U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
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
COLORADO 84-1058165
- ------------------------------- --------------------
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2875 EAST PATRICK LANE SUITE G, LAS VEGAS, NEVADA 89120
-------------------------------------------------------
(Address of principal executive offices)
(702) 740-5633
---------------------------
(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 MAY 7, 1999 ISSUER HAD 39,368,024 SHARES OF COMMON STOCK, $.001 PAR VALUE,
OUTSTANDING.
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE): Yes [ ] No [X]
<PAGE>
INDEX
PART I - FINANCIAL INFORMATION PAGE
ITEM 1. FINANCIAL STATEMENTS - Unaudited
Consolidated Balance Sheets as of March 31, 1999 and
December 31, 1998 3
Consolidated Statements of Operations for the three months
ended March 31, 1999 and 1998 4
Consolidated Statement of Redeemable Preferred Stock and
Shareholders' Equity for the three months ended March 31,
1999 5
Consolidated Statements of Cash Flows for three months
ended March 31, 1999 and 1998 6
Condensed Notes to Interim Consolidated Financial
Statements 7-13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
PLAN OF OPERATIONS 14-17
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 18-20
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 21
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 21
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS 21
ITEM 5. OTHER INFORMATION 21
ITEM 6. EXHIBITS AND CURRENT REPORTS ON FORM 8-K 22
SIGNATURES 27
2
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<CAPTION>
CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
March 31, 1999 and December 31, 1998
March 31, December 31,
1999 1998
(Unaudited)
------------ ------------
ASSETS
<S> <C> <C>
Current assets:
Cash $ 5,202,585 $ 578,677
Accounts receivable, less allowance for doubtful accounts of $19,500 and $13,000 861,258 582,817
Other receivables, less allowance for doubtful accounts of $133,639 and $133,639 140,672 136,288
Inventory 197,345 169,520
Deposits and prepaids 205,578 134,228
------------ ------------
Total current assets 6,607,438 1,601,530
Property and equipment, net 12,881,897 12,681,753
Intangible assets, net 40,215,440 41,118,012
Other non-current assets, net 1,075,989 119,166
------------ ------------
Total assets $ 60,780,764 $ 55,520,461
============ ============
LIABILITIES, REDEEMABLE PREFERRED STOCK
AND SHAREHOLDERS' EQUITY
Liabilities:
Current maturities of long-term debt $ 4,820,426 $ 8,255,174
Accounts payable and accrued liabilities 5,013,642 6,807,158
License option commission payable - current 1,072,214 3,412,000
Unearned revenue 632,924 506,056
Other current liabilities 730,508 707,039
------------ ------------
Total current liabilities 12,269,714 19,687,427
Long-term debt 22,070,141 8,152,589
License option commission payable - non-current 1,476,550 -
------------ ------------
Total Liabilities 35,816,405 27,840,016
Minority interests 586,650 533,690
Commitments and contingencies
Redeemable preferred stock:
Series C, 4% cumulative, 10,119,614 shares issued and outstanding 1,054,868 974,995
Shareholders' equity:
Preferred stock, $.001 par value, authorized 40,000,000 shares:
Series B 219,000 shares issued and 263 and 21,218 shares outstanding - 21
Common stock, $.001 par value, authorized 100,000,000 shares,
37,496,928 and 36,504,324 shares issued and outstanding 37,497 36,504
Additional paid-in capital 66,775,987 66,856,832
Accumulated deficit (43,490,643) (40,721,597)
------------ ------------
Total shareholders' equity 23,322,841 26,171,760
------------ ------------
Total liabilities, minority interests, redeemable preferred
stock and shareholders' equity $ 60,780,764 $ 55,520,461
============ ============
See accompanying condensed notes to unaudited interim consolidated financial statements
</TABLE>
3
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<CAPTION>
CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
Unaudited Consolidated Statements of Operations
For the Three Months Ended March 31, 1999 and 1998
March 31, March 31,
1999 1998
Restated
------------ ------------
<S> <C> <C>
Revenues:
Service revenue $ 1,028,349 $ 371,578
Equipment sales and maintenance 233,964 144,514
------------ ------------
1,262,313 516,092
------------ ------------
Operating expenses:
Cost of service revenue 283,495 83,075
Cost of equipment sales and maintenance 136,736 99,798
General and administrative 2,314,163 1,285,650
Depreciation and amortization 443,999 194,134
------------ ------------
3,178,393 1,662,657
------------ ------------
Loss from operations (1,916,080) (1,146,565)
------------ ------------
Other (expense):
Minority interest in earnings (52,960) (9,297)
Interest expense, net (605,039) (460,370)
Standstill agreement expense - (182,914)
------------ ------------
(657,999) (652,581)
------------ ------------
Net loss before extraordinary item (2,574,079) (1,799,146)
Extraordinary loss on early extinguishment of debt (194,967) -
------------ ------------
Net loss $ (2,769,046) $ (1,799,146)
Series B preferred stock dividend (17,578) (40,692)
Series C redeemable preferred stock dividend and accretion (79,873) -
------------ ------------
Loss applicable to common shareholders $ (2,866,497) $ (1,839,838)
============ ============
Per Share of Common Stock:
Net loss per share before extraordinary item (0.06) (0.08)
Extraordinary loss per share on early extinguishment of debt (0.00) -
------------ ------------
Net loss per share $ (0.06) $ (0.08)
============ ============
Series B preferred stock dividend per share (0.00) (0.00)
Series C redeemable preferred stock dividend and accretion per share (0.00) -
------------ ------------
Basic and diluted loss per share of Common Stock $ (0.06) $ (0.08)
============ ============
Basic and diluted weighted average shares outstanding 51,484,605 22,339,773
============ ============
See accompanying condensed notes to unaudited interim consolidated financial statements.
</TABLE>
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<CAPTION>
CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
Unaudited Consolidated Statements of Redeemable Preferred Stock and Shareholders' Equity
For the Three Months ended March 31, 1999
Series C Redeemable Series B Preferred
Preferred Stock Stock
Common Stock Additional Total
Outstanding Outstanding Paid-In Accumulated Shareholders'
Shares Amount Shares Amount Shares Amount Capital Deficit Equity
---------- ---------- ------- ------- ---------- ------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998 10,119,614 $ 974,995 21,218 $ 21 36,504,324 $36,504 $66,856,832 $(40,721,597) $26,171,760
Issuance of Common Stock:
Series B preferred stock conversions - - (20,955) (21) 915,932 916 (895) - -
Series B preferred stock dividends - - - - 76,672 77 (77) - -
Series C redeemable preferred stock
dividends and accretion - 79,873 - - - - (79,873) - (79,873)
Net loss - - - - - - - ( 2,769,046) (2,769,046)
========== ========== ======= ======= ========== ======= =========== ============ ============
Balance at March 31, 1999 10,119,614 $1,054,868 263 $ - 37,496,928 $37,497 $66,775,987 $(43,490,643) $23,322,841
========== ========== ======= ======= ========== ======= =========== ============ ============
See accompanying condensed notes to unaudited interim consolidated financial statements
</TABLE>
5
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<TABLE>
<CAPTION>
CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
Unaudited Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 1999 and 1998
March 31, March 31,
1999 1998
Restated
--------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (2,769,046) $ (1,799,146)
Adjustments to reconcile net loss to net cash used in
operating activities:
Minority interest 52,960 9,297
Depreciation and amortization 443,999 194,134
Provision (recovery) for losses on accounts receivable 6,500 (28,400)
Standstill agreement - 182,914
Extinguishment of debt 94,847 -
Amortization of debt discount 429,003 310,392
Amortization of debt issuance costs 22,913 -
Options issued for services - 15,040
Change in operating assets and liabilities:
Decrease (increase) in accounts receivable
and other receivables (289,322) 26,779
Decrease (increase) in inventory (27,825) 4,371
(Increase) in deposits and prepaids (71,350) (193,839)
Increase in unearned revenues 126,865 90,285
Increase (decrease) in accounts payable and
accrued liabilities (1,793,516) 67,474
Increase in other current liabilities 23,469 140,924
--------------- ---------------
Net cash used in operating activities (3,750,503) (979,775)
--------------- ---------------
Cash flows from investing activities:
Purchase of license options (59,898) (99,999)
Purchases of property and equipment (544,909) (293,297)
--------------- ---------------
Net cash used in investing activities (604,807) (393,296)
--------------- ---------------
Cash flows from financing activities:
(Increase) in debt issuance costs (1,074,583) (144,852)
Payments of long-term debt (3,446,199) (190,784)
Proceeds from issuance of long-term debt 13,500,000 1,613,020
---------------- ---------------
Net cash provided by financing activities 8,979,218 1,277,384
---------------- ---------------
Net increase (decrease) in cash 4,623,908 (95,687)
Cash at beginning of period 578,677 959,390
---------------- ---------------
Cash at end of period $ 5,202,585 $ 863,703
================ ===============
See Note 8 for supplemental disclosure on non-cash investing and financing activities
See accompanying condensed notes to unaudited interim consolidated financial statements
</TABLE>
6
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CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
Condensed Notes to Unaudited Interim Consolidated Financial Statements
March 31, 1999
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated interim financial statements of Chadmoore Wireless Group, Inc.
and subsidiaries (collectively "Chadmoore" or the "Company") included herein
have been prepared by the Company without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission (the "Commission") and
reflect all adjustments that are, in the opinion of management, necessary for a
fair statement of the results for the interim period. Additionally, certain
prior period amounts have been reclassified to conform to 1999 presentation,
none of which had any effect on net loss or basic and diluted loss per share.
These interim financial statements should be read in conjunction with the
financial statements and notes thereto contained in the Company's Annual Report
on Form 10-KSB for the year ended December 31, 1998 (the "1998 Form 10-KSB").
Operating results for the interim periods are not necessarily indicative of
results for an entire year.
