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 SEPTEMBER 30, 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
CHADMOORE WIRELESS GROUP, INC.
------------------------------
(Exact name of registrant as specified in its charter)
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 NOVEMBER 8, 1999 ISSUER HAD 40,593,024 SHARES OF COMMON STOCK, $.001 PAR
VALUE, OUTSTANDING.
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE): Yes [ ] No [X]
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INDEX
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PART I - FINANCIAL INFORMATION PAGE
ITEM 1. INTERIM FINANCIAL STATEMENTS - Unaudited
Consolidated Balance Sheets as of September 30, 1999 and December 31, 1998 3
Consolidated Statements of Operations for the nine months ended September 30, 1999 and 1998 4
Consolidated Statements of Operations for the three months ended September 30, 1999 and 5
1998
Consolidated Statements of Redeemable Preferred Stock and Shareholders' Equity for the
nine months ended September 30, 1999 6
Consolidated Statements of Cash Flows for nine months ended September 30, 1999 and 1998 7
Condensed Notes to Interim Consolidated Financial Statements 8-15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND PLAN OF OPERATIONS 16-20
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 21-23
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 24
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 24
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS 24
ITEM 5. OTHER INFORMATION 24
ITEM 6. EXHIBITS AND CURRENT REPORTS ON FORM 8-K 24
SIGNATURES 28
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CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
September 30, 1999 and December 31, 1998
September 30, December 31,
1999 1998
(Unaudited)
-------------------- --------------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 3,759,991 $ 578,677
Accounts receivable, less allowance for doubtful accounts of $18,525 and $113,000 1,011,804 582,817
Other receivables, less allowance for doubtful accounts of $133,639 and $133,639 129,528 136,288
Inventory 216,742 169,520
Deposits and prepaids 164,437 134,228
-------------------- --------------------
Total current assets 5,282,502 1,601,530
Property and equipment, net 14,508,240 12,681,753
Intangible assets, net 40,205,079 41,118,012
Other assets, net 1,448,246 119,166
-------------------- --------------------
Total assets $ 61,444,067 $ 55,520,461
==================== ====================
LIABILITIES, REDEEMABLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 9,194,320 $ 8,255,174
Accounts payable and accrued liabilities 2,710,818 6,807,158
License option commission payable - current 1,573,783 3,412,000
Unearned revenue 777,039 506,056
Other current liabilities 711,039 707,039
-------------------- --------------------
Total current liabilities 14.966,999 19,687,427
Long-term debt 24,553,168 8,152,589
License option commission payable - non-current 974,981 -
-------------------- --------------------
Total liabilities 40,495,148 27,840,016
Minority interests 643,709 533,690
Commitments and contingencies Redeemable preferred stock:
Series C, 4% cumulative, 10,119,614 shares issued and outstanding 1,319,499 974,995
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,
40,593,024 and 36,504,324 shares issued and outstanding 40,593 36,504
Additional paid-in capital 68,172,887
66,856,832
Accumulated deficit (49,227,769) (40,721,597)
-------------------- --------------------
Total shareholders' equity 18,985,711 26,171,760
-------------------- --------------------
Total liabilities, redeemable preferred
stock and shareholders' equity $ 61,444,067 $ 55,520,461
==================== ====================
See accompanying condensed notes to unaudited interim consolidated financial statements
3
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CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
Unaudited Consolidated Statements of
Operations For the nine months ended
September 30, 1999 and 1998
September 30, September 30,
1999 1998
------------------------- ------------------------
<S> <C> <C>
Revenues:
Service revenue $ 3,607,315 $ 1,504,684
Equipment sales and maintenance
774,511 635,930
------------------------- ------------------------
4,381,826 2,140,614
------------------------- ------------------------
Operating expenses:
Cost of service revenue 970,356 352,212
Cost of equipment sales and maintenance 445,597 352,726
General and administrative 7,265,738 5,208,860
Depreciation and amortization 1,454,125 830,558
------------------------- ------------------------
10,135,816 6,744,356
------------------------- ------------------------
Loss from operations (5,753,990) (4,603,742)
------------------------- ------------------------
Other (expense):
Minority interest in earnings (178,682) (69,543)
Interest expense, net (2,378,533) (1,212,795)
Standstill agreement expense - (182,914)
------------------------- ------------------------
(2,557,215) (1,465,252)
------------------------- ------------------------
Net loss before extraordinary item (8,311,205) (6,068,994)
Extraordinary loss on early extinguishment of debt (194,967) -
------------------------- ------------------------
Net loss $ (8,506,172) $ (6,068,994)
Series B preferred stock dividend (17,578) (131,503)
Series C redeemable preferred stock dividend and accretion (344,504) (109,179)
------------------------- ------------------------
Loss applicable to common shareholders $ (8,868,254) $ (6,309,676)
========================= ========================
Per share of Common Stock:
Net loss per share before extraordinary item (0.15) (0.16)
Extraordinary loss per share on early extinguishment
of debt (0.00) -
------------------------- ------------------------
Net loss per share $ (0.15) $ (0.16)
========================= ========================
Series B preferred stock dividend per share (0.00) (0.00)
Series C redeemable preferred stock dividend and accretion per share (0.01) (0.00)
------------------------- ------------------------
Basic and diluted loss per share of Common Stock $ (0.16) $ (0.16)
========================= ========================
Basic and diluted weighted average shares outstanding 54,109,313 38,320,832
========================= ========================
See accompanying condensed notes to unaudited interim consolidated financial statements
