<PAGE> 1
FORM 10-QSB
================================================================================
U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
or
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
------------- ------------
Commission File Number: 0-20999
CHADMOORE WIRELESS GROUP, INC.
------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
COLORADO 84-1058165
(State of other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
4720 POLARIS STREET, LAS VEGAS, NEVADA 89103
-----------------------------------------------------
(Address of principal executive offices)
(702) 891-5255
-------------------------------
(Issuer's telephone number)
------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports to be filed by Section
13 or 15 (d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [ X ] No [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required
by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court.
Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: AS OF AUGUST 10, 1997, ISSUER
HAD 19,966,574 SHARES OF COMMON STOCK, .001 PAR VALUE, OUTSTANDING.
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE):
Yes [ ] No [ X ]
================================================================================
<PAGE> 2
================================================================================
INDEX
<TABLE>
PAGE
----
<S> <C>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
Unaudited Condensed Consolidated Financial Statements of Chadmoore Wireless Group, Inc.,
and Subsidiaries (Formerly CapVest Internationale, Ltd.):
Condensed Consolidated Balance Sheets:
As of June 30, 1997 and December 31, 1996 2
Condensed Consolidated Statements of Operations:
For the Six Months Ended June 30, 1997 and 1996 and
Period from January 1, 1994 to June 30, 1997 3
For the Three Months Ended June 30, 1997 and 1996 4
Condensed Consolidated Statements of Cash Flows:
For the Six Months Ended June 30, 1997 and 1996 and
Period from January 1, 1994 to June 30, 1997 5-6
Notes to Unaudited Condensed Consolidated Financial Statements 7-12
ITEM 2. PLAN OF OPERATION. 13-15
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 16
ITEM 2. CHANGES IN SECURITIES 16
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 16
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS 16
ITEM 5. OTHER INFORMATION 16
ITEM 6. EXHIBITS AND REPORTS OF FORM 8-K 17-19
SIGNATURES 20
</TABLE>
1
================================================================================
<PAGE> 3
==============================================================================
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
(A Development Stage Company)
Condensed Consolidated Balance Sheets
June 30, 1997 and December 31, 1996
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JUNE 30, 1997 DECEMBER 31,
(UNAUDITED) 1996
- --------------------------------------------------------------------------------------------------------
ASSETS
<S> <C> <C>
Current assets:
Cash $ 374,994 1,463,300
Accounts receivable 420,219 266,520
Inventory 207,615 197,476
Prepaid property management rights 63,437 81,563
Deposits -- 124,624
Other 88,959 32,020
- --------------------------------------------------------------------------------------------------------
Total current assets 1,155,224 2,165,503
Investment in JJ&D, LLC 473,315 532,997
Property and equipment, net 3,492,871 3,164,098
FCC licenses, net of accumulated amortization of $192,110 and $153,404, 1,356,189 1,394,895
respectively
Debt issuance costs, net of accumulated amortization of $24,305 and 150,695 77,562
$39,038, respectively
Management agreements, net of valuation allowance 17,708,573 22,725,442
Investment in license options 3,379,041 3,239,691
Investment in options to acquire licenses, net valuation allowance 7,621,358 9,771,445
Other 214,860 55,994
- --------------------------------------------------------------------------------------------------------
Total Assets $ 35,552,126 43,127,627
========================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Current installments of long-term debt $ 284,889 217,096
Accounts payable and accrued liabilities 552,741 329,122
Licenses - options payable 149,800 49,800
License option commission payable 524,800 524,800
Accrued interest 51,612 62,346
Other 196,029 32,080
- --------------------------------------------------------------------------------------------------------
Total current liabilities 1,759,871 1,215,244
Capital lease obligations 545 8,646
Long-term debt, excluding current installments 2,991,808 2,500,141
Restricted option prepayment 670,187 832,116
- --------------------------------------------------------------------------------------------------------
Total liabilities 5,422,411 4,556,147
- --------------------------------------------------------------------------------------------------------
Commitments and contingencies Shareholders' equity :
Preferred stock, $.001 par value. Authorized 40,000,000 shares; -- --
issued and outstanding -0- shares
Common stock, $.001 par value. Authorized 100,000,000 shares; issued 19,969 17,824
and outstanding 19,966,574 shares at June 30, 1997 and 17,823,445
shares at December 31, 1996
Additional paid-in capital 54,492,315 52,951,491
Stock subscribed 32,890 288,835
Deficit accumulated during the development stage (24,415,459) (14,686,670)
- --------------------------------------------------------------------------------------------------------
Total shareholders' equity 30,129,715 38,571,480
- --------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 35,552,126 43,127,627
========================================================================================================
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
2
- ------------------------------------------------------------------------------
<PAGE> 4
==============================================================================
CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
(A Development Stage Company)
Condensed Consolidated Statements of Operations
For the Six Months Ended June 30, 1997 and 1996 and for the
Period from January 1, 1994 through June 30, 1997
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM
SIX MONTHS ENDED JUNE 30, JANUARY 1, 1994
---------------------------- THROUGH JUNE 30,
1997 1996 1997
(UNAUDITED) (UNAUDITED)
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------
Gross revenues 1,081,884 821,765 2,786,321
- ----------------------------------------------------------------------------------------
Costs and expenses:
Cost of sales 545,489 437,000 1,460,871
Salaries, wages and benefits 1,170,356 876,639 3,731,029
General and administrative 1,407,616 1,719,849 14,006,501
Depreciation and amortization 323,342 124,830 928,876
- ----------------------------------------------------------------------------------------
3,446,803 3,158,318 20,127,277
- ----------------------------------------------------------------------------------------
Loss from operations (2,364,919) (2,336,553) (17,340,956)
- ----------------------------------------------------------------------------------------
Other income (expense):
Loss on reduction of management and licenses
to estimated fair value (7,166,956) -- (7,166,956)
Management fees -- 100,198 472,611
Interest expense (144,729) (76,038) (569,790)
Gain on sale of assets -- -- 330,643
Gain on forgiveness of debt -- -- 47,450
Equity on losses from minority investment -- -- (1,322)
Loss on retirement of note payable -- -- (32,404)
Other, net (52,185) (116,825) (154,735)
- ----------------------------------------------------------------------------------------
(7,363,870) (92,665) (7,074,503)
- ----------------------------------------------------------------------------------------
Net loss $ (9,728,789) $ (2,429,218) $(24,415,459)
========================================================================================
Weighted average number of common
shares outstanding 19,511,640 9,700,120 19,511,640
========================================================================================
Net loss per share $ (0.50) $ (0.25) $ (1.25)
========================================================================================
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
3
==============================================================================
<PAGE> 5
==============================================================================
CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
(A Development Stage Company)
Condensed Consolidated Statements of Operations
For the Three Months Ended June 30, 1997 and 1996
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
----------------------------
1997 1996
(UNAUDITED) (UNAUDITED)
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Gross revenues 583,034 599,277
- -----------------------------------------------------------------------------------------------------
Costs and expenses:
Cost of sales 273,375 316,828
Salaries, wages and benefits 594,316 625,509
General and administrative 647,342 845,208
Depreciation and amortization 162,984 72,793
- -----------------------------------------------------------------------------------------------------
1,678,017 1,860,338
- -----------------------------------------------------------------------------------------------------
Loss from operations (1,094,983) (1,261,061)
- -----------------------------------------------------------------------------------------------------
Other income (expense):
Loss on reduction of management agreements and licenses to
estimated fair value (7,166,956) --
Interest expense (80,743) (53,990)
Gain on sale of assets -- 12,599
Gain on forgiveness of debt -- --
Equity on losses from minority investment -- --
Loss on retirement of note payable -- --
Other, net (52,500) (118,700)
- -----------------------------------------------------------------------------------------------------
(7,300,199) (160,091)
- -----------------------------------------------------------------------------------------------------
Net loss $ (8,395,182) $ (1,421,152)
======================================================================================================
Weighted average number of common
shares outstanding 19,868,119 10,294,494
======================================================================================================
Net loss per share $ (.42) $ (.14)
======================================================================================================