DESCRIPTION OF BUSINESS
The Company is one of the largest holders of frequencies in the United States in
the 800 megahertz band for commercial specialized mobile radio ("SMR") service.
The Company's operating territory covers approximately 55 million people in 180
markets, primarily in secondary and tertiary cities throughout the United
States. Also known as dispatch, one-to-many, or push-to-talk, Chadmoore's
commercial SMR service provides reliable, real-time voice communications for
companies with mobile workforces that have a need to frequently communicate with
their entire fleet or subgroups of their fleet.
CONCENTRATION OF RISK
The Company is party to an equipment purchase agreement with Motorola. For the
foreseeable future the Company expects that it will need to rely on Motorola for
the manufacturing of the equipment necessary to construct and make its network
operational .
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the financial statements of all
majority owned companies and joint ventures. All significant inter-company
balances and transactions have been eliminated in consolidation. Minority
interest represents the minority partners' proportionate share in the venturer's
equity or equity in income (loss) in the joint ventures.
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.
REVENUE RECOGNITION
The Company recognizes revenue from radio dispatch and telephone interconnect
services based on monthly access charges per radio, plus in the case of
telephone interconnect service, revenue is recognized based on air time charges
as used. Revenue is also recognized from equipment maintenance upon acceptance
by the customer of the work completed as well as from the sale of equipment when
delivered.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
7
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The accounting standards executive committee of the American Institute of
Certified Public Accountants has issued Statement of Position 98-5 "Reporting on
Costs of Start-Up Activities" ("SOP 98-5"). SOP 98-5 requires the costs of
start-up activities, as defined, to be expensed as incurred. SOP 98-5 is
effective for fiscal years beginning after December 15, 1998. The Company
adopted this standard on January 1, 1999 and will expense start up activities as
incurred after that date. The adoption of SOP 98-5 did not have a material
effect on the Company's financial position or results from operations.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", ("SFAS 133"). The Company expects to adopt
the new statement effective January 1, 2000. The statement establishes
accounting and reporting standards that require every derivative instrument
(including certain derivative instruments embedded in other contracts) be
recorded in the balance sheet as either an asset or liability measured at its
fair value. SFAS 133 requires that changes in the fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows the gains and losses on a derivative to
offset related results on the hedged item in the income statement, and requires
that a company formally document, designate and assess the effectiveness of the
hedge accounting transaction. The Company does not anticipate that the adoption
of this statement will have a significant effect on its results of operations or
financial position.
(2) MANAGEMENT PLANS
The Company's auditors' opinion for the year ended December 31, 1998 includes an
explanatory paragraph which expresses substantial doubt about the Company's
ability to continue as a going concern. The accompanying unaudited consolidated
interim financial statements have been prepared assuming that the Company will
continue as a going concern. The Company has suffered recurring losses from
operations, and has a working capital deficiency of $5,662,276 that raises
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are described below. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
The Company believes that during 1999 it will require a significant amount of
capital for full-scale implementation of its SMR services and ongoing operating
expenses. To meet such funding requirements, the Company anticipates additional
loans from GATX Capital Corporation ("GATX") or other participants in the GATX
facility, but there can be no assurance that the Company will obtain these
loans.
The Company believes that it should have adequate resources to continue
establishing its SMR business. However, while the Company believes that it has
developed adequate contingency plans, the failure to consummate the
aforementioned potential financing as currently contemplated could have a
material adverse effect on the Company, including the risk of liquidation of
assets or bankruptcy. Current contingency plans may include pursuing similar
financing arrangements with other institutional investors and lenders, selling
additional equity instruments, selling selected channels, and focusing solely on
the Company's current 89 markets in which full-scale service has already been
implemented. This latter course might entail ceasing further system expansion in
existing markets and reducing corporate staff to the minimal level necessary to
administer such markets. The Company believes that this strategy would provide
sufficient time and resources to raise additional capital or sell selected
channels in order to resume its growth. However, there can be no assurances that
this or any of the Company's contingency plans would adequately address the
aforementioned risks, or that the Company will attain overall profitability once
it has achieved its additional financing.
(3) FCC LICENSES AND RIGHTS TO ACQUIRE FCC LICENSES
Intangible assets consist of FCC licenses, which are recorded at cost and are
authorized by the Federal Communications Commission ("FCC") and allow the use of
certain communications frequencies. FCC licenses have a primary term of five or
ten years and are renewable for additional five-year periods for a nominal FCC
processing fee. Although there can be no assurance that the existing licenses
will be renewed, management expects that the licenses will be renewed as they
expire. FCC license and related costs are amortized using the straight-line
method over 20 years.
Intangible assets consist of the following:
8
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March 31, December 31,
1999 1998
(Unaudited)
------------------ ------------------
FCC licenses $ 36,859,513 $ 37,669,351
Rights to acquire licenses 3,991,633 3,985,133
------------------ ------------------
40,851,146 41,654,484
Less accumulated amortization
(635,706) (536,472)
================== ==================
$ 40,215,440 $ 41,118,012
================== ==================
(4) PROPERTY AND EQUIPMENT
Property and equipment are carried at cost, less accumulated depreciation and
amortization. Direct and indirect costs of construction are capitalized.
Depreciation is computed using the straight-line method over estimated useful
lives beginning in the month an asset is placed in service.
Estimated useful lives of property and equipment are as follows:
Buildings 40 years
Leasehold improvements 5 years
SMR systems and equipment 10 years
Furniture and office equipment 5 years
The recorded amount of property and equipment capitalized and the related
accumulated depreciation and amortization is as follows:
March 31, December 31,
1999 1998
(Unaudited)
----------- ---------------
Land $ 102,500 $ 102,500
Buildings and improvements 400,185 395,659
SMR systems and equipment 13,497,783 12,862,618
SMR systems in process 405,600 554,200
Furniture and office equipment 364,706 310,886
---------- ----------
14,770,774 14,225,863
Less accumulated depreciation and amortization (1,888,877 (1,544,110)
---------- ----------
$12,881,897 $12,681,753
(5) LONG-TERM DEBT
In September 1997, the holder of a convertible debenture entered into an
agreement with the Company to restructure the convertible debenture (the
"Debenture Restructuring Agreement") (see 1998 Form 10-KSB). The Debenture
Restructuring Agreement required the holder to exchange the convertible
debenture (including rights to all accrued interest and penalties) for a new
debenture (the "New Debenture") with a maturity date of August 31, 1998, in the
principal amount of $1,627,500, payable in ten monthly payments of $162,750.
These payments were payable in cash or stock at the market price when due (at
the Company's option). Interest, in the liquidated amount of $425,000, was
payable, by the Company, at the Company's option, in cash or stock at the then
current market price on the due date and was payable in September 1998. As of
March 31, 1999, the Company received a notice of default under the New
Debenture, but had not made any payments torwards the New Debenture. On April
12, 1999, the Company made a payment to the New Debenture holder of 1,871,096
shares of the Company's restricted Common Stock, which represented $916,837
toward the principal and interest of the New Debenture.
9
<PAGE>
On March 2, 1999, pursuant to a senior secured loan agreement ("GATX Facility"),
the Company borrowed $13.5 million from GATX. Pursuant to the GATX Facility,
GATX, at its sole discretion, has the option to make available up to $13.5
million in additional funds, within 120 days.
Loans will be made at an interest rate fixed at the time of the funding based on
five-year US Treasury notes plus 5.5% and payable over five-years following a
one year interest only period. Warrants to purchase up to 1,822,500 shares of
the Company's Common Stock at an exercise price of $0.39 per share were also
issued to the Lender. The loan is secured by substantially all the assets of the
Company; provided, however, that if the full $27 million is not made available
within 120 days of funding, certain assets will be released from security and
the number of the warrants will be reduced proportionately.
In conjunction with the GATX Facility the Company has prepaid and terminated the
Motorola loan facility and the MarCap facility. All security interests related
to the Motorola Loan Facility and the MarCap Facility were concurrently
released. The Company paid $94,847 for debt issuance costs and $100,120 of
prepayment penalties related to these loans. These are reflected as an
extraordinary item in the accompanying unaudited consolidated financial
statements at March 31, 1999.
In addition, the Company incurred debt issuance costs related to the GATX
Facility totaling $1,074,583. These costs will be amortized using the effective
interest method, or a method that approximates the effective interest method,
over the life of the loan.
As of March 31, 1999, the Company was not in compliance with the debt covenant
related to current ratio for the GATX Facility. However, the necessary debt
waiver was obtained, and the Company has classified the appropriate portion
(maturing after one year) as long-term debt.
(6) EQUITY TRANSACTIONS
PREFERRED STOCK CONVERSIONS
On December 23, 1997, the Company completed a private placement of Series B
Convertible Preferred Stock (the "Series B Preferred"). During the three months
ended March 31, 1999 the holders of the Series B Preferred converted 20,955
shares of Series B Preferred into 915,932 shares of Common Stock. Dividends on
such shares of Series B Preferred were $17,578, which was paid with 76,672
shares of Common Stock.
(7) MANDITORILY REDEEMABLE PREFERRED STOCK
On May 4, 1998, the Company issued 10,119,614 shares of 4% cumulative Series C
Preferred Stock, which is mandatorily redeemable by written notice to the
Company on the earlier of (i) May 1, 2003 or (ii) the occurrence of the listing
of the Company's Common Stock on a National Securities Exchange or an equity
financing by the Company that results in gross proceeds in excess of $2 million
("Redeemable Preferred"). The Redeemable Preferred has a redemption price equal
to $.3953 and is entitled to cumulative annual dividends equal to 4% payable
semi-annually. Dividends on the Redeemable Preferred accrue from the issue date,
without interest, whether or not dividends have been declared. Unpaid dividends,
whether or not declared, compound annually at the dividend rate from the
dividend payment date on which such dividend was payable. As long as any shares
of Redeemable Preferred are outstanding, no dividend or distribution, whether in
cash, stock or other property, may be paid, declared or set apart for payment
for any junior securities.