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4
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CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
Unaudited Consolidated Statements of
Operations For the three months ended
September 30, 1999 and 1998
September 30, September 30,
1999 1998
------------------------- ------------------------
<S> <C> <C>
Revenues:
Service revenue $ 1,357,283 $ 635,324
Equipment sales and maintenance
239,403 257,667
------------------------- ------------------------
1,596,686 892,991
------------------------- ------------------------
Operating expenses:
Cost of service revenue 356,870 164,347
Cost of equipment sales and maintenance 123,956 138,886
General and administrative 2,499,784 2,160,587
Depreciation and amortization 513,935 357,186
------------------------- ------------------------
3,494,545 2,821,006
------------------------- ------------------------
Loss from operations (1,897,859) (1,928,015)
------------------------- ------------------------
Other (expense):
Minority interest in earnings (59,898) (34,946)
Interest expense, net (969,982) (399,607)
------------------------- ------------------------
(1,029,880) (434,553)
------------------------- ------------------------
Net loss (2,927,739) (2,362,568)
Series B preferred stock dividend - (48,147)
Series C redeemable preferred stock dividend and accretion (95,255) (66,992)
------------------------- ------------------------
Loss applicable to common shareholders $ (3,022,994) $ (2,477,707)
========================= ========================
Per share of Common Stock:
Net loss per share (0.05) (0.05)
Series B preferred stock dividend per share - (0.00)
Series C redeemable preferred stock dividend and accretion per share (0.00) (0.00)
------------------------- ------------------------
Basic and diluted loss per share of Common Stock $ (0.05) $ (0.05)
========================= ========================
Basic and diluted weighted average shares outstanding 57,360,994 50,429,994
========================= ========================
See accompanying condensed notes to unaudited interim consolidated financial statements
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5
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CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
Unaudited Consolidated Statements of Redeemable Preferred Stock and Shareholders' Equity
For the nine months ended September 30, 1999
Series C Redeemable Series B Preferred
Preferred Stock Stock
Common Stock Additional Total
Outstanding 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:
Conversion of Series B preferred stock - - (20,955) (21) 915,932 916 (895) - -
Series B preferred stock dividends - - - - 76,672 77 (77) - -
Payment of debt - - - - 1,871,096 1,871 914,966 - 916,837
Discount on long-term debt - - - - - - 608,350 - 608,350
Settlement of license dispute 525,000 525 138,915 139,440
Conversion of subsidiary's stock 700,000 700 (700)
Series C redeemable preferred stock
dividends and accretion - 344,504 - - - - (344,504) - (344,504)
Net loss
- - - - - - (8,506,172) (8,506,172)
========== ========== ======= ====== ========== ======= =========== ============= ===========
Balance at September 30, 1999 10,119,614 $1,319,499 263 $ - 40,593,024 $40,593 $68,172,887 $ (49,227,769) $18,985,711
========== ========== ======= ====== ========== ======= =========== ============= ===========
See accompanying condensed notes to unaudited interim consolidated financial statements
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6
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CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
Unaudited Consolidated Statements of Cash
Flows For the nine months ended September 30, 1999 and 1998
September 30, September 30,
1999 1998
---------------------- ----------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (8,506,172) $ (6,068,994)
Adjustments to reconcile net loss to net cash used in
operating activities:
Minority interest 178,682 69,543
Depreciation and amortization 1,454,125 830,558
Standstill agreement - 182,914
Settlement of license dispute 139,440 -
Extinguishment of debt 94,847 -
Amortization of debt discount 1,297,752 849,968
Stock issued to employees - 7,710
Amortization of debt issuance costs 125,656 -
Options issued for services - 15,040
Change in operating assets and liabilities:
(Increase) in accounts receivable
and other receivables (416,838) (204,491)
(Increase) in inventory (47,222) (47,346)
(Increase) in deposits and prepaids (30,209) (58,322)
Increase in unearned revenues 270,980 288,785
Increase (decrease) in accounts payable and
accrued liabilities (2,723,342) 1,027,071
Increase in other current liabilities 4,000 1,101,776
---------------------- ----------------------
Net cash used in operating activities (8,158,301) (2,005,788)
---------------------- ----------------------
Cash flows used in investing activities:
Purchase of FCC licenses and rights to acquire licenses (134,332) (195,124)
Purchases of property and equipment (2,956,724) (4,440,894)
---------------------- ----------------------
Net cash used in investing activities (3,091,056) (4,636,018)
---------------------- ----------------------
Cash flows from financing activities:
Proceeds from issuance of securities - 7,500,000
(Increase) in debt issuance costs (1,549,583) (144,852)
Equity issuance costs - (705,000)
Payments of minority interest (74,049) -
Payments of long-term debt (4,945,697) (1,435,225)
Proceeds from issuance of long-term debt 21,000,000 1,982,351
---------------------- ----------------------
Net cash provided by financing activities 14,430,671 7,197,274
---------------------- ----------------------
Net increase in cash 3,181,314 555,468
Cash at beginning of period 578,677 959,390
---------------------- ----------------------
Cash at end of period $ 3,759,991 $ 1,514,858
====================== ======================
See Note 10 for supplemental disclosure on non-cash investing and financing activities
See accompanying condensed notes to unaudited interim consolidated financial statements
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CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
Condensed Notes to Unaudited Interim Consolidated Financial Statements
September 30, 1999
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The interim consolidated 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.
