<PAGE>
REGISTRATION NO. 333-33689
FILED PURSUANT TO RULE 424(b)(3)
ADVANCED RADIO TELECOM CORP.
SUPPLEMENT DATED NOVEMBER 18, 1997 TO
PROSPECTUS DATED AUGUST 19, 1997
RECENT FILING UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED:
Attached hereto is the information included in Part I of the Company's
Report on Form 10-Q for the quarterly period ended September 30, 1997 filed with
the Securities and Exchange Commission on November 14, 1997.
<PAGE>
Part I - Financial Information
ADVANCED RADIO TELECOM CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------ ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 13,550,018 $ 1,974,407
Short-term investments 19,942,128
Pledged securities 18,209,163
Accounts receivable 265,188 1,819,593
Prepaid and other current assets 137,584 196,791
------------ ------------
Total current assets 52,104,081 3,990,791
Restricted cash 1,032,060 1,032,060
Pledged securities 25,621,436
Property and equipment, net of accumulated depreciation
and amortization of $2,629,214 and $917,921 28,450,264 19,303,849
FCC licenses, net of accumulated amortization of
$2,098,921 and $106,011 131,001,350 4,330,906
Deferred financing costs, net 4,361,204 3,255,688
Other assets 506,939 4,735,407
------------ ------------
Total assets $243,077,334 $ 36,648,701
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 426,527 $ 9,425,834
Accrued compensation and benefits 2,295,213 1,350,894
Accrued interest payable 2,349,555 17,159
Other accrued liabilities 939,815 927,648
Current portion of long-term debt 1,660,869 1,893,161
------------ ------------
Total current liabilities 7,671,979 13,614,696
Long-term debt, net of current portion 106,734,326 3,084,085
Deferred income tax liability 29,776,142
------------ ------------
Total liabilities 144,182,447 16,698,781
------------ ------------
Commitments and contingencies
Stockholders' equity:
Common stock, $.001 par value, 100,000,000
shares authorized, 19,834,580 and 13,559,420
shares issued and outstanding 19,834 13,559
Additional paid-in capital 171,069,464 53,976,721
Accumulated deficit (72,194,411) (34,040,360)
------------ ------------
Total stockholders' equity 98,894,887 19,949,920
------------ ------------
Total liabilities and stockholders' equity $243,077,334 $ 36,648,701
============ ============
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
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<PAGE>
ADVANCED RADIO TELECOM CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Service revenue $ 190,300 $ 63,493 $ 518,523 $ 125,013
Equipment sales and construction
revenue 356,970
------------- ----------- ------------ ------------
Total revenue 190,300 63,493 875,493 125,013
------------- ----------- ------------ ------------
Costs and expenses:
Technical and network operations 1,135,368 986,395 3,757,246 2,294,173
Cost of equipment sales and
construction 214,399
Sales and marketing 4,091,949 1,399,199 10,333,746 3,892,481
General and administrative 2,397,031 1,254,660 8,780,463 10,560,398
Research and development 84,562 145,000 213,277 666,406
Depreciation and amortization 2,039,959 226,087 4,401,234 504,462
------------- ----------- ------------ ------------
Total operating costs and expenses 9,748,869 4,011,341 27,700,365 17,917,920
------------- ----------- ------------ ------------
Loss from operations (9,558,569) (3,947,848) (26,824,872) (17,792,907)
------------- ----------- ------------ ------------
Interest expense 5,318,927 778,249 13,935,503 1,396,943
Financing commitment expense 2,699,881
Interest income (1,286,608) (19,584) (3,846,182) (59,473)
Other 1,248,000
------------- ----------- ------------ ------------
Loss before income taxes (13,590,888) (4,706,513) (39,614,074) (20,378,377)
------------- ----------- ------------ ------------
Deferred income tax benefit 595,226 1,460,023
------------- ----------- ------------ ------------
Net loss ($12,995,662) $(4,706,513) $(38,154,051) $(20,378,377)
============= =========== ============ ============
Pro forma net loss per share of
common stock $(.50) $(2.15)
=========== ============
Pro forma weighted average shares
of common stock 9,470,545 9,470,545
=========== ============
Net loss per share of common stock $(.66) $(.71) $(2.07) $(3.10)
============= =========== ============ ============
