SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
Amendment No. 1
to Form 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 14 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999 Commission File No. 0-26533
ADVANCED WIRELESS SYSTEMS, INC.
Alabama 63-1205304
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
927 Sunset Drive
Irving, Texas 75061
(Address of principal executive offices)
Issuer's telephone number: 972-254-7604
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered to Section 12(g) of the Act:
Common Stock, par value $.01 per share
(Title of Class)
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 has been required to file such
reports), and (2) has been subject to such filing requirements for the past
90 days.
Yes No X
At June 30, 1999, there were a total of 4,559,263 shares of registrant's
Common Stock outstanding.
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PART I
Item 1. Financial Statements
ADVANCED WIRELESS SYSTEMS, INC.
BALANCE SHEETS (UNAUDITED)
June 30, December 31,
1999 1998
(Unaudited) (Audited)
------------- -------------
ASSETS
Current assets
Cash and cash equivalents $ 374,598 $ 56,168
Accounts receivable, net 2,608 2,608
Inventory 45,964 44,949
Employee Advances 375 -
Prepaid expenses 24,600 18,000
---------- -------------
Total current assets 448,145 121,725
---------- -------------
Fixed Assets, net of depreciation 98,098 115,078
---------- -------------
Other assets
Deposits 300 15,900
License Acquisition Costs, net 204,842 256,962
Organization costs, net of
amortization of$62,832 and $50,944,
respectively 5,094 10,189
---------- -------------
Total Other Assets 210,236 83,051
TOTAL ASSETS $756,479 $519,854
---------- -------------
---------- -------------
(See Notes to Financial Statements)
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ADVANCED WIRELESS SYSTEMS, INC.
BALANCE SHEETS (UNAUDITED)
June 30, December 31,
1999 1998
(Unaudited) (Audited)
---------------- ------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Current Liabilities:
Debtor certificates $ 6,000 $ 6,000
Notes payable, related parties 250,000 250,000
Accrued payroll taxes 6,629 5,231
Accrued interest payable 50,097 38,847
-------------------- -------------------
Total Liabilities 312,726 300,078
-------------------- --------------------
Stockholders' Equity:
Common stock, $.01 par value, 50,000,000
shares authorized; 4,559,263 and 3,658,518
shares issued and outstanding at June 30,
1999 and 1998, respectively 45,593 38,320
Additional paid in capital 2,729,433 2,059,284
Accumulated deficit (2,331,273) (1,877,828)
-------------------- ----------------
Total Stockholders' equity 443,753 219,776
-------------------- ----------------
Total Liabilities and Stockholders'
Equity $ 756,479 $ 519,854
-------------------- ----------------
-------------------- ----------------
(See Notes to Financial Statements)
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ADVANCED WIRELESS SYSTEMS, INC.
STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------------------------------------------------------
1999 1998 1999 1998
--------------------------------------------------------------------
REVENUES
Service and other $ 20,284 $ 19,976 $ 42,490 $ 40,811
----------- ----------- ----------- -----------
COSTS AND EXPENSES
Operating 24,372 17,076 64,353 76,097
General and
administrative 219,665 31,267 325,424 165,243
Depreciation and
amortization 54,234 75,166 94,908 138,120
------------- --------- -------------- ----------
Total costs and
expenses 298,271 123,509 484,685 379,460
--------------- --------- -------------- ----------
Net loss from
operations (277,987) (103,533) (442,195) (338,649)
OTHER INCOME (EXPENSE)
Interest income - 2,800 - 2,800
Interest expense (5,625) (6,285) (11,250) (10,223)
-------------- ---------- --------------- ----------
Total Other Income
(Expense) (5,265) (3,485) (11,250) (7,423)
--------------- ---------- --------------- -----------
Net Loss (283,612) (107,018) (453,445) (346,072)
-------------------------- ---------------------------
-------------------------- ---------------------------
Accumulated deficit, beginning
of the period (1,877,828) (1,194,057)
Accumulated deficit, end
of the period ($2,331,273) ($1,540,129)
------------- ---------------
Basic Loss Per Share $ (.11) $ (.11)
------------- ---------------
------------- ---------------
Weighted Average Number
of Shares Outstanding 4,323,136 3,192,518
------------- ----------------
(See Notes to Financial Statements)
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ADVANCED WIRELESS SYSTEMS, INC.
STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended
June 30,
--------------------------------------
1999 1998
-------------------- ------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (453,445) $ (346,072)
Adjustments to reconcile net loss to
net cash from operating activities:
Depreciation and amortization 94,908 138,120
Changes in operating assets
and liabilities:
Employee advances (375) -
Prepaid expenses 9,000 -
Inventory (1,014) -
Postpetition liabilities - (61,500)
Accrued interest 11,250 19,423
Accrued payroll taxes 1,400 (1,573)
-------------------- --------------------
Net Cash Used in Operating Activities (338,276) (251,602)
------------------- --------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (20,715) (5,775)
-------------------- --------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of notes - 75,000
Exercised stock warrants 677,421 -
Proceeds from sale of debtor certificates - 185,850
Decrease in pre-petition liabilities - (138,320)
-------------------- --------------------
Net Cash Provided by Financing
Activities 677,421 122,530
-------------------- --------------------
Net Increase (Decrease) in Cash
and Cash Equivalents 318,430 (134,847)
Cash and Cash Equivalents,
Beginning of Period 56,168 247,686
-------------------- --------------------
Cash and Cash Equivalents,
End of Period $ 374,598 $ 112,839
-------------------- --------------------
-------------------- --------------------
(See Notes to Financial Statements)
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ADVANCED WIRELESS SYSTEMS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR SIX MONTHS ENDED JUNE 30, 1999 AND 1998 (UNAUDITED)
Common Additional
Stock Par Paid-in Accumulated
Shares Value Capital Deficit Total
------- ------- ---------- ------------ ------
Balance, 12/31/98 3,832,009 $ 38,320 $ 2,059,284 $ (1,877,828)$219,776
Exercise of Class A
Warrants for Common
Stock 199,331 1,994 147,505 - 149,499
Exercise of Class B
Warrants for Common
Stock 527,923 5,279 522,644 - 527,923
Net Loss - - - ( 453,445)(453,445)
-------- ------- ----------- ----------- --------
Balance, 06/30/99 4,559,263 45,593 2,729,433 (2,331,273)(443,753)
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ADVANCED WIRELESS SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999 AND 1998 (UNAUDITED)
Note A - Significant accounting policies:
Nature of operations - Mobile Wireless, LLC (the Debtor) was a Nevada
limited liability company formed on April 25, 1994, for purposes of
acquiring and operating certain FCC licenses in the Mobile, Alabama area.
The majority interest member of the LLC was a similarly named
general partnership, Mobile Wireless Partners (Partners) comprised of
1,094 partners, with a 94.5% interest in the Debtor. Pursuant to the Plan
of Reorganization filed by Mobile Wireless, LLC, Advanced Wireless Systems,
Inc. was created and emerged from Bankruptcy on January 8, 1998 as
the Reorganized Debtor (collectively, called the Company). Additionally,
the Plan included the acquisition by the Company of the Partners' FCC
License in exchange for 3,192,518 shares of the Company's common
stock; 3,068,066 B Warrants exercisable on a 1 for 1 basis for the
Company's common stock; and the extinguishment of an intercompany loan
from Partners totaling $100,000. The License has been recorded by the
Company at the Partners' historical cost basis which was $225,000.
This treatment is consistent with requirements for exchanges between
entities under common control. The financial statements of the Company have
been retroactively restated to present the reorganization and license
acquisition as if the Company had emerged from bankruptcy as of the
earliest period presented.
Company activities - Advanced Wireless Systems, Inc. is an established
provider of wireless television service in the Mobile, Alabama market,
primarily serving rural and outlying areas where the delivery of traditional
land-based cable television service is impractical. The Company recently
acquired the technology to provide high speed Internet access through its
existing broadcast frequencies and is beginning to develop a base of service
for these users, as well as continuing to provide wireless television service
to the existing market.
