SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
Amendment No. 3
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 X No
-------- --------
At June 30, 1999, there were a total of 4,559,263 shares of registrant's
Common Stock outstanding.
<PAGE>
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 161,703 532,000
Organization costs, net of
amortization of $64,530 and
$57,737, respectively 5,094 10,189
-------------------- ------------------
Total Other Assets 167,097 558,089
-------------------- ------------------
TOTAL ASSETS $713,340 $794,892
==================== ===================
(See Notes to Financial Statements)
- 2 -
<PAGE>
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 Current Liabilities 312,726 300,078
-------------------- ------------------
Stockholders' Equity:
Common stock, $.01 par value,
50,000,000 shares authorized;
4,559,263 and 3,832,009 shares
issued and outstanding at
June 30, 1999 and 1998,
respectively 45,593 38,320
Additional paid in capital 1,839,173 1,169,024
Accumulated deficit (1,484,152) (712,531)
-------------------- ------------------
Total Stockholders' equity 400,614 494,814
-------------------- ------------------
Total Current Liabilities
and Stockholders' Equity $ 713,340 $ 794,892
==================== ==================
(See Notes to Financial Statements)
- 3 -
<PAGE>
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 48,759 70,289 109,287 140,578
Provision for
impairment of
license acquisition
costs 303,797 - 303,797 -
---------- ---------- ----------- -----------
Total costs and
expenses 596,593 118,632 802,861 381,918
---------- ---------- ----------- -----------
Net loss from
operations (576,309) (98,656) (760,371) (341,107)
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 (581,934) (102,141) (771,621) (348,530)
========== ========== =========== ===========
Basic Loss Per
Share $ (.13) $ (.03) $ (.19) $ (.11)
========== ========== =========== ===========
Weighted Average
Number of Shares
Outstanding 4,323,136 3,192,518 4,122,926 3,192,518
========== ========== =========== ===========
(See Notes to Financial Statements)
4
<PAGE>
ADVANCED WIRELESS SYSTEMS, INC.
STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended
June 30,
-------------------------
1999 1998
-------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (771,621) $ (348,530)
Adjustments to reconcile net loss
to net cash from operating
activities:
Depreciation and amortization 109,287 140,578
Provision for impairment of
license acquisition costs 303,797 -
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)
- 5 -
<PAGE>
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 (Audited) 3,832,009 $38,320 $ 1,169,024 $ (712,531) $ 494,814
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 - - - (771,621) (771,621)
--------- -------- ------------- ------------ --------
Balance, June
30, 1999
(Unaudited) 4,559,263 $45,593 $ 1,839,173 $(1,484,152)$ 400,614
========= ========= =========== =========== ==========
- 6 -
<PAGE>
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). The Company succeeded to the
LLC's assets, liabilities, and operations. 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.
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-
7735-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
- 7 -
<PAGE>
Note A - Significant accounting policies - (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 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 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.
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. Revenues
from Internet services are recognized monthly upon billing.
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.
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
=========== ============
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 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
- 10 -
<PAGE>
Note D - Operating leases - (continued):
leases and license 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.
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
- 10 -
<PAGE>
Note G - Debtor certificates - (continued):
$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.
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.
- 12 -
<PAGE>
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:
$14,495 for the equipment and other tangible assets, $208,005 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 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.
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.
- 13 -
<PAGE>
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. 3 to our
Form 10-SB filed with the Securities and Exchange Commission on March 3,
2000.
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.
- 14 -
<PAGE>
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
- 15 -
<PAGE>
router, software, a backup power supply and other network accessories. 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 were impaired at
June 30, 1999, according to the provisions of SFAS No. 121, and wrote down
the carrying value of such assets by $303,797 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 $760,371, which was a $419,264 (123%)
increase from our operating loss of $341,107 in the first six months of 1998.
Most of the increased loss was attributable to the $303,797 write down of the
carrying value of impaired wireless cable assets in 1999, to reflect more
accurately their estimated value. The write down 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. Our increased operating loss in the first
nine months of 1999 also resulted in part from increased general and
administrative expenses as we prepared for expansion of our Internet
business.
Our basic loss per share was $.19 in the first six months of 1999, whereas
the basic loss per share was $.11 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
- 16 -
<PAGE>
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).
Our new general manager and office manager, together with our president, 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 $4,850 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%) increase 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 six 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 six
months ended June 30, 1998, but increased to $88,993 for the same period in
1999.
Depreciation and amortization expenses declined by $31,291 to $109,287 in the
first half of 1999, a 22% drop from depreciation and amortization charges of
$140,578 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.
- 17 -
<PAGE>
CAPITAL RESOURCES AND LIQUIDITY:
As discussed in Note J 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
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 22% to $109,287, compared to $140,578 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 six 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
- 18 -
<PAGE>
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.
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.
- 19 -
<PAGE>
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: March 2, 2000 /s/
------------------------------
Monte Julius, President
- 20 -
<TABLE> <S> <C>
<ARTICLE>5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> $ 374,598
<SECURITIES> $ 0
<RECEIVABLES> $ 2,608
<ALLOWANCES> $ 0
<INVENTORY> $ 45,964
<CURRENT-ASSETS> $ 448,145
<PP&E> $ 652,487
<DEPRECIATION> $ 554,389
<TOTAL-ASSETS> $ 713,340
<CURRENT-LIABILITIES> $ 312,726
<BONDS> $ 0
$ 0
$ 0
<COMMON> $ 45,593
<OTHER-SE> $ 355,021
<TOTAL-LIABILITY-AND-EQUITY> $ 713,340
<SALES> $ 0
<TOTAL-REVENUES> $ 42,490
<CGS> $ 64,353
<TOTAL-COSTS> $ 760,371
<OTHER-EXPENSES> $ 0
<LOSS-PROVISION> $ 0
<INTEREST-EXPENSE> $ 11,250
<INCOME-PRETAX> $ 0
<INCOME-TAX> $ 0
<INCOME-CONTINUING> $ 0
<DISCONTINUED> $ 0
<EXTRAORDINARY> $ 0
<CHANGES> $ 0
<NET-INCOME> $ (771,621)
<EPS-BASIC> $ (.019)
<EPS-DILUTED> $ (.019)
