U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999
or
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from______________to_______________
Commission File Number: 0-20999
COLORADO 84-1058165
- ------------------------------- --------------------
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2875 EAST PATRICK LANE SUITE G, LAS VEGAS, NEVADA 89120
-------------------------------------------------------
(Address of principal executive offices)
(702) 740-5633
---------------------------
(Issuer's telephone number)
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports to be filed by Section 13 or
15(d) of the Exchange Act during the past 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [ X ] No [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required by
Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
AS OF AUGUST 7, 1999 ISSUER HAD 39,893,024 SHARES OF COMMON STOCK, $.001 PAR
VALUE, OUTSTANDING.
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE): Yes [ ] No [X]
<PAGE>
<TABLE>
INDEX
<S> <C>
PART I - FINANCIAL INFORMATION PAGE
ITEM 1. INTERIM FINANCIAL STATEMENTS - Unaudited
Consolidated Balance Sheets as of June 30, 1999 and December 31, 1998 3
Consolidated Statements of Operations for the six months ended June 30, 1999 and 1998 4
Consolidated Statements of Operations for the three months ended June 30, 1999 and 1998 5
Consolidated Statement of Redeemable Preferred Stock and Shareholders' Equity for the
six months ended June 30, 1999 6
Consolidated Statements of Cash Flows for six months ended June 30, 1999 and 1998 7
Condensed Notes to Interim Consolidated Financial Statements 9-16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND PLAN OF OPERATIONS 17-22
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 23-25
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 26
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 26
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS 26
ITEM 5. OTHER INFORMATION 26
ITEM 6. EXHIBITS AND CURRENT REPORTS ON FORM 8-K 27-31
SIGNATURES 32
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2
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<TABLE>
CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
June 30, 1999 and December 31, 1998
June 30, December 31,
1999 1998
(Unaudited)
------------- -------------
ASSETS
<S> <C> <C>
Current assets:
Cash $ 1,227,075 $ 578,677
Accounts receivable, less allowance for doubtful accounts of $42,201 and $13,000 921,944 582,817
Other receivables, less allowance for doubtful accounts of $133,639 and $133,639 121,001 136,288
Inventory 228,606 169,520
Deposits and prepaids 217,642 134,228
------------- -------------
Total current 2,716,268 1,601,530
Property and equipment, net 14,457,714 12,681,753
Intangible assets, net 40,157,352 41,118,012
Other non-current assets, net 1,031,214 119,166
------------- -------------
Total assets $ 58,362,548 $ 55,520,461
============= ==============
LIABILITIES, REDEEMABLE PREFERRED STOCK
AND SHAREHOLDERS' EQUITY
Current
liabilities:
Current maturities of long-term debt $ 5,677,183 $ 8,255,174
Accounts payable and accrued liabilities 5,450,410 6,807,158
License option commission payable - current 1,362,021 3,412,000
Unearned revenue 780,400 506,056
Other current liabilities 711,040 707,039
------------- -------------
Total current liabilities 13,981,054 19,687,427
Long-term debt 19,489,406 8,152,589
License option commission payable - non-current 1,186,743 -
------------- -------------
Total liabilities 34,657,203 27,840,016
Minority interests 611,836 533,690
Commitments and contingencies Redeemable preferred stock:
Series C, 4% cumulative, 10,119,614 shares issued and outstanding 1,224,244 974,995
Shareholders' equity:
Preferred stock, $.001 par value, authorized 40,000,000 shares:
Series B 219,000 shares issued and 263 and 21,218 shares - 21
Common stock, $.001 par value, authorized 100,000,000 shares,
39,368,024 and 36,504,324 shares issued and outstanding 39,368 36,504
Additional paid-in capital 68,129,927 66,856,832
Accumulated deficit (46,300,030) (40,721,597)
------------- -------------
Total shareholders' equity 21,869,265 26,171,760
------------- -------------
Total liabilities, minority interests, redeemable preferred
stock and shareholders' equity $ 58,362,548 $ 55,520,461
============= =============
See accompanying condensed notes to unaudited interim consolidated financial statements
</TABLE>
4
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<TABLE>
CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
Unaudited Consolidated Statements of Operations
For the six months ended June 30, 1999 and 1998
June 30, June 30,
1999 1998
Restated
------------- -------------
<S> <C> <C>
Revenues:
Service revenue $ 2,250,032 $ 869,359
Equipment sales and maintenance 535,109 378,263
------------- -------------
2,785,141 1,247,622
------------- -------------
Operating expenses:
Cost of service revenue 613,484 187,869
Cost of equipment sales and maintenance 321,642 213,841
General and administrative 4,765,950 3,048,300
Depreciation and amortization 940,190 473,372
------------- -------------
6,641,266 3,923,382
------------- -------------
Loss from operations (3,856,125) (2,675,760)
------------- -------------
Other (expense):
Minority interest in earnings (118,784) (34,597)
Interest expense, net (1,408,557) (813,185)
Standstill agreement expense - (182,914)
------------- -------------
(1,527,341) (1,030,696)
------------- -------------
Net loss before extraordinary item
(5,383,466) (3,706,456)
Extraordinary loss on early extinguishment of debt
(194,967) -
------------- -------------
Net loss $ (5,578,433) $ (3,706,456)
Series B preferred stock dividend
(17,578) (56,486)
Series C redeemable preferred stock dividend and accretion
(249,249) (68,929)
------------- -------------
Loss applicable to common shareholders $ (5,845,260) $ (3,831,871)
============= =============
Per share of Common Stock:
Net loss per share before extraordinary item (0.11) (0.12)
