<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark One)
|X| Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the quarterly period ended September 30, 2000.
|_| Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from to
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Commission file number 000-22251
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BOBBY ALLISON WIRELESS CORPORATION
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(Exact Name of Small Business Issuer as Specified in Its Charter)
Florida 65-0674664
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(State or Other Jurisdiction of (IRS Employer Identification No.)
Incorporation or Organization)
1200 Starkey Road, Suite 105, Largo, Florida 33771
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(Address of Principal Executive Offices)
(727) 584-7902
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(Issuer's Telephone Number, Including Area Code)
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(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
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Check whether the registrant filed all documents and reports required
to be filed by Section 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by a court.
Yes X No
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State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 480,000 of Common Stock,
par value $0.01 per share, as of November 7, 2000.
1
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BOBBY ALLISON WIRELESS CORPORATION AND SUBSIDIARY
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I: FINANCIAL INFORMATION
Financial Statements.
Consolidated balance sheets -
September 30, 2000 and December 31,1999 3
Consolidated statements of operations-
three months and nine months ended September 30, 2000 and September 30, 1999 5
Consolidated statements of cash flows-
three months and nine months ended September 30, 2000 and September 30, 1999 6
Notes to consolidated financial statements 7
Management's Discussion and Analysis or Plan of Operation. 8
PART II: OTHER INFORMATION
Item 1. Legal Proceedings. 14
Item 2. Changes in Securities. 14
Item 3. Defaults Upon Senior Securities. 14
Item 4. Submission of Matters to a Vote of Security Holders. 14
Item 5. Other Information. 15
Exhibits and Reports on Form 8-K. 15
</TABLE>
2
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PART I
FINANCIAL INFORMATION
Item 1. Financial Statements.
Bobby Allison Wireless Corporation and Subsidiary
Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30, 2000 December 31,
(Unaudited) 1999
------------------ ------------
<S> <C> <C>
Assets:
Current:
Cash............................................................ $ 223,033 $ 624,869
Accounts receivable, less allowance for doubtful accounts of
$250,000 and $83,027............................................ 3,402,808 2,427,639
Related party receivable........................................ 58,500 ---
Prepaid expenses................................................ 64,845 52,546
Inventories..................................................... 3,420,468 2,606,907
Deferred tax asset............................................. 93,597 31,000
--------- ---------
Total current assets.............................................. 7,263,251 5,742,961
--------- ---------
Leasehold improvements and equipment, at cost:................... 4,965,207 3,297,603
Less accumulated depreciation................................... 1,269,070 699,902
--------- ---------
Net leasehold improvements and equipment.................... 3,696,137 2,597,701
--------- ---------
Other assets:
Goodwill and other intangible assets, net of
accumulated amortization of $181,300........................... 286,625 312,900
Deferred tax asset ............................................. 136,000 64,000
Deposits........................................................ 81,529 51,456
--------- ---------
Total other assets 504,154 428,356
--------- ---------
$ 11,463,542 $8,769,018
============ ==========
</TABLE>
See accompanying notes to consolidated financial statements.
3
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Bobby Allison Wireless Corporation and Subsidiary
Consolidated Balance Sheets, Continued
<TABLE>
<CAPTION>
September 30, 2000 December 31,
(Unaudited) 1999
------------------ ------------
<S> <C> <C>
Current Liabilities:
Accounts payable................................................... $ 4,091,019 $ 3,521,170
Accrued expense.................................................... 941,422 901,053
Income taxable payable............................................. 551,404 ---
Deferred income..................................................... 286,753 281,691
Current maturities of long-term debt.............................. 2,505,731 417,697
Current maturities of related party long term debt................. 63,302 94,909
--------- ---------
Total current liabilities.................................... 8,439,631 5,216,520
--------- ---------
Long-term liabilities:
Long-term debt, less current maturities............................ 53,610 1,259,385
Long-term related party debt, less current maturities.............. 23,026 92,401
--------- ---------
Total liabilities............................................ 8,516,267 6,568,306
--------- ---------
Preferred stock:
Series A convertible preferred stock, $1.00 par, shares
authorized 20; outstanding 15...................................... 375,000 375,000
Series B convertible preferred stock, $1.00 par, shares
authorized 50; outstanding 50...................................... 1,250,000 1,250,000
--------- ---------
Total preferred stock........................................ 1,625,000 1,625,000
--------- ---------
Common stock, $.01 par; shares authorized 25 million;
Outstanding 480,000................................................. 4,800 4,800
Series C convertible preferred stock, $1.00 par, shares authorized
250; outstanding 40................................................ 1,000,000 800,000
Additional paid-in capital......................................... 205,365 205,365
Retained earnings(deficit)......................................... 112,110 (434,453)
--------- ---------
Total stockholders' equity:.................................. 1,322,275 575,712
