<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) December 31, 1998
BOBBY ALLISON WIRELESS CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
FLORIDA
- --------------------------------------------------------------------------------
(State or other jurisdiction of incorporation or organization)
000-22251 65-0674664
------------ -------------------
(Commission (I.R.S. Employer
file number) Identification No.)
2055 LAKE AVENUE, S.E., SUITE A, LARGO, FL 33771
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (727) 584-7902
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Former Name or Former Address, if Changed Since Last Report)
Page 1 of 68 Pages
Index to Exhibits on Page 68
<PAGE> 2
Page 2
ITEM 1. CHANGES IN CONTROL OF REGISTRANT.
Effective at 11:59 p.m. December 31, 1998, 2Connect Express, Inc., a
Florida corporation (the "Registrant"), completed a merger ("Merger") with Bobby
Allison Cellular Systems of Florida, Inc., a Florida corporation ("Bobby
Allison"), whereby Bobby Allison was merged with and into 2Connect Acquisition
Corp., a Florida corporation ("Acquisition") and a wholly-owned subsidiary of
the Registrant formed for the purpose of the Merger, with Acquisition surviving
the Merger.
The Merger was effected pursuant to that certain Merger Agreement by
and among the Registrant, Acquisition, Bobby Allison and all of the Shareholders
of Bobby Allison (Robert L. McGinnis and James L. Ralph) dated May 1, 1998
("Merger Agreement"), as amended October 26, 1998 ("Amendment"). Pursuant to the
terms of the Merger Agreement, the following occurred: (i) Acquisition survives
the Merger, remains a wholly owned subsidiary of 2Connect and has changed its
name to "Bobby Allison Wireless, Inc."; (ii) the holders of the common stock of
Bobby Allison, Messrs. McGinnis and Ralph, each received for such shares (A)
175,000 shares (350,000 in the aggregate) of the common stock of the Registrant,
par value $.01 per share ("Common Stock") and (B) a $125,000 debenture ($250,000
in the aggregate) bearing interest at 7.5% per annum amortized over three (3)
years; (iii) each share of the 15 outstanding shares of 7.5% Series A
Convertible Preferred Stock of Bobby Allison was converted into a share of 7.5%
Series A Convertible Preferred Stock of the Registrant, par value $1.00 per
share ("Series A Preferred Stock") and each of which has a face value of
$25,000 and is convertible into 4,166 shares of Common Stock or, in the
aggregate, 62,490 shares of Common Stock; (iv) each share of the 50 outstanding
shares of 7.5% Series B Convertible Preferred Stock of Bobby Allison was
converted into a share of 7.5% Series B Convertible Preferred Stock of the
Registrant, par value $1.00 per share ("Series B Preferred Stock") and each of
which has a face value of $25,000 and is convertible into 4,166 shares of Common
Stock or, in the aggregate, 208,300 shares of Common Stock; (v) Craig R. Heyward
and F. Eugene Woodham resigned from the Board of Directors of 2Connect and
Messrs. McGinnis and Ralph were elected to fill such vacancies and (vi) James S.
Holbrook, Jr., former Chairman and CEO, and F. Eugene Woodham, former Secretary
and Treasurer, resigned as officers of 2Connect and Robert L. McGinnis was
appointed to serve as Chairman, CEO and Treasurer and James L. Ralph was
appointed to serve as President and Secretary. They have also entered into
employment contracts with the Registrant effective December 31, 1998. See Item 5
below for a description of the employment contracts.
As a result of the Merger, the sole shareholders of Bobby Allison,
Robert L. McGinnis and James L. Ralph, acquired control of the Registrant and
the headquarters of the Registrant has been moved from 3500 Gateway Drive, Suite
101, Pompano Beach, Florida 33069 to the space occupied by Bobby Allison at 2055
Lake Avenue, S.E., Suite A, Largo, Florida 33771. Prior to the Merger, there
were 130,000 shares of Common Stock outstanding. Pursuant to the Merger, Messrs.
McGinnis and Ralph, the sole shareholders of Bobby Allison, were each issued
175,000 shares (350,000 in the aggregate) of Common Stock and a $125,000
debenture ($250,000 in the aggregate) of the Registrant bearing interest at 7.5%
per annum amortized over three (3) years. Also, Messrs. McGinnis and Ralph were
issued 3 shares (6 in the aggregate) of the Series B Preferred Stock convertible
into 24,996 shares of Common Stock. Consequently, as of the Merger, Messrs.
McGinnis and Ralph own approximately 73% of the outstanding Common Stock, no
Series A Preferred Stock and 12% of the Series B Preferred Stock. Also, as a
consequence of the Merger, Messrs. McGinnis and Ralph represent two-thirds of
the directors and serve as the sole executive officers of the Registrant. Their
percentage ownership of the outstanding Common Stock would be diluted to just
under 50% if all of the Registrant's outstanding Series A Preferred Stock and
outstanding Series B Preferred Stock (including the shares owned by Messrs.
McGinnis and Ralph) are converted into Common Stock.
There is currently no stock option plan but, in accordance with the
Employment Agreements by and between the Registrant and Messrs. McGinnis and
Ralph (see Item 5 below), the Registrant anticipates adopting a stock option
plan. Depending upon future dilution resulting from the sale of additional
securities of the Registrant, Messrs. McGinnis and Ralph could cause the Board
of Directors to issue such number of stock options to themselves
<PAGE> 3
Page 3
as officers and directors of the Registrant necessary to provide Messrs.
McGinnis and Ralph the opportunity to maintain control of a majority of the
outstanding Common Stock even if all of the currently outstanding Series A
Preferred Stock and Series B Preferred Stock is converted. The Registrant has
also authorized 7.5% Series C Convertible Preferred Stock ("Series C Preferred
Stock") none of which are issued and outstanding, but each share of which is
also convertible into 4,166 shares of Common Stock. See the Registrant's First
Amendment to its Form 10-QSB for the quarter ended October 31, 1998 and Item 5
below for a description of the Series A Preferred Stock, the Series B Preferred
Stock and Series C Preferred Stock (hereinafter, the Series A Preferred Stock,
Series B Preferred Stock and Series C Preferred Stock is collectively referred
to as the "Preferred Stock").
Bobby Allison was a specialty retailer of cellular service and an
authorized dealer for AT&T Wireless. Bobby Allison operated through one direct
marketing location and 24 mall-based specialty retail locations including the
Registrant's one location at Coral Square Mall which Bobby Allison operated from
June 16, 1998 through the Merger pursuant to that Management Agreement by and
between the Registrant and Bobby Allison effective the same date. As a
consequence of the Merger, the Registrant now operates the one direct marketing
location and 24 mall-based specialty retail locations and the management of
Bobby Allison is the management of the Registrant. A copy of the Management
Agreement was filed with the Registrant's Form 10-QSB for the quarter ended July
31, 1998.
The Registrant began operation as a specialty retailer of cellular and
other communication services in 1996. The Registrant conducted an initial public
offering of 520,000 Units consisting of 2 shares of Common Stock and 1 Common
Stock Purchase Warrant in May of 1997. In May of 1998, the Units automatically
terminated into their constituent parts. The Common Stock Purchase Warrants
expired unexercised and the Common Stock remained outstanding. On January 12,
1998, 2Connect filed a voluntary petition for relief under Chapter 11 of the
U.S. Bankruptcy Code with the U.S. Bankruptcy Court, Southern District of
Florida ("Bankruptcy Court"), and subsequently closed all of its stores except
the store at Coral Square Mall in Coral Springs, Florida. 2Connect liquidated
most of its assets and reduced its overhead to skeleton levels. The Coral Square
store operated from June 16, 1998 until the effective date of the Merger under a
Management Agreement with Bobby Allison whereby Bobby Allison was responsible
for all expenses related to that store and was entitled to any profits or losses
that it generated. The Management Agreement automatically terminated upon the
Merger.
On August 27, 1998, the Registrant entered into an agreement
("Agreement") with Sterne, Agee & Leach, Inc. ("Sterne Agee"), the managing
underwriter if the initial public offering, whereby Sterne Agee acquired out of
bankruptcy 100% of the equity interests of the Registrant and the Registrant
retained the Coral Square store lease and certain store fixtures. In
consideration for such acquisition, Sterne Agee made a new value contribution to
the bankruptcy estate for the benefit of the Registrant's creditors in the
amount of $175,000. Also pursuant to the terms of the Agreement and effective
August 27, 1998, all of the members of the Board of Directors, except for Marc
D. Fishman, resigned from the Board of Directors and Mr. Fishman, as the sole
remaining director, and in accordance with the Bylaws of the Registrant,
appointed James S. Holbrook, Jr., Craig R. Heyward and F. Eugene Woodham, each
of whom are employees of Sterne Agee, to fill three of the vacancies. The Board
of Directors further resolved to appoint James S. Holbrook, Jr. as the Chairman
of the Board and, in accordance with the Bylaws of the Registrant, to designate
that the Chairman of the Board is the chief executive officer of the
corporation. Mr. Fishman resigned from the Board of Directors on October 26,
1998, the day before the effective date of the Plan of Reorganization (as
described below).
To effect the Agreement, the Plan of Reorganization, as amended,
provided that, upon the effective date of the Plan of Reorganization, all of the
existing Common Stock of the Registrant was forever extinguished and canceled
and the Registrant issued 30,000 new shares of Common Stock to Sterne Agee which
constituted 100% of the issued and outstanding shares at such time. The existing
shareholders of the Common Stock of the Registrant did not retain any interest
in the post-bankruptcy estate and their interests were extinguished and
canceled. On October 27, 1998, the U.S. Bankruptcy
<PAGE> 4
Page 4
Court confirmed the Registrant's Plan of Reorganization. A related entity of
Sterne Agee acquired an additional 100,000 shares of Common Stock prior to the
Merger. A copy of the Registrant's Plan of Reorganization and amendments thereto
was filed with the Registrant's Form 10-QSB for the quarter ended October 31,
1998.
The Merger Agreement and Amendment were negotiated at arm's length.
However, during the time from the execution of the Agreement until the Merger,
which included the execution of the Amendment, certain officers of Sterne Agee
served as the Board of Directors and the officers of the Registrant. Also during
such time, Sterne Agee and certain of its affiliates ("Sterne Agee Group") owned
44 shares of the 7.5% Series B Convertible Preferred Stock of Bobby Allison
during such time which was converted pursuant to the Merger into 44 shares of
Series B Preferred Stock. Consequently, the Sterne Agee Group had the right to
convert into 2068 shares of Bobby Allison common stock or approximately 29%
assuming conversion of all of Bobby Allison's preferred stock, and, after the
Merger, 183,304 shares of Common Stock or approximately 24% of the Common Stock
assuming conversion of all of the Registrant's outstanding Preferred Stock. The
Sterne Agee Group also owns 130,000 shares of Common Stock or approximately 17%
of the Common Stock assuming conversion of all of the Preferred Stock of the
Registrant.
A copy of the Merger Agreement, Amendment and Articles of Merger have
been filed as Exhibits 2.1, 2.2 and 2.3 hereto, respectively.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
See Item 1.
ITEM 5. OTHER EVENTS
ARTICLES OF AMENDMENT. On December 28, 1998, the Registrant filed
Articles of Amendment to its First Amended and Restated Articles of
Incorporation which amended the payment dates for dividends on its Preferred
Stock from every six (6) months beginning on the date six (6) months after the
issuance of each share of Preferred Stock to being payable every January 1st and
July 1st for Series A Preferred Stock and Series B Preferred Stock and to every
April 1st and October 1st for Series C Preferred Stock. See the Registrant's
Amendment to its Form 10-QSB for the quarter ended October 31, 1998 for a
further description of the Preferred Stock. A copy of the Articles of Amendment
are attached hereto as Exhibit 3.1.
EMPLOYMENT AGREEMENTS.
MCGINNIS AGREEMENT. Pursuant to the employment agreements entered into
between the Registrant and Robert L. McGinnis ("McGinnis Agreement") on December
31, 1998, Mr. McGinnis became the Registrant's Chief Executive Officer. The
McGinnis Agreement shall have an initial term of three (3) years. Upon the
expiration of the initial term, the McGinnis Agreement shall automatically renew
for successive one (1) year terms unless sooner terminated by either party
giving written notice one hundred twenty (120) days prior to the commencement of
such renewal term. During the first twelve (12) months of the McGinnis
Agreement, Mr. McGinnis shall receive a minimum annual base compensation of One
Hundred Thirty-Five Thousand Dollars ($135,000). At the end of such initial
twelve (12) month period and each twelve (12) month period thereafter, the
Registrant's Board of Directors shall review Mr. McGinnis' annual salary to
determine the next twelve (12) months annual compensation; provided, however,
that Mr. McGinnis' annual salary shall be increased a minimum of six percent
(6%) each year. The McGinnis Agreement requires that the Board of Directors
approve an incentive compensation plan which provides additional compensation to
Mr. McGinnis based upon the Registrant's net income and which at a minimum shall
be equal to two percent (2%) of the Registrant's net income for any applicable
employment year. The Board of Directors may also reward Mr. McGinnis additional
discretionary compensation in the form of bonuses or other rewards. In the event
that Mr. McGinnis terminates the
<PAGE> 5
Page 5
McGinnis Agreement for the Registrant's breach of its terms, then the Registrant
shall pay Mr. McGinnis severance compensation equal to two-thirds (2/3) of Mr.
McGinnis' annual compensation at the time of the termination if during the
initial three (3) year term and one-fourth (1/4) of Mr. McGinnis' annual
compensation at the time of the termination if during a renewal term.
Pursuant to the McGinnis Agreement, Mr. McGinnis will be entitled to
receive other benefits such as an automobile, health insurance, disability
insurance, reimbursement of business expenses and the right to participate in
other employee benefit plans, retirement plans, deferred compensation plans and
other fringe benefits generally made available to executive and management
employees of the Registrant. The McGinnis Agreement further provides that Mr.
McGinnis will be eligible to participate in a stock option plan of the
Registrant which has reserved for issuance at least ten percent (10%) of the
issued and outstanding capital stock of the Registrant. As previously stated, no
stock option plan has yet been adopted.
