SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------
FORM 10-KSB
(Mark one)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996 COMMISSION FILE NO. 0-27770
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF
THE SECURITIES 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
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act:
COMMON STOCK, .001 PAR VALUE
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 __
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained herein, and no disclosure will be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
The Registrant's revenues for the fiscal year ended December 31, 1996
were $1,760,841.
As of March 15, 1997, 3,308,541 shares of Common Stock of the
Registrant were outstanding.
Documents incorporated by reference: None.
Transitional Small Business Disclosure Format (check one): YES__ NO X
================================================================================
PART 1
This form 10-KSB40 contains certain forward looking statements. For
this purpose, any statements contained in this Form 10-KSB40 that are not
statements of historical fact may be deemed to be forward-looking statements.
Without limiting the foregoing, words such as "may," "will," "expect,"
"believe," "anticipate' "estimate" or "continue" or comparable terminology are
intended to indentify forward-looking statements. These statements by their
nature involve substantial risks and uncertainties, and actual results may
differ materially depending on a variety of factors.
ITEM 1. BUSINESS
A) 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.
On November 24, 1995, all assets of TC3M were transferred to the
Company in exchange for shares of the Company's Common Stock, plus warrants to
purchase additional shares of Common Stock.
Effective January 1, 1996, the Company acquired substantially all of
the assets of Southern Minnesota Communications of Waseca, MN for stock and
cash. Effective September 1, 1996 the Company purchased the stock of Peacock's
Radio and Wild's Computer Service of West Memphis, AK. Effective October 14,
1996, the Company acquired substantially all of the assets of Currie
Communications of West Memphis, AK. These acquired business are in the same
business as the Company but in different geographic areas.
B) BUSINESS OF THE COMPANY
The Company's principal business is providing telecommunication
services in the Southern half of the State of Minnesota, including the
Minneapolis-St. Paul metropolitan area, and portions of Arkansas, Tennessee,
Missouri, and Mississippi, including the greater Memphis, TN metropolitan area.
The Company operates under specialized mobile radio ("SMR") licenses issued by
the Federal Communications Commission ("FCC"). The Company services
approximately 9,800 subscribers on 300 SMR channels providing coverage in the
Company's service area. In addition to providing SMR services, the operations
that were acquired in 1996 sell and service SMR radios and radio equipment and
provide paging services to customers.
SMR provides communications services to vehicle-mounted and handheld
portable telephones and two-way radio units. 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.
SMR operators, including the Company, offer a broad range of mobile
communications services, including telephone interconnect, dispatch, data
transmission, and telemetry services. In the major metropolitan areas, the
Company concentrates on dispatch services at this time, because it allows for
maximization of revenue where spectrum is scarce. In the rural areas where
spectrum is in greater supply, the Company is actively selling interconnected
service which allows the customers SMR radio to function like a cellular
telephone. Interconnected service allows the Company to increase revenue per
radio but it allows for fewer radios per channel. The Company derives its
revenues primarily from access and airtime charges for SMR system usage, sale,
installation and repairing of major manufacturer SMR radios including Motorola
and sale and recurring revenue associated with a paging operation.
BUSINESS 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'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.
*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.
SALES AND MARKETING
Historically, the Company has used independent agents to market the
Company's SMR services in the Twin Cities. 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 its acquisitions of SMC, Peacock, and Currie during 1996, the
Company acquired an internal sales staff to market the Company's products and
services in some areas. The Company will use independent marketers and its
internal sales staff to sell its products and services.
PRODUCTS
The Company has on-going plans to upgrade its products and 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. The Company currently has no plans to convert from
analog to digital technology.
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.
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.
REGULATION
The Company holds FCC licenses to provide SMR services. These licenses
are indispensable 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.
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
The Company has 25 full-time employees, of which 7 are in the Twin
Cities area, 8 are in Southern Minnesota and 10 are in Arkansas. None of the
Company's employees are subject to a collective bargaining agreement and the
Company believes its relations with employees are good. There are no pending or
threatened labor or employment disputes or work interruptions.
ITEM 2. DESCRIPTION OF PROPERTY
The Company conducts its management operations out of leased office
facilities of approximately 2,465 square feet located at 406 Gateway Boulevard,
Burnsville, Minnesota. The Company owns a 5,000 square foot building at 403 Polk
Street, West Memphis, Arkansas, which is the location for 21st CENTURY WIRELESS
GROUP, INC. operations in Arkansas. In addition, the company owns five small
parcels of land, four in Minnesota and one in Arkansas upon which transmission
towers owned by the Company are located.
The Company, directly or indirectly holds, 19 owned and 14 leased
transmission sites throughout Minnesota and adjoining states, and 8 owned and 12
leased antenna sites in the Memphis, Tennessee area.
The Company believes that its properties are suitable and adequate for
its 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.
ITEM 3. LEGAL PROCEEDINGS.
There are no material pending or threatened legal, governmental,
administrative or other proceedings to which the Company is party or of which
its property is subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted to a vote of security holders during fiscal
years covered by this report.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company filed a 10-SB Registration, which was approved by the
Securities & Exchange Commission on November 4, 1996.
ITEM 6. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
FISCAL YEAR 1996 COMPARED TO FISCAL YEAR 1995
The Company derives its revenue from fees charged for the use of its
radio transmission equipment and from the sale and servicing of Specialized
Mobile Radio (SMR) and paging equipment.
Revenue for year ended December 31, 1996 was $1,761,000 compared to
$510,000 for the year end December 31, 1995, an increase of $1,251,000 (245%).
The Company operated from locations in the Twin Cities area of Minnesota in 1995
and added the operation of Southern Minnesota Communications (SMC) through an
acquisition, effective January 1, 1996, Peacock's Radio and Wild's Computer
Service of West Memphis, Arkansas (Peacock) effective September 1, 1996 and
Currie Communications of West Memphis, Arkansas (Currie), effective October 14,
1996. The Peacock and Currie businesses have subsequently been merged together
to form the West Memphis operations of 21st CENTURY WIRELESS GROUP, INC.
The results of SMC are included from January 1, 1996, the results of
Peacock are included from September 1, 1996 and the results of Currie are
included from October 14, 1996. On a proforma basis, revenue for the year 1996
for all operations would have been $2,717,000. Revenue from the Twin Cities
location increased by 37% in 1996 from $510,000 to $700,000 due to an increase
in the number of subscriber units loaded on the system as well as strategic rate
increases. At December 31, 1996, the Company had approximately 7,000 subscriber
units loaded at 800 MHz, 2,300 subscriber units loaded at 450 MHz and 500 pagers
loaded compared to approximately 4,000 subscriber units in 1995.
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 year ended December 31, 1996, was $996,000
compared to $98,000 for the year ended December 31, 1995. The increase was due
to the addition of the SMC, Peacock, and Currie operations. These operations
sell and service SMR radios in addition to providing air-time to SMR customers.