--------- ---------
$11,463,542 $ 8,769,018
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
4
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Bobby Allison Wireless Corporation and Subsidiary
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months For the Nine months
Ended September 30, Ended September 30,
-------------------- -------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Product Sales....................................... $ 4,734,788 $1,964,907 $12,618,850 $ 4,788,521
Activation commissions.............................. 3,998,075 938,115 8,953,427 2,582,737
Pager services...................................... 320,048 247,836 951,945 694,011
----------- ---------- ----------- -----------
Total revenues...................................... 9,052,911 3,150,858 22,524,222 8,065,269
Cost of sales....................................... 2,965,505 1,166,505 7,829,641 2,907,003
----------- ---------- ----------- -----------
Gross Profit........................................ 6,087,406 1,984,353 14,694,581 5,158,266
----------- ---------- ----------- -----------
Operating expenses:
Selling, general and administrative expenses........ 4,945,768 1,687,160 12,671,369 4,451,574
Depreciation and amortization....................... 249,198 124,425 595,443 240,116
----------- ---------- ----------- -----------
Total operating expenses............................ 5,194,966 1,811,585 13,266,812 4,691,690
----------- ---------- ----------- -----------
Operating income.................................... 892,440 172,768 1,427,769 466,576
----------- ---------- ----------- -----------
Interest (expense) income:
Interest expense.................................... (97,171) (61,435) (276,796) (146,915)
Interest income..................................... 1,418 3,921 6,011 9,967
----------- ---------- ----------- -----------
Interest (expense), Net............................. (95,753) (57,514) (270,785) (136,948)
----------- ---------- ----------- -----------
Income before taxes on income......................... 796,687 115,254 1,156,984 329,628
Income tax expense.................................... (326,668) (41,200) (470,400) (118,700)
----------- ---------- ----------- -----------
Net income ........................................... 470,019 74,054 686,584 210,928
Preferred stock dividends............................. (52,202) (33,367) (140,021) (93,508)
----------- ---------- ----------- -----------
Net income attributable to common stockholders........ $ 417,817 $ 40,687 $ 546,563 $ 117,420
=========== ========== =========== ===========
Earnings per common share:
Basic............................................... $0.87 $0.08 $1.14 $0.24
===== ===== ===== =====
Diluted............................................. $0.54 $0.08 $0.80 $0.24
===== ===== ===== =====
Weighted average shares outstanding:
Basic............................................... 480,000 480,000 480,000 480,000
Diluted............................................. 871,660 480,000 856,646 480,000
</TABLE>
See accompanying notes to consolidated financial statements.
5
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Bobby Allison Wireless Corporation and Subsidiary
Consolidated Statement of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
For the Nine months
Ended September 30,
-------------------
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income ................................................................ $ 686,584 $210,928
Adjustments to reconcile net income to net cash provided by (used for)
operating activities:
Depreciation and Amortization ......................................... 595,443 240,116
Debt discount amortization to interest expense......................... 89,040 ---
Cash provided by (used for):
Accounts receivable................................................ (975,169) (450,779)
Related party receivable........................................... (58,500) ---
Prepaid expenses................................................... (12,299) (160,914)
Inventories........................................................ (813,561) (257,340)
Deferred taxes assets.............................................. (134,597) 118,700
Accounts payable................................................... 569,849 732,377
Income tax payable................................................. 551,404 ---
Deferred revenue................................................... 5,062 128,460
Accrued expenses................................................... 40,369 (172)
---------- ----------
Net cash provided by operating activities.................................. 543,625 561,376
---------- ----------
Cash flows from investing activities:
Purchase of leasehold improvements and equipment................... (1,667,604) (1,026,658)
Increase in deposits............................................... (30,073) (23,778)
---------- ----------
Net cash used for investing activities..................................... (1,697,677) (1,050,436)
---------- ----------
Cash flows from financing activities:
Payments in long-term debt......................................... (207,763) ---
Proceeds from issuance of preferred stock.......................... 200,000 250,000
Preferred Stock dividends.......................................... (140,021) (93,508)
Proceeds from line of credit....................................... 900,000 382,555
Repayment of convertible debt...................................... --- (125,000)
---------- ----------
Net cash provided by financing activities.................................. 752,216 414,047
---------- ----------
Net increase (decrease) in cash:........................................... (401,836) (75,013)
Cash, beginning of period.................................................. 624,869 125,155
---------- ----------
Cash, end of period........................................................ $ 223,033 $ 50,142
========== ==========
Supplemental cash flow information:
Cash paid for interest............................................. $ 276,796 $ 146,915
========== ==========
</TABLE>
6
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BOBBY ALLISON WIRELESS CORPORATION AND SUBSIDIARY
(Notes to Consolidated Financial Statements)
Summary of Significant Accounting Policies.
