UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the Quarterly Period Ended September 30, 1996
OR
[ ] Transition Report Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
For the Transition Period from ___________ to ___________
Commission file number
21ST CENTURY WIRELESS GROUP, INC.
(Exact name of registrant as specified in its charter)
Nevada 41-1824951
(State of Incorporation) I.R.S. Employer Identification Number
406 Gateway Blvd., Burnsville, MN 55337
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number (612) 890-8800
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes _X_ No __
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 3,308,541
Transitional Small Business Disclosure Format (check one);
Yes ___ No _X_
<TABLE>
<CAPTION>
21ST CENTURY WIRELESS GROUP, INC.
CONDENSED BALANCE SHEET
(Unaudited)
ASSETS September 30 December 31
1996 1995
------------ -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 322,070 $ 763,822
Accounts receivable, net of allowance for doubtful
accounts of $9,930 and $4,930 respectively 139,178 29,635
Inventories 213,390 22,864
Prepaid expenses and other 11,110 8,461
----------- -----------
TOTAL CURRENT ASSETS 685,748 824,782
----------- -----------
Property and equipment 2,374,554 963,524
----------- -----------
Other assets:
Intangible assets, net of accumulated amortization
of $511,560 and 292,934, respectively 3,876,861 2,992,380
Prepaid acquisition costs -- 145,681
Other long term assets 55,663 22,180
----------- -----------
3,932,524 3,160,421
----------- -----------
$ 6,992,826 $ 4,948,727
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 228,721 $ 71,145
Current maturities of long term debt 162,291 --
Accrued compensation 6,828 388,875
Accrued expenses - other 26,063 5,830
----------- -----------
Total current liabilities 423,903 465,850
----------- -----------
Long term debt, net of current maturities 297,622 --
Commitments and contingencies
Equity:
Partnership capital -- 4,482,877
Common stock ($0.001 par value, 25,000,000 shares
authorized, 3,308,541 issued) 3,312 --
Additional paid-in capital 7,092,902 --
Treasury stock, at cost 3,339 shares (26,712) --
Accumulated deficit (798,201) --
----------- -----------
6,271,301 4,482,877
----------- -----------
$ 6,992,826 $ 4,948,727
=========== ===========
See accompanying notes to condensed financial statements
</TABLE>
<TABLE>
<CAPTION>
21ST CENTURY WIRELESS GROUP, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Nine Months
Ended September 30, Ended September 30,
---------------------------- ---------------------------
1996 1995 1996 1995
---- ---- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
REVENUE $ 422,645 $ 133,764 $ 1,157,621 $ 370,240
COST OF REVENUE 224,723 55,351 633,360 166,546
----------- ----------- ----------- -----------
GROSS PROFIT 197,922 78,413 524,261 203,694
OPERATING EXPENSES
Selling 84,977 15,678 222,836 51,421
General and administrative 375,987 161,100 1,102,684 575,816
Partnership management fees -- 8,230 -- 71,671
----------- ----------- ----------- -----------
460,964 185,008 1,325,520 698,908
----------- ----------- ----------- -----------
OPERATING LOSS (263,042) (106,595) 801,259 (495,214)
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE)
Interest Income 2,075 11,665 13,679 46,212
Interest Expense (3,871) -- (10,621) --
Legal Fees -- 122 -- (99,291)
Restructuring Expenses -- -- -- (26,541)
----------- ----------- ----------- -----------
(1,796) 11,787 3,058 (79,620)
----------- ----------- ----------- -----------
Net Loss $ (264,838) $ 94,808 $ (798,201) $ (574,834)
=========== =========== =========== ===========
Net loss per share $ (0.08) $ (0.04) $ (0.27) $ (0.23)
Weighted average common shares outstanding 3,155,956 2,491,623 2,981,946 2,475,000
See accompanying notes to condensed financial statements
</TABLE>
<TABLE>
<CAPTION>
21ST CENTURY WIRELESS GROUP, INC.
