SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-SB/A
Amendment No. 5 to
Form 10-SB
General Form for Registration of Securities of Small Business
Issuers under Section 12(b) or (g)
of the Securities Exchange Act of 1934
ADVANCED WIRELESS SYSTEMS, INC.
(Name of Small Business Issuer in its charter)
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 to be registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
(Title of Class)
This Amendment No. 5 amends Item 15, Financial Statements and Exhibits, by
correcting the pro forma loss per share of the Company and its acquired
business, on page P-3, and by revising the notes to the pro forma financial
statements of the Company and its acquired business on page P-6.
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Item 15 Financial Statements and Exhibits
Financial Statements
See, pages F-1, D-1, and P-1, et seq., included herein.
Exhibits Description
- --------- ------------
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 the Company's
Form 10-SB filed on June 29, 1999.
2.2 Agreement to Purchase Assets between Advanced Wireless Systems,
Inc.,and Dibbs Internet Services, Inc., incorporated by reference
to the Company's Form 8-K dated August 25, 1999.
2.3 Bill of Sale from Dibbs Internet Services, Inc., to Advanced
Wireless Systems, Inc., incorporated by reference to the Company's
Form 8-K dated August 25, 1999.
3.1 Articles of Incorporation of Advanced Wireless Systems, Inc.,
incorporated by reference to the Company's Form 10-SB filed on
June 29, 1999.
3.2 Bylaws of Advanced Wireless Systems, Inc., incorporated by
reference to the Company's Form 10-SB filed on June 29, 1999.
27.1 Financial Data Schedule
Signatures
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized.
Advanced Wireless Systems, Inc.
/s/ Monte Julius Date: March 14, 2000
- ----------------------------------
Monte Julius, President
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ADVANCED WIRELESS SYSTEMS, INC.
TABLE OF CONTENTS
Page
ADVANCED WIRELESS SYSTEMS, INC.
Report of Independent Auditors F-2
Financial Statements for the Nine Months Ended September 30, 1999,
- ------------------------------------------------------------------
and the Years Ended December 31, 1998 and 1997
- ----------------------------------------------
Balance Sheets F-4
Statements of Operations F-6
Statements of Capital F-7
Statements of Cash Flows F-8
Notes to Financial Statements F-10
FINANCIAL STATEMENTS OF THE ACQUIRED BUSINESS: DIBBS
INTERNET SERVICES, INC.
Report of Independent Auditors D-1
Financial Statements for the Six Months Ended June 30, 1999,
- ------------------------------------------------------------
and the Years Ended December 31, 1998 and 1997
- ----------------------------------------------
Balance Sheets D-3
Statements of Operations D-4
Statements of Stockholders' Equity D-5
Statements of Cash Flows D-6
Notes to Financial Statements D-7
PRO FORMA FINANCIAL INFORMATION
Pro Forma Consolidated Balance Sheet of Advanced
Wireless Systems, Inc. as of June 30, 1999 - Unaudited P-1
Pro Forma Consolidated Statements of Operations of
Advanced Wireless Systems, Inc. for the Year Ended
December 31, 1998 and for the six months ended
June 30, 1999 - Unaudited P-3
Notes to Consolidated Pro Forma Financial Statements P-4
- F-1 -
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REPORT OF INDEPENDENT AUDITOR'S
To the Board of Directors and Shareholders
Advanced Wireless Systems, Inc.
We have audited the accompanying balance sheets of Advanced Wireless Systems,
Inc. as of December 31, 1998 and 1997, and the related statements of
operations, capital and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly in
all material respects, the financial position of Advanced Wireless Systems,
Inc., as of December 31, 1998 and 1997, and the results of its operations and
cash flows for the years then ended, in conformity with generally accepted
accounting principles.
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<PAGE>
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 9 to the
financial statements, the Company has suffered recurring losses from
operations. This factor raises substantial doubt about the Company's ability
to continue as a going concern. Management's plans in regard to these matters
are also described in Note 9. The financial statements do not include any
adjustments relating to the recoverability and classification of asset
carrying amounts or the amount and classification of liabilities that might
result should the Company be unable to continue as a going concern.
BROWN ARMSTRONG RANDALL
REYES PAULDEN & McCOWN
ACCOUNTANCY CORPORATION
Bakersfield, California
April 3, 1999, except for notes 1, 4
and 13, whose date is February 28, 2000
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ADVANCED WIRELESS SYSTEMS, INC.
BALANCE SHEETS
SEPTEMBER, 1999 (UNAUDITED)
DECEMBER 31, 1998 AND 1997 (AUDITED)
September 30, December 31,
--------------- ------------------
1999 1998 1997
(Unaudited) (Audited) (Audited)
----------- --------- ---------
ASSETS
Current Assets
Cash $ 100,944 $ 56,168 $ 247,686
Accounts receivable, net 2,608 2,608 1,933
Prepaid expenses 9,000 18,000 -
Employee Advances 50 - -
Inventories 44,763 44,949 58,307
-------- -------- ---------
Total Current Assets 157,365 121,725 307,926
-------- -------- ---------
Fixed Assets, net of depreciation 114,681 115,078 227,496
-------- -------- ---------
Other Assets
Deposits 11,400 15,900 34,850
License acquisition costs, net 150,153 532,000 665,000
Intangibles, net 204,623 10,189 23,774
-------- -------- ---------
Total Other Assets 366,176 558,089 723,624
-------- -------- ---------
Total Assets $638,222 $794,892 $1,259,046
-------- -------- ---------
-------- -------- ---------
(Continued)
The accompanying notes are an integral part of these financial statements.
