<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A-1
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
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 or other jurisdiction of incorporation (IRS 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 required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or 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 to be
filed 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 JANUARY 15, 1997
18,407,610 SHARES OF COMMON STOCK, $.001 PAR VALUE, OUTSTANDING.
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
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<PAGE> 2
INDEX
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ITEM 1. FINANCIAL STATEMENTS
Unaudited Consolidated Financial Statements of Chadmoore
Wireless Group, Inc. and Subsidiaries:
Consolidated Balance Sheets:
As of September 30, 1996 and December 31, 1995 1-2
Consolidated Statements of Operations:
For the Nine Months Ended September 30, 1996 and 1995
and Cumulative from January 1, 1994 to September 30, 1996 3
For the Three Months Ended September 30, 1996 and 1995 4
Consolidated Statements of Cash Flows:
For the Nine Months Ended September 30, 1996 and 1995 and
Cumulative from January 1, 1994 to September 30, 1996 5-6
Consolidated Statement of Changes in Shareholders' Equity
(Deficiency):
For the Nine Months Ended September 30, 1996 7
Notes to Unaudited Consolidated Financial Statements 8-17
ITEM 2. PLAN OF OPERATION 18-21
PART II - OTHER INFORMATION 22
ITEM 1. LEGAL PROCEEDINGS 22
ITEM 2. CHANGES IN SECURITIES 22
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 22
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS 22
ITEM 5. OTHER INFORMATION 22
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 23-25
SIGNATURES 26
</TABLE>
<PAGE> 3
PART I. ITEM I. FINANCIAL STATEMENTS
CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
ASSETS (Unaudited)
----------- -----------
<S> <C> <C>
Current Assets:
Cash $ 3,203,897 $ 188,029
Amounts held for shares issued -- 675,000
Stock subscriptions receivable (note 3) 32,890 287,000
Accounts receivable 234,956 --
Inventory 319,602 --
Due from General Communications -- 76,252
Prepaid property management rights 90,625 117,813
Other prepaids 37,066 --
Deposits 462,853 16,742
Other current assets 1,642 7,813
----------- -----------
Total Current Assets 4,383,531 1,368,649
Property, plant and equipment, net (note 4) 2,414,053 353,942
FCC licenses, net (note 5) 1,414,248 1,321,336
Debt issuance costs, net 363,402 --
Management Agreements (note 2) 22,725,442 --
Customer Lists, net (note 2) 37,831 --
Other Receivable 20,000 20,000
Investment in JJ&D, LLC (note 2) 598,677 --
Investment in license options (note 6) 3,020,012 2,007,958
Investment in options to acquire stock (note 2) 9,771,445 --
Non-competition and consulting agreements, net of
accumulated amortization $-0- and
$94,838, respectively -- 258,121
----------- -----------
Other noncurrent assets 66,791 31,489
----------- -----------
$44,757,601 $ 5,341,495
=========== ===========
</TABLE>
1
<PAGE> 4
CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
(CONCLUDED)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
LIABILITIES AND SHAREHOLDERS' EQUITY (Unaudited)
------------ ------------
<S> <C> <C>
Liabilities:
Current installments of long-term debt $ 200,614 $ 337,255
Accounts payable and accrued liabilities 299,990 361,641
Prepaid option exercise (note 9) 1,582,116 --
Customer Deposits 1,600 --
Licenses - options payable 49,800 448,350
License option commission payable (note 6) 524,800 349,200
Capital lease obligations 27,113 --
Non-compete and consulting agreement - current -- 119,225
Accrued interest 62,346 54,490
------------ ------------
Total Current Liabilities 2,748,379 1,670,161
Non compete and consulting agreements, excluding current
installments -- 108,840
Capital lease obligations 21,390 --
Convertible notes payable (note 8) 3,985,000 --
Long term debt, excluding current installments, net(note 8) 1,094,727 524,868
------------ ------------
Total Liabilities 7,849,496 2,303,869
------------ ------------
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 and outstanding 14,487,336 shares at
September 30, 1996 and 8,387,064 shares at December
31, 1995 14,487 8,387
Additional paid-in capital 49,710,355 10,564,852
Stock subscribed (note 3) 32,890 324,807
Deficit accumulated during the development stage (12,849,627) (7,860,420)
------------ ------------
Total Shareholders' Equity 36,908,105 3,037,626
------------ ------------
$ 44,757,601 $ 5,341,495
============ ============
</TABLE>
See accompanying notes to unaudited consolidated financial statements
2
<PAGE> 5
CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Period from
January 1,
Nine Months Nine Months 1994
Ended Ended through
September September September
30,1996 30,1995 30,1996
(Unaudited) (Unaudited) (Unaudited)
------------ ------------ ------------
<S> <C> <C> <C>
Revenues
Radio services $ 422,159 $ -- $ 422,159
Equipment sales 606,270 -- 606,270
Maintenance and installation 195,628 -- 195,628
Other 159,960 -- 159,960
------------ ------------ ------------
1,384,017 -- 1,384,017
------------ ------------ ------------
Costs and expenses
Cost of sales 729,734 -- 729,734
Salaries, wages and benefits 1,250,426 383,663 2,123,307
Sales, general and administrative 3,584,742 5,205,235 10,881,095
Depreciation and amortization 215,882 151,338 442,170
------------ ------------ ------------
5,780,784 5,740,236 14,176,306
------------ ------------ ------------
Loss from operations (4,396,767) (5,740,236) (12,792,289)
------------ ------------ ------------
Other income (expense)
Equity in losses from minority investment (1,323) -- (1,323)
Management fees (note 2) 100,198 181,782 472,611
Interest expense (204,383) (102,865) (362,708)
Gain on sale of assets -- 330,643 330,643
Gain on forgiveness of debt 47,450 -- 47,450
Financing expense (417,560) -- (417,560)
Loss on retirement of note payable -- (28,904) (32,404)
Other, income(expense) (116,824) 5,950 (94,047)
------------ ------------ ------------
(592,440) 386,606 (57,338)
------------ ------------ ------------
Net loss ($ 4,989,207) ($ 5,353,630) ($12,849,627)
============ ============ ============
Weighted-average number of common shares
outstanding 10,855,756 5,005,852 10,855,756
============ ============ ============
Net loss per share ($ .46) ($ 1.07) ($ 1.18)
============ ============ ============
</TABLE>
See accompanying notes to unaudited consolidated financial statements
3
<PAGE> 6
CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
September 30,1996 September 30,1995
(Unaudited) (Unaudited)
----------------- -----------------
<S> <C> <C>
Revenues
Radio services $ 125,290 $ --
Equipment sales 165,533 --
Maintenance and installation 97,462 --
Other 92,342 --
------------ ------------
480,627 --
------------ ------------
Costs and expenses
Cost of sales 211,109 --
Salaries, wages and benefits 373,787 159,655
General and administrative 1,864,893 4,285,402
Depreciation and amortization 91,051 47,885
------------ ------------
2,540,840 4,492,942
------------ ------------
Loss from operations (2,060,213) (4,492,942)
------------ ------------
Other income (expense)
Equity in losses from minority investment (1,323) --
Management fees (note 2) -- 94,254
Interest expense (128,344) (24,482)
Gain on sale of assets -- 330,643
Gain on forgiveness of debt 47,450 --
Financing Expense (417,560) --
Loss on Conversion of Note -- (28,904)
Other, income (expense) -- 5,950
------------ ------------
(499,777) 377,461
------------ ------------
Net loss ($ 2,559,990) ($ 4,115,481)
============ ============
Weighted-average number of common shares outstanding 13,289,918 5,509,481
============ ============
Net loss per share ($ .19) ($ 0.75)
============ ============
</TABLE>
See accompanying notes to unaudited consolidated financial statements
4
<PAGE> 7
CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period from
January 1,
Nine Months Nine Months 1994
Ended Ended through
September 30, September 30, September 30,
1996 1995 1996
(Unaudited) (Unaudited) (Unaudited)
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities
Net loss ($ 4,989,207) ($ 5,353,630) ($12,849,626)
Adjustments to reconcile net loss to net cash provided
by (used in)operating activities:
Depreciation and amortization 215,882 141,333 442,170
Amortization of debt discount 101,525 -- 101,525
Amortization of debt issuance costs 433,344 -- 433,344
Gain on sale of assets held for resale -- (330,643) (330,643)
Expense associated with:
Stock issued for services 220,833 1,919,055 2,364,542
Options issued for services -- 2,198,063 2,841,788
Change in operating assets and liabilities:
Increase (decrease) in stock subscriptions
receivable, net of stock subscribed 195,000 -- (589,041)
Increase in Accounts receivable (53,395) -- (51,057)
Increase in inventory (241,621) -- (291,271)
Increase (Decrease) Due from General 76,252 (93,932) --
Communications, Inc.