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements
4
==============================================================================
<PAGE> 6
==============================================================================
CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
(A Development Stage Company)
Condensed Consolidated Statement of Cash Flows
For the Six Months Ended June 30, 1997 and 1996 and
for the Period from January 1, 1994 through June 30, 1997
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM
SIX MONTHS ENDED JANUARY 1,
JUNE 30, 1994 THROUGH
-------------------------------- JUNE 30,
1997 1996 1997
(UNAUDITED) (UNAUDITED) (UNAUDITED)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (9,728,789) $ (2,429,218) $(24,415,459)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization 296,191 124,829 901,725
Loss on reduction of management agreements and licenses to
estimated fair value 7,166,956 -- 7,166,956
Amortization of debt discount and debt issuance 104,577 63,372 202,680
Gain on sale of assets held for resale -- -- (330,643)
Equity in losses from minority investments -- -- 1,322
Expense associated with:
Stock issued for services -- 220,833 2,583,161
Options issued for services -- -- 3,708,038
Change in operating assets and liabilities:
Decrease in stock subscriptions receivable, net of stock --
subscribed -- (637,193)
Increase in accounts receivable (153,699) (79,228) (251,756)
Increase in inventory (10,139) (62,568) (129,634)
Decrease in due from General Communications, Inc. -- 76,252 --
Decrease in prepaids 18,126 17,360 54,376
Decrease (increase) in other noncurrent assets 6,000 -- (30,859)
Increase in deposits (16,331) (84) (22,455)
Increase in other current assets (31,939) (18,828) (63,959)
Increase (decrease) in accounts payable 243,615 288,840 574,546
Increase in commission payable -- 175,600 524,800
Increase in accrued interest 38,194 39,559 282,505
Increase in other current liabilities 96,533 -- 96,533
- -----------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by operating activities (1,970,705) (1,583,281) (9,785,316)
- -----------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchase of assets from General Communications, Inc. -- (363,870) (352,101)
20% investment in JJ&D, LLC -- (100,000) (100,000)
Purchase of Airtel Communications, Inc. assets -- (50,000) (50,000)
Purchase of CMRS and 800 SMR Network, Inc. -- (3,547,000) (3,547,000)
Purchase of SMR station licenses -- -- (1,398,575)
Purchase of license options (9,200) (186,850) (1,141,287)
Increase in deposits of licenses (111,150) (11,568) (453,958)
Increase (decrease) in license options payable -- --
Purchase of property and equipment (332,064) (837,120) (3,071,016)
Purchase of assets held for resale -- -- (219,707)
Sale of assets held for resale -- -- 700,000
Increase in customer deposits -- --
Increase in deposit on sale -- -- --
- -----------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (452,414) (5,096,408) (9,633,644)
=================================================================================================================
</TABLE>
(Continued)
5
==============================================================================
<PAGE> 7
==============================================================================
CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
(A Development Stage Company)
Condensed Consolidated Statement of Cash Flows,
Continued For the Six Months Ended June 30, 1997 and 1996
and for the Period From January 1, 1994 through June 30, 1997
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM
SIX MONTHS ENDED JANUARY 1,
JUNE 30, 1994 THROUGH
----------------------------- JUNE 30,
1997 1996 1997
(UNAUDITED) (UNAUDITED) (UNAUDITED)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from financing activities:
Proceeds upon issuance of common stock $ -- $ 1,944,941 $ 4,316,543
Proceeds upon issuance of preferred stock -- 2,273,707 2,273,707
Proceeds upon exercise of options - related -- 62,500
Proceeds upon exercise of options - unrelated -- 923,750 3,075,258
Purchase and conversion of CCI stock -- -- 45,000
Advances from related parties -- -- 767,734
Payment of advances from related parties -- -- (73,000)
Payments on capital lease obligations (6,683) (8,171) (30,770)
Payments of long-term debt (188,504) (64,244) (693,018)
Proceeds from issuance of notes payable -- -- 375,000
Proceeds from issuance of long-term debt 1,530,000 3,580,000 9,675,000
- --------------------------------------------------------------------------------------------------
Net cash provided by financing activities 1,334,813 8,649,983 19,793,954
- --------------------------------------------------------------------------------------------------
Net increase (decrease) in cash (1,088,306) 1,970,294 374,994
Cash at beginning of period 1,463,300 188,029 --
- --------------------------------------------------------------------------------------------------
Cash at end of period $ 374,994 $ 2,158,323 $ 374,994
==================================================================================================
Supplemental disclosure of cash paid for:
Taxes $ -- $ -- $ --
Interest $ 17,251 $ 107,339 $ 379,966
==================================================================================================
==================================================================================================
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
6
==============================================================================
<PAGE> 8
FORM 10-QSB
================================================================================
CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Unaudited Condensed Consolidated Financial Statements
June 30, 1997
================================================================================
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES
A. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements include
the accounts of Chadmoore Wireless Group, Inc. and subsidiaries (the
Company)(formerly CapVest Internationale, Ltd.), a development stage company,
and have been prepared in accordance with the rules and regulations of the
Securities and Exchange Commission Form 10-QSB. All material adjustments,
consisting only of normal recurring adjustments which are, in the opinion of
management, necessary to present fairly the financial condition and related
results of operations, cash flows and shareholders' equity for the respective
interim periods presented are reflected. The current period results of
operations are not necessarily indicative of results for the full year ended
December 31, 1997. These unaudited condensed consolidated financial statements
should be read in conjunction with the audited condensed consolidated financial
statements included in the Annual Report on Form 10-KSB for the period ending
December 31, 1996.
B. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, Earnings Per Share, (Statement 128)
which establishes standards for computing and presenting earnings per share
(EPS). It replaces the presentation of primary and fully diluted EPS with a
presentation of basic and diluted EPS. Statement 128 is effective for
financial statements for both interim and annual periods ending after December
15, 1997. Earlier application is not permitted. After adoption, all prior
period EPS data should be restated to conform to Statement 128.
The Company will adopt Statement 128 in the fourth quarter of 1997. The pro
forma impact of Statement 128, on the six months and three months ended June
30, 1997, is that basic and diluted EPS would have been $(.50) and $(.42) per
share, respectively.
In February 1997, the Financial Accounting Standards Board issued SFAS No.129,
"Disclosure of Information about Capital Structure" (SFAS No. 129). SFAS No.
129 establishes standards for disclosing information about an entity's capital
structure. The Company intends to comply with the disclosure requirements of
this statement which is effective for periods ending after December 15, 1997
and anticipates that implementation will not significantly impact the Company's
financial presentation of its capital structure.
In June 1997, the Financial Accounting Standards Board issued SFAS No.130,
"Reporting Comprehensive Income" (SFAS No. 130). SFAS No. 130 requires
companies to classify items of other comprehensive income by their nature in a
financial statement and display the accumulated balance of other comprehensive
income separately from retained earnings and additional paid-in capital in the
equity sections of a statement of financial position, and is effective for
financial statements issued for fiscal years beginning after December 15, 1997.
The Company is currently assessing the impact on the financial statements and
for the three months and six months ended June 30, 1997, the Company believes
that SFAS No. 130 will not result in comprehensive income different from net
income reported in the accompanying condensed consolidated financial statements.
In June 1997, the Financial Accounting Standards Board issued No. 131,
"Disclosure About Segments of an Enterprise and Related Information" (SFAS No.
131). SFAS No. 131 establishes additional standards for segment reporting in
the financial statements and is effective for fiscal years beginning after
December 15, 1997. The Company is currently assessing the impact on the
financial statements.
C. RECLASSIFICATIONS
Certain amounts in the 1996 Unaudited Condensed Consolidated Financial
Statements have been reclassified to conform with the 1997 presentation.
D. LOSS PER SHARE
Loss per share is computed by dividing the net loss by the weighted average
number of common shares outstanding at June 30, 1997 and 1996. The inclusion
of equivalent shares in the form of stock options and warrants were not
included in a computation of fully dilutive loss per share as the results would
be anti-dilutive.
7
================================================================================
<PAGE> 9
FORM 10-QSB
================================================================================
(2) SALE OF MANAGEMENT AND OPTION RIGHTS
A. ALASKA CHANNEL SALE
On April 4, 1997, the Company completed an agreement assigning management and
options to acquire twelve multi channel trunked SMR stations on 57 channels
located in Anchorage, Alaska for total consideration of $684,000. The
transaction is contingent upon receiving approval of the transfer from the
Federal Communications Commission ("FCC"), which was applied for in June, 1997.