In the first quarter of 1999, management made the decision to suspend new
installations of wireless cable television service based on the current costs
of these installations, which management believes exceed the anticipated
subscriber revenues. This suspension will remain in effect until management
can evaluate alternatives for performing the installations in a more cost
effective manner.
Reorganization - On August 23, 1997, the Debtor filed a Petition with the
United States Bankruptcy Court in the Northern District of Texas, for relief
under Chapter 11 of the U.S. Bankruptcy Code, Case Number 397-37735-HCA-11.
Under Chapter 11, certain claims against the Company in existence prior to
the filing of the petition for relief under the Federal bankruptcy laws were
stayed while the Company continued business operations as Debtor-in-
Possession. On October 18, 1997, the Bankruptcy Court further authorized
the issuance and sales of up to $1,000,000 in Certificates of Indebtedness
to raise new capital
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Note A - Significant accounting policies - (continued):
Reorganization - (continued)
for the Company pursuant to Section 364(c) of the Code. On November 6, 1997,
the Company filed a proposed Plan of Reorganization (the Plan). Under the
Plan, a new corporation would be formed such that, upon confirmation of the
Plan, all assets and liabilities of the Debtor would be assumed by the
corporation, and all equity interests in the Debtor would be extinguished.
The resulting reorganized debtor, Advanced Wireless Systems, Inc., would
carry on the business activities of the Debtor. On January 8, 1998, the
Bankruptcy Court confirmed the Company's Plan, which provided for the
following:
Prepetition liabilities subject to compromise - These unsecured claimants
may have portions of their claims rejected. Pursuant to the Plan, creditors
with claims less that $1,000 will be paid in full by the Company following
confirmation. Creditors with claims in excess of $1,000 will either be paid
an amount agreed to by the parties in interest, or may elect to receive
shares of the Company's common stock in lieu of payment. All liabilities
within this category have been discharged as of December 31, 1998.
Postpetition liabilities - These amounts include professional fees, costs
of administration, wage and tax claims, and certificate of indebtedness note
holders. Claimants for professional fees and certificate holders may elect
to receive shares of the Company's common stock in lieu of payment. All
liabilities within this category have been discharged as of December 31,
1998.
Cash and cash equivalents - For purposes of cash flows, the Company
considers all highly liquid debt instruments purchased with a maturity of
three months or less to be cash equivalents.
Inventory - Inventory is stated at the lower of cost (first-in, first-out)
or market.
Property and depreciation - Property and equipment are carried at cost and
depreciated over their estimated useful lives, ranging from 5 to 15 years.
Depreciation is calculated using the double-declining-balance method, which
management feels more appropriately expires the asset's cost relative to the
asset's revenue-generating ability. Maintenance and repair costs are charged
to expense as incurred; major renewals and betterments are capitalized.
Subscriber installation costs are capitalized and amortized over a 2.5 year
period, the approximate average subscription term of a subscriber. The costs
of subsequently disconnecting and reconnecting are charged to expense in the
period incurred.
FCC licenses and other intangibles - Intangibles are capitalized and
amortized on a straight-line basis. Organization costs are amortized over
5 years. FCC licenses are amortized over 5 years.
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Note A - Significant accounting policies - (continued):
Revenue recognition - Revenues from wireless subscription services are
recognized monthly upon billing. Initial hook-up revenue is recognized to
the extent of direct selling cost incurred.
Common stock - The Company has authorized 50,000,000 shares of $.01 par
value common stock. Each share entitles the holder to one vote. There are
no dividend or liquidation preferences, participation rights, call prices or
dates, conversion prices or rates, sinking fund requirements, or unusual
voting rights associated with these shares.
Warrants - Warrants were issued to purchase up to 3,360,575 shares of
Common Stock of the company, pursuant to the Plan of Reorganization and in
conjunction with the conversion of Debtor Certificates. The warrants issued
by the Company include A and B warrants having an exercise price of $.75
and $1, respectively. All outstanding warrants had original expirations of
May 31, 1999, but were subsequently extended until August 29, 1999.
Preferred stock - The Company has authorized 1,000,000 shares of $.001 par
value redeemable preferred stock. Preferred stock carries preferences on
liquidation which include accrued dividends, if any.