Finally, the McGinnis Agreement provides that the Registrant shall fund
the premium of a life insurance policy on Mr. McGinnis' life which will provide
a split-dollar benefit , i.e, death benefit to the Registrant and cash surrender
value to Mr. McGinnis' designated beneficiaries or estate in the event of his
death. The life insurance policy shall be a permanent life policy with a face
amount that will cause the annual premium to exceed the annual cost of term life
insurance by $15,000. If Mr. McGinnis is terminated, then Mr. McGinnis shall
become the sole owner of the policy.
RALPH AGREEMENT. Pursuant to the employment agreements entered into
between the Registrant and James L. Ralph ("Ralph Agreement") on December 31,
1998, Mr. Ralph became the Registrant's President. The Ralph Agreement shall
have an initial term of three (3) years. Upon the expiration of the initial
term, the Ralph Agreement shall automatically renew for successive one (1) year
terms unless sooner terminated by either party giving written notice one hundred
twenty (120) days prior to the commencement of such renewal term. During the
first twelve (12) months of the Ralph Agreement, Mr. Ralph shall receive a
minimum annual base compensation of One Hundred Thirty- Five Thousand Dollars
($135,000). At the end of such initial twelve (12) month period and each twelve
(12) month period thereafter, the Registrant's Board of Directors shall review
Mr. Ralph' annual salary to determine the next twelve (12) months annual
compensation; provided, however, that Mr. Ralph' annual salary shall be
increased a minimum of six percent (6%) each year. The Ralph Agreement requires
that the Board of Directors approve an incentive compensation plan which
provides additional compensation to Mr. Ralph based upon the Registrant's net
income and which at a minimum shall be equal to two percent (2%) of the
Registrant's net income for any applicable employment year. The Board of
Directors may also reward Mr. Ralph additional discretionary compensation in the
form of bonuses or other rewards. In the event that Mr. Ralph terminates the
Ralph Agreement for the Registrant's breach of its terms, then the Registrant
shall pay Mr. Ralph severance compensation equal to two-thirds (2/3) of Mr.
Ralph's annual compensation at the time of the termination if during the initial
three (3) year term and one-fourth (1/4) of Mr. Ralph's annual compensation at
the time of the termination if during a renewal term.
Pursuant to the Ralph Agreement, Mr. Ralph will be entitled to receive
other benefits such as an automobile, health insurance, disability insurance,
reimbursement of business expenses and the right to participate in other
employee benefit plans, retirement plans, deferred compensation plans and other
fringe benefits generally made available to executive and management employees
of the Registrant. The Ralph Agreement further provides that Mr. Ralph will be
eligible to participate in a stock option plan of the Registrant which has
reserved for issuance at least ten percent (10%) of the issued and outstanding
capital stock of the Registrant. As previously stated, no stock option plan has
yet been adopted.
Finally, the Ralph Agreement provides that the Registrant shall fund
the premium of a life insurance policy on Mr. Ralph' life which will provide a
split-dollar benefit, i.e., death benefit to the Registrant and Mr. Ralph' s
designated beneficiaries or estate in the event of his death. The life insurance
policy shall be a permanent life policy with a face amount that will cause the
annual premium to exceed
<PAGE> 6
Page 6
the annual cost of term life insurance by $10,000. If Mr. Ralph is terminated,
then Mr. Ralph shall become the sole owner of the policy.
Copies of the Employment Agreements are attached as Exhibit 10.1 and
10.2, respectively.
ITEM 6. RESIGNATION OF REGISTRANT'S DIRECTORS
Pursuant to the terms of the Merger Agreement, Craig R. Heyward and F.
Eugene Woodham resigned from the Board of Directors of the Registrant and Robert
L. McGinnis and James L. Ralph were elected to serve in such vacancies. Neither
Craig R. Heyward nor F. Eugene Woodham resigned because of any disagreement with
the Registrant.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial statements of Registrant and business acquired:
Table of Contents:
Bobby Allison Wireless Corporation (formally 2Connect Express, Inc) (Debtor-
in-Possession) as of and for the year ended January 31, 1998 and the one
month ended January 31, 1997.
Bobby Allison Wireless Corporation (formally 2Connect Express, Inc) (with the
historical financial statements of Bobby Allison Cellular Systems of Florida,
Inc) for the three years ended December 31, 1998, 1997 and 1996 and the
unaudited interim financial statements as of September 30, 1998 and for the
nine months ended September 30, 1998 and 1997.
<PAGE> 7
Page 7
BOBBY ALLISON WIRELESS CORPORATION
(FORMERLY 2CONNECT EXPRESS, INC.)
(DEBTOR-IN-POSSESSION)
CONTENTS
================================================================================
<TABLE>
<CAPTION>
<S> <C>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 8
FINANCIAL STATEMENTS
Balance sheets at January 31, 1998 and 1997 9
Statements of operations for the year ended January 31, 1998 and one month
ended January 31, 1997 10
Statements of stockholders' equity (deficit) for the year ended
January 31, 1998 and one month ended January 31, 1997 11
Statements of cash flows for the year ended January 31, 1998 and one month
ended January 31, 1997 12
Notes to financial statements 13 - 27
</TABLE>
<PAGE> 8
Page 8
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Shareholders
Bobby Allison Wireless Corporation
We have audited the accompanying balance sheets of Bobby Allison Wireless
Corporation (formerly 2Connect Express, Inc.) as of January 31, 1998 and 1997
and the related statements of operations, shareholders' equity (deficit), and
cash flows for the year ended January 31, 1998 and one month ended January 31,
1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
On January 12, 1998, Bobby Allison Wireless Corporation adopted a restructuring
plan which also included filing a voluntary petition for protection under
Chapter 11 of the U.S. Bankruptcy Code. Pursuit to its Plan of Reorganization,
the Company liquidated its inventory, closed all but one retail store and merged
with another company (see Note 1). As a result, the carrying value of
substantially all of its assets was written down to the assets' liquidation
value (see Note 3).
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Bobby Allison Wireless
Corporation at January 31, 1998 and 1997, and the results of its operations and
cash flows for the periods then ended, in conformity with generally accepted
accounting principles.
BDO Seidman, LLP
Orlando, FL
March 10, 1999
<PAGE> 9
Page 9
BOBBY ALLISON WIRELESS CORPORATION
(FORMERLY 2CONNECT EXPRESS, INC.)
(DEBTOR-IN-POSSESSION)
BALANCE SHEETS
================================================================================
<TABLE>
<CAPTION>
January 31, 1998 1997
- ----------- ----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 218,068 $ 1,449,167
Accounts receivable, net 372,400 99,994
Inventory, net of reserves 1,249,251 216,769
Prepaid expenses and other current assets 111,834 36,924
----------- -----------
TOTAL CURRENT ASSETS 1,951,553 1,802,854
PROPERTY AND EQUIPMENT, net 209,002 456,117
DEFERRED OFFERING COSTS -- 225,065
----------- -----------
$ 2,160,555 $ 2,484,036
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Liabilities not subject to compromise:
Accounts payable - post-petition $ 57,559 $ --
Revolving credit loan 275,000 --
Accrued expenses 134,230 19,782
Liabilities subject to compromise:
Accounts payable - pre-petition 1,143,340 325,559
Accrued landlord claims 424,147 --
Accrued employee contract claims 596,608 --
Accrued professional fees 117,237 --
Current maturities of long-term debt and capital lease obligations 22,209 --
----------- -----------
TOTAL CURRENT LIABILITIES 2,770,330 345,341
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS 8,803 --
----------- -----------
TOTAL LIABILITIES 2,779,133 345,341
----------- -----------
SHAREHOLDERS' EQUITY (DEFICIT):
Common stock ($.01 par value, authorized 25,000,000
shares; issued and outstanding 3,752,500 shares) 37,525 27,100
Additional paid-in capital 8,673,390 3,318,795
Deficit (9,329,493) (1,207,200)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY (DEFICIT) (618,578) 2,138,695
----------- -----------
$ 2,160,555 $ 2,484,036
=========== ===========
</TABLE>
See notes to financial statements.
<PAGE> 10
Page 10
BOBBY ALLISON WIRELESS CORPORATION
(FORMERLY 2CONNECT EXPRESS, INC.)
(DEBTOR-IN-POSSESSION)
STATEMENTS OF OPERATIONS
===============================================================================
<TABLE>
<CAPTION>
One Month
Year Ended Ended
January 31, January 31,
1998 1997
----------- -----------
<S> <C> <C>
NET SALES $ 3,773,246 $ 77,905
COST OF GOODS SOLD 3,753,331 56,170
----------- -----------
Gross profit 19,915 21,735
----------- -----------
OPERATING EXPENSES:
Selling, general and administrative 5,051,878 180,604
Reorganization items:
Loss in impairment of fixed assets and pre-opening costs
1,982,658
Provision for landlord claims 424,147
Employee contract claims 596,878
Professional fees 212,236
----------- -----------
Total operating expenses 8,267,797 180,604
----------- -----------
Loss from operations (8,247,882) (158,869)
----------- -----------
OTHER INCOME (EXPENSE):
Interest income 124,422 8,829
Interest expense (3,721) (215)
Other income, net 4,888 --
----------- -----------
125,589 8,614
----------- -----------
NET LOSS $(8,122,293) $ (150,255)
=========== ===========
NET LOSS PER COMMON SHARE:
Basic and primary $ (2.34) $ (.06)
=========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic and primary 3,473,267 2,710,000
=========== ===========
</TABLE>
See notes to financial statements.
<PAGE> 11
Page 11
BOBBY ALLISON WIRELESS CORPORATION
(FORMERLY 2CONNECT EXPRESS, INC.)
(DEBTOR-IN-POSSESSION)
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
================================================================================
<TABLE>
<CAPTION>
Common Stock Additional
---------------------- Paid-In
Shares Amount Capital Deficit Total
--------- ------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1996 2,710,000 $27,100 $3,284,420 $(1,056,945) $ 2,254,575
Options granted -- -- 34,375 -- 34,375
Net loss -- -- -- (150,255) (150,255)
--------- ------- ---------- ----------- -----------
BALANCE, January 31, 1997 2,710,000 27,100 3,318,795 (1,207,200) 2,138,695
Stock options exercised 2,500 25 125 -- 150
Options granted in lieu of -- -- 39,377 -- 39,377
compensation
Initial public offering 1,040,000 10,400 5,315,093 -- 5,325,493
Net loss -- -- -- (8,122,293) (8,122,293)
--------- ------- ---------- ----------- -----------
BALANCE, January 31, 1998 3,752,500 $37,525 $8,673,390 $(9,329,493) $ (618,578)
========= ======= ========== =========== ===========
</TABLE>
See notes to financial statements.
<PAGE> 12
Page 12
BOBBY ALLISON WIRELESS CORPORATION
(FORMERLY 2CONNECT EXPRESS, INC.)
(DEBTOR-IN-POSSESSION)
STATEMENTS OF CASH FLOWS
===============================================================================
<TABLE>
<CAPTION>
One Month
Year Ended Ended
January 31, January 31,
1998 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(8,122,293) $ (150,255)
Adjustments to reconcile net loss to net cash provided by (used in) operating
activities:
Depreciation and amortization 393,272 4,038
Allowance for uncollectible accounts 20,000 --
Stock compensation expense 39,377 34,375
Changes in operating assets and liabilities:
Accounts receivable (292,406) (65,085)
Inventory (1,749,839) (19,771)
Prepaid expenses and other current assets (74,910) (44,813)
Accounts payable 57,559 (261,410)
Accrued expenses 114,448 (13,538)
Changes in operating assets and liabilities from restructuring items:
Loss on impairment of assets 2,726,229 --
Accounts payable 817,781 --
Accrued bankruptcy claims 1,137,992 --
----------- -----------
Net cash used in operating activities (4,932,790) (426,833)
=========== ===========
CASH FLOWS USED IN INVESTING ACTIVITIES:
Payment of pre-opening costs (197,248) --
Purchase of property and equipment (1,957,781) (58,985)
----------- -----------
Net cash used by investing activities (2,155,029) (58,985)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock 5,550,708 --
Payment of deferred offering costs -- (5,000)
Increase in working capital loan 275,000 --
Increase in notes payable and capital lease obligations 31,012 --
----------- -----------
Net cash provided by (used in) financing activities 5,856,720 (5,000)
=========== ===========
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,231,099) (490,818)
CASH AND CASH EQUIVALENTS, beginning of period 1,449,167 1,939,985
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 218,068 $ 1,449,167
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 3,721 $ --
=========== ===========
</TABLE>
See notes to financial statements.
<PAGE> 13
Page 13
BOBBY ALLISON WIRELESS CORPORATION
(FORMERLY 2CONNECT EXPRESS, INC.)
(DEBTOR-IN-POSSESSION)
NOTES TO FINANCIAL STATEMENTS
===============================================================================
1. BANKRUPTCY Bobby Allison Wireless Corporation, formerly "2Connect
Express, Inc.," (the "Company") was incorporated on April 19,
1996 and operated as a development stage company through May
1997. The Company was a one-stop specialty retailer and
direct, consultative marketer of communications-related
products and services under the name "2Connect, America's
Total Communication Store." The Company commenced operations
with one retail store. On May 9, 1997, the Company completed a
public offering with net proceeds of approximately $5.3
million.
As of January 12, 1998, the Company had opened eight
additional stores and was completing its tenth store, all
within the state of Florida, when it filed a voluntary
petition (the "Filing") for relief under Chapter 11 of title
II of the United States Code in the United States Bankruptcy
Court for the Southern District of Florida ("the Bankruptcy
Court"). Immediately after January 12, 1998, the Company began
to close its retail stores and liquidate its assets, which
consisted mainly of selling off inventory and collecting its
accounts receivable.
On March 2, 1998, the Company executed an agreement with Bay
Tech Investments, Inc., a company owned by the father of the
Company's former president, to provide secured
debtor-in-possession financing in the form of a credit
facility (see Note 6). The credit facility provided for
borrowings up to a maximum of $500,000. The
debtor-in-possession facility replaced a revolving credit
facility (see Note 6) provided by Bay Tech Investments, Inc.
which had been in existence pre-petition with a balance of
$275,000. On March 28, 1998 the Company paid in full the
balance owed on the debtor-in-possession facility plus
interest accrued.
On March 3, 1998, the Company executed a Letter of Intent,
then a merger agreement on May 1, 1998 with Bobby Allison
Cellular Systems of Florida, Inc., ("Bobby Allison") under
which Bobby
<PAGE> 14
Page 14
BOBBY ALLISON WIRELESS CORPORATION
(FORMERLY 2CONNECT EXPRESS, INC.)