Increase (Decrease) in amounts held to
shares issued 250,000 -- --
Increase (decrease) in prepaids 27,187 (69,260) 27,187
Increase in other receivable (13,098) -- (43,005)
Increase in deposits (446,111) -- (462,853)
Decrease in other current assets (30,896) (4,117) (38,711)
Increase (decrease) in Accounts payable (60,252) 212,369 227,579
Decrease in options payable (297,300) (297,300)
Increase in commission payable 175,600 -- 524,800
Equity in losses from minority investment 1,323 -- 1,323
Increase in accrued interest 78,716 39,681 133,206
------------ ------------ ------------
Net cash used in operating activities (4,356,218) (1,341,081) (7,515,396)
------------ ------------ ------------
Cash flows from investing activities
Purchase of assets from General Communications (363,870) -- (345,609)
20% Investment in JJ&D, LLC (100,000) -- (100,000)
Purchase of Airtel Communications Assets (50,000) -- (50,000)
Management Agreements - Airtel SMR -- -- --
Purchase of CMRS and 800 (3,547,000) -- (3,547,000)
Purchase of SMR station licenses -- (20,450) (1,398,575)
Purchase of license options (147,550) (852,200) 41,799
Decrease in deposits on licenses (143,904) -- (143,906)
Increase (Decrease) in license options payable -- 641,350 (66,850)
Purchase of property, machinery and equipment (1,603,578) (255,241) (2,156,055)
Purchase of assets held for resale -- (149,650) (219,707)
Sale of assets held for resale -- -- 700,000
Increase (Decrease) in debt issuance costs (400,000) -- (400,000)
Increase in organization costs -- -- (16,859)
Increase in customer deposits 900 -- 1,600
Increase in deposit on sale -- 325,000 --
------------ ------------ ------------
Net cash used in investing activities (6,355,002) (311,191) (7,701,162)
------------ ------------ ------------
</TABLE>
(Continued)
5
<PAGE> 8
CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONCLUDED
<TABLE>
<CAPTION>
Period from
January 1,
Nine Months Nine Months 1994
Ended Ended through
September 30, September 30, September 30,
1996 1995 1996
(Unaudited) (Unaudited) (Unaudited)
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from financing activities
Proceeds upon issuance of stock 4,414,672 1,911,280 8,434,011
Proceeds from issuance of common stock -- -- 977
Proceeds upon issuance of preferred stock 2,273,707 -- --
Proceeds upon exercise of options - related -- -- 156,252
Proceeds upon exercise of options - unrelated 2,123,583 -- 3,144,828
Purchase and conversion of CCI stock -- -- 45,000
Advances from related parties -- 114,205 767,734
Payments of notes payable (100,000) (200,000) (100,000)
Payment of advances from related parties -- (3,000) (73,000)
Payments of capital lease obligations -- -- --
Increase in capital lease obligations (15,193) -- (15,147)
Repayment of long-term debt (4,131,797) (191,325) (4,442,315)
Increase in debt issuance costs (420,000) -- (420,000)
Prepaid option exercise 1,582,116 -- 1,582,116
Proceeds from issuance of notes payable -- -- 375,000
Proceeds from issuance of long-term debt 8,000,000 -- 8,965,000
------------ ------------ ------------
Net cash provided by financing activities 13,727,088 1,631,160 18,420,456
------------ ------------ ------------
Net increase (decrease) in cash 3,015,868 (21,112) 3,203,897
Cash at beginning of period $ 188,029 $ 151,972 $ --
------------ ------------ ------------
Cash at end of period $ 3,203,897 $ 130,860 $ 3,203,897
============ ============ ============
</TABLE>
See accompanying notes to unaudited consolidated financial statements
6
<PAGE> 9
CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIENCY)
FOR THE PERIOD FROM JANUARY 1, 1996 TO SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
Preferred Stock Common Stock
------------------------------ --------------------------------
Outstanding Outstanding
shares Amount Shares Amount
--------------- -------------- ----------------- --------------
<S> <C> <C> <C> <C>
Balance at January 1, 1996 8,387,064 $ 8,387
Shares issued in connection with the private
placement 549,417 549
Shares issued to investors for cash 430,000 430
Preferred shares issued to investors for cash 250,000 250 - -
Preferred shares converted to common shares (250,000) (250) 977,057 977
Shares issued for options exercised 2,849,166 2,846
Shares issued for legal fees 62,500 63
Shares issued for assets purchased from General
Communications (Note 2) 100,000 100
Shares issued to license holders 285,860 286
Shares issued for CMRS and 800 Acquisition (note 2)
508,000 508
Shares issued for Convertible Debenture (note 8)
1,852,538 1,853
Options issued for 20% interest in JJ&D, LLC (note 2) - -
Options Issued for CMRS and 800 Acquisition (note 2) - -
Shares subscribed (note 3) - -
Canceled Shares (note 9) (1,514,266) (1,514)
Net Loss - -
-------- ----- ---------- -------
Balance, September 30, 1996 - $ - 14,487,336 $14,485
======== ====== ========== =======
<CAPTION>
Deficit
Accumulated
Additional during the Common Total
paid-in development stock shareholders'
capital stage Subscribed equity
---------------- ------------------- -------------- -------------------
<S> <C> <C> <C> <C>
Balance at January 1, 1996 $10,564,852 ($7,860,420) $324,807 $3,037,626
Shares issued in connection with the private
placement 885,781 - (324,807) 561,523
Shares issued to investors for cash 641,820 - - 642,250
Preferred shares issued to investors for cash
2,273,457 - - 2,273,457
Preferred shares converted to common shares
(727) - - 250
Shares issued for options exercised 2,503,243 - - 2,506,089
Shares issued for legal fees 62,437 - - 62,500
Shares issued for assets purchased from General
Communications (Note 2) 176,463 - - 176,563
Shares issued to license holders 821,562 - - 821,848
Shares issued for CMRS and 800 Acquisition (note 2)
1,930,502 - - 1,931,010
Shares issued for Convertible Debenture (note 8)
4,077,991 - - 4,079,844
Options issued for 20% interest in JJ&D, LLC (note 2) 872,000 - - 872,000
Options Issued for CMRS and 800 Acquisition (note 2) 26,981,579 - - 26,981,579
Shares subscribed (note 3) - - 32,890 32,890
Canceled Shares (note 9) (2,080,602) - - (2,082,116)
Net Loss - (4,989,207) - (4,989,207)
----------- ------------ --------- -----------
Balance, September 30, 1996 $49,710,358 ($12,849,627) $ 32,890 $36,908,106
=========== ============ ========= ===========
</TABLE>
See accompanying notes to unaudited consolidated financial statements
7
<PAGE> 10
CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Unaudited Consolidated Financial Statements
September 30, 1996
(1) DESCRIPTION OF BUSINESS
THE COMPANY AND BASIS OF PRESENTATION
The accompanying financial statements include the accounts of Chadmoore
Wireless Group, Inc. and subsidiaries (the "Company"), which is a
development stage company. The Company commenced formal operations in
the state of Nevada on May 11, 1994 and was organized for the purpose of
acquiring and operating Specialized Mobile Radio ("SMR") wireless
communication systems. The Company's current market area is primarily
located in Tennessee and Arkansas.
