channel licenses to
the Partnership in June 1994.
Subsequent to the transfer, the management of the Partnership determined
that the fair market value of the assets received from DCI, excluding
cash, was substantially less than the value represented by DCI (see Note
8). The Federal Trade Commission requested an independent appraisal to
determine the value of the assets acquired from DCI. The appraised value
of the Partnership's 75% interest in the assets transferred, excluding
cash, was estimated to be $3,645,000, using the discounted cash flow
method. The appraisal was based on various assumptions including, among
others, a 15% discount rate, converting to a digital system originally
scheduled to be operational at the beginning of 1996 (which has been
delayed), obtaining $22,500,000 of capital (70% equity and 30% debt) to
build the system, paying operating expenses and debt obligations, and a
residual value in the year 2003 based on ten times that year's operating
cash flow.
Capital contributions recorded by the Partnership reflect a reduction to
the amount paid by the individual investors to DCI as follows:
Unaudited
---------
Total Partnership units sold by DCI
(1,650 units at $8,000 per unit) $13,200,000
Reduction of assets received by the Partnership
to fair market value 7,055,000
-----------
Capital contributed to the Partnership $ 6,145,000
===========
3. Bankruptcy Proceedings -
On February 24, 1995, several partners in the Partnership filed a
petition for involuntary reorganization under Chapter 11 of the United
States Bankruptcy Code. The bankruptcy court granted a petition for an
order for relief in the bankruptcy proceedings on May 16, 1995, and
signed the order confirming the Debtor's Plan of Reorganization,
effective November 24, 1995. Pursuant to the Debtor's Plan of
Reorganization, 21ST CENTURY was formed. Effective January 1, 1996, all
assets and liabilities of the Partnership were transferred to 21ST
CENTURY in exchange for 1,650,000 shares of common stock. The Partnership
then distributed the stock and warrants to purchase 330,000 additional
shares of common stock in 21ST CENTURY to the partners and dissolved the
Partnership. This reorganization into a publicly traded corporate entity
allows the new corporation a method to finance future acquisitions of
other SMR frequencies in targeted markets, which is necessary to expand
the marketplace that the Company currently operates.
In connection with the bankruptcy proceedings, the Partnership incurred
legal and professional fees totaling $62,541 which are included on the
1995 combined statement of operations as restructuring expenses.
4. Property and Equipment -
Property and equipment consist of the following:
December 31, June 30,
1995 1996
------------- -----------
(Unaudited)
Land $ 12,000 $ 32,410
Transmission equipment 1,042,122 2,062,609
Office furniture and equipment 77,312 142,920
----------- -----------
1,131,434 2,237,939
Less accumulated depreciation 167,910 274,690
----------- -----------
$ 963,524 $ 1,963,249
=========== ===========
In 1994, the Partnership purchased substantially all of the assets of a
company for $250,000. Concurrently, the Partnership sold various
equipment received to another company for $125,000. The Partnership
allocated the net amount of the transaction to the assets retained,
resulting in no gain or loss on the transaction.
5. Related Party Transactions -
The Partnership reimbursed the nine members of the Management Committee
for expenses and per diem while conducting Partnership business. Payments
to the Management Committee for 1994 and 1995 were $180,289 and $187,065
(including $96,500 and $45,500 of per diem), respectively.
The Partnership agreed to compensate the Management Committee for 8,300
hours spent on the business operations of the Partnership during 1994 and
1995. The Management Committee accepted 41,500 shares of common stock in
21ST CENTURY, with a fair market value of $332,000 at the time of the
agreement, in lieu of cash payments. The accompanying combined financial
statements include $300,000 and $32,000 as compensation for Management
Committee time incurred in 1994 and 1995, respectively. The bankruptcy
court approved the amounts of compensation.
Later in 1995, various Management Committee members agreed to devote
their efforts to the Partnership's bankruptcy proceedings and filings
with the Securities and Exchange Commission (SEC). The members accepted
17,500 shares of common stock in 21ST CENTURY, with a fair market value
at the time of the agreement totalling $56,875, as compensation for these
services.
6. Leases -
The Company leases space for its transmission equipment and office space
under operating leases which expire at various dates through December
1999.
At December 31, 1995, the approximate future minimum rental commitments
under noncancellable leases are as follows:
Year Amount
---- ----------
1996 $ 115,500
1997 100,600
1998 91,400
1999 95,100
----------
$ 402,600
==========
Rent expense was approximately $77,800 and $159,600 for 1994 and 1995,
respectively.
7. Commitments and Contingencies -
Credit Risk
The Company maintains its cash and cash equivalents in bank deposit
accounts which, at times, may exceed federally insured limits. The
Company has not experienced any losses in such accounts. Management
believes it is not exposed to any significant risk on cash and cash
equivalents.