The difference between the relative fair value of the Redeemable Preferred at
the issue date and the mandatory redemption amount is being accreted by charges
to additional paid-in-capital, using the effective interest method through April
30, 2003. At the redemption date, the carrying amount of such shares will equal
the mandatory redemption amount plus accumulated dividends unless the shares are
exchanged prior to the redemption date. Since the Company had no retained
earnings such amount is charged to additional paid-in capital.
(8) NON-CASH EVENTS
SUPPLEMENTAL DISCLOSURE FOR NON-CASH INVESTING AND FINANCING ACTIVITIES
10
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During the three months ended March 31, 1999, the Company had the following
non-cash investing and financing activities. Conversion of 20,955 shares of
Series B Preferred into 915,932 shares of Common Stock. Issuance of 76,672
shares of common stock for Series B Preferred dividends.
During the three months March 31, 1998 the Company had the following non-cash
investing and financing activities. The issuance of 108,500 shares of Common
Stock to employees for compensation. The issuance of $1,548,555 of notes
payable, net of discount, to exercise certain license options. Conversion of
79,519 shares of Series B Preferred into 1,803,052 shares of Common Stock.
Issuance of 22,095 shares of Common Stock for Series B Preferred dividends.
Issuance of 11,400 shares of Common Stock for $32,890 of Common Stock previously
subscribed. Issuance of 800,000 shares of Common Stock with a value of $352,000,
for exercise of certain license options.
SUPPLEMENTAL DISCLOSURE OF CASH PAID FOR TAXES AND INTEREST
During the three months ended March 31, 1999 and 1998 the Company paid no cash
for taxes. During the three months ended March 31, 1999 and 1998 the Company
paid cash of $55,973 and $27,578, respectively for interest.
(9) RELATED PARTY TRANSACTIONS
During the three months ended March 31, 1999 and 1998 the Company paid $878,573
and $122,903, respectively to Private Equity Partners ("PEP"), for professional
services associated with equity and debt financings. Mark F. Sullivan, a
Director of the Company, is an owner and managing partner of PEP.
The Company and Recovery Equity Investors II L.P. ("Recovery") entered into an
advisory agreement commencing on May 1, 1998 and ending on the fifth
anniversary. The advisory agreement stipulates the Recovery shall devote such
time and effort to the performance of providing consulting and management
advisory services for the Company as deemed necessary by Recovery. In
consideration of the consultant's provision of the services to the Company, the
Company is obligated to pay Recovery an annual fee of $312,500 beginning on the
first anniversary which shall be paid in advance, in equal monthly installments,
reduced by the Redeemable Preferred dividends paid in the preceding twelve
months. Jeffrey A. Lipkin and Joseph J. Finn-Egan, managing partners for
Recovery, are Directors of the Company.
(10) COMMITMENTS AND CONTINGENCIES
LICENSE OPTION AND MANAGEMENT AGREEMENT CONTINGENCIES
Goodman/Chan Waiver. Nationwide Digital Data Corp. and Metropolitan
Communications Corp. among others (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 little or 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 through NDD/Metropolitan, 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 Daniel R. Goodman (the
"Receiver") to preserve the assets of NDD/Metropolitan. In the course of the
Receiver's duties, he 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 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 commercial mobile radio
services stations, but had not been granted the extended construction period to
be awarded to all CMRS licensees. Thus, in an effort to be consistent in its
treatment of similarly situated licensees, the FCC granted an additional four
months in which to construct and place the Receivership Stations in operation
(the "Goodman/Chan Waiver"). The Goodman/Chan Waiver became effective upon
publication in the Federal Register on August 27, 1998. Moreover, the FCC
released a list on October 9, 1998 which purported to clarify the status of
relief eligibility for licenses subject to the August 27, 1998 decision.
Subsequently the FCC also released a purported final list of the Receivership
Stations.
11
<PAGE>
However, on the basis of a previous request to the Receiver and a separate
previous request for assistance to the FCC's Licensing Division by the Company,
the FCC and the Receiver examined and marked a list provided by the Company. The
FCC's and the Receiver's markups indicated those stations held by the Company or
subject to Management and Option Agreements, which the FCC and/or the Receiver
considered to be, at that time, Receivership Stations and/or stations considered
"similarly situated" and thus eligible for relief. From the communication from
the Receiver, the Company believes that approximately 800 of the licenses that
it owns or manages are Receivership Stations or otherwise entitled to relief.
For its own licenses and under the direction of each licensee for managed
stations, the Company proceeded with timely construction of those stations which
the Company reasonably believes to be Receivership Stations or otherwise
entitled to relief. The Company received relief on approximately 150 licenses
under the Goodman/Chan proceedings and from the official communication from the
FCC, the Company believes that approximately 650 licenses should be eligible for
relief as "similarly situated". Initial review of the Commission's Goodman/Chan
Order indicated a potentially favorable outcome for the Company as it pointed to
a grant of relief for a significant number of the Company's owned and/or managed
licenses which were subject to the outcome of the Goodman/Chan decision.
However, on October 9, 1998 a release from the Offices of the Commercial
Wireless Division of the FCC's Wireless Telecommunication Bureau announced that
because of a technicality relating to the actual filing dates of the
construction deadline waiver requests by certain of the subject licensees, some
licenses which the FCC staff earlier had stated would be eligible for
construction extension waivers due to the similarity of circumstances between
those licensees and the Goodman/Chan licensees, would not actually be granted
final construction waivers. The Commission has subsequently begun a process of
deleting certain of the Company's licenses in this category from its official
licensing database. Prior to the release of the October 9, 1998, Public Notice,
the Company constructed and placed into operation certain licenses from this
category based on information received from the FCC and the Receiver. The
Company is in the process of determining which licenses have in fact been
deleted; however, due to the disparity between the FCC's lists and its
subsequent treatment of such lists as well as continuing modification of the
FCC's license database, the Company is uncertain as to which, if any, will
remain deleted under the FCC's current procedures.
In response, on November 9, 1998, Chadmoore filed a Petition for Reconsideration
at the FCC seeking reversal of the action announced in the Commercial Wireless
Division's Public Notice, and the Company has asked that relief be reinstated
for its affected licenses. Additionally, on February 1, 1999, the Company in
conjunction with other affected parties filed a Petition with the United States
Court of Appeals for the District of Columbia Circuit seeking reversal of the
FCC's decision and a remand of the decision to the FCC with specific
instructions from the court to reinstate the licenses for which relief had been
denied. Oral argument before the Court was held on May 4, 1999. Other similarly
situated licensees also have filed petitions for relief. No specific timetable
is available in order to assist the Company's Management to predict with any
reasonable degree of accuracy when final action on these proceedings will be
forthcoming. However, as argument on the case was heard by the Court on May 4,
1999 Management expects that the Court's opinion will be forthcoming no later
than the third quarter 1999. The Company does not believe it to be probable that
it will not be provided relief on the licenses potentially subject to the
Goodman Chan Proceedings. However there can be no assurance that relief will be
granted. Approximately 650 of those licenses purchased by or under Option and
Management Agreements with the Company are among those which the FCC now states
will not be afforded relief pursuant to the Commercial Wireless Division's
October 9, 1998 Public Notice. Thus, it is possible that the Company's owned
and/or managed licenses which are encompassed within the denial of relief
pursuant to the October 9, 1998 Public Notice, could be permanently canceled by
the FCC for failure to comply with its construction requirements. If these
licenses are in fact cancelled by the FCC, it would result in the loss of
licenses with a book value of approximately $6,200,000 and the loss of certain
subscribers to the Company's services, which while not considered probable,
could result in a material adverse effect on the Company's financial condition,
results of operations and liquidity and could result in possible fines and/or
forfeitures levied by the FCC. The Company has prepared these estimates based on
the best information available at the time of this filing. Once again, there has
been no list published by the FCC in this matter which the Company feels it may
rely upon. Therefore, the Company has commenced the above-described litigation
to clarify this matter. Based on the preceding, no provision has been made in
the accompanying unaudited consolidated financial statements.
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The Receiver has requested that the Company replace some of the existing Options
and Management Agreements with Goodman/Chan licensees with promissory notes. The
Company engaged in discussions with the Receiver in this regard, but did not
reach a final determination and concluded that no further discussions are
warranted at this time. However, there can be no assurances that the Receiver
would not decide to take actions in the future to challenge the Company's
agreements with Goodman/Chan licensees, including the Company's rights to
licenses under such agreements, in an effort to enhance the value of the
Receivership estate.
PURCHASE COMMITMENT
In October 1996, the Company signed a purchase agreement with Motorola to
purchase approximately $10 million of Motorola radio communications equipment,
including Motorola Smartnet II trunked radio systems. Such purchase agreement
required that the equipment be purchased within 30 months of its effective date.
On March 10, 1998, the effective period of the Motorola purchase agreement was
extended from 30 months to 42 months. As of March 31, 1999, the Company had
purchased approximately $5.0 million toward this purchase commitment.
(11) SUBSEQUENT EVENTS
On April 12, 1999 the Company issued, to the New Debenture holder, 1,871,096
shares of the Company's restricted Common Stock representing a payment of
$916,837 toward the principal and interest of the New Debenture (see Footnote
5).
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND PLAN OF OPERATION
The following is a discussion of the consolidated financial condition and
results of operations of Chadmoore Wireless Group, Inc., together with its
subsidiaries (collectively "Chadmoore" or the "Company"), for the three months
ended March 31, 1999. This discussion should be read in conjunction with the
Company's Annual report on Form 10-KSB for the year ended December 31, 1998 (the
"1998 Form 10-KSB").