Weighted average shares of
common stock 19,818,850 6,586,958 18,437,896 6,580,627
============= =========== ============ ============
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
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<PAGE>
ADVANCED RADIO TELECOM CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)
for the nine months ended September 30, 1997
<TABLE>
<CAPTION>
Common Stock Additional
--------------------------- Paid-In Accumulated
Shares Par Value Capital Deficit Total
------ --------- ------- ------- -----
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996 13,559,420 $ 13,559 $ 53,976,721 $(34,040,360) $19,949,920
Common stock issued in connection
with the acquisition of the
CommcoCCC, Inc. licenses 6,000,000 6,000 87,744,000 87,750,000
Value ascribed to warrants issued
with Senior Notes 29,707,509 29,707,509
Warrant issuance costs (1,254,697) (1,254,697)
Accrued stock option compensation 449,313 449,313
Stock options exercised 275,160 275 446,618 446,893
Net loss (38,154,051) (38,154,051)
----------- ------------ ----------- ------------ -----------
Balance, September 30, 1997 19,834,580 $ 19,834 $171,069,464 $(72,194,411) $98,894,887
=========== ============ ============ ============ ===========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
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<PAGE>
ADVANCED RADIO TELECOM CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Nine months ended September 30,
---------------------------------
1997 1996
------ ------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(38,154,051) $(20,378,377)
Adjustments to reconcile net loss to net cash used
in operating activities:
Non-cash compensation expense 449,313 7,504,452
Non-cash marketing expense 1,053,000
Depreciation and amortization 4,401,234 504,462
Non-cash financing commitment expense 2,699,881
Write-off of deferred financing costs 1,248,000
Non-cash interest expense 1,309,648 632,994
Changes in assets and liabilities:
Accrued interest payable 2,332,396
Accounts receivable 1,554,405 (78,645)
Accrued interest on pledged securities
and short-term investments (2,268,903)
Accounts payable and accrued liabilities (1,297,340) 805,179
Deferred income taxes (1,460,023)
Deposits and other assets (39,545) (179,024)
Prepaid expenses and other current assets 59,207 (87,902)
------------ ------------
Net cash used in operating activities (30,413,778) (8,975,861)
------------ ------------
Cash flows from investing activities:
Additions to property and equipment (19,528,597) (4,241,470)
Additions to FCC licenses (5,409,177) (112,131)
Additions to short-term investments (39,066,051) (165,185)
Proceeds from sale of short-term investments 19,675,060
Investment in restricted cash (1,000,000)
Investment in pledged securities (51,778,066)
Proceeds from maturities of pledged securities 9,665,233
------------ ------------
Net cash used in investing activities (86,441,598) (5,518,786)
------------ ------------
Cash flows from financing activities:
Proceeds from issuance of Senior Notes and warrants 135,000,000
Proceeds from exercise of stock options 446,893
Proceeds from issuance of preferred stock 2,500,000
Proceeds from bridge financings 10,450,000
Proceeds from issuance of equipment financing note 2,445,000
Stock issuance costs (150,000)
Warrant issuance costs (1,254,697)
Principal payments on loan and long-term debt (1,570,190) (437,407)
Additions to deferred financing costs (4,191,019) (194,232)
------------ ------------
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Net cash provided by financing activities 128,430,987 14,613,361
------------ ------------
Net increase in cash 11,575,611 118,714
Cash, beginning of period 1,974,407 633,654
------------ ------------
Cash, end of period $ 13,550,018 $ 752,368
------------ ============
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
ADVANCED RADIO TELECOM CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. The Company and Basis of Presentation:
Advanced Radio Telecom Corp. (collectively with its subsidiaries "ART" or the
"Company") provides wireless broadband telecommunications services using point-
to-point microwave transmissions in the 38 GHz band of the radio spectrum
throughout the United States.