Extraordinary loss per share on early extinguishment
of debt (0.00) -
------------- -------------
Net loss per share $ (0.11) $ (0.12)
============= =============
Series B preferred stock dividend per share (0.00) (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 $ (0.11) $ (0.12)
============= =============
Basic and diluted weighted average shares outstanding 52,798,790 32,165,900
============= =============
See accompanying condensed notes to unaudited interim consolidated financial statements
</TABLE>
5
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<TABLE>
CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
Unaudited Consolidated Statements of
Operations For the three months ended
June 30, 1999 and 1998
June 30, June 30,
1999 1998
Restated
------------- -------------
<S> <C> <C>
Revenues:
Service revenue $ 1,221,681 $ 497,721
Equipment sales and maintenance
301,146 233,749
------------- -------------
1,522,827 731,470
------------- -------------
Operating expenses:
Cost of service revenue 329,988 104,734
Cost of equipment sales and maintenance 184,905 114,043
General and administrative 2,451,792 1,762,650
Depreciation and amortization 496,191 279,238
------------- -------------
3,462,876 2,260,665
------------- -------------
Loss from operations (1,940,049) (1,529,195)
------------- -------------
Other (expense):
Minority interest in earnings (65,824) (25,300)
Interest expense, net (803,514) (352,815)
------------- -------------
(869,338) (378,115)
------------- -------------
Net loss (2,809,387) (1,907,310)
Series B preferred stock dividend - (45,754)
Series C redeemable preferred stock dividend and accretion (169,376) (68,929)
------------- -------------
Loss applicable to common shareholders $ (2,978,763) $ (2,021,993)
============= =============
Per share of Common Stock:
Net loss per share (0.06) (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 $ (0.06) $ (0.05)
============= =============
Basic and diluted weighted average shares outstanding 54,098,532 41,871,315
============= =============
See accompanying condensed notes to unaudited interim consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
Unaudited Consolidated Statements of Redeemable Preferred Stock and Shareholders' Equity
For the six months ended June 30, 1999
Series C Redeemable Series B Preferred
Preferred Stock Stock
Common Stock Additional Total
Outstanding Outstanding Paid-In Accumulated Shareholders'
Shares Amount Shares Amount Shares Amount Capital Deficit Equity
---------- ---------- --------- ------ ---------- ------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998 10,119,614 $ 974,995 21,218 21 36,504,324 $36,504 $66,856,832 $(40,721,597) $26,171,760
Issuance of Common Stock:
Series B preferred stock conversions - - (20,955) (21) 915,932 916 (895) - -
Series B preferred stock dividends - - - - 76,672 77 (77) - -
Payment of debt - - - - 1,871,096 1,871 914,966 - 916,837
Discount on long-term debt - - - - - - 608,350 - 608,350
Series C redeemable preferred stock
dividends and accretion - 249,249 - - - - (249,249) - (249,249)
Net loss - - - - - - - (5,578,433) (5,578,433)
---------- ---------- --------- ------ ---------- ------- ----------- ------------- ------------
Balance at June 30, 1999 10,119,614 $1,244,244 263 $ - 39,368,024 $39,368 $68,129,927 $(46,300,030) $21,869,265
========== ========== ========= ====== ========== ======= =========== ============= ============
See accompanying condensed notes to unaudited interim consolidated financial statements
</TABLE>
7
<PAGE>
<TABLE>
CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
Unaudited Consolidated Statements of
Cash Flows For the six months ended
June 30, 1999 and 1998
June 30, June 30,
1999 1998
Restated
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (5,578,433) $ (3,706,456)
Adjustments to reconcile net loss to net cash used in
operating activities:
Minority interest 118,784 34,597
Depreciation and amortization 940,190 473,372
Standstill agreement - 182,914
Extinguishment of debt 94,847 -
Amortization of debt discount 851,076 539,466
Amortization of debt issuance costs 67,688 -
Options issued for services - 15,040
Change in operating assets and liabilities:
(Increase) in accounts receivable
and other receivables (323,838) (125,517)
(Increase) in inventory (59,086) (25,246)
(Increase) in deposits and prepaids (83,414) (116,281)
Increase in unearned revenues 274,344 186,802
Increase (decrease) in accounts payable and
accrued liabilities (1,356,747) 918,415
Increase in other current liabilities 4,000 822,278
------------- -------------
Net cash used in operating activities (5,050,589) (800,616)
------------- -------------
Cash flows used in investing activities:
Purchase of license options (114,329) (156,409)
Purchases of property and equipment (2,504,400) (3,073,794)
------------- -------------
Net cash used in investing activities (2,618,729) (3,230,203)
------------- -------------
Cash flows from financing activities:
Proceeds from issuance of securities - 7,500,000
(Increase) in debt issuance costs (1,074,583) (144,852)
(Increase) in equity issuance costs - (705,000)
Payments of minority interest (40,638) -
Payments of long-term debt (4,067,063) (686,284)
Proceeds from issuance of long-term debt 13,500,000 1,613,020
------------- -------------
Net cash provided by financing activities 8,317,716 7,576,884
------------- -------------
Net increase in cash 648,398 3,546,065
Cash at beginning of period 578,677 959,390
------------- -------------
Cash at end of period $ 1,227,075 $ 4,505,455
============= =============
See Note 9 for supplemental disclosure on non-cash investing and financing activities
See accompanying condensed notes to unaudited interim consolidated financial statements
</TABLE>
8
<PAGE>
CHADMOORE WIRELESS GROUP, INC. AND SUBSIDIARIES
Condensed Notes to Unaudited Interim Consolidated Financial Statements
June 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,
none of which had any effect on net loss or basic and diluted loss per share.