COMBINED STATEMENT OF CASH FLOWS
(Unaudited)
Nine Months
Ended Sept 30
------------------------------
1996 1995
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss (798,201) (574,834)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation 164,936 78,296
Amortization 220,606 142,252
Changes in operating assets and
liabilities
Accounts receivable (56,291) 2,225
Inventories (40,629) (7,823)
Prepaid expenses and other 1,464 7,450
Accounts payable 114,001 4,050
Accrued compensation 50,628 32,000
Accrued expenses -other 10,026 2,703
----------- -----------
Net cash used by operating activities (333,460) (313,681)
----------- -----------
INVESTING ACTIVITIES
Purchases of property and equipment (359,045) (212,511)
Expenditures for intangible assets (31,751) (1,231)
Cash advance to related party (33,000) --
Cash acquired in Peacock acquisition 5,275 --
Expenditure for other long term assets (33,484) --
----------- -----------
Net cash used by investing activities (452,005) (213,742)
----------- -----------
FINANCING ACTIVITIES
Proceeds from the exercise of warrants 370,800 --
Repurchase of company stock (26,712) --
Repayment of long term debt (375) --
Net cash provided by financing ----------- -----------
activities 343,713 --
----------- -----------
NET DECREASE IN CASH AND
CASH EQUIVALENTS (441,752) (527,423)
CASH AND CASH EQUIVALENTS
Beginning of period 763,822 1,692,888
----------- -----------
End of period $ 322,070 $ 1,165,465
=========== ===========
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING ACTIVITIES
During the nine months ended September 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 its common stock
and $450,000 in notes payable to Alan Hansel and Southern Minnesota
Communications ("SMC") for substantially all of SMC's Specialized Mobile Radio
equipment and licenses valued at $1,649,365.
In August 1996, Alan M. Hansel converted $60,600 in notes payable from the SMC
acquisition as payment for the exercise of his warrants to purchase 10,100
shares of common stock.
In August 1996, two directors used their accrued compensation, totalling
$55,000, net of taxes at June 30, 1996, as payment for the exercise of their
warrants to purchase 7,300 shares of common stock at $6.00 per share.
Effective September 1, 1996, the Company issued 108,750 shares of its common
stock to several individuals that comprised the ownership of Peacock's Radio and
Wild's Computer Service of West Memphis, Arkansas (Peacock) in exchange for all
of the stock of Peacock. Peacock operates an SMR operation in the Memphis,
Tennesee area and owns equipment and licenses valued at $640,760.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unuadited)
1. Basis of Presentation
The interim condensed financial statements are unaudited, but in the
opinion of management reflect all normal recurring adjustments necessary
for a fair presentation of the results of operations, financial position
and cash flows for the interim periods. The results of operations for any
interim period are not necessarily indicative of the results for the full
year. These financial statements should be read in conjunction with Form
10-SB.
2. Acquisition -
Effective September 1, 1996, the Company acquired all of the assets and
liabilities of Peacock's Radio and Wild's Computer Service of West Memphis,
Arkansas (Peacock) in exchange for $640,760 as follows:
Common stock $ 621,653
Additional costs of acquisition 19,107
-----------
$ 640,760
===========
This acquisition was accounted for as a purchase and, accordingly, the
statement of operations includes the results of operations of Peacock 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:
Cash $ 5,275
Accounts receivable 53,252
Inventories 149,897
Prepaid expenses and other 4,113
Land 30,000
Buildings 100,000
Property and equipment 251,932
Intangible assets 258,960
Accounts payable (43,575)
Accrued expenses (10,206)
Long term debt (158,888)
----------
Total $ 640,760
==========
3. Property and Equipment
Property and Equipment consist of the following:
September 30 December 31,
1996 1995
---- ----
Land $ 62,410 $ 12,000
Building 100,000 -
Transmission equipment 2,387,768 1,042,122
Office furniture and equipment 157,222 77,312
------------- -----------
2,707,571 1,131,434
Less accumulated depreciation 332,846 167,910
------------- -----------
$ 2,374,554 $ 963,524
============= ===========
4. Loss per share
The loss per share calculation is based on the weighted average number of
common shares issued by the Company. The Company was a partnership
throughout 1995 and the weighted average number of common shares
represents the number of shares that were issued in exchange for the
partnership units.
On July 12, 1996 the Company offered each holder of warrants an opportunity
to exercise warrants early at a price of $6.00 per share of common stock.
79,200 shares of common stock were issued under this offer.
Effective September 1, 1996, the Board of Directors of the Company
authorized a 3 for 2 split of the Company's common stock. The weighted
average number of shares has been adjusted to reflect the split for all
reporting periods.
ITEM 6
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
REVENUE
The Company derives its revenue from fees charged for the use of its radio
transmission equipment and for the sale and servicing of Specialized Mobile
Radio (SMR) and paging equipment.
Revenue for the three months and nine months ended September 30, 1996 was
$423,000 and $1,158,000 compared to $134,000 and $370,000 for the same periods
of 1995.
The Company operated from locations in the Twin Cities area in 1995 and added
the operation of Southern Minnesota Communications (SMC) through an acquisition,
effective January 1, 1996, and Peacock's Radio and Wild's Computer Service of
West Memphis, Arkansas (Peacock) effective September 1, 1996. The results of SMC
are included from January 1, 1996 and results of Peacock are included from
September 1, 1996. Revenue from the Twin Cities locations increased by 36% from
the first nine months of 1995 due to an increase in the number of subscriber
units loaded on the system.
