<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): JANUARY 23, 1998
----------------------------
INTERNATIONAL WIRELESS COMMUNICATIONS HOLDINGS, INC.
- ------------------------------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
Delaware 0- 94-3248701
- ------------------------------------------------------------------------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
400 South El Camino Real, Suite 1275, San Mateo, California 94402
- ------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Company's telephone number, including area code 650-548-0808
------------------------------
Not Applicable
- ------------------------------------------------------------------------------
(Former name or Former Address, if Changed Since Last Report.)
<PAGE>
The Registrant hereby amends its Current Report on Form 8-K dated January
23, 1998, filed with the Securities and Exchange Commission on February 6,
1998, to include the information required by Item 7.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On January 23, 1998, pursuant to an Agreement and Plan of Merger, dated
November 22, 1997, as amended (the "Merger Agreement"), a wholly owned
subsidiary of the Registrant merged with and into Radio Movil Digital
Americas, Inc. ("RMD"), a Delaware corporation (the "RMD Acquisition"). RMD
provides specialized mobile radio services in major cities in central and
southern Brazil, Venezuela and Argentina, and holds licenses for
approximately 960 channels in Brazil, 480 channels in Venezuela and 180
channels in Argentina.
The aggregate consideration paid by the Registrant pursuant to the Merger
Agreement, after giving effect to various purchase price adjustments set
forth in the Merger Agreement, consisted of 5,381,046 shares of the
Registrant's Series I Preferred Stock with an aggregate liquidation
preference of $73,871,000, and $4.8 million in cash (collectively, the
"Consideration"). Of the shares of Registrant's Series I Preferred Stock
issued pursuant to the Merger Agreement, 4,652,608 shares were issued to the
former security holders of RMD, and the remaining 728,428 shares were
deposited in escrow, pending future release to the former security holders of
RMD or to the Registrant in accordance with the Merger Agreement.
The cash portion of the Consideration paid by the Registrant was financed
using funds borrowed pursuant to an Amended and Restated Senior Secured Note
and Warrant Purchase Agreement (the "RMD Loan Agreement"), dated January 23,
1998, among the Registrant, RMD and BT Foreign Investment Corporation ("BT"),
a subsidiary of Bankers Trust New York Corporation, a bank holding company.
The repayment of all amounts outstanding under the RMD Loan Agreement,
including interest accrued thereon, is secured by pledges to BT of (i) all of
the shares of RMD held by International Wireless Communications, Inc.
("IWC"), a wholly owned subsidiary of the Company, (ii) IWC's interest in any
loans and advances made to RMD, (iii) RMD's interest in the loans and
advances made to any subsidiary of the Registrant that is incorporated in, or
owns assets located in, Brazil and (iv) certain other collateral.
The determination of the amount of the Consideration paid by the
Registrant for RMD was based upon arm's-length negotiations between the
Company and RMD.
Additional information regarding the RMD Acquisition and the terms
thereof are set forth in the Merger Agreement and the RMD Loan Agreement and
the respective exhibits thereto, which qualify the foregoing description of
the acquisition of RMD in its entirety and are incorporated herein by
reference.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
INTERNATIONAL WIRELESS
COMMUNICATIONS HOLDINGS, INC.
Date: February 12, 1998 By: /s/ John D. Lockton
-------------------------------
John D. Lockton
President and Chief Executive
Officer
<PAGE>
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) FINANCIAL STATEMENTS OF THE BUSINESS ACQUIRED.
Radio Movil Digital Americas, Inc. and Subsidiaries
Report of Independent Certified Public Accountants of Price
Waterhouse LLP.......................................................F-2
Consolidated Financial Statements for the three years ended
December 31, 1994, 1995 and 1996.....................................F-3
Consolidated Financial Statements for the six months ended
June 30, 1997 and for the nine months ended September 30, 1996
and 1997 (unaudited).................................................F-26
(b) PRO FORMA FINANCIAL INFORMATION.
Unaudited Pro Forma Consolidated Condensed Financial Statements
and related notes......................................................F-45
(c) EXHIBITS. The following documents are filed as exhibits to this
Current Report on Form 8-K.
Exhibit
Number Description
- ------- -----------
2.11A* Agreement and Plan of Merger between the Registrant and RMD, dated
November 22, 1997
2.11B* Amendment No. 1 to Agreement and Plan of Merger between the
Registrant and RMD, dated January 15, 1998
2.11C* Amendment No. 2 to Agreement and Plan of Merger among the Registrant,
RMD and IWC Acquisition Corporation, dated January 23, 1998
2.11D* Escrow Agreement among George Billings, the Registrant and Toronto
Dominion Houston, Inc., dated January 23, 1998
2.11E* Consulting Agreement between RMD and Robert Dupuis, dated November
22, 1997.
2.11F* Non-Competition Agreement between the Registrant and Robert Dupuis,
dated November 22, 1997.
3.5* Amended and Restated Certificate of Incorporation of the Registrant,
dated January 23, 1998
4.1A* First Supplemental Indenture between the Registrant and Marine
Midland Bank as Trustee, dated January 23, 1998
10.29* Seventh Amended and Restated Investor Rights Agreement among the
Registrant and the Investors named therein, dated December 13, 1997
10.30A* Amended and Restated Senior Secured Note and Warrant Purchase
Agreement among the Registrant, RMD and BT, dated January 23, 1998
10.30B* International Wireless Communications Holdings, Inc. Stock Purchase
Warrants, dated January 23, 1998
10.30C* Amended and Restated Senior Secured Promissory Note between RMD and
BT, dated January 23, 1998
10.30D* Pledge Agreement between International Wireless Communications, Inc.
and BT, dated January 23, 1998
10.30E* Pledge Agreement between RMD and BT, dated January 23, 1998
10.30F* Letter Agreement among the Registrant, BT and RMD, dated January 23,
1998
- --------------------
* Previously filed as an Exhibit to the Registrant's Current Report on Form 8-K
filed February 6, 1998.
<PAGE>
RADIO MOVIL DIGITAL
AMERICAS, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1996
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
of Radio Movil Digital Americas, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of changes in common stock and other
stockholders' deficit and of cash flows present fairly, in all material
respects, the financial position of Radio Movil Digital Americas, Inc. and its
subsidiaries at December 31, 1995 and 1996, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1996, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating overall financial statement presentation. We believe
that our audits provide a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Miami, Florida
March 27, 1997
F-2
<PAGE>
RADIO MOVIL DIGITAL AMERICAS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1996
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
1995 1996
---------- ----------
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents............................................................... $ 1,007 $ 6,618
Restricted cash......................................................................... 1,800 1,516
Short-term investments.................................................................. 3,351 1,732
Accounts receivable, net of allowance for doubtful accounts of $77 and $109 in 1995 and
1996, respectively.................................................................... 396 1,951
Inventories............................................................................. 429 316
Prepaid expenses and other current assets............................................... 1,953 1,259
---------- ----------
Total current assets.................................................................. 8,936 13,392
Investments in and advances to affiliates, at equity...................................... 9,083 480
Acquisitions in process................................................................... 1,455 332
Property and equipment, net............................................................... 3,498 14,214
SMR licenses, net of accumulated amortization of $243 and $1,356 in 1995 and 1996,
respectively............................................................................ 3,862 20,806
Other assets.............................................................................. 847 969
---------- ----------
$ 27,681 $ 50,193
---------- ----------
---------- ----------
LIABILITIES, MANDATORILY REDEEMABLE PREFERRED STOCK,
COMMON STOCK AND OTHER STOCKHOLDERS' DEFICIT
Current liabilities:
Current maturities of long term debt.................................................... $ 692 $ 1,025
Short-term vendor debt.................................................................. 1,097 1,863
Accounts payable and accrued liabilities................................................ 1,520 3,175
---------- ----------
Total current liabilities................................................................. 3,309 6,063
Long term debt, less current maturities................................................... 2,024 1,850
Subordinated convertible debentures....................................................... -- 15,000
---------- ----------
Total liabilities......................................................................... 5,333 22,913
---------- ----------
Mandatorily redeemable preferred stock, including accrued dividends....................... 43,941 61,378
Common stock and other stockholders' deficit:
Common stock, $0.005 par value, 35,000,000 shares authorized, 2,758,208 and 2,828,841
shares issued and outstanding in 1995 and 1996, respectively.......................... 14 14
Paid in capital......................................................................... 1,611 4,555
Accumulated deficit..................................................................... (23,218) (38,667)
---------- ----------
Total common stock and other stockholders' deficit........................................ (21,593) (34,098)
---------- ----------
$ 27,681 $ 50,193
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
RADIO MOVIL DIGITAL AMERICAS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Revenue:
Radio service and lease revenue....................................... $ 63 $ 793 $ 5,051
Equipment sales....................................................... 44 654 609
------------ ------------ ------------
Total revenue....................................................... 107 1,447 5,660
------------ ------------ ------------
Costs and expenses related to revenue:
Cost of radio service revenue......................................... 35 370 1,523
Cost of equipment sales............................................... 49 894 521
------------ ------------ ------------
Total costs and expenses related to revenue......................... 84 1,264 2,044
------------ ------------ ------------
Gross profit........................................................ 23 183 3,616
------------ ------------ ------------
Other operating costs and expenses:
Selling, general and administrative................................... 3,334 10,054 9,298
Depreciation and amortization......................................... 199 766 2,927
Write off of acquisitions in process.................................. -- 499 899
Settlement costs...................................................... -- 3,003 --
------------ ------------ ------------
Total other operating costs and expenses............................ 3,533 14,322 13,124
------------ ------------ ------------
Operating loss...................................................... (3,510) (14,139) (9,508)
------------ ------------ ------------
Other (expense) income:
Interest income....................................................... 166 476 395
Interest expense...................................................... (3) (142) (1,237)
Equity in net loss of unconsolidated affiliates....................... (9) (2,011) (1,499)
Other, net............................................................ 35 (267) (1,410)
------------ ------------ ------------
Total other (expense) income........................................ 189 (1,944) (3,751)
------------ ------------ ------------
Net loss............................................................ (3,321) (16,083) (13,259)
Preferred stock dividends and accretion of mandatorily redeemable
preferred shares to redemption value.................................. (913) (1,876) (2,190)
------------ ------------ ------------
Net loss applicable to common stockholders.............................. $ (4,234) $ (17,959) $ (15,449)
------------ ------------ ------------
------------ ------------ ------------
Net loss per share...................................................... $ (1.54) $ (6.51) $ (5.50)
------------ ------------ ------------
------------ ------------ ------------
Weighted average number of shares....................................... 2,758,708 2,758,208 2,809,658
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
RADIO MOVIL DIGITAL AMERICAS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCK AND OTHER
STOCKHOLDERS' DEFICIT
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK
----------------------
NUMBER OF PAID IN ACCUMULATED
DESCRIPTION SHARES AMOUNT CAPITAL DEFICIT TOTAL
- ----------- --------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993................ 2,758,208 $ 14 -- $ (1,025) $ (1,011)
Accrued dividends on mandatorily redeemable
preferred stock........................... -- -- -- (904) (904)
Accretion of mandatorily redeemable
preferred stock to redemption value....... -- -- -- (9) (9)
Net Loss.................................... -- -- -- (3,321) (3,321)
--------- --------- --------- ----------- ---------
Balance at December 31, 1994................ 2,758,208 14 -- (5,259) (5,245)
Stock option grants......................... -- -- $ 325 -- 325
Accrued dividends on mandatorily redeemable
preferred stock........................... -- -- -- (1,858) (1,858)
Accretion of mandatorily redeemable
preferred stock to redemption value....... -- -- -- (18) (18)
Series C preferred stock rescission
settlement cost........................... -- -- 1,286 -- 1,286
Net Loss.................................... -- -- -- (16,083) (16,083)
--------- --------- --------- ----------- ---------
Balance at December 31, 1995................ 2,758,208 14 1,611 (23,218) (21,593)
Accrued dividends on mandatorily redeemable
preferred stock........................... -- -- -- (1,970) (1,970)
Accretion of mandatorily redeemable
preferred stock to redemption value....... -- -- -- (220) (220)
Issuance of common stock.................... 70,633 -- 154 -- 154
Issuance of stock warrants.................. -- -- 2,790 -- 2,790
Net Loss.................................... -- -- -- (13,259) (13,259)
--------- --------- --------- ----------- ---------
Balance at December 31, 1996................ 2,828,841 $ 14 $ 4,555 $ (38,667) $ (34,098)
--------- --------- --------- ----------- ---------
--------- --------- --------- ----------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
RADIO MOVIL DIGITAL AMERICAS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1994, 1995, 1996
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................................................... $ (3,321) $ (16,083) $ (13,259)
Adjustments to reconcile net loss to net cash used in operating activities:
Write off of acquisitions................................................. -- 499 899
Settlement costs.......................................................... -- 3,003 --
Employee stock option grants.............................................. -- 325 42
Provision for doubtful accounts........................................... -- 77 192
Depreciation and amortization............................................. 199 766 2,927
Equity in net losses of affiliates........................................ 9 2,011 1,499
Amortization of debt issuance costs....................................... -- -- 123
Changes in assets and liabilities:
Accounts receivable..................................................... -- (473) (1,195)
Inventories............................................................. (260) (95) 138
Prepaid expenses and other assets....................................... (831) (1,647) 789
Other non current assets................................................ -- 203 (154)
Accounts payable and accrued liabilities................................ 1,337 1,072 369
---------- ---------- ----------
Net cash used in operating activities................................. (2,867) (10,342) (7,630)
---------- ---------- ----------
Cash flows from investing activities:
Purchase of short term investments.......................................... (1,764) (5,599) (5,804)
Decrease (increase) in restricted cash...................................... (464) (1,336) 284
Sales and maturities of short term investments.............................. 212 4,012 7,423
Increase in investments in and advances to unconsolidated affiliates and
acquisitions in process................................................... (5,920) (7,136) (4,254)
Purchase of majority interest of Brazilian affiliates, net of cash
acquired.................................................................. -- -- (13,790)
Capital expenditures........................................................ (1,616) (2,302) (4,681)
Acquisition of SMR licenses................................................. (2,152) (1,954) (36)
---------- ---------- ----------
Net cash used in investing activities................................. (11,704) (14,315) (20,858)
---------- ---------- ----------
Cash flows from financing activities:
Proceeds from convertible debentures........................................ -- -- 15,000
Proceeds from long term debt................................................ 1,500 1,216 600
Proceeds from vendor financing, net of payments............................. -- -- 325
Increase in debt issuance costs............................................. (227) -- --
Net proceeds from issuance of mandatorily redeemable preferred stock........ 15,267 21,104 18,174
---------- ---------- ----------
Net cash provided by financing activities............................. 16,540 22,320 34,099
---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents.......................... 1,969 (2,337) 5,611
Cash and cash equivalents, beginning of year.................................. 1,375 3,344 1,007
---------- ---------- ----------
Cash and cash equivalents, end of year........................................ $ 3,344 $ 1,007 $ 6,618
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-6
<PAGE>
RADIO MOVIL DIGITAL AMERICAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1995 AND 1996
(THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 1--ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Radio Movil Digital Americas, Inc. ("RMDA") is a Delaware corporation and
through its subsidiaries (collectively with RMDA, the "Company") is engaged in
the acquisition and operation of specialized mobile radio ("SMR") wireless
dispatch communications services and the sale, lease and servicing of related
equipment in certain countries of South America. The Company commenced
commercial operations during 1995 and prior to that date had been a development
stage enterprise. The Company has acquired SMR channel licenses through direct
applications to governments and through acquisitions of interests in other
entities which have been granted or have applied for SMR channel licenses. The
Company has also made deposits to acquire other SMR licenses through
acquisitions of interests in entities holding such licenses or with pending SMR
channel license applications (see Note 2).
