<PAGE> 1
FORM 10-QSB
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U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
1[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 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 (I.R.S. Employer Identification No.)
incorporation or organization)
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 APRIL 30, 1997, ISSUER
HAD 19,748,053 SHARES OF COMMON STOCK, .001 PAR VALUE, OUTSTANDING.
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE): Yes [ ] No [X]
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<PAGE> 2
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INDEX
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
ITEM 1. FINANCIAL STATEMENTS PAGE
<S> <C>
Unaudited Consolidated Financial Statements of Chadmoore Wireless Group, Inc.,
and Subsidiaries (Formerly CapVest Internationale, Ltd.):
Consolidated Balance Sheets:
As of March 31, 1997 and December 31, 1996 1
Consolidated Statements of Operations:
For the Three Months Ended March 31, 1997 and 1996 and
Period from January 1, 1994 to March 31, 1997 2
Consolidated Statements of Cash Flows:
For the Three Months Ended March 31, 1997 and 1996 and
Period from January 1, 1994 to March 31, 1997 3-4
Consolidated Statement of Changes in Shareholders' Equity
For the Three Months Ended March 31, 1997 5
Notes to Unaudited Consolidated Financial Statements 6-13
ITEM 2. PLAN OF OPERATION 14-16
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 17
ITEM 2. CHANGES IN SECURITIES 17
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 17
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS 17
ITEM 5. OTHER INFORMATION 17
ITEM 6. EXHIBITS AND REPORTS OF FORM 8-K 18-20
SIGNATURES 21
</TABLE>
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<PAGE> 3
FORM 10-QSB
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Balance Sheets
March 31, 1997 and December 31, 1996
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARCH 31, 1997 DECEMBER 31,
(UNAUDITED) 1996
-------------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 1,353,528 1,463,300
Accounts receivable 330,047 266,520
Inventory 214,164 197,476
Prepaid property management rights 72,500 81,563
Deposits -- 124,624
Other 65,013 32,020
------------ ----------
Total current assets 2,035,252 2,165,503
Investment in JJ&D, LLC 503,156 532,997
Property and equipment, net 3,466,576 3,164,098
FCC licenses, net of accumulated amortization of $172,757 and $153,404, 1,375,542 1,394,895
respectively
Debt issuance costs, net of accumulated amortization of $12,498 and 172,502 77,562
$39,038, respectively
Management agreements 22,725,442 22,725,442
Investment in license options 3,325,391 3,239,691
Investment in options to acquire management agreements 9,771,445 9,771,445
Other 156,412 55,994
------------ ----------
Total Assets $ 43,531,718 43,127,627
============ ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Current installments of long-term debt $ 292,837 217,096
Accounts payable and accrued liabilities 388,668 329,122
Licenses - options payable 49,800 49,800
License option commission payable 524,800 524,800
Accrued interest 22,866 62,346
Other 30,763 32,080
------------ ----------
Total current liabilities 1,309,734 1,215,244
Capital lease obligations 6,723 8,646
Long-term debt, excluding current installments 3,120,812 2,500,141
Restricted option prepayment 670,187 832,116
------------ ----------
Total liabilities 5,107,456 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 19,748 17,824
and outstanding 19,748,053 shares at March 31, 1997 and 17,823,445
shares at December 31, 1996
Additional paid-in capital 54,391,902 52,951,491
Stock subscribed 32,890 288,835
Deficit accumulated during the development stage (16,020,278) (14,686,670)
------------ ----------
Total shareholders' equity 38,424,262 38,571,480
------------ ----------
Total liabilities and shareholders' equity $ 43,531,718 43,127,627
============ ==========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
1
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<PAGE> 4
FORM 10-QSB
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CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Operations
For the Three Months Ended March 31, 1997 and 1996 and for the
Period from January 1, 1994 through March 31, 1997
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1,
THREE MONTHS ENDED MARCH 31, 1994 THROUGH
---------------------------- MARCH 31,
1997 1996 1997
(UNAUDITED) (UNAUDITED) (UNAUDITED)
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Radio services $ 141,491 $ 19,285 $ 706,041
Equipment sales 290,740 168,539 1,113,813
Maintenance and installation 59,491 -- 334,487
Other 67,655 -- 311,242
------------ ------------ ------------
559,377 187,824 2,465,583
------------ ------------ ------------
Costs and expenses:
Cost of sales 332,642 48,454 1,449,793
Salaries, wages and benefits 576,040 251,130 3,136,713
General and administrative 760,274 585,347 13,359,159
Depreciation and amortization 160,358 50,333 765,892