Basis of Presentation
The unaudited consolidated financial statements have been prepared in
conformity with instructions to Form 10-QSB and therefore do not include all the
information and footnotes required by generally accepted accounting principals
for complete financial statements. Certain items included in these statements
are based upon management estimates. In the opinion of management, the
accompanying financial statements contain all adjustments (consisting of normal
recurring adjustments) necessary for fair presentation. The results of
operations for the nine months ended September 30, 2000 are not necessarily
indicative of the operating results expected for the fiscal year ending December
31, 2000. These financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in the Company's
Annual Report on Form 10-KSB for the year ended December 31,1999. See Note 1 to
those financial statements for a discussion of the re-capitalization and merger
with Bobby Allison Cellular Systems of Florida, Inc.
Certain items have been reclassified in the 1999 financial statements
to conform to the 2000 presentation.
Principles of Consolidation
The consolidated financial statements include the accounts of Bobby
Allison Wireless Corporation and its wholly-owned subsidiary (the "Company").
All significant inter-company accounts and transactions have been eliminated in
consolidation.
Earnings Per Common Share
Basic EPS is calculated by dividing the income available to common
shareholders by the weighted average number of common shares outstanding for the
period without consideration for potential common shares. Potential common
shares were not included for the periods ended September 30, 1999 since their
effects are anti-dilative under the treasury stock method for options and
warrants and if-converted method for convertible preferred stock.
Store Property and Development Costs
Costs incurred prior to the opening of a store and certain costs
related to the implementation of corporate sales programs are capitalized and
amortized over a period of twelve months starting with the month of commencement
of such programs and new stores.
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 derivative 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 recognized income in the period of change.
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, 2001 to affect its
financial statements.
In March 2000, the Financial Accounting Standards Board issued
Interpretation No. 44 ("FIN 44"), Accounting for Certain Transactions Involving
Stock Compensation, on interpretation of APB Opinion No.25. FIN 44 clarifies the
application of Opinion No. 25 for (a) the definition of employee for purposes of
applying Opinion No. 25, (b) the criteria for determining whether a plan
qualifies as a noncompensatory plan, (c) the accounting consequences of various
modifications to the previously fixed stock option or award, and (d) the
accounting for an exchange of stock compensation awards in a business
combination. FIN 44 is effective July 2, 2000, but certain conclusions cover
specific events that occur after either December 15, 1998 or January 12, 2000.
The Company believes that the impact of FIN 44 will not have a material effect
on the Company's financial position or results of operations.
During the fourth quarter of 1999, the Securities and Exchange Staff
Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements." The provisions of SAB No. 101 are required to be adopted no later
than the fourth quarter of the fiscal year beginning after December 15, 1999.
Management believes that SAB No. 101 does not materially alter the Company's
revenue recognition methods.
7
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Deferred Income
During 1998, the Company negotiated an agreement with a 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 recognized
50% of the deferred income on November 30, 1999 and is expected to recognize the
balance on November 30, 2000, provided the agreement is still in effect on that
date. The agreement also provides for $200,000 of supplier marketing development
funds received in January 1999 to be deferred over two years and recognized
using the same percentages. Deferred income also includes billed but unearned
beeper service revenue.
Contingencies
On or about September 14, 2000, the Company filed a complaint in
Circuit Court in Pinellas County Florida, seeking the reforming of a contract
with Powertel to include oral agreements alleged to have been made between the
Company and Powertel. The Company has recorded $482,000 in commissions which are
in dispute. The Company is awaiting a response and has reserved for potential
costs in the third quarter.