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ADVANCED WIRELESS SYSTEMS, INC.
BALANCE SHEETS
SEPTEMBER 30, 1999 (UNAUDITED)
DECEMBER 31, 1998 AND 1997 (AUDITED)
September 30, December 31,
--------------- ------------------
1999 1998 1997
(Unaudited) (Audited) (Audited)
----------- --------- ---------
LIABILITIES AND CAPITAL
Liabilities
Current Liabilities
Debtor certificates $ 6,000 $ 6,000 $ 53,150
Notes payable, related parties 175,000 250,000 175,000
Postpetition liabilities - - 61,500
Prepetition liabilities subject
to compromise - - 138,320
Accrued payroll taxes 4,924 5,231 4,518
Accrued interest payable 54,034 38,847 9,200
--------- ------- -------
Total Current Liabilities 239,958 300,078 441,688
--------- ------- -------
Commitments and Contingencies - - -
Total Liabilites 239,958 300,078 441,688
--------- ------- -------
Capital
Partners' Capital - - 817,358
Common stock, $.01 par value,
50,000,000 shares authorized,
4,761,230 and 3,832,009 shares
issued and outstanding at
September 30, 1999 and December
31,1998, respectively 47,612 38,320 -
Additional paid in capital 2,032,356 1,169,024 -
Accumulated deficit (1,681,704) ( 712,531) -
--------- -------- -------
Total capital 398,264 494,814 817,358
--------- -------- -------
Total Liabilities and Capital $ 638,222 $ 794,892 $1,259,046
--------- -------- ---------
--------- -------- ---------
The accompanying notes are an integral part of these financial statements.
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<PAGE>
ADVANCED WIRELESS SYSTEMS, INC.
STATEMENTS OF OPERATIONS
FOR NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 (UNAUDITED)
AND FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997 (AUDITED)
September 30, December 31,
--------------------- --------------------
1999 1998 1998 1997
(Unaudited) (Unaudited) (Audited) (Audited)
----------- ----------- ---------- ----------
REVENUES
Service and other $ 90,689 $ 76,150 $ 104,496 $ 135,379
Installation - - 2,106 -
----------- ----------- ---------- ----------
Total Revenues 90,689 76,150 106,602 135,379
----------- ----------- ---------- ----------
COSTS AND EXPENSES
Operating 123,548 142,112 159,840 136,073
General and
administrative 476,376 220,704 359,921 381,966
Depreciation and
amortization 140,953 210,867 281,155 215,066
Provision for impairment
of license acquisition
costs 303,797 - - -
Total Costs and Expenses 1,044,674 573,683 800,916 733,105
----------- ----------- ---------- ----------
Net Loss from Operations (953,985) (497,533) (694,314) (597,726)
----------- ----------- ---------- ----------
OTHER INCOME (EXPENSE)
Interest income - 2,230 2,230 2,800
Interest expense (15,188) (15,335) (20,447) (10,649)
Recovered funds,
bankruptcy - - - 313,717
----------- ----------- ---------- ----------
Total Other Income (Expense) (15,188) (13,105) (18,217) 305,868
----------- ----------- ---------- ----------
Net Loss $ (969,173) $ (510,638) $ (712,531) $ (291,858)
----------- ----------- ---------- ----------
----------- ----------- ---------- ----------
Basic Loss Per Share $ (.23) $ (.15) $ (.21) $ (.09)
----------- ----------- ---------- ----------
----------- ----------- ---------- ----------
Weighted Average Number
of Shares Outstanding 4,305,000 3,433,518 3,359,207 3,192,518
----------- ----------- ---------- ----------
----------- ----------- ---------- ----------
The accompanying notes are an integral part of these financial statements.
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<PAGE>
ADVANCED WIRELESS SYSTEMS, INC.
STATEMENTS OF CAPITAL
FOR SIX MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 (UNAUDITED)
AND FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997 (AUDITED)
Common Additional Accumu
Partners' Stock Par Paid-In lated
Capital Shares Value Capital Deficit Total
---------- ------- ------ --------- --------- ------
Balance,
December 31, 1996 $1,109,216 - - - - $1,109,216
Net Loss (291,858) - - - - (291,858)
---------- ------- ------ --------- --------- -------
Balance,
December 31, 1997 817,358 - - - - 817,358
Recapitalization and
conversion of Partnership
Debtor Certificates to
Common Stock (817,350)3,192,518 31,925 785,433 - -
Conversion of Debtor
Certificates to Common
Stock - 466,000 4,660 228,340 - 233,000
Exercise of Class A
Warrants for Common
Stock - 66,020 660 48,855 - 49,515
Exercise of Class B
Warrants for Common
Stock - 107,471 1,075 106,396 - 107,471
Net Loss - - - - (712,531) (712,531)
---------- ------- ------ --------- --------- -------
Balance,
December 31, 1998 - 3,832,009 38,320 1,169,024 (712,531) 494,814
-------- --------- ------ --------- -------- -------
Exercise of Class A
Warrants for Common
Stock - 226,379 2,264 167,520 - 169,784
Exercise of Class B
Warrants for Common
Stock - 702,840 7,028 695,812 - 702,840
Net Loss - - - - (969,173) (969,173)
---------- ------- ------ --------- --------- -------
Balance, September 30,
1999 (unaudited) $ - 4,761,228$47,612 $2,032,356 $(1,681,704)$398,264
========== ========= ====== ========== ============ =======
The accompanying notes are an integral part of these financial statements.