Executive Security Plan
The Company established an executive security plan to provide incentives
for retaining a select group of employees who contribute materially to
the future business success of the Company. Under this plan the Company
authorized and issued 100,000 shares of common stock in 1996 to employees
who provided management services to the Company.
8. Class Action Lawsuit -
The Partnership and its partners commenced a class action lawsuit against
DCI and others involved in promoting the Partnership. The lawsuit alleged
various illegal acts in the promotion and sale of the Partnership units.
In March 1996, management reached a settlement with DCI, subject to
approval by a federal judge. Terms of the settlement include recovery of
92% of the remaining 25% interest in the assets retained by DCI in
exchange for warrants to purchase 40,000 shares of 21ST CENTURY common
stock. The warrants are exercisable for three years after initial public
trading at the average closing bid price during the first 30 days of
trading. Once approved by the federal judge, this settlement will
increase the Partnership's total assets by approximately $1,118,000.
Digital Communications of Denver, Inc., a related party of DCI, claims to
own the 8% excluded from this settlement. The combined financial
statements do not reflect the effects of this proposed settlement. 21ST
CENTURY intends to account for this settlement, when finalized, as
additional paid-in capital.
The 1994 and 1995 combined statements of operations include legal fees
for litigation against DCI and related matters of $93,440 and $118,206,
respectively, which are classified as other expense.
9. Filing with the Securities and Exchange Commission -
On February 13, 1996, 21ST CENTURY filed Form 10-SB "General Form for
Registration of Securities of Small Business Issuers Under Section 12(b)
or 12(g) of the Securities Act of 1934" with the SEC. This filing
requests registration of 2,010,000 shares of common stock and warrants
for the purchase of 402,000 shares of common stock of 21ST CENTURY. When
registered, most of these shares and warrants will be used to satisfy all
Partnership claims resulting from the bankruptcy proceedings (Note 3),
acquire the assets of various companies (Note 10), pay accrued
obligations to the Management Committee (Note 5), and acquire most of the
remainder interest in assets (Note 8).
10. Subsequent Events -
SMC Acquisition
Effective January 1, 1996, the Company acquired certain assets of Alan M.
Hansel d/b/a SMC for $1,649,365 as follows:
Cash $ 50,000
Notes payable 450,000
Common stock 1,127,610
Additional costs of acquisition 21,755
-----------
$ 1,649,365
===========
The acquisition was accounted for as a purchase and, accordingly, the
combined statement of operations includes the results of operations of
SMC since the acquisition. The purchase price was allocated to the assets
acquired based on the estimated fair market values at the date of
acquisition as follows:
Property and equipment $ 834,989
FCC licenses 814,376
-----------
$ 1,649,365
===========
The notes payable to the proprietor require payments of $150,000 plus
accrued interest at the date of closing and annually thereafter. The
notes bear interest at 5% and are collateralized by the assets acquired
from SMC.
Peacock Acquisition
Effective September 1, 1996, 21ST CENTURY acquired all assets and
liabilities of Peacock for $640,760 as follows:
Common Stock $ 621,653
Additional Costs of Acquisition 19,107
---------
$ 640,760
=========
The acquisition was accounted for as a purchase and, accordingly, the
combined statements of operations will include the results of operations
after the acquisition. The purchase price was allocated to the assets
acquired based on the estimated fair market values at the date of
acquisition as follows:
Cash $ 115
Accounts receivable 69,203
Inventories 149,897
Prepaid expenses 4,370
Property and equipment 408,480
FCC licenses 219,834
Accounts payable (70,788)
Accrued expenses (15,280)
Notes payable (125,071)
---------
$ 640,760
=========
In addition to the price of the acquisition, the Company has guaranteed a
stock price on the open market of no less than $8 per share at an initial
public offering. To the extent that the price at the time of an initial
public offering is less than $8 per share, additional shares will be
issued. At this time, that amount is not estimable.
The following unaudited pro forma financial information shows the results
of the Company as if the acquisitions had occurred at January 1, 1994.
The pro forma information is provided for informational purposes only. It
is based on historical information and does not necessarily reflect the
actual results that would have occurred nor is it necessarily indicative
of future results of operations of the consolidated companies.
1994 1995
----------- -----------
(Unaudited)
Revenue $1,591,000 $1,539,000
Net loss $ (862,000) $ (967,000)
Letters of Intent
Subsequent to June 30, 1996, the Company signed letters of intent with
two companies to acquire additional licenses and other business assets to
expand the current market segment of the Company. The agreements require
the Company to pay approximately $7,000,000 in stock and cash contingent
upon the Company's successful completion of a stock offering.