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 a party to an equipment purchase agreement with Motorola and for
the foreseeable future the Company expects that it will need to rely on Motorola
for the manufacturing of certain equipment necessary to construct and make its
network operational.
(2) MANAGEMENT PLANS
The Company's Independant Accountant's report 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
interim consolidated 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 $9,684,497 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
interim consolidated financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
The Company believes that during the next twelve months it will require a
significant amount of capital for full-scale implementation of its SMR services,
ongoing operating expenses and debt service. To meet such funding requirements
the Company anticipates obtaining additional funding including the possible
funding of an additional $400,000 under the GATX Facility, pursuing similar
financing arrangements with other institutional investors and lenders and
selling additional equity instruments.
While the Company believes that it has developed adequate contingency plans, the
failure to consummate the aforementioned potential financing as currently
contemplated, or at all, could have a material adverse effect on the Company,
including the risk of liquidation of assets or bankruptcy. Current contingency
plans may include selling selected channels and focusing solely on the Company's
current 93 markets in which commercial 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
8
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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) ASSET ACQUISITION
On June 1, 1999 the Company entered into an Asset Acquisition Agreement
("Agreement") with American Wireless Network, Inc. ("American") where the
Company will acquire 16 ten-channel 900 Mhz wide-area licenses in seven
Metropolitan Trading Areas ("MTA's"). In consideration the Company will assume
approximately $1.4 million of American's outstanding debt with the Federal
Communications Commission ("FCC") as well as American receiving 7.5% ownership
in the MTA's operations. In addition, American will receive a warrant to
purchase 50,000 shares of the Company's Common Stock at an exercise price of
$0.50 per share. In connection with the Agreement, the Company entered into an
operating lease with American for certain SMR equipment with payments totaling
$720,000 over the next six years and assumed other operating leases with
obligations totaling approximately $25,000 per month. However, the Agreement is
contingent upon the completion of the FCC approval and transfer process.
In addition, the Company has entered into a management agreement whereby the
Company will perform as contractor and agent on behalf of American for all
managerial functions involved with operation of the stations, under the
oversight and direction of American, until such time as all licenses have
completed the FCC approval and transfer process. Pursuant to this management
agreement the Company is responsible, subject to the oversight of American, for
the billing and collection of all revenues and the payment of all operating
expenses associated with the operation of these stations. The Company will also
make the required interest only payments on the outstanding debt with the FCC
totaling approximately $8,100 per month. The Company's compensation for managing
such sites will be 100% of the gross revenues, less the costs mentioned above,
provided that the net profit of any station does not exceed $30,000 per calendar
month, if any station's profit exceeds $30,000 per calendar month the Company
shall pay any excess profit to American. During the nine months ended September
30, 1999 the net of the revenues and expenses associated with this agreement
totaled a loss of approximately $105,000.
(4) FCC LICENSES AND RIGHTS TO ACQUIRE FCC LICENSES
Intangible assets consist of FCC licenses, which are recorded at cost and are
authorized by the FCC and allow the use of certain communications frequencies
and rights to acquire FCC licenses. FCC licenses have a primary term of five or
ten years and are renewable for additional five or ten 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 licenses and rights to acquire FCC licenses and related
costs are amortized using the straight-line method over 20 years, beginning in
the month they are placed in service.
Intangible assets consist of the following:
September 30, December 31,
1999 1998
(Unaudited)
------------------ ------------------
FCC licenses $36,904,268 $ 37,669,351
Rights to acquire FCC licenses 4,161,169 3,985,133
------------------ ------------------
41,065,437 41,654,484
Less accumulated amortization (860,358)
(536,472)
------------------ ------------------
$40,205,079 $ 41,118,012
================== ==================
9
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(5) 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:
September 30, December 31,
1999 1998
(Unaudited)
----------- -----------
Land $ 102,500 $ 102,500
Buildings and improvements 413,086 395,659
SMR systems and equipment 16,016,556 12,862,618
SMR systems in process 229,000 554,200
Furniture and office equipment 411,439 310,886
----------- -----------
17,172,581 14,225,863
Less accumulated depreciation and amortization (2,664,341) (1,544,110)
----------- -----------
$14,508,240 $12,681,753
=========== ===========
(6) 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"). 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 Company's option, at the then-current market price when due.
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, payable
in September 1998. On June 30, 1998, the Company received a notice of default
under 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.
On March 2, 1999, pursuant to the GATX Facility, the Company borrowed $13.5
million from GATX. On August 2, 1999 GATX elected to increase the aggregate
principal amount of the GATX Facility to $27 million. On August 4, 1999 and
October 28, 1999 the Company borrowed an additional $7.5 million and $5.6
million, respectively, under the GATX Facility, leaving approximately $400,000
available for future borrowings at the sole and absolute discretion of GATX,
subject to substantially the same terms as the previous borrowings. Loans were
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. Quarterly principal payments of approximately $1.3 million
are to commence June 30, 2000. 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 ("GATX Warrants"). The loan is secured by substantially all
the assets of the Company.
10
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On June 10, 1999 the Company entered into an Amendment to the GATX Facility
("Amendment"). The Amendment, among other things, delayed certain financial
covenants, extended the option period to make available funds from 120 days to
150 days and amended the collateral value to loan ratio from 2 to 1 to 1.5 to 1.