Income taxes - Deferred income taxes reflect the impact of temporary
differences between the assets and liabilities recognized for financial
reporting purposes and amounts recognized for tax purposes.
Use of estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that affect certain reported amounts and
disclosures. Accordingly, actual results could differ from those estimates.
Note B - Inventory:
Inventory at June 30, 1999 and 1998, consisted of the following:
1999 1998
-------------- -----------
Inventory held for resale $ 24,195 $ 30,875
Installation materials 21,769 27,432
--------------- ------------
$ 45,964 $ 58,307
--------------- ------------
--------------- ------------
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Note C - Fixed Assets:
Furniture and equipment at June 30, 1999 and 1998 are summarized as follows:
1999 1998
--------------- --------------
Cost:
Machinery and equipment $ 587,201 $ 566,486
Furniture and fixtures 21,801 21,801
Autos and trucks 5,325 5,325
Subscriber premises equipment 38,160 38,160
Accumulated depreciation (554,389) (479,457)
--------------- -------------
$ 98,098 $ 152,315
--------------- -------------
--------------- -------------
Note D - Operating leases:
The company leases office and warehouse space subject to a six year lease,
expiring March 29, 2000. The lease provides for monthly lease payments of
$2,800 and extends the option to renew the lease for three successive three-
year terms. Upon execution of the lease, the Company delivered $33,600 to
the lessor as deposit for the sixth year's base payment, or as security in
the event of default. In late 1998, the Company negotiated with the Lessor
to release the security deposit to the Lessor in exchange for reduced lease
payments. Beginning January 1999, the lease payments are $1,300 per month
for the remaining 15 months of the lease. Accordingly, the prepaid portion
of the deposit has been reclassified to a prepaid asset.
The Company leases the site for its transmitter subject to a five-year lease
expiring March 13, 2000. The lease provides for monthly payments of $1,000.
The Company leases four MMDS channels, referred to as the E Block, subject to
a five-year lease term expiring on May 9, 1999. The base provides for
monthly lease payments of $2,000 and extends the option to renew the lease
for successive five-year terms. In May 1999, the Company renewed the lease
at a reduced lease rate of $1,200 per month for an additional five years.
The Company leases four ITF channels, referred to as the G Block, subject to
an initial five-year term, with an automatic five year renewal term, having
been renewed on March 22, 1996, and expiring on March 22, 2001. The base
provides for monthly lease payments of $1,000. At lease expiration, the
Company has the right of refusal to negotiate a new lease agreement for the
channels. Amounts paid by the Company to acquire the channel leases and
license agreements have been capitalized and are being amortized over 15
years. The monthly lease payments are expensed.
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Note D - Operating leases - (continued)
Future minimum lease payments under the Company's operating leases are as
follows:
Remainder of 1999 $ 27,000
2000 37,800
2001 17,400
2002 14,400
2003 14,400
Thereafter 3,600
Total $ 135,700
Note E - Notes payable:
Notes payable consists of two notes from two individuals who are each
officers and directors of the Company. The notes total $250,000 and are
secured by liens on all license agreements, channel leases, contracts,
accounts receivable, equipment leases, and all additions, replacements,
machinery, parts and goods used by the Company in the operations of its
business. The notes bear an interest rate at 9.0% APR and are payable upon
demand. The balance sheet at June 30, 1999 and 1998, reflects accrued
interest payable on these notes of $50,097 and $28,623, respectively.
Note F - Income taxes:
The Company has incurred a net operating loss for the period ended December
31, 1998. The net operating loss may be carried forward for a period not to
exceed twenty years to offset future taxable income.
Note G - Debtor certificates:
As discussed in Note A, on October 18, 1997, the Bankruptcy Court authorized
the issuance and sales of up to $1 million in Certificates of Indebtedness to
raise new capital for the reorganized debtor pursuant to Section 364 of the
Code. The Certificates were due two years from the Effective Date of the
Plan, and bore interest at 10% annually. On May 27, 1998, the Bankruptcy
Court Clerk disbursed $242,043, representing proceeds from sales of the
Certificates of $239,000, and interest income of $3,043 to Sid Diamond, Esq.