Item 2. Management's Discussion and Analysis or Plan of Operations.
General
The Company, headquartered in Largo, Florida, is an enclosed regional
mall-based specialty retailer of wireless communications products and services
for the individual and small business customer which, as of September 30, 2000,
has 85 sales locations including 41 in-line stores, 40 kiosks, and 4 retail
merchandising units or RMU's (like kiosks, but smaller). The Company's products
cover a broad assortment of over 600 stock-keeping units. The Company also
offers a wide range of service plans offered by five service providers, AT&T
Wireless Services, BellSouth, Nextel, Powertel, SunCom and two paging carriers.
In 1999, the Company expanded its operation beyond the State of Florida
into Georgia, South Carolina, North Carolina, Virginia and Tennessee. In 2000,
the Company has continued to expand in these states and has plans to expand into
the States of Alabama and Maryland and the District of Columbia. The Company's
expansion plans are dependent upon, among other things, obtaining additional
capital whether in the form of debt or equity. The Company has not currently
obtained the necessary financing but is currently seeking such financing.
However, there is no assurance that the Company will be able to obtain the
necessary financing, or if available, that such financing will be on terms
acceptable to the Company. As a result, the Company may be unable to complete
its expansion plans or such plans may be substantially delayed.
Sources of Revenue
The Company's revenues are generated principally from three sources in
one business segment:
Product Retail Sales. Product retail sales involve the sale through the
Company's sales locations and e-commerce web-site of cellular, and pager
wireless products such as phones and pagers and related accessories such as
batteries, chargers, carrying cases and hands-free kits. For the nine months
ended September 30, 2000, retail sales represented approximately 56% of the
Company's revenues and 37% of the Company's gross profit. Since the customer
makes payment at the cash register or by credit card on the e-commerce web site,
retail sales do not produce any account receivables. The e-commerce web site was
launched in January 2000 and its sales to date have been immaterial. At this
time, the Company is unable to determine how much, if any, contribution the
e-commerce web site will have on the Company's financial results.
8
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Wireless Telephone Activation Income. Wireless telephone activation
income consists of activation commissions when a customer initially subscribes
for such carrier's services as well as other payments to the Company by its
wireless carriers including primarily market development funds. The amount of
the activation commission and market development funds paid by carriers is based
upon various service plans offered by and agreements with each carrier. New
subscription activation commissions are fully refundable 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 will 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 Wireless Services is the Company's largest carrier with which the
Company has a generally exclusive relationship in the Central and South Florida
markets pursuant to an agreement which expires on December 1, 2000. On October
24, 2000, the Company renewed the agreement for an additional two years as a
non-exclusive multi-market dealer agreement. Outside of Central and South
Florida the Company has non-exclusive carrier contracts with one or more of
either AT&T Wireless Services, BellSouth, Nextel, Powertel or SunCom. For the
nine months ended September 30, 2000, activation income represented
approximately 40% of the Company's revenues, approximately 61% of the Company's
gross profits and approximately 75% of the Company's accounts receivables of
which AT&T Wireless Services accounted for approximately 47%.
The Company does not receive any residual commissions or income under
any of its contracts for wireless activations and such residual commissions are
generally uncommon today. However, the Company does currently sell prepaid PCS
services several carriers. Prepaid service involves not only the sale of a
telephone and its activation as with regular service but also includes the sale
of a phone card representing a specific allotment of minutes. The prepaid
service is particularly attractive to those persons who have poor credit and are
unable to receive approval for a service contract as well as for parents
purchasing service for their children and wish to control their usage. Once the
prepaid minutes expire, the phone will not operate until the card is renewed or,
if lost, a new card is purchased. The Company receives a commission each time a
prepaid card is renewed or a new card is purchased. As a consequence, although
not a traditional residual commission, prepaid service creates an opportunity
for the Company to have a recurring revenue stream with respect to each prepaid
user. Based on the Company's research of prepaid service, the Company believes
that, on average, each prepaid customer renews or purchases a phone card every 8
days.
The Company also records income received from carriers related to
market development activities as activation income when all provisions in the
related agreements have been fulfilled and the right to retain amounts received
have vested with the Company.
Pager Services. Pager services include activation commissions as well
as residual payments on pagers. Pager residual payments are received for the
pager airtime that the Company buys wholesale from paging carriers and then
resells to individuals and small businesses. The Company sells pager services
for two pager carriers. For the nine months ended September 30, 2000, pager
services represented approximately 4.0% of the Company's revenues and 2.0% of
the Company's gross profit.