Warrants
At December 31, 1995, the Company had 4,020 warrants outstanding to
purchase 402,000 shares of common stock. In July 1996, the Company
allowed stockholders to exercise their warrants during a 30-day period
for $6 per share of common stock. During the 30-day period, the Company
sold 61,800 shares of common stock for $370,800 in cash. Should the stock
price, on the first date of public trading, cause the exercise price,
adjusted for stock splits, to be less than $6 per share, the Company will
refund the difference for warrants exercised during the 30-day period.
In August 1996, two Directors used their accrued compensation, totalling
$55,000 at June 30, 1996, as payment for the exercise of their warrants
to purchase 7,300 shares of common stock. Also, Alan M. Hansel converted
$60,600 of notes payable from the SMC acquisition as payment for the
exercise of his warrants to purchase 10,100 shares of common stock.
Litigation Settlement
In September 1996, the federal judge approved a settlement with DCI (Note
8) whereby DCI will forgo 92% of their 25% interest in the Company's
assets in exchange for a release of all claims. DCI will also receive
warrants to purchase 40,000 shares of common stock.
FS.2
INDEPENDENT AUDITOR'S REPORT
To Alan M. Hansel
Southern Minnesota Communications
Waseca, Minnesota
We have audited the accompanying balance sheet of ALAN M. HANSEL, d/b/a SMC (a
proprietorship), as of December 31, 1995, and the related statements of income
and proprietor's capital and of cash flows for each of the years in the two-year
period ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. 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 financial statements referred to above present fairly, in
all material respects, the financial position of ALAN M. HANSEL, d/b/a SMC, as
of December 31, 1995, and the results of its operations and its cash flows for
each of the years in the two-year period ended December 31, 1995, in conformity
with generally accepted accounting principles.
LURIE, BESIKOF, LAPIDUS & CO., LLP
Minneapolis, Minnesota
August 12, 1996
ALAN M. HANSEL
d/b/a SMC
BALANCE SHEET
December 31, 1995
ASSETS
CURRENT ASSETS
Accounts receivable, net of allowance for doubtful
accounts of $20,000 $ 6,980
Advance to owner 50,000
---------
TOTAL CURRENT ASSETS 56,980
PROPERTY AND EQUIPMENT 540,227
---------
$ 597,207
=========
LIABILITIES AND PROPRIETOR'S CAPITAL
CURRENT LIABILITIES
Checks issued in excess of deposits $ 465
Current maturities of long-term debt 54,599
Accounts payable 10,714
Accrued expenses 1,508
Advance from related party 50,000
---------
TOTAL CURRENT LIABILITIES 117,286
LONG-TERM DEBT, net of current maturities 117,520
PROPRIETOR'S CAPITAL 362,401
---------
$ 597,207
=========
See notes to financial statements.
ALAN M. HANSEL
d/b/a SMC
STATEMENTS OF INCOME AND PROPRIETOR'S
CAPITAL Years Ended December 31, 1994 and 1995
1994 1995
--------- ---------
REVENUE $ 285,191 $ 316,444
COST OF REVENUE 47,668 40,708
--------- ---------
GROSS PROFIT 237,523 275,736
--------- ---------
OPERATING EXPENSES
Selling 867 4,109
General and administrative 161,981 183,064
--------- ---------
162,848 187,173
--------- ---------
OPERATING INCOME 74,675 88,563
--------- ---------
OTHER INCOME (EXPENSE)
Office rent income 22,800 23,700
Interest expense (15,611) (14,553)
--------- ---------
7,189 9,147
--------- ---------
NET INCOME 81,864 97,710
PROPRIETOR'S CAPITAL
Beginning of year 270,524 307,971
Contribution 200 --
Withdrawals (44,617) (43,280)
--------- ---------
End of year $ 307,971 $ 362,401
========= =========
See notes to financial statements.
<TABLE>
<CAPTION>
ALAN M. HANSEL
d/b/a SMC
STATEMENTS OF CASH FLOWS
Years Ended December 31, 1994 and 1995
1994 1995
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 81,864 $ 97,710
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 57,982 62,615
Changes in operating assets and liabilities:
Accounts receivable 1,285 5,306
Deposit (5,000) 5,000
Accounts payable and accrued expenses 610 9,972
--------- ---------
Net cash provided by operating activities 136,741 180,603
--------- ---------
INVESTING ACTIVITIES
Purchases of property and equipment (50,358) (86,057)
Proceeds from sale of property and equipment -- 3,108
Advance to owner -- (50,000)
--------- ---------
Net cash used by investing activities (50,358) (132,949)
--------- ---------
FINANCING ACTIVITIES
Increase (decrease) in checks issued in excess
of deposits 1,141 (11,505)
Proceeds from long-term debt 17,700 27,000
Payments on long-term debt (60,807) (69,869)
Advance from related party -- 50,000
Capital contribution 200 --
Capital withdrawals (44,617) (43,280)
--------- ---------
Net cash used by financing activities (86,383) (47,654)
--------- ---------
NET INCREASE IN CASH -- --
CASH
Beginning of year -- --
--------- ---------
End of year $ -- $ --
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest $ 16,536 $ 13,888
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES
The Company incurred a note payable to purchase property and
equipment $ -- $ 45,000
See notes to financial statements.