The unaudited condensed consolidated financial statements included herein have
been prepared by the Company. The financial statements contain all adjustments,
consisting only of normal recurring adjustments which are, in the opinion of the
Company's management, necessary to present fairly the consolidated financial
position of the Company as of September 30, 1997, the consolidated results of
its operations for the three and nine months ended September 30, 1997 and 1996,
and its cash flows for the nine months ended September 30, 1997 and 1996. The
consolidated statements of operations for the three and nine months ended
September 30, 1996, and cash flows for the nine months ended September 30, 1996,
have been restated to reflect a merger in October 1996.
The Company will require significant capital in 1998 to fund its operations and
business plan. Based on its current business plan, the Company will require
significant additional capital over the next few years for the continued
development and expansion of its wireless broadband operations. Because the
Company generally deploys radio equipment in response to customer orders, a
substantial portion of its capital requirements is dependent on customer demand.
Accordingly, the Company's capital requirements may increase or decrease
depending largely upon the cost and amount of equipment acquired, the number of
networks installed, the number of markets served and the prices charged for its
services as well as other factors. In addition, if, among other things, the
assumptions underlying the Company's business plan change or prove to be
inaccurate or the Company changes its business plan, the Company's capital
requirements may change. In the event the Company fails to obtain such
financing when required, such failure could result in the modification, delay or
abandonment of some or all of the Company's development and expansion plans
which could have a material adverse effect on the Company.
Certain information and footnote disclosures normally included in financial
statements have been
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<PAGE>
condensed or omitted pursuant to the rules and regulations of the Securities and
Exchange Commission. The year-end condensed consolidated balance sheet was
derived from audited financial statements but does not include all disclosures
required by generally accepted accounting principles. The unaudited condensed
consolidated financial statements should be read in conjunction with the
Company's December 31, 1996, audited consolidated financial statements and notes
thereto contained in the 1996 Form 10-K on file with the Securities and Exchange
Commission.
2. Summary of Significant Accounting Policies:
Short-Term Investments
Short-term investments are comprised of commercial paper and other similar
investments purchased with a term to maturity of more than three months. The
amount reported in the balance sheet at September 30, 1997, approximates fair
value.
Property and Equipment
As of September 30, 1997, approximately $10.4 million out of a total of $26.4
million of wireless transmission equipment had been placed in service.
Reclassifications
Certain reclassifications have been made to the 1996 condensed consolidated
financial statements in order to conform to the 1997 presentation. Such
reclassifications had no effect on the net loss, financial position or cash
flows as previously reported.
3. FCC Licenses
In September 1997, the Company entered into an agreement with Columbia Capital
Corporation and Columbia Millimeter Communications, L.P. to acquire 23 38 GHz
licenses in exchange for 1,335,750 shares of common stock. A portion of such
licenses is being transferred to ART to satisfy obligations of such entities to
ART in connection with the CommcoCCC Acquisition (defined below). The
consummation of the transaction is subject to certain closing conditions,
including FCC approval.
In February 1997, the Company completed the acquisition (the "CommcoCCC
Acquisition") of 129 38 GHz licenses from CommcoCCC, Inc. ("CommcoCCC") in
exchange for six million shares of the Company's common stock. The total
acquisition cost was approximately $122.2 million, comprised of the fair value
of the six million shares of common stock issued of approximately $87.8 million,
direct costs incurred of approximately $3.2 million and the related deferred tax
liability of approximately $31.2 million.
In connection with the CommcoCCC Acquisition, the Company granted Commco, L.L.C.
("Commco"), a stockholder of CommcoCCC, an option to acquire 12 38 GHz licenses.
Commco exercised its option in June 1997, with closing subject to FCC approval.
The purchase price will be paid by a non-recourse secured note and will be
determined by a formula based on the sales
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<PAGE>
price of the Company's common stock on the day the option was exercised and the
population covered by the twelve licenses. The Company has the right to be a
reseller with respect to these licenses for a term of five years at market
rates.
In February 1997, the Company completed its acquisition from Extended
Communications, Inc. of the remaining 50% interest in ART West for $6 million in
cash, of which $3 million was paid in November 1996, the total cost of which has
been included in FCC licenses.