The accompanying unaudited consolidated financial statements 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 ending December 31, 1996. These
unaudited consolidated financial statements should be read in
conjunction with the audited consolidated financial statements included
in the annual report on Form 10-KSB for the period ended December 31,
1995 and the current reports on Form 8-K dated March 22, 1996, May 14,
1996, June 28, 1996, July 11, 1996, July 30, 1996, December 31, 1996,
January 13, 1997 and January 30, 1997.
DEVELOPMENT STAGE AND LIQUIDITY
Through September 30, 1996, the Company has been engaged primarily in
the identification, development and acquisition of SMR systems and SMR
Stations and has therefore not commenced normal operations nor generated
significant revenues. Accordingly, the Company has generated an
accumulated net loss during its development stage of approximately $12.6
million from operations as of September 30, 1996. Management believes
its acquisition of SMR Stations from CMRS Systems, Inc. (CMRS) and 800
SMR Network, Inc. (800), consummated on June 14, 1996 and SMR systems
and other assets from General Communications, Inc. (General), which was
consummated on March 8, 1996 as described in Note 2, as well as other
associated system acquisitions, will provide the basis for the
commencement of normal operations towards the end of 1996.
On October 25, 1996, the Company's subsidiary Chadmoore Communications,
Inc. ("CCI") signed a purchase agreement with Motorola to purchase
approximately $10 million of Motorola's radio communications equipment,
including a Smartnet II radio system 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. This
agreement allows CCI to borrow up to a total of $5 million. This Loan
Facility is available for draw downs during the effective date of the
purchase agreement. Principle 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 fund date.
In October 1996, the Company entered into an agreement with American
Credit Corp to establish a $16.5 million equipment financing facility
for the purpose of purchasing analog systems and related equipment. The
equipment will be purchased by AMC Corp (the "Lessor") and leased to the
Company. The Agreement calls for a basic lease term of five years. At
the expiration of the lease, the Company will have the right to purchase
all, but not less than all, of such equipment at a purchase price equal
to the fair market value of such equipment.
8
<PAGE> 11
CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Unaudited Consolidated Financial Statements
September 30, 1996
(continued)
(1) DESCRIPTION OF BUSINESS - CONCLUDED
DEVELOPMENT STAGE AND LIQUIDITY - CONCLUDED
Accordingly, based on the plans and intentions set forth above and
assuming the additional capital infusion as described above, management
anticipates through the establishment of operational SMR systems in
conjunction with the ability to provide both short-term funding of
operations and long-term financing of acquisition and development
activities, that the Company expects to emerge from the development
stage and establish normal operations towards the end of 1996.
However, as of September 30, 1996, the success of achieving the
objectives discussed herein, as well as the ultimate profitability of
the Company's operations once the development stage has ended, cannot
presently be determined.
USE OF ESTIMATES
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure
of contingent assets and liabilities to prepare these financial
statements in conformity with generally accepted accounting principles.
Actual results could differ from those estimates.
(2) ACQUISITIONS
CMRS AND 800 STOCK PURCHASE AGREEMENT
On June 14, 1996, the Company executed a Stock Purchase Agreement with
Libero Limited ("Libero"). Pursuant to the agreement, the Company
acquired from Libero all the issued and outstanding common stock of CMRS
Systems, Inc. ("CMRS") and 800 SMR Network, Inc. ("800") (jointly the
"Management Companies"). The Management Companies intend to engage in
the business of constructing and managing multi-channel 800 MHz
Specialized Mobile Radio stations. The Management Companies have
entered into management agreements ("Management Agreements") with
certain companies (the "Companies"), pursuant to which CMRS or 800, as
the case may be, has agreed, in accordance with applicable Federal
Communications Commission ("FCC") rules, regulations and policies, to
construct and manage all of the Stations for which the Companies have
received licenses from the FCC. The respective shareholders of the
Companies have granted to CMRS or 800, as the case may be, options to
acquire all of the stock of the Companies ("Options"), at such time as
all conditions of such transfer of control have been met, as set forth
in the FCC rules, regulations and policies and as required by section 310
of the Communications Act of 1934, as amended by 47 U.S.C. section 310.
The Company consummated such acquisition for combined consideration
valued at $32,459,584. The Company has accounted for the acquisition
under the purchase method of accounting. The purchase price was paid
with (1) an aggregate cash consideration of $3,547,000; (2) 508,000
shares of the Company's restricted common stock valued at $1,931,010;
and (3) a grant of an option to purchase 8,323,857 shares of common
stock for a period of ten years at an exercise price of $.50 per share
valued at $26,981,579. The Company obtained an independent verification
of the value of the securities issued in connection with the
acquisition. Combined consideration of $22,721,712 was allocated to
management agreements held by CMRS and 800 and combined consideration of
$9,737,877 was allocated to options to acquire the stock of the licensee
corporations also held by CMRS and 800.
9
<PAGE> 12
CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Unaudited Consolidated Financial Statements
September 30, 1996
(continued)
(2) ACQUISITIONS - CONTINUED
These allocations were based on an evaluation by an independent
consultant's estimate of the fair market value of the assets exchanged.
Additionally, preferred income tax assets of approximately $10,000,000
realized from different tax bases for income tax and financial reporting
purposes have been fully reserved with a valuation allowance as the
realization of the deferred tax asset cannot be reasonably assumed. The
Company will begin amortizing the cost allocated to the management
contracts over the useful lives commencing upon the underlying Station
being placed in service not to extend past June 2006. The Company had
sufficient cash on hand for the cash consideration paid. Pro forma
information has not been shown as operations have not yet commenced.