These interim financial statements should be read in conjunction with the
financial statements and notes thereto contained in the Company's Annual Report
on Form 10-KSB for the year ended December 31, 1998 (the "1998 Form 10-KSB").
Operating results for the interim periods are not necessarily indicative of
results for an entire year.
DESCRIPTION OF BUSINESS
The Company is one of the largest holders of frequencies in the United States in
the 800 megahertz band for commercial specialized mobile radio ("SMR") service.
The Company's operating territory covers approximately 55 million people in 180
markets, primarily in secondary and tertiary cities throughout the United
States. Also known as dispatch, one-to-many, or push-to-talk, Chadmoore's
commercial SMR service provides reliable, real-time voice communications for
companies with mobile workforces that have a need to frequently communicate with
their entire fleet or subgroups of their fleet.
CONCENTRATION OF RISK
The Company is 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.
PRINCIPLES OF CONSOLIDATION
The interim consolidated financial statements include the financial statements
of all majority owned companies and joint ventures. All significant
inter-company balances and transactions have been eliminated in consolidation.
Minority interest represents the minority partners' proportionate share in the
venturer's equity or equity in income (loss) in the joint ventures.
USE OF ESTIMATES
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
REVENUE RECOGNITION
The Company recognizes revenue from radio dispatch and telephone interconnect
services based on monthly access charges per radio and on air time charges as
used. Revenue is also recognized from equipment maintenance upon acceptance by
the customer of the work completed as well as from the sale of equipment when
delivered.
9
<PAGE>
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivatives and
Hedging Activities," which establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts (collectively referred to as derivatives), and for hedging
activities. SFAS No. 133 is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. The FASB recently adopted an amendment to SFAS
No. 133, which delays the effective date for one year. The Company currently
does not engage in, nor does it expect to engage in, derivative or hedging
activities, and therefore, the Company anticipates there will be no impact to
its consolidated financial statements.
(2) MANAGEMENT PLANS
The Company's auditors' opinion for the year ended December 31, 1998 includes an
explanatory paragraph which expresses substantial doubt about the Company's
ability to continue as a going concern. The accompanying unaudited 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 $11,264,786 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
and ongoing operating expenses. To meet such funding requirements, the Company
anticipates additional loans from GATX Capital Corporation ("GATX") or other
participants in the Senior Secured Loan Agreement with GATX ("GATX Facility"),
but there can be no assurance that the Company will obtain these loans. On
August 2, 1999 GATX elected to increase the aggregate principal amount of the
GATX Facility to $27 million. On August 4, 1999 the Company borrowed an
additional $7.5 million under the GATX Facility, leaving $6 million available
for future borrowings at the sole and absolute discretion of GATX, subject to
substantially the same terms as the original $13.5 million.
The Company believes that it should have adequate resources to continue
establishing its SMR business. However, while the Company believes that it has
developed adequate contingency plans, the failure to consummate the
aforementioned potential financing as currently contemplated, 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 pursuing similar
financing arrangements with other institutional investors and lenders, selling
additional equity instruments, selling selected channels, and focusing solely on
the Company's current 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 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.
10
<PAGE>
(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 Company's board of directors' formal approval and 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 the Agreement is
formally approved by the Company's board of directors' and 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 three months and six months
ended June 30, 1999 the revenues and expenses associated with this agreement
were immaterial to the Company's unaudited interim consolidated financial
statements.
(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:
<TABLE>
June 30, December 31,
1999 1998
(Unaudited)
------------------ ------------------
<S> <C> <C>
FCC licenses $ 36,885,110 $ 37,669,351
Rights to acquire FCC licenses 4,020,467 3,985,133
------------------ ------------------
40,905,577 41,654,484
Less accumulated amortization
(748,225) (536,472)
------------------ ------------------
$ 40,157,352 $ 41,118,012
================== ==================
</TABLE>
11
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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:
June 30, December 31,
1999 1998
(Unaudited)
------------ ------------
Land $ 102,500 $ 102,500
Buildings and improvements 401,032 395,659
SMR systems and equipment 15,574,773 12,862,618
SMR systems in process 297,508 554,200
Furniture and office equipment 350,245 310,886
---------- ----------
16,726,058 14,225,863
Less accumulated depreciation and amortization (2,268,344) (1,544,110)
------------ ------------
$14,457,714 $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. Pursuant to the GATX Facility, GATX, at its sole and absolute
discretion, had the option to make available up to $13.5 million in additional
funds. On August 2, 1999 GATX elected to increase the aggregate principal amount
of the GATX Facility to $27 million. On August 4, 1999 the Company borrowed an
additional $7.5 million under the GATX Facility, leaving $6 million available
for future borrowings at the sole and absolute discretion of GATX, subject to
substantially the same terms as the original $13.5 million. Loans will be made
at an interest rate fixed at the time of the funding based on five-year US
Treasury notes plus 5.5% and payable over five-years following a one year
interest only period. Warrants to purchase up to 1,822,500 shares of the
Company's Common Stock at an exercise price of $0.39 per share were also issued
to the Lender ("GATX Warrants"). The loan is secured by substantially all the
assets of the Company.