------------ ------------ ------------
1,829,314 935,264 18,711,557
------------ ------------ ------------
Loss from operations (1,269,937) (747,440) (16,245,974)
------------ ------------ ------------
Other income (expense):
Management fees -- 100,198 472,611
Interest expense (63,986) (22,048) (489,047)
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 315 1,875 (102,235)
------------ ------------ ------------
(63,671) 80,025 225,696
------------ ------------ ------------
Net loss $ (1,333,608) $ (667,415) $(16,020,278)
============ ============ ============
Weighted average number of common
shares outstanding 19,151,200 9,105,746 19,151,200
============ ============ ============
Net loss per share $ (0.07) $ (0.07) $ (0.84)
============ ============ ============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
2
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<PAGE> 5
FORM 10-QSB
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CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statement of Cash Flows
For the Three Months Ended March 31, 1997 and 1996 and for the Period from
January 1, 1994 through March 31, 1997
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM
THREE MONTHS ENDED JANUARY 1,
MARCH 31, 1994 THROUGH
---------------------------- MARCH 31,
1997 1996 1997
(UNAUDITED) (UNAUDITED) (UNAUDITED)
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (1,333,608) $ (667,415) $(16,020,278)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization 146,083 50,333 751,617
Amortization of debt discount and debt issuance 51,564 12,718 149,666
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 -- 62,500 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 -- 675,000 (637,193)
Increase in accounts receivable (63,527) (52,299) (161,584)
Increase in inventory (16,688) (21,860) (136,183)
Decrease in due from General Communications, Inc. -- 58,523 --
Decrease in prepaids 9,063 9,063 45,313
(Increase) in other noncurrent assets (44,000) -- (80,858)
Increase in deposits (16,631) -- (22,755)
Increase in other current assets (7,993) -- (40,013)
Increase (decrease) in accounts payable 79,548 (52,142) 410,479
Increase in commission payable -- 175,600 524,800
Increase in accrued interest 1,849 16,370 246,160
Increase in other current liabilities 3,439 -- 3,439
------------ ------------ ------------
Net cash (used in) provided by operating activities (1,190,901) 266,391 (9,005,512)
------------ ------------ ------------
Cash flows from investing activities:
Purchase of assets from General Communications, Inc. -- (345,609) (352,101)
20% investment in JJ&D, LLC -- -- (100,000)
Purchase of Airtel Communications, Inc. assets -- -- (50,000)
Purchase of CMRS and 800 SMR Network, Inc. -- -- (3,547,000)
Purchase of SMR station licenses -- -- (1,398,575)
Purchase of license options (11,800) (207,920) (1,143,887)
Increase in deposits of licenses (104,900) -- (447,708)
Purchase of property and equipment (212,090) (591,125) (2,951,042)
Purchase of assets held for resale -- -- (219,707)
Sale of assets held for resale -- -- 700,000
Increase in deposit on sale -- 72,029 --
------------ ------------ ------------
Net cash used in investing activities (328,790) (1,072,625) (9,510,020)
------------ ------------ ------------
</TABLE>
(Continued)
3
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<PAGE> 6
FORM 10-QSB
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CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statement of Cash Flows, Continued
For the Three Months Ended March 31, 1997 and 1996 and for the Period From
January 1, 1994 through March 31, 1997
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM
THREE MONTHS ENDED JANUARY 1,
MARCH 31, 1994 THROUGH
---------------------------- MARCH 31,
1997 1996 1997
(UNAUDITED) (UNAUDITED) (UNAUDITED)
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from financing activities:
Proceeds upon issuance of common stock $ -- $ 1,317,690 $ 4,316,543
Proceeds upon issuance of preferred stock -- -- 2,273,707
Proceeds upon exercise of options - related -- -- 62,500
Proceeds upon exercise of options - unrelated -- 127,500 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) -- (30,770)
Payments of long-term debt (113,398) (21,990) (617,912)
Proceeds from issuance of notes payable -- -- 375,000
Proceeds from issuance of long-term debt 1,530,000 -- 9,675,000
------------ ------------ ------------
Net cash provided by financing activities 1,409,919 1,423,200 19,869,060
------------ ------------ ------------
Net increase (decrease) in cash (109,772) 616,966 1,353,528
Cash at beginning of period 1,463,300 188,029 --
------------ ------------ ------------
Cash at end of period $ 1,353,528 $ 804,995 $ 1,353,528
============ ============ ============
Supplemental disclosure of cash paid for:
Taxes $ -- $ -- $ --
Interest $ 7,332 $ 76,538 $ 370,047
============ ============ ============
</TABLE>
NON-CASH ACTIVITIES:
See Notes 3, 5 and 6 for disclosure of non-cash transactions.