The Company also restated the exercise price of the GATX Warrants from $0.39 to
$0.01 per share of the Company's Common Stock. In connection with the Amendment
the Company has recognized a debt discount related to the GATX Warrants of
$608,350, which represents the intrinsic value, which is not materially
different from the fair value, of the GATX Warrants on the date of the
Amendment. This discount will be amortized to interest expense using the
effective interest method over the life of the loan.
On September 24, 1999 the Company entered into a note payable with Motorola,
bearing interest at 10.75% annually, with a face value of $1,673,000 payable
with a down payment of $300,000 and 8 monthly payments of $139,449 commencing
October 25, 1999.
(7) 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 nine months
ended September 30, 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 the Company's Common Stock.
(8) MANDATORILY 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 per share 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.
(9) MINORITY INTERESTS
As discussed in the 1998 Form 10-KSB, the Company sold restricted Common Stock
in its subsidiary, CCI, to a third party totaling 700,000 shares. On August 25,
1999, the holder of such shares elected to convert these shares of CCI to
700,000 shares of Chadmoore Wireless Group Common Stock.
(10) NON-CASH EVENTS
SUPPLEMENTAL DISCLOSURE FOR NON-CASH INVESTING AND FINANCING ACTIVITIES
During the nine months ended September 30, 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. Issuance of 1,871,096
shares of the Company's restricted Common Stock which represented $916,837 of
payment towards principal and interest of the New Debenture. The issuance of
$139,857 of notes payable, net of discount, to exercise certain license options.
11
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During the nine months ended September 30, 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 $6,220,589 of notes
payable, net of discount, to exercise certain license options. Conversion of
182,782 shares of Series B Preferred into 3,912,225 shares of Common Stock.
Issuance of 83,254 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. Issuance of 31,000 shares of Common
Stock to a license holder. Issuance of 290,765 shares of Common Stock for
prepaid professional services. Issuance of 335,000 shares of Common Stock for
the purchase of fixed assets.
SUPPLEMENTAL DISCLOSURE OF CASH PAID FOR TAXES AND INTEREST
During the nine months ended September 30, 1999 and 1998 the Company paid no
cash for taxes. During the nine months ended September 30, 1999 and 1998 the
Company paid cash for interest of $1,035,842 and $168,113, respectively.
(11) RELATED PARTY TRANSACTIONS
During the nine months ended September 30, 1999 and 1998 the Company paid
$1,379,092 and $633,642, 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. During the nine months ended September 30, 1999 the Company paid
Recovery $130,207 in advisory fees. Jeffrey A. Lipkin and Joseph J. Finn-Egan,
managing partners of Recovery, are Directors of the Company.
(12) 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, and in some
instances construction 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 not fulfilled 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 approximately 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 awarded, by the FCC, to all CMRS
licensees. Thus, in an effort to be consistent in its treatment of similarly
situated licensees, the FCC granted the licensee petitioners 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.
On the basis of a previous request for assistance to the FCC's Licensing
Division by the Company, the FCC examined and marked a list provided by the
Company. The FCC's markup indicated those stations held by the Company or
subject to management and option agreements, which the FCC considered to be, at
that time, Receivership Stations
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and/or stations considered "similarly situated" and thus eligible for relief.
From this communication, the Company believes that approximately 800 of the
licenses that it owns or manages are Receivership Stations or otherwise entitled
to relief as "similarly situated" licensees. 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 continuing 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 Public Notice. The Company asked that the relief be reinstated for its
impacted licenses. Moreover, on February 1, 1999, the Company, in conjunction
with other aggrieved 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 instructions from the
court to reinstate the licenses for which relief had been denied. Argument
before the court was held on May 4, 1999. The petitions of the Receiver and all
"similarly situated" parties were consolidated into a single briefing and
argument before the court. In an opinion issued July 15, 1999, the court
dismissed all the petitions filed by the Goodman/Chan licensees. The court noted
in its opinion that the receiver did not have standing to seek relief on behalf
of the licensees and the similarly situated parties had filed their appeal at
the FCC in an untimely manner. Thus, rather than hearing the merits underlying
the case, the judges dismissed the petitions on procedural grounds.
The dismissal of the Petitions, while a problem for the other parties before the
court, appears not to be a bar to the Company's efforts to seek relief in this
instance, but simply requires that the Company await the FCC's action on the
Company's pending Petition for Reconsideration. In reviewing the Court's
opinion, the Company's Management believes that the court has left open the
possibility of a rehearing on the merits should the FCC fail to act
affirmatively, in the interim, on timely filed and pending Petitions for
Reconsideration of the October 9, 1998 list. Thus, as Chadmoore was the only
party before the court which had timely filed such a petition, Management
believes the potential for a rehearing on the merits would be applicable only to
Chadmoore should the FCC not act affirmatively on Chadmoore's pending Petition
for Reconsideration.
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Accordingly, Chadmoore has initiated discussions with officials in Washington in
an effort to obtain affirmative action at the FCC on the pending Petition for
Reconsideration. Nevertheless, On November 9, 1999 the FCC's Commercial Wireless
Division Chief entered a decision denying Chadmoore's Petition for
Reconsideration. This staff level opinion is not binding upon the Commission,
and the Company has a legal right to seek an internal FCC review through
application to the Commission, as well as an ultimate right to seek redress in
the United States Court of Appeals for the District of Columbia Circuit. At this
time, Management has not had sufficient time to review the staff decision and
consult with counsel to determine its ultimate strategy for the handling of this
item, but Managements' initial reaction is that an internal FCC appeal could
prove beneficial. However, should such efforts not prove fruitful, Management
believes the way is clear for a hearing on the merits of the case in the United
States Court of Appeals for the District of Columbia Circuit. Due to the
uncertainty surrounding both the FCC's administrative process in managing review
of this matter and the docket calendar of the court, it is not possible, at this
time, for Management to predict, with any reasonable level of reliability, a
timetable for when action on these pending matters will be concluded.