12
<PAGE>
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.
(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 six months
ended June 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) NON-CASH EVENTS
SUPPLEMENTAL DISCLOSURE FOR NON-CASH INVESTING AND FINANCING ACTIVITIES
During the six months ended June 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.
During the six months ended June 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 $5,013,797 of notes
payable, net of discount, to exercise certain license options. Conversion of
173,782 shares of Series B Preferred into 3,618,107 shares of Common Stock.
Issuance of 69,330 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.
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SUPPLEMENTAL DISCLOSURE OF CASH PAID FOR TAXES AND INTEREST
During the six months ended June 30, 1999 and 1998 the Company paid no cash for
taxes. During the six months ended June 30, 1999 and 1998 the Company paid cash
for interest of $173,923 and $96,945, respectively.
(10) RELATED PARTY TRANSACTIONS
During the six months ended June 30, 1999 and 1998 the Company paid $910,239 and
$612,316, 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 six months ended June 30, 1999 the Company paid Recovery
$52,083 in advisory fees. Jeffrey A. Lipkin and Joseph J. Finn-Egan, managing
partners of Recovery, are Directors of the Company.
(11) 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, 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 4,000 SMR stations. At that time, licensees of most of the stations
included in the waiver request ("Receivership Stations") were subject to an
eight-month construction period. On May 24, 1995, the FCC granted the request
for extension. The FCC reasoned that the Receivership Stations were subject to
regulation as commercial mobile radio services stations, but had not been
granted the extended construction period to be awarded to all CMRS licensees.
Thus, in an effort to be consistent in its treatment of similarly situated
licensees, the FCC granted an additional four months in which to construct and
place the Receivership Stations in operation (the "Goodman/Chan Waiver"). The
Goodman/Chan Waiver became effective upon publication in the Federal Register on
August 27, 1998. Moreover, the FCC released a list on October 9, 1998 which
purported to clarify the status of relief eligibility for licenses subject to
the August 27, 1998 decision. Subsequently the FCC also released a purported
final list of the Receivership Stations.
On the basis of a previous request to the Receiver and a separate previous
request for assistance to the FCC's Licensing Division by the Company, the FCC
and the Receiver examined and marked a list provided by the Company. The FCC's
and the Receiver's markups indicated those stations held by the Company or
subject to management and option agreements, which the FCC and/or the Receiver
considered to be, at that time, Receivership Stations and/or stations considered
"similarly situated" and thus eligible for relief. From the communication from
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the Receiver, the Company believes that approximately 800 of the licenses that
it owns or manages are Receivership Stations or otherwise entitled to relief.
For its own licenses and under the direction of each licensee for managed
stations, the Company proceeded with timely construction of those stations which
the Company reasonably believes to be Receivership Stations or otherwise
entitled to relief. The Company received relief on approximately 150 licenses
under the Goodman/Chan proceedings and from the official communication from the
FCC, the Company believes that approximately 650 licenses should be eligible for
relief as "similarly situated". Initial review of the Commission's Goodman/Chan
Order indicated a potentially favorable outcome for the Company as it pointed to
a grant of relief for a significant number of the Company's owned and/or managed
licenses which were subject to the outcome of the Goodman/Chan decision.
However, on October 9, 1998 a release from the Offices of the Commercial
Wireless Division of the FCC's Wireless Telecommunication Bureau announced that
because of a technicality relating to the actual filing dates of the
construction deadline waiver requests by certain of the subject licensees, some
licenses which the FCC staff earlier had stated would be eligible for
construction extension waivers due to the similarity of circumstances between
those licensees and the Goodman/Chan licensees, would not actually be granted
final construction waivers. The Commission has subsequently begun a process of
deleting certain of the Company's licenses in this category from its official
licensing database. Prior to the release of the October 9, 1998, Public Notice,
the Company constructed and placed into operation certain licenses from this
category based on information received from the FCC and the Receiver. The
Company is in the process of determining which licenses have in fact been
deleted; however, due to the disparity between the FCC's lists and its
subsequent treatment of such lists as well as continuing modification of the
FCC's license database, the Company is uncertain as to which, if any, will
remain deleted under the FCC's current procedures.
In response, on November 9, 1998, Chadmoore filed a Petition for Reconsideration
at the FCC seeking reversal of the action announced in the Commercial Wireless
Division 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, 1999 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; 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 the Company's pending petition 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 possible that the Company's owned
and/or managed licenses which are encompassed within the denial of relief
pursuant to the October 9, 1998 Public Notice, could be permanently canceled by
the FCC for failure to comply with its construction requirements. If these
licenses are in fact cancelled by the FCC, it would result in the loss of
licenses with a book value of approximately $6,200,000 and the loss of certain
subscribers to the Company's services, which while not considered probable,
could result in a material adverse effect on the Company's financial condition,
results of operations and liquidity and could result in possible fines and/or
forfeitures levied by the FCC. The Company has prepared these estimates based on
the best information available at the time of this filing. Once again, there has
been no list published by the FCC in this matter which the Company feels it may
rely upon. Therefore, the Company has commenced the above-described litigation
to clarify this matter. Based on the preceding, no provision has been made in
the accompanying unaudited 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 June 30, 1999, the Company had
purchased approximately $6.25 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 six months
ended June 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. See the
Company's 1998 Form 10-KSB.