The following is a summary of the more significant accounting policies
followed by the Company in the preparation of the accompanying financial
statements.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of RMDA and its
majority owned subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation. For investments in entities
in which the Company has a 20% to 50% ownership interest and exercises
significant influence, the Company accounts for its investment using the equity
method. Such investments are carried at cost, adjusted for the Company's
proportionate share of the investee's undistributed earnings or losses.
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reported
period. Actual results could differ from those estimates.
The future recoverability of its investments is contingent upon the
Company's ability to build out the SMR channels it currently owns and to obtain
sufficient subscribers once systems are built to recover the amounts invested.
Given the uncertainties surrounding these matters, as well as the Company's
limited operations to date, it is not presently known whether the Company's
investments in and advances to unconsolidated affiliates, acquisitions in
process, property and equipment and SMR licenses will ultimately be recoverable.
The Company continuously evaluates the recoverability of its long lived assets,
and provides for impairment at the time which, in management's judgment, an
asset is impaired.
FOREIGN CURRENCY TRANSLATION
For subsidiaries and affiliates whose functional currency is the U.S. dollar
or which operate in a highly inflationary economy, net non monetary assets are
translated at historical exchange rates while net monetary assets are translated
using current exchange rates and translation adjustments are included in the
determination of income. For subsidiaries and affiliates whose functional
currency is the local currency and which do not operate in highly inflationary
economies, all net monetary and non monetary assets and
F-7
<PAGE>
RADIO MOVIL DIGITAL AMERICAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1995 AND 1996
(THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 1--ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
liabilities are translated at current exchange rates and translation adjustments
are included in stockholders' equity.
During 1996 and 1995, the Company incurred foreign currency exchange losses
of approximately $157 and $302, respectively, while in 1994, the Company
recorded foreign currency exchange gains of approximately $35.
At December 31, 1996, 1995 and 1994, the financial statements of all RMDA's
foreign subsidiaries and affiliates were translated using the U.S. dollar as
their functional currency.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with original
maturities of three months or less to be cash equivalents.
SUPPLEMENTARY CASH FLOW INFORMATION
During the years ended December 31, 1995 and 1996 the Company made interest
payments of approximately $106 and $567, respectively.
LOSS PER SHARE
Loss per share has been computed based on the weighted average number of
shares of common stock outstanding of 2,809,658 for the year ended December 31,
1996, and 2,758,208 for the years ended December 1995 and 1994. Anti-dilutive
common stock equivalents are excluded from the calculation.
SHORT TERM INVESTMENTS
Short term investments consist of marketable debt securities, primarily U.S.
government securities and low risk corporate bonds, with original maturities of
more than three months. Management of the Company believes that its investment
policy limits exposure to concentration of credit risk.
The Company classifies short term investments as either held to maturity,
available for sale or trading. Investments designated as held to maturity are
carried at amortized cost. Securities designated as available for sale are
carried at quoted market value with the unrealized gain or loss included in
stockholders' equity. Trading securities are carried at quoted market value with
unrealized gains and losses recorded in the statement of operations. Investments
classified as held to maturity or available for sale whose declines in market
value are deemed other than temporary are written down to market value with a
charge to the statement of operations.
At December 31, 1995 and 1996, short term investments are considered
available for sale. The aggregate cost of the short-term investments
approximated market value.
REVENUES
Revenues from radio services are recognized on a monthly basis as services
are rendered based on the contracted amount. The Company also leases equipment
to customers under operating leases under which
F-8
<PAGE>
RADIO MOVIL DIGITAL AMERICAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1995 AND 1996
(THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 1--ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
the related lease revenue is recorded as earned. Revenues from the sale of
equipment is recognized at the time equipment is delivered.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Accounts receivable are from businesses located in the countries in which
the Company operates. While the Company believes that the geographic and
industry diversity of its customer base minimizes the risk of incurring material
losses due to concentrations of risk, on-going evaluations of customer payment
performance is carried out and an allowance for doubtful accounts is maintained
at a level which management believes is sufficient to cover potential credit
losses.
INVENTORIES
Inventories consist of SMR equipment expected to be sold to subscribers and
are recorded at the lower of cost or market. Cost is determined by using the
weighted average method.
ACQUISITIONS IN PROCESS
Costs directly associated with acquisitions of other entities are deferred
pending consummation of the investment. In addition to direct acquisition costs,
such costs also include success fees, legal fees and consulting fees which have
been incurred prior to the closing of acquisitions, as well as payments made for
options to purchase in the future additional interests in investee companies.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Maintenance and repair
expenditures are charged to expense as incurred and expenditures for
improvements which increase the expected useful lives of the assets are
capitalized.
Direct costs associated with the construction of SMR systems and related
networks are capitalized and amortized over the systems' expected useful life
upon placing the system in service. Such costs include costs incurred in
securing tower sites, site preparation, procurement and installation of
infrastructure, and equipment cost.
Included in property and equipment are radios presently leased or to be
leased to the Company's subscribers.
Depreciation expense is computed using the straight line method over the
estimated useful lives of the related assets.
DEFERRED LOAN COSTS
Costs incurred in connection with the securing of debt financing are
deferred and amortized using the effective interest method over the life of the
loan. At December 31, 1995 and 1996, the unamortized portion of deferred loan
costs amounted to approximately $222 and $685, respectively, and is included in
other assets in the accompanying consolidated balance sheets.
F-9
<PAGE>
RADIO MOVIL DIGITAL AMERICAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1995 AND 1996
(THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 1--ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SMR LICENSES
Direct and certain indirect costs of obtaining SMR licenses, such as
application, legal and consulting fees, as well as the estimated fair market
value of licenses obtained in certain acquisitions, are capitalized and
amortized using the straight line method over the period of the related license
(generally 5 to 20 years) upon commencement of the license period.
MANDATORILY REDEEMABLE PREFERRED STOCK
The Company's mandatorily redeemable preferred stock is recorded at its
issuance price less offering costs. The carrying value is increased to the
redemption value by a charge to stockholders' deficit, ratably over the period
from issue date to redemption date. Cumulative dividends are accrued based on
the preferred stock's stated rate of 8% per annum, for a maximum of five
quarters, in accordance with the terms of the preferred stock issuances.
INCOME TAXES
The Company accounts for income taxes using the liability method. Under this
method deferred taxes are determined based on the differences between the
financial statement and tax basis of assets and liabilities, using enacted tax
rates in effect for the year in which the differences are expected to reverse.
An allowance is recorded when it is more likely than not that any or all of a
deferred tax asset will not be realized. The provision for income taxes, if any,
includes taxes currently payable plus the net change during the year in deferred
tax assets and liabilities recorded by the Company.
STOCK BASED COMPENSATION
On January 1, 1996 the Company adopted Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"). SFAS
123 establishes a fair value based method of accounting for stock based
compensation, the effect of which can either be recorded or disclosed. Upon
adoption the Company has chosen to continue to account for stock-based
compensation using the intrinsic value method prescribed in Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB 25"), and is providing proforma disclosure of net income and earnings per
share as if the fair value based method prescribed by SFAS 123 had been applied
in measuring compensation expense for options granted in 1996 and 1995. In
accordance with APB 25 compensation cost for stock options is measured as the
excess, if any, of the quoted market price of the Company's stock at the date of
the grant over the amount an employee must pay to acquire the stock.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1995 financial statements to
conform with the 1996 presentation.
F-10
<PAGE>
RADIO MOVIL DIGITAL AMERICAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1995 AND 1996
(THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 2--ACQUISITIONS
BRAZIL
During 1995, the Company formed a joint venture ("Joint Venture Companies")
(owned 49% by the Company; 51% by a Brazilian partner) to operate SMR wireless
dispatch communications service in Brazil. The joint venture agreement required
that the Company pay $1,620 to the joint venture partner and contribute $3,000
to the joint venture, in addition to contributing the Company's ownership of
certain SMR licenses for which it had paid approximately $1,018 during 1994. The
Brazilian partner was required to contribute to the joint venture its SMR
licenses. The total consideration paid by the Company to obtain these licenses
of $6,292, adjusted for the equity in loss of the joint venture of $1,550 and
amortization of intangibles of $262, is included in investments and advances to
affiliates in the accompanying consolidated balance sheet at December 31, 1995.
On the books of the Joint Venture Companies, licenses contributed by the
joint venture partner carried a zero book value. The implicit value of these
licenses is $8,778, based on the consideration paid by the Company for a 49%
interest in the Joint Venture Companies. This balance is being amortized using
the straight line method over fifteen years. The Company's proportionate share
(49%) of the resulting amortization expense is included in the equity in net
losses of unconsolidated affiliates in the statement of operations of the
Company for the years ended December 31, 1995 and 1994.
On January 24, 1996 the Company entered into an agreement with its Brazilian
partner by which it acquired for $1,500 an option to purchase for $11,500 the
51% ownership interest in the joint venture owned by the Brazilian partner. On
July 26, 1996, the Company completed this acquisition for a total consideration
of $13,904 including the price of the option, fees and expenses and
reimbursement of contributions made by the joint venture partner.
The Company accounted for its investments in the Brazilian joint-venture
using the equity method of accounting during the year ended December 31, 1995
and through July 26, 1996, the date the Company gained full ownership and
control of the joint venture. Effective July 26, 1996 the Company has
consolidated the financial position, results of operation and cash flows of the
Brazilian operations.
The purchase price has been allocated to assets acquired and liabilities
assumed based on fair market value at the date of acquisition. The fair value of
assets and liabilities assumed is summarized as follows:
<TABLE>
<S> <C>
Current assets..................................................... $ 786
Property and equipment............................................. 8,120
SMR licenses....................................................... 17,823
Other assets....................................................... 91
Current liabilities................................................ (1,286)
---------
$ 25,534
---------
---------
</TABLE>
At the date of acquisition the Company's total investment in the Joint
Venture Companies amounted to $25,534, which included the aforementioned $13,904
and $11,630 previously invested for the initial 49%.
F-11
<PAGE>
RADIO MOVIL DIGITAL AMERICAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1995 AND 1996
(THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 2--ACQUISITIONS (CONTINUED)
The following represents condensed balance sheet information for the joint
venture as of December 31, 1995 and combined results of operations for the year
then ended and for the period from January 1, 1996 to July 26, 1996:
<TABLE>
<CAPTION>
1995
---------
<S> <C>
BALANCE SHEET:
Current Assets..................................................................... $ 272
Long Term Assets................................................................... 7,249
---------
Total Assets..................................................................... $ 7,521
---------
---------
Current liabilities................................................................ $ 7,884
Stockholders' deficit.............................................................. (363)
---------
Total liabilities and stockholders' deficit...................................... $ 7,521
---------
---------
</TABLE>
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
RESULTS OF OPERATIONS:
Revenues................................................................. $ 170 $ 1,868
Costs and operating expenses............................................. (875) (1,622)
Selling, general and administrative expenses............................. (2,313) (1,922)
Depreciation and amortization............................................ (337) (714)
Other (expense) income................................................... 192 (371)
--------- ---------
Net Loss............................................................. $ (3,163) $ (2,761)
--------- ---------
--------- ---------
</TABLE>
Included in the joint venture's liabilities and stockholders' deficit at
December 31, 1995 are approximately $10,213 advanced by the joint venture
partners, of which $7,127 represents advances and contributions by RMDA.
ARGENTINA
In 1993, the Company formed a wholly-owned subsidiary, Digitel, which
acquired an 80% interest in Radio Servicios, S.A. for approximately $1,243.
Radio Servicios, S.A. owns the license to 60 SMR channels in various cities in
Argentina. The purchase price was allocated to the licenses, the only
significant asset acquired.
In 1994, the Company formed an 88% owned subsidiary, Radio Movil Digital
Argentina, S.A. During 1995, Radio Movil Digital Argentina, S.A. acquired the
license to 20 SMR channels for approximately $1,710. In 1995, prior to the
acquisition of the previously described license, the Company acquired the
remaining 12% interest in Radio Movil Digital Argentina, S.A. for a nominal
amount. Both of the Company's Argentinean subsidiaries began commercial
operations in 1995.
F-12
<PAGE>
RADIO MOVIL DIGITAL AMERICAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1995 AND 1996
(THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 2--ACQUISITIONS (CONTINUED)
VENEZUELA
Prior to 1994, the Company organized an 85% majority owned subsidiary in
Venezuela, Radio Movil Digital Venezuela, C.A., to which company were granted
licenses to operate 480 SMR channels in various cities throughout Venezuela. In
1994, the Company acquired the 15% minority interest for approximately $400 in
cash. The $400 has been allocated to SMR licenses in the accompanying financial
statements.
Also in 1994, the Company, through a wholly-owned subsidiary, purchased a
49% interest in Venezolana de Telecomunicaciones, C.A. ("Venetel") which owned
several SMR licenses, for a total purchase price of approximately $501, included
in investments in and advances to affiliates at December 31, 1996 and 1995. In
addition, the Company purchased for $25 an option to acquire the remaining 51%
for additional cash consideration of approximately $500, of which $250 has been
advanced as of December 31, 1996 and 1995. The remaining $250 is to be paid once
the Venezuelan regulatory authorities approve the transfer to the Company's
wholly owned subsidiary of the remaining 51% ownership. The option price and the
advance on the exercise price is included in acquisitions in process in the
accompanying consolidated balance sheet at December 31, 1996 and 1995.