GENERAL COMMUNICATIONS ASSET PURCHASE AGREEMENT
On March 8, 1996, the Company re-negotiated and finalized the purchase
of phases 2-5 of the General Communications Asset Purchase Agreement. In
conjunction with this transaction, the Company purchased certain SMR
equipment, land, building, other fixed assets, accounts receivables,
inventory and FCC licenses for SMR channels in Memphis, Tennessee from
General Communications Radio Sales and Service, Inc. ("General"). Prior
to the asset purchase and since November 1994, the Company was managing
the daily operations of General for a management fee equal to the net
cash flows of General.
The acquired assets were recorded at $834,569. The Company paid $345,609
in cash and issued 100,000 shares of restricted common stock with a fair
market value on March 8, 1996 of $176,563, based on the discounted
average closing bid and ask price of the Company's common stock trading
on the NASD Electronic Bulletin Board. The Company's non-competition,
consulting agreement and note payable liabilities to General with a
balance totaling $906,687, net of the corresponding non-competition and
consulting agreement asset of $244,571, were canceled and a new note
payable was issued. The new note is a 25 year, unsecured, non-interest
bearing, negotiable promissory note with a face amount of $4,110,000,
scheduled to be repaid in 300 monthly installments.
The note's monthly payments are subject to Consumer Price Index
increases in years three through thirteen. The Company has assumed a CPI
increase of 2.5% for recording purposes thereby reflecting the gross
value of the note equal to $5,024,198. Interest on the note has been
imputed at 9% giving a net present value of $1,208,869, net of
unamortized discount of $3,815,329 amortized on the straight line method
over the term of the note.
The following unaudited pro forma results of operations assume the
acquisition occurred as of January 1, 1996:
<TABLE>
<CAPTION>
Nine Months Ended
---------------------------------------- September 30, 1996
Unaudited Pro Forma Information: ------------------
<S> <C>
Revenue Sales $1,739,933
Net Loss (4,710,868)
Net Loss per Common Share (0.44)
</TABLE>
The pro forma financial information is not necessarily indicative of the
operating results that would have occurred had the General acquisition
been consummated as of January 1, 1996, nor are they necessarily
indicative of future operating results.
10
<PAGE> 13
CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Unaudited Consolidated Financial Statements
September 30, 1996
(continued)
(2) ACQUISITIONS - CONCLUDED
JJ&D, LLC INVESTMENT
On May 23, 1996 the Company purchased a 20% investment in JJ&D, LLC by
tendering $100,000 in cash, issuing a $100,000 non-interest bearing 120
day note and issuing 298,507 options to purchase the Company's
restricted common stock. The options are exerciseable for three years at
$1.00 per share. JJ&D, LLC has obtained the exclusive rights from A
Communications, LLC to market, in the United States, A Communications'
proprietary SMR frequency agile quick start module. This investment is
being accounted for using the equity method of accounting. All
significant intercompany transactions since May 23, 1996, have been
eliminated. Condensed financial information of JJ&D, LLC for the nine
months ended September 30, 1996 is summarized below:
<TABLE>
<CAPTION>
----------------------------------
Condensed Financial information:
<S> <C>
Current Assets $ 195,486
Non-current Assets $ -
Current Liabilities $ 26,100
Shareholders' Deficiency $ (221,586)
Net Income $ 177,470
</TABLE>
AIRTEL SMR, INC. MANAGEMENT AND OPTION TO ACQUIRE AGREEMENT
On May 11, 1996, the Company completed a Management and Option to
Acquire Agreement with Airtel SMR, Inc., an operator of SMR stations.
The Company assumed a $100,000 note payable, due May 1998 with interest
at 12%. The Company received SMR equipment valued at $62,702, Management
Agreements for one year valued at $3,730 and an Option to Acquire the
common stock of Airtel SMR, Inc. valued at $33,568. The allocated
valuations of the Management Agreement and Option to Acquire Agreement
were based on management's estimates.
AIRTEL COMMUNICATIONS, INC. ASSET PURCHASE AGREEMENT
On May 11, 1996, the Company completed an Asset Purchase Agreement with
Airtel Communications, Inc., an SMR sales organization. The Company paid
$50,000 and received certain office equipment and rights to a customer
list valued at $47,788. The customer list will be amortized on a
straight-line basis over its useful life estimated to be two years. The
accumulated amortization at September 30, 1996 was $9,957.
11
<PAGE> 14
CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Unaudited Consolidated Financial Statements
September 30, 1996
(continued)
(3) STOCK SUBSCRIPTIONS RECEIVABLE AND SUBSCRIBED
The Company made a down payment on approximately 8 of certain license
options and agreed to issue 11,440 shares of its common stock as payment
of 40% of the purchase price of these licenses valued at $32,890. The
value of these shares is recorded as Stock Subscriptions Receivable at
September 30, 1996.
The value of the above mentioned unissued shares is classified as common
stock subscribed in shareholders' equity at September 30, 1996.
(4) PROPERTY AND EQUIPMENT
Property and equipment, which is recorded at cost and depreciated over
their estimated useful lives, generally 5-10 years, consists primarily
of SMR system components and related acquisition costs. The recorded
amount of property and equipment capitalized and related accumulated
depreciation is as follows:
<TABLE>
<CAPTION>
September 30, 1996
------------------
<S> <C>
SMR systems and equipment $ 1,967,913
Buildings and Improvements 345,665
Land 102,500
Furniture and office equipment 156,588
-----------
2,572,666
Less accumulated depreciation (158,613)
-----------
$ 2,414,053
===========
</TABLE>
JJ&D MASTER PURCHASE AGREEMENT
On September 13, 1996, the Company signed a purchase agreement with
JJ&D, a related party (see Note 2). The agreement states the Company is
to purchase, within one year from the date of this agreement, SMR
equipment from JJ&D valued at approximately $885,000, a portion of which
is to be paid with the issuance of common stock of the Company. In
September 1996, the Company issued 295,000 options in connection with
the agreement valued at $1.60 per share totaling $472,000. This
valuation is calculated as follows: average market price of shares on
date of closing (9/13/96 = 5.19) multiplied by 50% for restriction minus
the option price ($1.00) and is included in the balance sheet as deposit
on purchases. The options vest at 1,000 per unit as the equipment is
shipped and the value balance sheet. The agreement also takes into
consideration equipment previously purchased and shipped of 35 units,
therefore at September 30, 1996, 35,000 option shares have vested and
$56,000 of the original amount has been reclassified into property and
equipment.
12
<PAGE> 15
CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Unaudited Consolidated Financial Statements
September 30, 1996
(continued)
(5) FCC LICENSES
FCC licenses consist of the following:
<TABLE>
<CAPTION>
September 30,
1996
-------------
<S> <C>
FCC licenses $ 1,548,299
Less accumulated amortization (134,051)
-----------
$ 1,414,248
===========
</TABLE>
(6) INVESTMENT IN LICENSE OPTIONS
The Company has entered into various option agreements to acquire FCC
radio licenses for SMR channels and also entered into management
agreements with the licensees of the SMR channels. Depending on the size
of the market in which the channel is located, the Company paid $100 to
$1,500 for each option. As of September 30, 1996, the Company has
invested $3,020,012 in license options. The total purchase price of the
licenses under option, including commissions, amounts to approximately
$32,593,168 and $43,000,000 at September 30, 1996 and December 31, 1995,
respectively. The agreements allow the Company to purchase licenses
within a specified period of time after the agreement is signed. On
February 2, 1996, the Company made a down payment on approximately 140
of certain license options and issued 285,860 restricted shares of its
common stock as payment of 40% of the purchase price of these licenses.