(the disbursing agent) who in turn wired the funds to the Company. A total of
120 individuals participated in the program. The Plan of Reorganization
provided that the Debtor Certificate holders could, at their exclusive
option,convert their debt at a conversion rate of one unit of equity for each
$1 lent. A unit of equity consists of two shares of Common Stock and two
Class A Warrants allowing the holder to purchase additional shares at $0.75
each. 118 holders opted to convert their certificates and two opted not to
convert. On July 31, 1998, 466,000 shares of Common Stock and 466,000 A
Warrants were issued to the 118 Certificate holders. Stock and Warrants
issued to this group have no restrictions.
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Note G - Debtor certificates - (continued):
As discussed in Note A, the Plan of Reorganization also provided that the
Debtor would purchase from Mobile Wireless Partners certain MMDS licenses
issued by the FCC and owned by the Partnership. The Company agreed to
purchase these licenses, referred to as the H Block for $225,000. This
transaction was effective the date of confirmation. The Plan of
Reorganization also provided that the Company would issue a Debtor
Certificate to Mobile Partners in a like amount of the purchase price
pursuant to Section 364 of the Bankruptcy Code. The plan further provided
that the Debtor Certificate could be converted into 3,192,518 shares of
Common shares at a stated value of $1 each, and 3,068,066 Class B Warrants
allowing the holder to purchase additional shares at $1.00 each for a period
of 1 year. In the event of conversion of the Debtor Certificate into the
stock and warrants, the Partnership agreed by contract not to assign, pledge,
transfer or otherwise dispose of the 3,192,518 shares of Common Stock and
3,068,066 Warrants for one year from the date of conversion. 126,000
shares of Common Stock held no such restriction. Further the shares and
warrants to be issued could only be issued to the partners upon dissolution
of the Partnership. The Partnership was dissolved on July 15, 1998 and
pursuant to the winding up of the partnership, the shares and warrants were
issued and distributed to the Partners. The financial statements have been
retroactively restated to reflect the acquisition of the licenses, issuance
of Common Stock, and discharge of an intercompany loan as of the earliest
period presented.
Note H - Stock option plan:
On December 11, 1997, the Company's Board of Directors approved an
Incentive Stock Option Plan for employees, officers, and directors. The plan
provides for the issuance of a maximum of 1,000,000 shares of the company's
common stock, issuable at the discretion of the Board of Directors, as
indicated in the Plan. As of December 31, 1998, no common stock had been
issued under the Company's stock option plan.
Also on December 11, 1997, the Board of Directors authorized the issuance
of 365,600 options to officers and directors of the Company, exercisable at
$.25 per share for an option term of two years. At December 31, 1998, none
of these options had been issued or exercised.
The Plan further reserved 350,000 shares of common stock to be granted in
the future at an exercise price of $.25 per share.
Note I - Going concern:
The Company has emerged from Chapter 11 Bankruptcy. The Company's ability to
continue as a going concern depends, in part, on its ability to develop new
markets for its MMDS frequencies including, but not limited to, high speed
Internet access, and to raise new capital through public offerings of the
Company's stock. There can be no assurance that the Company will
successfully develop new markets for its services, or that sales of the
Company stock will generate sufficient working capital to offset operating
losses.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following information should be read in conjunction with our financial
statements and notes appearing elsewhere in this registration statement.
This registration statement contains forward-looking statements. The words,
anticipate, believe, expect, plan, intend, estimate, project,could, may,
foresee, and similar expressions are intended to identify forward-looking
statements. These statements include information regarding expected
development of our business and development of the wireless cable TV and
Internet access service business where we will focus our marketing efforts.
These statements reflect our current views about future events and financial
performance and involve risks and uncertainties, including without limitation
the risks described in Risk Factors. Should one or more of these risks or
uncertainties occur, or should underlying assumptions prove incorrect, actual
results may vary materially and adversely from those anticipated, believed,
estimated or otherwise indicated.
