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 AND
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997 COMMISSION FILE NO. 0-27770
[ ] Transition Report Pursuant to Section 13 or 15 (d) Securities and Exchange
Act of 1934
21ST CENTURY WIRELESS GROUP, INC.
NEVADA 41-1824951
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
406 GATEWAY BOULEVARD, BURNSVILLE, MINNESOTA 55337
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: 612-890-8800
Check 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 the Registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. YES X NO __
Transitional Small Business Disclosure Format (check one): YES __ NO _X_
<PAGE>
21ST CENTURY WIRELESS GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
ASSETS June 30, December 31
1997 1996
----------- -----------
<S> <C> <C>
Current assets
Cash and cash equivalents $ 71,244 $ 172,042
Accounts receivable, net of allowance for doubtful
accounts of $30,000 219,897 127,533
Subscription receivable 580,000
Inventories 349,627 334,626
Prepaid expenses and other 6,633 12,809
----------- -----------
TOTAL CURRENT ASSETS 1,227,401 647,010
----------- -----------
Property and equipment 2,590,923 2,563,137
----------- -----------
Intangible assets, net of accumulated amortization of
$646,044 and $494,994 respectively 4,713,399 4,869,449
----------- -----------
$ 8,531,723 $ 8,079,596
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current maturities of notes payable - related parties $ 585,193 $ 317,020
Current maturities of long-term debt 3,855 4,419
Accounts payable 281,971 493,064
Accrued expenses 128,708 108,234
----------- -----------
Total current liabilities 999,727 922,737
----------- -----------
Long-term liabilities
Notes payable - related parties 243,319 164,767
Long-term debt 63,347 63,347
----------- -----------
306,666 228,114
----------- -----------
Commitments and contingencies -- --
Shareholders equity
Common stock ($0.001 par value, 25,000,000 shares
authorized, 3,918,291 and 3,908,541 issued respectively) 3,918 3,309
Additional paid-in capital 8,611,561 8,053,170
Treasury stock, at cost (3,902 and 3,339 shares respectively) (29,712) (26,712)
Accumulated deficit (1,360,437) (1,101,022)
----------- -----------
7,225,330 6,928,745
----------- -----------
$ 8,531,723 $ 8,079,596
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements
<PAGE>
21ST CENTURY WIRELESS GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
-------------------------- --------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUE $ 799,288 $ 455,613 $ 1,564,647 $ 734,976
COST OF REVENUE 355,446 244,300 754,066 408,637
----------- ----------- ----------- -----------
GROSS PROFIT 443,842 211,313 810,581 326,339
OPERATING EXPENSES
Selling 143,695 91,583 282,360 137,859
General and administrative 397,687 350,229 772,487 726,698
----------- ----------- ----------- -----------
541,382 441,812 1,054,847 864,557
----------- ----------- ----------- -----------
OPERATING LOSS (97,540) (230,499) (244,266) (538,218)
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE)
Interest income 628 4,392 1,738 11,606
Interest expense (6,937) (3,375) (14,681) (6,750)
----------- ----------- ----------- -----------
(6,309) 1,017 (12,943) 4,856
----------- ----------- ----------- -----------
NET LOSS $ (103,849) $ (229,482) $ (257,209) $ (533,362)
=========== =========== =========== ===========
EBITDA 63,560 (109,166) 77,934 (295,552)
Net loss per share $ (0.03) $ (0.08) $ (0.08) $ (0.18)
Weighted average common shares outstanding 3,318,150 3,015,000 3,316,818 3,015,000
</TABLE>
See accompanying notes to condensed consolidated financial statements
<PAGE>
21ST CENTURY WIRELESS GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
---------------------- ----------------------
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss (106,055) (229,483) (259,415) (533,363)
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation 85,650 53,390 171,300 106,780
Amortization 75,450 67,943 150,900 135,886
Changes in operating assets and
liabilities
Accounts receivable 14,302 (43,848) (92,364) (75,844)
Inventories (16,321) (35,315) (15,001) (38,317)
Prepaid expenses and other (12,530) 19,496 (8,824) 1,464
Accounts payable (43,407) (50,270) (16,173) 116,534
Accrued expenses (46,658) 60,264 (24,526) 62,670
--------- --------- --------- ---------
Net cash used by operating activities (49,569) (157,823) (94,103) (224,190)
--------- --------- --------- ---------
INVESTING ACTIVITIES
Purchases of property and equipment (21,953) (183,265) (28,201) (271,516)
Repurchase of Company stock (3,000) (3,000)
Expenditures for intangible assets 5,150 (10,550) 5,150 (29,870)
Expenditure for other long term assets -- (20,020) -- (31,082)
--------- --------- --------- ---------
Net cash used by investing activities (19,003) (213,835) (26,051) (332,468)
--------- --------- --------- ---------
FINANCING ACTIVITIES
Proceeds from the exercise of warrants -- 39,000 --
Payments on long-term debt and notes payable (8,588) -- (19,644) --
Net cash provided by financing
--------- --------- --------- ---------
activities (8,588) -- 19,356 --
--------- --------- --------- ---------
NET DECREASE IN CASH AND
CASH EQUIVALENTS (77,960) (371,658) (100,798) (556,658)
CASH AND CASH EQUIVALENTS
Beginning of period 149,204 763,822 172,042 763,822
--------- --------- --------- ---------
End of period $ 71,244 $ 392,164 $ 71,244 $ 207,164
========= ========= ========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
In the opinion of management these unaudited interim condensed consolidated
financial statements reflect all normal recurring adjustments necessary for
a fair presentation of the financial position, results of operations and
cash flows for the interim periods. The results of operations for any
interim period are not necessarily indicative of the results to be expected
for the full year. For further information, refer to the consolidated
financial statements and notes included in the Company's annual report on
Form 10-KSB for the year ended December 31, 1996.