RESULTS OF OPERATIONS
A. SIX MONTHS ENDED JUNE 30, 1999 VERSUS SIX MONTHS ENDED JUNE 30, 1998
Total revenues for the six months ended June 30, 1999 increased $1,537,519 or
123.2%, to $2,785,141 from $1,247,622 for the six months ended June 30, 1998,
reflecting increases of $1,380,673 and $156,846, or 158.8% and 41.5%, 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 80.8% for the six months ended June 30, 1999 from 69.7% for the six months
ended June 30, 1998. In such business model, the local dealer rather than the
Company sells, installs, and services the radio equipment and records the
revenues and costs associated therewith while the Company receives the recurring
revenue associated with the sale of airtime (service revenue). The Company
anticipates that the proportion of total revenues from service revenue will
continue to be the majority of the Compsny's revenue in future periods. However,
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. As of June 30, 1999 the
Company has yet to recognize any material revenue from these opportunities.
The $1,380,673 or 158.8% increase in service revenue, from $869,359 for the six
months ended June 30, 1998 to $2,250,032 for the six months ended June 30, 1999,
was driven by an increase of approximately 19,100 in the number of subscribers
utilizing the Company's SMR systems, an increase of 124.0%, from approximately
15,400 at June 30, 1998 to approximately 34,500 at June 30, 1999. The increase
in subscribers was primarily due to full-scale implementation of service by the
Company in new markets during such period as well as continued growth in
existing markets. Average pricing per subscriber unit remained comparable during
both periods.
The increase in equipment sales and maintenance revenue of $156,846 or 41.5%,
from $378,263 for the six months ended June 30, 1998 to $535,109 for the six
months ended June 30, 1999, was attributable to the increased availability of
capital for the six months ended June 30, 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.
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Cost of service revenue increased by $425,615, or 226.5%, from $187,869 for the
six months ended June 30, 1998 to $613,484 for the six months ended June 30,
1999. This increase was primarily due to SMR system site expenses associated
with additional markets being commercialized. Gross margin on service revenue
decreased from 78.4% for the six months ended June 30, 1998 to 72.7% for the six
months ended June 30, 1999. This is attributed to an increased number of markets
that have not yet reached the maturity stage and therefor have yet to generate
significant operating margins.
Cost of equipment sales and maintenance revenue increased by $107,801, or 50.4%,
from $213,841 for the six months ended June 30, 1998 to $321,642 for the six
months ended June 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 43.5% for the six months
ended June 30, 1998 to 39.9% for the six months ended June 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 $1,717,650, or 56.3%, from
$3,048,300 for the six months ended June 30, 1998 to $4,765,950 for the six
months ended June 30, 1999. Salaries, wages, and benefits expense (a component
of general and administrative expenses) increased by $629,659 or 48.8%, from
$1,289,111 for the six months ended June 30, 1998 to $1,918,770 for the six
months ended June 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 68.9% for the six months ended June 30, 1999
compared with 103.3% for the six months ended June 30, 1998. Remaining general
and administrative expense increased 61.8% or $1,087,991, from $1,759,189 for
the six months ended June 30, 1998 to $2,847,180 for the six months ended June
30, 1999. The increase in the remaining general and administrative expense was
primarily due to increases of approximately $142,000 in advertising and
marketing, which is line with the revenue growth, $175,000 in expense associated
with non-commercial markets, $360,000 in professional fees associated with
potential acquisitions, securing of additional funding and consulting fees,
$80,000 in legal expenses associated with litigation, and $258,000 in customer
acquisition costs paid to dealers and partners in the Company's indirect
distribution channels, which is also in line with the revenue growth.
Depreciation and amortization expense increased $466,818 or 98.6%, from $473,372
for the six months ended June 30, 1998 to $940,190 for the six months ended June
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 $2,717,884 or 69.3%,
from $3,923,382 for the six months ended June 30, 1998 to $6,641,266 for the six
months ended June 30, 1999, and the Company's loss from operations increased by
$1,180,365 or 44.1%, from $2,675,760 to $3,856,125, for such respective periods.
Interest expense, net of interest income, increased 595,372, or 73.2%, from
$813,185 for the six months ended June 30, 1998 to $1,408,557 for the six months
ended June 30, 1999, due to higher debt balances associated with notes payable
issued to exercise license options and new loan facilities.
Based on the foregoing, the Company's net loss before extraordinary item
increased $1,677,010 or 45.2%, from $3,706,456 for the six months ended June 30,
1998 to $5,383,466 for the six months ended June 30, 1999.
During the six months ended June 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).
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The Company's net loss increased $1,871,977 or 50.5%, from $3,706,456 for the
six months ended June 30, 1998 to $5,578,433 for the six months ended June 30,
1999. This increase was primarily the result of an increase of $1,180,365 in
loss from operations and an increase in other expenses of $496,645.