The Company will be paid the consideration upon grant of the applications for
assignment of the twelve stations. The applications appeared on public notice
on August 5, 1997. They will be eligible for grant on September 4, 1997. The
sale will be recognized when realized. A deposit of $66,000 is currently being
held in escrow.
(3) MANAGEMENT AGREEMENTS AND INVESTMENT IN OPTION TO ACQUIRE LICENSES
In June of 1996 the Company completed the transaction to acquire all of the
issued and outstanding stock of Commercial Mobile Radio Service ("CMRS") and
800 SMR Network, Inc. ("800"). CMRS and 800 collectively held irrevocable 10
year Options to Acquire and Management Agreements in excess of 5,500 channels.
The Company is working to position itself to provide SMR service to its
customers in over 200 selected markets ("Proposed Operating Territory"), which
has an aggregate population in excess of fifty million (50,000,000) based on
1990 U.S. Census Metropolitan Statistical Area figures reported by Rand
McNally. This population number represents the number of people residing in
the aggregate markets and is not intended to be indicative of the number of
users or potential penetration rates as the Company establishes operating SMR
systems.
The Company's Subsidiaries, 800 and CMRS, manage over five hundred
multi-channel trunked SMR stations, representing over 5,500 channels licensed
to thirty-three corporations. The stations managed by 800 and CMRS Systems are
included in a five-year Extended Implementation Plan granted by the FCC on
March 31, 1995, under Section 90.629 of the FCC's rules, 47 C.F.R. Section
90.629. Under the Extended Implementation Plan, as granted, the stations must
be constructed in accordance with a five-year construction plan. On December
15, 1995, the FCC requested that all licensees included in a Section 90.629
Extended Implementation Plan file documents re-justifying the extended
construction period. A rejustification of the Extended Implementation Plan
including the stations managed by 800 and CMRS Systems was timely filed. On May
20, 1997, the FCC denied the re-justification plan. The FCC granted six months
from the date of the denial to complete construction of the stations managed by
800 and CMRS Systems. The licensees of the stations appealed the denial of the
rejustification by a Petition for Reconsideration filed with the FCC on June
18, 1997. The licensees also requested a stay of the construction deadline,
pending resolution of the underlying Petition for Reconsideration. No decision
has been rendered on these matters and the Company is unable to predict how
they will be decided. Under the Commission's decision, the license for any
station not constructed and placed in operation before November 20, 1997 will
be cancelled.
As a result of this ruling the Company is following a dual plan. It plans to
vigorously pursue all legal remedies available to it while constructing as many
markets as it deems economically viable, prior to the November 20, 1997, FCC
deadline. The construction plan encompasses several key components. First,
the Company has thoroughly reviewed and prioritized its more than 200 markets,
selecting 131 of these markets as its first priority ("Priority Markets").
While there can be no assurance, it is management's belief that it will
successfully construct substantially all of these Priority Markets by November
20, 1997. While there can be no assurance, management also believes that it is
reasonably likely that an additional 27 markets will be engineered and
constructed by November 20, 1997.
Also, as a result of this ruling, the Company believes that the value of certain
of these management agreement's and options to acquire licenses value has been
impaired. Management's estimate of the value of these assets and the
corresponding allowance, at June 30, 1997, is summarized as follows:
Each of the over 5,500 channels was assigned an allocation of the original
purchase price based on estimated fair market value based on management's
understanding of channel fair values relative to population coverage. The
channels that management estimates are either probable or reasonably likely to
be engineered and constructed by November 20, 1997 total 158 markets. These
channels have an estimated aggregate fair market value of $19,672,047 and are
carried in the accompanying condensed consolidated financial statements at that
amount. The total valuation, net of the allowance of $7,166,956, is
$25,329,931. The Company is actively pursuing several opportunities to realize
value from the remaining channels, that are not included in the 158 markets.
The remaining 42 markets represent $7,166,956 of the original purchase price
allocation. A valuation allowance of $7,166,956 has been recorded as management
is uncertain of the recoverability, if any, of the cost of these licenses and
management agreements.
8
================================================================================
<PAGE> 10
FORM 10-QSB
================================================================================
CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Unaudited Condensed Consolidated Financial Statements
June 30, 1997
================================================================================
(4) LONG-TERM DEBT
A. DEBT ISSUANCES AND CONVERSIONS
On June 10, 1997, the holder of the $1,750,000 convertible Debenture, tendered
a notice of payment for penalties in the amount of $52,500. The penalties are a
result of the Company's nonperformance to prepare and have declared effective,
a registration statement with the Securities and Exchange Commission to
register the shares underlying the convertible Debentures within 110 days from
the days of closing. In addition, on July 31, 1997, and August 1, 1997, the
holder tendered to the Company notices of conversion, pursuant to Regulation S,
for $100,000 and $50,000 of principal, respectively. The notices as tendered do
not comply with the requirements of Regulation S, and the Company has not
issued the requested stock. If the Company is compelled to issue all of the
stock into which the Debenture is convertible, the effect of the Company's
stock price and liquidity could be severe. In particular, the conversion price
(which is set off against amounts outstanding under the Debenture) is not
fixed, but is instead set at a substantial discount to the then-current market
price.
(5) EQUITY TRANSACTIONS
A. DEBT CONVERSIONS - UNRELATED PARTIES
On May 12, 1997, a certain holder of 8% three year, Convertible notes payable,
tendered the remaining $100,000 convertible note and $7,578 of accrued interest
for conversions into 218,521 shares of the Company's common stock. In response,
the Company issued the requested shares to the holder.
B. Options
During the six months ended June 30,1997, 489,100 stock options were granted by
the Company. The outstanding options issued to shareholders, employees,
consultants, investors and third parties through acquisitions are exercisable
for three to ten years from date of issuance. The following is a summary of
options outstanding and their terms as of June 30, 1997 and 1996:
<TABLE>
<CAPTION>
Number Number
Stock Options of shares of shares
1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Outstanding at January 1: 9,642,968 3,072,136
Granted at $.37-$6.00 per share 489,100 9,642,364
Less exercised at $0.37-$2.50 per share (323,857) (850,000)
Lapsed or canceled (255,000) (205,000)
- --------------------------------------------------------------------------------
Outstanding at June 30: 9,553,211 11,659,500
================================================================================
</TABLE>
Compensation expense of $-0- and $62,500 was recognized for the six months
ended June 30, 1997 and 1996, respectively.
9
================================================================================
<PAGE> 11
FORM 10-QSB
================================================================================
CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Unaudited Condensed Consolidated Financial Statements
June 30, 1997
================================================================================
The Company applied APB Opinion No. 25 in accounting for its Plan and,
accordingly, compensation expense of $-0- and $62,500 was recognized for the
six months ended June 30, 1997 and 1996, respectively. Had the Company
determined compensation cost based on the fair value at the grant date for its
stock options under SFAS No. 123, the Company's net income would have been the
pro forma amount indicated below:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30 THREE MONTHS ENDED JUNE 30
- --------------------------------------------------------------------------------
1997 1996 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net income As reported (9,728,789) (2,429,218) (8,395,182) (1,421,152)
Pro forma (.50) (.25) (.42) (.14)
EPS As reported (9,728,789) (2,429,218) (8,395,182) (1,421,152)
Pro forma (.50) (.25) (.42) (.14)
</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 25%, risk free interest rate of 6.5% and
expected life of one year for the options.
Pro forma net income reflects only options granted in the six months ended June
30, 1997 and 1996. Therefore, the full impact of calculating compensation cost
for stock options under SFAS No. 123 is not reflected in the pro forma net
income amounts presented above because compensation cost is reflected over the
options' vesting period of two years and compensation cost for options granted
prior to January 1, 1996 is not considered.
10
================================================================================
<PAGE> 12
FORM 10-QSB
================================================================================
CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Unaudited Condensed Consolidated Financial Statements
June 30, 1997
================================================================================
(6) REVENUES
For the three months and six months ended June 30, 1996, there was
approximately $65,000 of revenue that was from customers that were under a
management agreement, to expire in June, 1996. There were no such comparable
amounts included in financial statements for the three months and six months
ended June 30, 1997.
