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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 June 30, 2000.
[ ] Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from_____________ to _________________
Commission file number 000-22251
---------
BOBBY ALLISON WIRELESS CORPORATION
(Exact Name of Small Business Issuer as Specified in Its Charter)
FLORIDA 65-0674664
------------------------------- --------------------------------
(State or Other Jurisdiction of (IRS Employer Identification No.)
Incorporation or Organization)
1200 STARKEY ROAD, SUITE 105, LARGO, FLORIDA 33771
--------------------------------------------------------------------------------
(Address of Principal Executive Offices)
(727) 584-7902
--------------------------------------------------------------------------------
(Issuer's Telephone Number, Including Area Code)
2055 LAKE AVENUE, S.E., SUITE A, LARGO, FLORIDA 33771
--------------------------------------------------------------------------------
(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 [ ]
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 [ ]
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 August 14, 2000.
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BOBBY ALLISON WIRELESS CORPORATION AND SUBSIDIARY
INDEX
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
Consolidated balance sheets -
June 30, 2000 and December 31,1999 3
Consolidated statements of operations-
three months and six months ended June 30, 2000 and June 30, 1999 5
Consolidated statements of cash flows-
three months and six months ended June 30, 2000 and June 30, 1999 6
Notes to consolidated financial statements 7
ITEM 2. 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
ITEM 6. 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>
June 30, 2000 December 31,
(Unaudited) 1999
----------- ----
<S> <C> <C>
ASSETS:
CURRENT:
Cash ....................................................... $ 25,000 $ 624,869
Accounts receivable, less allowance for doubtful accounts of
$96,088 and $83,027 ..................................... 2,939,089 2,427,639
Related Party receivable ................................... 59,898 --
Prepaid expenses ........................................... 52,271 52,546
Inventories ................................................ 2,551,669 2,606,907
Deferred tax asset ......................................... 36,000 31,000
---------- ----------
TOTAL CURRENT ASSETS ......................................... 5,663,927 5,742,961
---------- ----------
LEASEHOLD IMPROVEMENTS AND EQUIPMENT, AT COST: .............. 4,439,923 3,297,603
Less accumulated depreciation .............................. 1,028,631 699,902
---------- ----------
NET LEASEHOLD IMPROVEMENTS AND EQUIPMENT ............... 3,411,292 2,597,701
---------- ----------
OTHER ASSETS:
Goodwill and other intangible assets, net of
accumulated amortization of 190.456 ...................... 295,383 312,900
Deferred tax asset ......................................... 101,000 64,000
Deposits ................................................... 69,946 51,456
---------- ----------
TOTAL OTHER ASSETS ................. 466,329 428,356
---------- ----------
$9,541,548 $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>
June 30, 2000 December 31,
(Unaudited) 1999
----------- ----
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable .................................................. $ 2,517,500 $ 3,521,170
Accrued expense ................................................... 1,511,927 901,053
Deferred income ................................................... 281,924 281,691
Current maturities of long-term debt .............................. 2,515,030 417,697
Current maturities of related party long term debt ................ 65,344 94,909
----------- -----------
TOTAL CURRENT LIABILITIES ................................... 6,891,725 5,216,520
LONG-TERM LIABILITIES:
Long-term debt, less current maturities ........................... 74,735 1,259,385
Long-term related party debt, less current maturities ............. 45,630 92,401
----------- -----------
TOTAL LIABILITIES ........................................... 7,012,090 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
----------- -----------
STOCKHOLDERS' EQUITY:
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
Deficit ........................................................... (305,707) (434,453)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY: ................................. 904,458 575,712
----------- -----------
$ 9,541,548 $ 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 SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
---------------------- ----------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES:
Product Sales......................................... $ 3,993,416 $ 1,586,779 $ 7,884,057 $ 2,823,614
Activation commissions................................ 2,838,098 914,503 4,955,357 1,644,622
Pager services........................................ 233,839 219,359 631,897 446,175
------------ ------------ ------------ ------------
Total revenues........................................ 7,065,353 2,720,641 13,471,311 4,914,411
Cost of sales......................................... 2,519,685 935,663 4,864,136 1,740,498
------------ ------------ ------------ ------------
Gross Profit.......................................... 4,545,668 1,784,978 8,607,175 3,173,913
------------ ------------ ------------ ------------
OPERATING EXPENSES:
Selling, general and administrative expenses.......... 4,198,856 1,509,574 7,692,472 2,764,415
Depreciation and amortization......................... 137,036 81,864 379,374 115,690
------------ ------------ ------------ ------------
Total operating expenses.............................. 4,335,892 1,591,438 8,071,846 2,880,105
------------ ------------ ------------ ------------