4. Senior Notes:
In February 1997, the Company received $135 million of gross proceeds from a
public offering of $135 million of 14% Senior Notes (the "Senior Notes") and
warrants to purchase an aggregate of 2,731,725 shares of the Company's common
stock for $0.01 per share, approximately $52 million of which proceeds were used
to purchase a portfolio of U.S. Treasury securities that will provide for
interest payments on the Senior Notes through February 2000. The aggregate
value ascribed to the warrants of approximately $29.7 million, was reflected as
both a debt discount and an increase in additional paid-in capital. The debt
discount is accounted for as a component of interest expense using the effective
interest rate method. The Senior Notes are considered to have "significant
original issue discount" under Federal tax rules and the Company is not able to
deduct the accretion of the debt discount for Federal income tax purposes.
5. Income Taxes:
Deferred income tax liabilities at September 30, 1997, consisted of
approximately $44.2 million of deferred tax liabilities, principally arising
from the CommcoCCC Acquisition, partially offset by approximately $14.3 million
of deferred tax assets. Deferred tax assets consisted primarily of $24.2
million of net operating loss carryforwards, partially offset by a valuation
allowance of approximately $10.6 million. In February 1997, the Company
reversed approximately $12.8 million of its deferred tax asset valuation
allowance as a result of recording deferred taxes arising from the CommcoCCC
Acquisition. The valuation allowance is based on management's determination
that the recognition criteria for a portion of the deferred tax assets has not
been met.
The effective tax rate is based on an estimate of the annualized tax rate and
differs from the Federal statutory rate principally due to the provision for the
net deferred tax asset valuation allowance.
6. Supplemental Cash Flow Information:
Supplemental disclosure of cash flow information is summarized below for the
nine months ended September 30:
<TABLE>
<CAPTION>
1997 1996
----------- ----------
<S> <C> <C>
Non-cash financing and investing activities:
Additions to property and equipment $ 4,040,806
Value ascribed to warrants $29,707,509 509,937
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Issuance of shares for licenses 87,500,000
Value ascribed to the strategic distribution
agreement 1,053,000
Accrued deferred financing costs 967,491
Exchange of notes for Series E preferred stock,
net of deferred financing costs 4,673,186
Release of escrow shares 6,795,514
Termination of software license agreement
and related obligations 1,774,087
Interest paid 10,293,459 74,538
</TABLE>
7. Subsequent Events
In October 1997, the Company entered into an employment agreement with a newly
hired chief executive officer. Pursuant to the employment agreement, among
other things, the Company granted options to purchase 800,000 shares of common
stock (545,000 shares of which are subject to shareholder approval of certain
amendments to the Company's Restated Equity Incentive Plan) at prices equal to
or greater than the fair market value at the date of grant, granted 100,000
shares of deferred common stock, deliverable on January 2, 2001, at no cost and
sold 100,000 shares of common stock at a price equal to the then fair market
value in exchange for a recourse note collateralized by the shares.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
From its inception in 1993 to the fourth quarter of 1996, the Company
primarily focused on acquiring licenses, hiring management and other key
personnel, raising capital, acquiring equipment and roof rights and developing
its operating and support systems and infrastructure. In the fourth quarter of
1996, the Company started commercial operations.
RESULTS OF OPERATIONS
Nine Months Ended September 30, 1997 Compared to Nine Months Ended September 30,
1996
Revenue for the nine months ended September 30, 1997, was $875,493 compared
to $125,013 for the same period in 1996. The revenue for the first nine months
of 1997 included approximately $357,000 of non-recurring equipment sales and
construction revenue.
Operating costs and expenses were approximately $27.7 million for the nine
months ended September 30, 1997, compared to approximately $17.9 million for the
same period in 1996. General and administrative expenses in the 1996 period
included a $6.8 million charge related to release of escrowed shares to
executive officers. Cost of equipment sales and construction of $214,399
incurred in the 1997 period relate to non-recurring revenue. Sales and
marketing expenses in the 1996 period included a $1.1 million charge relating to
a distribution agreement. Excluding non-cash and non-recurring items, operating
costs and expenses for the nine months ended September 30, 1997, were
approximately $22.6 million compared to approximately $8.9 million for the same
period in 1996.