At December 31, 1996, and 1995 significantly all net assets of Venetel were
comprised of SMR licenses with zero book value and its operations were not
significant and, as a result, the Company recognized no loss for 1996 and $34
net loss for 1995 in the accompanying consolidated statement of operations.
Furthermore, the Company has committed to provide up to $600 in financing to
this affiliate for the purchase of SMR equipment once regulatory authorities
approve the transfer of the remaining 51% ownership. The acquired equipment
would serve as collateral for the financing. Through December 31, 1996, and
1995, no amounts have been provided by the Company under this financing
agreement and it is management's intention not to provide financing to this
entity until the transfer of the 51% interest is effected. This transfer is
expected to occur in 1997.
PERU
Prior to 1995, the Company had entered into an agreement to acquire a 50%
interest in a Peruvian entity which owns twelve SMR licenses in Peru. The
agreement provided for an initial investment of $750 and additional cash
consideration of $1,500 upon the granting to this entity of sixty additional SMR
channels by the Peruvian government. The entity did not obtain the legal
concession for these channels and therefore the $1,500, which was included in
other current assets at December 31, 1995, was returned to the Company on
February 21, 1996. Management and the joint venture partner have entered into
negotiations regarding the possible termination of the joint venture. The amount
the Company has invested in the joint venture as of December 31, 1995 of
approximately $1,l23 has been written down to $500, as of December 31, 1996,
which the Company expects to realize upon dissolution of the joint venture. This
investment is included in prepaid expenses and other current assets in the
accompanying consolidated balance sheet at December 31, 1996 and in acquisitions
in process at December 31, 1995.
ECUADOR
Prior to 1995, the Company acquired 100% of the shares of an Ecuadorian
company for approximately $668 including acquisition costs. The acquired
company's principal asset was the ownership of
F-13
<PAGE>
RADIO MOVIL DIGITAL AMERICAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1995 AND 1996
(THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 2--ACQUISITIONS (CONTINUED)
several SMR licenses. The purchase price has been allocated entirely to SMR
licenses and is being amortized over a period of five years. At December 31,
1996 this Ecuadorian subsidiary had not commenced operations. The Company
applied for the assignment of frequencies during 1996, however, at December 31,
1996, the assignment had not been received.
CHILE
During 1995, the Company was granted sixty-five SMR channels in Chile at no
cost. At the present time, the Company has not begun operations in Chile.
OTHER
As a result of the Company's decision to no longer pursue certain
acquisitions in process, the Company charged to expense approximately $499 and
$899 of costs previously incurred in connection with these acquisitions for the
years ended December 31, 1995 and 1996, respectively.
NOTE 3--SMR CHANNELS
The following is a summary of the number of SMR channels assigned to the
Company through its majority owned subsidiaries and affiliates at December 31,
1995 and 1996:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Majority owned subsidiaries:
Argentina.................................................................. 80 180
Brazil..................................................................... -- 960
Chile...................................................................... 65 65
Ecuador.................................................................... 160 160
Venezuela.................................................................. 480 480
--------- ---------
785 1,845
--------- ---------
Affiliates:
Brazil..................................................................... 960 --
Venezuela.................................................................. 40 40
--------- ---------
1,000 40
--------- ---------
Total SMR channels assigned.................................................. 1,785 1,885
--------- ---------
--------- ---------
</TABLE>
The above channels in Venezuela include both formally assigned channels by
the government and those which have been reserved for future assignment to the
Company. The Venezuelan regulatory authorities have proposed to the Company a
reallocation of channels whereby the Company would receive an assignment of 280
channels in exchange for its current holdings of assigned and reserved channels.
The Company is currently negotiating with the regulatory authorities on this and
other related issues.
F-14
<PAGE>
RADIO MOVIL DIGITAL AMERICAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1995 AND 1996
(THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 4--PROPERTY AND EQUIPMENT
At December 31, 1995 and 1996 property and equipment consisted of the
following:
<TABLE>
<CAPTION>
1995 1996 USEFUL LIFE
--------- --------- -------------
<S> <C> <C> <C>
SMR transmission equipment.................................................... $ 1,467 $ 7,000 10 years
Radios held for lease......................................................... 1,230 2,228
Radios leased to customers.................................................... 631 6,372 4 years
Office furniture, equipment and automobiles................................... 753 1,090 3 to 5 years
SMR equipment pending installation and construction in progress............... 3 621
--------- ---------
4,084 17,311
Accumulated depreciation...................................................... (586) (3,097)
--------- ---------
$ 3,498 $ 14,214
--------- ---------
--------- ---------
</TABLE>
NOTE 5--LONG TERM DEBT
The Company's Venezuelan subsidiary, Radio Movil Digital Venezuela, C.A.,
("RMD-V"), entered into a loan agreement with the Overseas Private Investment
Corporation ("OPIC"), a U.S. governmental agency, whereby OPIC agreed to lend
RMDA-V up to $7,500 for the construction and operation of an SMR system in
Venezuela. As of December 31, 1995 and 1996, RMD-V had drawn $1,500 and $2,100,
respectively, from this credit facility, which bears interest at an average
fixed rate of 10.16% per annum and is payable over eight years, the first two of
which require interest payments only. The OPIC loan is secured by a guarantee
from RMDA and first priority liens on substantially all of RMD-V's real and
personal property, fixtures and equipment (approximately $3,076 and $4,000 at
December 31, 1995 and 1996, respectively), as well as a pledge of 90% of the
common stock of RMD-V. The OPIC loan agreement contains, among other provisions,
requirements related to RMD-V for maintaining certain working capital and other
financial ratios, and restrictions on incurring additional indebtedness and
declaring or paying dividends. At December 31, 1996, the Company is not in
compliance with certain administrative provisions of the loan agreement.
According to the debt agreement, the violation of any of the loan covenants may
constitute an event of default, which may allow the lender the option of calling
the loan due. In addition, OPIC has requested certain amendments to the loan
agreement primarily related to modifications in the financial ratios. The
Company obtained an extension until April 30, 1997 to comply with these matters
and considers that compliance will be achieved on or before this date, and
accordingly the loan was classified as long-term.
Under the terms of the OPIC loan, RMD-V is subject to commitment fees of
0.33% and 0.50% per annum on the undrawn balance. Additional disbursements under
the loan agreement are subject to certain conditions, including the requirement
that RMD-V generate earnings or receive contributions from the Company of
additional equity.
As required under the agreement, the Company has deposited with a financial
institution certain amounts to cover future principal and interest repayments.
Those deposits, which are included in restricted cash in the accompanying
consolidated balance sheets, amounted to $164 and $215 at December 31, 1995 and
1996, respectively.
F-15
<PAGE>
RADIO MOVIL DIGITAL AMERICAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1995 AND 1996
(THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 5--LONG TERM DEBT (CONTINUED)
During 1995 the Company entered into an agreement with one of its vendors to
finance radio and infrastructure equipment purchased from its vendor. This
agreement provides financing of up to 85% of the purchase price of the
equipment; repayment terms were eighteen months, including a grace period on the
payment of principal of six months; interest was 14% per annum. At December 31,
1995 and 1996, the Company had outstanding approximately $1,217 and $775,
respectively, under this arrangement. This facility is no longer available to
the Company.
At December 31, 1996, the Company had approximately $2,000 of short term
credit facilities with two of its major vendors for the purchase of
infrastructure and radio equipment with repayment terms of between six and
twelve months and interest rates of approximately 12% per annum. At December 31,
1995 and 1996, the Company had borrowed approximately $1,097 and $1,863,
respectively, under these credit facilities. Subsequent to December 31, 1996
these credit facilities had been increased to $3,500.
During the years ended December 31, 1994, 1995 and 1996, the Company
incurred interest expense of approximately $3, $142 and $1,237, respectively.
At December 31, 1996, the scheduled annual maturities of the Company's long
term debt, including the subordinated convertible notes mentioned below, are as
follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
- ---- ---------
<S> <C>
1997............................................................................... $ 1,025
1998............................................................................... 15,250
1999............................................................................... 370
2000............................................................................... 370
2001............................................................................... 370
Thereafter......................................................................... 490
---------
$ 17,875
---------
---------
</TABLE>
NOTE 6--SUBORDINATED CONVERTIBLE NOTES
On July 23, 1996, the Company issued $14.0 million in aggregate principal
amount of Subordinated Convertible Promissory Notes (the "Subordinated
Convertible Notes") due July 23, 1998 to BT Foreign Investment Corporation
("BTFIC"), an affiliate of Bankers Trust. The Subordinated Convertible Notes
bear interest at 9.0% per annum, payable annually, and are subordinated to all
senior indebtedness of the Company. The Subordinated Convertible Notes may be
prepaid by the Company upon 60 days prior written notice to the holders of the
Subordinated Convertible Notes (the "Subordinated Convertible Note Holders") at
any time after the one year anniversary of the Subordinated Convertible Notes,
subject to certain exceptions. At any time prior to payment in full of the
unpaid principal balance of the Subordinated Convertible Notes, each
Subordinated Convertible Note Holder has the right to convert its entire unpaid
principal balance of the Subordinated Convertible Notes into fully paid and
non-assessable shares of the Company's Series E Preferred Stock, subject to
certain limitations on such conversion applicable to BTFIC if BTFIC and certain
affiliates thereof own 4.9% or more of the Company's voting stock or 10% or more
of the Company's total equity at the time of such proposed conversion. The
number of shares of Series E Preferred Stock into which the Subordinated
Convertible Notes may be converted shall be
F-16
<PAGE>
RADIO MOVIL DIGITAL AMERICAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1995 AND 1996
(THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 6--SUBORDINATED CONVERTIBLE NOTES (CONTINUED)
determined by dividing the aggregate principal amount to be converted by $5.41,
subject to adjustment. In the event that all outstanding preferred stock of the
Company has been converted into Common Stock, the entire outstanding principal
amount of the Subordinated Convertible Notes shall be convertible into a
corresponding number of shares of the Company's Common Stock.
On July 26, 1996, the Company issued an additional $1.0 million in aggregate
principal amount of Subordinated Convertible Notes due July 26, 1998 to a
current holder of preferred stock of the Company. The terms and conditions are
similar to the notes issued to BTFIC.
At December 31, 1996 the principal amount of the above notes of $15,000
remains outstanding.
As part of the above transactions, the Company incurred fees of $280 paid to
BTFIC and other out-of-pocket costs of approximately $259. The fees and costs
have been capitalized and are being amortized over the terms of the notes. The
unamortized portion at December 31, 1996, is included in other assets in the
accompanying consolidated balance sheet.
NOTE 7--MANDATORILY REDEEMABLE PREFERRED STOCK
The Company's mandatorily redeemable preferred stock consists of six series.
The preferred stock has preference over the common stock in liquidation and is
convertible into shares of common stock on a one for one basis (subject to
adjustment in the event of stock splits, stock dividends and similar
transactions) at the option of the holder and automatically (i) upon the vote of
the holders of a majority of the then outstanding preferred stock, separately by
series, and (ii) upon the closing of an underwritten public offering meeting
certain price and proceeds requirements. The Company is required to have on
reserve, at all times, shares of common stock authorized but unissued to effect
the conversion of all preferred shares.
The preferred stock carries a stated dividend rate of 8% and dividends are
cumulative for five quarters from the date of issuance of the applicable shares.
After December 1, 2003, the holders of a majority of the then outstanding Series
A, Series B, and Series C, Series D, Series E and Series F Preferred Stock may
request that the Company redeem the shares of Preferred Stock at the agreed upon
redemption value, together with unpaid dividends with respect to such shares to
the date of the redemption request.
The six series of preferred stock have a par value of $.01. At December 31,
1996, there were 5,600,000, 4,000,000, 5,849,541, 9,386,666, 2,772,642 and
2,772,642 shares authorized of Series A, Series B, Series C, Series D, Series E
and Series F Preferred Stock, respectively. As of December 31, 1996 there were
5,600,000, 3,436,663, 5,369,435 and 3,007,312 shares issued and outstanding of
Series A, Series B, Series C, Series D Preferred Stock, respectively. There were
no shares issued and outstanding of Series E or Series F Preferred Stock. The
liquidation and redemption value of such shares is $1.00, $3.75, $4.25, $6.00,
$5.41 and $5.41 per share for Series A, Series B, Series C, Series D, Series E
and Series F Preferred Stock, respectively.
F-17
<PAGE>
RADIO MOVIL DIGITAL AMERICAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1995 AND 1996
(THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 7--MANDATORILY REDEEMABLE PREFERRED STOCK (CONTINUED)
The following represents a summary of the Preferred Stock during the three
years ended December 31, 1996:
<TABLE>
<CAPTION>
SERIES A SERIES B SERIES C SERIES D TOTAL
----------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993................................ $ 3,121 -- -- -- $ 3,121
Issuance of shares.......................................... 2,441 $ 12,769 -- -- 15,210
Accretion................................................... 4 5 -- -- 9
Accrual of cumulative dividends............................. 560 344 -- -- 904
----------- --------- --------- --------- ---------
Balance at December 31, 1994................................ 6,126 13,118 -- -- 19,244
Issuance of shares.......................................... -- -- $ 21,104 -- 21,104
Accretion................................................... 4 14 -- -- 18
Accrual of cumulative dividends............................. -- 945 913 -- 1,858
Series C preferred stock issued in connection with
rescission settlement..................................... -- -- 1,717 -- 1,717
----------- --------- --------- --------- ---------
Balance at December 31, 1995................................ 6,130 14,077 23,734 -- 43,941
Issuance of shares.......................................... -- -- -- $ 15,247 15,247
Accretion................................................... 4 15 -- 201 220
Accrual of cumulative dividends............................. -- -- 1,369 601 1,970
----------- --------- --------- --------- ---------
Balance at December 31, 1996................................ $ 6,134 $ 14,092 $ 25,103 $ 16,049 $ 61,378
----------- --------- --------- --------- ---------
----------- --------- --------- --------- ---------
</TABLE>
During 1995, certain of the Series C preferred stockholders delivered to the
Company a demand for rescission of the $22,820 Series C offering. After
negotiations between the Company and the Series C preferred stockholders, the
Company issued during January 1996 to the Series C stockholders 565,193 shares
of Series C preferred stock and warrants to purchase 480,413 shares of Series C
preferred stock at $4.25 per share through the earlier of a public offering or
December 31, 1998 as settlement of the demand for rescission. Additionally, the
redemption value of the Series C preferred stock was reduced from $4.75 per
share, the original Series C per share issuance price, to $4.25 per share as a
result of the issuance of the additional shares and the Series C preferred stock
was given liquidation preference over other preferred stock series. The
outstanding shares and redemption value disclosed above have been adjusted to
reflect the January 1996 settlement.