See accompanying notes to unaudited consolidated financial statements.
4
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<PAGE> 7
FORM 10-QSB
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CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Shareholders' Equity
For the period from January 1, 1997 to March 31, 1997
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
--------------------------- ------------------------- ADDITIONAL
OUTSTANDING OUTSTANDING PAID-IN
SHARES AMOUNT SHARES AMOUNT CAPITAL
------------ ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996 -- $ -- 17,823,445 $ 17,824 $ 52,951,491
Shares issued for options exercised -- -- 323,857 324 161,604
Shares issued for conversion of debentures -- -- 1,600,750 1,600 1,278,807
Net loss -- -- -- -- --
------------ ------------ ---------- ------------ ------------
Balance at March 31, 1997 $ 19,748,052 19,748 54,391,902
============ ============ ========== ============ ============
<CAPTION>
DEFICIT
ACCUMULATED
DURING TOTAL
DEVELOPMENT STOCK SHARE-HOLDERS'
STAGE SUBSCRIBED EQUITY
------------ ------------ --------------
<S> <C> <C> <C>
Balance at December 31, 1996 $(14,686,670) $ 288,835 $ 38,571,480
Shares issued for options exercised -- -- 161,928
Shares issued for conversion of debentures -- (255,945) 1,024,462
Net loss (1,333,608) -- (1,333,608)
------------ ------------ ------------
Balance at March 31, 1997 (16,020,278) 32,890 38,424,262
============ ============ ============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
5
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<PAGE> 8
FORM 10-QSB
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CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Unaudited Consolidated Financial Statements
March 31, 1997
- -------------------------------------------------------------------------------
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES
A. BASIS OF PRESENTATION
The accompanying unaudited 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 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 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 quarter ended March 31, 1997, is that
basic and diluted EPS would have been $.07 per share.
C. RECLASSIFICATIONS
Certain amounts in the 1996 Unaudited 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 March 31, 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.
(2) ACQUISITIONS
A. AIRTEL SMR, INC. 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. On February
23, 1997, The Company placed a $75,000 deposit toward the exercise of its option
to acquire the outstanding stock of Airtel SMR, Inc. The exercise is contingent
upon certain FCC approvals. The purchase price will include $75,000 cash and a
180 day, noninterest bearing, note payable for $75,000. In addition, the
$100,000 note payable previously assumed was to become due and payable upon the
exercise of the option. The parties agreed to amend the note in consideration
for payment of $36,628 On February 23, 1997 and the remaining $36,628 payable in
five monthly installments of $4,707 and the remaining $14,866 due on June 1,
1997. Airtel SMR, Inc. is the owner of SMR licenses.
6
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<PAGE> 9
FORM 10-QSB
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CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Unaudited Consolidated Financial Statements
March 31, 1997
- -------------------------------------------------------------------------------
(3) STOCK SUBSCRIPTIONS RECEIVABLE AND SUBSCRIBED
In the second quarter of 1996, the Company made a down payment on eight license
options and agreed to issue 11,440 shares of its common stock as payment of 40%
of the option price of these licenses valued at $32,890. On December 27, the
holder of the 8%, two year convertible notes, due September 1998, tendered
$250,000 of the convertible notes and $5,945 of accrued interest for conversion
into 231,744 shares of the company's common stock. The value of the unissued
shares, or aggregate $288,835, is classified as common stock subscribed in
shareholders' equity at December 31, 1996. In January 1997, the 231,744 common
stock were issued. As of March 31, 1997, the value of $32,890 for license
payments was classified as common stock subscribed.