(DEBTOR-IN-POSSESSION)
NOTES TO FINANCIAL STATEMENTS
================================================================================
Allison would merge with and into a wholly-owned subsidiary to
be formed by the Company (the "Merger"). On April 22, 1998,
the Company formed 2Connect Acquisition, a Florida
corporation, ("Acquisition") as a wholly-owned subsidiary for
the purpose of effecting the merger with Bobby Allison.
By June 1998, the Company had closed all of its stores except
the store at Coral Square Mall ("Coral Square") in Coral
Springs, Florida. Effective on June 18, 1998, the Company
executed a management agreement with Bobby Allison whereby the
Coral Square store would be operated under a management
agreement with Bobby Allison. Under the management agreement,
Bobby Allison was responsible for all expenses related to that
store and was entitled to any profits or losses that it
generated.
On August 27, 1998, the Company entered into an agreement with
Sterne, Agee & Leach, Inc. ("Sterne Agee") whereby Sterne Agee
would acquire out of bankruptcy 100% of the equity interests
of the Company, and the Company would retain the Coral Square
store lease and certain store fixtures. In consideration for
such acquisition, Sterne Agee would make a new value
contribution to the bankruptcy estate for the benefit of
2Connect's creditors in the amount of $175,000. To effect this
transaction, the Plan of Reorganization, as amended, provided
that, upon the effective date of the Plan of Reorganization,
all of the existing common stock of the Company was forever
extinguished and canceled and the Company issued 30,000 new
shares of common stock to Sterne Agee which constituted 100%
of the issued and outstanding shares at such time. The
existing shareholders of the common stock of the Company did
not retain any interest in the post-bankruptcy estate and
their interests were extinguished and canceled. On October 27,
1998, the U.S. bankruptcy Court confirmed the Company's Plan
of Reorganization and the Company emerged from bankruptcy as a
wholly owned subsidiary of Sterne Agee. A related entity of
Sterne Agee acquired an additional 100,000 shares of common
stock prior
<PAGE> 15
Page 15
BOBBY ALLISON WIRELESS CORPORATION
(FORMERLY 2CONNECT EXPRESS, INC.)
(DEBTOR-IN-POSSESSION)
NOTES TO FINANCIAL STATEMENTS
================================================================================
to the Merger.
Effective at 11:59 p.m. December 31, 1998, Bobby Allison
merged with Acquisition. The stockholders of Bobby Allison
received 350,000 shares of common stock of the Company in
exchange for all the outstanding shares of Bobby Allison. The
Merger resulted in a change of control of the ownership of the
Company. On March 1, 1999, the Company changed its name to
Bobby Allison Wireless Corporation.
2. SUMMARY OF (A) Basis of Presentation
SIGNIFICANT
ACCOUNTING The financial statements presented herein are those of
POLICIES Bobby Allison Wireless Corporation, formerly 2Connect
Express, Inc., before giving effect 1) to new value
accounting which resulted when the Company emerged from
Bankruptcy or 2) to the merger with Bobby Allison Cellular
Systems of Florida, Inc., both of which occurred after
January 31, 1998.
(B) Cash Equivalents
The Company considers all highly liquid investments with a
maturity of three months or less when purchased to be cash
equivalents.
(C) Inventories
The Company carries its inventories at the lower of cost or
market. Cost is determined on the first-in, first-out
("FIFO") basis using the last cost method. During the year
ended January 31, 1998, the Company purchased approximately
39% of its inventory from two suppliers.
Subsequent to the Filing date, the Company sold its
remaining inventory through its remaining retail stores,
bulk sales and
<PAGE> 16
Page 16
BOBBY ALLISON WIRELESS CORPORATION
(FORMERLY 2CONNECT EXPRESS, INC.)
(DEBTOR-IN-POSSESSION)
NOTES TO FINANCIAL STATEMENTS
================================================================================
through an auction. At January 31, 1998, the Company
recorded a reserve of approximately $744,000 that resulted
in a charge to cost of sales for estimated losses on
inventory sold subsequent to January 31, 1998.
(D) Property and Equipment
Property and equipment are recorded at cost. Depreciation is
computed using the straight line method over the estimated
useful lives of the assets and includes amortization of
assets held under capital leases. The useful lives of
property and equipment for computing book depreciation are
five to seven years.
In 1997, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of" (SFAS 121). SFAS 121 requires, among other
things, that the Company consider whether indicators of
impairment of long-lived assets held for use are present,
that if such indicators are present the Company determine
whether the sum of the estimated undiscounted future cash
flows attributable to such assets is less than their
carrying amount, and, if so, that the Company recognize an
impairment loss based on the excess of the carrying amount
of the assets over their fair value.
Accordingly, the Company evaluated the ongoing value of its
property and equipment and determined that leasehold
improvements, furniture and fixtures located in
substantially all its stores with a carrying value of $2.1
million were impaired and that, given the nature of such
items, the Company recorded an impairment loss on such
assets at January 31, 1998 of approximately $1,983,000.
<PAGE> 17
Page 17
BOBBY ALLISON WIRELESS CORPORATION
(FORMERLY 2CONNECT EXPRESS, INC.)
(DEBTOR-IN-POSSESSION)
NOTES TO FINANCIAL STATEMENTS
================================================================================
(E) Revenue Recognition
Revenue is recognized upon sales to customers.
(F) Income Taxes
The Company accounts for income taxes on the liability
method. Under this method, deferred tax assets and
liabilities are determined based on differences between
financial reporting and tax bases of assets and liabilities.
Measurement of deferred income tax is based on enacted tax
rates and laws that will be in effect when the differences
are expected to reverse, with the measurement of deferred
income tax assets being reduced by available tax benefits
not expected to be realized.
(G) Earnings per Share
The Company adopted Statement of Financial Accounting
Standards No. 128, "Earnings per Share," (FAS 128) during
1997. FAS 128 simplifies the standards for computing
earnings per share and makes them comparable to
international earnings per share standards. This statement
replaces the presentation of primary EPS and fully diluted
EPS with a presentation of basic EPS and diluted EPS,
respectively. Basic EPS excludes dilution and is computed by
dividing earnings available to common stockholders by the
weighted-average number of common shares outstanding for the
period. Similar to fully diluted EPS, diluted EPS reflects
the potential dilution of securities that could share in the
earnings. Adoption of this statement did not have a material
effect on the Company's reported loss per share amounts.
Loss per share is based upon the weighted average number of
<PAGE> 18
Page 18
BOBBY ALLISON WIRELESS CORPORATION
(FORMERLY 2CONNECT EXPRESS, INC.)
(DEBTOR-IN-POSSESSION)
NOTES TO FINANCIAL STATEMENTS
================================================================================
common shares outstanding during each period. Potential
common shares for the periods have not been included
since their effect would be antidilutive. Potential
dilutive common shares consist of options to purchase
162,247 and 62,500 shares of common stock at January 31,
1998 and 1997, respectively.
(H) Advertising Costs
The Company expenses advertising costs as incurred.
Advertising expense amounted to $314,000 and $12,531 for
the year ended January 31, 1998 and the one month ended
January 31, 1997.
(I) Store Opening Costs
Salaries, training and travel costs relating to opening
new retail locations are recorded as deferred
pre-opening expenses and are amortized ratably over the
first 12 months of store operations. All pre-opening
expenses were expensed as of January 31, 1998 as a
result of the bankruptcy filing and subsequent closing
of all but one of the retail stores.
(J) Use of Estimates
The preparation of financial statements in conformity
with generally accepted accounting principles requires
management to make estimates and assumptions that affect
the reported amounts of assets and liabilities at the
date of the financial statements and the reported
amounts of revenues and expenses during the reporting
period. Actual results could differ from those
estimates.
3. REORGANIZATION In the fourth quarter of 1997, the Company adopted a
restructuring plan which ITEMS also included a filing
of a voluntary petition for protection under Chapter 11
of the U.S. Bankruptcy Code. The major elements of the
plan included the liquidation of all
<PAGE> 19
Page 19
BOBBY ALLISON WIRELESS CORPORATION
(FORMERLY 2CONNECT EXPRESS, INC.)
(DEBTOR-IN-POSSESSION)
NOTES TO FINANCIAL STATEMENTS
================================================================================
inventory, closing all but one store and the merger with Bobby
Allison. Accordingly, the Company recorded the following
transactions:
(i) a charge of approximately $744,000 against inventory to
cost of sales to reflect the reduction in the value of
items owned as of January 31, 1998 that were subsequently
sold through the retail stores, bulk sales and at
auction;
(ii) a charge of approximately $1,983,000 against the carrying
value of fixed assets and capitalized pre-opening costs
to reflect the estimated liquidation value and
abandonment of certain leasehold improvements in stores
closed subsequent to the bankruptcy filing on January 12,
1998;
(iii) a reserve of approximately $424,000 for landlord lease
rejection claims in the bankruptcy proceeding which were
calculated according to the formula prescribed by the
Bankruptcy Code;
(iv) a reserve of approximately $597,000 for employee contract
claims which will be rejected in the Bankruptcy
proceeding;
The Company continued the implementation of the restructuring
plan in 1998 and liquidated all of its assets except certain
fixed assets valued at $175,000 that were subject to the
merger with Bobby Allison Cellular Systems of Florida, Inc.
4. COMMON STOCK On May 9, 1997, the Company completed an initial public
TRANSACTIONS offering of 520,000 units at a price of $12.50 per unit. Each
unit consisted of two shares of common stock, par value $.01
per share, and one common stock purchase warrant of the
Company. Each warrant entitled the holder to purchase one
share of common stock at a purchase price of $6.00 per share
for a period of 60 days commencing one year from the
prospectus date. The net proceeds of the offering were
approximately $5.3 million, net of the
<PAGE> 20
Page 20
BOBBY ALLISON WIRELESS CORPORATION
(FORMERLY 2CONNECT EXPRESS, INC.)
(DEBTOR-IN-POSSESSION)
NOTES TO FINANCIAL STATEMENTS
================================================================================
underwriting discount and offering expenses. Neither the
shares of common stock nor the warrants contained in the units
were detachable or separately transferable from the units for
one year, at which time the units automatically terminated.
The Company also granted the managing underwriter a 45-day
overallotment option to purchase up to 78,000 additional units
upon the same terms and conditions as the initial 520,000
units of the initial public offering solely to cover
overallotments, if any.
Pursuant with the offering, the managing underwriter was
issued unit purchase warrants to purchase 30,500 units at an
exercise price of $13.38 per unit, exercisable for the period
commencing 11 months from the date of the issuance of the
underwriter's warrant and ending on May 9, 1998. All warrants
expired unexercised.
5. PROPERTY AND Property and equipment consists of the following at
EQUIPMENT January 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
----------- ---------
<S> <C> <C>
Leasehold improvements $ 665,685 $ 248,132
Fixtures and equipment 1,027,974 220,178
----------- ---------
TOTAL 1,693,659 468,310
Less accumulated depreciation (243,083) (12,193)
Less impairment writedown (1,241,574) --
----------- ---------
PROPERTY AND EQUIPMENT $ 209,002 $ 456,117
=========== =========
</TABLE>
The Company recorded depreciation expense of $294,472 and
$4,038 for the year ended January 31, 1998 and the one month
ended January 31, 1997. The Company also recorded amortization
expense of $98,800 for the year ended January 31, 1998 related
to capitalized pre-opening costs.
6. NOTES PAYABLE On November 25, 1997, the Company entered into a revolving
<PAGE> 21
Page 21
BOBBY ALLISON WIRELESS CORPORATION
(FORMERLY 2CONNECT EXPRESS, INC.)
(DEBTOR-IN-POSSESSION)
NOTES TO FINANCIAL STATEMENTS
================================================================================
credit agreement with Bay Tech Investments, Inc., which was
later converted to debtor-in-possession financing (see Note
1[B]). The credit agreement provided for borrowings of up to
$1 million at an annual interest rate of prime plus 2% and was
not subject to availability fees on the unused portion
thereof. The credit agreement provided for borrowings of up to
55% of the Company's eligible inventory (as defined therein),
and 80% of eligible accounts receivable (as defined therein).
The borrowings are collateralized by substantially all of the
Company's assets. The Company paid a monthly collateral
monitoring fee of $1,000 to the lender and paid the lender's
reasonable legal fees incurred in the transaction. Prior to
filing the voluntary petition for protection under Chapter 11
of the U.S. Bankruptcy Code, the Company had borrowed $275,000
under this credit facility.
On the Bankruptcy Date, by virtue of that Filing, the Company
was in violation of certain loan covenants; however, the
lender waived this violation in connection with the
debtor-in-possession financing.
On March 2, 1998, the revolving credit agreement was converted
to a debtor-in-possession facility (DIP Credit Facility) (see
Note 1) which provided for borrowings of up to $500,000, at a
fixed annual interest rate of 11% and was not subject to
availability fees on the unused portion thereof. The DIP
Credit Facility provided for borrowings of up to 50% of the
Company's eligible inventory and 80% of eligible accounts
receivable. The DIP Credit Facility was scheduled to expire
February 28, 1998 and was extended to March 28, 1998, at which
time the balance owing was fully paid to the lender plus
accrued interest.
<PAGE> 22
Page 22
BOBBY ALLISON WIRELESS CORPORATION
(FORMERLY 2CONNECT EXPRESS, INC.)
(DEBTOR-IN-POSSESSION)
NOTES TO FINANCIAL STATEMENTS
================================================================================
7. INCOME TAXES Deferred income taxes at January 31, 1998 and 1997 consist of
the following:
<TABLE>
<CAPTION>
1998 1997
---------- --------
<S> <C> <C>
CURRENT DEFERRED TAX ASSETS:
Inventory markdowns $ 280,000 $ --
Accrued restructuring costs 429,000 --
Other 7,000 --
---------- --------
Total current deferred tax asset 716,000 --
Less valuation allowance 716,000 --
---------- --------
Net current deferred tax asset -- --
---------- --------
NONCURRENT DEFERRED TAX ASSETS:
NOL carryforwards 1,721,000 148,000
Write-downs of property, equipment and
start-up costs 746,000 --
Pre-opening costs 259,000 287,000
Other 16,000
---------- --------
Total noncurrent deferred tax assets 2,742,000 435,000
Less valuation allowance 2,742,000 435,000
---------- --------
NET NONCURRENT DEFERRED TAX ASSET $ -- $ --
========== ========
</TABLE>
At January 31, 1998, the Company had a net operating loss for
income tax purposes of approximately $4.6 million which begins
expiring in 2011, and its use to offset the Company's future
taxable income will be limited based on the change in
ownership that occurred upon the Effective date of the Plan of
Reorganization.