As part of the settlement of the demand for rescission, on February 29, 1996
the Company issued 1,000,000 shares of Series D Preferred Stock at $6.00 per
share to certain holders of all previous series of preferred stock netting
proceeds to the Company of approximately $6,000. The Series D Preferred Stock
has a liquidation and redemption value of $6.00 per share, and carries the same
other characteristics as the previous issues of preferred stock. Pursuant to
this issuance of stock, the Company issued nontransferable warrants to acquire
1,720,000 shares of Series D Preferred Stock at $6.00 per share through the
earlier of an initial public offering or December 31, 1998, to those
shareholders who participated in the Series D preferred stock offering.
In connection with the settlement of the demand for rescission of the Series
C offering, the Company recorded settlement costs of approximately $3,003 in
1995 which represents the estimated fair market
F-18
<PAGE>
RADIO MOVIL DIGITAL AMERICAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1995 AND 1996
(THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 7--MANDATORILY REDEEMABLE PREFERRED STOCK (CONTINUED)
value of the Series C shares and warrants issued as part of the settlement
agreement. As an offset to the settlement costs recorded, the Company adjusted
the balance of the Series C preferred stock to its redemption value with the
remainder being recorded as an increase to paid in capital.
On October 30, 1996, the Company issued an additional 2,000,062 shares of
Series D Preferred Stock at $6.00 per share to certain holders of all previous
series of preferred stock netting proceeds to the Company of approximately
$12,000. These issues carry a liquidation and redemption value of $6.00 per
share, and carry the same other characteristics as the previous issues of
preferred stock. Pursuant to this issuance of stock, the Company issued
2,000,062 warrants to acquire 2,000,062 shares of Series D Preferred Stock at
$6.00 per share through the earlier of an initial public offering or December
31, 1999, to those shareholders who participated in this offering.
A stockholder agreement exists among the majority of the preferred
stockholders which limits the number of shares certain stockholders may sell
without the participation in the sale of the other stockholders which are a
party to the agreement. Conversely, these certain stockholders can require that
all stockholders which are party to the agreement sell their shares in the event
an offer to purchase all applicable shares is accepted by the certain
shareholders.
NOTE 8--INCOME TAXES
The Company is subject to Federal, state and foreign income taxes but has
incurred no liability for such taxes due to losses incurred. At December 31,
1996 RMDA had net operating loss carry forwards for U.S. tax purposes of
approximately $12,000 which expire through the year 2011. These carry forwards
are available to offset future taxable income.
The Company's net deferred tax assets result primarily from the future
benefit of these net operating loss carry forwards. At December 31, 1996, net
deferred tax assets amounted to approximately $8,500, ($2,900 in 1995) which
were fully offset by a valuation allowance for the same amount. Net deferred tax
assets by country as of December 31, 1996 are as follows:
<TABLE>
<CAPTION>
U.S. ARGENTINA BRAZIL VENEZUELA TOTAL
--------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Net deferred tax assets................ $ 4,000 $ 700 $ 2,500 $ 1,300 $ 8,500
Valuation allowance.................... (4,000) (700) (2,500) (1,300) (8,500)
--------- --------- --------- ----------- ---------
$ -- $ -- $ -- $ -- $ --
--------- --------- --------- ----------- ---------
--------- --------- --------- ----------- ---------
</TABLE>
NOTE 9--EMPLOYEE STOCK OPTION PLAN
At December 31, 1996 the Company has an incentive stock option plan (the
"Plan") that is described below. The Company applies APB 25 and related
interpretations in accounting for the Plan. The policy of the Company has been
to grant options under the Plan at an exercise price equal to the estimated
market value of the Company's common stock at the date of the grant except for
certain grants made in 1995 for which $325 was charged to expense in that year.
Had compensation costs for the Company's Plan been determined based on the fair
value, at the grant dates, for awards under those plans consistent with the
F-19
<PAGE>
RADIO MOVIL DIGITAL AMERICAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1995 AND 1996
(THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 9--EMPLOYEE STOCK OPTION PLAN (CONTINUED)
method of SFAS 123, the Company's loss and loss per share would have been
increased to the proforma amounts indicated below:
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Net loss
As Reported......................................................... $ (16,083) $ (13,259)
Proforma............................................................ (16,164) (13,587)
Earnings per share
As Reported......................................................... (6.51) (5.50)
Proforma............................................................ (6.54) (5.61)
</TABLE>
The Company's Plan provides for the granting of non qualified stock options
to officers and key employees. Under the terms of the Plan, options have a
maximum term of ten years from the date of the grant. The granted options vest
one fourth after the first year and one-forty-eighth every month thereafter. The
Company has reserved 1,750,000 common shares for issuance under the Plan. A
summary of the Plan's activity is as follows:
<TABLE>
<CAPTION>
1995 1996
-------------------------- ---------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
--------- --------------- ---------- ---------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year............................ 254,000 $ 1.10 628,225 $ 2.68
Granted..................................................... 434,225 3.41 975,000 5.19
Exercised................................................... -- -- (85,333) 1.13
Forfeited................................................... (60,000) 1.25 (489,092) 3.01
--------- --------- ---------- -----
Outstanding at end of year.................................. 628,225 $ 2.68 1,028,800 $ 5.03
--------- --------- ---------- -----
--------- --------- ---------- -----
Options exercisable at year-end............................. 116,500 $ 1.12 265,513 $ 4.90
Fair value of options granted during the year............... 434,225 $ 0.75 975,000 $ 0.75
</TABLE>
The following table summarizes information about fixed stock options
outstanding at December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------- ------------------------
WEIGHTED-AVERAGE
NUMBER REMAINING NUMBER EXERCISE
EXERCISE PRICE OUTSTANDING CONTRACTUAL LIFE EXERCISABLE PRICE
- --------------- ----------- ---------------- ----------- -----------
<S> <C> <C> <C> <C>
$ 1.25 40,000 8 years 22,500 $ 1.25
$ 4.75 138,800 9 years 4,888 $ 4.75
$ 5.25 850,000 9 years 238,125 $ 5.25
----------- -----------
1,028,800 9 years 265,513
----------- -----------
----------- -----------
</TABLE>
F-20
<PAGE>
RADIO MOVIL DIGITAL AMERICAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1995 AND 1996
(THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 9--EMPLOYEE STOCK OPTION PLAN (CONTINUED)
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1995 and 1996: expected volatility of 40 percent,
risk-free interest rates of 6.07 percent; and expected lives of approximately
3.5 years.
NOTE 10--COMMITMENTS AND CONTINGENCIES
The Company has been required by certain government regulatory authorities
to post performance bonds to guarantee the completion of channel construction
and loading. At December 31, 1996 the Company had pledged cash equivalents and
short term investments in the amount of approximately $1,300 to satisfy these
requirements. The Company's Argentina subsidiary is required to fulfill certain
channel and loading requirements by August 19, 1997, related to which $1,000 has
been pledged. The remaining performance bond of $300 is expected to be required
as long as the Company continues to operate the corresponding channels in
Venezuela.
In connection with certain of the Company's assigned SMR licenses, the
Company has radio load and build out commitments. Should these load and build
out commitments not be complied with, the Company could be subject to the
revocation of the applicable licenses. At the present time, certain regulatory
build out requirements relating to channels licensed to the Company's affiliate
in Brazil have not been fully complied with. The Company's Brazilian affiliate
has received an extension from the Brazilian regulatory authorities to comply
with certain of these requirements until July 11, 1997. Management expects it
will be able to obtain additional extensions where necessary or otherwise meet
such requirements in all material respects.
The Company leases office space under operating leases expiring in the year
2000. Future minimum lease payments under operating leases as of December 31,
1996 are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
- ---- ---------
<S> <C>
1997................................................................................. $ 700
1998................................................................................. $ 574
1999................................................................................. $ 422
2000................................................................................. $ 86
2001................................................................................. $ 6
------
$1,788
------
------
</TABLE>
Rent expense during the years ended December 31, 1994 and 1995 and 1996
amounted to $133, $816 and $573, respectively.
F-21
<PAGE>
RADIO MOVIL DIGITAL AMERICAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1995 AND 1996
(THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 11--GEOGRAPHIC INFORMATION
The following information presents certain summarized balance sheet and
statement of operations data of the Company by geographic region as of December
31, 1995 and for the year then ended:
<TABLE>
<CAPTION>
UNITED
STATES ARGENTINA VENEZUELA BRAZIL CHILE ECUADOR PERU
------------ ----------- ----------- --------- ----- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET:
Current assets......................... $ 4,949 $ 943 $ 972 $ 550 $ -- $ -- $ 1,522
Intercompany investment................ 26,874 -- -- -- -- -- --
Long-term assets....................... 1,842 3,683 3,116 8,377 36 534 1,157
------------ ----------- ----------- --------- --------- --------- ---------
$ 33,665 $ 4,626 $ 4,088 $ 8,927 $ 36 $ 534 $ 2,679
------------ ----------- ----------- --------- --------- --------- ---------
------------ ----------- ----------- --------- --------- --------- ---------
Current liabilities.................... $ 2,892 $ 211 $ 206 $ -- $ -- $ -- $ --
Intercompany payable................... -- 5,874 4,080 11,769 36 667 2,843
Long-Term liabilities.................. 524 -- 1,500 -- -- -- --
Mandatorily redeemable preferred
stock................................ 43,941 -- -- -- -- -- --
Stockholders' deficit.................. (13,692) (1,459) (1,698) (2,842) -- (133) (164)
------------ ----------- ----------- --------- --------- --------- ---------
$ 33,665 $ 4,626 $ 4,088 $ 8,927 $ 36 $ 534 $ 2,679
------------ ----------- ----------- --------- --------- --------- ---------
------------ ----------- ----------- --------- --------- --------- ---------
STATEMENT OF OPERATIONS:
Revenues............................... $ -- $ 370 $ 1,077 $ -- $ -- $ -- $ --
Cost of sales and services............. -- (541) (723) -- -- -- --
------------ ----------- ----------- --------- --------- --------- ---------
Gross profit........................... -- (171) 354 -- -- -- --
------------ ----------- ----------- --------- --------- --------- ---------
Selling, general and administrative
expenses............................. 7,091 754 1,388 769 -- -- 152
Depreciation and amortization.......... 108 225 300 -- -- 133 --
Write-off of acquisitions.............. -- 272 215 -- -- -- 12
Settlement Costs....................... 3,003 -- -- -- -- -- --
------------ ----------- ----------- --------- --------- --------- ---------
10,202 1,251 1,903 769 -- 133 164
------------ ----------- ----------- --------- --------- --------- ---------
Operating loss......................... (10,202) (1,422) (1,549) (769) -- (133) (164)
Other income (expense)................. 543 (25) (385) (1,977) -- -- --
------------ ----------- ----------- --------- --------- --------- ---------
Net loss............................... $ (9,659) $ (1,447) $ (1,934) $ (2,746) $ -- $ (133) $ (164)
------------ ----------- ----------- --------- --------- --------- ---------
------------ ----------- ----------- --------- --------- --------- ---------
<CAPTION>
ELIMINATIONS CONSOLIDATED
------------ ------------
<S> <C> <C>
BALANCE SHEET:
Current assets......................... $ -- $ 8,936
Intercompany investment................ (26,874) --
Long-term assets....................... -- 18,745
------------ ------------
$ (26,874) $ 27,681
------------ ------------
------------ ------------
Current liabilities.................... $ -- $ 3,309
Intercompany payable................... (25,269) --
Long-Term liabilities.................. -- 2,024
Mandatorily redeemable preferred
stock................................ -- 43,941
Stockholders' deficit.................. (1,605) (21,593)
------------ ------------
$ (26,874) $ 27,681
------------ ------------
------------ ------------
STATEMENT OF OPERATIONS:
Revenues............................... $ -- $ 1,447
Cost of sales and services............. -- (1,264)
------------ ------------
Gross profit........................... -- 183
------------ ------------
Selling, general and administrative
expenses............................. (100) 10,054
Depreciation and amortization.......... -- 766
Write-off of acquisitions.............. -- 499
Settlement Costs....................... -- 3,003
------------ ------------
(100) 14,322
------------ ------------
Operating loss......................... 100 (14,139)
Other income (expense)................. (100) (1,944)
------------ ------------
Net loss............................... $ -- $ (16,083)
------------ ------------
------------ ------------
</TABLE>
F-22
<PAGE>
RADIO MOVIL DIGITAL AMERICAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
(THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 11--GEOGRAPHIC INFORMATION (CONTINUED)
The following information presents certain summarized balance sheet and
statement of operations data of the Company by geographic region as of December
31, 1996 and for the year then ended:
<TABLE>
<CAPTION>
UNITED
STATES ARGENTINA VENEZUELA BRAZIL CHILE ECUADOR PERU
------------ ----------- ----------- --------- ----- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET:
Current assets......................... $ 8,509 $ 1,020 $ 1,584 $ 1,779 $ -- $ -- $ 500
Intercompany investment................ 51,685 -- -- -- -- -- --
Long-term assets....................... 943 4,423 3,236 27,743 36 420 --
------------ ----------- ----------- --------- --------- --------- ---------
$ 61,137 $ 5,443 $ 4,820 $ 29,522 $ 36 $ 420 $ 500
------------ ----------- ----------- --------- --------- --------- ---------
------------ ----------- ----------- --------- --------- --------- ---------
Current liabilities.................... $ 3,235 $ 238 $ 668 $ 1,919 $ -- $ 3 $ --
Intercompany payable................... -- 4,093 4,548 15,142 36 686 1,406
Long-term liabilities.................. 15,000 -- 1,850 -- -- -- --
Mandatorily redeemable preferred
stock................................ 61,378 -- -- -- -- -- --
Stockholders' (deficit) equity......... (18,476) 1,112 (2,246) 12,461 -- (269) (906)
------------ ----------- ----------- --------- --------- --------- ---------
$ 61,137 $ 5,443 $ 4,820 $ 29,522 $ 36 $ 420 $ 500
------------ ----------- ----------- --------- --------- --------- ---------
------------ ----------- ----------- --------- --------- --------- ---------
STATEMENT OF OPERATIONS:
Revenues............................... $ -- $ 1,353 $ 1,448 $ 2,859 $ -- $ -- $ --
Cost of sales and services............. (4) (398) (654) (988) -- -- --
------------ ----------- ----------- --------- --------- --------- ---------
Gross profit........................... (4) 955 794 1,871 -- -- --
------------ ----------- ----------- --------- --------- --------- ---------
Selling, general and administrative
expenses............................. 4,446 1,647 977 2,090 -- 1 137
Depreciation and amortization.......... 60 491 623 1,620 -- 133 --
Write-off of acquisitions.............. 55 -- 221 -- -- -- 623
Settlement Costs....................... -- -- -- -- -- -- --
------------ ----------- ----------- --------- --------- --------- ---------
4,561 2,138 1,821 3,710 -- 134 760
------------ ----------- ----------- --------- --------- --------- ---------
Operating loss......................... (4,565) (1,183) (1,027) (1,839) -- (134) (760)
Other income (expense)................. (1,060) (143) (503) (2,063) -- (3) 21
------------ ----------- ----------- --------- --------- --------- ---------
Net loss............................... $ (5,625) $ (1,326) $ (1,530) $ (3,902) $ -- $ (137) $ (739)
------------ ----------- ----------- --------- --------- --------- ---------