The cost structure on an air-time provider is essentially fixed and consists of
rent, power, and utilities at the tower site. The cost structure of a retail
radio operation is heavily variable, with a large part of the cost being the
products that are re-sold. The additional revenue in the Twin Cites operation
added very little additional cost. The additional cost of sales is primarily
from the acquired operations and consists of cost of products sold, cost of
parts sold in the repair of radios and the cost of service technicians that
repair radios, in addition to the fixed costs of being air-time providers in
Southern Minnesota and the Memphis area. The Company has taken an aggressive
posture on reserving for obsolescence and valuation of inventory in the newly
acquired locations and has recorded a one-time charge to cost of sales of
approximately $180,000, which had an adverse impact on the cost of revenue.
The gross profit for the year ended December 31, 1996, was 43% compared
to 81% for the year ended December 31, 1995. The gross profit percentage was
adversely affected by the inventory reserves described above. The one-time
charges resulted in a reduction of 10% in the gross profit margin, from 53% to
the 43% reported. As described above, the cost structure of the Company is
considerably different than in 1995. The gross profit percentage for 1996
includes margin on the retail radio sales and service operations of SMC, Peacock
and Currie. These margins are lower because of the variable cost of products
sold.
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 will be approximately 55% to 60% in the future.
Selling expense for the acquired operations added $225,000, and
selling expense in the Twin Cities increased by $75,000. The Company utilizes
third party sales agents in the Twin Cities and compensates these agents for
each radio that they load on the 21st CENTURY WIRELESS GROUP, INC. system.
Selling expense in the Twin Cities is for commission payments to these third
party sales agents. Approximately 1,300 radios were added to the system in 1996
compared to approximately 550 radios in 1995.
All of the operations acquired in 1996 have their own sales personnel
who sell radios, maintenance contracts and air-time service. The selling
expense in these operations consist of salaries, sales commissions, sales
representatives expenses and the cost of advertising and promotion.
General and Administrative (G & A) expense for the year ended December
31, 1996, was $1,423,000 compared to $905,000 for the year ended December 31,
1995, an increase of $518,000. The newly acquired operations in Minnesota and
Arkansas added $345,000 to G&A expense for the cost of managing these
operations. The depreciation and amortization associated with the acquisition of
these businesses added another $140,000 to G & A.
The remaining increase in G & A expense was from the Twin Cities
operation and is due to increased personnel costs associated with the addition
of a full time CFO and additional depreciation and amortization due to property
additions and the revaluation of the assets acquired from the predecessor
Company as a result of settlement with the promoters of the predecessor Company.
During 1995, the management committee of the predecessor company was
actively involved in the day-to-day management of the Company and compensation
to the management committee of $143,000 was identified on a separate line on the
Consolidated Statement of Operations.
Non-operating legal fees and restructuring charges for the year
December 31, 1996 was $46,000 compared to $181,000 for the year ended December
31, 1995. The 1996 charges were for costs associated with the settlement with
the promoters of the predecessor Company, in which 21st CENTURY WIRELESS GROUP,
INC. was able to recover the interest in the property that the promoters had
retained. The charges in 1995 were one-time costs associated with the
restructuring of the Company.
Net loss for the year ended December 31, 1996 was $1,101,000 compared
to $847,000 for the of year ended December 31, 1995. Loss per share increased by
$0.02. 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 subject to the stock split.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1996, the Company's working capital was $(278,000)
compared to $359,000 at December 31, 1995.
Included in the current liabilities at December 31, 1996 was $ 511,000
of seller financed debt, from the previous owners of SMC and Currie, including
$195,000 in accounts payable. The Company is currently trying to re-finance this
debt.
The Company has been actively pursuing additional sources of financing.
On January 21, 1997, the Company signed a retainer agreement with a Twin Cities
based Investment Banker to assist in raising funds on behalf of the Company. If
successful, these funds could be raised either through debt or equity
arrangements.
Until such financing is completed, the Company has curtailed any
growth, deferred any unnecessary capital expenditures, and reduced costs
wherever possible without jeopardizing the Company's revenue.
During the period of July 12, 1996 through August 20, 1996 the Company
offered its existing shareholders an opportunity to exercise their stock
warrants. The Company issued 79,400 shares of common stock and raised $372,000
in cash. In the first quarter of 1997, an additional offer was made to the
shareholders that had remaining warrants. An additional $40,000 was raised.
Cash flow used by operations for the year ended December 31, 1996 was
$230,000 compared to $442,000 for the year ended December 31, 1995.
Cash used by investing activities was $548,000 for the year ended
December 31, 1996 compared to $487,000 for the year ended December 31, 1995.
Capital expenditures during 1996 totalled $403,000, with the largest item being
approximately $150,000 for the paging system in Arkansas; $65,000 was spent on
the purchase of Currie Communications and $53,000 was spent on FCC licenses and
organizational costs. The investments in 1995 were for the purchase of property
and equipment of $252,000 for upgrades to the Company's communication system;
$168,000 in prepaid acquisition costs associated with the purchase of SMC and
Peacock; and $67,000 in intangible assets.
Net cash generated from financing activities during 1996 was $186,000.
$372,000 was raised from the exercise of warrants by the Company's shareholders.
$159,000 was spent on the Company's Securities and Exchange Commission
registration and the Company repurchased $27,000 of its' stock as part of the
purchase of Peacock.
Historically, inflation has very little effect on the Company.
The Company has no postretirement benefit program and does not
anticipate establishing any postretirement benefit program.
ITEM 7. CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Independent Auditor's Report 8
Consolidated balance sheet 9
Consolidated statements of operations 10
Consolidated statements of changes in equity 11
Consolidated statements of cash flows 11-13
Notes to consolidated financial statements 13-21
INDEPENDENT AUDITOR'S REPORT
Board of Directors
21st Century Wireless Group, Inc.
Burnsville, Minnesota
We have audited the accompanying consolidated balance sheet of 21st CENTURY
WIRELESS GROUP, INC. as of December 31, 1996, and the related consolidated
statements of operations, changes in equity, and cash flows for the years
ended December 31, 1996 and 1995. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of 21st CENTURY
WIRELESS GROUP, INC. as of December 31, 1996, and the results of their
operations and their cash flows for the years ended December 31, 1996 and 1995,
in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company's significant operating losses
raise substantial doubt about its ability to continue as a going concern. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
LURIE, BESIKOF, LAPIDUS & CO., LLP
Minneapolis, Minnesota
March 14, 1997
21st CENTURY WIRELESS GROUP, INC.