Statements contained herein that are not historical facts are forward-looking
statements as that term is defined by the Private Securities Litigation Reform
Act of 1995. Although the Company believes that the expectations reflected in
such forward-looking statements are reasonable, the forward-looking statements
are subject to risks and uncertainties that could cause actual results to differ
from those projected. 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. Such risks and uncertainties include, without limitation,
fluctuations in demand, loss of subscribers, the quality and price of similar or
comparable wireless communications services, well-established competitors who
have substantially greater financial resources and longer operating histories,
regulatory delays or denials, ability to complete intended market roll-out,
access to sources of capital, adverse results in pending or threatened
litigation, consequences of actions by the FCC, and general economics. See the
Company's 1998 Form 10-KSB.
RESULTS OF OPERATIONS
Total revenues for the three months ended March 31, 1999 increased $746,221 or
144.6% to $1,262,313 from $516,092 for the three months ended March 31, 1998
reflecting increases of $656,771 and $89,450, or 176.8% and 61.9%, in service
revenue and equipment sales and maintenance revenue, respectively. Consistent
with the Company's plan of operation to focus on recurring revenues by selling
its commercial SMR service through independent dealers, the proportion of total
revenues generated by service revenue increased to 81.5% for the three months
ended March 31, 1999 from 72.0% for the three months ended March 31, 1998. In
such business model, the local dealer rather than the Company sells, installs,
and services the radio equipment and records the revenues and costs associated
therewith and the Company receives only the recurring revenue associated with
the sale of airtime. (service revenue). The Company anticipates that the
proportion of total revenues from service revenue will continue to increase
slightly in future periods as existing markets mature and as additional markets
are rolled out utilizing indirect distribution through local dealers.
The 176.8% increase in service revenue, from $371,578 for the three months ended
March 31, 1998 to $1,028,349 for the three months ended March 31, 1999, was
driven by an increase of, approximately 20,350, in the number of subscribers
utilizing the Company's SMR systems. An increase of 180.8%, from approximately
11,250 at March 31, 1998 to approximately 31,600 at March 31, 1999. The increase
in subscribers was primarily due to full-scale implementation of service by the
Company in 57 new markets during such period as well as continued growth in
existing markets. Average pricing per subscriber unit remained comparable during
both periods.
The increase in equipment sales and maintenance revenue of $89,450 or 61.9%,
from $144,514 for the three months ended March 31, 1998 to $233,964 for the
three months ended March 31, 1999, was attributable to the increased
availability of capital in the first quarter of 1999 as compared to the same
period in 1998. The Company anticipates that equipment sales and maintenance
revenue will remain relatively constant and account for a slightly declining
share of total revenues in the future.
Cost of service revenue increased by $200,420, or 241.3%, from $83,075 for the
three months ended March 31, 1998 to $283,495 for the three months ended March
31, 1999. This increase was primarily due to SMR system site expenses associated
with additional markets being placed in service. Gross margin on service revenue
decreased from 77.6% for the three months ended March 31, 1998 to 72.4% for the
three months ended March 31, 1999. This is attributed to an increased number of
markets that have not reached the maturity stage (generally six to eight
months). In general, service revenue has a lower cost of sales associated with
it and therefore a higher gross margin percentage than equipment sales and
maintenance revenue.
Cost of equipment sales and maintenance revenue increased by $36,938, or 37.0%,
from $99,798 for the three months ended March 31, 1998 to $136,736 for the three
months ended March 31, 1999. This increase is due to the increase in equipment
sales and
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maintenance revenue from the related periods. Gross margin on
equipment sales and maintenance revenue increased to 41.6% for the three months
ended March 31, 1999 from 30.9% for the three months ended March 31, 1998. This
is attributable to additional sales being derived from higher margin used
equipment.
General and administrative expenses increased by $1,028,513, or 80.0%, from
$1,285,650 for the three months ended March 31, 1998 to $2,314,163 for the three
months ended March 31, 1999. Salaries, wages, and benefits expense (a component
of general and administrative expenses) increased by $445,579 or 98.3%, from
$453,250 for the three months ended March 31, 1998 to $898,829 for the three
months March 31, 1999. This increase is primarily due to personnel additions,
largely in operational areas, made in connection with the Company starting to
transition from aggregating SMR spectrum to constructing, marketing, and rolling
out commercial SMR service. Relative to total revenues, salaries, wages, and
benefits expense was 71.2% for the three months ended March 31, 1999 compared
with 88.3% for the three months ended March 31, 1998. Remaining general and
administrative expense increased 70.0% or $582,934, from $832,400 for the three
months ended March 31, 1998 to $1,415,334 for the three months ended March 31,
1999. The increase in the remaining general and administrative expense was
primarily due to increases of approximately $170,000 in advertising and
marketing, $99,000 in expense associated with non-commercial markets, $60,000 in
travel associated with potential acquisitions and securing of additional
funding, $80,000 in legal associated with increased litigation, and $111,000 in
compensation paid to dealers and partners in the Company's indirect distribution
channels.
Depreciation and amortization expense increased $249,865 or 128.7%, from
$194,134 for the three months ended March 31, 1998 to $443,999 for the three
months ended March 31, 1999, reflecting larger amounts of licenses and
infrastructure placed in service associated with construction and implementation
of new commercial sites.
Due to the foregoing, total operating expenses increased $1,515,736 or 91.2%,
from $1,662,657 for the three months ended March 31, 1998 to $3,178,393 for the
three months ended March 31, 1999, and the Company's loss from operations
increased by $769,515 or 67.1%, from $1,146,565 to $1,916,080, for such
respective periods.
Interest expense, net of interest income, increased $144,669, or 31.4%, from
$460,370 for the three months ended March 31, 1998 to $605,039 for the three
months ended March 31, 1999, due to higher debt balances associated with notes
payable issued to exercise license options and new loan facilities.
Based on the foregoing, the Company's net loss before extraordinary item
increased $774,933 or 43.1%, from $1,799,146 for the three months ended March
31, 1998 to $2,574,079 for the three months ended March 31, 1999.
During the three months ended March 31, 1999 the Company had an extraordinary
loss of $194,967 and there was no such charge in the same period last year. This
charge was due to the write off of debt issuance costs and prepayment penalties
associated with the prepayment and termination of the MarCap and Motorola
facilities.
The Company's net loss increased $969,900 or 53.9%, from $1,799,146 for the
three months ended March 31, 1998 to $2,769,046 for the three months ended March
31, 1999. This increase was primarily the result of an increase of $769,515 in
loss from operations and an extraordinary loss on extinguishment of debt
issuance costs of $194,967.
LIQUIDITY AND CAPITAL RESOURCES
The Company's capital requirements have been and will continue to be
significant. The Company believes that during the next twelve months it will
require substantial additional funding. Approximately $13.5 million was funded
in March of 1999, and additional amounts will be required for full-scale
implementation of its SMR services and ongoing operating expenses. To meet such
funding requirements the Company is in the process of obtaining additional
funding including the possible funding of an additional $13.5 million under the
GATX Facility (as defined below), a vendor financing arrangement consummated
with HSI GeoTrans, Inc. ("GeoTrans") and possible other vendor financing
arrangements currently being evaluated but not yet consummated. There can be no
assurances that the Company will be able to successfully obtain the additional
financings currently contemplated, or will be otherwise able to obtain
sufficient financing to consummate the Company's business plan.
The Company's auditors' opinion for the year ended December 31, 1998 includes an
explanatory paragraph which expresses substantial doubt about the Company's
ability to continue as a going concern. The Company's consolidated financial
statements have been prepared assuming that the Company will continue as a going
concern. As discussed in Item 1, Footnote 2 to the
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consolidated financial statements, the Company has suffered recurring losses
from operations, has a working capital deficiency and accumulated deficit that
raise substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Item 1,
Footnote 2. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
During the three months ended March 31, 1999 and 1998, the Company used net cash
in operating activities of $3,750,503 and $979,775, respectively. The major
non-operations use of cash for the three months ended March 31, 1999 and 1998
was the acquisition of communications assets. The major non-operations source of
cash for the three months ended March 31, 1999 and 1998 was proceeds from the
issuance of long-term debt.
On March 2, 1999, pursuant to a Senior Secured Loan Agreement ("GATX Facility"),
among the Company and GATX Capital Corporation ("GATX"), Chadmoore borrowed
$13.5 million from GATX. Pursuant to the agreement, within 120 days of the
funding, GATX, at its sole discretion, has the option to make available up to
$13.5 million in additional funds. Loans under the GATX facility will be made at
an interest rate fixed at the time of the funding based on five-year U.S.
Treasury notes plus 5.5%, with a five-year amortization schedule following an
interest-only period. In connection with the GATX Facility warrants to purchase
up to 1,822,500 shares of the Company's Common Stock at an exercise price of
$0.39 per share were issued. The loan is secured by substantially all the assets
of the Company; provided, however, that if the additional $13.5 million is not
made available within 120 days of March 2, 1999, certain assets including
channels, equipment and the customer base will be released from security and the
number of warrants will be reduced proportionately. If certain assets are
released, the Company may sell channels deemed to be non-strategic to its
business plan, or use the collateral to secure other financing. In conjunction
with the GATX Facility the Company has paid and terminated the Motorola Loan
Facility and the MarCap Facility. Motorola and MarCap concurrently released all
security interests related to the Motorola Loan Facility and the MarCap Facility
(see Item 1 Footnote 5).
The Company anticipates, based on its current plans and assumptions relating to
its growth and operations, that the proceeds from the completed financings and
planned revenues will not be sufficient to satisfy the Company's contemplated
cash requirements for the next 12 months and that the Company will be required
to raise additional funds. In addition, in the event that the Company's plans
change or its assumptions prove to be inaccurate (due to unanticipated expenses,
delays, problems, or otherwise), the Company may be required to seek additional
funding sooner than anticipated. The Company believes it has developed adequate
contingency plans, however, the failure to consummate the aforementioned
potential financing with GATX as currently contemplated, or at all, could have a
material adverse effect on the Company, including the risk of liquidation of
assets or bankruptcy. Such contingency plans include pursuing similar financing
arrangements with other institutional investors and lenders, selling selected
channels, and focusing solely on the 89 markets in which full-scale service has
already been implemented. This latter course might entail ceasing further system
expansion in such markets (which in the aggregate are generating positive cash
flow) and reducing corporate staff to the minimal level necessary to administer
such markets. The Company believes that this strategy could provide sufficient
time and resources to raise additional capital or sell selected channels in
order to resume its growth. However, there can be no assurances that this or any
of the Company's contingency plans would adequately address the aforementioned
risks, or that the Company will attain overall profitability.