The issuance of the stock valued, at $821,848, is recorded as an
investment in license options on September 30, 1996. In addition, the
Company made a down payment on approximately 8 of certain license
options and agreed to issue 11,440 restricted shares of its common stock
as payment of 40% of the purchase price of these licenses. The shares
have been valued at $32,890 and have been recorded as Stock
Subscriptions Receivable at September 30, 1996.
Certain options required down payments in January 1996. The Company has
submitted an amendment to the option holders which would move the down
payment date to September 9, 1996 and increases the down payment. Of the
options the Company desires to amend, approximately 94% of the option
holders have executed the amendments. On September 6, 1996, the Company
submitted a second amendment for the option holders which would change
the down payment amounts to a series of $100 quarterly payments instead
of one lump sum. The first series was sent on September 9, 1996 and
amounted to $116,000. The next series is due in December 1996. Of these
second amendments sent, 94% of the option holders have executed the
amendment. With respect to the remaining options on which a holder has
not executed an amendment, the Company is in default of the terms
thereof. The holders of such options have not yet, however, elected to
terminate the options based on this default. Notwithstanding this
failure to act, such holders may at any time terminate their options or
exercise other remedies with respect thereto, unless the amendment is
executed or the Company is able to meet its monetary obligations
thereon.
13
<PAGE> 16
CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Unaudited Consolidated Financial Statements
September 30, 1996
(continued)
(6) INVESTMENT IN LICENSE OPTIONS - CONCLUDED
Upon entering into an option agreement, the Company also enters into a
management agreement with the licensee. The management agreements give
the Company the right to manage the SMR systems for the period stated in
the agreements, usually 2 to 5 years. During this period revenues
received are shared with the licensee after certain agreed upon costs to
construct the channels have been recovered. The Company has not
recognized any revenue from these agreements during the nine months
ended September 30, 1996 and 1995, as none of the systems under option
are revenue producing.
COMMISSION PAYABLE
In connection with the exercise of the options to purchase licenses, the
Company is required to pay an allocated portion of the payment to a
certain third party. As a result of the down payment made on February 2,
1996 to purchase 140 of licenses, the Company accrued $175,600 of
commissions payable which represents 40% of the total commissions to be
paid when these licenses are fully paid for by the Company.
(7) GAIN ON FORGIVENESS OF DEBT
In September 1996, one of the Company's vendors, signed a release
agreement to except $90,000 as full payment of all the Company's
outstanding liability to them. Total outstanding liability at this time
was $137,450. The resulting gain of $47,450 will be reflected in the
Company's statement of operations under gain on forgiveness of debt.
(8) LONG-TERM DEBT
<TABLE>
<CAPTION>
September 30,
Long-Term debt consists of the following: 1996
-----------
<S> <C>
Note payable in connection with the asset purchase of General (see note
3), payable in monthly installments of $12,500 through February
1997, $13,750 through February 1998; thereafter, monthly payments
are subject to annual CPI increases through February 2008 at which
time the monthly payments are capped through February 2021
Management has assumed annual CPI increases to be 2.5%
Non-interest bearing with interest imputed at 9%, net of
unamortized discount of $3,726,304 as of September 30, 1996 $1,210,394
Notes convertible to the Company's Common Stock, principal due June
1999, interest due semi-annually June and December at a rate of 8% 985,000
Note payable to Bortex Trust in connection with asset purchase (see
note 2) payable in monthly installments of $4,707 through May 1998,
including interest at 12% 84,947
Notes Convertible to the Company's Common Stock, principal due
September 1998, interest due quarterly at a rate of 8% 3,000,000
----------
$5,280,341
Less current installments 200,614
----------
$5,079,727
==========
</TABLE>
14
<PAGE> 17
CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Unaudited Consolidated Financial Statements
September 30, 1996
(continued)
(8) LONG-TERM DEBT - CONCLUDED
Aggregate maturity of debt for the next five years is as follows:
<TABLE>
<CAPTION>
Year ended September 30:
<S> <C>
1997 $ 199,363
1998 3,211,740
1999 1,156,592
2000 175,881
2001 180,278
------------
$ 4,923,854
============
</TABLE>
DEBT CONVERSIONS
During the 1996 third quarter, holders tendered $3,015,000 of the three
year, 8% debentures for conversion into 1,883,049 common shares of the
Company. The value of the note conversion plus interest amounted to
$4,079,843.
(9) EQUITY TRANSACTIONS
PREPAID OPTIONS
In September 1996, in connection with the options granted to Libero for
the purchase of CMRS & 800 MHz, the Company booked a liability for
prepaid options in the amount of $2,082,116. As of September 1996,
Libero exercised options to purchase 1,000,000 shares of the Company's
common stock, depleting this liability by $500,000. Libero tendered the
funds to prepay future option exercises. The amount was tendered to a
third party to purchase back 1,514,266 shares of the Company's stock
from a former officer/director. The shares were then tendered to the
Company and subsequently canceled.
DEBT CONVERSIONS
UNRELATED PARTIES -- The Company issued 450,000 shares of restricted
common stock valued at $.37 per share in lieu of cash payment of
$153,000 for consulting services.
During the 1996 third quarter, holders tendered $3,015,000 of the three
year, 8% debentures for conversion into 1,883,049 common shares of the
Company. The value of the note conversion plus interest amounted to
$4,079,843.
15
<PAGE> 18
CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Unaudited Consolidated Financial Statements
September 30, 1996
(continued)
(9) EQUITY TRANSACTIONS - CONCLUDED
LICENSE PURCHASE
In February 1996, the Company issued 285,860 restricted common shares as
down payment for the exercise of the option to purchase 140 licenses
under the license option agreements (see Note 6). The issuance of the
stock represented 40% of the purchase price. The amount capitalized as
down payment of these licenses was based on the fair market value of the
stock on the date of issuance and totaled $821,848.
OPTIONS
During 1996, the Company granted stock options to purchase 9,642,364
shares of the Company's restricted common stock. The options have been
issued to shareholders, consultants, investors and third parties through
acquisitions and are exerciseable for three to ten years from date of
issuance.
<TABLE>
<CAPTION>
STOCK OPTIONS NUMBER OF SHARES
---------------------------------------------------------
<S> <C>
Outstanding at December 31, 1995 3,072,136
Granted at $0.50-$6.00 per share 10,842,364
Less -
Exercised at $0.50-$2.50 per share 2,911,666
Lapsed or canceled 330,000
----------
Outstanding at September 30, 1996 10,672,834
==========
</TABLE>
WARRANTS
During the nine months ended September 30, 1996, the Company issued
warrants in conjunction with the following transactions:
- 549,471 issued in connection with the private placement unit sales
(see "private placement").
- 50,000 issued in connection with the Preferred Stock placement.