(4) PROPERTY AND EQUIPMENT
A. Property and equipment, which is recorded at cost and depreciated over their
estimated useful lives, generally 5-10 years, consists primarily of Specialized
Mobile Radio ("SMR") system components and related acquisition costs. The
recorded amount of property and equipment capitalized and related accumulated
depreciation is as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
----------- ------------
<S> <C> <C>
SMR systems and equipment $ 3,104,779 $ 2,744,696
Buildings and improvements 345,665 345,665
Land 102,500 102,500
Furniture and office equipment 234,858 203,385
----------- -----------
3,787,802 3,396,246
Less accumulated depreciation (321,226) (232,148)
----------- -----------
$ 3,466,576 $ 3,164,098
=========== ===========
</TABLE>
7
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<PAGE> 10
FORM 10-QSB
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CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Unaudited Consolidated Financial Statements
March 31, 1997
- -------------------------------------------------------------------------------
(5) LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
----------- -----------
<S> <C> <C>
Note payable in connection with the asset purchase from General, 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 $3,649,781 as of March 31, 1997. $ 1,210,451 $ 1,223,330
Notes payable, two year, 8%, original aggregate principal amount of $3,000,000,
due September 1998, principal and interest convertible into shares of the
Company's common stock. -- 750,000
Notes payable, three year, 8%, original aggregate principal amount of
$5,000,000, due June 1999, principal and interest convertible into shares
of the Company's common stock. 100,000 400,000
Notes payable, three year, 8%, aggregate principal amount of $1,750,000, due
February 2000, principal and interest convertible into shares of the
Company's common stock. 1,750,000 --
Note payable to Motorola in connection with the purchase of radio
communications equipment, payable in 36 monthly installments through
January 2000, including interest at 10.625%, secured by guarantee and stock
pledge agreement. 257,912 270,651
Note payable to Motorola in connection with the purchase of radio
communications equipment, payable in 36 monthly installments through March
2000, including interest at 10.75%, secured by guarantee and stock pledge
agreement. 71,439 --
Note payable to Bortex Trust in connection with asset purchase payable in
monthly installments of $4,707 through May 1998, including interest at 12%. 23,847 73,257
----------- -----------
3,413,649 2,717,238
Less current installments (292,837) (217,096)
----------- -----------
$ 3,120,812 $ 2,500,142
=========== ===========
</TABLE>
Aggregate maturity of debt, net of discount, for the next five years is as
follows:
<TABLE>
<CAPTION>
For the twelve months ended March 31:
-------------------------------------
<S> <C>
1998 292,837
1999 132,127
2000 1,981,544
2001 25,444
2002 29,896
Thereafter 951,801
-------------------------------------
3,413,649
=====================================
</TABLE>
8
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<PAGE> 11
FORM 10-QSB
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CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Unaudited Consolidated Financial Statements
March 31, 1997
- -------------------------------------------------------------------------------
(5) LONG-TERM DEBT - CONTINUED
A. DEBT ISSUANCES AND CONVERSIONS
In June 1996, the Company issued $4,000,000 out of a $5,000,000 offering of 8%,
three year, convertible notes payable. The Company received $3,580,000, net of
placement fees of $420,000, which are accounted for as a reduction of the
obligation amortized on the straight-line basis which approximates effective
interest method. Subsequent to June, the Company placed the remaining $1,000,000
convertible notes and received $900,000, net of placement fees of $100,000.
Principal and accrued interest are convertible into common stock at a conversion
price for each share of common stock equal to 72-1/2% of the market price of the
common stock. Market price is defined as the lesser of (a) a 27-1/2% discount of
the 5 day average closing bid price of the common stock, as reported by the
National Association of Securities Dealers Electronic Bulletin Board, for the
previous 5 business days ending on the day before the conversion date, or (b)
the closing bid on the closing date of the sale. During 1996, certain holders
tendered $4,600,000 of the convertible notes and $80,432 of accrued interest for
conversion into 2,187,029 shares of the company's common stock. During the three
months ended March 31, 1997, certain holders tendered $300,000 of convertible
notes and $16,400 of accrued interest for conversion into 372,276 shares of the
company's common stock.