</TABLE>
ALAN M. HANSEL
d/b/a SMC
NOTES TO FINANCIAL STATEMENTS
1. Nature of Business and Summary of Significant Accounting Policies -
Nature of Business
Alan M. Hansel, d/b/a SMC, a proprietorship (the Company), is primarily a
provider of Specialized Mobile Radio (SMR) and Land Mobile Radio (LMR)
wireless communications in Southeastern Minnesota and also sells and
services wireless radios. The Company services approximately 1,500
subscriber units on 63 SMR channels and 73 LMR channels.
Use of Estimates
The preparation of these financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenue and
expenses during the financial statement reporting periods. Actual results
could differ from these estimates.
Personal Assets, Liabilities and Income Taxes
The financial statements of the Company do not include the nonbusiness
assets, liabilities, revenues and expenses of the proprietor, including
the obligation or provision for income taxes on the net income.
Revenue Recognition
Revenue is recognized for air-time and other services during the period
utilized. Revenue received in advance is deferred and recognized over the
service period.
Property, Equipment and Depreciation
Property and equipment are stated at cost. Depreciation is provided using
the straight-line method over the estimated useful lives of the assets,
ranging from three to ten years.
2. Property and Equipment -
Property and equipment consist of the following:
Land $ 44,281
Buildings and improvements 177,000
Equipment 761,658
Vehicles 6,044
---------
988,983
Less accumulated depreciation 448,756
---------
$ 540,227
=========
3. Long-Term Debt -
Long-term debt consists of the following:
<TABLE>
<CAPTION>
<S> <C>
Prime plus 2% note payable to individuals, collateralized by real
estate, due in monthly installments of $1,335,
including interest, through December 2002. $ 85,626
8% note payable to individuals, collateralized by real
estate, due in monthly installments of $546, including
interest, through October 2005. 44,506
Prime plus 2.5% note payable to bank, collateralized by substantially
all assets of the Company, due in monthly installments of $1,200,
including interest, through December 1996. 14,853
10.5% revolving note payable to bank, collateralized by substantially
all assets of the Company, due in monthly installments of $1,031,
including interest, through December 1997. 12,210
Prime plus 2% note payable to bank, collateralized
by equipment, due on demand. 14,924
---------
172,119
Less current maturities 54,599
---------
$ 117,520
=========
The prime rate was 8.5% at December 31, 1995.
</TABLE>
Future maturities of long-term debt are as follows:
Year Amount
----------- ---------
1996 $ 54,599
1997 13,659
1998 14,792
1999 16,021
2000 17,349
Thereafter 55,699
---------
$ 172,119
=========
4. Lease Commitments -
The Company leases space for its transmission equipment under operating
leases which expire at various dates through April 2000. Some of the
leases offer free SMR use to the lessor, valued at approximately $8,900,
in exchange for a lease on the space for the transmission equipment. Many
of the leases also contain terms of perpetuity or continual renewal,
subject to termination by either party with sufficient notice.
Future minimum lease payments are as follows:
Year Amount
---- ---------
1996 $ 5,700
1997 3,000
1998 2,400
1999 1,200
2000 100
--------
$ 12,400
=========
Rent expense was approximately $22,800 and $26,900 for 1994 and 1995,
respectively.
5. Related Party Transactions -
The Proprietor of the Company is also the sole owner of a corporation
which sells and services two-way and mobile radios. The corporation rents
office space at two facilities owned by the Company. Rent charged the
corporation by the Company for 1994 and 1995 was $19,200 each year. The
Company was charged by the corporation $12,000 annually for 1994 and 1995
as a salary reimbursement for corporate employees who perform services
for the Company.
6. Sale of Assets -
Effective January 1, 1996, the Company sold certain of its business
assets to 21ST CENTURY WIRELESS GROUP, INC (21ST CENTURY) for $50,000
cash upon closing, subsequent cash payments of $450,000 over two years,
and common stock equal to 10% of the outstanding stock of 21ST CENTURY.
FS.3
ACCOUNTANT'S COMPILATION REPORT
Board of Directors
21ST CENTURY WIRELESS GROUP, INC.