The following is a summary of warrants outstanding and their terms as of
September 30, 1996:
<TABLE>
<CAPTION>
WARRANTS NUMBER OF SHARES
--------------------------------------------------------
<S> <C>
Outstanding at December 31, 1995 1,109,334
Granted at $5.00 per share 599,417
Less -
Exercised --
Lapsed or canceled --
---------
Outstanding at September 30, 1996 1,708,751
</TABLE>
16
<PAGE> 19
CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Unaudited Consolidated Financial Statements
September 30, 1996
(continued)
(10) COMMITMENTS AND CONTINGENCIES
LEGAL PROCEEDINGS
The Company is involved in various claims and legal actions arising in
the ordinary course of business. In the opinion of management, the
ultimate disposition of these matters will not have a material adverse
effect on the Company's consolidated financial position, results of
operations or liquidity.
(11) SUBSEQUENT EVENTS
MOTOROLA PURCHASE AND FINANCE AGREEMENTS
On October 25, 1996, the Company's subsidiary, Chadmoore Communications,
Inc. ("CCI") signed a purchase agreement with Motorola to purchase
approximately $10 million of Motorola's radio communications equipment,
including a Smartnet II radio system. The agreement requires that the
equipment be purchased within 30 months of the effective date of the
agreement (initial shipping of the equipment).
In connection with this purchase agreement, CCI entered into a financing
and security agreement with Motorola for the equipment stated above.
This agreement allows CCI to borrow up to a total of $5 million (the
"Loan Facility"). This Loan Facility is available for draw downs during
the effective date of the purchase agreement. The 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"). Principle 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 fund date. The
agreement closed on October 25, 1996 and is subject to certain pledges,
representations, warrants and covenants.
AMERICAN CREDIT CORP LETTER OF INTENT
In October 1996, the Company entered into an agreement with American
Credit Corp to establish a $16,500,000 equipment financing facility for
the purpose of purchasing analog systems and related equipment. The
equipment will be purchased by American Credit Corp (the "Lessor") and
leased to the Company. The agreement calls for a basic lease term of
five years, beginning on the basic lease commencement date. There will
be two basic lease commencement dates, July 1, 1997 for all equipment
with funding dates on or before December 31, 1996, and January 5, 19987
for funding on or before December 31, 1997. The leases are paid in
advance starting on the basic lease commencement date and continuing
until the end of the term. At the expiration of the lease, the Company
will have the right (a "Purchase Option") to purchase all, but not less
than all, of such equipment at a purchase price equal to the fair market
value of such equipment.
CANCELED AGREEMENTS
In October 1996, the Company entered into mutual settlement and release
agreements (the "Settlement Agreements") with certain parties to an SMR
System Management Agreement and Option to Acquire ("Underlying
Agreements"). The parties agreed to nullify and render void the
Underlying Agreements and as additional consideration for the Settlement
Agreements, the Company agreed to issue shares of the Corporation's
restricted common stock. Pursuant to the terms in the Settlement
Agreements, the Company has authorized the issuance of an aggregate of
43,100 shares of its restricted common stock, the value of which will be
reflected in other income and expenses in the Company's income
statement.
17
<PAGE> 20
CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
(A Development Stage Company)
ITEM 2. PLAN OF OPERATION
The Company's objectives over the next 12 months are to construct analog
channels in selected markets, establish distribution, institute its marketing
plan, increase recurring revenues through the addition of subscribers in all
markets, and construct an initial digital SMR network. Through acquisition and
management of existing operating systems and construction of newly licensed SMR
stations, the Company intends to increase the customer base and corresponding
revenues within each market. The plan is to select markets where the Company
has adequate available channel density, where there is lack of current capacity
with existing operations to serve market needs, where there is immediate
distribution through existing SMR sales and service providers, and where there
is significant population base to market its services to and generate
sufficient revenues to justify the capital required to provide service.
To date, the Company's activities have been limited to raising capital for
operations and acquisitions, hiring a core team of employees, and managing and
acquiring initial operating systems. In March 1996, the Company acquired its
initial operating SMR system in Memphis, Tennessee which currently has
annualized gross revenues in excess of $2,000,000. In May 1996, the Company
acquired a sales facility and the rights to manage with an option to acquire an
SMR system in Little Rock, AR. The Company currently offers two types of
wireless communication services: SMR dispatch (two-way) and telephone
interconnect. Both services utilize analog SMR technology. The Company sells
analog SMR equipment to subscribers and provides the system and services on
which customers can use their equipment. These operations serve a population of
approximately 1,500,000.
The Company has also entered into five year option to acquire and management
agreements with over 1,250 licensees, comprising over 2,300 channels licensed
by the FCC, in over sixty cities throughout the mid-South and mid-West regions
of the United States covering areas with a total combined population in excess
of 40,000,000.
In June, 1996, the Company acquired all the issued and outstanding common stock
of CMRS Systems, Inc. ("CMRS") and 800 SMR Network, Inc. ("800") (jointly the
"Management Companies"). The Management Companies have entered into management
agreements with certain companies ("Companies") pursuant to which CMRS or 800
have agreed to construct and manage all of the channels for which the Companies
have received licenses from the FCC. The respective shareholders of the
Companies have granted to CMRS or 800, as the case may be, options to acquire
all of the stock of the Companies, at such time as all conditions of such
transfer of control have been met, as set forth in the FCC rules, regulations
and policies. The Management Companies intend to engage in the business of
constructing and managing multi-channel 800 MHz SMR stations.
The acquisition is significant to the Company in that it substantially
increases the total number of channels under management to over 7,000 channels
and expands the service footprint to over two hundred markets located in
forty-seven States and the U.S. Territories of Puerto Rico and the Virgin
Islands covering areas with a total combined population in excess of
60,000,000. Additionally, the Company has formed dealer agreements with
independent SMR operators, and has begun to develop, construct and market SMR
services.
18
<PAGE> 21
CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
(A Development Stage Company)
ITEM 2. PLAN OF OPERATION - CONTINUED
The Company plans to offer analog and digital wireless communication services
ranging from two-way dispatch, and telephone interconnect, to services
comparable in quality to those provided by current cellular telephone
operators. In addition, the Company plans to offer in a single handset,
services and combinations of services currently not previously available in its
operating areas. These services will include combined mobile telephone,
dispatch and data transmission. When Chadmoore begins the implementation of
digital technology, it plans to use Motorola's integrated Dispatch Enhanced
Network ("iDEN") technology and subscriber equipment in phased digital network
deployment. The implementation of iDEN technology will afford the Company the
benefits of dramatically expanding existing system capacity and provide
advanced features, call clarity, and call security to its subscribers. As the
Company develops its digital wireless network, it intends to selectively
convert analog SMR channels to iDEN technology as capacity shortfalls and
marketplace demands for additional features dictate.
The Company plans to use leased facilities on existing towers wherever possible
to avoid the cost of tower and shelter construction. Management believes this
approach will also expedite the construction process and avoid time delays
associated with local zoning and permit issues. The Company expects
approximately 33% of the planned sites will need to be constructed. 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 activate customers on
the Company's channels as constructed and position the Company as a leader in
new wireless communication technology and service. Management believes that
Motorola's brand name recognition, combined with the Company's targeted
marketing approach, will assist in developing customer interest in the analog
and digital wireless services offered. The strategy is to increase Company
revenues with the smallest possible incremental marketing expense, using
existing dealers and operators in its footprint.