Among the factors that could cause actual results to differ materially are
the following: a lack of sufficient capital to finance our business strategy
on terms satisfactory to us; pricing pressures which could affect demand for
our services; changes in labor, equipment and capital costs; our inability to
develop and implement new services such as wireless broadband access and
high-speed Internet access; our inability to obtain the necessary
authorizations from the FCC for such new services; competitive factors, such
as the introduction of new technologies and competitors into the wireless
communications business; or our Company's failure to attract strategic
partners; general business and economic conditions; inexperience of
management in deploying a wireless broadband access business.
The information in this quarterly report should be read in conjunction with
the detailed description of the Company contained in our Amendment No. 1
and Form 10-SB/A filed with the Securities and Exchange Commission on
September 22, 1999.
On June 3, 1999, the U.S. District Court for the District of Oregon ruled
that the City of Portland and Multnomah County could adopt open access
ordinances, requiring AT&T Corp to allow ISPs who are unaffiliated with
AT&T to connect their equipment directly to AT&T's cable modem platform,
bypassing AT&T's own proprietary cable ISP. The court ruled that the city
and county ordinances are not preempted by federal laws, including the FCC's
regulation of cable television. The court's decision would allow local
governments to mandate existing cable TV operators to permit unaffiliated,
competing ISP's to use the cable lines to provide service to homes and
businesses. Coaxial cable permits Internet access at much higher speeds than
can be had over telephone lines including ISDN lines.
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AT&T has appealed the Oregon court's decision, and on August 16, 1999, the
FCC filed a friend of the court brief with the ninth circuit which also urged
the court to overturn the district court decision. The decision raises major
uncertainties for the future of wireless Internet access services like ours.
For instance, open access to cable lines could greatly increase the
competitiveness of ISP's in high speed access, because they could provide
high speed access over existing cable lines without making the capital
investment required for a cable system. In addition, the court's ruling may
mean that state and local governments have authority impose a variety of
additional regulations on the Internet. We are uncertain how the Oregon
decision may affect our business. If the decision is allowed to stand, it
may adversely affect our business in many unforeseen ways, including greatly
increasing high speed Internet competition or by permitting additional local
regulations that restrict our business or raise our cost of doing business.
Recent Events
Debt Repayment
On July 1, 1999, we paid Oscar Hayes, one of our directors, $75,000 to repay
the outstanding principal amount of a secured loan that Mr. Hayes made to us
in 1997. We did not pay the accrued, unpaid interest on the debt to Mr.
Hayes, and the accrued interest remains due and unpaid, secured by a lien on
our FCC licenses, contracts, accounts receivable, equipment leases and other
assets. Mr. Hayes has not demanded payment of the unpaid interest, but
neither has he waived his right to demand payment or declare a default. We
are negotiating with Mr. Hayes about the terms of our interest payment.
Acquisition of Dibbs Internet
On August 25, 1999, Advanced Wireless Systems, Inc. (the Company) purchased
all of the assets of Dibbs Internet Services, Inc. (Dibbs), an Alabama
corporation, an Internet service provider in Mobile, Alabama, for a purchase
price of $225,000. Dibbs provides Internet services to approximately 730
Internet customers in the Mobile metropolitan area via dial-in telephone line
access. We will continue offering Dibbs customers the telephonic Internet
service that they have now, and we will also offer them the opportunity to
convert to use of our high speed wireless Internet service.
We acquired the Dibbs assets used in the operation of its Internet service,
including its equipment, software, and the right to use the Dibbs trade name,
for $225,000 cash, paid in full on August 25, 1999, to Dibbs and its sole
shareholder and president, Diane Summers. We negotiated the purchase price
with Ms. Summers, who is not affiliated with our Company, in arms-length
negotiations. We used cash from our working capital reserves to pay the
purchase price. We did not assume any liabilities of Dibbs in the
transaction.
The assets purchased include the equipment necessary to service the Dibbs
subscribers, including three computers, two network hubs, a Cisco 2500
router, software, a backup power supply and other network accessories. Dibbs
services 730 subscribers, who use 56k, 64k or 128k ISDN telephone services
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and e-mail dial-up services. The Dibbs basic service begins at $19.95 per
month. The subscriber base includes 58 domains and 47 commercial websites.
In the first three months of 1999, Dibbs had average net income of $6,179 per
month based on average revenues of $16,795 per month.