Approximately 650 of those licenses purchased by or under option and management
agreements with the Company are among those which the FCC initially has refused
to afford relief pursuant to the Commercial Wireless Division's October 9, 1998,
Public Notice. Thus, it is reasonably possible (as defined by Financial
Accounting Standards Board #5) 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 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 pursued the
above-described litigation to clarify this matter. Based on the preceding, no
provision has been made in the accompanying unaudited interim 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.
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 September 30, 1999, the Company had
purchased approximately $6.5 million toward this purchase commitment.
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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 nine months
ended September 30, 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. Forward
looking statements in this form include statements regarding (i) the Company's
plan of operation, (ii) the Company's future service revenue and equipment sales
and maintenance revenue, (iii) the Company's capital requirements, (iv) the
Company's ability to obtain funding, and (v) the Company's Year 2000 compliance.
See the Company's 1998 Form 10-KSB.
RESULTS OF OPERATIONS
A. NINE MONTHS ENDED SEPTEMBER 30, 1999 VERSUS NINE MONTHS ENDED SEPTEMBER 30,
1998
Total revenues for the nine months ended September 30, 1999 increased $2,241,212
or 104.7%, to $4,381,826 from $2,140,614 for the nine months ended September 30,
1998, reflecting increases of $2,102,631 and $138,581, or 139.7% and 21.8%, 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 Specialized Mobile Radio ("SMR") service through
independent dealers, the proportion of total revenues generated by service
revenue increased to 82.3% for the nine months ended September 30, 1999 from
70.3% for the nine months ended September 30, 1998. The Company anticipates that
the proportion of total revenues from service revenue will continue to increase
in future periods. The Company has relied on an indirect distribution method
where as the local dealer rather than the Company sells, installs, and services
the radio equipment and records the revenues and costs associated therewith
while the Company receives the recurring revenue associated with the sale of
airtime (service revenue). In addition to the sale of airtime the Company is
currently exploring other revenue generating opportunities. These include the
renting of equipment in conjunction with the sale of airtime, maintenance
contracts and direct distribution in markets where the Company has determined
indirect distribution is not beneficial. During the three months ended September
30, 1999 the Company began to implement some of the methods however as of
September 30, 1999 the Company has yet to recognize any material revenue from
these opportunities.
The $2,102,631 or 139.7% increase in service revenue, from $1,504,684 for the
nine months ended September 30, 1998 to $3,607,315 for the nine months ended
September 30, 1999, was driven by an increase of approximately 16,800
subscribers utilizing the Company's SMR systems, an increase of 82.4%, from
approximately 20,400 at September 30, 1998 to approximately 37,200 at September
30, 1999. The increase in subscribers was primarily due to full-scale
implementation of service in new markets 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 $138,581 or 21.8%,
from $635,930 for the nine months ended September 30, 1998 to $774,511 for the
nine months ended September 30, 1999, was attributable to the increased
availability of capital during the first six months 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 $618,144, or 175.5%, from $352,212 for the
nine months ended September 30, 1998 to $970,356 for the nine months ended
September 30, 1999. This increase was primarily due to SMR system site expenses
associated with additional markets being commercialized as well as the marginal
costs associated with increased capacity being used in the Company's existing
markets. Gross margin on service revenue decreased from 76.6% for the nine
months ended September 30,
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1998 to 73.1% for the nine months ended September 30, 1999. This is attributed
to an increased number of markets that have not yet reached the maturity stage
and therefore have yet to generate significant operating margins.
Cost of equipment sales and maintenance revenue increased by $92,871, or 26.3%,
from $352,726 for the nine months ended September 30, 1998 to $445,597 for the
nine months ended September 30, 1999. This increase is due to the increase in
equipment sales and maintenance revenue from the related periods. Gross margin
on equipment sales and maintenance revenue decreased from 44.5% for the nine
months ended September 30, 1998 to 42.5% for the nine months ended September 30,
1999. This is attributable to a higher level of sales being derived from
equipment sales as opposed to maintenance. In general, maintenance has a lower
cost of sales associated with it and therefore a higher gross margin than
equipment revenue.
General and administrative expenses increased by $2,056,878, or 39.5%, from
$5,208,860 for the nine months ended September 30, 1998 to $7,265,738 for the
nine months ended September 30, 1999. Salaries, wages, and benefits expense (a
component of general and administrative expenses) increased by $814,485 or
38.9%, from $2,092,797 for the nine months ended September 30, 1998 to
$2,907,282 for the nine months ended September 30, 1999. This increase is
primarily due to personnel additions, largely in operational areas, made in
connection with the Company's transition from aggregating SMR spectrum to
constructing, marketing, and rolling out commercial SMR service. Relative to
total revenues, salaries, wages, and benefits expense was 66.3% for the nine
months ended September 30, 1999 compared with 97.8% for the nine months ended
September 30, 1998. Remaining general and administrative expense increased 39.9%
or $1,242,393, from $3,116,063 for the nine months ended September 30, 1998 to
$4,358,456 for the nine months ended September 30, 1999. The increase in the
remaining general and administrative expense was primarily due to increases of
approximately $40,000 in advertising and marketing, which is in line with the
revenue growth, $170,000 in expense associated with non-commercial markets,
$320,000 in professional fees associated with potential acquisitions, securing
of additional funding and consulting fees, $80,000 in legal expenses associated
with increased litigation, $155,000 in customer acquisition costs paid to
dealers in the Company's indirect distribution channels, which is also in line
with the revenue growth, $120,000 increase in travel and entertainment expense,
which is associated increased travel of sales employees within the Company's
operating territories, increased travel of executives in connection with
potential acquisitions, increased legal affairs and the securing of funding and
$139,000 of expense associated with a legal settlement of which there was no
such expense in the same period during 1998.