------------ ----------- ----------- --------- --------- --------- ---------
<CAPTION>
ELIMINATIONS CONSOLIDATED
------------ ------------
<S> <C> <C>
BALANCE SHEET:
Current assets......................... $ -- $ 13,392
Intercompany investment................ (51,685) --
Long-term assets....................... -- 36,801
------------ ------------
$ (51,685) $ 50,193
------------ ------------
------------ ------------
Current liabilities.................... $ -- $ 6,063
Intercompany payable................... (25,911) --
Long-term liabilities.................. -- 16,850
Mandatorily redeemable preferred
stock................................ -- 61,378
Stockholders' (deficit) equity......... (25,774) (34,098)
------------ ------------
$ (51,685) $ 50,193
------------ ------------
------------ ------------
STATEMENT OF OPERATIONS:
Revenues............................... $ -- $ 5,660
Cost of sales and services............. -- (2,044)
------------ ------------
Gross profit........................... -- 3,616
------------ ------------
Selling, general and administrative
expenses............................. -- 9,298
Depreciation and amortization.......... -- 2,927
Write-off of acquisitions.............. -- 899
Settlement Costs....................... -- --
------------ ------------
-- 13,124
------------ ------------
Operating loss......................... -- (9,508)
Other income (expense)................. -- (3,751)
------------ ------------
Net loss............................... $ -- $ (13,259)
------------ ------------
------------ ------------
</TABLE>
F-23
<PAGE>
RADIO MOVIL DIGITAL
AMERICAS, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
AND THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 AND 1997 (UNAUDITED)
F-24
<PAGE>
[This page intentionally left blank]
F-25
<PAGE>
RADIO MOVIL DIGITAL AMERICAS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
1997 1997
----------- -------------
(UNAUDITED) (UNAUDITED)
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents............................................................ $ 3,522 $ 1,013
Restricted cash...................................................................... 1,537 1,666
Short-term investments............................................................... 1,000 400
Accounts receivable, net of allowance for doubtful accounts of $611 and $612 as of
June 30, 1997 and September 30, 1997, respectively................................. 2,229 2,522
Inventories.......................................................................... 638 413
Prepaid expenses and other current assets............................................ 890 645
---------- -------------
Total current assets............................................................... 9,816 6,659
Investments in and advances to affiliates, at equity................................... 480 480
Acquisition in process................................................................. 352 352
Property and equipment, net of accumulated depreciation of $4,979 and $6,093 as of June
30, 1997 and September 30, 1997, respectively........................................ 14,509 14,135
SMR licenses, net of accumulated amortization of $1,862 and $2,249 as of June 30, 1997
and September 30, 1997, respectively................................................. 19,881 19,494
Other assets........................................................................... 864 830
---------- -------------
$ 45,902 $ 41,950
---------- -------------
---------- -------------
<CAPTION>
LIABILITIES, MANDATORILY REDEEMABLE PREFERRED STOCK, AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current maturities of long term debt................................................. $ 569 $ 188
Short-term vendor debt............................................................... 3,059 1,430
Accounts payable and accrued liabilities............................................. 4,056 3,033
---------- -------------
Total current liabilities.......................................................... 7,684 4,651
Long term debt, less current maturities................................................ 1,725 1,663
Subordinated convertible debentures.................................................... 15,000 16,070
---------- -------------
Total liabilities.................................................................. 24,409 22,384
---------- -------------
Mandatorily redeemable preferred stock, including accrued dividends.................... 62,281 62,741
Stockholders' deficit:
Common stock, $0.005 par value, 35,000,000 shares authorized, 2,828,841 shares issued
and outstanding as of June 30, 1997; 2,828,941 shares issued and outstanding as of
September 30, 1997................................................................. 14 14
Paid in capital...................................................................... 4,555 4,555
Accumulated deficit.................................................................. (45,357) (47,744)
---------- -------------
Total stockholders' deficit........................................................ (40,788) (43,175)
---------- -------------
$ 45,902 $ 41,950
---------- -------------
---------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-26
<PAGE>
RADIO MOVIL DIGITAL AMERICAS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SIX MONTHS SEPTEMBER 30,
ENDED JUNE --------------------
30, 1997 1996 1997
----------- --------- ---------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Revenue:
Radio service and lease revenue.............................................. $ 6,300 $ 2,383 $ 9,891
Equipment sales.............................................................. 280 465 482
----------- --------- ---------
Total revenue.............................................................. 6,580 2,848 10,373
----------- --------- ---------
Costs and expenses related to revenue:
Cost of radio service revenue................................................ 3,237 1,127 4,931
Cost of equipment sales...................................................... 186 423 356
----------- --------- ---------
Total costs and expenses related to revenue................................ 3,423 1,550 5,287
----------- --------- ---------
Gross profit............................................................... 3,157 1,298 5,086
----------- --------- ---------
Other operating costs and expenses:
Selling, general and administrative.......................................... 5,670 6,439 8,092
Depreciation and amortization................................................ 1,443 1,194 2,146
Write-off of acquisitions.................................................... 334 276 334
----------- --------- ---------
Total other operating costs and expenses................................... 7,447 7,909 10,572
----------- --------- ---------
Operating loss............................................................. (4,290) (6,611) (5,486)
----------- --------- ---------
Other (expense) income:
Interest income.............................................................. 209 208 273
Interest expense............................................................. (1,324) (1,349) (1,925)
Equity in net loss of unconsolidated affiliates.............................. -- (1,499) --
Other, net................................................................... (382) -- (576)
----------- --------- ---------
Total other expense........................................................ (1,497) (2,640) (2,228)
----------- --------- ---------
Net loss................................................................... $ (5,787) $ (9,251) $ (7,714)
----------- --------- ---------
----------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-27
<PAGE>
RADIO MOVIL DIGITAL AMERICAS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED) AND
THREE MONTHS ENDED SEPTEMBER 30, 1997 (UNAUDITED)
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
COMMON STOCK
-----------------------
NUMBER OF PAID IN ACCUMULATED
DESCRIPTION SHARES AMOUNT CAPITAL DEFICIT TOTAL
- ----------- ---------- ----------- --------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996........................... 2,828,841 $ 14 $ 4,555 $ (38,667) $ (34,098)
Accrued dividends on mandatorily redeemable preferred
stock................................................ -- -- -- (722) (722)
Accretion of mandatorily redeemable preferred stock to
redemption value..................................... -- -- -- (181) (181)
Net loss............................................... -- -- -- (5,787) (5,787)
---------- --------- --------- ------------ ----------
Balance at June 30, 1997............................... 2,828,841 $ 14 $ 4,555 $ (45,357) $ (40,788)
---------- --------- --------- ------------ ----------
---------- --------- --------- ------------ ----------
Accrued dividends on mandatorily redeemable preferred
stock (unaudited).................................... -- -- -- (361) (361)
Accretion of mandatorily redeemable preferred stock to
redemption value (unaudited)......................... -- -- -- (99) (99)
Exercise of stock option (unaudited)................... 100 -- -- -- --
Net loss (unaudited)................................... -- -- -- (1,927) (1,927)
---------- --------- --------- ------------ ----------
Balance at September 30, 1997 ......................... 2,828,941 $ 14 $ 4,555 $ (47,744) $ (43,175)
---------- --------- --------- ------------ ----------
---------- --------- --------- ------------ ----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-28
<PAGE>
RADIO MOVIL DIGITAL AMERICAS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1997 AND
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SIX MONTHS SEPTEMBER 30,
ENDED JUNE ---------------------
30, 1997 1996 1997
----------- ---------- ---------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................................................... $ (5,787) $ (9,251) $ (7,714)
Adjustments to reconcile net loss to net cash used in operating activities:
Provision for doubtful accounts........................................... 584 76 641
Depreciation and amortization............................................. 2,979 1,561 4,499
Equity in net losses of affiliates........................................ -- 1,499 --
Amortization of debt issuance costs....................................... 135 78 229
Write off of investment in subsidiary..................................... 334 276 334
Employee stock option grants.............................................. -- 42 --
Changes in assets and liabilities:
Accounts receivable..................................................... (862) (553) (1,213)
Inventories............................................................. (322) 50 205
Prepaid expenses and other assets....................................... 369 822 554
Other non current assets................................................ (30) 177 9
Accounts payable and accrued liabilities................................ 881 862 (141)
----------- ---------- ---------
Net cash used in operating activities................................. (1,719) (4,361) (2,597)
----------- ---------- ---------
Cash flows from investing activities:
(Increase) decrease in restricted cash...................................... (20) 1,499 (150)
Purchase of short term investments.......................................... (500) (4,720) (500)
Sales and maturities of short term investments.............................. 1,232 7,423 1,832
Increase in investments in and advances to affiliates and acquisitions in
process................................................................... (21) (4,475) (23)
Purchase of majority interest of Brazilian affiliates....................... -- (13,790) --
Capital expenditures........................................................ (2,683) (4,150) (3,779)
Acquisition of SMR licenses................................................. -- (251) --
----------- ---------- ---------
Net cash used in investing activities................................. (1,992) (18,464) (2,620)
----------- ---------- ---------
Cash flows from financing activities:
Repayments of long term debt................................................ (581) -- (1,088)
Proceeds from vendor financing, net of payments............................. 1,196 1,320 (370)
Proceeds from issuance of convertible debentures............................ -- 15,000 1,070
Net proceeds from issuance of mandatorily redeemable preferred stock........ -- 6,225 --
----------- ---------- ---------
Net cash provided by financing activities............................. 615 22,545 (388)
----------- ---------- ---------
Net decrease in cash and cash equivalents..................................... (3,096) (280) (5,605)
Cash and cash equivalents, beginning of year.................................. 6,618 1,007 6,618
----------- ---------- ---------
Cash and cash equivalents, end of year........................................ $ 3,522 $ 727 $ 1,013
----------- ---------- ---------
----------- ---------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-29
<PAGE>
RADIO MOVIL DIGITAL AMERICAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED) AND
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 (UNAUDITED)
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
NOTE 1--ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Radio Movil Digital Americas, Inc. ("RMDA") is a Delaware corporation and
through its subsidiaries (collectively with RMDA, the "Company") is engaged in
the acquisition and operation of specialized mobile radio ("SMR") wireless
dispatch communications services and the sale, lease and servicing of related
equipment in certain countries of South America. The Company commenced
commercial operations during 1995 and prior to that date had been a development
stage enterprise. The Company has acquired SMR channel licenses through direct
applications to governments and through acquisitions of interests in other
entities which have been granted or have applied for SMR channel licenses. The
Company has also made deposits to acquire other SMR licenses through
acquisitions of interests in entities holding such licenses or with pending SMR
channel license applications.
The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles which contemplate the
continuation of the Company as a going concern. However, the Company incurred a
net loss and had negative cash flows from operations of $5,787 and $1,719,
respectively, for the six months ended June 30, 1997. The Company's losses were
funded from cash previously raised through the sale of debt and equity
securities. Pursuant to its business strategy, the Company expects to continue
making expenditures on the build-out of SMR Channel infrastructure. The Company
expects to incur losses and does not expect to generate cash flow from operating
activities in the foreseeable future sufficient to offset such planned capital
expenditures. In order to obtain the additional funds it needs to continue
operating at planned levels, the Company will need substantial funds from
additional debt and equity financing. Another alternative that management has
considered is the sale of the Company (see note 11). Management cannot provide
any assurance that the Company will be able to complete any such debt or equity
financing. These conditions raise substantial doubts about the Company's ability
to continue as a going concern.
The following is a summary of the more significant accounting policies
followed by the Company in the preparation of the accompanying consolidated
financial statements.
UNAUDITED INTERIM FINANCIAL INFORMATION
The accompanying consolidated financial statements of the Company as of
and for the six months ended June 30, 1997 and as of and for the nine months
ended September 30, 1996 and 1997 included herein have been prepared by the
Company and are unaudited. These interim financial statements reflect all
adjustments that are, in the opinion of management, necessary for a fair
statement of the results for the interim periods. All adjustments made were
normal recurring accruals.
The interim financial statements should be read in conjunction with the
financial statements and notes thereto as of December 31, 1996 contained
elsewhere in this document. Operating results for the interim periods are not
necessarily indicative of results for an entire year.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of RMDA and its
majority owned subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation. For investments in entities
in which the Company has a 20% to 50% ownership interest and exercises
significant influence, the Company accounts for its investment using the equity
method. Such investments
F-30
<PAGE>
RADIO MOVIL DIGITAL AMERICAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED) AND
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 (UNAUDITED)
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
NOTE 1--ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
are carried at cost, adjusted for the Company's proportionate share of the
investees undistributed earnings or losses.
ACCOUNTING ESTIMATES
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reported period. Actual results could differ from those estimates.
The future recoverability of its investments is contingent upon the
Company's ability to build out the SMR channels it currently owns and to obtain
sufficient subscribers once systems are built to recover the amounts invested.