It is anticipated that the Company's recurring revenues will consist primarily
of subscriber network usage revenues, which consist of monthly access fees per
unit, incremental charges based on minutes of use, and lease revenues from site
operations where the Company owns or manages a transmission facility and leases
space to a third party. Lease revenues, while not a primary source of revenue,
offer increased cash flow opportunities for little additional cost. From time
to time, changes in the Company's plans may dictate that 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.
The Company has elected to develop two channels of distribution: independent
agents and, to a lesser extent, direct sales representatives. Independent
agents will be established in each of the markets as available. The Company
intends to attract high quality agents through innovative compensation plans.
The Company will also establish a sales presence in markets where adequate
independent agents are not available. It is anticipated that each sales office
will 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. The Company
intends to minimize overhead costs through centralization and automation of
support services, such as activations, billing and collections.
19
<PAGE> 22
CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
(A Development Stage Company)
ITEM 2. PLAN OF OPERATION - CONTINUED
LIQUIDITY AND CAPITAL RESOURCES
The Company's sources of capital are the proceeds from the sale of common stock
from private placement(s), registered offering(s) of stock to the general
public, vendor financing, debt or convertible debt and the anticipated cash
from future operating revenue and the possible receipt of proceeds from the
exercise of the Company's options and warrants. There is no assurance that the
Company will be able to obtain such additional financing or, if available, that
the terms of the financing would be advantageous to the Company or its
shareholders.
On February 28, 1996, the Company executed with Motorola a purchase agreement
for its iDEN product. The agreement is conditional upon the Company acquiring
acceptable financing. The Company intends to obtain the required financing
through Motorola's Financing Division. The Company has delayed the
implementation of its initial iDEN system, due to the need for in-depth
engineering and operational analysis of the market positions it now controls as
well as the impact of possible strategic relationships. Upon completion of the
analysis, the Company has determined that the most feasible way to construct
and operate its channels on such a wide scale basis is to utilize Motorola's
advance analog equipment, including Smartnet II radio systems and has deferred
the implementation of iDEN equipment until the analog systems are unable to
accommodate market demand. On October 25, 1996, the Company's subsidiary,
Chadmoore Communications, Inc. ("CCI") signed a purchase agreement with
Motorola to purchase approximately $10 million of Motorola's radio
communications equipment, including a Smartnet II radio system. The equipment
is to 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 ("Loan Facility") with Motorola. This agreement allows CCI
to borrow up to a total of $5 million. This loan Facility is available for draw
downs during the effective date of the purchase agreement. Principle 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 fund date.
In April 1996, the Company issued 250,000 shares of its Convertible Series A
Preferred Stock for net proceeds of $2,275,956.
In June 1996, the Company issued $4 million out of a $5 million offering of 8%,
three year, convertible notes. The Company received $3,580,000, net of
placement fees of $420,000. In July 1996, the Company placed the remaining $1
million convertible notes and received $900,000, net of placement fees of
$100,000.
In September 1996, the Company issued a new debt offering of $3 million of 8%,
two year convertible notes. The Company received $2,700,000, net of placement
fees of $300,000.
20
<PAGE> 23
CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
(A Development Stage Company)
ITEM 2. PLAN OF OPERATION - CONCLUDED
LIQUIDITY AND CAPITAL RESOURCES - CONCLUDED
During the next 12 months, the Company will require access to sufficient
capital to enable it to act quickly on opportunities that present themselves in
the Company's target markets. The Company believes that in the next 12 months
it will require approximately $11.0 million for capital expenditures associated
with the leased and capital assets necessary for the construction of systems.
In addition, the Company expects to require an additional $5.3 million to meet
operating expenses. When the Company commences the staged conversion of its
analog SMR systems to a Digital Mobile format, it will require significant
additional capital.
The Company intends to seek additional cash financing in exchange for one or
more of the following: financing provided by the vendor of the analog and
digital mobile equipment, incurring additional indebtedness, which may include
the issuance of debt securities convertible into shares of the Company's common
stock, issuing additional shares of preferred stock, which may include
preferred stock convertible into shares of the Company's common stock, and
issuing additional shares of common stock pursuant to one or more privately
negotiated transactions or public offerings. In the event that the Company
issues convertible debt securities or preferred stock convertible into shares
of its common stock, the effective price at which such shares of common stock
may be issued and sold by the Company may be lower than the prevailing market
prices for the Company's common stock at the time of such conversion and/or at
the time of issuance of such convertible debt or preferred stock.
In October 1996, the Company entered into an agreement with American Credit
Corp to establish a $16.5 million equipment financing facility for the purpose
of purchasing analog systems and related equipment. The equipment will be
purchased by AMC Corp (the "Lessor") and leased to the Company. The agreement
calls for a basic lease term of five years. At the expiration of the lease, the
Company will have the right to purchase all, but not less than all, of such
equipment at a purchase price equal to the fair market value of such equipment.
Recently, the Company has held discussions with potential underwriters for a
potential public offering of the Company's securities. As of the date of this
report, however, the Company does not have a signed letter of intent from any
underwriter for a public offering of its securities, and there can be no
assurance that the Company will be able to obtain a signed letter of intent
from an underwriter or that it will be able to raise the capital necessary to
construct the channels for its proposed SMR network.
Accordingly, based on the plans and intentions set forth above, management
anticipates that through the establishment of operational SMR systems in
conjunction with the ability to provide both short term funding of operations
and long term acquisition and development activities, the Company expects to
emerge from the development stage and establish normal operations in 1996.
However, as of September 30, 1996, the success of achieving the objectives
discussed herein, as well as the overall profitability of the Company's
operations once the development stage has ended, cannot presently be
determined.
21
<PAGE> 24
CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
(A Development Stage Company)
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As reported in the Company's Quarterly Report on Form 10-QSB for the Quarterly
Period Ended June 30, 1996, a lawsuit titled Key Communications Group, Inc. v.
Robert Moore, David Chadwick, Chadmoore Communications, Inc. and Chadmoore
Communications of Tennessee, Inc., Civil Action No. 94-CV-4196, was filed in
the District Court, City and County of Denver, State of Colorado, on August 31,
1994. This lawsuit was settled during the period covered by this Report and was
dismissed with prejudice pursuant to an order of the Court dated July 9, 1996.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
22
<PAGE> 25
CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
PART II - OTHER INFORMATION - CONTINUED
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
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 Incorporation(2)
3.2 Articles of Amendment to the Articles of Incorporation filed
November 1, 1988(3)
3.3 Articles of Amendment to the Articles of Incorporation filed
April 28, 1995(4)
3.4 Articles of Amendment to the Articles of Incorporation filed
April 1, 1996(5)
3.5 Articles of Amendment to the Articles of Incorporation filed
April 11, 1996(6)
3.6 Bylaws(2)
4.1 Form of Warrant Certificate, together with the Terms of
Warrants(7)
4.2 Registration Rights Agreement(8)
4.3 Certificate of Designation of Rights and Preferences of
Series A Convertible Preferred Stock of the Company(9)
10.1 Amended Non-qualified 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,
1995(11)
10.3 First Amendment to the Employee Benefit and Consulting
Services Plan dated December 8, 1995(12)
- --------
(1) Incorporated by reference to Exhibit 1 in the Company's 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 in the Registration Statement on
Form S-8 effective July 12, 1995 (file no.-94508)
(12) Incorporated by reference to Exhibit 4.1 in the Registration Statement on
Form S-8 effective December 14, 1995 (file no. 33-80405)
23
<PAGE> 26
CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
PART II - OTHER INFORMATION - CONTINUED
(a) Exhibits - concluded
10.4 Employment Agreement between the Company and Robert W. Moore
effective as of April 21, 1995(13)