The cost of wireless products has gradually decreased over time. With
such lower cost, the Company typically has offered lower prices to attract more
subscribers, which has increased its total activation commissions and
contributed to gross profit improvements. Consequently, the Company believes
that, as prices of wireless products decrease, they become more affordable to
consumers thereby expanding the wireless communications market and creating an
opportunity to attract new subscribers and increase activation commissions.
9
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Results of Operations
The following table sets fourth certain selected income statement data
of the Company expressed as a percentage of net sales:
<TABLE>
<CAPTION>
For the Three Months For the Nine months
Ended September 30 Ended September 30
-------------------- -------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Total Revenue.......................................... 100.0% 100.0% 100.0% 100.0%
Cost of Sales.......................................... 32.8% 37.0% 34.8% 36.0%
Gross Profit........................................... 67.2% 63.0% 65.2% 64.0%
Selling, General and Administrative Expenses (Excluding 54.6% 53.5% 56.1% 55.2%
Depreciation)..........................................
Depreciation and Amortization.......................... 2.7% 3.9% 2.8% 3.0%
Operating Income....................................... 9.9% 5.6% 6.3% 5.8%
Interest Expense....................................... 1.1% 1.8% 1.2% 1.7%
Income Tax Expense..................................... 3.6% 1.3% 2.1% 1.5%
Net Income............................................. 5.2% 2.5% 3.0% 2.6%
</TABLE>
Comparison of the Three Months ended September 30, 2000 to the Three Months
Ended September 30, 1999
Total Revenue. Total Revenue was $9,052,911 for the three months ended
September 30, 2000 as compared to $3,150,858 for the three months ended
September 30, 1999 or an increase of $5,902,053 or 187%. This increase reflects
the increase in sales location count from 46 to 85 sales locations. Comparable
sales location sales for the three months ended September 30, 2000 increased by
$846,663 or approximately 31% as compared to the three months ended September
30, 1999. Comparable stores sales include only sales locations owned and
operated by the Company since July 1, 1999. The Company operated 85 stores at
September 30, 2000, 28 of which had then been owned and operated since July 1,
1999. See "-Sources of Revenue."
Gross Profit. Gross profit was $6,087,406 for the three months ended
September 30, 2000 as compared to $1,984,353 for the three months ended
September 30, 1999 or an increase of $4,103,053 or 207% largely reflecting the
increase in stores operated during the three months ended September 30, 1999.
Gross profit as a percentage of net sales increased from 63.0% in the three
months ended September 30, 1999 to 67.2% in the three months ended September 30,
2000.
In December 1998, a major carrier converted $262,062 owed by the
Company to a market development funds payment. In January 1999, the Company
received additional market development funds of $200,000 from this carrier under
the same agreement. The Company recorded the market development funds as
deferred income because the Company would have had to repay all $462,062 if the
Company had terminated its relationship with such carrier before December of
1999 and will have to repay one-half or $231,031 if the Company terminates its
relationship with such carrier before December of 2000. Consequently, the
Company recognized $231,031 as activation income on November 30, 1999 and
expects to recognize the remaining $231,031 as activation income on November 30,
2000. In the quarter ended September 30, 2000, the Company also accrued $602,075
10
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in market development funds due from a carrier which will be used to fund the
Company's continued expansion into Georgia, North Carolina and South Carolina.
No comparable income was received in the quarter Ended September 30, 1999.
Operating Expenses. Selling, general and administrative expense was
$4,945,768 for the three months ended September 30, 2000 as compared to
$1,687,160 for the three months ended September 30, 1999 or an increase of
$3,258,608 or approximately 193%, largely as a result of the Company's store
expansion. Corporate headquarter's expenses, included therein, increased due
primarily to increased costs necessitated by the Company's growth and
anticipated future growth including, but not limited to, the opening of a new
larger corporate headquarters, support and training, advertising and marketing
and merchandising and allocation/distribution.
Net Interest Expense. Net interest expense was $95,753 for the three
months ended September 30, 2000 as compared to $57,514 for the three months
ended September 30, 1999 or a increase of $38,239 or 66% due to higher average
borrowings outstanding during 2000 versus 1999. The borrowing outstanding at
September 30, 2000 was $2,645,669 as compared to $993,392 at September 30, 1999.