CONSOLIDATED BALANCE SHEET
December 31, 1996
<TABLE>
<CAPTION>
ASSETS
<S> <C>
CURRENT ASSETS
Cash and cash equivalents $ 172,042
Accounts receivable, net of allowance for doubtful accounts of $30,000 127,533
Inventories 334,626
Prepaid expenses 12,809
-------------
TOTAL CURRENT ASSETS 647,010
PROPERTY AND EQUIPMENT 2,563,137
INTANGIBLE ASSETS 4,869,449
-------------
$ 8,079,596
=============
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Current maturities of notes payable - related parties $ 317,020
Current maturities of long-term debt 4,419
Accounts payable 493,064
Accrued expenses 108,234
-------------
TOTAL CURRENT LIABILITIES 922,737
-------------
NONCURRENT LIABILITIES, net of current maturities
Notes payable - related parties 164,767
Long-term debt 63,347
-------------
228,114
-------------
COMMITMENTS AND CONTINGENCIES
EQUITY 6,928,745
-------------
$ 8,079,596
=============
</TABLE>
See notes to consolidated financial statements.
21st CENTURY WIRELESS GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31, 1996 and 1995
1996 1995
------------ ------------
REVENUE $ 1,760,841 $ 509,778
COST OF REVENUE 995,995 97,952
------------ ------------
GROSS PROFIT 764,846 411,826
------------ ------------
OPERATING EXPENSES
Selling 380,736 82,865
General and administrative 1,423,170 904,847
Partnership management fees - 142,363
------------ ------------
1,803,906 1,130,075
------------ ------------
OPERATING LOSS ( 1,039,060) ( 718,249)
------------ ------------
OTHER INCOME (EXPENSE)
Interest income 14,712 52,159
Interest expense ( 31,026) -
Legal fees ( 45,648) ( 118,206)
Restructuring expenses - ( 62,541)
------------ ------------
( 61,962) ( 128,588)
------------ ------------
NET LOSS ($ 1,101,022) ($ 846,837)
============= =============
NET LOSS PER COMMON SHARE ($ 0.36) ($ 0.34)
============= =============
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES OUTSTANDING 3,064,744 2,491,323
============= =============
See notes to consolidated financial statements.
21st CENTURY WIRELESS GROUP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Years Ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
21st CENTURY WIRELESS GROUP, INC.
--------------------------------------------------------
Twin Cities
3rd Mobile Common Stock Additional
Associates ------------------ Paid-in Treasury Accumulated
Capital Shares * Amount Capital Stock Deficit Equity
------------ --------- ------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
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 (4,482,877) 2,491,323 2,491 4,480,386 - - -
Issuance of common stock for accrued
compensation to management committee - 238,500 239 388,636 - - 388,875
Issuance of common stock for
the acquisition of SMC - 301,500 302 1,127,308 - - 1,127,610
Exercise of warrants - 119,100 119 476,281 - - 476,400
Issuance of common stock for the
acquisition of Peacock's Radio
and Wild's Computer Service - 163,125 163 621,490 - - 621,653
Repurchase of common stock - (5,007) (5) 5 (26,712) - (26,712)
Settlement of claims to assets held by the - -
promotors of Twin Cities 3rd Mobile
Associates - - - 1,117,800 - - 1,117,800
Initial stock registration fees - - - (158,736) - - (158,736)
Net loss - - - - - (1,101,022) (1,101,022)
----------- --------- ------- ----------- ---------- ----------- -----------
BALANCE, December 31, 1996 $ - 3,308,541 $ 3,309 $ 8,053,170 ($ 26,712) ($1,101,022) $ 6,928,745
=========== ========= ======= =========== ========== =========== ===========
</TABLE>
* 25,000,000 common shares authorized, $.001 par value.
See notes to consolidated financial statements.
21st CENTURY WIRELESS GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
------------ -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss ($1,101,022) ($ 846,837)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation 254,009 115,853
Amortization 251,061 178,913
Accrued compensation used to exercise warrants 43,800 -
Changes in operating assets and liabilities:
Accounts receivable (10,768) 3,625
Inventories (161,865) (22,864)
Prepaid expenses 63,282 1,169
Accounts payable 341,697 33,073
Accrued expenses 89,743 94,705
------------ ----------
Net cash used by operating activities (230,063) (442,363)
------------ ----------
INVESTING ACTIVITIES
Purchases of property and equipment (462,326) (252,115)
Expenditures for intangible assets (52,551) (66,547)
Cash advance to related party (33,000) -
Cash acquired in the Peacock acquisition 115 -
Expenditures for prepaid acquisition costs and other - (168,041)
------------ ----------
Net cash used by investing activities (547,762) (486,703)
------------ ----------
FINANCING ACTIVITIES
Proceeds from the exercise of warrants 372,000 -
Expenditures for stock registration (158,736) -
Repurchase of company stock (26,712) -
Payments on long-term debt (507) -
------------ ----------
Net cash provided by financing activities 186,045 -
------------ ----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (591,780) (929,066)
CASH AND CASH EQUIVALENTS
Beginning of year 763,822 1,692,888
------------ -----------
End of year $ 172,042 $ 763,822
=========== ===========
</TABLE>
See notes to consolidated financial statements.
21st CENTURY WIRELESS GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
------------- ----------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest $ 17,026 $ -
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING ACTIVITIES
During 1996, the Company issued stock as payment for accrued compensation
totaling $388,875.
Effective January 1, 1996, the Company issued 301,500 shares of common stock
and $450,000 in notes payable to Alan M. Hansel and Southern Minnesota
Communications (SMC) for substantially all of SMC's Specialized Mobile Radio
equipment and licenses totaling $1,577,610.
In August 1996, Alan M. Hansel converted $60,600 in notes payable from the
SMC acquisition as payment for the exercise of warrants to purchase 15,150
shares of common stock.
In August 1996, two directors used accrued compensation totaling $43,800, as
payment for the exercise of warrants to purchase 10,950 shares of common
stock.
Effective September 1, 1996, the Company issued 163,125 shares of common
stock, totaling $621,653, in exchange for all of the outstanding stock of
Peacock's Radio and Wild's Computer Service.
Effective December 1, 1996, a settlement was reached with the promotors of
the predecessor Company, whereby the promoters agreed to release
substantially all of their claims against the Company's assets in exchange
for warrants to purchase the Company's stock. The values of property and
equipment, intangible assets, and equity were increased by $196,650,
$921,150, and $1,117,800, respectively, as a result of this settlement.
See notes to consolidated financial statements.
21st CENTURY WIRELESS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Nature of Business and Significant Accounting Policies -
Nature of Business
21st CENTURY WIRELESS GROUP, INC. (the Company or 21st Century) is a
provider of Specialized Mobile Radio (SMR) wireless communications. The
Company was formed as a result of the bankruptcy (Chapter 11) proceedings
of Twin Cities 3rd Mobile Associates (the Partnership) which held the
assets received from DCI, as described in Note 14. Effective January 1,
1996, all assets and liabilities of the Partnership were transferred to
the Company in exchange for 2,491,323 shares of common stock and warrants
to purchase 495,000 shares of additional common stock in the Company. The
Partnership was dissolved upon the distribution of the stock to the
partners. The consolidated financial statements include the operations of
the Partnership during 1995 and the operations of the Company during
1996.