Burnsville, Minnesota
We have compiled the accompanying balance sheets of PEACOCK'S RADIO & WILD'S
COMPUTER SERVICE, INCORPORATED as of December 31, 1995 and June 30, 1996, and
the related statements of operations and retained earnings and of cash flows for
each of the years in the two-year period ended December 31, 1995 and for the six
months ended June 30, 1995 and 1996, in accordance with Statements on Standards
for Accounting and Review Services issued by the American Institute of Certified
Public Accountants.
A compilation is limited to presenting in the form of financial statements
information that is the representation of management. We have not audited or
reviewed the accompanying financial statements and, accordingly, do not express
an opinion or any other form of assurance on them.
Management has elected to omit substantially all of the disclosures required by
generally accepted accounting principles. If the omitted disclosures were
included in the financial statements, they might influence the user's
conclusions about the Company's financial position, results of operations, and
cash flows. Accordingly, these financial statements are not designed for those
who are not informed about such matters.
LURIE, BESIKOF, LAPIDUS & CO., LLP
Minneapolis, Minnesota
August 12, 1996
<TABLE>
<CAPTION>
PEACOCK'S RADIO & WILD'S COMPUTER SERVICE, INCORPORATED
BALANCE SHEETS
Unaudited - See Accountant's Compilation Report
December 31, June 30,
ASSETS 1995 1996
----------- --------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 3,841 $ 115
Accounts receivable (no allowance for doubtful accounts) 65,949 69,203
Inventories 179,697 227,504
Other current assets 20,253 20,110
-------- --------
TOTAL CURRENT ASSETS 269,740 316,932
PROPERTY AND EQUIPMENT 69,055 59,980
-------- --------
$338,795 $376,912
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 12,381 $ 11,396
Accounts payable 33,949 70,788
Accrued expenses 9,632 10,280
Advance from 21ST CENTURY 55,000 55,000
-------- --------
TOTAL CURRENT LIABILITIES 110,962 147,464
-------- --------
LONG-TERM DEBT, net of current maturities 59,566 63,675
-------- --------
STOCKHOLDERS' EQUITY
Common stock 25,000 25,000
Retained earnings 143,267 140,773
-------- --------
168,267 165,773
-------- --------
$338,795 $376,912
======== ========
See note to unaudited financial statements.
</TABLE>
<TABLE>
<CAPTION>
PEACOCK'S RADIO & WILD'S COMPUTER SERVICE, INCORPORATED
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
Unaudited - See Accountant's Compilation Report
Year Ended Six Months
December 31, Ended June 30,
------------------------ ------------------------
1994 1995 1995 1996
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUE $1,028,272 $ 712,465 $ 416,666 $ 319,089
COST OF REVENUE 587,046 425,518 252,563 169,187
---------- ---------- ---------- ----------
GROSS PROFIT 441,226 286,947 164,103 149,902
---------- ---------- ---------- ----------
OPERATING EXPENSES
Selling 11,236 9,685 10,339 5,387
General and administrative 350,566 267,659 137,704 140,947
---------- ---------- ---------- ----------
361,802 277,344 148,043 146,334
---------- ---------- ---------- ----------
INCOME FROM OPERATIONS 79,424 9,603 16,060 3,568
OTHER EXPENSES 6,194 8,366 2,813 6,062
---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE INCOME
TAXES 73,230 1,237 13,247 (2,494)
INCOME TAX PROVISION 15,000 300 3,000 --
---------- ---------- ---------- ----------
NET INCOME (LOSS) 58,230 937 10,247 (2,494)
RETAINED EARNINGS
Beginning of period 84,100 142,330 142,330 143,267
---------- ---------- ---------- ----------
End of period $ 142,330 $ 143,267 $ 152,577 $ 140,773
========== ========== ========== ==========
See note to unaudited financial statements.