Depreciation and amortization expense increased $623,567 or 75.1%, from $830,558
for the nine months ended September 30, 1998 to $1,454,125 for the nine months
ended September 30, 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 $3,391,460 or 50.3%,
from $6,744,356 for the nine months ended September 30, 1998 to $10,135,816 for
the nine months ended September 30, 1999, and the Company's loss from operations
increased by $1,150,248 or 25.0%, from $4,603,742 to $5,753,990, for such
respective periods.
Interest expense, net of interest income, increased 1,165,738, or 96.1%, from
$1,212,795 for the nine months ended September 30, 1998 to $2,378,533 for the
nine months ended September 30, 1999, due to higher debt balances associated
with new loan facilities.
Based on the foregoing, the Company's net loss before extraordinary item
increased $2,242,211 or 36.9%, from $6,068,994 for the nine months ended
September 30, 1998 to $8,311,205 for the nine months ended September 30, 1999.
During the nine months ended September 30, 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 certain credit facilities,
which were replaced with the GATX Facility (as defined below).
The Company's net loss increased $2,437,178 or 40.2%, from $6,068,994 for the
nine months ended September 30, 1998 to $8,506,172 for the nine months ended
September 30, 1999. This increase was primarily the result of an increase of
$1,150,248 in loss from operations and an increase in other expenses of
$1,091,963.
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B. THREE MONTHS ENDED SEPTEMBER 30, 1999 VERSUS THE THREE MONTHS ENDED
SEPTEMBER 30, 1998
Total revenues for the three months ended September 30, 1999 increased $703,695
or 78.8%, to $1,596,686 from $892,991 for the three months ended September 30,
1998, reflecting an increase of $721,959, or 113.6% in service revenue, which
was off-set partially by a decrease of $18,264, or 7.1% in equipment sales and
maintenance revenue. The proportion of total revenues generated by service
revenue increased to 85.0% for the three months ended September 30, 1999 from
71.1% for the three months ended September 30, 1998.
The $721,959 or 113.6% increase in service revenue, from $635,324 for the three
months ended September 30, 1998 to $1,357,283 for the three months ended
September 30, 1999, was driven by the same increase in subscribers. The increase
in subscribers was primarily due to full-scale implementation of service by the
Company in new markets as well as continued growth in existing markets.
The decrease in equipment sales and maintenance revenue of $18,264 or 7.1%, from
$257,667 for the three months ended September 30, 1998 to $239,403 for the three
months ended September 30, 1999, was attributable to the normal fluctuations and
unpredictability of equipment sales. The Company anticipates equipment sales and
maintenance revenue to remain relatively constant in future periods.
Cost of service revenue increased by $192,523, or 117.1%, from $164,347 for the
three months ended September 30, 1998 to $356,870 for the three months ended
September 30, 1999. This increase was primarily due to SMR system site expenses
associated with additional markets being commercialized as well as the marginal
costs associated with increased capacity being used in the Company's existing
markets. Gross margin on service revenue was 73.7% for the three months ended
September 30, 1999 which was approximately the same as the 74.1% for the three
months ended September 30, 1998.
Cost of equipment sales and maintenance revenue decreased by $14,930, or 10.7%,
from $138,886 for the three months ended September 30, 1998 to $123,956 for the
three months ended September 30, 1999. This decrease is due to the decrease in
equipment sales and maintenance revenue from the related periods. Gross margin
on equipment sales and maintenance revenue increased from 46.1% for the three
months ended September 30, 1998 to 48.2% for the three months ended September
30, 1999. This is attributable to an increased proportion of equipment sales
being derived from higher margin used equipment.
General and administrative expenses increased by $339,197, or 15.7%, from
$2,160,587 for the three months ended September 30, 1998 to $2,499,784 for the
three months ended September 30, 1999. Salaries, wages, and benefits expense (a
component of general and administrative expenses) increased by $184,825 or
23.0%, from $803,686 for the three months ended September 30, 1998 to $988,511
for the three months ended September 30, 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 61.9% for the three months ended
September 30, 1999 compared with 90.0% for the three months ended September 30,
1998. Remaining general and administrative expense increased 11.4% or $154,372,
from $1,356,901 for the three months ended September 30, 1998 to $1,511,273 for
the three months ended September 30, 1999. The increase in the remaining general
and administrative expense was primarily due to an increases of approximately
$100,000 in travel and entertainment associated with increased travel of sales
employees within the Company's operating territories and increased travel of
executives in connection with legal affairs and the securing of funding and an
expense of $139,435 associated with the settlement of a lawsuit of which there
is no such comparable item during the same period in 1998. This was off-set
partially by a decrease in sales and marketing expense. In an effort to decrease
the costs of marketing the Company has internalized a majority of it's marketing
efforts by adding certain key employees with extensive marketing experience.