Given the uncertainties surrounding these matters, as well as the Company's
limited operations to date, it is not presently known whether the Company's
investments in and advances to unconsolidated affiliates, acquisitions in
process, property and equipment and SMR licenses will ultimately be recoverable.
The Company continuously evaluates the recoverability of its long lived assets,
and provides for impairment at the time which, in management's judgment, an
asset is impaired.
FOREIGN CURRENCY TRANSLATION
For subsidiaries and affiliates whose functional currency is the U.S. dollar
or which operate in a highly inflationary economy, net nonmonetary assets are
translated at historical exchange rates while net monetary assets are translated
using current exchange rates and translation adjustments are included in the
determination of income.
During the six months ended June 30, 1997, the Company incurred foreign
currency exchange losses of approximately $113.
At June 30, 1997, the financial statements of all RMDA's foreign
subsidiaries and affiliates were translated using the U.S. dollar as their
functional currency.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with original
maturities of three months or less to be cash equivalents.
SUPPLEMENTARY CASH FLOW INFORMATION
During the six months ended June 30, 1997 the Company made interest payments
of approximately $243.
SHORT TERM INVESTMENTS
Short term investments consist of marketable debt securities, primarily U.S.
government securities and low risk corporate bonds, with original maturities of
more than three months. Management of the Company believes that its investment
policy limits exposure to concentration of credit risk.
F-31
<PAGE>
RADIO MOVIL DIGITAL AMERICAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED) AND
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 (UNAUDITED)
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
NOTE 1--ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company classifies short term investments as either held to maturity,
available for sale or trading. Investments designated as held to maturity are
carried at amortized cost. Securities designated as available for sale are
carried at quoted market value with the unrealized gain or loss included in
stockholders' equity. Trading securities are carried at quoted market value with
unrealized gains and losses recorded in the statement of operations. Investments
classified as held to maturity or available for sale whose declines in market
value are deemed other than temporary are written down to market value with a
charge to the statement of operations.
At June 30, 1997, short term investments are considered available for sale.
The aggregate cost of the short-term investments approximated market value.
REVENUES
Revenues from radio services are recognized on a monthly basis as services
are rendered based on the contracted amount. The Company also leases equipment
to customers under operating leases under which the related lease revenue is
recorded as earned. Revenues from the sale of equipment is recognized at the
time equipment is delivered.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Accounts receivable are from businesses located in the countries in which
the Company operates. While the Company believes that the geographic and
industry diversity of its customer base minimizes the risk of incurring material
losses due to concentrations of risk, on-going evaluations of customer payment
performance is carried out and an allowance for doubtful accounts is maintained
at a level which management believes is sufficient to cover potential credit
losses.
INVENTORIES
Inventories consist of SMR equipment expected to be sold to subscribers and
are recorded at the lower of cost or market. Cost is determined by using the
weighted average method.
ACQUISITIONS IN PROCESS
Costs directly associated with acquisitions of other entities are deferred
pending consummation of the investment. In addition to direct acquisition costs,
such costs also include success fees, legal fees and consulting fees which have
been incurred prior to the closing of acquisitions, as well as payments made for
options to purchase in the future additional interests in investee companies.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Maintenance and repair
expenditures are charged to expense as incurred and expenditures for
improvements which increase the expected useful lives of the assets are
capitalized.
Direct costs associated with the construction of SMR systems and related
networks are capitalized and amortized over the systems' expected useful life
upon placing the system in service. Such costs include costs
F-32
<PAGE>
RADIO MOVIL DIGITAL AMERICAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED) AND
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 (UNAUDITED)
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
NOTE 1--ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
incurred in securing tower sites, site preparation, procurement and installation
of infrastructure, and equipment cost.
Included in property and equipment are radios presently leased or to be
leased to the Company's subscribers.
Depreciation expense is computed using the straight line method over the
estimated useful lives of the related assets.
DEFERRED LOAN COSTS
Costs incurred in connection with the securing of debt financing are
deferred and amortized using the effective interest method over the life of the
loan. At June 30, 1997, the unamortized portion of deferred loan costs amounted
to approximately $347, and are included in other assets in the accompanying
consolidated balance sheet.
SMR LICENSES
Direct and certain indirect costs of obtaining SMR licenses, such as
application, legal and consulting fees, as well as the estimated fair market
value of licenses obtained in certain acquisitions, are capitalized and
amortized using the straight line method over the period of the related license
(generally 5 to 20 years) upon commencement of the license period.
MANDATORILY REDEEMABLE PREFERRED STOCK
The Company's mandatory redeemable preferred stock is recorded at its
issuance price less offering costs. The carrying value is increased to the
redemption value by a charge to stockholders' deficit, ratably over the period
from issue date to redemption date. Cumulative dividends are accrued based on
the preferred stock's stated rate of 8% per annum, for a maximum of five
quarters, in accordance with the terms of the preferred stock issuances.
INCOME TAXES
The Company accounts for income taxes using the asset and liability method.
Under this method deferred taxes are determined based on the differences between
the financial statement and tax basis of assets and liabilities, using enacted
tax rates in effect for the year in which the differences are expected to
reverse. An allowance is recorded when it is more likely than not that any or
all of a deferred tax asset will not be realized. The provision for income
taxes, if any, includes taxes currently payable plus the net change during the
year in deferred tax assets and liabilities recorded by the Company.
STOCK BASED COMPENSATION
On January 1, 1996 the Company adopted Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"). SFAS
123 establishes a fair value based method of accounting for stock based
compensation, the effect of which can either be recorded or disclosed. Upon
adoption the Company has chosen to continue to account for stock-based
compensation
F-33
<PAGE>
RADIO MOVIL DIGITAL AMERICAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED) AND
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 (UNAUDITED)
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
NOTE 1--ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
using the intrinsic value method prescribed in Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"). In
accordance with APB 25 compensation cost for stock options is measured as the
excess, if any, of the quoted market price of the Company's stock at the date of
the grant over the amount an employee must pay to acquire the stock. There were
no options granted during the six months ended June 30, 1997.
NOTE 2--ACQUISITION IN PROCESS
In 1994, the Company, through a wholly-owned subsidiary, purchased a 49%
interest in Venezolana de Telecomunicaciones, C.A. ("Venetel") which owned
several SMR licenses, for a total purchase price of approximately $501, included
in investments in and advances to affiliates at June 30, 1997. In addition, the
Company purchased for $25 an option to acquire the remaining 51% for additional
cash consideration of approximately $500, of which $250 has been advanced as of
June 30, 1997. The remaining $250 is to be paid once the Venezuelan regulatory
authorities approve the transfer to the Company's wholly owned subsidiary of the
remaining 51% ownership. The option price and the advance on the exercise price
is included in acquisitions in process in the accompanying consolidated balance
sheet at June 30, 1997.
At June 30, 1997 substantially all of the net assets of Venetel were
comprised of SMR licenses with zero book value and its operations were not
significant and, as a result, the Company recognized no loss for the six months
ended June 30, 1997 in the accompanying consolidated statement of operations.
ECUADOR
Prior to 1995, the Company acquired 100% of the shares of an Ecuadorian
company for approximately $668 including acquisition costs. The acquired
company's principal asset was the ownership of several SMR licenses. The
purchase price has been allocated entirely to SMR licenses and is being
amortized over a period of five years. At June 30, 1997 this Ecuadorian
subsidiary had not commenced operations. The Company applied for the assignment
of frequencies during 1996, however, at June 30, 1997, the assignment had not
been received. Management cannot provide assurance whether this assignment will
be received, as such the net investment in the license was written off during
the six months ended June 30, 1997.
NOTE 3--SMR LICENSES
The following is a summary of capitalized SMR channel license costs by
country as of June 30, 1997:
<TABLE>
<S> <C>
Argentina.......................................................... $ 2,980
Brazil............................................................. 18,308
Venezuela.......................................................... 455
---------
21,743
Accumulated amortization........................................... (1,862)
---------
$ 19,881
---------
---------
</TABLE>
F-34
<PAGE>
RADIO MOVIL DIGITAL AMERICAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED) AND
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 (UNAUDITED)
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
NOTE 3--SMR LICENSES (CONTINUED)
The following is a summary of the number of SMR channels assigned to the
Company through its majority owned subsidiaries and affiliates at June 30, 1997:
<TABLE>
<S> <C>
Majority owned subsidiaries:
Argentina.......................................................... 180
Brazil............................................................. 965
Chile.............................................................. 65
Ecuador............................................................ 160
Venezuela.......................................................... 480
---------
1,850
---------
Affiliates:
Venezuela.......................................................... 40
---------
40
---------
Total SMR channels assigned.......................................... 1,890
---------
---------
</TABLE>
The above channels in the majority owned subsidiary in Venezuela include
both formally assigned channels by the government and those which have been
reserved for future assignment to the Company. The Venezuelan regulatory
authorities have informally proposed to the Company a reallocation of channels
whereby the Company would receive an assignment of 280 channels in exchange for
its current holdings of assigned and reserved channels. The Company is currently
negotiating with the regulatory authorities on this and other related issues.
NOTE 4--PROPERTY AND EQUIPMENT
At June 30, 1997 property and equipment consisted of the following:
<TABLE>
<S> <C> <C>
SMR transmission equipment............................ $ 7,698 10 years
Radios held for lease................................. 1,951
Radios leased to customers............................ 8,366 4 years
3 to 5
Office furniture, equipment and automobiles........... 1,183 years
SMR equipment pending installation and construction in
progress............................................ 290
---------
19,488
Accumulated depreciation.............................. (4,979)
---------
$ 14,509
---------
---------
</TABLE>
Depreciation expense for the six months ended June 30, 1997 amounted to
$2,979 of which $1,536 is classified as cost of radio service revenue in the
accompanying consolidated statement of operations.
F-35
<PAGE>
RADIO MOVIL DIGITAL AMERICAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED) AND
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 (UNAUDITED)
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
NOTE 5--LONG TERM DEBT
The Company's Venezuelan subsidiary, Radio Movil Digital Venezuela, C.A.,
("RMD-V"), entered into a loan agreement with the Overseas Private Investment
Corporation ("OPIC"), a U.S. governmental agency, whereby OPIC agreed to lend
RMD-V up to $7,500 for the construction and operation of an SMR system in
Venezuela. As of June 30, 1997, RMD-V had drawn $2,100, from this credit
facility, which bears interest at an average fixed rate of 10.16% per annum and
is payable over eight years, the first two of which require interest payments
only. The OPIC loan is secured by a guarantee from RMDA and first priority liens
on substantially all of RMD-V's real and personal property, fixtures and
equipment (approximately $4,000 at June 30, 1997), as well as a pledge of 90% of
the common stock of RMD-V. The OPIC loan agreement contains, among other
provisions, requirements related to RMD-V for maintaining certain working
capital and other financial ratios, and restrictions on incurring additional
indebtedness and declaring or paying dividends. OPIC has requested certain
amendments to the loan agreement primarily related to modifications in the
convents. The Company has until December 31, 1997 to resolve these matters.
Under the terms of the OPIC loan, RMD-V is subject to commitment fees of
0.33% and 0.50% per annum on the undrawn balance. Additional disbursements under
the loan agreement are subject to certain conditions, including the requirement
that RMD-V generate earnings or receive contributions from the Company of
additional equity.
As required under the agreement, the Company has deposited with a financial
institution certain amounts to cover future principal and interest repayments.
Those deposits, which are included in restricted cash in the accompanying
consolidated balance sheet, amounted to $215 at June 30, 1997.
At June 30, 1997, the Company had $3,059 outstanding under short term
financing with two of its major vendors for the purchase of infrastructure and
radio equipment with repayment terms of between six and twelve months and
interest rates ranging from 12 to 14 percent per annum.
At June 30, 1997, the scheduled annual maturities of the Company's long term
debt, including the subordinated convertible notes mentioned below, are as
follows:
<TABLE>
<CAPTION>
YEAR ENDING, JUNE 30 AMOUNT
- -------------------- ---------
<S> <C>
1998............................................................................... $ 569
1999............................................................................... 15,250
2000............................................................................... 370
2001............................................................................... 370
2002............................................................................... 370
---------
Thereafter......................................................................... 365
---------
$ 17,294
---------
---------
</TABLE>
F-36
<PAGE>
RADIO MOVIL DIGITAL AMERICAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED) AND
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 (UNAUDITED)
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
NOTE 6--SUBORDINATED CONVERTIBLE NOTES
On July 23, 1996, the Company issued $14.0 million in aggregate principal
amount of Subordinated Convertible Promissory Notes (the "Subordinated
Convertible Notes") due July 23, 1998 to BT Foreign Investment Corporation
("BTFIC"), an affiliate of Bankers Trust. The Subordinated Convertible Notes
bear interest at 9.0% per annum, payable annually, and are subordinated to all
senior indebtedness of the Company. The Subordinated Convertible Notes may be
prepaid by the Company upon 60 days prior written notice to the holders of the
Subordinated Convertible Notes (the "Subordinated Convertible Note Holders") at
any time after the one year anniversary of the Subordinated Convertible Notes,
subject to certain exceptions. At any time prior to payment in full of the
unpaid principal balance of the Subordinated Convertible Notes, each
Subordinated Convertible Note Holder has the right to convert its entire unpaid
principal balance of the Subordinated Convertible Notes into fully paid and
non-assessable shares of the Company's Series E Preferred Stock, subject to
certain limitations on such conversion applicable to BTFIC if BTFIC and certain
affiliates thereof own 4.9% or more of the Company's voting stock or 10% or more
of the Company's total equity at the time of such proposed conversion. The
number of shares of Series E Preferred Stock into which the Subordinated
Convertible Notes may be converted shall be determined by dividing the aggregate
principal amount to be converted by $5.41, subject to adjustment. In the event
that all outstanding preferred stock of the Company has been converted into
Common Stock, the entire outstanding principal amount of the Subordinated
Convertible Notes shall be convertible into a corresponding number of shares of
the Company's Common Stock.
On July 26, 1996, the Company issued an additional $1.0 million in aggregate
principal amount of Subordinated Convertible Notes due July 26, 1998 to a
current holder of preferred stock of the Company. The terms and conditions are
similar to the notes issued to BTFIC.
At June 30, 1997 the principal amount of the above notes of $15,000 remains
outstanding.