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<PAGE>
ADVANCED WIRELESS SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
FOR SIX MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 (UNAUDITED)
AND FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997 (AUDITED)
September 30, December 31,
--------------------- --------------------
1999 1998 1998 1997
(Unaudited) (Unaudited) (Audited) (Audited)
----------- ----------- ---------- ----------
CASH FLOWS FROM OPERATING
ACTIVITIES
Net loss $ (969,173) $ (510,638) $ (712,531) $(291,858)
Adjustments to reconcile
net loss to net cash used
in operating activities:
Depreciation and
amortization 140,953 210,867 281,155 215,066
Provision for impairment
of license acquisition
costs 303,797 - - -
Changes in operating
assets and liabilities:
Employee advances (50) - - -
Trade accounts
receivable - - (675) (533)
Prepaid expenses 9,000 - (18,000) 2,363
Inventory 186 - 13,358 (24,197)
Deposits 4,500 - 18,950 3,750
Postpetition liabilities - (61,500) (61,500) 61,500
Accrued interest 15,187 24,535 29,647 9,200
Accrued payroll taxes (307) 354 713 4,518
------- --------- --------- ---------
Net Cash Used in
Operating Activities (495,907) (336,382) (448,883) (20,191)
------- --------- --------- ---------
CASH FLOWS FROM INVESTING
ACTIVITIES
Purchase of Dibbs Internet
Services, Inc. (225,000) - - -
Purchases of property and
equipment (31,941) (27,072) (22,151) (111,009)
------- --------- --------- ---------
Net Cash Used in Investing
Activities (256,941) (27,072) (22,151) (111,009)
The accompanying notes are an integral part of these financial statements.
- F-8 -
<PAGE>
ADVANCED WIRELESS SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
FOR SIX MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 (UNAUDITED)
AND FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997 (AUDITED)
September 30, December 31,
--------------------- --------------------
1999 1998 1998 1997
(Unaudited) (Unaudited) (Audited) (Audited)
----------- ----------- ---------- ----------
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from exercise of
Common Stock Warrants 872,624 12,000 156,986 -
Proceeds from sale of
debtor certificates - 185,850 185,850 53,150
Payments of Note Principal (75,000) - - -
Proceeds from issuance of
Notes - 75,000 75,000 175,000
Increase (decrease) in
Prepetition Liabilities - (138,320) (138,320) 126,889
--------- --------- ---------- ---------
Net Cash Provided by
Financing Activities 797,624 (134,530) 279,516 355,039
--------- --------- ---------- ---------
Net Increase (Decrease) in
Cash and Cash Equivalents 44,776 (228,924) (191,518) 223,839
Cash and Cash Equivalents,
beginning of period 56,168 247,686 247,686 23,847
--------- --------- ---------- ---------
Cash and Cash Equivalents,
end of period $ 100,944 $ 18,762 $ 56,168 $ 247,686
--------- --------- ---------- ---------
--------- --------- ---------- ---------
NONCASH TRANSACTIONS:
Conversion of Debtor
Certificates to Common
Stock $ - $ - $1,050,358 $ -
--------- --------- ---------- ---------
--------- --------- ---------- ---------
The accompanying notes are an integral part of these financial statements.
- F-9 -
<PAGE>
ADVANCED WIRELESS SYSTEMS, INC.
NOTES TO THE FINANCIAL STATEMENT
DECEMBER 31, 1998 (AUDITED)
SEPTEMBER 30, 1999 (UNAUDITED)
NOTE 1 - SUMMARY OF 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 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.
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
- F-10 -
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 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.
Management Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities as of the date of the financial statements
and the reported amounts of revenue and expenses during the reporting period.
Actual results could differ from those estimates.
Revenue Recognition
Revenues from wireless subscription services are recognized monthly upon
billing. Initial hookup revenue is recognized to the extent of direct
selling costs incurred. To date, direct selling costs have exceeded
installation revenues. Revenues from Internet services are recognized
monthly upon billing.
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.
- F-11 -
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NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Provision has been made for overstocked, slow moving, and obsolete inventory.
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.
Amortization of Intangibles
Amortization of intangibles is calculated using the straight-line method.
Amortization lives are as follows:
Goodwill 3 years
Organization costs 5 years
Non-compete agreement 2 years
Amortization expense related to these assets totaled $16,071 and
$7,642(unaudited), and $13,585 and $13,585 (audited) at September 30, 1999 and
1998, and December 31, 1998 and 1997, respectively.
License Acquisition Costs
License acquisition costs include costs incurred to lease wireless cable
licenses issued by the Federal Communications Commission (FCC), including
channel lease acquisition costs. In past years, these costs were deferred and
amortized ratably over 15 years. In 1997, the Company revised the deferral
period from 15 years to 5 years. The revision decreased net income and
increased net loss per share for the year ended December 31, 1998 by
approximately $78,000 and $.02 per share, respectively. In the second quarter
of 1999, the Company determined that assets with a carrying value of $465,500
were impaired according to the provisions of SFAS No. 121, Accounting for the
Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of. Fair value
was determined based on recent transactions in the wireless cable industry,
including changes in the Company's use of these assets as indicated by the
decision to discontinue new installations for wireless cable television
service in early 1999, as well as estimates made in the second quarter of the
future earnings from alternative uses for these assets such as high-speed
Internet access. Accumulated amortization related to these costs was $371,050
and $259,750 at September 30, 1999 and 1998 (unaudited) and $293,000 and
$160,000 at December 31, 1998 and 1997, respectively (audited).
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<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
and 1998 (unaudited), and $293,000 and $160,000 at December 31, 1998 and
1997, respectively (audited).