2. Property and Equipment
Property and Equipment consist of the following:
June 30 December 31,
1997 1996
---------- ----------
Land $ 62,410 $ 62,410
Building 141,426 141,426
Transmission equipment 2,868,834 2,674,164
Office furniture and equipment 111,319 107,056
---------- ----------
3,183,989 2,985,056
Less accumulated depreciation 593,066 421,919
---------- ----------
$2,590,923 $2,563,137
========== ==========
3. Capital and Loss per share
Primary earnings per share is determined by dividing the net loss by the
weighted average number of shares of common stock outstanding and dilutive
common equivalent shares from stock options and warrants.
On September 16, 1996, the Company declared a 3 for 2 split of the
Company's common stock for shareholders of record on that date. All share
data has been adjusted to reflect the stock split.
4. Subsequent Events -
<PAGE>
a. Transactions with private investors - On July 9, 1997, the Company
completed a transaction with a group of private investors. The
investors purchased 600,000 shares of common stock of the Company at a
purchase price of $1.00 per share. The investors also received
warrants to purchase another 800,000 shares of common stock of the
Company at a purchase price of $1.00 per share. The warrants are
exercisable for a period of 5 years.
b. Transactions with Mr. Hansel and Southern Minnesota Communications Inc
- On July 9, 1997, the Company completed the purchase of certain
assets from Alan M. Hansel and Southern Minnesota Communications, Inc.
The Company originally entered into a contract for this purchase on
February 9, 1996 but renegotiated the terms of the purchase concurrent
with the closing of the equity financing transactions described above
under "Transactions with private investors." $300,000 of the proceeds
of the equity financing transaction were used to pay all of the
current installments of the purchase agreement with Mr. Hansel. The
company owes Mr. Hansel $399,400 under the purchase agreement to be
paid in three installments over the next two years.
c. Changes in the Board of Directors - Effective July 9, 1997 the
following individuals have resigned from the Company's Board of
Directors: Kenneth Thomson, Thomas Venable, Mark Seeley and Galen
McCord. Contemporaneously with the resignation, each of these
individuals has received without charge, a grant of options to
purchase 15,000 shares of the Company's common stock at $1.00 per
share. The following individuals have been appointed to the vacated
seats on the Company's Board of Directors: Gary Kohler, Ivan Arenson
and Charles Burns.
ITEM 2 - MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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 six months and three months ended June 30, 1997 increased 113%
and 75% from the same periods of last year.
The Company operated from locations in the Twin Cities and Southern Minnesota
(SMC) for the entire year 1996 and added Southern Operations in the Greater
Memphis area through the acquisition of Peacock's Radio and Wild's Computer
Services (Peacock) effective September 1, 1996 and Currie Communications
(Currie) effective October 10, 1996. The Peacock and Currie businesses have
subsequently been merged together to form the Southern Operations of 21st
CENTURY WIRELESS GROUP, INC.
<PAGE>
The results of Peacock and Currie are included in the results for the 6 months
and 3 months ended June 30, 1997 but are not included in the same period last
year.
Revenue from the businesses in Minnesota increased by 20% from the first six
months of 1996 due to an increase in the number of subscriber units loaded on
the system and the impact of market based price adjustments in Southern
Minnesota.
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 six months ended June 30, 1997 was $754,000 compared to
$409,000 for the same period of 1996. Cost of revenue for the three months ended
June 30, 1997 was $355,000 compared to $244,000 for the same period last year.
The increases were due to the addition of the Southern Operations in the
consolidated results of the Company.
The gross profit percentage for the six months and three months ended June 30,
1997, was 52% and 56% compared to 44% and 46% for the same period last year. The
gross profit percentage for 1997 has increased due to the growth in recurring
revenue due to the increased number of radios loaded on the Company's system and
pricing adjustments.
The cost structure of an air-time provider is essentially fixed and consists of
rent, power, and utilities at a tower site. As revenues increase, margin
percentage also increases.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses ("SG&A") for the six months and
three months ended June 30, 1997 were $1,055,000 and $541,000 compared to
$865,000 and $442,000 for the same period last year. The increase from last year
for the six months and three months are due in part to the addition of the
Peacock and Currie operations of $221,000 and $133,000, increased depreciation
and amortization expense of $80,000 and $40,000 due to property additions
throughout 1996 and revaluation of the assets acquired from the predecessor
company as a result of the settlement with the promoters of the predecessor
company. Included in the SG&A expense for the six months and three months of
1996 were costs of $120,000 due to professional fees needed to support the
Company's acquisition strategy, business filing with the SEC, and the class
action lawsuit against the promoters of the predecessor Company.