The Company currently services approximately 9,800 subscriber units in
Minnesota, Arkansas and Tennessee.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and Peacock's Radio and Wild's Computer Services (Peacock), a wholly
owned subsidiary of the Company. Intercompany accounts and transactions
were eliminated in consolidation.
Use of Estimates
The preparation of these consolidated 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 consolidated 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 values assigned to property
and equipment and intangible assets, depreciable lives for property and
equipment, and amortization periods for intangible assets.
Fair Value of Financial Instruments
The carrying amounts of financial instruments consisting of cash and cash
equivalents, receivables, accounts payable and long-term debt to
nonrelated parties approximate their fair values. It is not practicable
to determine the fair value of the notes payable to related parties due
to the related party nature of the transactions.
Revenue Recognition
Revenue is recognized for air-time and other services during the period
utilized.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with a
maturity of three months or less to be cash equivalents.
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 and does not
believe it is exposed to any significant risk.
Inventories
Inventories, which represent SMR equipment and pagers for resale and
service and repair parts, 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 as follows:
Years
-----
Buildings and improvements 7 - 20
Communications equipment 5 - 15
Office furniture and equipment 3 - 5
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 are amortized using the straight-line method over their estimated
useful lives of twenty years for FCC licenses and five to fifteen years
for other intangible assets.
Income Taxes
Prior to 1996, income and losses of the Partnership were reported on the
tax returns of the individual partners. Accordingly, no provision for
income taxes is included in the 1995 consolidated financial statements.
Stock-Based Compensation
The Company accounts for stock option grants in accordance with
Accounting Principles Board Opinion No. 25 and, accordingly, recognizes
no compensation expense for stock option grants. In 1996, the Company
adopted the pro forma disclosure only provisions of Statement of
Financial Accounting Standards No. 123.
Net 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. Prior
to the registration of the Company's common stock, in accordance with the
Securities and Exchange Commission Regulations, common equivalent shares
resulting from the conversion of the partnership units were included in
the calculation of shares used in computing net loss per share for 1995.
2. Going Concern -
The accompanying consolidated financial statements are prepared on a
going concern basis which contemplates the realization of assets and
satisfaction of liabilities in the normal course of business. The Company
incurred losses in 1996 and 1995 of $1,101,022 and $846,837,
respectively. In addition, at December 31, 1996, current liabilities
exceed current assets by $275,727.
The continuation of the Company as a going concern is dependent upon
future profitable operations and the ability to obtain additional
financing. Management forecasts positive cash flows from operations in
1997 and is pursuing a variety of financing arrangements, including debt
financing and an additional equity investment.
3. Acquisitions -
Effective January 1, 1996, the Company acquired certain assets of Alan M.
Hansel, d/b/a SMC (SMC), as follows:
Cash $ 50,000
Notes payable 450,000
Common stock 1,127,610
Additional costs 21,755
-------------
Cost of acquisition $ 1,649,365
=============
The acquisition was accounted for as a purchase and, accordingly, the
consolidated 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
=============
Effective September 1, 1996, the Company acquired all the outstanding
common stock of Peacock as follows:
Common stock $ 621,653
Additional costs 19,107
-----------
Cost of acquisition $ 640,760
===========
The acquisition was accounted for as a purchase and, accordingly, the
consolidated 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 $ 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 guaranteed a
stock price on the open market of $5.33 per share at an initial public
offering. To the extent that the price on the first day of public trading
is less than $5.33 per share, additional shares will be issued. At this
time, that amount cannot be estimated.
The Company may be required to repurchase up to 10,195 shares of common
stock issued to certain previous owners of Peacock at $5.33 per share.
Subsequent to the Peacock acquisition the Company repurchased 5,007
shares of common stock at $5.33 per share.
The following unaudited pro forma financial information shows the results
of the Company as if both acquisitions had occurred on January 1, 1995.
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.
Unaudited
----------------------------
1996 1995
---- ----
Revenue $2,717,000 $1,539,000
Net loss ($1,131,000 ($ 967,000)
Net loss per share ($ .36) ($ .33)
Weighted average common and
common equivalent shares 3,165,403 2,950,941
4. Property and Equipment -
Property and equipment consist of the following:
Land $ 62,410
Buildings and improvements 141,426
Communications equipment 2,674,164
Office furniture and equipment 107,056
-------------
2,985,056
Less accumulated depreciation 421,919
-------------
$ 2,563,137
=============
5. Intangible Assets -
Intangible assets consists of the following:
FCC licenses $ 5,285,981
Dealership franchise 58,462
Customer list 20,000
-------------
5,364,443
Less accumulated amortization 494,994
-------------
$ 4,869,449
=============
6. Notes Payable - Related Parties
Notes payable consists of the following:
<TABLE>
<CAPTION>
Interest
Description Rate Collateral Amount
----------- --------- ---------- ------
<S> <C> <C> <C>
Officer/stockholder 5 - 9% Certain assets acquired from SMC $ 389,400
Related parties 8.25% - 10% Certain property and equipment 92,387
-----------
481,787
Less current maturities 317,020
-----------
$ 164,767
===========
</TABLE>
The note payable to the officer/stockholder represents the amount due for
the purchase of SMC, net of the amounts used for the exercise of
warrants. The note requires payments of $150,000, $89,400 and $150,000 in
1996, 1997, and 1998, respectively. The past due amount bears interest at
9%.
Maturities of notes payable are as follows:
Year Amount
---- ------
1997 $ 317,020
1998 164,767
-----------
$ 481,787
===========
7. Long-Term Debt -
Long-term debt consists of the following:
<TABLE>
<CAPTION>
Interest
Description Rate Collateral Amount
--------------------- -------- ----------------- -----------
<S> <C> <C> <C> <C>
Mortgage note 10.25% Land and building $ 57,412
Financial institution 12.90% Vehicle 10,354
-----------
67,766
Less current maturities 4,419
-----------
$ 63,347
===========
</TABLE>
Maturities of long-term debt are as follows:
Year Amount
---- ------
1997 $ 4,419
1998 57,976
1999 3,014
2000 2,357
-----------
$ 67,766
===========
8. Related Party Transactions -
During 1996, the Company purchased approximately $195,000 of inventory
from Southern Minnesota Communications, Inc., a corporation owned by Alan
M. Hansel, a director. Subsequent to the acquisition, management
determined that certain inventory lines would be phased-out during 1997
and recorded a reserve of approximately $50,000 against the acquired
inventory.