Operating income...................................... 209,776 193,540 535,329 293,808
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest expense...................................... (102,842) (52,312) (179,625) (85,480)
Interest income....................................... 1,303 3,808 4,593 6,046
------------ ------------ ------------ ------------
Total other income (expense).......................... (101,539) (48,504) (175,032) (79,434)
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE TAXES ON INCOME.................... 108,237 145,036 360,297 214,374
INCOME TAX EXPENSE...................................... (42,908) (51,500) (143,732) (77,500)
------------ ------------ ------------ ------------
NET INCOME (LOSS)....................................... 65,329 93,536 216,565 136,874
PREFERRED STOCK DIVIDENDS............................... (44,311) (31,477) (87,819) (60,141)
------------ ------------ ------------ ------------
NET INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS.......... 21,018 62,059 128,746 76,733
============ ============ ============ ============
EARNINGS PER COMMON SHARE:
Basic................................................. .04 .13 .27 .16
Diluted............................................... .04 .13 .25 .16
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic................................................. 480,000 480,000 480,000 480,000
Diluted............................................... 495,474 480,000 766,264 480,000
</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 SIX MONTHS
ENDED JUNE 30,
--------------------------
2000 1999
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ...................................................... $ 216,565 $ 136,874
Adjustments to reconcile net income (loss) to net cash provided by (used
for) operating activities:
Depreciation and Amortization....................................... 346,246 115,690
Debt discount amortization to interest expense ..................... 56,175 --
Cash provided by (used for):
Accounts receivable ............................................ (511,450) (41,126)
Related Party receivable ....................................... (59,898) --
Prepaid expenses ............................................... 275 (43,770)
Inventories .................................................... 55,238 24,636
Deferred Tax Assets ............................................ (42,000) 77,500
Accounts payable ............................................... (1,003,670) 23,257
Deferred Income ................................................ 233 146,499
Accrued expenses ............................................... 610,874 77,122
----------- -----------
Net cash provided by (used for) operating activities ................... (331,412) 516,682
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of leasehold improvements and equipment ............... (1,142,320) (698,895)
Increase in deposits ........................................... (18,490) (37,228)
----------- -----------
Net cash used for investing activities ................................. (1,160,810) (736,123)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments in long-term debt ..................................... (118,477) (116,928)
Preferred Stock dividends ...................................... (89,170) (60,141)
Proceeds from line of credit ................................... 900,000 328,721
Proceeds from Issuance of Preferred Stock ...................... 200,000 --
----------- -----------
Net cash provided by financing activities .............................. 892,353 151,652
----------- -----------
NET INCREASE (DECREASE) IN CASH: ....................................... (599,869) (67,789)
CASH, beginning of period .............................................. 624,869 125,155
----------- -----------
CASH, end of period .................................................... $ 25,000 $ 57,366
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest ......................................... $ 315,369 $ 85,480
=========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
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 six months ended June 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 recapitalization 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 intercompany accounts and transactions have been eliminated in
consolidation.
NET INCOME (LOSS) PER COMMON SHARE
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 potential common shares. Diluted EPS
includes the dilutive effect of potential common shares. Potential common shares
were not included for the periods ended June 30, 1999 since their effects are
antidilutive under the treasury stock method for options and warrants and
if-converted method for convertible preferred stock.
The following is a reconciliation of basic net income per share to
diluted net income per share for the three months ended June 30, 2000 and 1999:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
(Amounts in Thousands) ----------------------
Except for Share Amounts) 2000 1999
---- ----
<S> <C> <C>
Net income (loss) applicable to
Common Stock - basic $ 21 $ 62
Effect of dilutive securities -
Preferred Stock dividends 44 31
-------- --------
Net income applicable to
Common Stock - diluted $ 65 $ 93
======== ========
Basic net income per share $ .04 $ .13
======== ========
Diluted net income (loss) per share $ .04 $ .13
======== ========
Weighted average shares outstanding - basic 480,000 480,000
Potential shares exercisable under stock
option plans 15,474 --
Potential shares upon conversion of
Preferred Stock -- --
-------- --------
Weighted average shares outstanding - diluted 495,474 480,000
======== ========
</TABLE>
The above reconciliation for the three months ended June 30, 2000,
excludes 47,526 options, and 350,790 potential shares upon conversion of
Preferred Stock since their effect would be anti-dilutive.