Net Income/Loss. The Company had net income of $470,019 for the three
months ended September 30, 2000 as compared to net income of $74,054 for the
three months ended September 30, 1999 or an increase of $395,965, primarily as a
result of the Company's store expansion, partially offset by increased operating
expenses and interest costs.
Comparison of the Nine months ended September 30, 2000 to the Nine months Ended
September 30, 1999.
Total Revenue. Total Revenue was $22,524,222 for the nine months ended
September 30, 2000 as compared to $8,065,269 for the nine months ended September
30, 1999 or an increase of $14,458,953 or 179%. This increase reflects the
increase in sales location count from 46 to 85 sales locations. Comparable sales
location sales for the nine months ended September 30, 2000 increased by
$1,863,961 or approximately 28.1% as compared to the nine months ended September
30, 1999. Comparable stores sales include only sales locations owned and
operated by the Company since January 1, 1999. The Company operated 85 stores at
September 30, 2000, 28 of which had then been owned and operated since January
1, 1999. See "-Sources of Revenue."
Gross Profit. Gross profit was $14,694,581 for the nine months ended
September 30, 2000 as compared to $5,158,266 for the nine months ended September
30, 1999 or an increase of $9,536,315 or 184% largely reflecting the increase in
stores operated during the nine months Ended September 30, 1999. Gross profit as
a percentage of net sales increased from 64.0% in the nine months ended
September 30, 1999 to 65.2% in the nine months ended September 30, 2000.
In December 1998, a major carrier converted $262,062 owed by the
Company to a market development funds payment. In January 1999, the Company
received additional market development funds of $200,000 from this carrier under
the same agreement. The Company recorded the market development funds as
deferred income because the Company would have had to repay all $462,062 if the
Company had terminated its relationship with such carrier before December of
1999 and will have to repay one-half or $231,031 if the Company terminates its
relationship with such carrier before December of 2000. Consequently, the
Company recognized $231,031 as activation income on November 30, 1999 and
expects to recognize the remaining $231,031 as activation income on November 30,
2000. In the nine months ended September 30, 2000, the Company also accrued
$1,167,575 in market development funds due from a carrier which will be used to
fund the Company's continued expansion into Georgia, North Carolina and South
Carolina. No comparable income was received in the nine months Ended September
30, 1999.
Operating Expenses. Selling, general and administrative expense was
$12,671,369 for the nine months ended September 30, 2000 as compared to
$4,451,574 for the nine months ended September 30, 1999 or an increase of
$8,219,795 or approximately 185%, largely as a result of the Company's store
expansion. Corporate headquarter's expenses, included therein, increased due
primarily to increased costs necessitated by the Company's growth and
11
<PAGE>
anticipated future growth including, but not limited to, support and training,
advertising and marketing and merchandising and allocation/distribution.
Depreciation and amortization expense was $595,443 for the nine months ended
September 30, 2000 as compared to $240,116 for the same period in 1999, or an
increase of $355,327 resulting from the increase in leasehold improvements and
equipment from store expansion.
Net Interest Expense. Net interest expense was $270,785 for the nine
months ended September 30, 2000 as compared to $136,948 for the nine months
ended September 30, 1999 or a increase of $133,837 or 98% due to higher average
borrowings outstanding during 2000 versus 1999. The borrowing at September 30,
2000 was $2,645,669 as compared to $993,392 at September 30, 1999.
Net Income/Loss. The Company had net income of $686,584 for the nine
months ended September 30, 2000 as compared to net income of $210,928 for the
nine months ended September 30, 1999 or an increase of $475,656 or 225%,
primarily as a result of the Company's store expansion.
Liquidity and Capital Resources
The Company had a $1,176,380 working capital deficit at September 30,
2000 compared to working capital of $526,441 at December 31, 1999. This decrease
in working capital was due primarily to the reclassification of one of the
Company's lines of credit to a current liability as it now matures within 12
months on January 31, 2001. Further, this same line of credit was increased to
$1.9 million on May 25, 2000. In addition, the Company had accrued income tax
liability of $551,404.
On February 24, 1999, the Company consummated (i) a term loan from
SouthTrust Bank in the amount of $350,000 and (ii) a line of credit with
SouthTrust Bank by which the Company may borrow up to a maximum of $500,000 for
working capital. The term loan is amortized over 3 years at a rate of 8.5% per
annum. The line of credit has revolving payment terms, is due upon demand and
bears interest at prime plus 1% (10.5% as of September 30, 2000). Both the term
loan and the line of credit are secured by a first position on substantially all
of the Company's assets, primarily inventory and accounts receivables.