(7) COMMITMENTS AND CONTINGENCIES
A. LICENSE OPTION AND MANAGEMENT AGREEMENT CONTINGENCIES
Once a Specialized Mobilized Radio ("SMR") channel is operating, the Company
may exercise its option to acquire the license at any time prior to the
expiration of the option. Although, the Company presently intends to exercise
substantially all options, the exercise is subject to a number of
contingencies. These contingencies include timely construction of the station,
continued operation of the station once constructed, having the ability to
purchase the license and the Federal Communications Commission ("FCC") approval
of the assignment of the station.
The Company may elect not to exercise an option for various business reasons,
including the Company's inability to acquire other stations in a given market,
making it economically unfeasible for the Company to offer an SMR system in
such market. If the Company does not exercise an option, its grantor may
retain the consideration previously paid by the Company. Moreover, if the
Company defaults in its obligations under an option, the grantor may retain the
consideration previously paid by the Company as liquidated damages. Further,
if the SMR system is devalued by the Company's direct action, the Company may
be liable under the option for the full option price, provided the grantor is
not in breach of the Agreement.
Goodman/Chan Waiver. Nationwide Digital Data Corp. and Metropolitan
Communications Corp. (collectively, NDD/Metropolitan"), traded in the selling
of SMR application preparation and filing services to the general public. Most
of the purchasers in these activities had no experience in the wireless
communications industry. Based on evidence that NDD/Metropolitan had been
unable to fulfill their construction and operation obligations to over 4,000
applicants who had received FCC licenses, the Federal Trade Commission ("FTC")
filed suit against NDD/Metropolitan in January, 1993, in the Federal District
Court for the Southern District of New York ("District Court").
The District Court appointed a receiver, Daniel R. Goodman, to preserve the
assets of NDD/Metropolitan. In the course of the receiver's duties, Mr.
Goodman, together with a licensee, Dr. Robert Chan, who had received several
FCC licenses through NDD/Metropolitan's services, filed a request to extend the
construction period for each of over 4,000 SMR stations. At that time,
licensees of most of the stations included in the waiver request ("Receivership
Stations") were subject to an eight month construction period. On May 24,
1995, the FCC granted the request for extension. The FCC reasoned that the
Receivership Stations were subject to regulation as CMRS stations, but had not
been granted the extended construction period to be awarded all Commercial
Mobile Radio Service ("CMRS") licensees. In fairness, the FCC granted an
additional four months in which to construct and place the Receivership
Stations in operation. The grant of the Goodman/Chan Waiver is to become
effective upon publication in the Federal Register. As of this date, the
Goodman/Chan Waiver has not been published in the Federal Register.
The FCC has never released a list of stations it considers to be Receivership
Stations. Nonetheless, on the basis of general descriptions of the
Receivership Stations contained in FCC communications, the Company believes
that many of the stations CCI manages are Receivership Stations. In
cooperation with each licensee, CCI is proceeding with the construction of the
Receivership Stations it manages. Because the FCC will not release a list of
Receivership Stations, no assurance can be given that any of the stations
managed by CCI are Receivership Stations or that the construction of all of the
stations managed by CCI will be timely constructed. Only a portion of the
stations managed by CCI are implicated in or involved with the receivership.
11
================================================================================
<PAGE> 13
FORM 10-QSB
================================================================================
CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Unaudited Condensed Consolidated Financial Statements
June 30, 1997
================================================================================
B. LEGAL PROCEEDINGS
AIRNET, INC. V. CHADMOORE WIRELESS GROUP, INC. CASE NO. 768473, ORANGE COUNTY
SUPERIOR COURT
On April 3, 1997, Airnet, Inc. ("Airnet") served a summons and complaint on
Chadmoore Wireless Group, Inc. ("Chadmoore"), alleging claims related to a
proposed merger between Airnet and Chadmoore that never materialized. In
particular, Airnet has alleged that a certain "letter of intent" obligated the
parties to complete the proposed merger. Chadmoore denies this allegation. In
its complaint, Airnet has alleged the following purported causes of action
against Chadmoore: breach of contract, breach of the implied covenant of good
faith and fair dealing, intentional interference with prospective economic
advantage, intentional interference with contractual relationship, including
breach of contract, false promise and conversion. Airnet has also purported to
seek the following relief from Chadmoore: $28,000,000 in compensatory damages
plus interest, punitive damages, costs of suit and attorney's fees. Chadmoore
challenged the sufficiency of the complaint as to most of the purported causes
of action on the grounds that these purported causes of action fail to state
facts sufficient to constitute a cause of action. Chadmoore also challenged
the sufficiency of the punitive damages allegations on the grounds that the
compliant fails to state facts sufficient to support these allegations. Rather
than oppose these challenges to its complaint, Airnet elected to file a first
amended complaint. Believing that Airnet's amendments were immaterial
Chadmoore renewed its challenges to Airnet's pleading, and a hearing thereon
is set for September 9, 1997. Although the Company intends to defend the
action vigorously, it is still in its early stages and no substantial discovery
has been conducted in this matter. Accordingly, at this time, the Company is
unable to predict the outcome of this matter.
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In addition, the recent decline in the Company's
stock price has resulted in several threats by shareholders to commence
litigation against the Company on grounds relating to such price decline.
However as of today no such threat has been served on the Company. The Company
is also involved in legal proceedings as disclosed on Item 1, Part II hereof.
In the opinion of management, the ultimate disposition of these matters will not
have a material adverse effect on the Company's condensed consolidated financial
position, results of operations or liquidity.
(8) Subsequent Events
In July 1997, the Company entered into an agreement with Geotrans, a large,
wireless industry, turnkey construction company, to engineer and construct 50
markets by November 1, 1997 at a cost to the company of approximately $300,000.
Additional Priority Markets will be engineered and constructed internally, by
the Company. Substantially all of the communications equipment, required to
construct the Company's Priority Markets (SEE: ITEM 1: FOOTNOTE 3 ), has been
acquired by the Company, with approximately $600,000 remaining to be paid.
In July, 1997, the Company entered into a purchase and sale agreement with a
third party, whereby, the Company will sell its management rights and option to
acquire rights to FCC licenses encompassing 100 channels in five markets in
exchange for the purchase of SMR equipment valued at $900,000. This equipment
will be used in the construction of channels in the Priority Markets.
12
================================================================================
<PAGE> 14
FORM 10-QSB
================================================================================
CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Unaudited Condensed Consolidated Financial Statements
June 30, 1997
================================================================================
ITEM 2. PLAN OF OPERATION
CAUTIONARY STATEMENT
Information provided herein by the Company contains, and from time to time the
Company may disseminate material and make statements which may contain,
"forward looking" information, as that term is defined by the Private
Securities Litigation Reform Act of 1995 (the "PSLRA"). These cautionary
statements are being made pursuant to the provisions of the PSLRA and with the
intention of obtaining the benefits of the "safe harbor" provisions of the
PSLRA. The Company cautions investors that any forward-looking statements made
by the Company are not guarantees of future performance and that actual results
may differ materially from those in the forward-looking statements as a result
of various factors, including but not limited to the following:
(i) The Company competes with well-established
competitors who have substantially greater financial
resources and longer operating histories than the
Company.
(ii) The Company's business strategy requires it to have
access to substantial additional capital. There can
be no assurance that the Company will be able to
obtain such desired capital. (SEE ITEM 2. LIQUIDITY
AND CAPITAL RESOURCES)
(iii) The Company is subject to substantial regulatory
requirements, including FCC requirements that the
Company "build out" the Company's channels within
specified periods or risk losing its rights to such
channels. There can be no assurances that the
Company will be able to satisfy such requirements, or
that the Company will not be subject to other adverse
regulatory developments.