B. THREE MONTHS ENDED JUNE 30, 1999 VERSUS THE THREE MONTHS ENDED JUNE 30, 1998
Total revenues for the three months ended June 30, 1999 increased $791,357 or
108.2%, to $1,522,827 from $731,470 for the three months ended June 30, 1998,
reflecting increases of $723,960 and $67,397, or 145.5% and 28.8%, 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 SMR service through independent dealers, the proportion of total
revenues generated by service revenue increased to 80.2% for the three months
ended June 30, 1999 from 68.0% for the three months ended June 30, 1998.
The $723,960 or 145.5% increase in service revenue, from $497,721 for the three
months ended June 30, 1998 to $1,221,681 for the three months ended June 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, during such period as well as continued growth in
existing markets.
The increase in equipment sales and maintenance revenue of $67,397 or 28.8%,
from $233,749 for the three months ended June 30, 1998 to $301,146 for the three
months ended June 30, 1999, was attributable to the increased availability of
capital in the three months ended June 30, 1999 as compared to the same period
in 1998.
Cost of service revenue increased by $225,254, or 215.1%, from $104,734 for the
three months ended June 30, 1998 to $329,988 for the three months ended June 30,
1999. This increase was primarily due to SMR system site expenses associated
with additional markets being commercialized. Gross margin on service revenue
decreased from 79.0% for the three months ended June 30, 1998 to 73.0% for the
three months ended June 30, 1999. This is attributed to an increased number of
markets that have not yet reached the maturity stage and therefor have yet to
generate significant operating margins.
Cost of equipment sales and maintenance revenue increased by $70,862, or 62.1%,
from $114,043 for the three months ended June 30, 1998 to $184,905 for the three
months ended June 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 51.2% for the three
months ended June 30, 1998 to 38.6% for the three months ended June 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 $689,142, or 39.1%, from
$1,762,650 for the three months ended June 30, 1998 to $2,451,792 for the three
months ended June 30, 1999. Salaries, wages, and benefits expense (a component
of general and administrative expenses) increased by $250,510 or 33.2%, from
$755,432 for the three months ended June 30, 1998 to $1,005,942 for the three
months ended June 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 66.1% for the three months ended June 30, 1999
compared with 103.3% for the three months ended June 30, 1998. Remaining general
and administrative expense increased 43.6% or $438,632, from $1,007,218 for the
three months ended June 30, 1998 to $1,445,850 for the three months ended June
30, 1999. The increase in the remaining general and administrative expense was
primarily due to increases of approximately $170,000 in professional fees
associated with various consulting fees, $70,000 in expense associated with
non-commercial markets and $140,000 in customer acquisition costs paid to
dealers and partners in the Company's indirect distribution channels which is in
line with the revenue growth.
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Depreciation and amortization expense increased $216,953 or 77.7%, from $279,238
for the three months ended June 30, 1998 to $496,191 for the three months ended
June 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 $1,202,211 or 53.2%,
from $2,260,665 for the three months ended June 30, 1998 to $3,462,876 for the
three months ended June 30, 1999, and the Company's loss from operations
increased by $410,854 or 26.9%, from $1,529,195 to $1,940,049, for such
respective periods.
Interest expense, net of interest income, increased 450,699, or 127.7%, from
$352,815 for the three months ended June 30, 1998 to $803,514 for the three
months ended June 30, 1999, due to higher debt balances associated with notes
payable issued to exercise license options and new loan facilities.
Based on the foregoing, the Company's net loss increased $902,077 or 47.3%, from
$1,907,310 for the three months ended June 30, 1998 to $2,809,387 for the three
months ended June 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 and an additional $7.5 million was funded in August 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 is in the
process of obtaining additional funding including the possible funding of an
additional $6 million under the GATX Facility and possible vendor financing
arrangements currently being evaluated but not yet consummated. There can be no
assurances that the Company will be able to successfully obtain the additional
financings currently contemplated, or will be otherwise able to obtain
sufficient financing to consummate the Company's business plan.
The Company anticipates, based on its current plans and assumptions relating to
its growth and operations, that the proceeds from the completed financings and
planned revenues will not be sufficient to satisfy the Company's contemplated
cash requirements for the next 12 months and that the Company will be required
to raise additional funds. In addition, in the event that the Company's plans
change or its assumptions prove to be inaccurate (due to unanticipated expenses,
delays, problems, or otherwise), the Company may be required to seek additional
funding sooner than anticipated. The Company believes it has developed adequate
contingency plans, however, the failure to consummate the aforementioned
potential financing with GATX as currently contemplated, or at all, could have a
material adverse effect on the Company, including the risk of liquidation of
assets or bankruptcy. Such contingency plans include pursuing similar financing
arrangements with other institutional investors and lenders, selling selected
channels, and focusing solely on the 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.
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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 six months ended June 30, 1999 and 1998, the Company used net cash in
operating activities of $5,050,589 and $800,616, respectively. The major
non-operations use of cash for the six months ended June 30, 1999 and 1998 was
the acquisition of communications assets for expansion and capacity upgrades.
The major non-operations source of cash for the six months ended June 30, 1999
and 1998 was proceeds from the issuance of long-term debt and equity.
YEAR 2000 ISSUES
The Year 2000 problem arose because many existing computer programs use only the
last two digits to refer to a year. Therefore, these computer programs do not
properly recognize a year that begins with "20" instead of the familiar "19". If
not corrected, many computer applications could fail or create erroneous
results.