<PAGE>
During the second quarter of 1997, the Company hired a sales manager and
revamped the sales force in Southern Minnesota. The Company expects that these
changes will result in increased revenue from the sale of radios, service and
dispatch.
NET LOSS, EBITDA
For the six months and three months ended June 30, 1997, the net loss was
$257,000 and $104,000 compared to $533,000 and $229,000 for the same periods
last year. Loss per share improved by $0.10 for the six month period and $0.05
for the three months compared to the same periods of last year. The improvements
are due to higher revenues and improved margins, as discussed above.
Earnings before interest, taxes, depreciation and amortization (EBITDA) was
positive for the second consecutive quarter and totals $78,000 for the six
months ended June 30, 1997 compared to ($296,000) for the same period last year
and $64,000 for the three months ended June 30, 1997 compared to ($109,000) for
the same period last year.
LIQUIDITY AND CAPITAL RESOURCES
Subsequent to June 30, 1997, the Company entered into an agreement with a group
of private investors The investors purchased 600,000 shares of common stock of
the Company at a purchase price of $1.00 per share. The investors also received,
without additional charge, warrants to purchase another 800,000 shares of common
stock of the Company at a purchase price of $1.00 per share. The warrants are
exercisable for a period of 5 years.
Coincidental with the transaction cited above, the Company completed the
purchase of certain assets from Alan M. Hansel and Southern Minnesota
Communications, Inc. The Company originally entered into a contract for this
purchase on February 9, 1996 but deferred the final closing of the purchase
until the closing of the equity financing transactions. $300,000 of the proceeds
of the equity financing transaction were used to pay all of the current
installments of the purchase agreement with Mr. Hansel. The Company owes Mr.
Hansel $399,400 under the purchase agreement to be paid in three installments
over the next two years.
Giving effect to the subsequent transactions, working capital at June 30, 1997
would have been $250,000 compared to negative working capital of $276,000 at
December 31, 1996.
Included in the current liabilities at June 30, 1997 and December 31, 1996 was
$585,000 and $511,000 respectively of seller financed debt from the previous
<PAGE>
owners of SMC and Currie, including $195,000 included in the accounts payable at
December 31, 1996.
During the six month period ended June 30, 1997 the Company offered its'
existing shareholders an opportunity to exercise their stock warrants. This was
the second offer of this nature in the past twelve months. The Company issued
9,750 shares of common stock and raised $39,000 in cash.
Cash flow used by operations for the six months and three months ended June 30,
1997 was $94,000 and $50,000 compared to $224,000 and $158,000 for the same
periods last year.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
There are no material pending or threatened legal, governmental,
administrative or other proceedings to which the Company is party or to which
its property is subject.
ITEM 2. CHANGES IN SECURITIES
There have been no changes made to the rights of the holders of the
Company's common stock.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
There have been no defaults.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted to a vote of security holders during the fiscal
period covered by this report.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON EXHIBIT 8K
A. None required.
B. No reports have been filed on Form 8K for the most recent quarter.
Subsequent to the end of the quarter, on August 13, 1997 the Company
filed a report on Form 8-K to disclose the following items: 1)
Completion of a
<PAGE>
subscription agreement with new investors; 2) final closing of the
asset purchase agreement with Alan Hansel and Southern Minnesota
Communications, Inc.; 3) the resignation of four members of the
Company's Board of Directors and 4) the appointment of three new
members to the Company's Board of Directors.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
21ST CENTURY WIRELESS GROUP, INC.
Dated: August 14, 1997 By: /s/ Rodney H. Hutt
Rodney H. Hutt
President, Chief Operating Officer and Director
Dated: August 14, 1997 By: /s/ Stephen J. Mocol
Stephen J. Mocol
Vice President and Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 71,244
<SECURITIES> 0
<RECEIVABLES> 249,897
<ALLOWANCES> (30,000)
<INVENTORY> 349,627
<CURRENT-ASSETS> 1,227,401
<PP&E> 3,183,989
<DEPRECIATION> (593,066)
<TOTAL-ASSETS> 8,531,723
<CURRENT-LIABILITIES> 999,727
<BONDS> 0
0
0
<COMMON> 3,918
<OTHER-SE> 7,221,812
<TOTAL-LIABILITY-AND-EQUITY> 8,531,723
<SALES> 588,047
<TOTAL-REVENUES> 1,564,647
<CGS> 409,958
<TOTAL-COSTS> 754,066
<OTHER-EXPENSES> 1,054,847
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,943
<INCOME-PRETAX> (257,209)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (257,209)
<EPS-PRIMARY> (.08)
<EPS-DILUTED> (.08)
</TABLE>