Marketing and Direct Selling Costs
Marketing and direct selling costs are expensed as incurred. These costs
totaled $23,279 and $7,035 at September 30, 1999 and 1998,
respectively(unaudited) and $12,612 and $4,961 at December 31, 1998 and 1997,
respectively (audited).
Fair Value of Financial Instruments
The carrying value of cash, receivables, and accounts payable approximates
fair value due to the short maturity of these instruments. In management's
opinion, the carrying value of notes payable and other short-term debt also
approximates fair value.
The fair value of the Company's notes payable and other short-term debt
is estimated based on the rate of return, adjusted for risk, received by
purchasers of the Company's debtor certificates, as the certificates
represented the best estimate of the Company's cost to borrow on an
arms-length, unsecured basis. The adjustment to the rate of return for the
secured, related party notes payable, as derived by comparing secured and
unsecured US government obligations, was not material.
Impairment of Long-Lived Assets (SFAS 121)
In March 1995, the FASB issued SFAS No. 121 Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of, which requires
that long-lived assets and certain identifiable intangibles held and used by
an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The new standard is effective for fiscal years beginning after
December 15, 1995.
As discussed in Note 12, the Company has recorded a prior period adjustment
to reflect impairment of its license acquisition costs at December 31,
1997,which had not been properly reported in the Company's financial
statements at that date. The Company has reviewed all long-term assets for
impairment and the current carrying values of those assets properly reflect
the impairment valuations, if any, as of September 30, 1999.
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.
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<PAGE>
Warrants
Warrants to purchase up to 2,226,029 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 November 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. There are no provisions for income taxes
for the years ended December 31, 1998 and 1997, as the Company experienced
losses. Management has established a complete allowance for the deferred tax
asset arising from possible future utilization of operating losses. 1998 was
the first year in which the Company would report taxes as a corporation.
Earnings Per Share (SFAS 128)
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 128 (SFAS 128), Earnings Per
Share, which was adopted by the Company for the year ended December 31, 1997.
SFAS 128 replaces the presentation of primary earnings per share with
presentation of basic earnings per share based upon the weighted average
number of common shares for the period. It also requires dual presentation
of basic and diluted earnings per share for companies with complex capital
structures. Diluted earnings per share reflects the potential dilution that
could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of
common stock that then shared in the earnings of the entity. Warrants to
purchase shares of common stock were not included in the computation of loss
per share as the effect would be antidilutive. As a result, the basic and
diluted earnings per share amounts are identical.
Stock-based Compensation (SFAS 123)
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, Accounting for Stock-Based Compensation. This statement applies to the
financial statements for fiscal years beginning after December 15, 1995. It
defines a fair value based method of accounting for an employee stock option
or similar equity instrument.
However, it also allows an entity to continue to measure compensation costs
for those plans using the intrinsic value based method of accounting
prescribed by APB Opinion No. 25, Accounting for Stock Issued to Employees.
Under the fair value based method, compensation costs is measured at the
- F-14 -
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
grant date based on the value of the award and is recognized over the service
period, which is usually the vesting period. Under the intrinsic value based
method, compensation costs are the excess, if any, of the quoted market price
of the stock at grant date or other measurement date over the amount an
employee must pay to acquire the stock.
The Company has elected to account for stock-based compensation under APB
Opinion No. 25. The provisions of this statement have been implemented for
the year ended December 31, 1998.
New Accounting Pronouncements
In June 1997, the FASB issued Statement of Financial Accounting Standards
No.130 (SFAS 130), Reporting Comprehensive Income. This statement requires
that all items that are required to be recognized under accounting standards
as components of comprehensive income be reported in a financial statement
that is displayed with the same prominence as other financial statements.
SFAS 130 has been adopted by the Company for the period ended December 31,
1997, which had no material effect on the accompanying financial statements.
In June 1997, the FASB issued Statements of Financial Accounting Standards
No.131 (SFAS 131), Disclosures about Segments of an Enterprise and Related
information. The statement requires the Company to report income/loss,
revenue, expense and assets by business segment including information
regarding the revenues derived from specific products and services and about
the countries in which the Company is operating. The Statement also requires
that the Company report descriptive information about the way that operating
segments were determined, the products and services provided by the operating
segments, differences between the measurements used in reporting segment
information and those used in the Company's general-purpose financial
statements, and changes in the measurement of segment amounts from period to
period. SFAS 131 has been adopted by the Company for the period ended
December 31, 1997, which had no material effect on the accompanying financial
statements or required disclosures.
In April 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants (AcSEC) issued Statement of
Position (SOP) 98-5, Reporting on the Costs of Start-up Activities. SOP 98-5
establishes standards for the reporting and disclosure of start-up costs,
including organization costs. The Company adopted SOP 98-5 on January 1,
1999. The Company believes that the adoption of this statement will not have
a material effect on the Company's financial position or results of
operations.
Unaudited Interim Periods Ended September 30, 1999 and 1998
The accompanying financial statements include unaudited financial information
for the nine month periods ended September 30, 1999 and 1998. In the opinion
of management, the accompanying unaudited financial statements include all
- F-15 -
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
adjustments, consisting only of normally recurring adjustments, necessary to
present fairly the Company's financial position and the results of its
operations and cash flows for the periods presented. The results of
operations for the three month period is not, in management's opinion,
indicative of the results to be expected for a full year of operations.
Reclassifications
Certain reclassifications have been made to the 1998 and 1997 financial
statements to conform with the 1999 financial statement presentation. Such
reclassifications had no effect on net income as previously reported.