During 1995, the Partnership reimbursed the nine members of the
Management Committee $187,065 for expenses. In addition, the Management
Committee received 88,500 shares of common stock in the Company, with a
fair market value of $388,875 at the time of issuance, for accrued
compensation.
9. Income Taxes -
Income tax expense (benefit) for 1996, computed at the statutory federal
income tax rate, is as follows:
Tax benefit at statutory federal rate - 34% ($374,000)
State taxes, net of federal tax benefit ( 70,000)
Valuation allowance 444,000
-------
$ -
=======
Significant components of the Company's deferred tax assets are as
follows at December 31, 1996:
<TABLE>
<CAPTION>
<S> <C>
Basis difference on net assets transferred from the Partnership $2,917,000
Net operating loss carryforwards 444,000
----------
Total deferred tax asset 3,361,000
Valuation allowance (3,361,000)
----------
$ -
==========
</TABLE>
The Company retained the basis in the assets transferred from the
Partnership to the Company, which was approximately $7,200,000 higher
than the book value. The basis difference will result in additional
depreciation and amortization for tax purposes over the lives of the
related assets.
The net operating loss carryforwards expire in 2111.
10. Common Stock, Stock Options, and Warrants -
Common Stock
On September 16, 1996, the Company declared a 3 for 2 stock split for
shareholders of record on that date. All share data was restated to
reflect the stock split.
The Company filed a 10-SB Registration, which was approved by the
Securities & Exchange Commission on November 4, 1996.
Upon completion of the conversion of the Partnership units to common
stock during 1996 as described in Note 1, management determined that the
Partnership units had been oversubscribed. At the advice of legal
counsel, the Company issued common stock for all Partnership units
presented for conversion which resulted in the issuance of an additional
16,323 shares of common stock over the 2,475,000 shares approved by the
bankruptcy proceedings.
Stock Options
During 1996, the Company issued stock options to all personnel associated
with the Company prior to September 1, 1996. The exercise price of the
stock options was estimated at $2 per share which equals the stock price.
Options granted vest at varying periods up to two years and expire in 10
years.
Weighted
Average
Exercise
Options Price
------- ---------
OUTSTANDING, December 31, 1995 - $ -
Granted 252,200 2.00
Forfeited (1,500) 2.00
-------
OUTSTANDING, December 31, 1996 250,700 2.00
=======
At December 31, 1996, there are 241,700 options exercisable at $2 per
share with a remaining contractual life of 9.5 years.
If the Company recognized compensation expense based on the fair value at
the grant dates for options under the Plan, consistent with the method
prescribed by Statement of Financial Accounting Standards No. 123, net
loss and per share disclosures would change to the pro forma amounts
below for 1996:
Net loss:
As reported ($1,101,022)
Pro forma ( 1,170,113)
Net loss per common share:
As reported (.36)
Pro forma (.38)
The fair value of stock options used to compute pro forma net loss and
per share disclosure for 1996 is the estimated present value at grant
date using the Black-Scholes Option-Pricing model with the following
weighted average assumptions:
Risk-free interest rate 6.5%
Expected life - years 2-3
Expected volatility .01%
Expected dividend rate .00%
Warrants
In 1996, stockholders exercised warrants to purchase 93,000 shares of
common stock at $4 per share. The Company agreed that if the stock price
on the first day of public trading is less than $4 per share, the Company
will refund the difference between the $4 and the initial price. At this
time, that amount cannot be estimated.
In 1996, two Directors used their accrued compensation totaling $55,000,
before taxes of $11,200, as payment for the exercise of their warrants to
purchase 10,950 shares of common stock. Also, an officer/stockholder
converted $60,600 of notes payable from the SMC acquisition as payment
for the exercise of warrants to purchase 15,150 shares of common stock.
Warrant activity during 1996 was as follows:
<TABLE>
<CAPTION>
Shares of
Common
Stock
Warrants Exercisable
-------- -----------
<S> <C> <C> <C>
Warrants issued in connection with the:
Conversion of the Partnership units 3,300 495,000
Accrued compensation to the management committee 318 47,700
SMC acquisition 402 60,300
------ ------
4,020 603,000
Warrants exercised (794) (119,100)
Warrants issued to DCI 40,000 60,000
------ ------
43,226 543,900
====== =======
</TABLE>
The outstanding warrants are exercisable at a price equal to 85% of the
lesser of the opening price of the common stock upon initial public
trading or the closing bid price on the first day of public trading.
Warrants expire 180 days after the initial public trading of the
Company's common stock on a national exchange.
11. Partnership Restructuring Expense -
In connection with the bankruptcy proceedings, the Partnership incurred
legal and professional fees totaling $62,541 which are included in the
1995 consolidated statement of operations as restructuring expenses.
12. Leases -
The Company leases space for transmission equipment and office space
under operating leases which expire at various dates through December
2000.
The approximate future minimum rental commitments under all
noncancellable leases are as follows:
Year Amount
---- ------
1997 $115,000
1998 110,000
1999 113,000
2000 11,000
--------
$349,000
========
Rent expense was approximately $232,000 and $159,600 for 1996 and 1995,
respectively.
13. Employment Agreements -
The Company has various employment agreements with terms ranging from
eighteen months to five years. The agreements require minimum base
salaries plus bonuses based on profitability and other requirements.
14. Litigation Settlement -
During 1993, Digital Communications, Inc. (DCI) purchased certain radio
frequencies and transmitting equipment in the Twin Cities metropolitan
area. To finance the acquisition, DCI represented to management that it
sold 1,650 units 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, FCC licenses, and transmitting equipment, as well as all
related Partnership units.
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 . 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, and the Partnership recorded the initial
capital contributions at $6,145,000.
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 December 1996, management reached a settlement with DCI, which
includes recovery of 92% of the 25% interest in the assets retained by
DCI in exchange for warrants to purchase 60,000 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. This settlement increased the Company's total assets by
$1,117,800. Digital Communications of Denver, Inc., a related party of
DCI, claims to own the 2% excluded from this settlement.
The 1996 and 1995 consolidated statements of operations include legal
fees for litigation against DCI and related matters of $45,648 and
$118,206, respectively, which are classified as other expense.
ITEM 8. CHANGES IN AND DISAGREENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
None
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
A. DIRECTORS OF THE REGISTRANT
The following table sets forth certain information with respect to each
of the officers and directors of the Company.
<TABLE>
<CAPTION>
AGE PRINCIPAL OCCUPATION DIRECTOR SINCE
--- -------------------- --------------
<S> <C> <C> <C>
James E. LaFayette 58 Chairman, Chief Executive of 1995
the Company
Rodney H. Hutt 47 President and Chief Operating Officer 1997
of the Company
Thomas Venable 36 Vice President Sales, World Talk, Inc. 1995
Board Member, Secretary of the
Company
Kenneth B. Thomson, CPA 54 Retired. 1995
Alan M. Hansel 57 Vice President, Engineering 1996
of the Company
Galen L. McCord 52 President, Totally Wireless 1995
Communications
Mark E. Seely 30 Executive, Qualcomm, Inc. 1995
Harold O'Dell 54 President, LeFlore Communications 1996
</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.