YEAR 2000 ISSUES
The Year 2000 problem arose because many existing computer programs use only the
last two digits to refer to a year. Therefore, these computer programs do not
properly recognize a year that begins with "20" instead of the familiar "19". If
not corrected, many computer applications could fail or create erroneous
results.
The Company has addressed its state of readiness for Year 2000 and Management
believes that the Company will be compliant by the end of 1999. The Company is
currently evaluating, and upgrading its internal hardware and software that
enables the Company to load subscribers, capture call records, generate customer
bills and facilitate internal communications. All internal hardware and software
is expected to be fully tested by the end of the third quarter of 1999. The
Company has contacted the necessary hardware and software vendors about its
plan, and Management believes that all the necessary Year 2000 compliant
hardware and software is currently available and can be implemented quickly. At
the current time Management estimates the cost of internal evaluation and
upgrades not to exceed $100,000.
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The Company's current accounting software is not Year 2000 compliant, however
the Company has purchased a Year 2000 compliant version and expects to be fully
compliant by the end of the second quarter of 1999. The Company primarily uses
Microsoft products for internal data storage and communications. The Company has
contacted Microsoft and has been assured that these products are Year 2000
compliant. In addition, the Company relies on third party switching systems to
monitor its systems usage. These systems are primarily manufactured by Motorola.
The company has contacted Motorola and has been assured that the Motorola
switching systems are Year 2000 compliant.
To a lesser extent, the Company also relies on various third party service
providers and the Company cannot independently assess the impact of Year 2000
challenges and compliance activities and programs involving operators of
utilities and other service providers (such as electric utilities and voice and
data utilities). The Company therefore must rely on utility providers' estimates
of their own Year 2000 challenges and the status of their related compliance
activities and programs in the Company's own Year 2000 assessment process.
Because the Company's systems will be dependent upon the systems of other
service providers, any disruption of operations in the computer programs of such
service providers would likely have an impact on the Company's systems.
Moreover, there can be no assurance that such impact will not have a material
adverse effect on the Company's operations
The Company has assessed its risks associated with the Year 2000 issue and has
concluded that, unless third party providers are unable to continue to provide
the Company with their services or Motorola is unable to supply the Company with
its products, the effects of the Year 2000 issue will not have a material
adverse effect on the Company. While Management believes that the Company has
timely and adequately planned for the Year 2000 issue, there can be no assurance
that the Company's plan will achieve its goals or that third parties that the
Company relies on have adequate plans to address this issue.
If the Company is unable to gather and process data electronically, it has a
contingency plan to gather and process data manually. This process will be a
temporary solution and will require substantially more resources than would
otherwise be required, however Management believes that it could resume business
for a period of time using this contingency plan.
ITEM 2A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of March 31, 1999 all the Company's long term debt bears fixed interest
rates, however, the fair market value of this debt is sensitive to changes in
prevailing interest rates. The Company runs the risk that market rates will
decline and the required payments will exceed those based on the current market
rate. The Company does not use interest rate derivative instruments to manage
its exposure to interest rate changes.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Goodman/Chan Waiver.
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Nationwide Digital Data Corp. and Metropolitan Communications Corp. among others
(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 little or 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 through NDD/Metropolitan, 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 Daniel R. Goodman (the "Receiver") to preserve the
assets of NDD/Metropolitan. In the course of the Receiver's duties, he 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 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 commercial mobile radio services stations, but had not been
granted the extended construction period to be awarded to all CMRS licensees.
Thus, in an effort to be consistent in its treatment of similarly situated
licensees, the FCC granted an additional four months in which to construct and
place the Receivership Stations in operation (the "Goodman/Chan Waiver"). The
Goodman/Chan Waiver became effective upon publication in the Federal Register on
August 27, 1998. Moreover, the FCC released a list on October 9, 1998 which
purported to clarify the status of relief eligibility for licenses subject to
the August 27, 1998 decision. Subsequently the FCC also released a purported
final list of the Receivership Stations.
However, on the basis of a previous request to the Receiver and a separate
previous request for assistance to the FCC's Licensing Division by the Company,
the FCC and the Receiver examined and marked a list provided by the Company. The
FCC's and the Receiver's markups indicated those stations held by the Company or
subject to Management and Option Agreements, which the FCC and/or the Receiver
considered to be, at that time, Receivership Stations and/or stations considered
"similarly situated" and thus eligible for relief. From the communication from
the Receiver, the Company believes that approximately 800 of the licenses that
it owns or manages are Receivership Stations or otherwise entitled to relief.
For its own licenses and under the direction of each licensee for managed
stations, the Company proceeded with timely construction of those stations which
the Company reasonably believes to be Receivership Stations or otherwise
entitled to relief. The Company received relief on approximately 150 licenses
under the Goodman/Chan proceedings and from the official communication from the
FCC, the Company believes that approximately 650 licenses should be eligible for
relief as "similarly situated". Initial review of the Commission's Goodman/Chan
Order indicated a potentially favorable outcome for the Company as it pointed to
a grant of relief for a significant number of the Company's owned and/or managed
licenses which were subject to the outcome of the Goodman/Chan decision.
However, on October 9, 1998 a release from the Offices of the Commercial
Wireless Division of the FCC's Wireless Telecommunication Bureau announced that
because of a technicality relating to the actual filing dates of the
construction deadline waiver requests by certain of the subject licensees, some
licenses which the FCC staff earlier had stated would be eligible for
construction extension waivers due to the similarity of circumstances between
those licensees and the Goodman/Chan licensees, would not actually be granted
final construction waivers. The Commission has subsequently begun a process of
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deleting certain of the Company's licenses in this category from its official
licensing database. Prior to the release of the October 9, 1998, Public Notice,
the Company constructed and placed into operation certain licenses from this
category based on information received from the FCC and the Receiver. The
Company is in the process of determining which licenses have in fact been
deleted; however, due to the disparity between the FCC's lists and its
subsequent treatment of such lists as well as continuing modification of the
FCC's license database, the Company is uncertain as to which, if any, will
remain deleted under the FCC's current procedures.
In response, on November 9, 1998, Chadmoore filed a Petition for Reconsideration
at the FCC seeking reversal of the action announced in the Commercial Wireless
Division's Public Notice, and the Company has asked that relief be reinstated
for its affected licenses. Additionally, on February 1, 1999, the Company in
conjunction with other affected parties filed a Petition with the United States
Court of Appeals for the District of Columbia Circuit seeking reversal of the
FCC's decision and a remand of the decision to the FCC with specific
instructions from the court to reinstate the licenses for which relief had been
denied. Oral argument before the Court was held on May 4, 1999. Other similarly
situated licensees also have filed petitions for relief. No specific timetable
is available in order to assist the Company's Management to predict with any
reasonable degree of accuracy when final action on these proceedings will be
forthcoming. However, as argument on the case was heard by the Court on May 4,
1999 Management expects that the Court's opinion will be forthcoming no later
than the third quarter 1999. The Company does not believe it to be probable that
it will not be provided relief on the licenses potentially subject to the
Goodman Chan Proceedings. However there can be no assurance that relief will be
granted. Approximately 650 of those licenses purchased by or under Option and
Management Agreements with the Company are among those which the FCC now states
will not be afforded relief pursuant to the Commercial Wireless Division's
October 9, 1998 Public Notice. Thus, it is possible that the Company's owned
and/or managed licenses which are encompassed within the denial of relief
pursuant to the October 9, 1998 Public Notice, could be permanently canceled by
the FCC for failure to comply with its construction requirements. If these
licenses are in fact cancelled by the FCC, it would result in the loss of
licenses with a book value of approximately $6,200,000 and the loss of certain
subscribers to the Company's services, which while not considered probable,
could result in a material adverse effect on the Company's financial condition,
results of operations and liquidity and could result in possible fines and/or
forfeitures levied by the FCC. The Company has prepared these estimates based on
the best information available at the time of this filing. Once again, there has
been no list published by the FCC in this matter which the Company feels it may
rely upon. Therefore, the Company has commenced the above-described litigation
to clarify this matter. Based on the preceding, no provision has been made in
the accompanying unaudited consolidated financial statements.
The Receiver has requested that the Company replace some of the existing Options
and Management Agreements with Goodman/Chan licensees with promissory notes. The
Company engaged in discussions with the Receiver in this regard, but did not
reach a final determination and concluded that no further discussions are
warranted at this time. However, there can be no assurances that the Receiver
would not decide to take actions in the future to challenge the Company's
agreements with Goodman/Chan licensees, including the Company's rights to
licenses under such agreements, in an effort to enhance the value of the
Receivership estate.
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Airnet, Inc. v. Chadmoore Wireless Group, Inc. Case No. 768473, Orange County
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Superior Court
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On April 3, 1997, Airnet, Inc. ("Airnet") served a summons and complaint on the
Company, alleging claims related to a proposed merger between Airnet and the
Company that never materialized. In particular, Airnet has alleged that a
certain "letter of intent" obligated the parties to complete the proposed
merger. The Company denied this allegation.
On February 2, 1998, the Company filed a Cross-Complaint against Airnet as well
as three other named cross-defendants related to Airnet: Uninet, Inc.,
("Uninet") Anthony Schatzlein ("Schatzlein") and Dennis Houston ("Houston").
A non-binding mediation was conducted before a retired superior court judge on
August 21, 1998, and a confidential settlement was reached. The parties have
since executed a written Settlement Agreement settling all claims and cross
claims. Pursuant to the terms of the settlement, the Company will issue 525,000
shares of its Common Stock and the parties will execute mutual general releases.