Depreciation and amortization expense increased $156,749 or 43.9%, from $357,186
for the three months ended September 30, 1998 to $513,935 for the three months
ended September 30, 1999, reflecting larger amounts of licenses and
infrastructure placed in service associated with construction and implementation
of new commercial sites.
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Due to the foregoing, total operating expenses increased $673,539 or 23.9%, from
$2,821,006 for the three months ended September 30, 1998 to $3,494,545 for the
three months ended September 30, 1999. The Company's loss from operations
decreased by $30,156 or 1.6%, from $1,928,015 to $1,897,859, for such respective
periods.
Interest expense, net of interest income, increased 570,375, or 142.7%, from
$399,607 for the three months ended September 30, 1998 to $969,982 for the three
months ended September 30, 1999, due to higher debt balances associated with new
loan facilities.
Based on the foregoing, the Company's net loss increased $565,171 or 23.9%, from
$2,362,568 for the three months ended September 30, 1998 to $2,927,739 for the
three months ended September 30, 1999.
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, $7.5 million was funded in August 1999 and additional $5.6
million was funded in October 1999 under a debt facility with GATX Capital
Corporation (the "GATX Facility) (see 1998 Form 10-KSB for a complete
description of the GATX Facility). Additional amounts will be required for
commercial implementation of its SMR services and ongoing operating expenses. To
meet such funding requirements the Company anticipates obtaining additional
funding including the possible funding of an additional $400,000 under the GATX
Facility, pursuing similar financing arrangements with other institutional
investors and lenders and selling additional equity instruments. There can be no
assurances that the Company will be able to successfully obtain the additional
financings currently contemplated, or otherwise be able to obtain sufficient
financing to consummate the Company's business plan.
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 additional funding
arrangements or the sale of additional equity instruments, 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 93 markets in which commercial 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.
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 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. (See 1998 Form 10-KSB)
During the nine months ended September 30, 1999 and 1998, the Company used net
cash in operating activities of $8,158,301 and $2,005,788, respectively. The
major non-operations use of cash for the nine months ended September 30, 1999
and 1998 was the acquisition of communications assets for expansion and capacity
upgrades. The major non-operations source of cash for the nine months ended
September 30, 1999 and 1998 was proceeds from the issuance of long-term debt and
equity.
YEAR 2000 ISSUES
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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 has
evaluated and upgraded 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 has been
fully tested. The Company has purchased the necessary hardware and software and
Management believes that all the necessary Year 2000 compliant hardware and
software has been implemented.
The Company's accounting software is now Year 2000 compliant. 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 September 30, 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.
19
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
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, and in some
instances construction 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 not fulfilled 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 approximately 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 awarded, by the FCC, to all CMRS
licensees. Thus, in an effort to be consistent in its treatment of similarly
situated licensees, the FCC granted the licensee petitioners 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.
On the basis of a previous request for assistance to the FCC's Licensing
Division by the Company, the FCC examined and marked a list provided by the
Company. The FCC's markup indicated those stations held by the Company or
subject to management and option agreements, which the FCC considered to be, at
that time, Receivership Stations and/or stations considered "similarly situated"
and thus eligible for relief. From this communication, the Company believes that
approximately 800 of the licenses that it owns or manages are Receivership
Stations or otherwise entitled to relief as "similarly situated" licensees. 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 continuing 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 Public Notice. The Company asked that the relief be reinstated for its
impacted licenses. Moreover, on February 1, 1999, the Company, in conjunction
with other aggrieved 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 instructions from the
court to reinstate the licenses for which relief had been denied. Argument
before the court was held on May 4, 1999. The petitions of the Receiver and all
"similarly situated" parties were consolidated into a single briefing and
argument before the court. In an opinion issued July 15, 1999, the court
dismissed all the petitions filed by the Goodman/Chan licensees. The court noted
in its opinion that the receiver did not have standing to seek relief on behalf
of the licensees and the
20
<PAGE>
similarly situated parties had filed their appeal at the FCC in an untimely
manner. Thus, rather than hearing the merits underlying the case, the judges
dismissed the petitions on procedural grounds.
The dismissal of the Petitions, while a problem for the other parties before the
court, appears not to be a bar to the Company's efforts to seek relief in this
instance, but simply requires that the Company await the FCC's action on the
Company's pending Petition for Reconsideration. In reviewing the Court's
opinion, the Company's Management believes that the court has left open the
possibility of a rehearing on the merits should the FCC fail to act
affirmatively, in the interim, on timely filed and pending Petitions for
Reconsideration of the October 9, 1998 list. Thus, as Chadmoore was the only
party before the court which had timely filed such a petition, Management
believes the potential for a rehearing on the merits would be applicable only to
Chadmoore should the FCC not act affirmatively on Chadmoore's pending Petition
for Reconsideration.
Accordingly, Chadmoore has initiated discussions with officials in Washington in
an effort to obtain affirmative action at the FCC on the pending Petition for
Reconsideration. Nevertheless, On November 9, 1999 the FCC's Commercial Wireless
Division Chief entered a decision denying Chadmoore's Petition for
Reconsideration. This staff level opinion is not binding upon the Commission,
and the Company has a legal right to seek an internal FCC review through
application to the Commission, as well as an ultimate right to seek redress in
the United States Court of Appeals for the District of Columbia Circuit. At this
time, Management has not had sufficient time to review the staff decision and
consult with counsel to determine its ultimate strategy for the handling of this
item, but Managements' initial reaction is that an internal FCC appeal could
prove beneficial. However, should such efforts not prove fruitful, Management
believes the way is clear for a hearing on the merits of the case in the United
States Court of Appeals for the District of Columbia Circuit. Due to the
uncertainty surrounding both the FCC's administrative process in managing review
of this matter and the docket calendar of the court, it is not possible, at this
time, for Management to predict, with any reasonable level of reliability, a
timetable for when action on these pending matters will be concluded.