NOTE 2 - INVENTORIES
Inventories consist of the following:
September 30, December 31,
------------ ------------
1999 1998 1997
(Unaudited) (Audited) (Audited)
----------------- ---------- ---------
Inventory held for resale $ 24,195 $ 24,195 $ 30,875
Installation materials 20,568 20,754 27,432
----------------- ---------- ---------
$ 44,763 $ 44,949 $ 58,307
----------------- ---------- ---------
----------------- ---------- ---------
NOTE 3 - FIXED ASSETS
Furniture and equipment are summarized as follows:
September 30, December 31,
------------ -----------
1999 1998 1997
(Unaudited) (Audited) (Audited)
----------------- ---------- ---------
Cost:
Machinery and equipment $ 612,622 $ 566,486 $ 561,210
Furniture and fixtures 21,801 21,801 21,301
Auto and trucks 5,325 5,325 5,325
Subscriber installation
costs 38,160 47,700 72,504
Accumulated depreciation (563,227) (526,234) (432,844)
----------------- ---------- ---------
$ 114,681 $ 115,078 $ 227,496
----------------- ---------- ---------
----------------- ---------- ---------
- F-16 -
<PAGE>
NOTE 4 - INTANGIBLES
Intangibles consist of the following:
September 30, December 31,
1999 1998 1997
(Unaudited) (Audited) (Audited)
----------------- ---------- ---------
Purchased goodwill $ 208,005 $ - $ -
Organization costs 67,926 67,926 67,926
Non-compete agreement 2,500 - -
Accumulated amortization (73,808) (57,737) (44,152)
----------------- ---------- ---------
$ 204,623 $ 10,189 $ 23,774
----------------- ---------- ---------
----------------- ---------- ---------
NOTE 5 - 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 payments, or as security in
the event of default. In late 1998, the Company negotiated with the Lessor
to allow the Company to apply its security deposit toward the monthly rent
at the rate of $1,500 per month, while only requiring the Company to make
monthly cash payments of the remaining $1,300. 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 Instructional Television Fixed Service (ITFS)
programming channels, referred to as the E Block, subject to a five-year
lease term expiring May 9, 1999. The base provides for monthly base 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 Multipoint Distribution Service (MDS) 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 first right of
refusal to negotiate a new lease agreement for the channels.
- F-17 -
<PAGE>
NOTE 5 - OPERATING LEASES (Continued)
As discussed in Note 1, amounts paid by the Company to acquire the channel
leases have been capitalized as license acquisition costs and are being
amortized over 5 years. Amortization expense related to these assets totaled
$78,181 and $41,250 for the nine months ended September 30, 1999 and 1998,
and $68,585 and $104,241 for the years ended December 31, 1997 and
1998,respectively. The monthly lease payments are expensed, and totaled
$26,000 and $30,000 at September 30, 1999 and 1998, respectively (unaudited)
and $33,000 and $36,000 at December 31, 1998 and 1997, respectively
(audited).Other rents totaled $25,225 and $26,815 at September 30, 1999 and
1998, respectively (unaudited), and $44,498 and $45,600 at December 31, 1998
and 1997, respectively (audited).
Future minimum lease payments under the Company's operating leases are as
follows:
1999 $ 74,400
2000 37,800
2001 17,400
2002 14,400
2003 14,400
Thereafter 3,600
---------
$162,000
---------
---------
NOTE 6 - NOTES PAYABLE, RELATED PARTIES
Notes payable consist of two notes from two individuals who are officers and
directors of the Company. The notes 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 original notes bore interest
at 12%, however, the Plan of Reorganization subsequently amended the terms of
repayment providing for interest to accrue at 9%. The balance sheets at
September 30, 1999, and December 31, 1998 and 1997, reflect accrued interest
payable on these notes of $54,034, $38,847 and $9,200, respectively.
NOTE 7 - DEBTOR CERTIFICATES
As discussed in Note 1, 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
- F-18 -
<PAGE>
NOTE 7 - DEBTOR CERTIFICATES (Continued)
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.
As discussed in Note 1, The Plan of Reorganization also provided that the
debtor would purchase from Mobile Wireless Partners certain MDS 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 8 - STOCK OPTION PLANS
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.
- F-19 -
<PAGE>
NOTE 9 - 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.
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 10 - GOING CONCERN
As discussed in Note 1, 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 MDS 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's stock will generate sufficient working capital to offset
operating losses.
NOTE 11 - 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. At December 31,
1998, the Company had federal and state net operating loss carryforwards
available of approximately $683,771 which will expire in year 2013.
The approximate tax effect of temporary differences which gave rise to
significant deferred tax assets at December 31, 1998, are as follows:
Net operating losses $ 266,670
Deferred tax assets
valuation allowances (266,670)
---------
Net deferred tax assets $ -
---------
---------
A deferred asset of $266,670 has been provided for the $683,771 loss
carryforward that expires primarily in 2013. A valuation allowance of
$266,670 has been provided to reduce the asset to the amount of tax benefit
management believes it will more likely than not realize. As time passes,
- F-20 -
<PAGE>
NOTE 11 - INCOME TAXES (continued)
management will be able to better assess the amount of tax benefit it will
realize from using the carryforward.
The reconciliation of income tax computed at the U.S. federal statutory tax
rates to income tax benefit for the year ended December 31, 1998, is as
follows:
Tax at U.S. statutory rates (34%)
State income taxes, net of federal tax benefits (5%)
-----
39%
-----
-----
Income tax benefit not recognized 39%
-----
-
-----
-----
NOTE 12 - PURCHASE COMMITMENTS
The Company has entered into a series of noncancellable agreements to
purchase entertainment programming for rebroadcast which expire through 2000.