Chadmoore Communications, Inc. v. John Peacock Case No. CV-S-97-00587-HDM (RLH),
United States District Court for the District of Nevada
In September 1994, CCI entered into a two year consulting agreement (the
"Consulting Agreement") with John Peacock ("Peacock") to act as a consultant and
technical advisor to CCI concerning certain specialized mobile radio ("SMR")
stations. In May, 1997 CCI filed a complaint against Peacock for declaratory
relief in the United States District Court for the District of Nevada, seeking a
declaration of the respective rights and obligations of CCI under the Consulting
Agreement.
Subsequently, CCI added claims against Peacock and two related purported
entities arising out of Peacock's conduct with regard to the Consultant
Agreement and certain finder's preferences. Subsequently, Peacock added an
affirmative claim against CCI for breach of contract, alleging his entitlement
to certain bonus compensation that he alleges was not paid to him.
On January 22, 1999, CCI reached a settlement in principle of the dispute. The
settlement was reduced to a comprehensive written settlement agreement which
became effective on March 5, 1999. Under the terms of the settlement, Peacock
will receive (1) certain rights with respect to a finder's preference pending
against a five-channel SMR station in Memphis, Tennessee (WNZR202); (2) certain
rights with respect to other finder's preference proceedings which are
determined by CCI in its sole discretion to be undesirable; and (3) 10% of the
independently determined value of the wide area license, if any, issued as a
result of a certain finder's preference proceeding filed by CCI. Under the terms
of the settlement, CCI will receive a right of first refusal with respect to
certain assets belonging to Peacock. In addition, the settlement contains mutual
general releases and covenants to dismiss pending proceedings. On March 5, 1999,
CCI and Peacock executed a Voluntary Dismissal With Prejudice of all claims
asserted in the District Court litigation. However, despite CCI's demand,
Peacock has refused to dismiss a finder's preference proceeding concerning
station WZC790 in Memphis, Tennessee, which is owned by a subsidiary of the
Company. The Company is presently evaluating its options with respect to
enforcement of the Agreement in this regard. For his part, Peacock is contending
that CCI is in breach of the Settlement Agreement because it does not agree with
Peacock's position with respect to the finder's preference proceeding concerning
station WZC790. Peacock has filed a motion with the District Court seeking
enforcement of the Settlement Agreement, but it is not clear what relief Peacock
is seeking. There has been no accrual reflected in the Company's financial
statements for this matter.
Pursuant to the FCC's jurisdiction over telecommunications activities, the
Company is involved in pending matters before the FCC which may ultimately
affect the Company's operations.
20
<PAGE>
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
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.
21
<PAGE>
ITEM 6. EXHIBITS AND CURRENT REPORTS ON FORM 8-K
(a)(1) A list of the financial statements and schedules thereto as filed in
this report reside at Item 1.
(a)(2) The following exhibits are submitted herewith:
EXHIBIT
NUMBER DESCRIPTION
2.1 Agreement and Plan of Reorganization dated February 2, 1995, by and
between the Registrant (f/k/a CapVest Internationale, Ltd.) and
Chadmoore Communications, Inc. (Incorporated by reference to Exhibit 1
of the Registrants Form 8-K, date of earliest event reported- February
21, 1995 the "Form 8-K")
2.2 Addendum to the Agreement and Plan of Reorganization, dated February
21, 1995, by and between the Registrant (f/k/a CapVest Internationale,
Ltd.) and Chadmoore Communications, Inc. (Incorporated by reference to
Exhibit 1 of the Registrants Form 8-K.
2.3 Addendum No. 2 to the Agreement and Plan of Reorganization, dated March
31, 1995, by and between the Registrant (f/k/a CapVest Internationale,
Ltd.) and Chadmoore Communications, Inc. (Incorporated by reference to
Exhibit 1 of the Form 8-K.
3.1 Articles of Incorporation (Incorporated by reference to Exhibit 1 of
the Form 8.
3.2 Articles of Amendment to the Articles of Incorporation filed November
1, 1988 (Incorporated by reference to Exhibit 3.2 to the Registrant's
Form 10-KSB for the year ended December 31, 1995)
3.3 Articles of Amendment to the Articles of Incorporation filed April 28,
1995 (Incorporated by reference to Exhibit 3.3 to the Registrant's Form
10-KSB for the year ended December 31, 1995)
3.4 Articles of Amendment to the Articles of Incorporation filed April 1,
1996 (Incorporated by reference to Exhibit 3.4 to the Registrant's Form
10-KSB for the year ended December 31, 1995)
3.5 Articles of Amendment to the Articles of Incorporation filed April 11,
1996 (Incorporated by reference to Exhibit 3.5 to the Registrant's Form
10-KSB for the year ended December 31, 1995)
3.6 Bylaws (Incorporated by reference to Exhibit 3 to the Registrant's
Registration Statement on Form S-18 (33-14841-D))
4.1 Form of Warrant Certificate (Incorporated by reference to Exhibit 4.1
to the Registrant's Form 10-KSB for the year ended December 31, 1995)
4.2 Registration Rights Agreement (Incorporated by reference to Exhibit 4.2
to the Registrant's Form 10-KSB for the year ended December 31, 1995)
4.3 Certificate of Designation of Rights and Preferences of Series A
Convertible Preferred Stock of the Registrant (Incorporated by
reference to Exhibit 3.4 to the Registrant's Form 10-KSB for the year
ended December 31, 1995)
4.4 Certificate of Designation of Rights and Preferences of Series B
Convertible Preferred Stock of the Registrant (Incorporated by
reference to Exhibit 4.3 to the Registrant's Form 8-Kfiled with the
Commission on December 31, 1996)
22
<PAGE>
4.5 Certificate of Designation of Rights and Preferences of Series C
Convertible Preferred Stock of the Registrant (Incorporated by
reference to Exhibit 4.1 to the Registrant's Form 8-K filed with the
Commission on May 15, 1998 (the "REI Form 8-K"))
4.6 Senior Secured Loan Agreement, dated March 2, 1999, between GATX
Capital Corporation ("GATX"), the Registrant and its subsidiaries
(Incorporated by reference to Exhibit 10.1 of the Registrant's Current
Report on Form 8-K filed on March 16, 1999 ("GATX Form 8-K")
9.1 Shareholders Agreement, dated May 1, 1998, by and among the Registrant,
Recovery Equity Investors, II, L.L.P ("REI") and Robert W. Moore
(Incorporated by reference to Exhibit 10.6 of the REI Form 8-K)
10.1 Amended Nonqualified Stock Option Plan dated October 12, 1995
(Incorporated by reference to Exhibit 10.1 to the Registrant's Form
10-KSB for the year ended December 31, 1995)*
10.2 Employee Benefit and Consulting Services Plan dated July 7, 1995
(Incorporated by reference to Exhibit 4.1 to the Registration Statement
on Form S-8 effective July 12, 1996 (file no. 33-94508))*
10.3 First Amendment to the Employee Benefit and Consulting Services Plan
dated December 8, 1995 (Incorporated by reference to Exhibit 4.1 to the
Registration Statement on Form S-8 effective December 1, 1996 (file no.
33-80405))*
10.4 Employment Agreement between the Registrant and Robert W. Moore
effective as of April 21, 1995 (Incorporated by reference to Exhibit
10.4 to the Registrant's Form 10-KSB for the year ended December 31,
1995)*
10.5 Integrated Dispatch Enhanced Network ("iDEN") Purchase Agreement dated
February 28, 1996 by and between the Registrant and Motorola, Inc.
(Incorporated by reference to Exhibit 10.7 to the Registrant's Form
10-KSB for the year ended December 31, 1995)
10.6 Amendment Number 001 to the Integrated Dispatch Enhanced Network (iDEN)
Purchase Agreement dated March 25, 1996 (Incorporated by reference to
Exhibit 10.8 to the Registrant's Form 10-KSB for the year ended
December 31, 1995)
10.7 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 (Incorporated by reference to Exhibit 2.2 of the Registrant's
Form 8-K, dated March , 1996 ("the Gencom 8-K"), date of earliest
event reported March 8, 1996)
10.8 Modification to Asset Purchase Agreement dated March 8, 1996 by and
between Chadmoore Communications, Inc., the Registrant and Chadmoore
Communications of Tennessee, Inc. and General Communications Radio
Sales and Service, Inc., General Electronics, Inc. and Richard Day with
Exhibits (Incorporated by reference to Exhibit 2.1 of the Gencom 8-K,
date of earliest event reported March 8, 1996)
23
<PAGE>
10. 9 Stock Purchase Agreement dated June 14, 1996, by and between Chadmoore
Wireless Group, Inc. and Libero Limited (Incorporated by reference to
Exhibit 10.11 to the Registrant's Form 8-K, under dated June 28, 1996)
10.10 Purchase Agreement between Motorola, Inc. and Chadmoore Wireless Group,
Inc. and Chadmoore Communications, Inc. dated October 25, 1996
(Incorporated by reference to Exhibit 10.12 to the Registrant's Form
10-KSB for the year ended December 31, 1996)
10.11 Promissory Note executed by Chadmoore Communications, Inc. payable to
Motorola, Inc., dated December 30, 1996. (Incorporated by reference to
Exhibit 10.13 to the Registrant's Form 10-KSB for the year ended
December 31, 1996)
10.12 Guarantee of Security Agreement executed by Chadmoore Wireless Group,
Inc., in favor of Motorola, Inc., dated December 30, 1996.
(Incorporated by reference to Exhibit 10.14 to the Registrant's Form
10-KSB for the year ended December 31, 1996)
10.13 Restructuring Agreement Regarding 8% Convertible Debentures dated
September 19, 1997, by and between Chadmoore Wireless Group, Inc.,
Cygni S.A., and Willora Registrant Limited (Incorporated by reference
to Exhibit 10.12 to the Registrant's Form 8-K, under Item 9, date of
earliest event reported - September 19, 1997)
10.14 Transfer and Release Agreement effective September 26, 1997, by and
between Chadmoore Wireless Group, Inc. and LDC Consulting, Inc.