As part of the above transactions, the Company incurred fees of $280 paid to
BTFIC and other out-of-pocket costs of approximately $259. The fees and costs
have been capitalized and are being amortized over the terms of the notes. The
unamortized portion at June 30, 1997, which amounted to $287, is included in
other assets in the accompanying consolidated balance sheet.
During August 1997 the Company issued $1,070 in aggregate principal amount
of Non-Convertible Promissory Notes ("Non-Convertible Notes") to the holders of
the above mentioned Subordinated Convertible Notes. These Non-Convertible Notes
Bear interest at 11.5% per annum, payable annually, and are due on July 23,
1999. As part of this financing, the interest rate and due date of the existing
Subordinated Convertible Notes have been changed to 11.5% per annum and July 23,
1999, respectively. In addition, both of the Subordinated Convertible Notes and
Non-Convertible Notes are secured by the stock of the Brazilian operations. As
part of this restructing the Company paid fees and out-of-pocket expenses in the
amount of approximately $100.
NOTE 7--MANDATORILY REDEEMABLE PREFERRED STOCK
The Company's mandatorily redeemable preferred stock consists of six series.
The preferred stock has preference over the common stock in liquidation and is
convertible into shares of common stock on a one for one basis (subject to
adjustment in the event of stock splits, stock dividends and similar
transactions) at
F-37
<PAGE>
RADIO MOVIL DIGITAL AMERICAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED) AND
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 (UNAUDITED)
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
NOTE 7--MANDATORILY REDEEMABLE PREFERRED STOCK (CONTINUED)
the option of the holder and automatically (i) upon the vote of the holders of a
majority of the then outstanding preferred stock, separately by series, and (ii)
upon the closing of an underwritten public offering meeting certain price and
proceeds requirements. The Company is required to have on reserve, at all times,
shares of common stock authorized but unissued to effect the conversion of all
preferred shares.
The preferred stock carries a stated dividend rate of 8% and dividends are
cumulative for five quarters from the date of issuance of the applicable shares.
After December 1, 2003, the holders of a majority of the then outstanding Series
A, Series B, and Series C, Series D, Series E and Series F Preferred Stock may
request that the Company redeem the shares of Preferred Stock at the agreed upon
redemption value, together with unpaid dividends with respect to such shares to
the date of the redemption request.
The six series of preferred stock have a par value of $.01. At June 30,
1997, there were 5,600,000, 4,000,000, 5,849,541, 9,386,666, 2,772,642 and
2,772,642 shares authorized of Series A, Series B, Series C, Series D, Series E
and Series F Preferred Stock, respectively. As of June 30, 1997 there were
5,600,000, 3,436,663, 5,369,435 and 3,007,312 shares issued and outstanding of
Series A, Series B, Series C, Series D Preferred Stock, respectively. There were
no shares issued and outstanding of Series E or Series F Preferred Stock. The
liquidation and redemption value of such shares is $1.00, $3.75, $4.25, $6.00,
$5.41 and $5.41 per share for Series A, Series B, Series C, Series D, Series E
and Series F Preferred Stock, respectively.
The following represents a summary of the Preferred Stock during the six
months ended June 30, 1997:
<TABLE>
<CAPTION>
SERIES A SERIES B SERIES C SERIES D TOTAL
----------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996............ 6,134 14,092 25,103 16,049 61,378
Accertion............................... 1 3 -- 186 190
Accrual of cumulative dividends......... -- -- -- 713 713
----------- --------- --------- --------- ---------
Balance at June 30, 1997................ $ 6,135 $ 14,095 $ 25,103 $ 16,948 $ 62,281
----------- --------- --------- --------- ---------
----------- --------- --------- --------- ---------
</TABLE>
During 1995, certain of the Series C preferred stockholders delivered to the
Company a demand for recission of the $22,820 Series C offering. After
negotiations between the Company and the Series C preferred stockholders, the
Company issued during January 1996 to the Series C stockholders 565,193 shares
of Series C preferred stock and warrants to purchase 480,413 shares of Series C
preferred stock at $4.25 per share through the earlier of a public offering or
December 31, 1998 as settlement of the demand for rescission. Additionally, the
redemption value of the Series C preferred stock was reduced from $4.75 per
share, the original Series C per share issuance price, to $4.25 per share as a
result of the issuance of the additional shares and the Series C preferred stock
was given liquidation preference over other preferred stock series. The
outstanding shares and redemption value disclosed above have been adjusted to
reflect the January 1996 settlement.
As part of the settlement of the demand for rescission, on February 29, 1996
the Company issued 1,000,000 shares of Series D Preferred Stock at $6.00 per
share to certain holders of all previous series of preferred stock netting
proceeds to the Company of approximately $6,000. The Series D Preferred Stock
F-38
<PAGE>
RADIO MOVIL DIGITAL AMERICAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED) AND
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 (UNAUDITED)
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
NOTE 7--MANDATORILY REDEEMABLE PREFERRED STOCK (CONTINUED)
has a liquidation and redemption value of $6.00 per share, and carries the same
other characteristics as the previous issues of preferred stock. Pursuant to
this issuance of stock, the Company issued nontransferable warrants to acquire
1,720,000 shares of Series D Preferred Stock at $6.00 per share through the
earlier of an initial public offering or December 31, 1998, to those
shareholders who participated in the Series D preferred stock offering.
In connection with the settlement of the demand for rescission of the Series
C offering, the Company recorded settlement costs of approximately $3,003 in
1995 which represents the estimated fair market value of the Series C shares and
warrants issued as part of the settlement agreement. As an offset to the
settlement costs recorded, the Company adjusted the balance of the Series C
preferred stock to its redemption value with the remainder being recorded as an
increase to paid in capital.
On October 30, 1996, the Company issued an additional 2,000,062 shares of
Series D Preferred Stock at $6.00 per share to certain holders of all previous
series of preferred stock netting proceeds to the Company of approximately
$12,000. These issues carry a liquidation and redemption value of $6.00 per
share, and carry the same other characteristics as the previous issues of
preferred stock. Pursuant to this issuance of stock, the Company issued
2,000,062 warrants to acquire 2,000,062 shares of Series D Preferred Stock at
$6.00 per share through the earlier of an initial public offering or December
31, 1999, to those shareholders who participated in this offering.
A stockholder agreement exists among the majority of the preferred
stockholders which limits the number of shares certain stockholders may sell
without the participation in the sale of the other stockholders which are a
party to the agreement. Conversely, these certain stockholders can require that
all stockholders which are party to the agreement sell their shares in the event
an offer to purchase all applicable shares is accepted by the certain
shareholders.
NOTE 8--INCOME TAXES
The Company is subject to Federal, state and foreign income taxes but has
incurred no liability for such taxes due to losses incurred. At June 30, 1997
RMDA had net operating loss carry forwards for U.S. tax purposes of
approximately $13,000 which expire through the year 2012. At June 30, 1997 RMDA
had net operating loss carryforwards for Venezuelan and Argentinian tax purposes
of approximately $2,900 and $3,000, respectively, which expire through the year
2000 and 2002, respectively. At June 30, 1997 RMDA had Brazilian net operating
loss carry forwards of approximately $10,000 which do not expire but are limited
to off-set up to thirty percent of annual taxable income. These carryforwards
are available to offset future taxable income.
The Company's net deferred tax assets result primarily from the future
benefit of these net operating loss carry forwards. At June 30, 1997, net
deferred tax assets amounted to approximately $9,500 which
F-39
<PAGE>
RADIO MOVIL DIGITAL AMERICAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED) AND
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 (UNAUDITED)
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
NOTE 8--INCOME TAXES (CONTINUED)
were fully offset by a valuation allowance for the same amount. Net deferred tax
assets by country as of June 30, 1997 are as follows:
<TABLE>
<CAPTION>
U.S. ARGENTINA BRAZIL VENEZUELA TOTAL
--------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Net deferred tax assets................ $ 4,500 $ 1,000 $ 3,000 $ 1,000 $ 9,500
Valuation allowance.................... (4,500) (1,000) (3,000) (1,000) (9,500)
--------- ----------- --------- ----------- ---------
$ -- $ -- $ -- $ -- $ --
--------- ----------- --------- ----------- ---------
--------- ----------- --------- ----------- ---------
</TABLE>
NOTE 9--FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of financial instruments including cash and cash
equivalents, restricted cash, short-term investments, accounts receivable,
short-term vendor debt and accounts payable approximated fair value at June 30,
1997 because of the short maturity of these instruments. The carrying value of
long term debt and subordinated convertible debentures approximated fair value
at June 30, 1997 based upon interest rates currently available to the Company
for similar financial instruments in its respective markets of operations.
NOTE 10--EMPLOYEE STOCK OPTION PLAN
At June 30, 1997 the Company has an incentive stock option plan (the "Plan")
that is described below. The Company applies APB 25 and related interpretations
in accounting for the Plan. The policy of the Company has been to grant options
under the Plan at an exercise price equal to the estimated market value of the
Company's common stock at the date of the grant except for certain grants made
in 1995 for which $325 was charged to expense in that year. Had compensation
costs for the Company's Plan been determined based on the fair value, at the
grant dates, for awards under those plans consistent with the method of SFAS
123, the Company's net loss would have been increased to the proforma amount
indicated below:
<TABLE>
<S> <C>
Net Loss
As Reported...................................................... $ 5,787
Proforma......................................................... $ 5,891
</TABLE>
The Company's Plan provides for the granting of non qualified stock options
to officers and key employees. Under the terms of the Plan, options have a
maximum term of ten years from the date of the grant. The granted options vest
one fourth after the first year and one-forty-eighth every month thereafter.
F-40
<PAGE>
RADIO MOVIL DIGITAL AMERICAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED) AND
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 (UNAUDITED)
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
NOTE 10--EMPLOYEE STOCK OPTION PLAN (CONTINUED)
The Company has reserved 1,750,000 common shares for issuance under the Plan. A
summary of the Plan's activity is as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
SHARES EXCERISE PRICE
---------- -----------------------
<S> <C> <C>
Outstanding at December 31, 1996........................... 1,028,800 $ 5.03
Forfeited.................................................. (9,000) 4.75
---------- -----
Outstanding at June 30, 1997............................... 1,019,800 $ 5.03
---------- -----
---------- -----
Options exercisable at June 30, 1997....................... 262,325 $ 4.89
---------- -----
---------- -----
</TABLE>
The following table summarizes information about fixed stock options
outstanding at June 30, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------- ------------------------
WEIGHTED-AVERAGE
EXERCISE NUMBER REMAINING NUMBER EXERCISE
PRICE OUTSTANDING CONTRACTUAL LIFE EXERCISABLE PRICE
- ------------- ----------- ---------------- ----------- -----------
<S> <C> <C> <C> <C>
$1.25 40,000 8 years 22,500 $ 1.25
$4.75 129,800 9 years 1,700 $ 4.75
$5.25 850,000 9 years 238,125 $ 5.25
----------- -----------
1,019,800 9 years 262,325
----------- -----------
----------- -----------
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions: expected volatility of 40 percent, risk-free interest rates of 6.07
percent; and expected lives of approximately 3.5 years.
NOTE 11--COMMITMENTS AND CONTINGENCIES
The Company has been required by certain government regulatory authorities
to post performance bonds to guarantee the completion of channel construction
and loading. At June 30, 1997 the Company had pledged cash equivalents and short
term investments in the amount of approximately $1,300 to satisfy these
requirements. The Company's Argentina subsidiary is required to fulfill certain
channel and loading requirements by October 12, 1997, related to which $1,000
has been pledged. The Company's Argentina subsidiary has requested for a six
month extension on the loading requirement. Management expects it will obtain
such extension. The remaining performance bond of $300 is expected to be
required as long as the Company continues to operate the corresponding channels
in Venezuela.
In connection with certain of the Company's assigned SMR licenses, the
Company has radio load and build out commitments. Should these load and build
out commitments not be complied with, the Company could be subject to the
revocation of the applicable licenses. At the present time, certain regulatory
build out requirements relating to channels licensed to the Company's affiliate
in Brazil have not been fully complied with. The Company's Brazilian
subsidiaries have received an extension from the Brazilian
F-41
<PAGE>
RADIO MOVIL DIGITAL AMERICAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED) AND
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 (UNAUDITED)
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
NOTE 11--COMMITMENTS AND CONTINGENCIES (CONTINUED)
regulatory authorities to comply with certain of these requirements in the past
and management expects it will be able to obtain additional extensions where
necessary or otherwise meet such requirements in all material respects.
The Company's Brazilian subsidiary has reported certain transactions subject
to Brazilian value added tax (ICMS) in a manner consistent with its historical
practices, which Company management and its legal counsel believe are proper.
The ICMS legislation as applied to telecommunication providers has not been
interpreted on a uniform basis by the Brazilian tax authorities. The Company
believes that it could have a contingent liability of up to $3,500 should its
reporting position be successfully challenged by the tax authorities.
The Company leases office space under operating leases expiring in the year
2000. Future minimum lease payments under operating leases as of June 30, 1997
are as follows:
<TABLE>
<CAPTION>
YEAR ENDING, JUNE 30 AMOUNT
- -------------------- ---------
<S> <C>
1998................................................................................. $ 749
1999................................................................................. $ 408
2000................................................................................. $ 149
2001................................................................................. $ 17
2002................................................................................. $ --
---------
$ 1,323
---------
---------
</TABLE>
Rent expense during the six months ended June 30, 1997 amounted to $535.
During 1996 the Company entered into employment agreements with certain
executives. Annual base salary commitments amounted to $567, and 725,000 stock
option with exercise prices ranging from $4.75 to $5.25 were granted (see note
10). Under such agreements and additional agreements entered with other
employees during 1997, the Company is committed to pay approximately $3,300 to
such executives and employees upon the closing of a merger or sale of
substantially all the assets of the Company (see below)
During December 1996 the Company entered into an agreement with a financial
advisor (the "Advisor") for the provision of certain services related to the
possible sale of the Company. Under such agreement (as amended during May 1997),
the Company is committed to pay the Advisor a fee based on the gross sales price
of the Company. This fee is estimated to be approximately $1,000 of which $250
has been paid by the Company during the six months ended June 30, 1997 and is
included in selling, general and administrative expenses in the accompanying
consolidated statement of a operations. In addition, the Company is committed to
pay the advisor an additional $200 at the time the Advisor delivers a fairness
opinion on the sale of the Company.