Rodney H. Hutt became executive vice president and general manager of
TC3M in 1994 and was promoted to President and Chief Operating Officer effective
September 1, 1996. Mr. Hutt was elected to the Board of Director on March 3,
1997. Mr. Hutt was employed as Director of North American sales for the E.F.
Johnson Company from 1992 through 1994. From 1984 to 1992, Mr. Hutt was employed
as a regional sales manager for Motorola Communications &
Electronics, Inc. Both E.F. Johnson and Motorola manufacture and sell
communications equipment, including SMR equipment.
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.
Thomas M. Venable became Secretary of TC3M on November 1, 1993 at the
formation of TC3M. From November 1993 to the present, Mr. Venable has been
employed as a regional sales manager and most recently National 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.
Alan M. Hansel has been president and owner of Southern Minnesota
Communications for more than 25 years. He was elected to the Board in 1996.
Galen L. McCord became a member of the Management Committee of TC3M on
November 1, 1993 at the formation of TC3M. He was elected to the Board in 1996.
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.
Harold O'Dell has been president and owner of LeFlore Communications of
Greenwood, MI for over 20 years. Mr. O'Dell was elected to the Board in 1996.
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.
B. EXECUTIVE OFFICERS OF THE REGISTRANT
NAME AGE POSITION WITH THE COMPANY
James E. LaFayette 58 Chief Executive Officer
Rodney H. Hutt 47 President and Chief Operating Officer
Stephen J. Mocol 45 Vice President and Chief Financial Officer
James E. Lafayette has been involved with the Company and its
predecessor since its inception. He was elected President and Chief Executive
Officer in November 1995. For a more in-depth Discussion refer to "Directors of
the Registrant."
Rodney H. Hutt joined the Company in 1994 and was elected President and
Chief Operating Officer in September, 1996. For a more in-depth Discussion refer
to "Directors of the Registrant."
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.
C. SECTION 16(a) OF THE EXCHANGE ACT BENEFICIAL OWNERSHIP REPORTING
COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's directors and executive officers and all persons who
beneficially own more than 10% of the Company's Common Stock to file with the
Securities and Exchange Commission initial reports of ownership and reports of
changes in ownership of the Company's Common Stock. Executive officers,
directors and greater than 10% beneficial owners are also required to furnish
the Company with copies of all Section 16(a) forms they file. To the Company's
knowledge, based on review of the copies filed during the year ended December
31, 1996, none of the Company's directors or officers or beneficial owners of
greater than 10% of the Company's Common Stock failed to file on a timely basis
the forms required by section 16 of the Exchange Act.
ITEM 10. EXECUTIVE COMPENSATION
A. COMPENSATION OF DIRECTORS
DIRECTORS FEES. Each current non-employee director of the Company
receives $500.00 per day plus expenses, while conducting Company business either
in board meetings or in any other authorized capacity.
STOCK OPTIONS GRANTED TO NON-EMPLOYEE DIRECTORS. Effective January 1,
1996, the Board approved the award of options to purchase 7,500 shares of the
Company's common stock each non-employee director, with the exception of Mr.
Venable, who was awarded options to purchase 12,000 shares. Effective August 1,
1996 with his appointment to the Board of Directors, Mr. O'Dell was awarded
options to purchase 7,500 shares. The exercise price of the stock options was
set at $2.00 per share.
B. SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION PAID TO EXECUTIVE OFFICERS.
The following table provides summary information concerning cash and
non-cash compensation paid or accrued by the Company to or on behalf of the
Company's Chief Executive Office. The Company had no employees whose cash and
non-cash compensation exceeded $100,000.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
-------------------
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS
--------------------------- ---- ------ -----
James E. Lafayette,
Chief Executive Officer 1996 $33,172 None
C. OPTION GRANTS AND EXERCISES.
The following table provides information for the year ended December
31, 1996 as to individual grants of options to purchase shares of the Common
Stock.
<TABLE>
<CAPTION>
OPTION GRANTS IN 1996
Percent of Total Options
Granted to employees Exercise or Base Expiration
Name Options Granted in the year Price ($/Share) Date
---- --------------- ----------- --------------- -----------
<S> <C> <C> <C> <C>
James E. LaFayette 67,200 26.6% $2.00 2006
Kenneth B. Thomson 25,500 10.1% $2.00 2006
Rodney H. Hutt 37,000 14.7% $2.00 2006
Stephen J. Mocol 19,000 7.5% $2.00 2006
</TABLE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth information regarding the beneficial
owners of the Common Stock of the Company as of December 31, 1996, unless
otherwise noted, (a) by each stockholder who is known by the Company to own
beneficially more than 5% of the outstanding Common Stock, (b) by each director,
(c) each named Executive Officer, and (d) by all executive officers and
directors of the Company as a group.
Shares of Common Stock Beneficially Owned
Name Amount Percent of Class
---- ------ ----------------
Alan M. Hansel 316,650 9.6%
Kenneth B. Thomson 57,732 1.7%
James E. LaFayette 56,997 1.7%
Galen L. McCord 24,341 *
Thomas M. Venable 23,441 *
Mark E. Sealy 23,141 *
Rodney H. Hutt 6,450 *
All Officers and Directors 574,362 17.4%
as a group
------------
* Less than 1%
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Except as described below, in the past year 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.
During 1995, the Partnership reimbursed the nine members of the
Management Committee $187,065 for expenses. In addition, the Management
Committee received 59,000 shares of common stock in the Company, with a fair
market value of $388,875 at the time of issuance, in lieu of cash payments.
Effective January 1, 1996 the Company acquired substantially all of the
assets of Alan M. Hansel and Southern Minnesota Communications. Mr. Hansel has
become a substantial shareholder as described in Part II, item 11, has joined
the Board of Directors, and become a Company employee.
Effective in 1996, the Company purchased inventories valued at
approximately $195,000 from Alan M. Hansel and Southern Minnesota
Communications.
Effective September 1, 1996 the Company acquired the stock of Peacock's
Radio and Wild's Computer Service. Mr. John Peacock and Mr. Johnny Wild have
become substantial shareholders of the Company and Mr. Peacock served on the
Board of Directors for a brief time in 1996. Both Mr. Wild and Mr. Peacock have
become Company employees.
ITEM 13. EXHIBITS AND REPORTS ON ITEM 8-K
(a) EXHIBITS
Reference is made to the Exhibit Index hereinafter contained, at page
26 of this report.