(Incorporated by reference to Exhibit 10.13 to the Registrant's Form
8-K, under Item 5, date of earliest event reported - September 26,
1997)
10.15 Certificate of Designation of Rights and Preferences of Convertible
Preferred Stock Series B of the Registrant. (Incorporated by reference
to Exhibit 4.5 to the Registrant's Form 8-K, under Item 9, date of
earliest event reported December 23, 1997)
10.16 Form of Stock Purchase Warrant issued in connection with the Series B
8% Convertible Preferred Stock Offshore Subscription Agreement dated on
or about December 10, 1997 (Incorporated by reference to Exhibit 4.6 to
the Registrant's Form 8-K, under Item 9, date of earliest event
reported December 23, 1997)
10.17 Form of Series B 8% Convertible Preferred Stock Offshore Subscription
Agreement dated on or about December 10, 1997 (Incorporated by
reference to Exhibit 10.15 to the Registrant's Form 8-K, under Item 9,
date of earliest event reported - December 23, 1997)
10.18 Form of Amendment No. 1 to Offshore Subscription Agreement for Series B
8% Convertible Preferred Stock dated on or about February 17, 1998
(Incorporated by reference to Exhibit 10.16 to the Registrant's Form
8-K, under Item 9, date of earliest event reported - February 17, 1998)
10.19 Employment Agreement between the Registrant and Robert Moore effective
as of January 1, 1997 (Incorporated by reference to Exhibit 10.21 to
the Registrant's Form 10-KSB for the year ended December 31, 1997)*
10.20 Employment Agreement between the Registrant and Rick Rhodes effective
as of December 10, 1998 (Incorporated by reference to Exhibit 10.20 to
the Registrant's Form 10-KSB for the year ended December 31, 1998)*
24
<PAGE>
10.21 Investment Agreement dated May 1, 1998, between the Registrant and REI
(Incorporated by reference to Exhibit 10.1 of the REI Form 8-K)
(Incorporated by reference to Exhibit 10.21 to the Registrant's Form
10-KSB for the year ended December 31, 1998)
10.22 Registration Rights Agreement, dated May 2, 1998, between the
Registrant and REI (Incorporated by reference to Exhibit 10.2 of the
REI Form 8-K)
10.23 Stock Purchase Warrant, dated May 1, 1998, issued to REI for the
purchase of 4,000,000 shares of Common Stock (Incorporated by reference
to Exhibit 10.3 of the REI Form 8-K)
10.24 Stock Purchase Warrant, dated May 1, 1998, issued to REI for the
purchase of 14,612,796 shares of Common Stock (Incorporated by
reference to Exhibit 10.4 of the REI Form 8-K)
10.25 Stock Purchase Warrant, dated May 1, 1998, issued to REI for the
purchase of 10,119,614 shares of Common Stock (Incorporated by
reference to Exhibit 10.5 of the REI Form 8-K)
10.26 Advisory Agreement, dated May 1, 1998, between the Registrant and REI
(Incorporated by reference to Exhibit 10.7 of the REI Form 8-K)
10.27 Indemnification Letter Agreement, dated May 1, 1998, between the
Registrant and REI (Incorporated by reference to Exhibit 10.8 of the
REI Form 8-K)
10.28 $8,775,000 Secured Promissory Note, dated March 2, 1999, issued by the
Registrant to GATX (Incorporated by reference to Exhibit 10.2 of the
GATX Form 8-K)
10.29 $4,725,000 Secured Promissory Note, dated March 2, 1999, issued by the
Chadmoore Communications, Inc. to GATX (Incorporated by reference to
Exhibit 10.3 of the GATX Form 8-K)
10.30 Security Agreement, dated March 2, 1999, between the Registrant, its
subsidiaries and GATX (Incorporated by reference to Exhibit 10.4 of the
GATX Form 8-K)
10.31 Guarantee, dated March 2, 1999, between the Registrant, its
subsidiaries and GATX (Incorporated by reference to Exhibit 10.5 of the
GATX Form 8-K)
10.32 Warrant to Purchase 1,822,500 Shares of Common Stock, dated March 2,
1999, issued to GATX (Incorporated by reference to Exhibit 10.6 of the
GATX Form 8-K)
10.33 Aggreement dated November 11, 1998, engaging Private Equity Partners
LLC as financial advisors. (Incorporated by reference to Exhibit 10.33
to the Registrant's Form 10-KSB for the year ended December 31, 1998)
10.34 Agreement dated March 7, 1999, engaging Private Equity Partners LLC as
financial advisors. (Incorporated by reference to Exhibit 10.34 to the
Registrant's Form 10-KSB for the year ended December 31, 1998)
11.1 Calculation of Weighted Average Shares Outstanding
23.1 Consent of KPMG, LLP (Incorporated by reference to Exhibit 23.1 to the
Registrant's Form 10-KSB for the year ended December 31, 1998)
27.1 Financial Data Schedules, 1999
27.2 Financial Data Schedules, 1998
* Indicates a management contract or compensatory plan or arrangement.
25
<PAGE>
(b) Current Reports on Form 8-K
(b)(1) Current report on Form 8-K on March 3, 1999 reporting change in
Registrant's independent accountants.
(b)(2) Current report on Form 8-K on March 10, 1999 reporting change in
Registrant's independent accountants.
(b)(3) Current report on Form 8-K/A on March 16, 1999 reporting senior
secured loan agreement between the Registrant and GATX Capital
Corporation.
26
<PAGE>
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.
By: /s/ Richard C. Leto
----------------------
Richard C. Leto
Chief Financial and Accounting Officer
By: /s/ Robert W. Moore
----------------------
Robert W. Moore
President and Chief Executive Officer
By: /s/ Rick D. Rhodes
----------------------
Rick D. Rhodes
Chief Regulatory Officer
Date: May 17, 1999
27
<PAGE>
EXHIBITS AND CURRENT REPORTS ON FORM 8-K
EXHIBIT
NUMBER DESCRIPTION
2.1 Agreement and Plan of Reorganization dated February 2, 1995, by and
between the Registrant (f/k/a CapVest Internationale, Ltd.) and
Chadmoore Communications, Inc. (Incorporated by reference to Exhibit 1
of the Registrants Form 8-K, date of earliest event reported- February
21, 1995 the "Form 8-K")
2.2 Addendum to the Agreement and Plan of Reorganization, dated February
21, 1995, by and between the Registrant (f/k/a CapVest Internationale,
Ltd.) and Chadmoore Communications, Inc. (Incorporated by reference to
Exhibit 1 of the Registrants Form 8-K.
2.3 Addendum No. 2 to the Agreement and Plan of Reorganization, dated March
31, 1995, by and between the Registrant (f/k/a CapVest Internationale,
Ltd.) and Chadmoore Communications, Inc. (Incorporated by reference to
Exhibit 1 of the Form 8-K.
3.1 Articles of Incorporation (Incorporated by reference to Exhibit 1 of
the Form 8.
3.2 Articles of Amendment to the Articles of Incorporation filed November
1, 1988 (Incorporated by reference to Exhibit 3.2 to the Registrant's
Form 10-KSB for the year ended December 31, 1995)
3.3 Articles of Amendment to the Articles of Incorporation filed April 28,
1995 (Incorporated by reference to Exhibit 3.3 to the Registrant's Form
10-KSB for the year ended December 31, 1995)
3.4 Articles of Amendment to the Articles of Incorporation filed April 1,
1996 (Incorporated by reference to Exhibit 3.4 to the Registrant's Form
10-KSB for the year ended December 31, 1995)
3.5 Articles of Amendment to the Articles of Incorporation filed April 11,
1996 (Incorporated by reference to Exhibit 3.5 to the Registrant's Form
10-KSB for the year ended December 31, 1995)
3.6 Bylaws (Incorporated by reference to Exhibit 3 to the Registrant's
Registration Statement on Form S-18 (33-14841-D))
4.1 Form of Warrant Certificate (Incorporated by reference to Exhibit 4.1
to the Registrant's Form 10-KSB for the year ended December 31, 1995)
4.2 Registration Rights Agreement (Incorporated by reference to Exhibit 4.2
to the Registrant's Form 10-KSB for the year ended December 31, 1995)
4.3 Certificate of Designation of Rights and Preferences of Series A
Convertible Preferred Stock of the Registrant (Incorporated by
reference to Exhibit 3.4 to the Registrant's Form 10-KSB for the year
ended December 31, 1995)
4.4 Certificate of Designation of Rights and Preferences of Series B
Convertible Preferred Stock of the Registrant (Incorporated by
reference to Exhibit 4.3 to the Registrant's Form 8-Kfiled with the
Commission on December 31, 1996)
<PAGE>
4.5 Certificate of Designation of Rights and Preferences of Series C
Convertible Preferred Stock of the Registrant (Incorporated by
reference to Exhibit 4.1 to the Registrant's Form 8-K filed with the
Commission on May 15, 1998 (the "REI Form 8-K"))
4.6 Senior Secured Loan Agreement, dated March 2, 1999, between GATX
Capital Corporation ("GATX"), the Registrant and its subsidiaries
(Incorporated by reference to Exhibit 10.1 of the Registrant's Current
Report on Form 8-K filed on March 16, 1999 ("GATX Form 8-K")
9.1 Shareholders Agreement, dated May 1, 1998, by and among the Registrant,
Recovery Equity Investors, II, L.L.P ("REI") and Robert W. Moore
(Incorporated by reference to Exhibit 10.6 of the REI Form 8-K)
10.1 Amended Nonqualified Stock Option Plan dated October 12, 1995
(Incorporated by reference to Exhibit 10.1 to the Registrant's Form
10-KSB for the year ended December 31, 1995)*
10.2 Employee Benefit and Consulting Services Plan dated July 7, 1995
(Incorporated by reference to Exhibit 4.1 to the Registration Statement
on Form S-8 effective July 12, 1996 (file no. 33-94508))*
10.3 First Amendment to the Employee Benefit and Consulting Services Plan
dated December 8, 1995 (Incorporated by reference to Exhibit 4.1 to the
Registration Statement on Form S-8 effective December 1, 1996 (file no.