In September 1996, the Company issued a new debt offering of $3,000,000 of 8%,
two year convertible notes. The Company received $2,700,000, net of placement
fees of $300,000. The Company issued 30,000 shares of common stock in
connection with the placement of the convertible notes. Principal and accrued
interest are convertible into common stock at a conversion price for each share
of common stock equal to 72-1/2% of the market price of the common stock.
Market price is defined as the lessor of (a) a 27-1/2% discount of the 5 day
average closing bid price of the common stock, as reported by the National
Association of Securities Dealers Electronic Bulletin Board, for the previous 5
business days ending on the day before the conversion date, or (b) the closing
bid on the closing date of the sale. During 1996, the holder tendered
$2,000,000 of the convertible notes and $30,673 of accrued interest for
conversion into 1,366,184 shares of the company's common stock. On December 27,
1996, the holder tendered $250,000 of the convertible notes and $5,945 of
accrued interest for conversion into 231,744 shares of the Company's common
stock. The unissued common stock and the value of these shares of $255,945 was
recorded as common stock subscribed in share holders' equity at December 31,
1996. In January 1997, the 231,744 shares of the company's common stock were
issued. During the three months ended March 31, 1997, the holder tendered the
remaining $750,000 of convertible notes and $24,929 of accrued interest for
conversion into 996,730 shares of the company's common stock.
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. In addition, 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 $1,000,000 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. Principal
and accrued interest are convertible at a conversion price for each share of
common stock equal to the lessor of (a) $1.37 or (b) a discount of 25% for
principal and accrued interest held up to 90 days from the closing date, a
discount of 27-1/2% for principle and accrued interest held for 91 to 130 days
from the closing date or a discount of 30-1/2% for principal and accrued
interest held for more than 131 days. The discount will apply to the average
closing bid price for the 5 trading days ending on the date before the
conversion date, as represented by the National Association of Securities
Dealers and Electronic Bulletin Board. In addition, the Company granted 52,500
warrants to purchase restricted common shares at an exercise price of $1.50 per
share in conjunction with the above placements of convertible debentures. These
warrants had no intrinsic value at the grant date and therefore no compensation
expense was recognized.
9
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<PAGE> 12
FORM 10-QSB
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CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Unaudited Consolidated Financial Statements
March 31, 1997
- -------------------------------------------------------------------------------
C. MOTOROLA PURCHASE AND FINANCE AGREEMENTS
On October 25, 1996, the Company's subsidiary CCI signed a purchase agreement
with Motorola to purchase approximately $10,000,000 of Motorola's radio
communications equipment, including a Smartnet II trunked 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 $5,000,000 (the Loan Facility). This Loan
Facility is available for draw downs during the effective term 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).
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 fund date. The
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. In December 1996, the Company
borrowed $270,651 under the loan facility. For the three months ended March 31,
1997, the company borrowed an additional $71,439. As of March 31, 1997, the
company was indebted to Motorola under the Loan Facility for $329,351.
(6) EQUITY TRANSACTIONS
A. DEBT CONVERSIONS - UNRELATED PARTIES
During the three months ended March 31,1997, certain holders of the 8%, three
year, convertible notes payable, tendered $300,000 of the convertible notes and
$16,400 of accrued interest for conversion into 372,276 shares of the company's
common stock. In addition, the holder of the 8%, three year, convertible notes
payable, tendered $750,000 of the convertible notes and $24,929 of accrued
interest for conversion into 996,730 shares of the company's common stock.
B. OPTIONS
During the three months ended March 31,1997, no 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 March 31, 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 -- 550,000
Less exercised at $0.37-$2.50 per share (323,857) (267,500)
Lapsed or canceled (155,000) --
--------- ---------
Outstanding at March 31: 9,164,111 3,354,636
========= =========
</TABLE>
Compensation expense of $-0- and $62,500 was recognized for the three months
ended March 31, 1997 and 1996, respectively.
10
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FORM 10-QSB
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CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Unaudited Consolidated Financial Statements
March 31, 1997
- -------------------------------------------------------------------------------
The Company applied APB Opinion No. 25 in accounting for its Plan and,
accordingly, no compensation cost has been recognized for its stock options in
the financial statements. 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 reduced to the pro forma amount indicated
below:
<TABLE>
<CAPTION>
MARCH 31, 1997 MARCH 31, 1996
-------------- --------------
<S> <C> <C> <C>
Net income As reported $ (1,333,608) $ (667,415)
Pro forma (1,333,608) (667,415)
EPS As reported (0.07) (0.07)
Pro forma $ (0.07) $ (0.07)
</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 three months ended
March 31, 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.