The following is a reconciliation of basic net income per share to diluted net
income per share for the six months ended June 30, 2000 and 1999:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
(Amounts in Thousands) ----------------------
Except for Share Amounts) 2000 1999
---- ----
<S> <C> <C>
Net income applicable to
Common Stock - basic $ 129 $ 77
Effect of dilutive securities -
Preferred stock dividends 88 60
-------- --------
Net income (loss) applicable to
Common Stock - diluted $ 217 $ 137
======== ========
Basic net income (loss) per share $ .27 $ .16
======== ========
Diluted net income (loss) per share $ .25 $ .16
======== ========
Weighted average shares outstanding - basic 480,000 480,000
Potential shares exercisable under stock
option plans 15,474 --
Potential shares upon conversion of
Preferred Stock 270,790 --
-------- --------
Weighted average shares outstanding - diluted 766,264 480,000
======== ========
</TABLE>
The above reconciliation for the six months ended June 30, 2000,
excludes 47,526 options, and 80,000 potential shares upon conversion of
Preferred Stock since their effect would be anti-dilutive.
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 122,
"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 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.
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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
cancellable 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 accordingly
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.
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 July 31, 2000, had
77 sales locations including 38 in-line stores, 36 kiosks, and 3 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, AirTouch, 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 and plans to continue to expand in these states as well as
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 six months
ended June 30, 2000, retail sales represented approximately 59% of the Company's
revenues and 38% of the Company's gross profit. As the customer makes payment at
the cash register or by credit card on the e-commerce web site, retail sales do
not produce any accounts receivables. The e-commerce web site was not launched
until January 2000; therefore, 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.
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
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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, unless both AT&T Wireless Services and
the Company agree to an extension, expires on December 1, 2000. As the Company
has maintained a good relationship with AT&T Wireless Services since 1993, the
Company believes that it is likely that the agreement will be extended but not
necessarily on the same terms. Outside of Central and South Florida, however,
the Company has non-exclusive carrier contracts with one or more of either AT&T
Wireless Services, AirTouch, Nextel, Powertel and SunCom. For the six months
ended June 30, 2000, activation income represented approximately 37% of the
Company's revenues, approximately 57% of the Company's gross profits and
approximately 79% of the Company's accounts receivables of which AT&T Wireless
Services accounted for approximately 23%.
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
service for Powertel and is negotiating to sell prepaid services for other
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 air time 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 six months ended June 30, 2000, pager services
represented approximately 4% of the Company's revenues and 3.6% 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.
In the Company's Annual Reports on Form 10-KSB for the years ended
December 31, 1998 and 1999 and interim Forms 10-QSB, the Company explained the
effects on its revenues and costs of goods sold of the change in sales and
commission policies at AT&T Wireless Services which commenced in October of 1998
and affected the comparison of revenues and costs of goods sold for such
periods. However, since each of the periods ended June 30, 2000 and June 30,
1999 discussed herein occurred after these changes were implemented, they do not
affect the period to period
9
<PAGE> 10
comparisons contained in this report and will not affect such comparisons in the
Company's future reports on Forms 10-QSB and Form 10-KSB.