The Company is required to establish a valuation allowance for
any portion of the deferred tax assets that management
believes will not be realized. Based upon the uncertainty of
future earnings, management believes it is appropriate to
fully reserve the deferred
<PAGE> 23
Page 23
BOBBY ALLISON WIRELESS CORPORATION
(FORMERLY 2CONNECT EXPRESS, INC.)
(DEBTOR-IN-POSSESSION)
NOTES TO FINANCIAL STATEMENTS
================================================================================
tax asset at January 31, 1998 and 1997.
8. OPERATING LEASES
The Company leased its administrative facilities under an
operating lease with stipulated annual rentals payable
monthly. The Company also leased retail outlet stores under
operating leases, which generally had initial terms of five
to six years with renewal options usually encompassing five
additional years. The retail store leases generally
provided for minimum payments plus contingent rentals for
(a) a percentage of sales in excess of stated amounts and
(b) pro rata share of common area operating expenses. Total
rental expense under these operating leases was
approximately $451,969 and $7,116 for the year ended
January 31, 1998 and the one month ended January 31, 1997,
respectively. Contingent rent expense was not material in
any of the periods.
Upon the date of the Filing, the Company began to close
retail stores and consolidate inventory and store fixtures.
The Company defaulted on all its lease obligations except
for the lease on the Coral Square store. The landlord of
each defaulted lease filed a bankruptcy claim for unpaid
rent upon the Filing date plus certain future rent due
under the lease agreements. The landlord claims were
dismissed by the Bankruptcy Court upon the Effective Date
of the Company's Plan of Reorganization.
Future minimum lease payments, excluding contingent
rentals, (which have been adjusted for leases that were
rejected as a result of the Company's filing Chapter 11,
see Note 1) under non-cancelable operating leases with
initial or remaining terms of one year or more as of
January 31 ,1998 are as follows:
<PAGE> 24
Page 24
BOBBY ALLISON WIRELESS CORPORATION
(FORMERLY 2CONNECT EXPRESS, INC.)
(DEBTOR-IN-POSSESSION)
NOTES TO FINANCIAL STATEMENTS
================================================================================
<TABLE>
<CAPTION>
<S> <C>
1999 $ 83,578
2000 83,578
2001 83,578
2002 83,578
2003 87,086
Thereafter 174,172
--------
$595,570
========
</TABLE>
9. RELATED PARTY As discussed in Note 1, and Note 6, Bay Tech Investments,
TRANSACTIONS Inc. entered into certain financing agreements with the
Company during 1997 and 1998. Bay Tech Investments, Inc. is
owned by Dr. Allan Fishman, the father of the Company's
founder and former Chairman, President and Chief Executive
Officer, Marc D. Fishman.
Certain directors of the Company received directly or are
shareholders of entities that received fees during the
periods from January 1, 1997 to January 31, 1998 as listed
below:
<TABLE>
<CAPTION>
One Month
Year Ended Ended
Description of January 31, January 31,
Related Party Fee Type 1998 1997
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Arnold Jaffee Legal fees $67,825 $30,000
Thomas H. Hicks Consulting fees 41,439 -
======= =======
</TABLE>
10. BENEFIT PLANS The Company provided its eligible full-time employees with
health, preventive dental, term life and accidental death
and dismemberment insurance which was partly funded by the
employees on a payroll deduction basis. The Company also
offered vacation and sick pay benefits to eligible
employees, as defined in its employee handbook. The Company
did not provide a defined
<PAGE> 25
Page 25
BOBBY ALLISON WIRELESS CORPORATION
(FORMERLY 2CONNECT EXPRESS, INC.)
(DEBTOR-IN-POSSESSION)
NOTES TO FINANCIAL STATEMENTS
================================================================================
contribution 401(k) Plan.
11. STOCK OPTION The Company's 1996 Stock Option Plan (the "1996 Plan")
PLANS provides for the granting to employees of incentive
stock options and for the granting to employees and
consultants of nonstatutory stock options. A total of
1,000,000 shares of common stock were reserved for issuance
under the 1996 Plan.
The exercise price of all incentive stock options granted
under the 1996 Plan must be at least equal to the fair
market value of the common stock on the date of grant. With
respect to any participant who owns stock possessing more
than 10% of the voting power of all classes of the
Company's outstanding capital stock, the exercise price of
any incentive stock option granted must equal at least 110%
of the fair market value of the common stock on the grant
date, and the term of the option must not exceed five
years. The term of all other incentive stock options
granted under the 1996 Plan may not exceed ten years, and
the term of non-statutory stock options may not exceed 20
years.
The following table summarizes information about 1996 Plan
activity for the periods ended January 31, 1998 and 1997:
<TABLE>
<CAPTION>
Weighted-Average
Weighted-Average Fair Value of
Shares Exercise Price Options Granted
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding, December 31, 1996 337,500 $2.02 $ -
Granted, at market value 2,500 6.25 2.79
Forfeited (2,500) 4.50 -
-------- ----- -----
Outstanding, January 31, 1997 337,500 2.02 -
Granted, at market value 199,050 4.20 3.53
Exercised (2,500) .04 -
Forfeited (156,853) 2.69 -
-------- ----- -----
Outstanding, January 31, 1998 377,197 $2.92 $ -
======== ===== =====
</TABLE>
At January 31, 1998 and 1997, a total of 162,247 and 62,500
options were exercisable at a weighted-average exercise
price of
<PAGE> 26
Page 26
BOBBY ALLISON WIRELESS CORPORATION
(FORMERLY 2CONNECT EXPRESS, INC.)
(DEBTOR-IN-POSSESSION)
NOTES TO FINANCIAL STATEMENTS
================================================================================
$2.34 and $2.02, respectively.
The following table summarizes information about stock
options outstanding and exercisable at January 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------- --------------------------
Weighted- Weighted- Weighted-
Average Average Average
Range of Number Exercise Remaining Number Exercise
Exercise Prices Outstanding Price Life Exercisable Price
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$.04 to $2.69 187,865 $1.44 7.2 years 120,332 $1.53
$3.81 to $6.25 189,332 4.39 9.5 years 41,915 4.65
-------------- ------- ----- --------- ------- -----
377,197 $2.92 162,247 $2.34
======= ===== ======= =====
</TABLE>
The Company also has another fixed stock option plan, the
Directors Stock Option Plan, under which the Company may
grant options to non-employee members of the Company's
board of directors for up to 50,000 shares of common stock,
and any options granted fully vest upon grant. Under the
Directors Stock Option Plan, the exercise price of each
option must not be lower than the lesser of (i) the fair
market price of the Company's common stock on the date of
grant of the option or (ii) what is at the date of grant,
the last sale price at which the Company sold shares of its
common stock, and an option's maximum term is 10 years. At
January 31, 1998 and 1997, there were 52,994 and 22,224
options outstanding under this plan, respectively.
No effect is given to the options outstanding as of January
31, 1998 or 1997 in computing earnings per share for the
periods then ended, as their effect is anti-dilutive.
Upon the Effective Date of the Company's Plan of
Reorganization, all the existing common stock and related
outstanding options and warrants of the Company were
forever extinguished and canceled.
The Company applies Accounting Principles Board Opinion No.
25 "Accounting for Stock Issued to Employees" and related
<PAGE> 27
Page 27
BOBBY ALLISON WIRELESS CORPORATION
(FORMERLY 2CONNECT EXPRESS, INC.)
(DEBTOR-IN-POSSESSION)
NOTES TO FINANCIAL STATEMENTS
================================================================================
interpretations in accounting for its stock options granted to
employees. The exercise price of all stock options granted to
employees during the one month ended January 31, 1997 and the
year ended January 31, 1998 equaled or exceeded the fair
market value of the underlying common stock on the date of
grant. Accordingly, no compensation expense has been
recognized in connection with stock options granted to
employees. Had compensation cost for the Company's stock
options granted to employees been determined consistent with
Financial Accounting Standards Board Statement No. 123, the
Company's net loss for the one month ended January 31, 1997
and for the year ended January 31, 1998 would have been
$157,230 and $8,824,415, respectively, and net loss per share
would have been $(.06)and $(2.54), respectively.
The weighted-average fair value of options granted to
employees during the one month ended January 31, 1997 and the
year ended January 31, 1998 was based upon the Black-Scholes
option-price model with the following weighted-average
assumptions: expected dividends of zero, risk-free interest
rate of 6.00% for the one month ended January 31, 1997 and the
year ended January 31, 1998; expected volatility of 90% for
the year ended January 31, 1998 and expected life of ten years
for the one month ended January 31, 1997 and the year ended
January 31, 1998.
The Company accounts for stock options granted to service
providers and directors based on the fair value of the stock
options granted. During the one month ended January 31, 1997
and the year ended January 31, 1998, the Company recorded
$34,375 and $39,377 of stock compensation expense related to
22,224 and 30,770 stock options granted to service providers
and directors. The fair value of the stock options was
estimated on the date of grant using the Black-Scholes
option-pricing model.
<PAGE> 28
Page 28
BOBBY ALLISON WIRELESS CORPORATION
AND SUBSIDIARY
CONTENTS
================================================================================
<TABLE>
<S> <C>
REPORT OF INDEPENDENT AUDITORS
BDO Seidman, LLP 29
Carter, Belcourt & Atkinson, P.A. 30
FINANCIAL STATEMENTS
Consolidated balance sheets 31 - 32
Consolidated statements of operations 33
Consolidated statements of capital deficit 34
Consolidated statements of cash flows 35
Notes to consolidated financial statements 36 - 57
</TABLE>
<PAGE> 29
Page 29
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
Bobby Allison Wireless Corporation and Subsidiary
We have audited the accompanying consolidated balance sheet of Bobby Allison
Wireless Corporation (formerly 2Connect Express, Inc.) and Subsidiary as of
December 31, 1998 and the related consolidated statements of operations,
shareholders' equity (deficit), and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Bobby Allison Wireless
Corporation and Subsidiary at December 31, 1998, and the results of their
operations and cash flows for the year then ended, in conformity with generally
accepted accounting principles.
BDO SEIDMAN, LLP
ORLANDO, FLORIDA
March 15, 1999, except for Note 7,
which is as of March 31, 1999
<PAGE> 30
Page 30
REPORT OF INDEPENDENT AUDITORS
To the Stockholders of
Bobby Allison Cellular Systems of Florida, Inc.
We have audited the balance sheets of Bobby Allison Cellular Systems of
Florida, Inc. (see Notes 1 and 2) as of December 31, 1997 and 1996 and the
related statements of operations, capital deficit and cash flows for the years
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Bobby Allison Cellular Systems
of Florida, Inc. as of December 31, 1997 and 1996, and the results of its
operations and its cash flows for the years then ended, in conformity with
generally accepted accounting principles.
Lakeland, Florida CARTER, BELCOURT & ATKINSON, P.A.