A copy of any exhibits listed or referred to herein will be furnished
at a reasonable cost to any person who is a stockholder upon receipt from any
such person of a written request for any such exhibit. Such a request should be
sent to: Mr. Stephen Mocol, 403 Gateway Blvd., Burnsville, MN 55337; Atten:
Stockholder Information.
(b) REPORTS ON FORM 8-K
The company did not file any Current Reports on Form 8-K during the
fourth quarter of calendar 1996.
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: March 31, 1997
By: /s/ Rodney H. Hutt
-----------------------------------
Rodney H. Hutt
President, Chief Operating Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant on March 31, 1997 in the capacities indicated.
NAME TITLE
- ---- -----
/s/ Rodney H. Hutt
_____________________________ President, Chief Operating Officer and
Rodney H. Hutt Director
/s/ James E. LaFayette
________________________________ Chairman of The Board, CEO
James E. LaFayette
________________________________ Thomas Venable
Thomas Venable Director/Secretary
________________________________ Alan M. Hansel
Alan M. Hansel Director
________________________________ Galen McCord
Galen McCord Director
________________________________ Harold O'Dell
Harold O'Dell Director
________________________________ Mark Seely
Mark Seely Director
________________________________ Kenneth B. Thomson
Kenneth B. Thomson Director
21ST CENTURY WIRELESS GROUP, INC.
EXHIBIT INDEX TO ANNUAL REPORT ON FORM 10-KSB
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
Item No. Item Method of Filing
-------- ---- ----------------
<S> <C> <C>
2.1 Plan of Reorganization of Incorporated by reference to Exhibit 8.1
TC3M contained in the Registration Statement
on Form 10-SB (File No. 0-27770)
3.1 Articles of Incorporation Incorporated by reference to Exhibit 2.1
contained in the Registration Statement
on Form 10-SB (File No. 0-27770)
3.2 By-laws Incorporated by reference to Exhibit 2.2
contained in the Registration Statement
on Form 10-SB (File No. 0-27770)
3.3 Specimen Certificate of Incorporated by reference to Exhibit 3.1
Common Stock contained in the Registration Statement
on Form 10-SB (File No. 0-27770)
3.4 Form of Warrant Agreement Incorporated by reference to Exhibit 3.2
contained in the Registration Statement
on Form 10-SB (File No. 0-27770)
10.1 Executive Security Plan Incorporated by reference to Exhibit 6.1
contained in the Registration Statement
on Form 10-SBA1(File No. 0-27770)
10.2 Office Lease dated March Incorporated by reference to Exhibit 6.3
6, 1996 for Executive contained in the Registration Statement
Office on Form 10-SBA1(File No. 0-27770)
10.3 Employment Contract with Filed Herewith Electronically
Stephen J. Mocol
10.4 Asset Purchase Agreement Incorporated by reference to Exhibit 8.2
With Alan Hansel and contained in the Registration Statement
Southern Minnesota, Inc. on Form 10-SB(File No. 0-27770)
dated February 9, 1996
10.5 Stock Purchase Agreement Incorporated by reference to Exhibit 8.2
With Peacock's Radio and contained in the Registration Statement
Wild's Computer Service. on Form 10-SB(File No. 0-27770)
dated January 11, 1996.
27.1 Financial Data Schedule Filed Herewith Electronically
</TABLE>
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made and entered into as of this 28th day of June,
1996 between 21st Century Wireless Group, Inc. a Nevada corporation with offices
at 406 Gateway Boulevard, Burnsville, Minnesota 55337 (The "Company") and
Stephen J. Mocol, an individual residing at 3004 Chandler Court, Burnsville,
Minnesota 55337 (the "Employee").
WHEREAS, the Company employs the Employee as Vice President and Chief
Financial Officer:
WHEREAS, the Company wishes to continue to employ Employee, and the
Employee wishes to continue employment with the Company; and
WHEREAS, the company wishes to provide Employee with a guarantee of
employment for eighteen months from the effective date of this agreement as
consideration for the Employee's agreement to join the Company.
NOW, THEREFORE, in consideration of the premises and mutual covenants and
promises contained herein, the parties hereto agree as follows:
SECTION 1. Definitions. For purposes of this Agreement, the following
capitalized terms shall have the meanings set forth below and shall include the
plural as well as the singular:
(a)"Affiliate" shall mean any Person that directly, or indirectly through
one or more intermediaries, controls, or is controlled by, or is under common
control with, any other Person.
(b) "Effective date" shall mean July 15, 1996.
(c) "Monthly Salary" shall mean the highest annual rate of Employee's
base rate of pay (without any payroll deductions required by law or
agreement with Employee) in affect at any time from the date
immediately prior to a Change in Control or Constructive Discharge
to the date of termination.
(d) "Change in Control" shall be deemed to occur upon:
(i) 50% or more of the outstanding voting stock of the Company is
acquired or beneficially owned (as defined in Rule 13d-3 under the
Securities Exchange Act of 1934, as amended, or any successor rule
thereto) by any Person, in a transaction other than a public offering of
the voting stock.
(ii) the Company is merged or consolidated with or into another
corporation (other than in a merger or in a consolidation with or into the
Company or an Affiliate of the Company) and the holders of all of the
outstanding voting stock of the Company immediately prior to the merger or
consolidation hold less than a majority of the voting stock of the
surviving entity or its parent corporation immediately after the merger or
consolidation; or
(iii) all or substantially all of the assets of the Company are sold or
otherwise transfeffed to any person other than the current management
team.
(e)"Cause" shall mean the termination of Employee by the Company for any
of the reasons or causes set forth below:
(I) gross misconduct by Employee in the performance of Employee's
duties:
(II) theft or embezzlement by Employee from, or fraud committed by
the Employee against, the Company.
(iii) conviction of Employee of any crime under federal or state law
involving moral turpitude (for purpose hereof, traffic violations and
misdemeanors shall not be deemed to be a crime); or
(iv) willful refusal by Employee to perform any material duties
reasonably required to be performed in the course of the Employee's
employment with the company.
(f)"Person" shall mean any individual, partnership, firm trust,
corporation, or other similar entity. When two or more Persons act as a
partnership, limited partnership, syndicate, or other group for the
purpose of acquiring, holding or disposing of securities of the Company,
such syndicate or group shall be deemed a "Person" for the purposes of
this agreement.
Section 2. Employment.
(a) Termination. Subject to the other subsections of this Section 2,
Employee's employment with the Company may be terminated by the Company at any
time for any reason or no reason upon notice to Employee (termination of
employment for any reason following the bankruptcy, insolvency, receivership or
any similar proceeding of or relating to the Company shall be deemed to be
termination by the company for purposes of this agreement).
(b) Severance Compensation. If employee's employment is terminated by the
Company for reasons other than for Cause, or if the Employee resigns following a
Change in Control, than the company shall continue to pay the Employee, the
Employees Monthly Salary for a period ending eighteen months from the effective
date of this agreement (less appropriate payroll deductions, if any).