RESULTS OF OPERATIONS
The following table sets forth certain selected income statement data
of the Company expressed as a percentage of net sales:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
-------------------- ------------------
2000 1999 2000 1999
------ ------ ------ ------
<S> <C> <C> <C> <C>
Total Revenue .............................. 100.0% 100.0% 100.0% 100.0%
Cost of Sales .............................. 35.7% 34.4% 36.1% 35.4%
Gross Profit ............................... 64.3% 65.6% 63.9% 64.6%
Selling, General and Administrative Expenses
(Excluding Depreciation) ................... 59.4% 55.5% 57.1% 56.3%
Depreciation and Amortization .............. 1.9% 3.0% 2.8% 2.4%
Operating Income ........................... 3.0% 7.1% 4.0% 6.0%
Interest Expense ........................... 1.4% 1.8% 1.3% 1.6%
Income Tax Expense ......................... .6% 1.9% 1.1% 1.6%
Net Income (Loss) .......................... .9% 3.4% 1.6% 2.8%
</TABLE>
COMPARISON OF THE THREE MONTHS ENDED JUNE 30, 2000 TO THE THREE MONTHS ENDED
JUNE 30, 1999
TOTAL REVENUE. Total Revenue was $7,065,353 for the three months ended
June 30, 2000 as compared to $2,720,641 for the three months ended June 30, 1999
or an increase of $4,344,712 or 160%. This increase reflects the increase in
sales location count from 28 to 77 sales locations. Comparable sales location
sales for the three months ended June 30, 2000 increased by $330,834 or
approximately 12.2% as compared to the three months ended June 30, 1999.
Comparable stores sales include only sales locations owned and operated by the
Company since April 1, 1999. The Company operated 77 stores at June 30, 2000, 28
of which had then been owned and operated since April 1, 1999. See "-Sources of
Revenue."
GROSS PROFIT. Gross profit was $4,545,668 for the three months ended
June 30, 2000 as compared to $1,784,978 for the three months ended June 30, 1999
or an increase of $2,760,690 or 155% largely reflecting the increase in stores
operated during the three months ended June 30, 1999. Gross profit as a
percentage of net sales decreased from 65.6% in the three months ended June 30,
1999 to 64.3% in the three months ended June 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
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ended June 30, 2000, the Company also accrued $226,000 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 June 30, 1999.
OPERATING EXPENSES. Selling, general and administrative expense was
$4,198,856 for the three months ended June 30, 2000 as compared to $1,509,574
for the three months ended June 30, 1999 or an increase of $2,689,282 or
approximately 178%, 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. Depreciation and Amortization was $137,036 for the
three months ended June 30, 2000 as compared to $81,864 for the three months
ended June 30, 1999 or an increase of $55,172 approximately 67% largely as a
result of the Company's store expansion.
NET INTEREST EXPENSE. Net interest expense was $101,539 for the three
months ended June 30, 2000 as compared to $48,504 for the three months ended
June 30, 1999 or a increase of $53,035 or 109% due to higher average borrowings
outstanding during 2000 versus 1999. The borrowing outstanding at June 30, 2000
was $2,900,739 as compared to $947,631 at June 30, 1999.
NET INCOME/LOSS. The Company had net income of $65,329 for the three
months ended June 30, 2000 as compared to net income of $93,536 for the three
months ended June 30, 1999 or a decrease of $28,207, primarily as a result of
the Company's store expansion, retail increased operating expenses and interest
costs.
COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 2000 TO THE SIX MONTHS ENDED JUNE
30, 1999.
TOTAL REVENUE. Total Revenue was $13,471,311 for the six months ended
June 30, 2000 as compared to $4,914,411 for the six months ended June 30, 1999
or an increase of $8,556,900 or 174%. This increase reflects the increase in
sales location count from 28 to 77 sales locations. Comparable sales location
sales for the six months ended June 30, 2000 increased by $662,135 or
approximately 13.5% as compared to the six months ended June 30, 1999.
Comparable stores sales include only sales locations owned and operated by the
Company since January 1, 1999. The Company operated 77 stores at June 30, 2000,
28 of which had then been owned and operated since January 1, 1999. See
"-Sources of Revenue."
GROSS PROFIT. Gross profit was $8,607,175 for the six months ended June
30, 2000 as compared to $3,173,913 for the six months ended June 30, 1999 or an
increase of $5,433,262 or 171% largely reflecting the increase in stores
operated during the six months ended June 30, 1999. Gross profit as a percentage
of net sales decreased from 64.6% in the six months ended June 30, 1999 to 63.9%
in the six months ended June 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 six months ended June 30, 2000, the Company also accrued $565,500
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 six months ended June 30, 1999.