33-80405))*
10.4 Employment Agreement between the Registrant and Robert W. Moore
effective as of April 21, 1995 (Incorporated by reference to Exhibit
10.4 to the Registrant's Form 10-KSB for the year ended December 31,
1995)*
10.5 Integrated Dispatch Enhanced Network ("iDEN") Purchase Agreement dated
February 28, 1996 by and between the Registrant and Motorola, Inc.
(Incorporated by reference to Exhibit 10.7 to the Registrant's Form
10-KSB for the year ended December 31, 1995)
10.6 Amendment Number 001 to the Integrated Dispatch Enhanced Network (iDEN)
Purchase Agreement dated March 25, 1996 (Incorporated by reference to
Exhibit 10.8 to the Registrant's Form 10-KSB for the year ended
December 31, 1995)
10.7 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 (Incorporated by reference to Exhibit 2.2 of the Registrant's
Form 8-K, dated March , 1996 ("the Gencom 8-K"), date of earliest
event reported March 8, 1996)
10.8 Modification to Asset Purchase Agreement dated March 8, 1996 by and
between Chadmoore Communications, Inc., the Registrant and Chadmoore
Communications of Tennessee, Inc. and General Communications Radio
Sales and Service, Inc., General Electronics, Inc. and Richard Day with
Exhibits (Incorporated by reference to Exhibit 2.1 of the Gencom 8-K,
date of earliest event reported March 8, 1996)
<PAGE>
10. 9 Stock Purchase Agreement dated June 14, 1996, by and between Chadmoore
Wireless Group, Inc. and Libero Limited (Incorporated by reference to
Exhibit 10.11 to the Registrant's Form 8-K, under dated June 28, 1996)
10.10 Purchase Agreement between Motorola, Inc. and Chadmoore Wireless Group,
Inc. and Chadmoore Communications, Inc. dated October 25, 1996
(Incorporated by reference to Exhibit 10.12 to the Registrant's Form
10-KSB for the year ended December 31, 1996)
10.11 Promissory Note executed by Chadmoore Communications, Inc. payable to
Motorola, Inc., dated December 30, 1996. (Incorporated by reference to
Exhibit 10.13 to the Registrant's Form 10-KSB for the year ended
December 31, 1996)
10.12 Guarantee of Security Agreement executed by Chadmoore Wireless Group,
Inc., in favor of Motorola, Inc., dated December 30, 1996.
(Incorporated by reference to Exhibit 10.14 to the Registrant's Form
10-KSB for the year ended December 31, 1996)
10.13 Restructuring Agreement Regarding 8% Convertible Debentures dated
September 19, 1997, by and between Chadmoore Wireless Group, Inc.,
Cygni S.A., and Willora Registrant Limited (Incorporated by reference
to Exhibit 10.12 to the Registrant's Form 8-K, under Item 9, date of
earliest event reported - September 19, 1997)
10.14 Transfer and Release Agreement effective September 26, 1997, by and
between Chadmoore Wireless Group, Inc. and LDC Consulting, Inc.
(Incorporated by reference to Exhibit 10.13 to the Registrant's Form
8-K, under Item 5, date of earliest event reported - September 26,
1997)
10.15 Certificate of Designation of Rights and Preferences of Convertible
Preferred Stock Series B of the Registrant. (Incorporated by reference
to Exhibit 4.5 to the Registrant's Form 8-K, under Item 9, date of
earliest event reported December 23, 1997)
10.16 Form of Stock Purchase Warrant issued in connection with the Series B
8% Convertible Preferred Stock Offshore Subscription Agreement dated on
or about December 10, 1997 (Incorporated by reference to Exhibit 4.6 to
the Registrant's Form 8-K, under Item 9, date of earliest event
reported December 23, 1997)
10.17 Form of Series B 8% Convertible Preferred Stock Offshore Subscription
Agreement dated on or about December 10, 1997 (Incorporated by
reference to Exhibit 10.15 to the Registrant's Form 8-K, under Item 9,
date of earliest event reported - December 23, 1997)
10.18 Form of Amendment No. 1 to Offshore Subscription Agreement for Series B
8% Convertible Preferred Stock dated on or about February 17, 1998
(Incorporated by reference to Exhibit 10.16 to the Registrant's Form
8-K, under Item 9, date of earliest event reported - February 17, 1998)
10.19 Employment Agreement between the Registrant and Robert Moore effective
as of January 1, 1997 (Incorporated by reference to Exhibit 10.21 to
the Registrant's Form 10-KSB for the year ended December 31, 1997)*
10.20 Employment Agreement between the Registrant and Rick Rhodes effective
as of December 10, 1998 (Incorporated by reference to Exhibit 10.20 to
the Registrant's Form 10-KSB for the year ended December 31, 1998)*
<PAGE>
10.21 Investment Agreement dated May 1, 1998, between the Registrant and REI
(Incorporated by reference to Exhibit 10.1 of the REI Form 8-K)
(Incorporated by reference to Exhibit 10.21 to the Registrant's Form
10-KSB for the year ended December 31, 1998)
10.22 Registration Rights Agreement, dated May 2, 1998, between the
Registrant and REI (Incorporated by reference to Exhibit 10.2 of the
REI Form 8-K)
10.23 Stock Purchase Warrant, dated May 1, 1998, issued to REI for the
purchase of 4,000,000 shares of Common Stock (Incorporated by reference
to Exhibit 10.3 of the REI Form 8-K)
10.24 Stock Purchase Warrant, dated May 1, 1998, issued to REI for the
purchase of 14,612,796 shares of Common Stock (Incorporated by
reference to Exhibit 10.4 of the REI Form 8-K)
10.25 Stock Purchase Warrant, dated May 1, 1998, issued to REI for the
purchase of 10,119,614 shares of Common Stock (Incorporated by
reference to Exhibit 10.5 of the REI Form 8-K)
10.26 Advisory Agreement, dated May 1, 1998, between the Registrant and REI
(Incorporated by reference to Exhibit 10.7 of the REI Form 8-K)
10.27 Indemnification Letter Agreement, dated May 1, 1998, between the
Registrant and REI (Incorporated by reference to Exhibit 10.8 of the
REI Form 8-K)
10.28 $8,775,000 Secured Promissory Note, dated March 2, 1999, issued by the
Registrant to GATX (Incorporated by reference to Exhibit 10.2 of the
GATX Form 8-K)
10.29 $4,725,000 Secured Promissory Note, dated March 2, 1999, issued by the
Chadmoore Communications, Inc. to GATX (Incorporated by reference to
Exhibit 10.3 of the GATX Form 8-K)
10.30 Security Agreement, dated March 2, 1999, between the Registrant, its
subsidiaries and GATX (Incorporated by reference to Exhibit 10.4 of the
GATX Form 8-K)
10.31 Guarantee, dated March 2, 1999, between the Registrant, its
subsidiaries and GATX (Incorporated by reference to Exhibit 10.5 of the
GATX Form 8-K)
10.32 Warrant to Purchase 1,822,500 Shares of Common Stock, dated March 2,
1999, issued to GATX (Incorporated by reference to Exhibit 10.6 of the
GATX Form 8-K)
10.33 Aggreement dated November 11, 1998, engaging Private Equity Partners
LLC as financial advisors. (Incorporated by reference to Exhibit 10.33
to the Registrant's Form 10-KSB for the year ended December 31, 1998)
10.34 Agreement dated March 7, 1999, engaging Private Equity Partners LLC as
financial advisors. (Incorporated by reference to Exhibit 10.34 to the
Registrant's Form 10-KSB for the year ended December 31, 1998)
11.1 Calculation of Weighted Average Shares Outstanding
23.1 Consent of KPMG, LLP (Incorporated by reference to Exhibit 23.1 to the
Registrant's Form 10-KSB for the year ended December 31, 1998)
27.1 Financial Data Schedules, 1999
27.2 Financial Data Schedules, 1998
* Indicates a management contract or compensatory plan or arrangement.
Exhibit 11
COMPUTATION OF PER SHARE AMOUNTS
<TABLE>
<CAPTION>
Twelve months ended
December 31, 1998
------------------------------------
1998 1997
----------------- -----------------
<S> <C> <C>
Net loss $ (2,769,046) $ (1,799,146)
Series B preferred stock dividend
(17,578) (40,692)
Series C redeemable preferred
stock dividend and accretion
(79,873) -
----------------- -----------------
Loss applicable to common shareholders $ (2,866,497) $ (1,839,838)
================= =================
Basic and diluted weighted average shares outstanding 51,484,605 22,339,773
Common equivalent shares representing shares issuable upon 14,214,599 5,285,212
exercise of stock options
Add back of common equivalents shares due to antidilutive shares (14,214,599) (5,285,212)
----------------- -----------------
Dilutive adjusted weighted average shares 51,484,605 22,339,773
================= =================
Basic net loss per share
(0.06) (0.08)
Diluted net loss per share
(0.06) (0.08)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-1-1999
<PERIOD-END> MAR-31-1999
<CASH> 5,202,585
<SECURITIES> 0
<RECEIVABLES> 1,001,930
<ALLOWANCES> 153,139
<INVENTORY> 197,345
<CURRENT-ASSETS> 6,607,438
<PP&E> 14,770,774
<DEPRECIATION> 1,888,877
<TOTAL-ASSETS> 60,780,764
<CURRENT-LIABILITIES> 12,269,714
<BONDS> 0
1,054,868
0
<COMMON> 37,497
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 60,780,764
<SALES> 1,262,313
<TOTAL-REVENUES> 1,262,313
<CGS> 420,231
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