C. WARRANTS
During the three months ended March 31, 1997, the Company issued warrants in
conjunction with the following transactions:
o 183,750 issued in connection with the placement of $1,750,000 million of
convertible debentures, 8%, due February, 1999. These warrants had no
intrinsic value as of the date of valuation.
o 300,000 issued to a third party for legal services. These warrants had no
intrinsic value as of the date of valuation.
Each warrant can be exercised for one share of the Company's common stock. The
following is a summary of warrants outstanding and their terms as of March 31,
1997 and 1996:
<TABLE>
<CAPTION>
NUMBER NUMBER
WARRANTS OF SHARES OF SHARES
1997 1996
--------- ---------
<S> <C> <C>
Outstanding at January 1: 1,931,918 1,109,334
Granted at $1.50 - $3.00 per share 483,750 540,584
Less exercised -- --
Lapsed or canceled -- --
--------- ---------
Outstanding at March 31: 2,415,668 1,649,918
========= =========
</TABLE>
11
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FORM 10-QSB
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CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Unaudited Consolidated Financial Statements
March 31, 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
all options, the exercise is subject to a number of contingencies. These
contingencies include constructing the license within the time period allotted
by the FCC, maintaining the channel once constructed, having the ability to
purchase the license and the Federal Communications Commission ("FCC") approval
of the transfer. If the Company fails to complete construction within the FCC
time period, the Company will be obligated under the option to pay the full
option price.
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 is also
liable under the option for the full option price, provided the grantor gives
timely notice.
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.
12
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FORM 10-QSB
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CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Unaudited Consolidated Financial Statements
March 31, 1997
- -------------------------------------------------------------------------------
The Company's Subsidiaries, 800 and CMRS, manage over five hundred
multi-channel trunked SMR stations representing over 5,500 channels and
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.
(beta) 90.629. Under the Extended Implementation Plan, as granted, the stations
must be constructed in accord 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. While
the Company believes that the FCC will grant at least two years to complete
construction of the stations managed by 800 and CMRS Systems, it cannot predict
what the FCC's evaluation of the rejustification will yield. In any event, even
if the FCC finds the rejustification to be meritless, under Section 90.629(e)
of the FCC's rules, 47 C.F.R. (beta) 90.629(e), 800 and CMRS Systems will be
given six months from the date of such determination to complete construction
of the stations managed by 800 and CMRS Systems. As of March 31, 1997, the
Company has recorded $22,721,712 to management agreements held by CMRS and 800
and $9,737,877 to options to acquire the stock of the licensee corporations
also held by CMRS and 800.
B. LEGAL PROCEEDINGS
The Company is involved in various claims and legal actions arising in the
ordinary course of business. The Company is also involved in legal proceedings
as disclosed on Item I, Part II here of. 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.
13
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<PAGE> 16
FORM 10-QSB
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CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Unaudited Consolidated Financial Statements
March 31, 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. (SEE IEM 1.
FOOTNOTE 7A.)
(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 AND PART 2 ITEM I-LEGAL PROCEEDINGS)
PLAN OF OPERATION
The Company's objectives over the next 12 months are to construct systems for,
and bring into operation, channels in selected markets, establish distribution,
institute its marketing plan and increase recurring revenues through the
addition of subscribers. The Company owns manages and operates analog SMR
systems in Richmond, Virginia, Memphis, Tennessee, Little Rock, Pine Bluff, and
Fayetteville, Arkansas (collectively, the "Operating Systems"). Through
acquisition and management of the Operating Systems and construction of
additional Specialized Mobile Radio ("SMR") stations, the Company will seek to
increase its customer base and corresponding revenues within each market. The
Company has concentrated its efforts on acquiring interests in licenses in over
200 selected markets ("Proposed Operating Territories"), located in smaller
cities (having populations between 25,000 and 1,500,000), towns and rural
areas. The plan is to select markets within the Proposed Operating Territory
with adequate available channel density, population base and pent-up demand
from lack of channel capacity to prove the Company's operating capability and
generate sufficient revenues to become cash flow positive in the shortest time
possible. 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 the Operating Systems. 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 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
targeted market in cities within the 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 currently offers two types of wireless communication services on
its Operating Systems: SMR dispatch (two-way) and telephone interconnect. Both
services are provided using analog SMR technology. The Company also sells
analog SMR equipment to subscribers and provides the system and services on
which customers can use their equipment.