(iv) The Company is presently engaged in certain legal
proceedings. Adverse resolutions of such proceedings
could have material effect the Company's ability to
fulfill its business plan. (See: Item 1: Footnote 7)
(v) The Company has outstanding debt convertible into
common stock of the Company . If a substantial
portion of such debt were converted the results could
adversely affect the market for the Company's stock
and its ability to raise all forms of future
financing. (See: Item 1: Footnote 4)
PLAN OF OPERATION
The Company has entered into binding five and ten year Options to Acquire and
Management Agreements for over 7,000 (5,500 represent management agreements and
options to acquire licenses (See: Item 1, Footnote 3), 1,500 represent licenses
currently under the Goodman Chan ruling (See: Item 1, Footnote 7) licensed by
the Federal Communications Commission ("FCC"), in the Proposed Operating
Territory. The Company offers wireless communication services including two-way
dispatch, and telephone interconnect. In addition, the Company plans to offer
in a single handset, services and combinations of services currently not
available from cellular or Personal Communication Services ("PCS") service
providers. These services will include combined mobile telephone, dispatch and
data transmission. If market demands dictate the future conversion to a
spectrum-efficient, feature-rich digital infrastructure, such a conversion would
allow the Company to dramatically expand existing system capacity and provide
advanced features, call clarity, and call security to its subscribers. The
Company plans to use leased facilities on existing towers wherever possible to
avoid the capital cost of tower and shelter construction. The Company believes
that this approach should expedite and simplify the construction process and
avoid delays associated with local zoning, permit and logistical issues. In the
cases where construction is necessary, the Company will be required to bear the
costs of constructing a site, which may include access road development, land
acquisition, shelter costs, foundation and tower construction. Over the next 12
months, the marketing objective is to actively market the Company's services on
the systems it brings into operation and position the Company as as
advantageously as possible in the wireless communications industry. Motorola
is a principal supplier to the Company, and the Company believes that Motorola's
brand name recognition, combined with the Company's targeted marketing approach,
will assist in developing customer interest in the wireless services offered.
The strategy is to increase Company revenues with the smallest possible
incremental marketing expense.
The Company's recurring revenues consist primarily of subscriber network usage
revenues, which consist of monthly access fees per unit and incremental charges
based on minutes of use. From time to time, changes in the Company's plans may
dictate that
13
================================================================================
<PAGE> 15
FORM 10-QSB
================================================================================
facilities, originally acquired to be included in an operating system, will be
sold, traded or used in partnership with existing service providers in a
particular market to provide either additional cash flow for growth or to begin
or strengthen specific strategic alliances. In addition, the Company may, from
time to time, may elect to sell some of its management rights and option to
acquire rights to FCC licenses in certain markets to provide either additional
cash flow for growth or to begin or strengthen specific strategic alliances.
In March 1996, the Company acquired its first Operating System in Memphis,
Tennessee. In the third and fourth quarter of 1996, the Company began
operations in 3 additional markets. In 1997, the Company commenced full
commercial operations in 13 additional markets, bringing the total operational
markets to 17, covering a population of approximately 7 million people.
On May 20, 1997, the FCC issued a ruling regarding the re-justification plan
for the approximately 5,500 channels (SEE: ITEM 1: NOTE 3), which requires the
company to construct systems utilizing the FCC licenses by November 20, 1997 or
the licenses will revert back to the FCC.
As a result of this ruling the Company is vigorously pursuing all legal
remedies available to it while also accelerating its build out plan to
construct as many markets as possible, which it deems economically viable,
prior to the November 20, 1997 FCC deadline. The construction plan encompasses
several key components. The company has thoroughly reviewed and prioritized
its more than 200 markets, selecting 131 of these markets as its first priority
("Priority Markets").
The Company's objectives over the next 12 months are to construct and
commercialize Specialized Mobile Radio ("SMR") systems in its Priority Markets,
increase the distribution network, enhance its marketing plan and increase
recurring revenues through the addition of subscribers. The Company currently
owns, manages and operates commercial analog SMR systems in Richmond, Virginia,
Memphis, Tennessee, Little Rock, Pine Bluff, and Fayetteville, Arkansas,
Augusta, Georgia, Baton Rouge, Louisiana, Portland and Lewiston, Maine,
Mankato, Minnesota, Bowling Green, Kentucky, Charlotte, North Carolina, Bay
City, Michigan, Syracuse, New York, Fort Wayne, Indiana, Austin, Texas and
Naples, Florida (collectively, the "Operating Systems"). Through aggressive
loading of customers in the areas covered by the Operating Systems and
construction of additional SMR stations, the Company will seek to increase its
customer base and corresponding revenues within each market. Through 1996, the
Company concentrated its efforts on acquiring interests in licenses in over 200
selected markets, located in smaller cities (having populations between 25,000
and 1,500,000), towns and rural areas. During the next twelve months the
Company plans to leverage these acquisitions into operating systems in as many
markets as deemed economically advantageous and permitted by the remaining time
under FCC regulations. The plan is to select markets within the Proposed
Operating Territory with adequate available channel density, population base,
quality distribution and service entities, pent-up demand from lack of channel
capacity and deemed capable of generating sufficient revenues to become cash
flow positive in acceptable time frames.
In July 1997, the Company entered into an agreement with Geotrans Wireless
Inc., a large, wireless industry, turnkey construction company, to engineer and
construct at least 50 markets by November 1, 1997 at a cost to the company of
approximately $300,000. Additional first Priority Markets will be engineered
and constructed internally, by the Company. Substantially all of the
communications equipment, required to construct the Priority Markets, has been
acquired by the Company, with approximately $600,000 remaining to be paid.
In addition, in order to continue the aggressive commercialization and loading
of its Priority Markets, the Company has entered into agreements with selected
SMR dealers whereby they will finance, install, optimize and actively load
certain of the Priority Markets in exchange for an ownership of 20% to 30% of
the individual market. To date, approximately 12- 15 markets are planned under
this program.
For markets that do not fall into the Priority Market category, the company is
actively pursuing several opportunities to realize value from these licenses
prior to November 20, 1997.
The Company has elected to focus on existing SMR dealers as its primary method
of distribution: The dramatic reduction in capital required by maximizing the
use of dealers makes the use of this marketing channel an extremely attractive
method of distribution. In markets in which the Company operates, but where a
suitable dealer or independent agent is not available, the Company will
establish its own marketing presence. In those markets the Company will open a
sales office. Each sales office is planned to have a minimal retail presence
for walk-in customer traffic. In addition, the Company's management team
recognizes that additional staff will be required to properly support
marketing, sales, engineering, and accounting to achieve its 1997 marketing
objectives. However, the Company's business plan is not based on significant
additions of employees as it relates to the number of potential markets in the
Proposed Operating Territory.
While there can be no assurance, it is management's belief that it will
successfully construct substantially all of these Priority Markets by November
20, 1997.
14
================================================================================
<PAGE> 16
FORM 10-QSB
================================================================================
CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Unaudited Condensed Consolidated Financial Statements
June 30, 1997
================================================================================
LIQUIDITY AND CAPITAL RESOURCES
During the next five months, the Company will require access to approximately
$1.0 million to enable it to complete construction of operating systems in its
Priority Markets in order to comply with FCC rules and regulations to meet the
construction deadlines and to meet operating expenses. In addition, the Company
believes that in the next 12 months it will require approximately $8.0 million
to $17.0 million for capital expenditures associated with full
commercialization and marketing of its services as well as meeting operating
expenses, depending on the rate of commercial market growth.
The Company's sources of capital have been the proceeds from the sale of common
stock from private placements, vendor financing, convertible preferred stock,
debt or convertible debt and cash from proceeds from the exercise of the
Company's options. No Company convertible preferred stock remains outstanding.
On October 25, 1996, the Company's subsidiary Chadmoore Communications, Inc.
("CCI") signed a purchase agreement with Motorola to purchase approximately
$10,000,000 of Motorola's radio communications equipment, including Smartnet II
trunked radio systems. The agreement requires that the equipment be purchased
within 30 months of the effective date of the agreement.
In connection with this purchase agreement, CCI entered into a financing and
security agreement with Motorola, Inc. ("Motorola") for the equipment stated
above. This agreement allows CCI to borrow up to a total of $5,000,000 (the
"Loan Facility"). The Loan Facility is available for draw downs during the
effective term of the purchase agreement. The Loan Facility allows no more
than one draw down per month. Each of the draw downs will be evidenced by a
promissory note (the "Promissory Note"). Principal and interest on the
Promissory Note are payable in arrears monthly from the date of each funding
for a period of 36 months from the funding date. The Loan Facility agreement
closed on October 25, 1996 and is subject to certain pledges, representations,
warrants and covenants. As a part of the financing provided pursuant to the
purchase agreement between CCI and Motorola, the Company executed a guaranty
and security agreement with Motorola, pursuant to which the Company
unconditionally and irrevocably guarantees the obligations of CCI under the
purchase agreement. The guaranty and security agreement contains various
financial and other covenants of the Company. As of June 30, 1997, the Company
is indebted for $304,477 under the loan facility.