The agreements generally require monthly payments based upon the number of
subscribers to the Company's systems, subject to certain minimums. Such
expenses totaled $39,130 and $48,862 for the nine months ended September 30,
1999 and 1998, respectively (unaudited), and $65,149 and $85,737 for the
years ended December 31, 1998 and 1997, respectively (audited).
The Company does not expect future costs of entertainment programming to be
consistent with prior costs as these costs are based on the number of monthly
subscribers, which has been declining. The Company expects its future
entertainment programming costs to decrease, consistent with the decline in
its cable subscriptions.
NOTE 13 - BUSINESS ACQUISITIONS
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 provided Internet services to approximately 730
Internet customers in the Mobile metropolitan area via dial-in telephone line
access. The Company will continue offering Dibbs customers the telephonic
Internet service that they have now, and will also offer them the opportunity
to convert to use of high speed wireless Internet service. The statement of
operations at September 30, 1999, includes the results of operations of Dibbs
after August 25, 1999.
The Company 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
- F-21 -
<PAGE>
NOTE 14 - BUSINESS ACQUISITIONS (Continued)
its sole shareholder and president, Diane Summers. The Company did not
assume any liabilities of Dibbs in the transaction. The purchase price has
been allocated as follows:
Property and Equipment $ 14,495
Non-compete agreement 2,500
Goodwill 208,005
----------
Total $ 225,000
----------
----------
Purchased Goodwill will be amortized on the straight-line basis over
3 years.
The following unaudited pro forma information presents a summary of results
of operations of the Company and Dibbs as if the acquisition occurred at the
beginning of the fiscal year for each of the periods presented:
Nine Months Ended (Unaudited)
-----------------------------
September 30, December 31,
1999 1998
------------ ------------
Total revenues $ 233,025 $ 223,284
Net Loss $ (967,614) $(532,465)
Basic earnings per share $ (.22) $ (.16)
In management's opinion, the unaudited pro forma information is not
necessarily indicative of actual results that would have occurred had the
acquisition been consummated at the beginning of the fiscal periods or of
future operations of the combined activities.
- F-22-
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Directors
Advanced Wireless Systems, Inc.
We have audited the accompanying balance sheets of Dibbs Internet Services,
Inc. (the acquired business) as of December 31, 1998 and 1997, and for the
six months ended June 30, 1999, and the related statements of operations,
stockholder's equity and cash flows for the years and six months then ended,
acquired by Advanced Wireless Systems, Inc. These financial statements are
the responsibility of management. Our responsibility is to express an opinion
on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
The accompanying financial statements were prepared as described in Note 1
for the purpose of complying with certain rules and regulations of the
Securities and Exchange Commission (SEC) for inclusion in certain SEC
regulatory reports and filings.
- D-1 -
<PAGE>
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the acquired business
described in Note 1 as of December 31, 1998 and 1997, and June 30, 1999 and
the results of its operations and cash flows for the periods then ended, in
conformity with generally accepted accounting principles.
BROWN ARMSTRONG RANDALL
REYES PAULDEN & McCOWN
ACCOUNTANCY CORPORATION
Bakersfield, California
January 25, 2000
- D-2 -
<PAGE>
DIBBS INTERNET SERVICES, INC.
BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
AND JUNE 30, 1999
June 30, December 31, December 31,
1999 1998 1997
--------- ----------- -----------
ASSETS
Current Assets
Cash $ - $ 896 $ 3,648
--------- ----------- -----------
Fixed Assets
Property and equipment 122,629 122,629 105,201
Accumulated depreciation (52,154) (41,202) (21,152)
--------- ----------- -----------
Total Fixed Assets 70,475 81,427 84,049
--------- ----------- -----------
TOTAL ASSETS $ 70,475 $ 82,323 $ 87,697
--------- ----------- -----------
--------- ----------- -----------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities
Bank overdraft $ 282 $ - $ -
Operating advance - related party 2,301 11,964 22,528
--------- ----------- -----------
Total Current Liabilities 2,583 11,964 22,528
--------- ----------- -----------
Stockholder's Equity
Common stock 1,000 1,000 1,000
Retained earnings 66,892 69,359 64,169
--------- ----------- -----------
Total Stockholder's Equity 67,892 70,359 65,169
--------- ----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $ 70,475 $ 82,323 $ 87,697
--------- ----------- -----------
--------- ----------- -----------
The accompanying notes are an integral part of these financial statements.
- D-3 -
<PAGE>
DIBBS INTERNET SERVICES, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND FOR THE SIX MONTHS ENDED JUNE 30, 1999
Six Months
Ended Year Ended Year Ended
June 30, December 31, December 31,
1999 1998 1997
----------- ------------ ------------
Internet Revenues $ 98,580 $ 183,164 $ 139,943
----------- ------------ ------------
Costs and Expenses
Phone lines 35,792 65,486 41,507
Port charges 14,566 29,155 26,273
Technical support and labor 5,902 9,718 2,931
Depreciation 10,952 20,050 15,433
General and administrative 6,498 12,630 6,568
----------- ------------ ------------
Total Costs and Expenses 73,710 137,039 92,712
----------- ------------ ------------
Net Income from Operations 24,870 46,125 47,231
Other Expense
Interest expense 337 1,436 2,663
----------- ------------ ------------
Net Income $ 24,533 $ 44,689 $ 44,568
----------- ------------ ------------
----------- ------------ ------------
Basic Earnings per Share $ 24.53 $ 44.70 $ 44.57
----------- ------------ ------------
----------- ------------ ------------
Weighted Average Shares
Outstanding 1,000 1,000 1,000
----------- ------------ ------------
----------- ------------ ------------
The accompanying notes are an integral part of these financial statements.