June 15, 1998, except for Notes 3
and 4, as to which the date
is January 5, 1999
<PAGE> 31
Page 31
BOBBY ALLISON WIRELESS CORPORATION
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
================================================================================
<TABLE>
<CAPTION>
December 31, 1998 1997
- ------------ ---------- ----------
<S> <C> <C>
ASSETS
CURRENT:
Cash $ 125,155 $ 2,050
Accounts receivable, less allowance for doubtful accounts of
$76,144 and $54,237 684,344 408,977
Prepaid expenses 29,091 --
Inventories 645,976 452,018
Deferred tax asset (Note 9) 24,000 20,000
---------- ----------
TOTAL CURRENT ASSETS 1,508,566 883,045
---------- ----------
LEASEHOLD IMPROVEMENTS AND EQUIPMENT, at cost:
Office equipment and furniture 628,182 291,795
Leasehold improvements 310,671 254,009
Automotive equipment 11,215 11,215
---------- ----------
950,068 557,019
Less accumulated depreciation 265,491 156,644
---------- ----------
NET LEASEHOLD IMPROVEMENTS AND EQUIPMENT 684,577 400,375
---------- ----------
OTHER ASSETS:
Goodwill and other intangible assets, net of accumulated
amortization of $135,442 and $109,340 (Note 2) 350,397 40,873
Deferred tax asset (Note 9) 156,000 205,000
Deposits 25,038 14,381
---------- ----------
TOTAL OTHER ASSETS 531,435 260,254
---------- ----------
$2,724,578 $1,543,674
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 32
Page 32
BOBBY ALLISON WIRELESS CORPORATION
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
================================================================================
<TABLE>
<CAPTION>
December 31, 1998 1997
- ------------ ----------- -----------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 550,156 $ 830,610
Accrued expenses 266,624 121,007
Deferred income (Note 5) 315,528 45,911
Current maturities of long-term debt (Note 3) 168,877 776,225
Convertible debenture (Note 4) 125,000 125,000
----------- -----------
TOTAL CURRENT LIABILITIES 1,426,185 1,898,753
LONG-TERM LIABILITIES:
Long-term debt, less current maturities (Note 3) 441,961 201,750
Convertible debentures (Note 4) -- 375,000
----------- -----------
TOTAL LIABILITIES 1,868,146 2,475,503
----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 12) -- --
PREFERRED STOCK (Note 6):
Series A convertible preferred stock, $1.00 par, shares authorized 20;
outstanding 15 375,000 --
Series B convertible preferred stock, $1.00 par, shares authorized 50;
outstanding 50 1,250,000 --
----------- -----------
TOTAL PREFERRED STOCK 1,625,000 --
----------- -----------
CAPITAL DEFICIT:
Common stock, $.01 par; shares authorized 25 million; outstanding
480,000 and 4,330 4,800 43
Additional paid-in capital 100,405 2,287
Deficit (873,773) (927,659)
Treasury stock, 330 shares, at cost -- (6,500)
----------- -----------
TOTAL CAPITAL DEFICIT (768,568) (931,829)
----------- -----------
$ 2,724,578 $ 1,543,674
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 33
Page 33
BOBBY ALLISON WIRELESS CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
================================================================================
<TABLE>
<CAPTION>
Year ended December 31, 1998 1997 1996
- ----------------------- ----------- ----------- -----------
<S> <C> <C> <C>
REVENUES:
Product sales $ 3,361,413 $ 1,875,105 $ 1,464,927
Activation commissions 4,153,156 2,187,772 1,373,967
Pager services 631,800 737,519 603,166
----------- ----------- -----------
Total revenues 8,146,369 4,800,396 3,442,060
COST OF SALES 3,934,935 2,680,028 1,866,445
----------- ----------- -----------
Gross profit 4,211,434 2,120,368 1,575,615
----------- ----------- -----------
OPERATING EXPENSES:
Selling, general and administrative expenses 3,613,255 2,529,953 1,615,627
Depreciation and amortization 176,116 125,591 142,393
----------- ----------- -----------
Total operating expenses 3,789,371 2,655,544 1,758,020
----------- ----------- -----------
Operating income (loss) 422,063 (535,176) (182,405)
----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest expense (301,411) (153,651) (104,089)
Interest income 4,942 11,049 11,464
Other (12,972) 334 --
----------- ----------- -----------
Total other expense (309,441) (142,268) (92,625)
----------- ----------- -----------
INCOME (LOSS) BEFORE TAXES ON INCOME 112,622 (677,444) (275,030)
INCOME TAX (EXPENSE) BENEFIT (Note 9) (45,000) 176,000 49,000
----------- ----------- -----------
NET INCOME (LOSS) 67,622 (501,444) (226,030)
PREFERRED STOCK DIVIDENDS 13,736 -- --
----------- ----------- -----------
NET INCOME (LOSS) AVAILABLE TO COMMON STOCKHOLDERS $ 53,886 $ (501,444) $ (226,030)
=========== =========== ===========
PRO FORMA EARNINGS (LOSS) PER COMMON SHARE (Note 2):
Basic and diluted $ .11 $ (1.05) $ (.47)
=========== =========== ===========
PRO FORMA WEIGHTED AVERAGE SHARES OUTSTANDING (Note 2):
Basic and diluted 480,000 480,000 480,000
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 34
Page 34
BOBBY ALLISON WIRELESS CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CAPITAL DEFICIT
================================================================================
<TABLE>
<CAPTION>
Common Stock Additional
----------------- Paid-in Treasury
Shares Amount Capital Deficit Stock Total
------- ------- --------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1995 2,300 $ 23 $ 277 $ 200,185 $ -- $(199,885)
Net loss -- -- -- (226,030) -- (226,030)
Issuance of common stock 2,030 20 2,010 -- -- 2,030
Purchase of treasury stock -- -- -- -- (6,500) (6,500)
------- ------- --------- --------- ------- ---------
BALANCE, December 31, 1996 4,330 43 2,287 (426,215) (6,500) (430,385)
Net loss -- -- -- (501,444) -- (501,444)
------- ------- --------- --------- ------- ---------
BALANCE, December 31, 1997 4,330 43 2,287 (927,659) (6,500) (931,829)
Cancellation of treasury stock (330) (3) (6,497) -- 6,500 --
Record reverse merger (Notes 1[C] and 2[A]) 476,000 4,760 104,615 -- -- 109,375
Preferred stock dividend -- -- -- (13,736) -- (13,736)
Net income -- -- -- 67,622 -- 67,622
------- ------- --------- --------- ------- ---------
BALANCE, December 31, 1998 480,000 $ 4,800 $ 100,405 $(873,773) $ -- $(768,568)
======= ======= ========= ========= ======= =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 35
Page 35
BOBBY ALLISON WIRELESS CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
================================================================================
<TABLE>
<CAPTION>
Year ended December 31, 1998 1997 1996
- ----------------------- ----------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 67,622 $(501,444) $(226,030)
Adjustments to reconcile net loss to net cash used for operating activities:
Depreciation and amortization 176,116 125,591 142,393
Loss on disposal of equipment 14,236 714 --
Accrued interest converted to preferred stock 10,000 -- --
Cash provided by (used for):
Accounts receivable (275,367) 11,652 (315,886)
Prepaid expenses (27,302) --
Inventories (193,958) 14,281 (359,766)
Deferred tax assets 45,000 (176,000) (49,000)
Accounts payable (280,454) 217,559 565,011
Accrued expenses (10,321) 15,161 38,227
Deferred income 7,595 194 25,905
----------- --------- ---------
Net cash used for operating activities (466,833) (292,292) (179,146)
----------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of leasehold improvements and equipment (274,452) (70,072) (386,449)
Net repayment from (advances to) affiliated company -- 60,774 (4,207)
Increase in deposits (10,657) (3,605) (4,678)
Proceeds from sale of equipment 1,000 -- --
Purchase of goodwill and other intangibles -- (22,387) (63,990)
----------- --------- ---------
Net cash used for investing activities (284,109) (35,290) (459,324)
----------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt (575,953) (103,554) (268,957)
Proceeds from issuance of long-term debt 350,000 426,317 417,260
Proceeds from issuance of convertible debentures 1,100,000 -- 500,000
Proceeds from issuance of common stock -- -- 2,030
Purchase of treasury stock -- -- (6,500)
----------- --------- ---------
Net cash provided by financing activities 874,047 322,763 643,833
----------- --------- ---------
NET INCREASE (DECREASE) IN CASH 123,105 (4,819) 5,363
CASH, beginning of year 2,050 6,869 1,506
----------- --------- ---------
CASH, end of year $ 125,155 $ 2,050 $ 6,869
=========== ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 36
Page 36
BOBBY ALLISON WIRELESS CORPORATION
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
1. ORGANIZATION, Bobby Allison Wireless Corporation, formerly "2Connect
RECAPITALIZATION Express, Inc."("2Connect") through its wholly-owned
AND MERGER subsidiary Bobby Allison Wireless, Inc., formerly "2Connect
Acquisition Corp." ("Acquisition") (collectively the
"Company") through a merger (see Note 1[C]) with Bobby
Allison Cellular Systems of Florida, Inc. ("Bobby Allison")
owns and operates 24 mall-based specialty retail locations
and one direct marketing location in the state of Florida
offering cellular and pager service under the names "Bobby
Allison Wireless" and "Bobby Allison Cellular." The Company
operates within a single industry segment.
The historical financial statements included herein are
those of Bobby Allison up to 11:59 p.m. on December 31,
1998, the merger date as further described in Note 1(C).
Immediately after the merger, the Company's balance sheet
included the accounts of 2Connect and Acquisition (which
includes those of Bobby Allison).
(A) Plan of Reorganization
2Connect filed a voluntary petition for relief under
Chapter 11 of the U.S. Bankruptcy Code (the "Filing")
on January 12, 1998, and subsequently closed all of its
stores except the store at Coral Square Mall in Coral
Springs, Florida. Subsequent to the Filing, 2Connect
liquidated most of its assets. The Coral Square store
operated from June 16, 1998 until December 31, 1998
under a management agreement (the "Management
Agreement") with Bobby Allison whereby Bobby Allison
was responsible for all expenses related to that store
and is entitled to any profits or losses that it
generated.
On March 3, 1998, 2Connect executed a Letter of
Intent, then a merger agreement on May 1, 1998 that
was amended on October 26, 1998 (collectively the
"Merger Agreement") with Bobby Allison (see Note
1[C]) under which Bobby Allison would merge with and
into Acquisition, a Florida corporation formed on
April 22, 1998.
<PAGE> 37
Page 37
BOBBY ALLISON WIRELESS CORPORATION
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
On August 27, 1998, 2Connect entered into an agreement with
Sterne, Agee & Leach, Inc. ("Sterne Agee") whereby Sterne
Agee would acquire out of bankruptcy 100% of the equity
interests of 2Connect and 2Connect would retain the Coral
Square store lease and certain store fixtures. In
consideration for such acquisition, Sterne Agee would make a
new value contribution to the bankruptcy estate for the
benefit of 2Connect's creditors in the amount of $175,000. To
effect this transaction, the Plan of Reorganization, as
amended, provided that, upon the effective date of the Plan
of Reorganization, all of the existing common stock of
2Connect was forever extinguished and canceled and 2Connect
issued 30,000 new shares of Common Stock to Sterne Agee which
constituted 100% of the issued and outstanding shares at such
time. The existing shareholders of the common stock of
2Connect did not retain any interest in the post-bankruptcy
estate and their interests were extinguished and canceled. On
October 27, 1998, the U.S. Bankruptcy Court confirmed
2Connect's Plan of Reorganization and 2Connect emerged from
bankruptcy as a wholly owned subsidiary of Sterne Agee. A
related entity of Sterne Agee acquired an additional 100,000
shares of common stock prior to the merger.
(B) Restated Articles of Incorporation
On December 1, 1998, the Company filed its Amended and
Restated Articles of Incorporation ("Restated Articles") in
anticipation of the merger with Bobby Allison (see Note
1[C]). At that date, Bobby Allison's capital structure
included three series of preferred stock and one class of
common stock. The Merger Agreement required that, prior to
the Merger, the Company file Restated Articles to authorize
three classes of preferred stock substantially similar to the
preferred stock authorized and issued by Bobby Allison for
issuance pursuant to the Merger.
<PAGE> 38
Page 38
BOBBY ALLISON WIRELESS CORPORATION
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
The Company filed the Restated Articles on December 1, 1998
authorizing 20 shares of 7.5% Series A Convertible Preferred
Stock, $1.00 par value, 50 shares of 7.5% Series B
Convertible Preferred Stock, par value $1.00, 250 shares of
7.5% Series C Convertible Preferred Stock, par value $1.00
and 25 million shares of common stock, par value $.01.
(C) Merger
On December 31, 1998, pursuant to the Merger Agreement, Bobby
Allison merged with and into Acquisition, and the following
occurred:
(i) Acquisition survived the merger, remained a wholly
owned subsidiary of 2Connect and changed its name to
"Bobby Allison Wireless, Inc.";
(ii) the two holders of all of the common stock of Bobby
Allison each received 175,000 shares of the common
stock of 2Connect (in the aggregate, 350,000 shares
representing approximately 73% of the 480,000 shares of
Common Stock of 2Connect after the merger) and a
$125,000 debenture (or $250,000 in the aggregate)
bearing interest at 7.5% per annum, with principle and
interest payable quarterly at $11,729 over three years;
(iii) holders of preferred stock in Bobby Allison received
equivalent preferred stock in 2Connect that is
convertible into 270,790 shares of common stock, of
which the two former shareholders of Bobby Allison own
preferred stock convertible into 24,996 shares of
common stock;
(iv) the officers of 2Connect resigned and the two former
stockholders of Bobby Allison were appointed officers
of
<PAGE> 39
Page 39
BOBBY ALLISON WIRELESS CORPORATION
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
2Connect;
(v) on March 1, 1999, 2Connect changed its name to Bobby
Allison Wireless Corporation.
(D) Unaudited Pro Forma Information
The following unaudited pro forma information has been
prepared assuming the Merger had taken place at the
beginning of the respective periods. The unaudited pro
forma information includes adjustments for interest
expense that would have been incurred to finance the
purchases, additional preferred stock dividends based on
preferred stock being outstanding the entire period and
the amortization of intangibles arising from the
transaction. The unaudited pro forma financial
information is not necessarily indicative of the results
of operations as they would have been had the
transactions been effected on the assumed dates.
<TABLE>
<CAPTION>
Unaudited
-------------------------------------------
Year ended December 31, 1998 1997 1996
----------------------- ------------ ------------ -----------
<S> <C> <C> <C>
Net sales $ 10,386,548 $ 7,378,301 $ 3,530,263
Net loss to common stockholders (6,363,143) (3,902,906) (823,245)
Loss per common share (13.26) (8.13) (1.72)
============ ============ ===========
</TABLE>
2. SUMMARY OF (A) Basis of Presentation
SIGNIFICANT
ACCOUNTING Upon the consummation of the Merger, the former
POLICIES stockholders of Bobby Allison obtained approximately 73%
of the voting rights of the Company. Although Bobby
Allison merged into Acquisition, the transaction was
accounted for as a purchase of 2Connect by Bobby Allison
(a reverse acquisition in which Bobby Allison is
considered the acquirer for accounting purposes), since
the stockholders of Bobby Allison obtained a majority of
the voting rights of 2Connect as a result
<PAGE> 40
Page 40
BOBBY ALLISON WIRELESS CORPORATION
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
of this transaction. Accordingly, the historical
financial statements of the Company for the periods prior
to the time of the merger are those of Bobby Allison. The
balance sheet as of December 31, 1998 is that of Bobby
Allison after giving effect to the Merger.
The purchase price for 2Connect was computed by valuing
the common stock of 2Connect issued ($109,375) and adding
the acquisition costs of $142,203 and the $250,000 of
debentures issued to the former stockholders of Bobby
Allison for a total purchase price of $501,578. The
purchase price has been allocated to the assets purchased
and liabilities assumed based upon the fair values at the
date of transaction. The excess of the purchase price
over the fair value of the net assets acquired was
$335,627 and has been recorded as goodwill, which is
being amortized on a straight line basis over 10 years.
(B) Cash Equivalents
The Company considers all highly liquid investments with
a maturity of three months or less when purchased to be
cash equivalents.
(C) Inventories
Inventories, consisting of cellular and wireless products
and related accessories, are valued at the lower of
average cost or market.
(D) Property and Equipment
Depreciation on equipment is computed over the estimated
useful lives (three to seven years) of the assets by the
declining balance method. Leasehold improvements are
depreciated over the shorter of the estimated life of the
assets or the lease term.
<PAGE> 41
Page 41
BOBBY ALLISON WIRELESS CORPORATION
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
(E) Impairment of Long-Lived Assets
The Company evaluates impairment of long-lived assets in
accordance with Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be
Disposed of" (FAS 121). FAS 121 requires impairment
losses to be recorded on long-lived assets used in
operations and intangible assets when indications of
impairment are present and the undiscounted cash flows
estimated to be generated by those assets are less than
the assets' carrying amount.
(F) Goodwill and Other Intangible Assets
Intangible assets, substantially goodwill, are carried at
cost and amortized under the straight-line method
generally over ten years, the estimated useful life.
Goodwill represents the excess cost of the acquired
businesses over the fair value of net assets acquired. At
December 31, 1998, unamortized goodwill and other
intangible assets of $350,397 was not considered to be
impaired.
(G) Revenue Recognition
The Company's revenue recognition policies are:
Product Sales - Revenue from retail product sales is
recorded upon customer purchase.