The Company incurred non-recurring employee severance and office closure
costs of approximately $565,000 in the quarter ended September 30, 1997 in
connection with certain management initiated restructuring activities intended
to align the Company's organization more closely with its current marketing and
business development plans. In future periods the Company expects increases in
cash expenses for sales and marketing and network operations as the development
and deployment of the Company's business continues. The Company also expects
depreciation and amortization to increase substantially in future periods as a
result of deployment of its wireless transmission equipment. In connection with
employment arrangements with its new Chairman, the Company will incur a non-
recurring non-cash charge of $887,500 in the fourth quarter of 1997 with respect
to a stock grant as well as other expenses in excess of $300,000.
Net interest and other expenses were approximately $12.8 million for the
nine months ended September 30, 1997, compared to approximately $2.6 million for
the same period in 1996. Included in net interest and other expenses for the
1996 period was approximately $1.2 million relating to an unsuccessful debt
offering in July 1996. Included in net interest and other expenses for the 1997
period was approximately $2.7 million relating to a terminated financing
commitment. Interest expense will increase in future periods due to the
amortization of the original issue discount on Senior Notes that were issued in
February 1997.
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<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company has generated negative cash flow and net losses each year since
its inception and expects such negative cash flow and net losses to continue at
least for the next few years. Accordingly, the Company will be dependent on
various financing sources to fund its growth as well as its continued losses
from operations. To date, funding for acquisitions, capital expenditures and net
operating losses has been provided from private placements of equity and bridge
financings in 1994 through 1996, the Company's initial public offering in
November 1996 and the Company's public offering of its Senior Notes in February
1997. Approximately $52 million of the approximately $130 million net proceeds
from the sale of the Senior Notes was used to purchase a portfolio of U.S.
Treasury securities that will provide for interest payments on the Senior Notes
through February 2000. Because the Senior Notes have "significant original issue
discount" for tax purposes, the Company is not able to deduct the interest
expense related to the accretion of this original issue discount for tax
purposes.
As of September 30, 1997, the Company had outstanding capital commitments
of approximately $6 million. The Company will require significant additional
capital in 1998 to fund its operations and business plan. Based on its current
business plan, ART estimates that it will require several hundred million
dollars over the next few years for the continued development and expansion of
its wireless broadband operations, including the funding of operating losses.
Because the Company generally deploys radio equipment in response to customer
orders, a substantial portion of its capital requirements is dependent on
customer demand. Accordingly, the Company's capital requirements may increase
or decrease depending largely upon the cost and amount of equipment acquired,
the number of networks installed, the number of markets served and the prices
charged for its services as well as other factors.
In addition, if, among other things, the assumptions underlying the
Company's business plan change or prove to be inaccurate or the Company changes
its business plan, the Company's capital requirements may change. There can be
no assurance that the Company will be able to obtain any financing when
required, or, if available, that the Company will be able to obtain it on
acceptable terms. If the Company fails to obtain additional financing when
required, such failure could result in the modification, delay or abandonment of
some or all of the Company's development and expansion plans. Any such
modification, delay or abandonment could have a material adverse effect on the
Company.
NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Financial Accounting Standards No. 128, "Earnings per Share." This statement,
effective for the year ending December 31, 1997, specifies the computation,
presentation and disclosure requirements for earnings per share ("EPS"). The
statement will replace "primary" EPS with "basic" EPS, the principal difference
being the exclusion of common stock equivalents in the computation of basic EPS
and the required dual presentation of basic and diluted EPS on the face of the
consolidated statement of operations. Due to the Company's net losses, basic and
diluted EPS computed pursuant to this statement are not expected to be
materially different from the historical net losses per share previously
presented.
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<PAGE>
In June 1997, the FASB issued Financial Accounting Standards No. 130,
"Reporting Comprehensive Income." This statement establishes requirements for
disclosure of comprehensive income and becomes effective for the Company for the
year ending December 31, 1998. Comprehensive income includes such items as
foreign currency translation adjustments and unrealized holding gains and losses
on certain investments that are reported by the Company as a component of
stockholders' equity. The Company does not expect this pronouncement to
materially affect the Company's results of operations.
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