- D-4 -
<PAGE>
DIBBS INTERNET SERVICES, INC.
STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND FOR THE SIX MONTHS ENDED JUNE 30, 1999
Common Stock Retained
Shares Par Value Earnings Total
------- --------- -------- -------
Balance at
January 1, 1997 1,000 $ 1,000 $ 32,201 $ 33,201
Distributions - - (12,600) (12,600)
Net income - - 44,568 44,568
------- --------- -------- -------
Balance at
December 31, 1997 1,000 1,000 64,169 65,169
Distributions - - (39,500) (39,500)
Net income - - 44,690 44,690
------- --------- -------- -------
Balance at
December 31, 1998 1,000 1,000 69,359 70,359
Distributions - - (27,000) (27,000)
Net income - - 24,533 24,533
------- --------- -------- -------
Balance at
December 31, 1999 1,000 $ 1,000 $ 66,892 $ 67,892
------- --------- -------- -------
------- --------- -------- -------
The accompanying notes are an integral part of these financial statements.
- D-5 -
<PAGE>
DIBBS INTERNET SERVICES, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND FOR THE SIX MONTHS ENDED JUNE 30, 1999
Six Months
Ended Year Ended Year Ended
June 30, December 31, December 31,
1999 1998 1997
------------ ------------ -----------
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income $ 24,533 $ 44,690 $ 44,568
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation 10,952 20,050 15,433
---------- ----------- -----------
Net Cash Provided by Operating
Activities 35,485 64,740 60,001
---------- ----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment - (17,428) (65,317)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from related party loan - - 55,515
Repayments of related party loan (9,663) (10,564) (38,987)
Cash distributions (27,000) (39,500) (12,600)
---------- --------- ---------
Net Cash Provided (Used) by
Financing Activities (36,663) (50,064) 3,928
---------- --------- ---------
Net Decrease in Cash ( 1,178) (2,752) (1,388)
Cash, beginning of period 896 3,648 5,036
---------- --------- ---------
Cash, end of period $ (282) $ 896 $ 3,648
----------- --------- ---------
----------- --------- ---------
The accompanying notes are an integral part of these financial statements.
D-6
<PAGE>
DIBBS INTERNET SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
AND JUNE 30, 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Dibbs Internet Services, Inc. (Dibbs), an Alabama S-corporation, is an Internet
service provider in Mobile, Alabama. Dibbs was originally incorporated on April
19, 1994 under the name Diane Summers' Online Services, Inc. but subsequently
changed its name to its current title on May 23, 1996.
On August 25, 1999, Advanced Wireless Systems, Inc. (the Company)
purchased substantially all of the assets of Dibbs for a purchase price of
$225,000. Dibbs provided Internet services to approximately 730 Internet
customers in the Mobile metropolitan area via dial-in telephone line access.
The Company acquired from Dibbs most of the 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' sole shareholder and president, Diane Summers.
Management Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities as of the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period.
Actual results could differ from those estimates.
Revenue Recognition
Revenues from Internet services are recognized monthly upon billing.
D-7
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Depreciation
Property and equipment are carried at cost and depreciated on a straight-line
basis over their estimated useful lives, ranging from 5 to 7 years. Maintenance
and repair costs are charged to expense as incurred; major renewals and
betterments are capitalized.
Income Taxes
Dibbs' stockholder has elected S corporation status under the Internal Revenue
Code, thereby consenting to include the income in her individual tax return.
Accordingly, there is no provision for income taxes in these financial
statements.
NOTE 2 - OPERATING ADVANCE - RELATED PARTY
The spouse of the sole shareholder of Dibbs advanced funds to the company to
cover operating requirements. The initial advance totaled $55,515 and is
considered due on demand. No written agreement exists between the related
party and Dibbs concerning the timing and extent of repayment. Dibbs has
repaid portions of the advance as funds are available. Interest has been
repaid at the rate of 8% on the outstanding balance, compounded monthly.
D-8
<PAGE>
ADVANCED WIRELESS SYSTEMS, INC.
PRO FORMA BALANCE SHEET
(UNAUDITED)
AS OF JUNE 30, 1999
Historical Pro Forma
-------------------------- -----------------------
Advanced Dibbs
Wireless Internet
Systems, Inc. Services, Inc. Adjustments Consolidated
------------- -------------- ----------- ------------
ASSETS
Current assets
Cash and cash
equivalents $ 374,598 $ - $(225,000)(a) $ 149,598
Accounts receivable,
net 2,608 - - 2,608
Inventory 45,964 - - 45,964
Employee Advances 375 - - 375
Prepaid expenses 24,600 - - 24,600
----------- ------------- ------------- -----------
Total current assets 448,145 - (225,000) 223,145
----------- ------------- ------------- -----------
Fixed Assets, net of
depreciation 98,098 70,475 (55,980)(d) 112,593
----------- ------------- ------------- ----------
Other assets
Deposits 300 - - 300
License Acquisition
Costs, net 161,703 - - 161,703
Organization costs, net 5,094 - - 5,094
Goodwill - - 208,005(b) 208,005
Other intangible - - 2,500(b) 2,500
----------- ------------- ------------- ----------
Total Other Assets 167,097 - 210,505 377,602
---------- ------------ ------------ ----------
TOTAL ASSETS $ 713,340 $ 70,475 $ (70,475) 713,340
------------ -------------- ------------- -----------
------------ -------------- ------------- -----------
(See Notes to Pro Forma Financial Statements)
P-1
<PAGE>
ADVANCED WIRELESS SYSTEMS, INC.