Activation Commissions - The Company receives an
activation commission from the applicable cellular
carrier when a customer initially subscribes for the
cellular carrier's service. The amount of the activation
commission paid by cellular carriers is based upon the
service plan offered by the carrier and is recognized by
the Company at the time of sale. New subscription
activation commissions are fully refundable
<PAGE> 42
Page 42
BOBBY ALLISON WIRELESS CORPORATION
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
if the subscriber cancels its subscription prior to
completion of a minimum period of continuous active
service (generally 90 days). Customers generally sign a
service agreement with the Company that the customer
reimburse the Company for lost activation commissions in
the event of the early cancellation of service. The
Company accrues for estimated deactivation losses, net of
cancellation fees, by creating a reserve against carrier
accounts receivable. The reserve is reflective of the
historical cancellation experience.
AT&T activation commissions accounted for approximately
51% and 45% of the Company's net revenues for the year
ended December 31, 1998 and 1997, respectively. Accounts
receivable from AT&T accounted for approximately 75% and
92% of the total net accounts receivable at December 31,
1998 and 1997, respectively.
Pager Services - The Company is a reseller of pager
services. The Company's policy is to bill in advance for
pager services. Revenue on pager services is recognized
over the period of such service, typically three months.
(H) Income Taxes
The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," which requires recognition
of estimated income taxes payable or refundable on income
tax returns for the current year and for the estimated
future tax effect attributable to temporary differences
and carryforwards. Measurement of deferred income tax is
based on enacted tax laws including tax rates, with the
measurement of deferred income tax assets being reduced
by available tax benefits not expected to be realized.
<PAGE> 43
Page 43
BOBBY ALLISON WIRELESS CORPORATION
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
(I) Net Income (Loss) per Common Share ("EPS")
Basic EPS is calculated by dividing the income (loss)
available to common shareholders by the weighted average
number of common shares outstanding for the period without
consideration for common stock equivalents. Diluted EPS
includes the effect of potentially dilutive securities. The
Company has presented earnings per share on a pro forma
basis as if the merger, which occurred December 31, 1998,
had occurred on January 1, 1997.
(J) Advertising Costs
The Company expenses advertising costs as incurred. The
total advertising costs charged to expense were $33,302,
$42,383, and $42,185 for the years ended December 31, 1998,
1997 and 1996, respectively.
(K) Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results
could differ from those estimates.
<PAGE> 44
Page 44
BOBBY ALLISON WIRELESS CORPORATION
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
(L) Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board
issued SFAS 133, "Accounting for Derivative Instruments and
Hedging Activities" (SFAS 133). SFAS 133 requires companies
to recognize all derivatives contracts as either assets or
liabilities in the balance sheet and to measure them at fair
value. If certain conditions are met, a derivative may be
specifically designated as a hedge, the objective of which
is to match the timing of gain or loss recognition on the
hedging derivative with the recognition of (i) the changes
in the fair value of the hedged asset or liability that are
attributable to the hedged risk or (ii) the earnings effect
of the hedged forecasted transaction. For a derivative not
designated as a hedging instrument, the gain or loss is
recognized in income in the period of change. SFAS 133 is
effective for all fiscal quarters of fiscal years beginning
after June 15, 1999.
Historically, the Company has not entered into derivatives
contracts either to hedge existing risks or for speculative
purposes. Accordingly, the Company does not expect adoption
of the new standard on January 1, 2000 to affect its
financial statements.
In June 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("SFAS No. 130"). SFAS 130
establishes standards for reporting and displaying
comprehensive income, its components and accumulated
balances. SFAS 130 is effective for periods beginning after
December 15, 1997. The Company adopted this new accounting
standard in 1998, and its adoption had no effect on the
Company's financial statements and disclosures.
<PAGE> 45
Page 45
BOBBY ALLISON WIRELESS CORPORATION
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
3. LONG-TERM DEBT Long-term debt consists of:
<TABLE>
<CAPTION>
December 31, 1998 1997
---------------------------------------------------- -------- --------
<S> <C> <C>
8.5% bank notes refinanced February 1999, payable
$11,066 monthly beginning March 1999 through
February 2002, including interest; collateralized
by receivables, inventories, equipment, furniture,
fixtures, intangibles and personal guaranty of two
stockholders $350,000 $ --
7.5% debenture note payable to stockholder, payable
$11,729 quarterly through December 2001, including
interest; unsecured 125,000 --
7.5% debenture note payable to stockholder, payable
$11,729 quarterly through December 2001, including
interest; unsecured 125,000 --
10.625% bank notes, payable $13,994 monthly
through February 1999, including interest;
collateralized by receivables, inventories,
equipment, furniture, fixtures, and intangibles;
and debt subordination agreements with stockholders,
personal guaranty of stockholders and right to
first offer of assignment of certain leases -- 476,041
9% demand note to supplier, payable $11,130 monthly
through December 2000, including interest;
collateralized by receivables, inventories,
intangibles and debt subordination agreement with
stockholders (Note 5) -- 350,000
8% subordinated note payable to stockholder,
principal and interest payable December 31,
1998; unsecured; principal and accrued interest
converted to preferred stock December 1998 -- 70,000
8% subordinated note payable to stockholder,
principal and interest payable December 31,
1998; unsecured; principal and accrued interest
converted to preferred stock December 1998 -- 70,000
Noninterest bearing note (discounted at 7.51%),
payable $2,000 monthly through June 1998;
collateralized by specific acquired assets and
personal guaranty of stockholders -- 11,934
Other note payable 10,838 --
-------- --------
610,838 977,975
Less current maturities 168,877 776,225
-------- --------
Total long-term debt $441,961 $201,750
======== ========
</TABLE>
<PAGE> 46
Page 46
BOBBY ALLISON WIRELESS CORPORATION
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
Future maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
Year ending December 31,
-----------------------------------------------------------------------------
<S> <C>
1999 $ 168,877
2001 205,919
2002 214,715
2003 21,327
Thereafter -
-----------
$ 610,838
===========
</TABLE>
On February 24, 1999, the Company executed a line of credit
agreement with a local bank. The line of credit is for a
maximum amount of $500,000, has revolving payment terms,
bears interest at prime plus 1% (8.75% at February 24,
1999), is collateralized by substantially all the Company's
assets and is personally guaranteed by two stockholders.
4. CONVERTIBLE At December 31, 1997, the Company had four $125,000
DEBENTURE convertible debenture notes outstanding. Three of the
NOTES notes totaling $375,000 were converted into preferred
stock in November 1998 pursuant to the Merger Agreement;
the remaining debenture note was repaid in January 1999.
5. DEFERRED During 1998, the Company negotiated an agreement with a
INCOME supplier whereby the supplier agreed to forgive a note
payable with an outstanding balance of $262,022. Under the
terms of the agreement, the forgiveness is cancelable if
certain events occur, including the termination of a related
agreement with cause. The Company has deferred the
recognition of debt forgiveness income until the risk of
repayment no longer exists and is expected to recognize 50%
of the deferred income on November 30, 1999 and the balance
on November 30, 2000, provided the agreement is still in
effect on those dates. The agreement also provides for
certain supplier marketing development funds received in
January 1999 to be deferred over the same
<PAGE> 47
Page 47
BOBBY ALLISON WIRELESS CORPORATION
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
period and recognized using the same percentages.
Deferred income also includes billed but unearned beeper
service revenue as of December 31, 1998 and 1997 of $53,505
and $45,911, respectively.
6. PREFERRED STOCK At December 31, 1998, the Company has outstanding 15 shares
of Series A Preferred Stock, $1.00 par, and 50 shares of
Series B Preferred Stock, $1.00 par, each with a face value
of $25,000 per share. The holders of this preferred stock
are entitled to receive, out of funds legally available
therefor, cumulative dividends that begin accruing at the
date of issuance at the annual rate of 7.5% based upon the
initial purchase price of each share of Preferred Stock. No
dividends shall be paid to holders of common stock unless
all accrued dividends on the preferred stock have been paid.
In the event that there is insufficient legally available
funds to pay all dividends on the preferred stock, then the
Company shall first pay all accrued dividends pro rata on
the Series A Preferred Stock and Series B Preferred Stock.
If there are sufficient funds to pay all of the dividends on
the Series A Preferred Stock and Series B Preferred Stock,
then and remaining funds shall be paid pro rata to the
holders of Series C Preferred Stock. The Company has
authorized but not issued any Series C Preferred Stock.
Call Feature
The Series A and Series B Preferred Stock are callable by
the Company at any time. The Preferred Stock also carries a
mandatory redemption feature whereby all outstanding Series
A and Series B Preferred Stock is redeemable at par value
five years after the issuance date. As a result of this
provision, the Preferred Stock had been recorded outside of
the stockholders' equity section of the Company's
consolidated balance sheet at December 31, 1998.
<PAGE> 48
Page 48
BOBBY ALLISON WIRELESS CORPORATION
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
Conversion Rate
Each share of Series A and Series B Preferred Stock has a
face value of $25,000 per share and is convertible into
4,166 shares of common stock, or $6.00 per common share
("Conversion Ratio"). The Restated Articles provide that the
Conversion Ratio shall be adjusted for various corporate
actions of the Company to protect the holders of the
preferred stock against dilution, including, but not limited
to, stock splits, stock dividends, mergers, reorganization
and recapitalizations. The Conversion Ratio shall also be
adjusted for the sale of any shares of common stock at a
price of less than the conversion price, excluding stock
options granted before the filing of the Restated Articles,
of which there were none, or granted pursuant to a duly
adopted stock option plan for which no more than 10% of the
outstanding common stock shall be reserved for issuance.
Redemption
To the extent the Company has funds legally available
therefor, the Company shall redeem each share of Series A
and Series B Preferred Stock on that date exactly five years
after the issuance of such share of preferred stock. To the
extent the Company has funds legally available therefor, the
Board of Directors of the Company may at any time, in its
sole and absolute discretion, redeem by lot any series or
portion of any series of the preferred stock. Redeemed
shares of preferred stock shall revert to the status of
authorized but unissued and may be redesignated and
reissued.
Voting Rights
The Series A and Series B Preferred Stock shall be generally
non-voting except as specifically provided for in the
Restated Articles
<PAGE> 49
Page 49
BOBBY ALLISON WIRELESS CORPORATION
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
and summarized below:
The vote of the majority of the Series A Preferred Stock
shall be required for authorization of the following: (i)
the issuance of any securities ranking senior to or in
parity with the Series A Preferred Stock except for
commercial debt incurred in the ordinary course of business;
(ii) any amendments, alterations or repeals of any provision
of the Restated Articles affecting the rights or preferences
of the Preferred Stock; (iii) any consolidation or merger
(unless the Company survives and the capital is not
changed); (iv) any transaction or series of transactions in
which an excess of 50% of the Company's voting power is
transferred; (v) any reclassification or recapitalization;
(vi) any dissolution, liquidation, or winding up of the
Company; (vii) any sale of all or more than 50% of the
assets of the Company or (viii) any agreement to do any of
the foregoing.
The vote of the majority of the Series B Preferred Stock
shall be required for authorization of the following: (i)
the issuance of any securities ranking senior to or in
parity with the Series B Preferred Stock except for
commercial debt incurred in the ordinary course of business;
(ii) any amendments, alterations or repeals of any provision
of the Restated Articles affecting the rights or preferences
of the Preferred Stock; (iii) any consolidation or merger
(unless the Company survives and the capital is not
changed); (iv) any transaction or series of transactions in
which an excess of 50% of the Company's voting power is
transferred; (v) any reclassification or recapitalization;
(vi) any dissolution, liquidation, or winding up of the
Company; (vii) any sale of all or more than 50% of the
assets of the Company or (viii) any agreement to do any of
the foregoing. Also, the Series B Preferred Stock shall have
the right to elect 1/3 of the directors of the Board of
Directors.
The vote of the majority of the Series C Preferred Stock
shall be
<PAGE> 50
Page 50
BOBBY ALLISON WIRELESS CORPORATION
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
required for authorization of any securities ranking senior
to or in parity with the Series C Preferred Stock except for
commercial debt incurred in the ordinary course of business.
In the event that the Company defaults on the payment of any
dividend on or redemption of any series of preferred stock,
then that series of preferred stock shall become fully
voting on all matters submitted to a vote of the
shareholders as if fully converted into common stock.
Liquidation
Upon any liquidation, dissolution or winding-up of the
Company, distribution of the assets of the Company shall be
made in the following order: (i) to the holders of Series A
Preferred Stock, an amount equal to the initial purchase
price plus accrued but unpaid dividends; (ii) to the holders
of Series B Preferred Stock, an amount equal to the initial
purchase price plus accrued but unpaid dividends; (iii) to
the holders of the Series C Preferred Stock, an amount equal
to the initial purchase price plus accrued but unpaid
dividends; and (iv) pro rata to the holders of the preferred
stock and common stock.
<PAGE> 51
Page 51
BOBBY ALLISON WIRELESS CORPORATION
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
7. STOCK OPTIONS Plan Options
Pursuant to 2Connect's Plan of Reorganization confirmed by
the Bankruptcy Court on October 27, 1998, all outstanding
stock options and stock option plans were terminated.
Pursuant to the terms of the employment agreements with
Messrs. McGinnis and Ralph, the Company adopted the Bobby
Allison Wireless Corporation 1999 Stock Option Plan ("Option
Plan") effective January 1, 1999. The Option Plan provides
that the Company may grant options to purchase up to 10% of
its outstanding common stock but in no event greater than
100,000 shares. On March 31, 1999, the Company granted stock
options pursuant to the Option Plan to purchase 42,000
shares of common stock at $6.00 per share.
Non-Plan Options
The Company issued non-plan options to purchase 7,500 shares
of common stock on December 31, 1998 pursuant to the
execution of a license agreement (see Note 12). The value of
these options as determined by the Black-Scholes valuation
model was not material to the financial statements.