On November 19, 1999, the Company secured a revolving note loan from
Colonial Bank by which the Company may borrow up to $1 million, which was
extended, to $1,500,000 on February 23, 2000 and again to $1,900,000 on May 25,
2000. The note is due January 31, 2001 and bears interest at the Colonial Bank
Base Rate as determined from time to time. The note is secured by a second
position on the Company's assets and, up to $1 million, by the guarantees of
certain shareholders.
On April 10, 2000, the Company issued eight shares of Series C
Convertible Preferred Stock for $25,000 each. The stock pays dividends at 7.0%
semi-annually. This issuance brings the total outstanding Series C preferred to
40 shares.
The Company's net cash provided by operating activities for the nine
months ended September 30, 2000 was $543,625 as compared to net cash provided by
operating activities of $561,376 for the nine months ended September 30, 1999.
The net cash used in investing activities totaled $1,697,677 for the nine months
ended September 30, 2000 related primarily to the purchase of leasehold
improvements and equipment required to support new store growth. The net cash
provided by financing activities totaled $755,216 for the nine months ended
September 30, 2000 and related primarily to the additional borrowings under the
Company's $1.9 million line of credit and proceeds from the issuance of
preferred stock.
The Company believes it can satisfy its cash demands during the next 12
months out of internally generated cash flow. In this regard, the Company is
negotiating with Colonial Bank to extend the maturity date beyond January 31,
2001 and, in the alternative, in negotiating with various lenders to replace
this debt. There is no assurance that the Company can accomplish either plan. In
addition, in order to proceed with the Company's proposed growth plans, the
Company will need to raise substantial additional capital through the issuance
of securities and/or the procurement of additional bank or other debt. There is
no assurance that the Company will be able to find a purchaser for its
securities or, if a purchaser is found that an adequate price for the Company's
securities can be obtained or that the Company's shareholders will not be
diluted by any such issuance. Furthermore, there is no assurance that the
Company will be able to procure any additional debt financing, or if available,
that such debt will be on terms acceptable to the Company.
12
<PAGE>
Impact of Inflation
General inflation has had only a minor effect on the operations of the
Company and its internal and external sources for liquidity and working capital.
Seasonality
The Company historically has experienced and expects to continue to
experience significant seasonal fluctuations in its net sales and net income.
The Company generally experiences its strongest sales during the Spring and
early vacation season and the Christmas holiday season. The Company generally
experiences its weakest sales during late Summer and early Fall.
Year 2000 Readiness Disclosure
The Company has updated its computer systems, particularly its
point-of-sale systems and had no Year 2000 issues upon the system roll-over to
January 2000. Consequently, the Company believes that the Year 2000 issue will
not pose significant operations problems for the Company's computer systems and
the Company does not expect to incur any significant additional costs regarding
the Year 2000 issue. The Company has not and does not plan to develop a
contingency plan for the failure of the equipment or systems. The Company will
resort to manual operations in the event of a failure. The Company's cost of
updating its computer system was less than $50,000.
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
a) On or about September 14, 2000, the Company filed a complaint in
Circuit Court in Pinellas County Florida, seeking the reforming
of a contract with Powertel to include oral agreements alleged
to have been made between the Company and Powertel. The Company
has recorded $482,000 in commissions which are in dispute. The
Company is awaiting a response and has reserved for potential
costs in the third quarter.
b) The Company knows of no other material pending legal proceedings
to which the Company or its subsidiary is a party on or of which
any of their property is the subject other then routine
litigation incidental to the Company's business.
Item 2. Changes in Securities.
Not applicable
Item 3. Defaults upon Senior Securities.
Not applicable
Item 4. Submission of Matters to Vote of Security Holders.
Item 5. Other Information.
None
Item 6. Exhibits and Reports on Form 8-K.
(1) Exhibits:
Exhibit 10.1 Employment Agreement between the Company and
William L. McMahon
Exhibit 27. Financial Data Schedule
(1) Reports on Form 8-K:
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized
Date: November 14, 2000 BOBBY ALLISON WIRELESS CORPORATION
/s/ William L. McMahon
------------------------
Name: William L. McMahon
Title: Chief Financial Officer