The Company has addressed its state of readiness for Year 2000 and Management
believes that the Company will be compliant by the end of 1999. The Company has
evaluated and is currently upgrading its internal hardware and software that
enables the Company to load subscribers, capture call records, generate customer
bills and facilitate internal communications. All internal hardware and software
is expected to be fully tested by the end of the third quarter of 1999. The
Company has contacted the necessary hardware and software vendors about its
plan, and Management believes that all the necessary Year 2000 compliant
hardware and software is currently available and can be implemented quickly. At
the current time Management estimates the cost of internal evaluation and
upgrades not to exceed $100,000.
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
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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 June 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.
22
<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, 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 4,000 SMR stations. At that time, licensees of most of the stations
included in the waiver request ("Receivership Stations") were subject to an
eight-month construction period. On May 24, 1995, the FCC granted the request
for extension. The FCC reasoned that the Receivership Stations were subject to
regulation as commercial mobile radio services stations, but had not been
granted the extended construction period to be awarded to all CMRS licensees.
Thus, in an effort to be consistent in its treatment of similarly situated
licensees, the FCC granted an additional four months in which to construct and
place the Receivership Stations in operation (the "Goodman/Chan Waiver"). The
Goodman/Chan Waiver became effective upon publication in the Federal Register on
August 27, 1998. Moreover, the FCC released a list on October 9, 1998 which
purported to clarify the status of relief eligibility for licenses subject to
the August 27, 1998 decision. Subsequently the FCC also released a purported
final list of the Receivership Stations.
On the basis of a previous request to the Receiver and a separate previous
request for assistance to the FCC's Licensing Division by the Company, the FCC
and the Receiver examined and marked a list provided by the Company. The FCC's
and the Receiver's markups indicated those stations held by the Company or
subject to management and option agreements, which the FCC and/or the Receiver
considered to be, at that time, Receivership Stations and/or stations considered
"similarly situated" and thus eligible for relief. From the communication from
the Receiver, the Company believes that approximately 800 of the licenses that
it owns or manages are Receivership Stations or otherwise entitled to relief.
For its own licenses and under the direction of each licensee for managed
stations, the Company proceeded with timely construction of those stations which
the Company reasonably believes to be Receivership Stations or otherwise
entitled to relief. The Company received relief on approximately 150 licenses
under the Goodman/Chan proceedings and from the official communication from the
FCC, the Company believes that approximately 650 licenses should be eligible for
relief as "similarly situated". Initial review of the Commission's Goodman/Chan
Order indicated a potentially favorable outcome for the Company as it pointed to
a grant of relief for a significant number of the Company's owned and/or managed
licenses which were subject to the outcome of the Goodman/Chan decision.
However, on October 9, 1998 a release from the Offices of the Commercial
Wireless Division of the FCC's Wireless Telecommunication Bureau announced that
because of a technicality relating to the actual filing dates of the
construction deadline waiver requests by certain of the subject licensees, some
licenses which the FCC staff earlier had stated would be eligible for
construction extension waivers due to the similarity of circumstances between
those licensees and the Goodman/Chan licensees, would not actually be granted
final construction waivers. The Commission has subsequently begun a process of
deleting certain of the Company's licenses in this category from its official
licensing database. Prior to the release of the October 9, 1998, Public Notice,
the Company constructed and placed into operation certain licenses from this
category based on information received from the FCC and the Receiver. The
Company is in the process of determining which licenses have in fact been
deleted; however, due to the disparity between the FCC's lists and its
subsequent treatment of such lists as well as continuing modification of the
FCC's license database, the Company is uncertain as to which, if any, will
remain deleted under the FCC's current procedures.
23
<PAGE>
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, 1999 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; 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 the Company's pending petition 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 possible that the Company's owned
and/or managed licenses which are encompassed within the denial of relief
pursuant to the October 9, 1998 Public Notice, could be permanently canceled by
the FCC for failure to comply with its construction requirements. If these
licenses are in fact cancelled by the FCC, it would result in the loss of
licenses with a book value of approximately $6,200,000 and the loss of certain
subscribers to the Company's services, which while not considered probable,
could result in a material adverse effect on the Company's financial condition,
results of operations and liquidity and could result in possible fines and/or
forfeitures levied by the FCC. The Company has prepared these estimates based on
the best information available at the time of this filing. Once again, there has
been no list published by the FCC in this matter which the Company feels it may
rely upon. Therefore, the Company has commenced the above-described litigation
to clarify this matter. Based on the preceding, no provision has been made in
the accompanying unaudited 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.
24
<PAGE>
Airnet, Inc. v. Chadmoore Wireless Group, Inc. Case No. 768473, Orange County
Superior Court On April 3, 1997, Airnet, Inc. ("Airnet") served a summons and
complaint on the Company, alleging claims related to a proposed merger between
Airnet and the Company that never materialized. In particular, Airnet has
alleged that a certain "letter of intent" obligated the parties to complete the
proposed merger. The Company denied this allegation.
On February 2, 1998, the Company filed a Cross-Complaint against Airnet as well
as three other named cross-defendants related to Airnet: Uninet, Inc.,
("Uninet") Anthony Schatzlein ("Schatzlein") and Dennis Houston ("Houston").