<PAGE> 52
Page 52
BOBBY ALLISON WIRELESS CORPORATION
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
8. RELATED PARTY The Company had transactions with its stockholders and an
TRANSACTIONS affiliated company in which a stockholder has an ownership
interest. These transactions included in the accompanying
financial statements are summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
STOCKHOLDERS:
Notes payable (Note 3) $250,000 $140,000 $140,000
Accounts receivable -- 1,200 --
AFFILIATED COMPANY:
Consulting fees paid 37,500 180,000 120,000
Noninterest bearing advances -- -- 60,774
Accounts receivable -- 1,546 --
======== ======== ========
</TABLE>
9. INCOME TAXES Deferred income taxes at December 31, 1998 and 1997 consist
of the following:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
CURRENT DEFERRED TAX ASSET:
Accounts receivable allowance $ 24,000 $ 20,000
Total current deferred tax asset 24,000 20,000
Less valuation allowance -- --
-------- --------
Net current deferred tax asset 24,000 20,000
-------- --------
NONCURRENT DEFERRED TAX ASSETS:
Net operating loss carryforwards 137,000 205,000
Leasehold improvements 19,000 --
-------- --------
Total noncurrent deferred tax assets 156,000 205,000
Less valuation allowance -- --
-------- --------
NET NONCURRENT DEFERRED TAX ASSET $156,000 $205,000
======== ========
</TABLE>
At December 31, 1998, the Company had a net operating loss
for income tax purposes of approximately $425,000, which
expires in
<PAGE> 53
Page 53
BOBBY ALLISON WIRELESS CORPORATION
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
2012, and its use to offset the Company's future taxable
income will be limited each year under the provisions of
Section 382 of the Internal Revenue Code of 1986, as
amended, based on the change in ownership that occurred upon
the Effective date of the Plan of Reorganization.
Significant components of income tax expense (benefit) are
as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- --------
<S> <C> <C> <C>
Deferred:
Federal $ 39,000 $(140,000) $(14,000)
State 6,000 (36,000) (35,000)
--------- --------- --------
$ 45,000 $(176,000) $(49,000)
========= ========= ========
</TABLE>
Prior to June 1, 1996, the Company had elected to be taxed
under the provision of Subchapter S of the Internal Revenue
Code. Therefore, no federal or state income tax was imposed
on the Company for that period.
The following summary reconciles differences from taxes at
federal statutory rates with the effective rate:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Federal income taxes at statutory rates 34% (34%) (34%)
State taxes 5% (5%) (5%)
Graduated rates -- 13% 13%
S Corporation status -- -- 8%
---- ---- ----
Taxes on income (benefit) at effective
rates 39% (26%) (18%)
==== ==== ====
</TABLE>
<PAGE> 54
Page 54
10. LEASES The Company has entered into various leases for equipment,
office and retail facilities. Future minimum lease payments
under noncancelable operating leases at December 31, 1998
are:
<TABLE>
<CAPTION>
Year ending December 31,
--------------------------------------------------------------------------
<S> <C>
1999 $ 739,642
2000 695,250
2001 447,955
2002 340,411
2003 300,823
Thereafter 743,377
----------
Total minimum payments required $3,267,458
==========
</TABLE>
Several retail facility lease agreements provide for
additional lease payments based upon various operating
expenses of the lessor. These amounts have been estimated
for future periods utilizing amounts charged in 1998. Rent
expense for the years ended December 31, 1998, 1997 and 1996
was $757,236, $518,093 and $264,921, respectively.
11. PROFIT-SHARING The Company adopted a 401(k) profit sharing plan during 1997
PLAN covering substantially all employees. Participants may
contribute up to the lesser of 10% of their annual
compensation or the maximum amount allowable under
provisions of the Internal Revenue Code. The Plan requires
Company contributions equal to 25% of each participant's
contribution up to 5% of compensation. Company contributions
to the plan were $6,398 and $4,820 for 1998 and 1997,
respectively.
12. COMMITMENTS License Agreement
AND
CONTINGENCY The Company has a license agreement effective December 31,
1998 with Robert A. Allison a/k/a/ Bobby Allison ("Mr.
Allison"),
<PAGE> 55
Page 55
BOBBY ALLISON WIRELESS CORPORATION
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
the renown NASCAR driver, whereby the Company may utilize
Mr. Allison's name in connection with its operations. Also,
Mr. Allison is required to make eight personal promotional
appearances and spend up to 48 hours on advertising
campaigns such as television, radio or print advertisement.
The initial term of the license agreement is ten years,
which commenced on December 31, 1998. The Company has
options to renew the license agreement for five successive
five-year terms for a total term (including the initial
term) of 35 years. In consideration of this license and
these services, the Company pays Mr. Allison a fixed annual
fee of $36,000 per year during the first year and $48,000
per year for the following 9 years, $52,800 per year during
the first five-year renewal period, $58,080 per year for the
second five-year renewal period, $63,888 during the third
five-year renewal period, $70,277 per year during the fourth
five-year renewal period and $77,305 per year during the
fifth five-year renewal period ("Fixed Fees").
In addition to the Fixed Fees, the Company will pay Mr.
Allison a contingent fee equal to the difference between
that amount which is equal to one-tenth of one percent of
the Company's annual net sales, and the Fixed Fee for such
year with respect to the Company's first $100 million of
annual net sales plus that amount equal to three-hundredths
of one percent of annual net sales over $100 million.
As part of the agreement, the Company also issued options
(see Note 7) to the licensor to purchase 7,500 shares of the
Company's common stock with an exercise price of $6.00 per
share. The option is exercisable May 31, 1999 and expires 15
days after the termination of this agreement. The license
agreement imposes certain restrictions on the options or, if
exercised, the underlying common stock in the event of a
breach in the license agreement by
<PAGE> 56
Page 56
BOBBY ALLISON WIRELESS CORPORATION
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
the licensor.
Employment Agreements
On December 31, 1998, the Company entered into employment
agreements with the Company's Chief Executive Officer and
President (collectively "the Officers"). The employment
agreements have an initial term of three years. Upon the
expiration of the initial term, the employment agreements
automatically renew for successive one-year terms unless
sooner terminated by the Company or either Officer giving
written notice 120 days prior to the commencement of such
renewal term. During the first 12 months of the employment
agreements, the Officers shall each receive a minimum annual
base compensation of $135,000. At the end of such initial
12-month period and each 12-month period thereafter, the
Company's Board of Directors shall review the Officers'
annual salary to determine the next 12 months' annual
compensation provided, however, that the Officers' annual
salary shall be increased a minimum of 6% each year.
In the event that either Officer terminates their employment
agreement for the Company's breach of its terms, then the
Company shall pay the officer severance compensation equal
to two-thirds (2/3) of the Officer's annual compensation at
the time of the termination if during the initial three-year
term and one-fourth (1/4) of the Officer's annual
compensation at the time of the termination if during a
renewal term.
The employment agreements require that the Board of
Directors approve an incentive compensation plan which
provides additional compensation to the Officers based upon
the Company's net income and which, at a minimum, shall be
equal to 2% of the Company's net income for any applicable
employment year. In the event that either Officer terminates
the employment agreement for
<PAGE> 57
Page 57
BOBBY ALLISON WIRELESS CORPORATION
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
the Company breach of its terms, then the Company shall
pay the Officer severance compensation equal to
two-thirds of the Officer's annual compensation at the
time of the termination if during the initial three-year
term and one-fourth of the Officer's annual compensation
at the time of the termination if during a renewal term.
Medical Insurance Plan
The Company self insures a portion of its employee
medical insurance plan. Expense is based on payments made
plus estimates of unpaid claims. Any claims exceeding
approximately $5,000 are covered by insurance.
13. SUPPLEMENTAL CASH Supplemental cash flow information is as follows:
FLOW INFORMATION
<TABLE>
<CAPTION>
Year ended December 31, 1998 1997 1996
--------- --------- --------
<S> <C> <C> <C>
Cash paid for interest $ 128,838 $ 143,708 $ 86,032
========= ========= ========
Noncash financing and investing
activities:
Conversion of debentures into Series A
preferred stock $(375,000) $ -- $ --
Conversion of debentures into Series B
preferred stock (140,000) -- --
Forgiveness of note payable classified -- --
as deferred revenue (262,022)
Accrued preferred stock dividends 13,736 -- --
Record acquisition:
Prepaid expenses (1,789) -- --
Fixed assets (175,000) -- --
Goodwill (335,626) -- --
Accrued expenses 142,202 -- --
Debenture notes payable 250,000 -- --
Other notes payable 10,838 -- --
========= ========= ========
</TABLE>
<PAGE> 58
Page 58
BOBBY ALLISON CELLULAR SYSTEMS OF FLORIDA, INC.
CONTENTS
================================================================================
FINANCIAL STATEMENTS:
Balance Sheet 59
Statements of Operations 61
Statements of Cash Flows 62
Notes to Financial Statements 63
<PAGE> 59
Page 59
BOBBY ALLISON CELLULAR SYSTEMS OF FLORIDA, INC.
BALANCE SHEET
================================================================================
<TABLE>
<CAPTION>
September 30, 1998
-----------
(unaudited)
ASSETS
<S> <C>
CURRENT:
Cash $ 102,960
Accounts receivable 436,239
Prepaid expenses 5,271
Inventories 353,282
Deferred income taxes 20,000
-----------
TOTAL CURRENT ASSETS 917,752
-----------
LEASEHOLD IMPROVEMENTS AND EQUIPMENT, at cost:
Property and equipment 680,669
Less accumulated depreciation (277,523)
-----------
NET PROPERTY AND EQUIPMENT 403,146
-----------
OTHER ASSETS:
Deferred tax asset 246,000
Deposits 18,230
-----------
TOTAL OTHER ASSETS 264,230
-----------
$ 1,585,128
===========
</TABLE>
See accompanying notes to unaudited financial statements.
<PAGE> 60
Page 60
BOBBY ALLISON CELLULAR SYSTEMS OF FLORIDA, INC.
BALANCE SHEET
================================================================================
<TABLE>
<CAPTION>
September 30, 1998
-----------
(unaudited)
<S> <C>
CURRENT LIABILITIES:
Accounts payable $ 364,332
Accrued expenses 105,042
Deferred income 312,357
Current maturities of long-term debt 508,383
Current maturities of convertible debentures 125,000
-----------
TOTAL CURRENT LIABILITIES 1,415,114
LONG-TERM LIABILITIES:
Long-term debt, less current maturities 500,000
Convertible debentures 675,000
-----------
TOTAL LIABILITIES 2,590,114
-----------
CAPITAL DEFICIT:
Common stock 43
Additional paid-in capital 2,287
Deficit (1,000,816)
Treasury stock (6,500)
-----------
TOTAL CAPITAL DEFICIT (1,004,986)
-----------
$ 1,585,128
===========
</TABLE>
See accompanying notes to unaudited financial statements.
<PAGE> 61
Page 61
BOBBY ALLISON CELLULAR SYSTEMS OF FLORIDA, INC.
STATEMENTS OF OPERATIONS
================================================================================
<TABLE>
<CAPTION>
Nine months ended September 30, 1998 1997
----------- -----------
(unaudited) (unaudited)
<S> <C> <C>
REVENUES $ 5,604,844 $ 3,400,911
COST OF SALES 2,991,125 1,882,724
----------- -----------
Gross profit 2,613,719 1,518,187
----------- -----------
OPERATING EXPENSES:
Selling, general and administrative expenses 2,316,789 1,586,179
Depreciation and amortization 149,214 107,052
----------- -----------
Total operating expenses 2,466,003 1,693,231
----------- -----------
Operating income (loss) 147,716 (175,044)
----------- -----------
OTHER INCOME (EXPENSE):
Interest expense (237,633) (148,384)
Interest income 5,014 14,785
Other (29,254) (30,159)
----------- -----------
Total other expense (261,873) (163,758)
----------- -----------
LOSS BEFORE TAXES ON INCOME (114,157) (338,802)
INCOME TAX (EXPENSE) BENEFIT 41,000 130,000
----------- -----------
NET LOSS $ (73,157) $ (208,802)
=========== ===========
</TABLE>
See accompanying notes to unaudited financial statements.
<PAGE> 62
Page 62
BOBBY ALLISON CELLULAR SYSTEMS OF FLORIDA, INC.
STATEMENTS OF CASH FLOWS
================================================================================
<TABLE>
<CAPTION>
Nine months ended September 30, 1998 1997
--------- ---------
(unaudited) (unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (73,157) $(208,802)
Adjustments to reconcile net loss to net cash used for operating
activities:
Depreciation and amortization 149,214 107,052
Cash provided by (used for):
Accounts receivable (27,262) 17,509
Prepaid expenses (5,271) 114,401
Inventories 98,736 134,787
Deposits (3,849) (23,445)
Deferred tax assets (41,000) (130,000)
Accounts payable (466,278) 160,278
Accrued expenses (15,965) (92,301)
Deferred income 4,424 3,444
--------- ---------
Net cash used for operating activities (380,408) 82,923
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of leasehold improvements and equipment (111,112) (62,359)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of convertible debt 300,000 --
Net borrowings (repayment) on long-term debt 292,430 (21,565)
--------- ---------
Net cash provided by financing activities 592,430 (21,565)
--------- ---------
NET INCREASE (DECREASE) IN CASH 100,910 (1,001)
CASH, beginning of period 2,050 6,869
--------- ---------
CASH, end of period $ 102,960 $ 5,868
========= =========
</TABLE>
See accompanying notes to unaudited financial statements.
<PAGE> 63
Page 63
BOBBY ALLISON CELLULAR SYSTEMS OF FLORIDA, INC.
NOTES TO FINANCIAL STATEMENTS
===============================================================================
1. FINANCIAL The financial statements included herein have been prepared
STATEMENTS without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial
statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted
pursuant to such rules and regulations; however, management
believes that the disclosures are adequate to make the
information presented not misleading.
The financial statements for the interim periods included
herein, which are unaudited, include, in the opinion of
management, all adjustments (consisting only of normal
recurring adjustments) necessary to present fairly the
financial position and results of operations of Bobby
Allison for the periods presented. The results of operations
for interim periods should not be considered indicative of
results to be expected for the full year.
2. BUSINESS AND Bobby Allison Cellular Systems of Florida, Inc. ("Bobby
SUBSEQUENT Allison") owned and operated mall-based specialty retail
EVENT locations and one direct marketing location in the state of
Florida offering cellular and pager service under the names
"Bobby Allison Wireless" and "Bobby Allison Cellular." On
December 31, 1998, pursuant to a merger agreement, Bobby
Allison merged with and into Bobby Allison Wireless, Inc.,
formerly "2Connect Acquisition Corp." ("Acquisition") a
wholly-owned subsidiary Bobby Allison Wireless Corporation,
formerly "2Connect Express, Inc."("2Connect").