The asset purchase agreement includes a two year non-competition clause in
which Dibbs and Ms. Summers agree not to compete with our Company in
providing Internet services within a 75 mile radius of Mobile for two years.
Ms. Summers also agreed to provide consulting services to us, to help us
take over and operate the Dibbs business, for up to 60 days after the
purchase, for $1,200 per week.
Impairment of Long-Lived Assets
In September 1999, the Company reconsidered and wrote down the value of its
wireless frequency licenses by $303,797 during the 1997 fiscal year. The
reasons for the write down include the decision in early 1998 to discontinue
the wireless cable TV business and instead to develop a high speed Internet
service, and to change the estimated useful lives of our license acquisition
costs down from 15 years to 5 years. In early 1999, we had discontinued new
installations of wireless cable TV service. The change in the way we use the
licenses created an uncertainty over the future revenues from these services.
Results of operations for the six months ended June 30, 1999, compared to six
months ended June 30, 1998.
During the first half of 1999, we discontinued new installations of our cable
TV service because it appeared to be unprofitable, and focused on generation
of new business from Internet access service, of both the land based
(telephonic) and microwave kinds. For the six months ended June 30, 1999,
we had a net loss from operations of $442,195, which was a $103,546 (31%)
increase from our operating loss of $338,649 in the first six months of 1998.
Our basic loss per share was $.11 in the first six months of 1999, the same
basic loss per share as in the first six months of 1998.
In the first half of 1999, we increased revenues and decreased operating
expenses. This was due to the cessation of new cable TV installations and
improvements in operating efficiency. We hired a general manager and office
manager who were much more qualified on the technical side of our business
and who were able to improve our operating efficiency in offering Internet
service. For the six months ended June 30, 1999, operating revenue increased
$1,679 (4%) to $42,490, up from $40,811 for the same period in 1998. At the
same time, operating expenses decreased by $11,744 (15%) to $64,353, down
from $76,097 in the first half of 1998. We substantially decreased
perating expenses by negotiating a reduction of $800 per month in our monthly
lease rate for one of our channel leases (from $2,000 to $1,200 monthly).
Our new general manager and office manager, together with our president, we
took several cost savings steps in late 1998 and early 1999. The monthly
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salaries of the new general manager and office manager were $1,666 less than
the individuals they replaced. We renegotiated our building rent in Mobile
from $2,800 monthly to $1,500 monthly. We returned some cellular telephones
used in the field, saving $200 per month. We eliminated three telephone
lines saving $180 per month. We eliminated outside contractors for
installations and networking office personal computers and began doing that
work with our own personnel, saving about $800 per month. We changed the
carrier for PRI lines, saving $700 per month. These savings total about
$4,840 monthly.
Our general and administrative expenses rose in the first half of 1999.
First half 1999 general and administrative expenses were $325,424, a $160,181
(97%) decrease from first half 1998 G & A expenses of $165,243. We attribute
the increase mainly to increased salaries and professional fees in 1999
compared to 1998, particularly in the three months ended June 30, 1999, as
we prepared our first annual audit since the bankruptcy and prepared this
registration statement. Professional fees totaled only $10,475 in the three
months ended June 30, 1998, but increased to $88,993 for the same period in
1999.
Depreciation and amortization expenses declined by $43,212 to $94,908 in the
first half of 1999, a 31% drop from depreciation and amortization charges of
$138,120 in the first half of 1998, primarily because some short-lived
equipment became fully depreciated by the end of 1998. We depreciate
substantially all of our capitalized assets using the straight-line method.
Interest expense increased by $1,027 (10%) in the first half of 1999 over
1998, due to increased borrowings from insiders. The interest charges are,
for the present, being accrued and not repaid. In March and May, 1999, the
loans on which this interest accrued became due and payable in full. These
loans were made to us by two of our directors during 1997 and 1998 to fund
our continued operations. The lenders have neither demanded repayment nor
declared a default in the loans, but they also have not waived their rights
to do so. The loans are secured by nearly all of our assets, including our
wireless frequency licenses. If we are unable to renegotiate or settle these
debts, the lenders could demand repayment of the loans and foreclose on our
property, in which case we would be unable to continue operations.