(c) Termination for Cause. If the company terminates Employee's employment for
Cause, then all obligations of the Company under this Agreement shall thereupon
cease and Employee shall not be entitled to receive any severance compensation,
hereunder.
(d) Death, Disability or Retirement. For purposes of this Agreement,
Employee's employment will not be considered to be terminated by the Company if
Employee's employment is terminated because of Employee's death, disability, or
retirement.
Section 3. Compensation and benefits. Under the terms of this Agreement, the
Employee is entitled to appropriate compensation and benefits,
while an Employee of the Company.
(a) Salary. The employee shall receive a salary of $5,416.67 per month
($65,000 per annum) (less appropriate payroll deductions, if any) from the
Effective Date until December 31, 1996, at which time a review of the
Employee's performance will occur and salary increased per the discretion of
the Company.
(b) Bonus. A bonus of $20,000.00 (less appropriate payroll deductions, if any)
will be paid to the Employee within thirty days after the successful
completion of the company's public stock offering and funding. "Successful
completion" will deem to have occurred with the sale of at least one share of
stock through the public offering without effect to the price.
(c) Future Bonuses. The Employee with be eligible for a bonus of at least
$20,000 in every calendar year pending the successful completion of certain
goals as mutually agreed upon between the Employee and the Company.
(d) Benefits. The Employee is entitled to receive employment benefits from the
Company.
(1) Health Insurance per the Company plan offered to all employees.
(ii) Life insurance coverage per the Company plan plus the Company will
reimburse the employee for premiums that the employee is required to
pay from outside sources so that the employee is covered at one (1)
times annual salary and anticipated bonuses ($85,000 for 1996).
(iii) Dental Insurance. The company will pay the Cobra premium that the
Employee is required to pay from his former employer for dental
insurance. If the Company adds dental insurance to its' benefit plan,
the Company will cease payment of the Employees Cobra premiums and the
Employee will be added to the Company plan.
(iv) Vacation. The Employee will receive three weeks of paid vacation
in the first year of employment and every year thereafter until the
Employee's tenure with the Company entitles him to additional vacation
per the Company's vacation policy currently in effect.
(v) Stock grants/ options. The Employee is eligible to receive stock
options and grants as awarded by the Board of Directors of the Company
for successful completion of assigned goals.
(vi) Use of cellular telephone. The employee will have a company owned
cellular telephone and be permitted to use it for business purposes.
All fees for that cellular telephone will be paid by the Company.
SECTION 4. TRANSITION PERIOD. Notwithstanding anything herein to the contrary,
if following a Change in Control, Employee wishes to resign from the Company
with effect prior to three (3) months after the date on which the Change in
Control occurs, Employee shall (a) first ask the then Board of Directors of the
Company in writing, whether it wishes the Employee to remain employed by the
Company in Employee's then current position, and (b) if the Board of Directors
responds in the affirmative in writing within five business days from the date
of the Employee's request, then the Employee shall continue to dutifully execute
his responsibilities as an employee of the Company in such position for three(3)
months after the date on which the Change of Control occurred and shall be
entitle, upon (I) the release of the Employee by the Company prior to the
expiration of such period, or (ii) the termination of the Employee's employment
by the Company other than for Cause, to receive the payments contemplated by
section 2(b). If Employee does not execute his responsibilities as an employee
of the Company for such three (3) month period, then Employee shall not be
entitled to receive any severance compensation hereunder.
SECTION 5. TERM. The term of this agreement shall commence upon the date
hereof and shall continue for a period of eighteen months or until the
termination of the Employee's employment.
SECTION 6. MISCELLANEOUS.
(a) Binding Effect. This Agreement will insure to the benefit of and be binding
upon the parties hereto and their respective successors, assigns, heirs,
distributees, and representatives.
(b) Severability. If any provision of this agreement is held to be invalid,
illegal, or unenforceable, in whole or in part, such invalidity shall not affect
any otherwise valid provision, and all other valid provisions shall remain in
full force and effect.
(c) Counterparts. This agreement may be executed in two or more counterparts,
each of which shall be deemed an original, and all of which together will
constitute one document.
(d) The titles and headings preceding the text of the paragraphs and
subparagraphs of this Agreement have been inserted solely for convenience of
reference and do not constitute a part of this Agreement or effect its meaning,
interpretation, or effect.
(e) Waiver. The failure of either party to insist in any one or more instances
upon performance of any terms or conditions of this Agreement will not be
construed as a waiver of future performance of any such term, covenant, or
condition and the obligations of either party with respect to such term,
covenant or condition will continue in full force and effect.
(f) Notices. All notices required or permitted to be given under this Agreement
will be given in writing and will be deemed sufficiently given if delivered by
hand or mailed, postage prepaid, by registered mail, return receipt requested,
to Employee's address set forth at the beginning of this Agreement and to the
Company's Executive Vice President and General Manager at the Company's
principal executive offices. Either party may, by giving notice to giving notice
to the other party in accordance with this paragraph, change the address at
which it is to receive notices hereunder.
(g) Entire Agreement, Modification. This agreements supersedes all previous
agreements, negotiations, or communications between Employee and the Company and
contains the complete and exclusive expression of the understanding between the
parties concerning the subject matter covered herein. This Agreement cannot be
amended, modified, or supplemented in any respect except by a subsequent written
agreement entered into by both parties.
(h) Governing Law. This Agreement will be construed and enforced in accordance
with the laws of the State of Minnesota without giving effect to its principles
on the conflict of laws.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
21ST CENTURY WIRELESS GROUP, INC.
/S/ Rodney H. Hutt
----------------------------------
By Rodney H. Hutt /
Its Executive Vice President and General Manager
EMPLOYEE
/S/ Stephen J. Mocol
----------------------------------
Stephen J. Mocol
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 172,042
<SECURITIES> 0
<RECEIVABLES> 157,533
<ALLOWANCES> (30,000)
<INVENTORY> 334,626
<CURRENT-ASSETS> 647,010
<PP&E> 2,985,056
<DEPRECIATION> (421,919)
<TOTAL-ASSETS> 8,079,596
<CURRENT-LIABILITIES> 922,737
<BONDS> 0
0
0
<COMMON> 3,309
<OTHER-SE> 6,925,436
<TOTAL-LIABILITY-AND-EQUITY> 8,079,596
<SALES> 414,976
<TOTAL-REVENUES> 1,760,841
<CGS> 377,963
<TOTAL-COSTS> 995,995
<OTHER-EXPENSES> 1,803,906
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (31,026)
<INCOME-PRETAX> (1,101,022)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,101,022)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,101,022)
<EPS-PRIMARY> (0.36)
<EPS-DILUTED> (0.36)
</TABLE>