In February 1997, the Company executed a Securities Placement Agreement to
place a minimum of $1,000,000 and maximum of $4,000,000 of the Company's three
year, 8%, convertible Debentures. Principal and interest are convertible into
shares of the Company's common stock. The Securities Purchase Agreement calls
for the issuance of 75,000 warrants to purchase shares of the Company's common
stock at an exercise price of $2.50 per share for each $1 million of 8%
convertible debentures placed. The warrants are exercisable for three years
from date of grant. On February 19, 1997, the Company placed $1,000,000 of the
8% convertible Debentures and received $860,000, net of $140,000 of placement
fees. The Company granted 75,000 warrants in connection with the placement. On
February 24, 1997, the Company placed an additional $750,000 of the 8%
Convertible Debentures and received $670,000, net of $80,000 in placement fees.
The Company granted 56,250 warrants in connection with the placement. (See Item
1, Footnote 4)
On June 10, 1997, the holder of a $1,750,000 convertible Debenture, tendered a
notice of payment for penalties in the amount of $52,500. The penalties are a
result of the Company's nonperformance to prepare and have declared effective, a
registration statement with the Securities and Exchange Commission to register
the shares underlying the convertible Debentures within 110 days from the days
of closing. In addition, on July 31, 1997, and August 1, 1997, the holder
tendered to the Company notices of conversion, pursuant to Regulation S, for
$100,000 and $50,000 of principal, respectively. The notices as tendered do not
comply with the requirements of Regulation S, and the Company therefor has not
issued the requested stock. If the Company is compelled to issue all of the
stock into which the Debenture is convertible, the effect of the Company's stock
price and liquidity could be severe. In particular, the conversion price (which
is set off against amounts outstanding under the Debenture) is not fixed, but is
instead set at a substantial discount to the then-current market price.
Depending on the Company's ability to obtain additional funding, the Company
may fund approximately $4.5 million of the $10.0 million required for the
construction of SMR systems over the next twelve months through the Loan
Facility with Motorola.
The Company is exploring the possibility of doing one or more of the following
in the next twelve months: (i) an offering of long-term promissory notes, (ii)
an offering of its preferred stock (iii)operating or capital lease financing
and/or (iv) sale of certain management rights and option to acquire rights to
FCC licenses.
On June 5, 1997, the Company engaged the firm of Private Equity Partners, LLC
("PEP") to provide financial advisory services associated with the raising of
capital for the Company in the form of the issuance and/or sale of equity
and/or debt securities.
15
================================================================================
<PAGE> 17
FORM 10-QSB
================================================================================
Accordingly, based on the plans and intentions set forth above, management
desires, through the establishment of operational SMR systems, short term
funding of operations and long term acquisition and development activities, to
emerge from the development stage and establish normal operations in early
1998. However, there can be no assurance that the Company will achieve the
objectives discussed herein, or of the overall profitability of the Company's
operations once its development stage has ended.
16
================================================================================
<PAGE> 18
FORM 10-QSB
================================================================================
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
AIRNET, INC. V. CHADMOORE WIRELESS GROUP, INC. CASE NO. 768473, ORANGE COUNTY
SUPERIOR COURT
On April 3, 1997, Airnet, Inc. ("Airnet") served a summons and complaint on
Chadmoore Wireless Group, Inc. ("Chadmoore"), alleging claims related to a
proposed merger between Airnet and Chadmoore that never materialized. In
particular, Airnet has alleged that a certain "letter of intent" obligated the
parties to complete the proposed merger. Chadmoore denies this allegation. In
its complaint, Airnet has alleged the following purported causes of action
against Chadmoore: breach of contract, breach of the implied covenant of good
faith and fair dealing, intentional interference with prospective economic
advantage, intentional interference with contractual relationship, including
breach of contract, false promise and conversion. Airnet has also purported to
seek the following relief from Chadmoore: $28,000,000 in compensatory damages
plus interest, punitive damages, costs of suit and attorney's fees. Chadmoore
challenged the sufficiency of the complaint as to most of the purported causes
of action on the grounds that these purported causes of action fail to state
facts sufficient to constitute a cause of action. Chadmoore also challenged
the sufficiency of the punitive damages allegations on the grounds that the
compliant fails to state facts sufficient to support these allegations. Rather
than oppose these challenges to its complaint, Airnet elected to file a first
amended complaint. Believing that Airnet's amendments were immaterial
Chadmoore renewed its challenges to Airnet's pleading, and a hearing thereon
is set for September 9, 1997. Although the Company intends to defend the
action vigorously, it is still in its early stages and no substantial discovery
has been conducted in this matter. Accordingly, at this time, the Company is
unable to predict the outcome of this matter.
CHADMOORE COMMUNICATIONS, INC. V. JOHN PEACOCK CASE NO. CV-S-97-00587-HDM
(RLH), UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEVADA
In September 1994, Chadmoore Communications, Inc. ("CCI") entered into a two
year consulting agreement (the "Consulting Agreement" with John Peacock
("Peacock") to act as a consultant and technical advisor to CCI concerning
certain specialized mobile radio ("SMR") stations. In May, 1997 CCI filed a
complaint against Peacock for declaratory relief in the United States District
Court for the District of Nevada, seeking a declaration of the respective
rights and obligations of CCI under the Consulting Agreement. CCI is seeking
this judicial declaration based upon Peacock's contention that he is entitled
to certain bonus compensation under the Consulting Agreement. Peacock contends
that this bonus compensation is due regardless of whether an SMR license is
granted based upon his activities as a consultant. CCI contends that the
Consultant Agreement is clear that such bonus compensation is only awarded upon
the "grant" of an SMR license. If Peacock's contentions are found by a court
to be correct, he could be entitled to bonus compensation of $105,000, and
possibly more; the exact amount would depend on a variety of factors, including
the FCC's determination(s) as to pending finder's preference requests. In lieu
of answering the complaint, Peacock filed a motion seeking dismissal of the
action based on the assertion that he is not subject to jurisdiction in Nevada
courts. That motion is currently being briefed, and no decision has been
rendered by the Court. No discovery has been taken in this action to date,
and, because this action is in its early stages, we are unable to predict its
outcome.
GOODMAN/CHAN WAIVER PETITION JUNE 1997- WTB
The Goodman/Chan waiver petition involves approximately 4000 individuals who
obtained 800 MHz Specialized Mobile Radio (SMR) licenses through application
mills that were subsequently shut down by the Federal Trade Commission in a
fraud action in federal court. A court-appointed Receiver sought an extension
of the eight-month construction period on behalf of all of the affected
licensees. The extention was sought because the licensees wish to sell their
licenses to established SMR operators to recoup their "investment" losses, and
Commission rules provide that only constructed and operational systems may be
transferred. Many of the licensees appear to be unsophisticated investors who
were unaware of or misinformed regarding their responsibilities as licensees.
On May 22, 1995, the Commission issued the Goodman/Chan Order, which granted
the Goodman/Chan Licensees limited relief by extending the build-out period for
the affected licenses from eight months to twelve months. The twelve-month
construction period was granted to put Goodman/Chan Licensees in the same
posture as other Part 90 Commercial Mobile Radio Service (CMRS) providers,
because during the intervening period, the Commission had changed the
construction period for new CMRS licenses (including SMR licenses) from eight
to twelve months. The Commission also stated that the four month extension
would commence upon publication of the Goodman/Chan Order in the Federal
Register. However, publication of the order in the Federal Register was and
remains delayed because of litigation brought by Receiver to resolve certain
licensing issues.
In the interim, some Goodman/Chan licenses have constructed facilities and
requested permission to operate under Special
17
================================================================================
<PAGE> 19
FORM 10-QSB
================================================================================
Temporary Authority (STA). STAs are required for these facilities because
licensees find their original licensed sites to be unsuitable for construction
and have therefore constructed at alternate sites for which they are not yet
licensed. However, under the Communications Act, CMRS providers may not
routinely obtain STAs, but must demonstrate the existence of extraordinary
circumstances. This policy has affected Goodman/Chan licensees because
Congressional amendments enacted in 1993 to the Communications Act have caused
these licensees to be recently reclassified as CMRS providers.