</TABLE>
<TABLE>
<CAPTION>
PEACOCK'S RADIO & WILD'S COMPUTER SERVICE, INCORPORATED
STATEMENTS OF CASH FLOWS
Unaudited - See Accountant's Compilation Report
Year Ended Six Months
December 31, Ended June 30,
----------------------- -----------------------
1994 1995 1995 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 58,230 $ 937 $ 10,247 $ (2,494)
Adjustments to reconcile net income (loss) to net
cash provided (used) by operating activities:
Depreciation 37,210 20,000 10,000 10,000
Changes in operating assets and
liabilities:
Accounts receivable 105,372 68,424 34,047 (3,254)
Inventories (26,894) (87,617) (80,250) (47,807)
Other current assets (483) 5,303 (1,120) 143
Accounts payable (82,131) (16,372) (7,795) 36,839
Accrued expenses 9,317 (19,011) (14,256) 5,648
--------- --------- --------- ---------
Net cash provided (used) by operating
activities 100,621 (28,336) (49,127) (925)
--------- --------- --------- ---------
INVESTING ACTIVITIES
Purchases of property and equipment (14,310) (35,714) (634) (925)
--------- --------- --------- ---------
FINANCING ACTIVITIES
Proceeds from long-term debt -- 55,000 80,000 --
Advance from 21ST CENTURY -- 55,000 -- --
Payments on long-term debt (150,458) (49,732) (34,672) (1,876)
--------- --------- --------- ---------
Net cash provided (used) by financing
activities (150,458) 60,268 45,328 (1,876)
--------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (64,147) (3,782) (4,433) 3,726
CASH AND CASH EQUIVALENTS
Beginning of period 71,770 7,623 7,623 3,841
--------- --------- --------- ---------
End of period $ 7,623 $ 3,841 $ 3,190 $ 115
========= ========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for:
Interest $ 6,194 $ 8,366 $ 2,813 $ 6,062
Income taxes 15,000 300 3,000 --
See note to unaudited financial statements.
</TABLE>
PEACOCK'S RADIO & WILD'S COMPUTER SERVICE, INCORPORATED
NOTE TO UNAUDITED FINANCIAL STATEMENTS
Unaudited - See Accountant's Compilation Report
1. Nature of Business and Summary of Significant Accounting Policies -
Nature of Business
Peacock's Radio & Wild's Computer Service, Incorporated (the Company), is
a provider of Specialized Mobile Radio (SMR) wireless communications in
Memphis, Tennessee. The Company services approximately 1,000 subscriber
units on 90 SMR channels in the Memphis area.
Use of Estimates
The preparation of these financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenue and
expenses during the financial statement reporting periods. Actual results
could differ from these estimates.
Revenue Recognition
Revenue is recognized for air-time and other services during the period
utilized and for sales of equipment when delivered.
Cash Equivalents
The Company considers all highly liquid investments purchased with a
maturity of three months or less to be cash equivalents.
Property, Equipment and Depreciation
Property and equipment are stated at the lower of cost or fair market
value at the time of acquisition, less accumulated depreciation.
Depreciation is provided using the straight-line method over the
estimated useful lives of the assets, ranging from three to ten years.
Unaudited Financial Statements
In the opinion of management, the unaudited financial statements for the
years ended December 31, 1994 and 1995 and for the six months ended June
30, 1995 and 1996, reflect all adjustments, consisting of only normal
recurring adjustments, necessary for a fair presentation.
The results of operations for the six months ended June 30, 1996, are not
necessarily indicative of the results to be expected for the entire year.
FS.4
<TABLE>
<CAPTION>
21ST CENTURY WIRELESS GROUP, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
June 30, 1996
Peacock's
21st Radio & Wild's
CENTURY Computer
WIRELESS Service, Pro Forma
GROUP, INC. Incorporated Adjustments Combined
----------- -------------- ----------- ---------
ASSETS
<S> <C> <C> <C> <C>
CURRENT ASSETS $ 380,822 $ 316,932 $ (93,347)(a) $ 599,407
-- -- (5,000)(b) --
PROPERTY AND EQUIPMENT 1,963,249 59,980 348,500 (c) 2,371,729
INTANGIBLE AND OTHER ASSETS 3,828,108 -- (55,000)(b) 3,973,835
-- -- 200,727 (c) --
----------- ----------- ----------- -----------
$ 6,172,179 $ 376,912 $ 395,880 $ 6,944,971
=========== =========== =========== ===========
LIABILITIES AND EQUITY
CURRENT LIABILITIES $ 406,180 $ 147,464 $ (60,000)(b) $ 493,644
LONG-TERM DEBT, net of current maturities 300,000 63,675 -- 363,675
EQUITY 5,465,999 165,773 (93,347)(a) 6,087,652
-- -- 549,227 (c) --
----------- ----------- ----------- -----------
$ 6,172,179 $ 376,912 $ 395,880 $ 6,944,971
=========== =========== =========== ===========
(a) To remove assets excluded from the purchase of Peacock.
(b) To eliminate the intercompany advances from 21ST CENTURY to
Peacock.
(c) To reflect the purchase of Peacock as if the acquisition occurred
on June 30, 1996.
See notes to unaudited pro forma combined condensed financial statements.