OPERATING EXPENSES. Selling, general and administrative expense was
$7,692,472 for the six months ended June 30, 2000 as compared to $2,764,415 for
the six months ended June 30, 1999 or an increase of $4,928,057 or approximately
178%, largely as a result of the Company's store expansion. Corporate
headquarter's expenses, included
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therein, increased due primarily to increased costs necessitated by the
Company's growth and anticipated future growth including, but not limited to,
support and training, advertising and marketing and merchandising and
allocation/distribution. Depreciation and Amortization was $379,374 for the six
months ended June 30, 2000 as compared to $115,690 for the six months ended June
30, 1999 or an increase of $263,684 or approximately 228% largely as a result of
the Company's store expansion.
NET INTEREST EXPENSE. Net interest expense was $175,032 for the six
months ended June 30, 2000 as compared to $79,434 for the six months ended June
30, 1999 or a increase of $95,598 or 120% due to higher average borrowings
outstanding during 2000 versus 1999. The borrowing at June 30, 2000 was
$2,900,739 as compared to $947,631 at June 30, 1999.
NET INCOME/LOSS. The Company had net income of $216,565 for the six
months ended June 30, 2000 as compared to net income of $136,874 for the six
months ended June 30, 1999 or an increase of $79,691 or 58%, primarily as a
result of the Company's store expansion.
LIQUIDITY AND CAPITAL RESOURCES
The Company had a $1,427,798 working capital deficit at June 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.
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 June 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 (10.0% as of June 30, 2000). 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 7.00%
semi-annually. This issuance brings the total outstanding Series C Preferred to
40 shares.
The Company's net cash used by operating activities for the six months
ended June 30, 2000 was $331,412 as compared to net cash provided by operating
activities of $516,682 for the six months ended June 30, 1999 or change in cash
used by operating activities of $814,967. This increase was primarily due to an
increase in net income. The net cash used in investing activities totaled
$1,193,938 for the six months ended June 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 $892,354 for the
six months ended June 30, 2000 and related primarily to the additional
borrowings under the Company's $1.9 million line of credit.
The Company believes it can satisfy its cash demands during the next 12
months out of internally generated cash flow. However, in order to proceed with
the Company's proposed growth plans, the Company will still 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.
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NET OPERATING LOSS CARRY-FORWARDS AND DEFERRED TAX ASSETS
At December 31, 1999, the Company had no net operating loss carry
forward for federal income tax purposes. As of June 30, 2000, the Company had a
total deferred tax asset of $137,000 consisting of $101,000 from leasehold
improvements and $36,000 from accounts receivables.
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 has had no Year 2000 issues upon or since 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.
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PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Not applicable
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.
Annual Meeting of the Shareholders
(a) The Annual Meeting of the Shareholders was held on
Monday, June 5, 2000 at the Wyndham Harbor Island
Hotel, 275 Harbor Island Drive, Tampa, Florida.
(b) The matters before the meeting were (i) the election
of directors, two directors, Robert L. McGinnis and
James L. Ralph, to be voted upon by the holders of
the common stock of the Company and one director,
James S. Holbrook, Jr., to be voted upon by the
holders of the 7.5% Series B Convertible Preferred
Stock and (ii) the ratification of BDO Seidman LLP as
the independent auditors for the Company for the year
ended December 31, 2000. Because the shares are not
held in street name and not currently traded on any
exchange or otherwise, there were no broker
non-votes. Further, there were no abstentions. Each
of the directors were elected at the meeting as
follows:
(i) Robert L. McGinnis and James L. Ralph-
480,000 shares of common stock eligible to
vote of which all 480,000 shares were voted
in favor.
(ii) James S. Holbrook, Jr.- 50 shares of 7.5%
Series B Convertible Preferred Stock
eligible to vote of which 46 shares were
voted in favor of his election and 4 of
which were not voted at all as the holders
did not return their proxy.
Finally, there were 480,000 shares of common stock
eligible to vote for the ratification of BDO Seidman,
LLP as the independent auditors for the Company for
the year ended December 31, 2000 of which all 480,000
shares were voted in favor.
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OTHER INFORMATION
CONTINUED
ITEM 5. OTHER INFORMATION.
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(1) Exhibits:
Exhibit 27 - Financial Data Schedule
(2) Reports on Form 8-K:
None.
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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: August 14, 2000 BOBBY ALLISON WIRELESS CORPORATION
/s/ ROBERT L. MCGINNIS
-----------------------------------------
Name: Robert L. McGinnis
Title: Chairman of the Board and Chief Executive
Officer
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