The Commission has adopted its Second Report and Order and Memorandum Opinion
and Order in the 800 MHz SMR proceeding. These rulings may make it easier for
the Goodman/Chan licensees. For example, Goodman/Chan licensees that have
licenses on the lower 230 channels in the 800 MHz block will be permitted to
transfer or assign unconstructed facilities. Those licensees that desire to
continue to operate their facilities, will be able to do so within their 18 dbu
interference contours. Licensees will also be able to more freely partition
and disaggregate their licenses to other parties. These measures should assist
Goodman/Chan licensees in either selling or building out their licenses.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULT UPON SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES' HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
18
================================================================================
<PAGE> 20
FORM 10-QSB
================================================================================
ITEM 6. EXHIBITS AND CURRENT REPORTS ON FORM 8K
<TABLE>
<S> <C>
(a)(1) A list of the financial statements and schedules thereto as filed in this report
reside at Item 7 on page F1 of this report.
(a)(2) The following exhibits are submitted herewith:
2.1 Agreement and Plan of Reorganization dated February 2, 1995, by and between the
Company (f/k/a CapVest Internationale, Ltd.) and Chadmoore Communications, Inc. 1
2.2 Addendum to the Agreement and Plan of Reorganization, dated February 21, 1995, by and
between the Company (f/k/a CapVest Internationale, Ltd.) and Chadmoore
Communications, Inc. 1
2.3 Addendum No. 2 to the Agreement and Plan of Reorganization, dated March 31, 1995, by
and between the Company (f/k/a CapVest Internationale, Ltd.) and Chadmoore
Communications, Inc.1
3.1 Articles of Incorporation1
3.2 Articles of Amendment to the Articles of Incorporation filed November 1, 19883
3.3 Articles of Amendment to the Articles of Incorporation filed April 28, 19954
3.4 Articles of Amendment to the Articles of Incorporation filed April 1, 19965
3.5 Articles of Amendment to the Articles of Incorporation filed April 11, 19966.
3.6 Bylaws2
4.1 Form of Warrant Certificate, together with the Terms of Warrants7
4.2 Registration Rights Agreement8
4.3 Certificate of Designation of Rights and Preferences of Series A Convertible Preferred
Stock of the Company9
10.1 Amended Nonqualified Stock Option Plan dated October 12, 1995 (employee stock option
plan covering 1,500,000 shares) 10
10.2 Employee Benefit and Consulting Services Plan dated July 7, 199511
10.3 First Amendment to the Employee Benefit and Consulting Services Plan dated December 8,
199512
</TABLE>
1 Incorporated by reference to Exhibit 1 in the Form 8-K, under Item 2, date of
earliest event reported- February 21, 1995
2 Incorporated by reference to Exhibit 3 to the Company's Registration
Statement on Form S-18 (33-14841-D)
3 Incorporated by reference to Exhibit 3.2 to the Company's Form 10-KSB for the
year ended December 31, 1995
4 Incorporated by reference to Exhibit 3.3 to the Company's Form 10-KSB for the
year ended December 31, 1995
5 Incorporated by reference to Exhibit 3.4 to the Company's Form 10-KSB for the
year ended December 31, 1995
6 Incorporated by reference to Exhibit 3.5 to the Company's Form 10-KSB for the
year ended December 31, 1995
7 Incorporated by reference to Exhibit 4.1 to the Company's Form 10-KSB for the
year ended December 31, 1995
8 Incorporated by reference to Exhibit 4.2 to the Company's Form 10-KSB for the
year ended December 31, 1995
9 Incorporated by reference to Exhibit 3.4 to the Company's Form 10-KSB for the
year ended December 31, 1995
10 Incorporated by reference to Exhibit 10.1 to the Company's Form 10-KSB for
the year ended December 31, 1995
11 Incorporated by reference to Exhibit 4.1 to the Registration Statement on
Form S-8 effective July 12, 1996 (file no. 33-94508)
12 Incorporated by reference to Exhibit 4.1 to the Registration Statement on
Form S-8 effective December 1, 1996 (file no.33-80405)
19
================================================================================
<PAGE> 21
FORM 10-QSB
================================================================================
ITEM 6. EXHIBITS AND CURRENT REPORTS ON FORM 8K - CONTINUED
<TABLE>
<S> <C>
(a)(2) The following exhibits are submitted herewith: - Concluded
10.4 Employment Agreement between the Company and Robert W. Moore effective as of April 21,
199513
10.5 Employment Agreement between the Company and David J. Chadwick effective as of April
21, 199514
10.6 Employment Agreement between the Company and William C. Bossung effective as of April
21, 199515
10.7 Integrated Dispatch Enhanced Network ("iDEN") Purchase Agreement dated February 28,
1996 by and between the Company and Motorola, Inc. 16
10.8 Amendment Number 001 to the Integrated Dispatch Enhanced Network (iDEN) Purchase
Agreement dated March 25, 199617
10.9 Asset Purchase Agreement dated November 2, 1994 by and between Chadmoore
Communications, Inc., and General Communications Radio Sales and Service, Inc.,
General Electronics, Inc. and Richard Day with Exhibits18
10.10 Modification to Asset Purchase Agreement dated March 8, 1996 by and between Chadmoore
Communications, Inc., the Company and Chadmoore Communications of Tennessee, Inc. and
General Communications Radio Sales and Service, Inc., General Electronics, Inc. and
Richard Day with Exhibits19
10.11 Stock Purchase Agreement dated June 14, 1996, by and between Chadmoore Wireless Group,
Inc. and Libero Limited20
10.12 Purchase Agreement between Motorola, Inc. and Chadmoore Wireless Group, Inc. and
Chadmoore Communications, Inc., dated October 25, 199621
10.13 Promissory Note executed by Chadmoore Communications, Inc. payable to Motorola, Inc.,
dated December 30, 199622
10.14 Guarantee and Security Agreement executed by Chadmoore Wireless Group, Inc. in favor
of Motorola, Inc., dated December 30, 199623
11.1 Calculation of Weighted Average Shares Outstanding (see Condensed Consolidated Statement of
Operations and Notes to Consolidated Financial Statement)
16.1 Letter of Mitchell Finley & Company, P.C. dated July 10, 1995, stating its concurrence
with the disclosure contained in the Company's Current Report on Form 8-K24
21.1 Subsidiaries of the Company25
23.1 Consent of KPMG Peat Marwick LLP26
27.1 Financial Data Schedule
</TABLE>
- --------------------------------------------------------------------------------
13 Incorporated by reference to Exhibit 10.4 to the Company's Form 10-KSB for
the year ended December 31, 1995
14 Incorporated by reference to Exhibit 10.5 to the Company's Form 10-KSB for
the year ended December 31, 1995
15 Incorporated by reference to Exhibit 10.6 to the Company's Form 10-KSB for
the year ended December 31, 1995
16 Incorporated by reference to Exhibit 10.7 to the Company's Form 10-KSB for
the year ended December 31, 1995
17 Incorporated by reference to Exhibit 10.8 to the Company's Form 10-KSB for
the year ended December 31, 1995
18 Incorporated by reference to Exhibit 2.2 to the Company's Form 8K, under
Item 2, date of earliest event reported - March 8, 1996
19 Incorporated by reference to Exhibit 2.1 to the Company's Form 8K, under
Item 2, date of earliest event reported - March 8, 1996
20 Incorporated by reference to Exhibit 10.11 to the Company's Form 8K, under
Item 2, date of earliest event reported - June 14, 1996
21 Incorporated by reference to Exhibit 10.12 to the Company's Form 10-KSB, for
the year ended December 31, 1996.
22 Incorporated by reference to Exhibit 10.13 to the Company's Form 10-KSB, for
the year ended December 31, 1996.
23 Incorporated by reference to Exhibit 10.14 to the Company's Form 10-KSB, for
the year ended December 31, 1996.
24 Incorporated by reference to Exhibit 16 to the Company's Form 8K, under Item
4, date of earliest event reported - July 7, 1995
25 Incorporated by reference to Exhibit 21.1 to the Company's Form 10-KSB, for
the year ended December 31, 1996.
26 Incorporated by reference to Exhibit 23.1 to the Company's Form 10-KSB, for
the year ended December 31, 1996.