CAPITAL RESOURCES AND LIQUIDITY:
As discussed in Note H to our financial statements dated June 30, 1999 and
1998,our ability to continue as a going concern depends, in part, on our
ability to develop new markets for our MMDS frequencies including, but not
limited to, high speed Internet access, and to raise new capital through
public offerings of our stock. We cannot be sure that we will successfully
develop new markets for its services, or that sales of our stock will
generate sufficient working capital to offset operating losses.
Operating Activities
- 16 -
<PAGE>
In the first six months of 1999, cash used in operating activities was
$338,276, compared to $251,602 in the first six months of 1998. This reflects
our continuing losses from operations. Depreciation in the first six months
of 1999 decreased 31% to $98,908, compared to $138,120 in 1998, because the
useful life of certain equipment expired in 1998 and our depreciable asset
base decreased accordingly.
Investing Activities
In the first half of 1999, we used invested $20,715 in equipment purchases
associated with building our Internet service in Mobile, Alabama, compared
to $5,775 in the first half of 1998.
Financing Activities
In the first half of 1999, we raised $677,421 from the exercise of warrants
to purchase common stock. The warrants had been issued as part of the Mobile
LLC Plan in early 1998. No funds were raised from exercise of warrants in
the first half of 1998, but we raised $417,836 from similar warrant exercises
in the second half of 1998. See, Part II, Item 2, Changes in Securities.
These funds were used to meet operating expenses. We engaged in no other
financing activities in the first half of 1999. The remaining outstanding
warrants had an expiration date of August 29, 1999, but on August 25, 1999,
our board of directors extended the warrant expiration date for all
remaining outstanding warrants to October 31, 1999.
PART II
Item 2. Changes in Securities
During the three months ended June 30, 1999, the Company issued 498,498
shares of common stock to approximately 246 shareholders pursuant to the
exercise of warrants. The Company received total consideration of $464,098
upon exercise of the warrants. These warrants were originally issued in 1998
pursuant to the confirmed Plan of Reorganization of Mobile L.L.C., the
Company's predecessor. Both the warrants and the stock issued pursuant to
their exercise were issued under an exemption from the registration
requirements of the Securities Act of 1933 pursuant to Section 1145 of the
U.S. Bankruptcy Code.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
2.1 Plan of Reorganization and Disclosure Statement, In Re: Mobile
Limited Liability Company d/b/a Mobile Wireless TV, Debtor, Case No.
397-37735-HCA-11, In Proceedings Under Chapter 11, U.S. Bankruptcy
Court, Northern District of Texas, Dallas Division (November 6,
1997), incorporated by reference to Exhibit 2.1 of the Company's
Form 10-SB Registration Statement filed June 29, 1999.
- 17 -
<PAGE>
2.2 Agreement to Purchase Assets between Advanced Wireless Systems,
Inc.,and Dibbs Internet Services, Inc., incorporated by reference
to Exhibit 2.1 of the Company's Form 8-K report dated August 25,
1999.
2.3 Bill of Sale from Dibbs Internet Services, Inc., to Advanced
Wireless Systems, Inc., incorporated by reference to Exhibit 2.2
of the Company's Form 8-K report dated August 25, 1999.
3.1 Articles of Incorporation of Advanced Wireless Systems, Inc.,
incorporated by reference to Exhibit 3.1 of the Company's Form
10-SB Registration Statement filed June 29, 1999.
3.2 Bylaws of Advanced Wireless Systems, Inc., incorporated by
reference to Exhibit 3.2 of the Company's Form 10-SB Registration
Statement filed June 29, 1999.
27.1 Financial Data Schedule
(b) Reports on Form 8-K
We filed no reports on Form 8-K during the second quarter of 1998.
After the end of the second quarter, we filed a report on Form 8-K dated
August 25, 1999, to report that we had purchased Dibbs Internet Services,
Inc. (Dibbs), an Alabama corporation, an Internet service provider in
Mobile, Alabama, for a purchase price of $225,000.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
Advanced Wireless Systems, Inc.
Date: September 22, 1999 /s/ Monte Julius
-------------------
Monte Julius, President
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