On September 4, 1997 the Company entered into a non-binding letter of intent
to merge with International Wireless Communications Holdings, Inc. ("IWC"). The
proposed terms under the letter of intent are such that IWC would acquire the
Company for consideration of approximately $4,500,000 in cash and $96,000,000 in
IWC preferred stock. The terms of the preferred stock consideration would be
F-42
<PAGE>
RADIO MOVIL DIGITAL AMERICAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED) AND
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 (UNAUDITED)
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
NOTE 11--COMMITMENTS AND CONTINGENCIES (CONTINUED)
subject to an adjustment based on (i) IWC's consummation of an initial public
offering and (ii) certain financial conditions related to the Company.
NOTE 12--NEW ACCOUNTING PRONOUNCEMENTS
In June 1997 the Financial Accounting Standards Board ("FASB") Issued SFAS
No. 130, "Reporting Comprehensive Income" ("SFAS No. 130"). SFAS No. 130 is
effective for fiscal years beginning after December 15, 1997 and establishes
standards for reporting and display of comprehensive income and its components
in a full set of general purpose financial statements. SFAS No. 130 requires all
items to be reported in a separate financial statement. The Company does not
believe that adoption of SFAS No. 130 will have a significant impact on the
Company's financial reporting.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information" (SFAS No. 131). SFAS No. 131 is effective
for financial statements for periods beginning after December 15, 1997. SFAS 131
establishes standards for the way public business enterprises report selected
information about operating segments in annual and interim financial reports
issued to shareholders. The Company does not believe that adoption of SFAS No.
131 will have a significant impact on the Company's financial reporting.
In February 1997, the FASB issue SFAS No. 128, "Earnings Per Share" ("SFAS
No. 128"). SFAS No. 128 specifies new standards designed to improve the earnings
per share ("EPS") information provided in statements by simplifying the existing
computational guidelines revising the disclosure requirements and increasing the
comparability of EPS data on an international basis. Some of the changes made to
simplify the EPS, computations include (I) eliminating the presentation of
primary EPS and replacing it with basic EPS, (ii) eliminating the modified
treasury stock method and the three percent materiality provision, (iii)
revising the contingent share provision and the supplemental EPS data
requirements. SFAS No. 128 also makes a number of changes to existing disclosure
requirements. SFAS No. 128 is effective for financial statements issued for
periods ending after December 15, 1997, including interim periods. The Company
does not believe the adoption of SFAS No. 128 will have a significant impact on
the Company's financial reporting.
F-43
<PAGE>
RADIO MOVIL DIGITAL AMERICAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED) AND
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 (UNAUDITED)
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
NOTE 13--GEOGRAPHIC INFORMATION
The following information presents certain summarized balance sheet and
statement of operations data of the Company by geographic region as of June 30,
1997 and for the six months then ended:
<TABLE>
<CAPTION>
UNITED
STATES ARGENTINA VENEZUELA BRAZIL CHILE
------------ ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET:
Current assets............................................ $ 4,972 $ 937 $ 1,622 $ 2,269
Intercompany investment................................... 51,649 -- -- -- --
Long-term assets.......................................... 1,383 4,219 2,641 27,784 52
------------ ----------- ----------- --------- ---------
$ 58,004 $ 5,156 $ 4,263 $ 30,053 $ 52
------------ ----------- ----------- --------- ---------
------------ ----------- ----------- --------- ---------
Current liabilities....................................... $ 3,786 $ 388 $ 995 $ 2,514
Intercompany payable...................................... -- 4,577 3,576 17,460 52
Long-term liabilities..................................... 15,000 -- 1,725 --
Mandatorily redeemable preferred stock.................... 62,281 -- -- -- --
Stockholders' deficit..................................... (23,063) 191 (2,033) 10,079
------------ ----------- ----------- --------- ---------
$ 58,004 $ 5,156 $ 4,263 $ 30,053 $ 52
------------ ----------- ----------- --------- ---------
------------ ----------- ----------- --------- ---------
STATEMENT OF OPERATIONS:
Revenues.................................................. $ -- $ 905 $ 1,145 $ 4,530 $ --
Cost of sales and services................................ 5 499 359 2,560 --
------------ ----------- ----------- --------- ---------
Gross profit.............................................. (5) 406 786 1,970 --
------------ ----------- ----------- --------- ---------
Selling, general and administrative expenses.............. 1,562 815 671 2,622 --
Depreciation and amortization............................. 29 179 137 1,031
Write-off of acquisitions.................................
------------ ----------- ----------- --------- ---------
1,591 994 808 3,653 --
------------ ----------- ----------- --------- ---------
Operating loss............................................ (1,596) (588) (22) (1,683) --
Other income (expense).................................... 76 (332) (487) (757)
------------ ----------- ----------- --------- ---------
Net loss.................................................. $ (1,520) $ (920) $ (509) $ (2,440) $ --
------------ ----------- ----------- --------- ---------
------------ ----------- ----------- --------- ---------
<CAPTION>
ECUADOR ELIMINATIONS CONSOLIDATED
----------- ------------ ------------
<S> <C> <C> <C>
BALANCE SHEET:
Current assets............................................ $ 16 $ -- $ 9,816
Intercompany investment................................... -- (51,649) --
Long-term assets.......................................... 7 -- 36,086
--------- ------------ ------------
$ 23 $ (51,649) $ 45,902
--------- ------------ ------------
--------- ------------ ------------
Current liabilities....................................... $ 1 $ -- $ 7,684
Intercompany payable...................................... 688 (26,353) --
Long-term liabilities..................................... -- -- 16,725
Mandatorily redeemable preferred stock.................... -- -- 62,281
Stockholders' deficit..................................... (666) (25,296) (40,788)
--------- ------------ ------------
$ 23 $ (51,649) $ 45,902
--------- ------------ ------------
--------- ------------ ------------
STATEMENT OF OPERATIONS:
Revenues.................................................. $ -- $ -- $ 6,580
Cost of sales and services................................ -- -- 3,423
--------- ------------ ------------
Gross profit.............................................. -- -- 3,157
--------- ------------ ------------
Selling, general and administrative expenses.............. -- -- 5,670
Depreciation and amortization............................. 67 -- 1,443
Write-off of acquisitions................................. 334 334
--------- ------------ ------------
401 7,447
--------- ------------ ------------
Operating loss............................................ (401) -- (4,290)
Other income (expense).................................... 3 -- (1,497)
--------- ------------ ------------
Net loss.................................................. $ (398) $ -- $ (5,787)
--------- ------------ ------------
--------- ------------ ------------
</TABLE>
F-44
<PAGE>
INTERNATIONAL WIRELESS COMMUNICATIONS HOLDINGS, INC.
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS
The following unaudited pro forma consolidated condensed financial statements
have been prepared by the management of International Wireless Communications
Holdings, Inc. ("IWC" or the "Company") from its historical financial statements
previously filed with the Securities and Exchange Commission ("SEC") on Forms
10-K and 10-Q. The unaudited pro forma consolidated condensed statements of
operations for the year ended December 31, 1996 and the nine months ended
September 30, 1997 reflect adjustments as if the Company had merged with Radio
Movil Digital Americas, Inc. ("RMD") as of January 1, 1996. The RMD merger has
been reflected in the unaudited pro forma consolidated condensed balance sheet
as if the merger had occurred as of September 30, 1997.
The unaudited pro forma consolidated condensed financial statements should be
read in conjunction with the notes included herewith; the Company's Form 8-K as
filed with the SEC on February 6, 1998; the Company's audited consolidated
financial statements and notes thereto as of December 31, 1995 and 1996 and for
the three years ended December 31, 1996, and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" as previously filed
with the SEC on Form 10-K on April 15, 1997; and the Company's unaudited
consolidated financial statements and notes thereto as of September 30, 1997 and
for the nine months ended September 30, 1996 and 1997, and "Management's
Discussion and Analysis of Financial Condition and Results of Operations" as
previously filed with the SEC on Form 10-Q on November 14, 1997.
The unaudited pro forma consolidated condensed financial statements do not
purport to represent what the Company's results of operations or financial
position would have been had the RMD merger occurred on the dates specified, or
to project the Company's results of operations or financial position for any
future period or date. The pro forma adjustments are based upon available
information and certain assumptions that management believes are reasonable
under the circumstances. In the opinion of management, all adjustments have
been made that are necessary to present fairly the pro forma data. Actual
amounts could differ from those set forth below.
F-45
<PAGE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1997 (1)
-------------------------------------------
PRO
HISTORICAL ADJUSTMENTS FORMA
---------- ----------- -----
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 6,512 (2,121) (2) 4,391
Short-term investments - 400 (2) 400
Note receivable from affiliates 4,769 4,769
Investments in affiliates held for sale 3,402 3,402
Other current assets 10,691 3,580 (2) 14,271
--------- -------- --------
Total current assets 25,374 1,859 27,233
Property and equipment, net 21,801 14,135 (2) 35,936
Investments in affiliates 84,961 480 (2) 85,441
Telecommunication licenses and other intangibles, net 17,558 78,599 (2) 96,157
Debt issuance costs, net 10,427 10,427
Other assets 419 1,182 (2) 1,601
-------- -------- --------
Total assets $160,540 96,255 256,795
-------- -------- --------
-------- -------- --------
LIABILITIES, MINORITY INTEREST,
REDEEMABLE CONVERTIBLE PREFERRED
STOCK AND STOCKHOLDERS' DEFICIT
Current liabilities 9,553 4,651 (2) 14,204
Long-term debt 110,429 17,733 (2) 128,162
-------- -------- --------
Total liabilities 119,982 22,384 142,366
Minority interest 9,009 9,009
Redeemable convertible preferred stock 104,718 73,871 (2) 178,589
Stockholders' deficit:
Preferred stock 9 9
Common stock 13 13
Additional paid-in capital 48,311 48,311
Note receivable from stockholder (152) (152)
Deferred compensation (1,299) (1,299)
Cumulative translation adjustment (744) (744)
Accumulated deficit (119,307) (119,307)
-------- -------- --------
Total stockholders' deficit (73,169) - (73,169)
-------- -------- --------
Total liabilities, minority interest,
redeemable convertible preferred
stock and stockholders' deficit $160,540 96,255 256,795
-------- -------- --------
-------- -------- --------
</TABLE>
F-46
<PAGE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996 (1)
-----------------------------------------
PRO
HISTORICAL ADJUSTMENTS FORMA
---------- ----------- ------
<S> <C> <C> <C>
Operating revenue $ 869 5,660 (3) 6,529
Cost of revenue 1,948 2,044 (3) 3,992
-------- -------- --------
(1,079) 3,616 2,537
-------- -------- --------
Operating expenses:
Selling, general and administrative expenses 17,333 17,054 (3) 34,387
Equity in losses of affiliates 11,783 1,499 (3) 13,282
Minority interests in losses of consolidated
subsidiaries (275) (275)
-------- -------- --------
Loss from operations (29,920) (14,937) (44,857)
Other income (expense):
Interest income 1,823 395 (3) 2,218
Interest expense (6,790) (1,237) (3) (8,027)
Other (1,021) (1,410) (3) (2,431)
-------- -------- --------
Net loss $(35,908) (17,189) (53,097)
-------- -------- --------
-------- -------- --------
</TABLE>
F-47
<PAGE>
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 (1)
------------------------------------------------
PRO
HISTORICAL ADJUSTMENTS FORMA
---------- ----------- -----
<S> <C> <C> <C>
Operating revenue $ 3,292 10,373 (4) 13,665
Cost of revenue 3,069 5,287 (4) 8,356
-------- ------ ------
223 5,086 5,309
Operating expenses:
Selling, general and administrative expenses 23,623 13,519 (4) 37,142
Equity in losses of affiliates 27,282 27,282
Minority interests in losses of consolidated
subsidiaries (662) (662)
-------- ------ ------
Loss from operations (50,020) (8,433) (58,453)
Other income (expense):
Interest income 1,499 273 (4) 1,772
Interest expense (15,726) (1,925) (4) (17,651)
Other 35 (576) (4) (541)
-------- ------ ------
Net loss $(64,212) (10,661) (74,873)
-------- ------ ------
-------- ------ ------
</TABLE>
F-48
<PAGE>
INTERNATIONAL WIRELESS COMMUNICATIONS HOLDINGS, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
PRO FORMA ADJUSTMENTS:
(1) For purposes of conforming the presentation of the pro forma consolidated
condensed financial statements, certain historical amounts are summarized.
The unaudited pro forma consolidated condensed financial statements reflect
adjustments for the Company's merger with RMD for a total adjusted purchase
price of $78,671,000, of which $4,800,000 was payable in cash and
$73,871,000 in the issuance of the Company's series I redeemable
convertible preferred stock.
PRO FORMA BALANCE SHEET ADJUSTMENTS:
(2) Represents the Company's merger with RMD as if the merger had occurred on
September 30, 1997. The adjustments, based on a purchase price of
$78,671,000, reflect: (i) the reduction of cash for the adjusted purchase
price paid in cash of $4,800,000, offset by RMD's cash balance assumed;
(ii) the recording of the excess purchase price over the net tangible
assets of RMD attributed to telecommunication licenses and other
intangibles; (iii) the issuance of 5,381,046 shares of series I redeemable
convertible preferred stock, valued at $73,871,000, for the adjusted
purchase price paid in stock; and (iv) the addition of the assets and
liabilities of RMD as of September 30, 1997, consisting of the following
whose fair value approximates historical cost (in thousands):
<TABLE>
<S> <C>
Cash and restricted cash........ $2,679
Short-term investments.......... 400
Other current assets............ 3,580
Property and equipment, net..... 14,135
Investments in affiliates....... 480
Other assets.................... 1,182
Current liabilities............. (4,651)
Long-term debt, net............. (17,733)
</TABLE>
PRO FORMA STATEMENTS OF OPERATIONS ADJUSTMENTS:
(3) Represents (i) the income statement results of RMD derived from audited
financial statements of RMD for the year ended December 31, 1996 and (ii)
the additional amortization of telecommunication licenses and other
intangibles of RMD for the year ended December 31, 1996 as if the merger
with RMD had occurred on January 1, 1996 totaling $3,930,000.
(4) Represents (i) the income statement results of RMD derived from unaudited
financial statements of RMD for the nine months ended September 30, 1997
and (ii) the additional amortization of telecommunication licenses and
other intangibles of RMD for the nine
F-49
<PAGE>
months ended September 30, 1997 as if the merger with RMD had occurred on
January 1, 1996 totaling $2,947,000.
F-50