20
================================================================================
<PAGE> 22
FORM 10-QSB
================================================================================
ITEM 6. EXHIBITS AND CURRENT REPORTS ON FORM 8K - CONCLUDED
(b) Current Reports on Form 8-K
I. Current Report on Form 8-K filed on 1997, reporting the
resignation of Gary L. Killoran, Chief Financial Officer and
Director of the Company.
21
================================================================================
<PAGE> 23
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
Chadmoore Wireless Group, Inc.
(formerly CapVest International, Ltd.)
By: /s/ Jan Zwaik
------------------------------------
Jan Zwaik
Chief Financial Officer
Date: August 14, 1997
<PAGE> 24
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
2.1 Agreement and Plan of Reorganization dated February 2, 1995, by and between the
Company (f/k/a CapVest Internationale, Ltd.) and Chadmoore Communications, Inc. 1
2.2 Addendum to the Agreement and Plan of Reorganization, dated February 21, 1995, by and
between the Company (f/k/a CapVest Internationale, Ltd.) and Chadmoore
Communications, Inc. 1
2.3 Addendum No. 2 to the Agreement and Plan of Reorganization, dated March 31, 1995, by
and between the Company (f/k/a CapVest Internationale, Ltd.) and Chadmoore
Communications, Inc.1
3.1 Articles of Incorporation1
3.2 Articles of Amendment to the Articles of Incorporation filed November 1, 19883
3.3 Articles of Amendment to the Articles of Incorporation filed April 28, 19954
3.4 Articles of Amendment to the Articles of Incorporation filed April 1, 19965
3.5 Articles of Amendment to the Articles of Incorporation filed April 11, 19966.
3.6 Bylaws2
4.1 Form of Warrant Certificate, together with the Terms of Warrants7
4.2 Registration Rights Agreement8
4.3 Certificate of Designation of Rights and Preferences of Series A Convertible Preferred
Stock of the Company9
10.1 Amended Nonqualified Stock Option Plan dated October 12, 1995 (employee stock option
plan covering 1,500,000 shares) 10
10.2 Employee Benefit and Consulting Services Plan dated July 7, 199511
10.3 First Amendment to the Employee Benefit and Consulting Services Plan dated December 8,
199512
</TABLE>
1 Incorporated by reference to Exhibit 1 in the Form 8-K, under Item 2, date of
earliest event reported- February 21, 1995
2 Incorporated by reference to Exhibit 3 to the Company's Registration
Statement on Form S-18 (33-14841-D)
3 Incorporated by reference to Exhibit 3.2 to the Company's Form 10-KSB for the
year ended December 31, 1995
4 Incorporated by reference to Exhibit 3.3 to the Company's Form 10-KSB for the
year ended December 31, 1995
5 Incorporated by reference to Exhibit 3.4 to the Company's Form 10-KSB for the
year ended December 31, 1995
6 Incorporated by reference to Exhibit 3.5 to the Company's Form 10-KSB for the
year ended December 31, 1995
7 Incorporated by reference to Exhibit 4.1 to the Company's Form 10-KSB for the
year ended December 31, 1995
8 Incorporated by reference to Exhibit 4.2 to the Company's Form 10-KSB for the
year ended December 31, 1995
9 Incorporated by reference to Exhibit 3.4 to the Company's Form 10-KSB for the
year ended December 31, 1995
10 Incorporated by reference to Exhibit 10.1 to the Company's Form 10-KSB for
the year ended December 31, 1995
11 Incorporated by reference to Exhibit 4.1 to the Registration Statement on
Form S-8 effective July 12, 1996 (file no. 33-94508)
12 Incorporated by reference to Exhibit 4.1 to the Registration Statement on
Form S-8 effective December 1, 1996 (file no.33-80405)
<PAGE> 25
<TABLE>
<S> <C>
10.4 Employment Agreement between the Company and Robert W. Moore effective as of April 21,
199513
10.5 Employment Agreement between the Company and David J. Chadwick effective as of April
21, 199514
10.6 Employment Agreement between the Company and William C. Bossung effective as of April
21, 199515
10.7 Integrated Dispatch Enhanced Network ("iDEN") Purchase Agreement dated February 28,
1996 by and between the Company and Motorola, Inc. 16
10.8 Amendment Number 001 to the Integrated Dispatch Enhanced Network (iDEN) Purchase
Agreement dated March 25, 199617
10.9 Asset Purchase Agreement dated November 2, 1994 by and between Chadmoore
Communications, Inc., and General Communications Radio Sales and Service, Inc.,
General Electronics, Inc. and Richard Day with Exhibits18
10.10 Modification to Asset Purchase Agreement dated March 8, 1996 by and between Chadmoore
Communications, Inc., the Company and Chadmoore Communications of Tennessee, Inc. and
General Communications Radio Sales and Service, Inc., General Electronics, Inc. and
Richard Day with Exhibits19
10.11 Stock Purchase Agreement dated June 14, 1996, by and between Chadmoore Wireless Group,
Inc. and Libero Limited20
10.12 Purchase Agreement between Motorola, Inc. and Chadmoore Wireless Group, Inc. and
Chadmoore Communications, Inc., dated October 25, 199621
10.13 Promissory Note executed by Chadmoore Communications, Inc. payable to Motorola, Inc.,
dated December 30, 199622
10.14 Guarantee and Security Agreement executed by Chadmoore Wireless Group, Inc. in favor
of Motorola, Inc., dated December 30, 199623
11.1 Calculation of Weighted Average Shares Outstanding (see Condensed Consolidated Statement of
Operations and Notes to Consolidated Financial Statement)
16.1 Letter of Mitchell Finley & Company, P.C. dated July 10, 1995, stating its concurrence
with the disclosure contained in the Company's Current Report on Form 8-K24
21.1 Subsidiaries of the Company25
23.1 Consent of KPMG Peat Marwick LLP26
27.1 Financial Data Schedule
</TABLE>
- --------------------------------------------------------------------------------
13 Incorporated by reference to Exhibit 10.4 to the Company's Form 10-KSB for
the year ended December 31, 1995
14 Incorporated by reference to Exhibit 10.5 to the Company's Form 10-KSB for
the year ended December 31, 1995
15 Incorporated by reference to Exhibit 10.6 to the Company's Form 10-KSB for
the year ended December 31, 1995
16 Incorporated by reference to Exhibit 10.7 to the Company's Form 10-KSB for
the year ended December 31, 1995
17 Incorporated by reference to Exhibit 10.8 to the Company's Form 10-KSB for
the year ended December 31, 1995
18 Incorporated by reference to Exhibit 2.2 to the Company's Form 8K, under
Item 2, date of earliest event reported - March 8, 1996
19 Incorporated by reference to Exhibit 2.1 to the Company's Form 8K, under
Item 2, date of earliest event reported - March 8, 1996
20 Incorporated by reference to Exhibit 10.11 to the Company's Form 8K, under
Item 2, date of earliest event reported - June 14, 1996
21 Incorporated by reference to Exhibit 10.12 to the Company's Form 10-KSB, for
the year ended December 31, 1996.
22 Incorporated by reference to Exhibit 10.13 to the Company's Form 10-KSB, for
the year ended December 31, 1996.
23 Incorporated by reference to Exhibit 10.14 to the Company's Form 10-KSB, for
the year ended December 31, 1996.
24 Incorporated by reference to Exhibit 16 to the Company's Form 8K, under Item
4, date of earliest event reported - July 7, 1995
25 Incorporated by reference to Exhibit 21.1 to the Company's Form 10-KSB, for
the year ended December 31, 1996.
26 Incorporated by reference to Exhibit 23.1 to the Company's Form 10-KSB, for
the year ended December 31, 1996.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 374,994
<SECURITIES> 0
<RECEIVABLES> 420,219
<ALLOWANCES> 0
<INVENTORY> 207,615
<CURRENT-ASSETS> 1,155,224
<PP&E> 3,907,776
<DEPRECIATION> (414,905)
<TOTAL-ASSETS> 35,552,126
<CURRENT-LIABILITIES> 1,759,871
<BONDS> 0
0
0
<COMMON> 19,969
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 35,552,126
<SALES> 1,081,884
<TOTAL-REVENUES> 1,081,884
<CGS> 545,489
<TOTAL-COSTS> 3,446,803
<OTHER-EXPENSES> 7,363,870
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 144,729
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,728,789)
<EPS-PRIMARY> (0.50)
<EPS-DILUTED> (0.50)
</TABLE>