Pursuant to the merger agreement, Bobby Allison merged with
and into Acquisition on at 11:59 p.m. on December 31, 1998
under the following terms:
(i) Acquisition survived the merger, remained a wholly
owned subsidiary of 2Connect and changed its name to
"Bobby
<PAGE> 64
Page 64
BOBBY ALLISON CELLULAR SYSTEMS OF FLORIDA, INC.
NOTES TO FINANCIAL STATEMENTS
===============================================================================
Allison Wireless, Inc.";
(ii) the two holders of all of the common stock of Bobby Allison
each received 175,000 shares of the common stock of 2Connect
(in the aggregate, 350,000 shares representing approximately
73% of the 480,000 shares of Common Stock of 2Connect after
the merger) and a $125,000 debenture (or $250,000 in the
aggregate) bearing interest at 7.5% per annum, with
principle and interest payable quarterly at $11,729 over
three years;
(iii) holders of preferred stock in Bobby Allison received
equivalent preferred stock in 2Connect that is convertible
into 270,790 shares of common stock, of which the two former
shareholders of Bobby Allison own preferred stock
convertible into 24,996 shares of common stock;
(iv) the officers of 2Connect resigned and the two former
stockholders of Bobby Allison were appointed officers of
2Connect;
(v) on March 1, 1999, 2Connect changed its name to Bobby Allison
Wireless Corporation.
Upon the consummation of the merger, the former stockholders of
Bobby Allison obtained approximately 73% of the voting rights of
the 2Connect. Although Bobby Allison merged into Acquisition, the
transaction was accounted for as a purchase of 2Connect by Bobby
Allison (a reverse acquisition in which Bobby Allison is considered
the acquirer for accounting purposes), since the stockholders of
Bobby Allison obtained a majority of the voting rights of 2Connect
as a result of this transaction. Accordingly, the historical
financial statements of the 2Connect for the periods prior to the
time of the merger are those of Bobby Allison.
<PAGE> 65
Page 65
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS -- Continued
(b) PRO FORMA financial information:
2Connect Express, Inc. Pro Forma Combined Financial Statements
The following unaudited pro forma combined financial statements of the
Registrant includes the historical financial statements of 2Connect Express,
Inc. for the fiscal year ended January 31, 1998 (its most recent year end prior
to the Merger) and the nine months ended October 31, 1998, the historical
financial statements, of Bobby Allison for the year ended December 31, 1997 and
the nine months ended September 31, 1998 and the application of pro forma
adjustments to those financial statements to reflect the transaction described
in Item 1 which gives effect to this transaction as if it had occurred as of
February 1, 1997.
Upon the consummation of the Merger described in Item 1, the former stockholders
of Bobby Allison obtained approximately 73% of the voting rights of the
Registrant. Although Bobby Allison merged into a wholly-owned subsidiary of the
Registrant, the transaction was accounted for as a purchase of the Registrant by
Bobby Allison (a reverse acquisition in which Bobby Allison is considered the
acquirer for accounting purposes), since the stockholders of Bobby Allison
obtained a majority of the voting rights of the Registrant as a result of this
transaction.
A purchase price of $501,578 was computed by adding the value of the 350,000
shares of 2Connect Express, Inc.'s common stock of $109,375 issued to the
stockholders of Bobby Allison, acquisition costs of $142,203 and the value of
the debentures issued to the former stockholders of Bobby Allison of $250,000.
The purchase price was then allocated to the assets purchased and liabilities
assumed based upon the fair values at the date of transaction. The excess of the
purchase price over the fair value of the net assets acquired totaled $335,627
and has been recorded as goodwill that will be amortized on a straight line
basis over 10 years.
Upon the consummation of the merge, the Registrant changed its year-end to
December 31. The historical balance sheet of Bobby Allison as of December 31,
1998 included in Item 7.a gives effect to the Merger, therefore a pro forma
combined balance sheet is not presented in Item 7.b.
The pro forma combined financial statements are derived from, and should be read
in conjunction with, the companies' historical financial statements set forth in
Item 7(a) and Form 10-QSB filed by 2Connect Express, Inc. for the quarter ended
October 31, 1998. The pro forma combined financial statements do not purport to
be indicative of the results of operations or financial position which would
have actually been reported had the transaction been consummated on the dates
indicated, or which may be reported in the future.
2Connect Express, Inc.
Unaudited Pro Forma Combined
Statement Of Operations
<TABLE>
<CAPTION>
Year Ended
-------------------------------------------------------------
Historical Pro Forma
----------------------------- ----------------------------
1-31-98 12-31-97
-------------- -------------
2Connect Bobby Allison Adjustments As Adjusted
-------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Revenues 3,773,246 $ 4,800,396 $ - $ 8,573,642
Cost of goods sold (3,753,331) (2,680,028) - (6,433,359)
---------- ----------- ----------- -----------
Gross profit 19,915 2,120,368 - 2,140,283
---------- ----------- ----------- -----------
Operating expenses:
Selling, general and administrative expenses 7,973,325 2,529,953 30,781 (1)(2) 10,534,059
Depreciation 294,472 125,591 - 420,063
---------- ----------- ----------- -----------
Total operating expenses 8,267,797 2,655,544 30,781 10,954,122
---------- ----------- ----------- -----------
Loss from operations (8,247,882) (535,176) (30,781) (8,813,839)
---------- ----------- ----------- -----------
Other income (expense):
Interest expense (3,721) (153,651) 47,500 (3) (109,872)
Interest income 124,422 11,049 - 135,471
Other income 4,888 334 - 5,222
---------- ----------- ----------- -----------
125,589 (142,268) 47,500 30,821
---------- ----------- ----------- -----------
Net loss before taxes on income (8,122,293) (677,444) 16,719 (8,783,018)
Income tax benefit - 176,000 - 176,000
---------- ----------- ----------- -----------
Income loss (8,122,293) (501,444) 16,719 (8,607,018)
Preferred stock dividends - - (38,625)(4) (38,625)
---------- ----------- ----------- -----------
Income income (loss) available to common
stockholders (8,122,293) (501,444) (21,906) (8,645,643)
========== =========== =========== ===========
Earnings Per Share
Basic and dilutive $ (62.48) $ (18.01)
Weighted average common shares outstanding:
Basic and dilutive 130,000 350,000 480,000 (5)
========== =========== ===========
</TABLE>
- ---------------------------
Footnotes:
- ----------
(1) Includes amortization expense of $33,563 based on a 10 year expected
life of goodwill.
(2) Includes a $2,782 decrease in officers compensation resulting from
employment agreements executed in the Merger.
(3) Assumes an increase in interest expense related to two $125,000
debentures issued as part of the merger ($250,000 in the aggregate) with
interest at 7.5% and principle payable quarterly and a reduction in
interest expense related to the conversion of $515,000 in debentures and
subordinated notes into preferred stock.
(4) Represents dividends on Series A and B Preferred Stock as if certain
debentures were converted to Preferred Stock at February 1, 1997 rather
then in November 1998.
(5) Calculated using 2Connect Express, Inc.'s 30,000 new shares issued upon
the effective date of the Plan of Reorganization, 100,000 new shares
issued to a subsidiary of Sterne Agee & Leache, Inc. and 350,000 new
shares issued as a result of the Merger. Shares outstanding prior to the
effective date of the Plan of Reorganization were not included in this
calculation as all former stockholders interests were forever cancelled
and exstingished as a result of the Plan of Reorganization.
<PAGE> 66
Page 66
2 CONNECT EXPRESS, INC.
UNAUDITED PRO FORMA COMBINED
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Nine Months Ended
----------------------------------------------------------------
Historical Pro Forma
------------------------------- -------------------------------
10-31-98 9-30-98
------------ --------------
2Connect(1) Bobby Allison Adjustments As Adjusted
------------ -------------- ----------- ------------
<S> <C> <C> <C> <C>
Revenues $ 878,730 $ 5,604,844 $ - $ 6,483,574
Cost of goods sold (718,773) (2,991,125) - (3,709,898)
------------ ----------- -------- -----------
Gross profit 159,957 2,613,719 - 2,773,676
------------ ----------- -------- -----------
Operating expenses:
Selling, general and administrative expenses 1,201,783 2,316,789 23,085 (2)(3) 3,541,657
Depreciation 56,444 149,214 - 205,638
------------ ----------- -------- -----------
Total operating expenses 1,258,227 2,466,003 23,085 3,747,315
------------ ----------- -------- -----------
Income (loss) from operations (1,098,270) 147,716 (23,085) (973,639)
------------ ----------- -------- -----------
Other income (expense):
Interest expense (6,856) (237,633) 32,250 (4) (212,239)
Interest income 14,964 5,014 - 19,978
Other income - (29,254) - (29,254)
------------ ----------- -------- -----------
8,108 (261,873) 32,250 (221,515)
------------ ----------- -------- -----------
Net loss before taxes on income (1,090,162) (114,157) 9,165 (1,195,154)
Income tax expense - 41,000 - 41,000
------------ ----------- -------- -----------
Income income (loss) (1,090,162) (73,157) 9,165 (1,154,154)
Preferred stock dividends - - (18,674)(5) (18,674)
------------ ----------- -------- -----------
Income income (loss) available to common
stockholders (1,090,162) (73,157) (9,509) (1,172,828)
============ =========== ======== ===========
Loss Per Share
Basic and diluted $ (8.39) $ (2.44)
Weighted average common shares outstanding:
Basic and diluted 130,000 350,000 480,000 (6)
============ ======== ===========
</TABLE>
- ------------------------
Footnotes:
- ----------
(1) Amounts based on Form 10-QSB filed by 2Connect Express, Inc. for the
quarter ended October 31, 1998. Adjusted to record the effects of
adjustments made to the Registrant's financial statements for the year
ended January 31, 1998 and exclusive of extraordinary income of
$10,413,714 related from the Registrant's discharge from bankruptcy on
October 27, 1998. The year end adjustments resulted in a reduction in
cost of goods sold of $71,771 and operating expenses of $33,760 for the
nine months ended October 31, 1998.
(2) Includes amortization expense for nine months of $25,172 based on a 10
year expected life of goodwill.
(3) Includes a $2,087 decrease in officers compensation resulting from
employment agreements executed in the Merger.
(4) Assumes an increase in interest expense related to two $125,000
debentures issued as part of the merger ($250,000 in the aggregate) with
interest at 7.5% and principle payable quarterly and a reduction in
interest expense related to the conversion of $515,000 in debentures
into preferred stock.
(5) Represents dividends on Series A and B Preferred Stock as if certain
debentures were converted to Preferred Stock at February 1, 1997 rather
then in November 1998.
(6) Calculated using 2Connect Express, Inc.'s 30,000 new shares issued upon
the effective date of the Plan of Reorganization, 100,000 new shares
issued to a subsidiary of Sterne Agee & Leache, Inc. and 350,000 new
shares issued as a result of the Merger. Shares outstanding prior to the
effective date of the Plan of Reorganization were not included in this
calculation as all former stockholders interests were forever cancelled
and exstingished as a result of the Plan of Reorganization.
<PAGE> 67
Page 67
(c) Exhibits
2.1 Merger Agreement by and among 2Connect Express, Inc., 2Connect
Acquisition Corp., Bobby Allison Cellular Systems of Florida, Inc., and all of
the Shareholders of Bobby Allison Cellular Systems of Florida, Inc. (Robert L.
McGinnis and James L. Ralph) dated May 1, 1998.(1)
2.2 Amendment to Merger Agreement by and among 2Connect Express, Inc.,
2Connect Acquisition Corp., Bobby Allison Cellular Systems of Florida, Inc., and
all of the Shareholders of Bobby Allison Cellular Systems of Florida, Inc.
(Robert L. McGinnis and James L. Ralph) dated October 26, 1998.(1)
2.3 Articles of Merger of 2Connect Express, Inc. filed December 31,
1998.(1)
3.1 Articles of Amendment to the First Restated and Amended Articles of
Incorporation of 2Connect Express, Inc. filed December 28, 1998.(1)
10.1 Employment Agreement by and between the Registrant and Robert L.
McGinnis effective December 31, 1998.(1)
10.2 Employment Agreement by and between the Registrant and James L.
Ralph effective December 31, 1998.(1)
(1) Previously filed with the initial Form 8-K reporting such event filed on
January 8, 1999.
ITEM 8. CHANGE IN FISCAL YEAR
The Merger described in Item 1 and Item 2 above results in a change of
control of the ownership of the Registrant. As a result of this change in
control, the historical financial statements of the Registrant became the
historical financial statements of Bobby Allison. Consequently, the Registrant's
fiscal year automatically changed to December 31 from January 31 effective upon
the completion of the Merger on December 31, 1998. The report covering the
transition period will be filed on the Form 10-KSB for the year ended December
31, 1998.
<PAGE> 68
Page 68
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Amendment No. 1 to be signed on its behalf
by the undersigned hereunto duly authorized.
2CONNECT EXPRESS, INC.,
(Registrant)
/s/ ROBERT L. MCGINNIS
-----------------------------------------
Robert L. McGinnis, Chairman of the Board
and Chief Executive Officer
DATE: June 2, 1999
<PAGE> 69
Page 69
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequentially
Exhibit Number Description Numbered Page
- -------------- ----------- --------------
<S> <C> <C>
2.1 Merger Agreement by and among 2Connect Express,
Inc., 2Connect Acquisition Corp., Bobby Allison
Cellular Systems of Florida, Inc., and all of the
Shareholders of Bobby Allison Cellular Systems of
Florida, Inc. (Robert L. McGinnis and James L. Ralph)
dated May 1, 1998.(1)
2.2 Amendment to Merger Agreement by and among
2Connect Express, Inc., 2Connect Acquisition
Corp., Bobby Allison Cellular Systems of
Florida, Inc., and all of the Shareholders
of Bobby Allison Cellular Systems of
Florida, Inc. (Robert L. McGinnis and James L.
Ralph) dated October 26, 1998.(1)
2.3 Articles of Merger of 2Connect Express, Inc. filed
December 31, 1998.(1)
3.1 Articles of Amendment to the First Restated and
Amended Articles of Incorporation of 2Connect
Express, Inc. filed December 28, 1998.(1)
10.1 Employment Agreement by and between the
Registrant and Robert L. McGinnis effective
December 31, 1998.(1)
10.2 Employment Agreement by and between the
Registrant and James L. Ralph effective
December 31, 1998.(1)
(1) Previously filed with initial Form 8-K reporting such event
filed January 8, 1999.
</TABLE>