10.5 Employment Agreement between the Company and David J.
Chadwick effective as of April 21, 1995(14)
10.6 Employment Agreement between the Company and William C.
Bossung effective as of April 21, 1995(15)
10.7 Integrated Dispatched 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 Dispatched Enhanced
Network ("iDEN") Purchase Agreement dated March 25, 1996(17)
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 Exhibits(18)
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 Exhibits(19)
10.11 Stock Purchase Agreement dated June 14, 1996, by and between
Chadmoore Wireless Group, Inc. and Libero Limited(20)
11.1 Earnings Per Share (see notes to Consolidated Financial
Statements)(21)
27.1 Financial Data Schedule
- ----------
(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 in the Company's Form 8-K, under
Item 2, date of earliest event reported--March 8, 1996
(19) Incorporated by reference to Exhibit 2.1 in the Company's Form 8-K, under
Item 2, date of earliest event reported--March 8, 1996
(20) Incorporated by reference to Exhibit 10.11 in the Company's Form 8-K,
under Item 2, date of earliest event reported--June 14, 1996
(21) Incorporated by reference to Exhibit 11.1 to the Company's Form 10-KSB for
the year ended December 31, 1995
24
<PAGE> 27
CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
PART II - OTHER INFORMATION - CONTINUED
(b) Reports on Form 8-K
(i) Current Report Form 8-K filed March 22, 1996 reporting
consummation of the Modification to Asset Purchase Agreement
dated March 8, 1996 by and between Chadmoore Communications
of Tennessee, Inc. and General Communications Radio Sales and
Service, Inc., General Electronics, Inc. and Richard Day with
Exhibits
(ii) Current Report of Form 8-K filed May 14, 1996 reporting the
resignation, effective April 30, 1996, of David Chadwick as
Executive Officer and Director of the Company and similar
positions with affiliates of the Company with Exhibit.
(iii) Current Report on Form 8-K filed June 28, 1996, reporting the
execution of the Stock Purchase Agreement dated June 14, 1996
by and between Chadmoore Wireless Group, Inc. and Libero
Limited with Exhibit, and amendment thereto, on Form 8-K/A-1
filed July 30, 1996
(iv) Current Report on Form 8-K filed July 11, 1996, reporting a
private placement conducted by Registrant in accordance with
Regulation S, wherein Registrant sold, through a Distributor,
an aggregate $5,000,000 of 8% Convertible Notes due June 5,
1999.
(v) Current Report on Form 8-K filed on December 31, 1996,
reporting shares of Registrant's common stock issued pursuant
to Regulation S since November 3, 1996, upon conversion of
debentures and exercise of options, reported pursuant to the
SEC's Division of Corporation Finance's interpretation of the
new disclosure requirements set forth in SEC Release No.
34-37801.
(vi) Current Report on Form 8-K filed on January 13, 1997,
reporting shares of Registrant's common stock issued pursuant
to Regulation S since December 27, 1996, upon conversion of
debenture(s) and conversion of note(s), reported pursuant to
the SEC's Division of Corporation Finance's interpretation of
the new disclosure requirements set forth in SEC Release No.
34-37801.
(vii) Current Report on Form 8-K filed on January 30, 1997,
reporting the execution of First Amendment to Stock Option
Agreement between Registrant and Libero Limited, limiting the
number of options exercisable at any one time thereunder; and
further reporting shares of Registrant's common stock issued
pursuant to Regulation S, upon exercise of stock options on
January 17, 1997, reported pursuant to the SEC's Division of
Corporation Finance's interpretation of the new disclosure
requirements set forth in SEC Release No. 34-37801.
25
<PAGE> 28
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CHADMOORE WIRELESS GROUP, INC.
By: /s/ Gary L. Killoran
-----------------------------------------
Gary L. Killoran, Chief Financial Officer
DATE: February 5, 1997
26
<PAGE> 29
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
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 Incorporation(2)
3.2 Articles of Amendment to the Articles of Incorporation filed
November 1, 1988(3)
3.3 Articles of Amendment to the Articles of Incorporation filed
April 28, 1995(4)
3.4 Articles of Amendment to the Articles of Incorporation filed
April 1, 1996(5)
3.5 Articles of Amendment to the Articles of Incorporation filed
April 11, 1996(6)
3.6 Bylaws(2)
4.1 Form of Warrant Certificate, together with the Terms of
Warrants(7)
4.2 Registration Rights Agreement(8)
4.3 Certificate of Designation of Rights and Preferences of
Series A Convertible Preferred Stock of the Company(9)
10.1 Amended Non-qualified 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,
1995(11)
10.3 First Amendment to the Employee Benefit and Consulting
Services Plan dated December 8, 1995(12)
10.4 Employment Agreement between the Company and Robert W. Moore
effective as of April 21, 1995(13)
10.5 Employment Agreement between the Company and David J.
Chadwick effective as of April 21, 1995(14)
10.6 Employment Agreement between the Company and William C.
Bossung effective as of April 21, 1995(15)
10.7 Integrated Dispatched 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 Dispatched Enhanced
Network ("iDEN") Purchase Agreement dated March 25, 1996(17)
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 Exhibits(18)
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 Exhibits(19)
10.11 Stock Purchase Agreement dated June 14, 1996, by and between
Chadmoore Wireless Group, Inc. and Libero Limited(20)
11.1 Earnings Per Share (see notes to Consolidated Financial
Statements)(21)
27.1 Financial Data Schedule
- --------
(1) Incorporated by reference to Exhibit 1 in the Company's 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 in the Registration Statement on
Form S-8 effective July 12, 1995 (file no.-94508)
(12) Incorporated by reference to Exhibit 4.1 in the Registration Statement on
Form S-8 effective December 14, 1995 (file no. 33-80405)
(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 in the Company's Form 8-K, under
Item 2, date of earliest event reported--March 8, 1996
(19) Incorporated by reference to Exhibit 2.1 in the Company's Form 8-K, under
Item 2, date of earliest event reported--March 8, 1996
(20) Incorporated by reference to Exhibit 10.11 in the Company's Form 8-K,
under Item 2, date of earliest event reported--June 14, 1996
(21) Incorporated by reference to Exhibit 11.1 to the Company's Form 10-KSB for
the year ended December 31, 1995
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<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-1-1996
<PERIOD-END> SEP-30-1996
<CASH> 3,203,897
<SECURITIES> 0
<RECEIVABLES> 234,956
<ALLOWANCES> 0
<INVENTORY> 319,602
<CURRENT-ASSETS> 4,383,531
<PP&E> 2,572,666
<DEPRECIATION> (158,613)
<TOTAL-ASSETS> 44,757,601
<CURRENT-LIABILITIES> 2,748,379
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0
0
<COMMON> 14,487
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<TOTAL-LIABILITY-AND-EQUITY> 44,757,601
<SALES> 1,028,429
<TOTAL-REVENUES> 1,384,017
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<TOTAL-COSTS> 5,780,784
<OTHER-EXPENSES> 116,824
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