Approximately 650 of those licenses purchased by or under option and management
agreements with the Company are among those which the FCC initially has refused
to afford relief pursuant to the Commercial Wireless Division's October 9, 1998,
Public Notice. Thus, it is reasonably possible (as defined by Financial
Accounting Standards Board #5) that the Company's owned and/or managed licenses
which are encompassed within the denial of relief pursunt 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 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 pursued the
above-described litigation to clarify this matter. Based on the preceding, no
provision has been made in the accompanying unaudited interim 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.
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 consulting and
technical advisor to CCI concerning certain 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.
21
<PAGE>
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. For his part, Peacock is contending that CCI is in breach of the
Settlement Agreement because of CCI's action 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. Thus, as no settlement has been
reached at the District Court in this matter, the Company, pursuant to the terms
of the Settlement Agreement, has filed a formal demand upon Peacock for
arbitration of the dispute. No timetable has been set for the arbitration
proceedings at present; however, Management expects a schedule to be established
and agreed upon by the parties in the near term. 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 routine matters before the FCC which may
ultimately affect the Company's operations.
22
<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.
23
<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)
24
<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)
25
<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)*
26
<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.
27
<PAGE>
(b) Current Reports on Form 8-K
August 2, 1999, announcing July 28, 1999 press release.
August 2, 1999, announcing August 2, 1999 press release.
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/ Robert W. Moore
---------------------------
Robert W. Moore
President, Chief Executive Officer
and Principal Financial Officer
By: /s/ Rick D. Rhodes
---------------------------
Rick D. Rhodes
Chief Regulatory Officer
Date: November 15, 1999
28
<TABLE>
(11) COMPUTATION OF PER SHARE AMOUNTS
Nine months ended Nine months ended
September 30 September 30
---------------------------- --------------------------------
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net loss $ (8,506,172) $ (6,068,994) $ (2,927,739) $ (2,362,568)
Series B preferred stock dividend
(17,578) (131,503) - (48,147)
Series C redeemable preferred
stock dividend and accretion (344,504) (109,179) (95,255) (66,992)
------------- ------------- ------------- -------------
Loss applicable to common shareholders $ (8,868,254) $ (6,309,676) $ (3,022,994) $ (2,477,707)
============= ============= ============= =============
Basic and diluted weighted average shares outstanding 54,109,313 38,320,832 57,360,994 50,429,994
Common equivalent shares representing shares issuable upon exercise 17,454,599 25,520,198 17,454,599 25,520,198
of stock options
Add back of common equivalents shares due to antidilutive shares (17,454,599) (25,520,198) (17,454,599) (25,520,198)
------------- ------------- ------------- -------------
Dilutive adjusted weighted average shares 54,109,313 38,320,832 57,360,994 50,429,994
============= ============= ============= =============
Basic net loss per share (0.16) (0.16) (0.05) (0.05)
Diluted net loss per share (0.16) (0.16) (0.05) (0.05)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-1-1999
<PERIOD-END> SEP-30-1999
<CASH> 3,759,991
<SECURITIES> 0
<RECEIVABLES> 1,141,332
<ALLOWANCES> 152,164
<INVENTORY> 216,742
<CURRENT-ASSETS> 5,282,502
<PP&E> 17,172,581
<DEPRECIATION> 2,664,341
<TOTAL-ASSETS> 61,444,067
<CURRENT-LIABILITIES> 14,966,999
<BONDS> 0
1,319,499
0
<COMMON> 40,593
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 61,444,067
<SALES> 4,381,826
<TOTAL-REVENUES> 4,381,826
<CGS> 1,415,953
<TOTAL-COSTS> 10,135,816
<OTHER-EXPENSES> 2,557,215
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,378,433
<INCOME-PRETAX> (8,311,205)
<INCOME-TAX> 0
<INCOME-CONTINUING> (8,311,205)
<DISCONTINUED> 0
<EXTRAORDINARY> (194,967)
<CHANGES> 0
<NET-INCOME> (8,506,172)
<EPS-BASIC> (0.16)
<EPS-DILUTED> (0.16)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-1-1998
<PERIOD-END> SEP-30-1998
<CASH> 1,514,858
<SECURITIES> 0
<RECEIVABLES> 615,973
<ALLOWANCES> 13,300
<INVENTORY> 136,479
<CURRENT-ASSETS> 2,511,976
<PP&E> 11,302,237
<DEPRECIATION> 1,254,621
<TOTAL-ASSETS> 53,808,947
<CURRENT-LIABILITIES> 15,570,541
<BONDS> 0
821,234
36
<COMMON> 35,915
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 53,808,947
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<TOTAL-REVENUES> 2,140,614
<CGS> 704,938
<TOTAL-COSTS> 6,744,356
<OTHER-EXPENSES> 1,465,252
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,212,795
<INCOME-PRETAX> (6,068,994)
<INCOME-TAX> 0
<INCOME-CONTINUING> (6,068,994)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,068,994)
<EPS-BASIC> (0.16)
<EPS-DILUTED> (0.16)
</TABLE>