A non-binding mediation was conducted before a retired superior court judge on
August 21, 1998, and a confidential settlement was reached. The parties have
since executed a written Settlement Agreement settling all claims and cross
claims. Pursuant to the terms of the settlement, the Company has issued 525,000
shares of its Common Stock and the parties have executed mutual general
releases.
Chadmoore Communications, Inc. v. John Peacock Case No. CV-S-97-00587-HDM (RLH),
United States District Court for the District of Nevada
In September 1994, CCI entered into a two year consulting agreement (the
"Consulting Agreement") with John Peacock ("Peacock") to act as a 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.
On January 22, 1999, CCI reached a settlement in principle of the dispute. The
settlement was reduced to a comprehensive written settlement agreement which
became effective on March 5, 1999. Under the terms of the settlement, Peacock
will receive (1) certain rights with respect to a finder's preference pending
against a five-channel SMR station in Memphis, Tennessee (WNZR202); (2) certain
rights with respect to other finder's preference proceedings which are
determined by CCI in its sole discretion to be undesirable; and (3) 10% of the
independently determined value of the wide area license, if any, issued as a
result of a certain finder's preference proceeding filed by CCI. Under the terms
of the settlement, CCI will receive a right of first refusal with respect to
certain assets belonging to Peacock. In addition, the settlement contains mutual
general releases and covenants to dismiss pending proceedings. On March 5, 1999,
CCI and Peacock executed a Voluntary Dismissal With Prejudice of all claims
asserted in the District Court litigation. However, despite CCI's demand,
Peacock has refused to dismiss a finder's preference proceeding concerning
station WZC790 in Memphis, Tennessee, which is owned by a subsidiary of the
Company. The Company is presently evaluating its options with respect to
enforcement of the Agreement in this regard. For his part, Peacock is contending
that CCI is in breach of the Settlement Agreement because 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.
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.
25
<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.
26
<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)
27
<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)
28
<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)*
29
<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.
30
<PAGE>
(b) Current Reports on Form 8-K
None
31
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Chadmoore Wireless Group, Inc.
By: /s/ Richard C. Leto
----------------------------------
Richard C. Leto
Chief Financial and Accounting Officer
By: /s/ Robert W. Moore
----------------------------------
Robert W. Moore
President and Chief Executive Officer
By: /s/ Rick D. Rhodes
----------------------------------
Rick D. Rhodes
Chief Regulatory Officer
Date: August 13, 1999
32
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------- -----------
11 Computation of per share amounts (1)
27.1 Financial Data Schedule 1998 (1)
27.2 Financial Data Schedule 1997 (1)
(1) Filed herewith.
<TABLE>
(11) COMPUTATION OF PER SHARE AMOUNTS
Six months ended Three months ended
June 30 June 30
----------------------------------------------------------
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net loss $ (5,578,433) $ (3,706,456) $ (2,809,387) $ (1,907,310)
Series B preferred stock dividend (17,578) (56,486) - (45,754)
Series C redeemable preferred
stock dividend and accretion (249,249) (68,929) (169,376) (68,929)
------------- ------------- ------------- -------------
Loss applicable to common shareholders $ (5,845,260) $ (3,831,871) $ (2,978,763) $ (2,021,993)
============= ============= ============= =============
Basic and diluted weighted average shares outstanding 52,798,790 32,165,900 54,098,532 41,871,315
Common equivalent shares representing shares issuable upon exercise 17,319,599 30,589,119 17,319,599 30,589,119
of stock options
Add back of common equivalents shares due to antidilutive shares (17,319,599) (30,589,119) (17,319,599) (30,589,119)
------------- ------------- ------------- -------------
Dilutive adjusted weighted average shares 52,798,790 32,165,900 54,098,532 41,871,315
============= ============= ============= =============
Basic net loss per share (0.11) (0.12) (0.06) (0.05)
Diluted net loss per share (0.11) (0.12) (0.06) (0.05)
33
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-1-1999
<PERIOD-END> JUN-30-1999
<CASH> 1,227,075
<SECURITIES> 0
<RECEIVABLES> 1,042,945
<ALLOWANCES> 175,840
<INVENTORY> 228,606
<CURRENT-ASSETS> 2,716,268
<PP&E> 16,726,058
<DEPRECIATION> 2,268,344
<TOTAL-ASSETS> 58,362,548
<CURRENT-LIABILITIES> 13,981,054
<BONDS> 0
1,224,244
0
<COMMON> 39,368
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 58,362,548
<SALES> 2,785,141
<TOTAL-REVENUES> 2,785,141
<CGS> 935,126
<TOTAL-COSTS> 6,641,266
<OTHER-EXPENSES> 1,527,341
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,408,557
<INCOME-PRETAX> (5,383,466)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,383,466)
<DISCONTINUED> 0
<EXTRAORDINARY> (194,967)
<CHANGES> 0
<NET-INCOME> (5,578,433)
<EPS-BASIC> (0.11)
<EPS-DILUTED> (0.11)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-1-1998
<PERIOD-END> JUN-30-1998
<CASH> 4,505,455
<SECURITIES> 0
<RECEIVABLES> 531,828
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754,240
45
<COMMON> 35,592
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<EPS-BASIC> (0.12)
<EPS-DILUTED> (0.12)
</TABLE>