During the first nine months of 1996, the Company added additional sites and has
added 1,500 radio subscriber units which will result in additional air-time
revenues in the fourth quarter.
COST OF REVENUE
The cost of revenue is comprised of site rental, maintenance ,and utilities for
the Company's transmission equipment, cost of land mobile radios sold to
customers, and service labor and parts.
Cost of revenue for the three months and nine months ended September 30, 1996,
was $225,000 and $633,000 compared to $55,000 and $167,000 for the same periods
of 1995. The increase was due to the addition of the SMC and Peacock operations.
The additional revenue in the Twin Cites operation added very little additional
cost, as the cost to run a system is essentially fixed.
The gross profit percentage for the three months and nine months ended September
30, 1996, was 47% and 45% compared to 59% and 55% for the same periods last
year. The gross profit percentage for 1996 is lower than 1995 due to the
inclusion of the retail radio sales and service operations of SMC and Peacock.
Retail sales of major manufacturers' radios result in lower margins than sales
of service and air-time.
The Company believes that as it expands, future sales will be a combination of
air-time and retail radio sales and service, and the gross profit percentage
realized in 1996 will be more indicative of the future.
OPERATING EXPENSES
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the three months and nine
months ended September 30, 1996 were $461,000 and $1,326,000 and $185,000 and
$699,000 for the same periods last year. The increase from last year is due to
the addition of the SMC and Peacock operations and professional fees associated
with the 10-SB registration with the SEC, the Company's acquisition strategy
and settlement of the lawsuit with the promoters of the predecessor company. The
costs of the reorganization were included on legal fees and restructuring
expenses on the statement of operations for the three months and nine month
periods of 1995.
The Company has taken actions during the third quarter to reduce the payroll for
the corporate staff and has implemented an austerity program to help minimize
overhead. In addition, the Company feels that the costs associated with becoming
a public Company are essentially completed and anticipates that professional
fees should reduce significantly. The Company is proceeding with plans to
centralize administration functions and thereby minimize S,G&A expenses through
the elimination of redundancy as acquisitions are finalized.
LEGAL FEES AND RESTRUCTURING EXPENSES
Legal fees and restructuring charges in the first nine months of 1995 are
one-time costs associated with the restructuring of the Company. The costs
associated with SEC business filings and other follow-on activities to the
reorganization are included in operating expenses in 1996.
NET LOSS
For the nine months ended September 30, 1996, net loss of $798,000 was $224,000
greater than the same period last year. Loss per share increased by $0.04. The
Company was operating as a partnership in 1995 and the number of shares was
imputed reflecting the number of shares issued in exchange for partnership
units.
For the three months ended September 30,1996, net loss was $171,000 greater than
the same period last year and the loss per share of $0.08 was $0.04 greater than
the third quarter of 1995. The additional loss for the quarter was due to legal
and accounting fees associated with the second amendment of the Company's
business filing with the SEC, commissions paid to the Company's sales agents in
the Twin Cities, costs of the stock split and several shareholder mailings.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1996, the Company had current assets of $685,000 compared to
$825,000 at December 31, 1995. The change was due to $442,000 negative cash
flow, resulting from $334,000 negative cash flow from operations and $452,000
payments on acquisitions partially offset by $344,000 financing activities.
The Company is currently in a situation where it has had to reduce its growth
through acquisitions until additional financing can be secured. The main
priority of the Company has been pursuit of additional resources to enable the
Company to pursue acquisitions which are at the initial phase and to build out
the channels it currently has. The efforts the Company has gone through to seek
financing have been extensive and it is not limiting itself in its' pursuit.
Until such financing is attained, the Company will control expenditures and
defer any unnecessary capital spending.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JUN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 322,070
<SECURITIES> 0
<RECEIVABLES> 149,108
<ALLOWANCES> (9,930)
<INVENTORY> 213,390
<CURRENT-ASSETS> 685,748
<PP&E> 2,707,571
<DEPRECIATION> (332,846)
<TOTAL-ASSETS> 6,992,826
<CURRENT-LIABILITIES> 423,903
<BONDS> 0
0
0
<COMMON> 3,312
<OTHER-SE> 6,267,989
<TOTAL-LIABILITY-AND-EQUITY> 6,992,826
<SALES> 228,247
<TOTAL-REVENUES> 1,157,621
<CGS> 154,299
<TOTAL-COSTS> 633,360
<OTHER-EXPENSES> 1,325,520
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (3,058)
<INCOME-PRETAX> (798,201)
<INCOME-TAX> 0
<INCOME-CONTINUING> (798,201)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (798,201)
<EPS-PRIMARY> (0.27)
<EPS-DILUTED> (0.27)
</TABLE>