</TABLE>
<TABLE>
<CAPTION>
21ST CENTURY WIRELESS GROUP, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1996
Peacock's
21st Radio & Wild's
CENTURY Computer
WIRELESS Service, Pro Forma
GROUP, INC. Incorporated Adjustments Combined
----------- -------------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUE $ 734,976 $ 319,089 $ -- $ 1,054,065
COST OF REVENUE 408,638 169,187 -- 577,825
----------- ----------- ----------- -----------
GROSS PROFIT 326,338 149,902 -- 476,240
OPERATING EXPENSES 864,557 146,334 25,000 (a) 1,035,891
----------- ----------- ----------- -----------
INCOME (LOSS) FROM OPERATIONS (538,219) 3,568 (25,000) (559,651)
OTHER INCOME (EXPENSES) 4,856 (6,062) -- (1,206)
----------- ----------- ----------- -----------
NET LOSS $ (533,363) $ (2,494) $ (25,000) $ (560,857)
=========== =========== =========== ===========
NET LOSS PER SHARE $ (.28)
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 2,027,628
(a) To record additional depreciation and amortization on Peacock's assets as
if the acquisition occurred on January 1, 1995.
See notes to unaudited pro forma combined condensed financial statements.
</TABLE>
<TABLE>
<CAPTION>
21ST CENTURY WIRELESS GROUP, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
Year Ended December 31, 1995
Peacock's
21st Alan M. Radio & Wild's
CENTURY Hansel Computer
WIRELESS d/b/a Service, Pro Forma
GROUP, INC. SMC Incorporated Adjustments Combined
----------- ----------- -------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
REVENUE $ 509,778 $ 316,444 $ 712,465 $ -- $ 1,538,687
COST OF REVENUE 97,952 40,708 425,518 -- 564,178
----------- ----------- ----------- ----------- -----------
GROSS PROFIT 411,826 275,736 286,947 -- 974,509
OPERATING EXPENSES 1,130,075 187,173 277,344 219,000 (a) 1,813,592
----------- ----------- ----------- ----------- -----------
INCOME (LOSS) FROM
OPERATIONS (718,249) 88,563 9,603 (219,000) (839,083)
OTHER INCOME (EXPENSES) (128,588) 9,147 (8,666) -- (128,107)
----------- ----------- ----------- ----------- -----------
NET INCOME (LOSS) $ (846,837) $ 97,710 $ 937 $ (219,000) $ (967,190)
=========== =========== =========== =========== ===========
NET LOSS PER SHARE $ (.49)
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 1,959,750
(a) To record additional depreciation and amortization on SMC's and Peacock's
assets as if the acquisition occurred on January 1, 1995.
See notes to unaudited pro forma combined condensed financial statements.
</TABLE>
21ST CENTURY WIRELESS GROUP, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
1. Basis of Presentation -
The preceding unaudited pro forma combined condensed balance sheet as of
June 30, 1996 represents the audited balance sheet of 21ST CENTURY
WIRELESS GROUP, INC. (21ST CENTURY) and the unaudited balance sheet of
Peacock's Radio & Wild's Computer Service, Incorporated (Peacock), as if
they had been combined on June 30, 1996, adjusted as described in the
accompanying notes. The preceding unaudited pro forma combined condensed
statements of operations for the year ended December 31, 1995 and for the
six months ended June 30, 1996, represent the audited statements of
operations of 21ST CENTURY, Twin Cities 3rd Mobile Associates (TC3M) and
Alan M. Hansel d/b/a SMC (SMC) and the unaudited statements of operations
of Peacock, as if the operations of 21ST CENTURY, TC3M, SMC and Peacock
had been combined since January 1, 1995, adjusted as described in the
accompanying notes. The acquisitions of SMC and Peacock are treated as
purchases for accounting purposes.
21ST CENTURY was formed as a result of the bankruptcy proceedings
described in the footnotes to the 21ST CENTURY combined financial
statements. As of December 31, 1995, 21ST CENTURY had 25,000,000 shares
of $.001 par value common stock authorized and no shares issued or
outstanding. Effective January 1, 1996, all assets and liabilities of
TC3M were transferred to 21ST CENTURY in exchange for 1,650,000 shares of
its common stock and warrants to purchase 330,000 shares of additional
common stock in 21ST CENTURY. TC3M distributed the stock to the partners
of TC3M and the partnership was dissolved.
The following statements do not purport to be indicative of the results
that would have been achieved if the assets of TC3M had been transferred
to 21ST CENTURY and the acquisitions of SMC and Peacock had been
consummated as of January 1, 1995, or of the results that may be achieved
in the future. The statements of operations should be read in conjunction
with the audited financial statements of 21ST CENTURY and TC3M and of SMC
and the unaudited financial statements of Peacock, all appearing
elsewhere in this Registration.
