SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
Amendment No. 2
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 210,236 283,051
--------------- -------------
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) (5,625) (3,485 (11,250) (7,423)
----------- ----------- ----------- ----------
Net Loss (283,612) (107,018) (453,445) (346,072)
----------- ----------- ----------- ----------
----------- ----------- ----------- ----------
Basic Loss Per Share $ (.07) $ (.03) $ (.11) $ (.11)
------------ ------------ ------------ -----------
------------ ------------ ------------ -----------
Weighted Average Number
of Shares Outstanding 4,323,136 3,192,518 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
Common Additional
Stock Par Paid-in Accumulated
Shares Value Capital Deficit Total
-------- -------- ----------- ------------ -------
Balance,
December 31, 1998 3,832,009 $ 38,310 $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, June 30,
1999 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 Limited Liability Company (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 which was accounted for as a conversion to common stock. The
License has been recorded by the Company at the Partners' historical cost
basis which was $225,000. In substance, the reorganization and asset
transfer and resulting combination between Partners and the Company is a
change in legal organization, but not a change in entity. The transfer of
the license and elimination of intercompany receivable, representing all
assets of the Partners, in exchange for all outstanding shares in the
newly formed corporation is deemed a transfer of net assets between
entities under common control. Accordingly, the assets transferred have
been accounted for at historical cost in a manner similar to that in a
pooling of interest, and the legal reorganization and asset transfer have
been presented at December 31, 1997, in order to produce comparative
statements consistent with principles applicable to pooling accounting.
The Partnership had no prior results of operations. As such, results of
operations on a combined basis represent the activities of Mobile LLC
during those periods.
Company activities - The Company 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.
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
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Note A - Significant accounting policies - (continued):
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 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 - As discussed in Note I,
these unsecured claimants may have portions of their claims rejected.
Pursuant to the Plan, creditors with claims less than $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 - Inventories consist of high speed modems held for resale and
installation materials, including antennas, cabling, and various other
hardware and parts. Inventory is stated at the lower of cost, (first in,
first out) or market. Provision has been made for overstocked, slow
moving, and obsolete inventory.
Property and depreciation - Property and equipment are carried at cost and
depreciated on a straight-line basis over their estimated useful lives,
ranging from 2.5 to 15 years.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.
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Note A - Significant accounting policies - (continued):
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.
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. To date, direct selling costs
have exceeded installation revenues.
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 to purchase up to 2,633,404 shares of Common stock of the
Company, issued pursuant to the Plan of Reorganization and in conjunction
with the conversion of Debtor Certificates, were outstanding at June 30,
1999. 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 January 14, 2000.
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 consisted of the following:
June 30, December 31,
1999 1998
(Unaudited) (Audited)
------------------ -------------------
Inventory held for resale $ 24,195 $ 24,195
Installation materials 21,769 20,754
------------------ -------------------
$ 45,964 $ 44,949
------------------ -------------------
------------------ -------------------
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Note C - Fixed Assets:
Furniture and equipment are summarized as follows:
June 30, December 31,
1999 1998
(Unaudited) (Audited)
------------------ -------------------
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 47,700
Accumulated depreciation (554,389) (526,234)
------------------ -------------------
$ 98,098 $ 115,078
------------------ -------------------
------------------ -------------------
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
at the balance sheet date, and will be amortized to expense over the next
12 months.
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 Multipoint Distribution Service (MDS) programming
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 Instructional Television Fixed Service (ITF)
programming channels, referred to as the G Block, subject to a 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
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Note D- Operating leases - (continued):
agreements have been capitalized and are being amortized over 15
years. The monthly lease payments are expensed. 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
----------
$ 114,600
----------
----------
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:
Under SFAS 109, deferred tax assets or liabilities are computed based on the
temporary differences between financial statements and income tax bases of
assets and liabilities using the enacted marginal income tax rate in
effect for the year in which the differences are expected to reverse.
Deferred income tax expenses or credits are based on the changes in the
deferred income tax assets or liabilities from period to period.
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
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Note G - Debtor certificates - (continued):
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.
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.
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.
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Note I - Subsequent Events:
As of November 30, 1999, shareholders had exercised a total of 1,308,036
Warrants issued pursuant to the Plan of Reorganization. The exercised
warrants included 409,955 A Warrants, and 898,082 B Warrants for a total
of $1,205,548.
During the third quarter of 1999, the Company entered into an agreement to
purchase certain equipment, customer base, Internet domain registrations,
and other assets of an Internet service provider. The total purchase
price was $225,000. The price was allocated as follows: $45,250 for the
equipment, $177,250 for the goodwill; and $2,500 for the two year non-
compete agreement.
In the first quarter of 1999, management made the decision to suspend new
installations ofwireless 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.
Note J - 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, 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 Amendment No. 2 to
our Form 10-SB filed with the Securities and Exchange Commission on
December 14, 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.
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Dibbs services 730 subscribers, who use 56k, 64k or 128k ISDN
telephone services 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
After considering the Company's history of operating losses and the
uncertainty of a continuation of future operating losses, changes in the
Company's strategic direction, and certain industry factors, the Company
Determined that assets with a carrying value of $620,848 had been
impaired at December 31, 1997, according to the provisions of SFAS No.
121, recorded a prior period adjustment and wrote down the carrying value
of such assets by $303,797 as of December 31, 1997, to their estimated
fair value. Fair value was based on recent transactions in the wireless
cable industry, including changes in the Company's use of these assets,
and estimates of the future earnings from alternative uses for these
assets.
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 operating 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).
- 16 -
<PAGE>
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
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.
- 17 -
<PAGE>
Operating Activities
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 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 original expiration date of May
31, 1999, but our board of directors extended the warrant expiration date
for all remaining outstanding warrants to January 14, 2000.
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,
- 18 -
<PAGE>
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.
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:
-------------------- ------------------------------------
Monte Julius, President
- 19 -
<PAGE>
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