14
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<PAGE> 17
FORM 10-QSB
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CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Unaudited Consolidated Financial Statements
March 31, 1997
- -------------------------------------------------------------------------------
PLAN OF OPERATION - CONCLUDED
The Company has entered into binding five and ten year Options to Acquire and
Management Agreements for over 7,000 channels licensed by the Federal
Communications Commission ("FCC"), in the Proposed Operating Territory. The
Company has also formed dealer agreements with independent SMR operators, and
has begun to construct and market its SMR services. The Company plans to offer
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 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 and permit 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 a leader 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 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: dealers and
independent agents. The Company's main method of distribution during the next
twelve (12) months is expected to be existing dealers. The dramatic reduction
in capital required by maximizing the use 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 its Proposed Operating Territory.
LIQUIDITY AND CAPITAL RESOURCES
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 Proposed Operating Territory. The Company believes that in the next 12
months it will require approximately $10.4 million for capital expenditures
associated with the capital assets necessary for the construction of systems.
In addition, the Company expects to require $5.8 million to meet operating
expenses. However, the Company believes it should be able to modify its
business plan to meet its current obligations through 1997, based on its
current resources as of March 31, 1997.
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.
15
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<PAGE> 18
FORM 10-QSB
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CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Unaudited Consolidated Financial Statements
March 31, 1997
- -------------------------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES - CONCLUDED
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 a Smartnet
II trunked radio system. 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 fund 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 March 31, 1997, the Company
is indebted for $329,351 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.
Depending on the Company's ability to obtain additional funding, the Company
may fund approximately $1.9 million of the $10.4 million required for the
construction of SMR systems over the next twelve months through the Loan
Facility with Motorola. In addition, the Company requires $5.8 million for
operating expenses over the next twelve months. This requires the Company to
raise approximately $14.3 million to effectively implement its business plan
over the next twelve months.
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 and/or (iii)operating or capital
leasing.
Accordingly, based on the plans and intentions set forth above, management
desires 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 desires to emerge from the
development stage and establish normal operations in 1997. 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
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FORM 10-QSB
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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
has 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 has also
challenged the sufficiency of the punitive damages allegations on the grounds
that the compliant fails to state facts sufficient to support these
allegations. Although the Company intends to defend the action vigorously, it
is still in its early stages and no discovery has been conducted in this
matter. At this time, the Company is unable to predict the outcome of this
matter.
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.
17
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FORM 10-QSB
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ITEM 6. EXHIBITS AND CURRENT REPORTS ON FORM 8K
(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 Incorporation(1)
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 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,
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 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)
18
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FORM 10-QSB
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ITEM 6. EXHIBITS AND CURRENT REPORTS ON FORM 8K - CONTINUED
(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, 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 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, 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)
10.12 Purchase Agreement between Motorola, Inc. and Chadmoore
Wireless Group, Inc. and Chadmoore Communications, Inc.,
dated October 25, 1996(21)
10.13 Promissory Note executed by Chadmoore Communications, Inc.
payable to Motorola, Inc., dated December 30, 1996(22)
10.14 Guarantee and Security Agreement executed by Chadmoore
Wireless Group, Inc. in favor of Motorola, Inc., dated
December 30, 1996(23)
11.1 Calculation of Weighted Average Shares Outstanding (see
Consolidated Statement of Operations and Notes to
Consolidated Financial Statement, 1-L)
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-K(24)
21.1 Subsidiaries of the Company(25)
23.1 Consent of KPMG Peat Marwick LLP(26)
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 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.
19
===============================================================================
<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 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.
(ii) 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.
(iii) Current Report on Form 8-K filed on February 28, 1997,
reporting shares of Registrant's common stock issued pursuant to
Regulation S since January 17, 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.
20
===============================================================================
<PAGE> 23
FORM 10-QSB
===============================================================================
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/ Gary L. Killoran
------------------------------------
Gary L. Killoran
Chief Financial Officer, Treasurer
Date: May 15, 1997
21
===============================================================================
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
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