2. Acquisitions
SMC
Effective January 1, 1996, 21ST CENTURY acquired certain assets of SMC
for $1,649,365 as follows:
Cash $ 50,000
Notes payable 450,000
Common stock 1,127,610
Additional costs of acquisition $ 21,755
-----------
$ 1,649,365
===========
This acquisition was accounted for as a purchase and, accordingly, the
combined condensed statement of operations includes the results of
operations of SMC since the date of acquisition. The purchase price was
allocated to the assets acquired based on the estimated fair market
values at the date of acquisition as follows:
Property and equipment $ 834,989
FCC licenses 814,376
-----------
$ 1,649,365
===========
Peacock
Effective September 1, 1996, 21ST CENTURY acquired all assets and
liabilities of Peacock for $640,760 as follows:
Common Stock $ 621,653
Additional costs of acquisition $ 19,107
---------
$ 640,760
=========
The acquisition was accounted for as a purchase and, accordingly, the
combined condensed statements of operations will include the results of
operations after the date of acquisition. The purchase price was
allocated to the assets acquired based on the estimated fair market
values at the date of acquisition as follows:
Cash $ 115
Accounts receivable 69,203
Inventories 149,897
Prepaid expenses 4,370
Property and equipment 408,480
FCC licenses 219,834
Accounts payable (70,788)
Accrued expenses (15,280)
Notes payable (125,071)
---------
$ 640,760
=========
3. Income Taxes
There is no pro forma adjustment for the income taxes as the Company will
not realize the benefit of the historical losses.
August 21, 1996
Mr. John Peacock
Peacock's Radio & Wild's
Computer Services, Inc.
310 E. Polk Street
P.O. Box 2166
West Memphis, AR 72301
Dear John:
Pursuant to the Stock Purchase Agreement dated January 11, 1996, Article 2.1,
the purchase price of the stock (of Peacock Radio and Wilds Computer Service)
has been amended to 100,000 shares of 21ST CENTURY WIRELESS GROUP, INC. (the
Company) stock to be distributed as per Exhibit 1. If the opening stock price of
the Company's shares, on the first day of public trading is less than $8.00 per
share, the Company agrees to issue the number of additional shares per the
following formula:
(A) Price adjustment factor = Per share price ($8.00 - opening stock
price)/opening stock price
(B) Additional shares = price adjustment factor X 100,000 shares
EXAMPLE
(A) Price adjustment factor = Per share price ($8.00 - $6.00)/$6.00 = .333
(B) Additional shares = .333 X 100,000 shares = 33,333
Subsequent to the issuance of the stock, the Company agrees to purchase @ $8.00
a share the stock as indicated as follows:
CERTIFICATE NUMBER NAME NUMBER OF SHARES
1675 John F. Peacock 1500
1677 Johnny B. Wild 2734
1679 Norma L. Harvey 449
1680 Mildred B. Sorrell 156
In addition, 21ST CENTURY WIRELESS GROUP, INC. will issue 8,750 shares to
William and Frank Yen for the purchase of the equipment and FCC licenses that
they are conveying to the Company.
In the event of future stock splits, the prices per share indicated above will
be adjusted to reflect the multiplier specified in the splits.
If you are in agreement with the above information, please sign below and return
the original copy to my attention.
Thank you.
Sincerely,
21ST CENTURY WIRELESS GROUP, INC.
/s/ Stephen J. Mocol
Stephen J. Mocol
Vice President, Chief Financial Officer
THE ABOVE IS MUTUALLY AGREED UPON BY:
/s/ John F. Peacock /s/ James E. Lafayette
- --------------------------------------- -----------------------------------
John F. Peacock James E. Lafayette
Representing all of the shareholders of 21ST CENTURY WIRELESS GROUP, INC.
PEACOCK'S RADIO & WILD'S COMPUTER
Dated: 21 Aug. 1996 Dated: August 21, 1996
-------------------------------- ----------------------------
Attachment - Peacock Stock August 21, 1996
Following are names and shares of stock associated with the close of escrow on
the Peacock's Radio and Wild's Computer operations:
NAME '144' STOCK
---- -----------
John F. Peacock 42,251 shares
1881 SFC 536
Heth, AR 72346 (a second certificate) 1,500 shares
Johnny B. Wild 41,017 shares
P.O. Box 2354
West Memphis, AR 72303 (a second certificate) 2,734 shares
Norma L. Harvey 6,738 shares
207 Tournament Drive
West Memphis, AR 72301 (a second certificate) 449 shares
Mildred B. Sorrell 2,344 shares
114 South 10th Street
West Memphis, AR 72301 (a second certificate) 156 shares
Jimmie W. Mattson 937 shares
504 Clement Road
West Memphis, AR 72301
Lajean M. Wild 937 shares
P.O. Box 2354
West Memphis, AR 72303
Jennifer Y. Short 937 shares
212 South 2nd Street
West Memphis, AR 72301
TOTAL ALL SHARES... 100,000 shares