PRO FORMA BALANCE SHEET
(UNAUDITED)
AS OF JUNE 30, 1999
Historical Pro Forma
------------------------- -------------------------
Advanced Dibbs
Wireless Internet
Systems, Inc, Services,Inc. Adjustments Consolidated
------------- ------------- ----------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Bank overdraft $ - $ 282 $ (282)(c) $ -
Operating advance
- related party - 2,301 (2,301)(c) -
Debtor certificates 6,000 - - 6,000
Notes payable, related
parties 250,000 - - 250,000
Accrued payroll taxes 6,629 - - 6,629
Accrued interest payable 50,097 - - 50,097
------------- ------------ ----------- ------------
Total Liabilities 312,726 2,583 (2,583) 312,726
------------- ------------ ----------- ------------
Stockholders' Equity:
Common stock, $.01 par
value, 50,000,000 shares
authorized; 4,559,263
shares issued and
outstanding 45,593 1,000 1,000(b) 45,593
Additional paid in
capital 1,839,173 - - 1,839,173
Accumulated earnings
(deficit) (1,484,152) 66,892 (66,892)(b) (1,484,152)
------------- ------------ ----------- ------------
Total Stockholders'
equity 400,614 67,892 (67,892) 400,614
------------- ------------ ----------- ------------
Total Liabilities and
Stockholders' Equity $ 713,340 $ 70,475 $(70,475) $ 713,340
------------- ------------ ----------- ------------
------------- ------------ ----------- ------------
(See Notes to Pro Forma Financial Statements)
P-2
<PAGE>
ADVANCED WIRELESS SYSTEMS, INC.
PRO FORMA STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(UNAUDITED)
Historical
--------------------------
For the Six Months Ended
June 30, 1999 Pro Forma
-------------------------- ----------------------------
Advanced Dibbs
Wireless Internet
Systems, Inc, Services, Inc. Adjustments Consolidated
------------- -------------- ------------- --------------
Revenues
Service and other $ 42,490 $ 98,580 $ - $ 141,070
------------- -------------- ------------- --------------
Costs and Expenses
Operating 64,353 56,260 - 120,613
General and
administrative 325,424 6,498 9,600 (h) 331,922
35,293 (e)
Depreciation and
amortization 109,287 10,952 (9,502)(f) 146,030
Provision for
impairment of license
acquisition costs 303,797 - - 303,797
------------- ------------- ------------- --------------
Total Costs and
Expenses 802,861 73,710 35,391 911,962
------------- ------------- ------------- --------------
Income (Loss) from
Operations (760,371) 24,870 (35,391) (770,892)
------------- ------------- ------------- --------------
Other Expense
Interest Expense 11,250 337 (337)(g) 11,250
------------- ------------- ------------- --------------
Net Income (Loss) $ (771,621) $ 24,533 $ (35,054) $ (782,142)
------------- ------------- ------------- --------------
------------- ------------- ------------- --------------
Basic Loss per
Share $ (.19) $ (.19)
------------- --------------
------------- --------------
Weighted Average
Number of Common
Shares Outstanding 4,122,926 4,122,926
------------- --------------
------------- --------------
(See Notes to Pro Forma Financial Statements)
P-3
<PAGE>
ADVANCED WIRELESS SYSTEMS, INC.
PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(UNAUDITED)
Historical
----------------------------
For the Year Ended
December 31, 1998 Pro Forma
---------------------------- ---------------------------
Advanced Dibbs
Wireless Internet
Systems, Inc, Services, Inc. Adjustments Consolidated
-------------- -------------- ------------- -------------
Revenues
Service and other $ 106,602 $ 183,164 $ - $ 289,766
-------------- -------------- ------------- -------------
Costs and Expenses
Operating 159,840 104,359 - 264,199
General and
administrative 359,921 12,630 9,600(h) 382,151
70,586(e)
Depreciation and
amortization 281,155 20,050 (17,150)(f) 354,641
-------------- -------------- ------------- -------------
Total Costs
and Expenses 800,916 137,039 63,036 1,000,990
-------------- -------------- ------------- -------------
Income (Loss)
from Operations (694,314) 46,125 (63,036) (711,224)
-------------- -------------- ------------- -------------
Other Income (Expense)
Interest income 2,230 - - 2,230
Interest Expense (20,447) (1,436) 1,436(g) (20,447)
-------------- -------------- -------------- ------------
Total Other Income
(Loss) (18,217) (1,436) 1,436 (18,217)
-------------- -------------- -------------- ------------
Net Income (Loss) $ (712,531) $ 44,689 $ (61,600) $ (729,441)
-------------- -------------- -------------- ------------
-------------- -------------- -------------- ------------
Basic Loss per
Share $ (.21) $ (.22)
-------------- ------------
-------------- ------------
Weighted Average
Number of Common
Shares Outstanding 3,359,207 3,359,207
-------------- ------------
-------------- ------------
(See Notes to Pro Forma Financial Statements)
P-4
<PAGE>
NOTES TO UNAUDITED PRO FORMA
FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1998
AND FOR THE SIX MONTHS ENDED JUNE 30, 1999
NOTE 1 - BASIS OF PRESENTATION
On August 25 ,1999, Advanced Wireless Systems, Inc. (the Company) purchased
substantially 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 provided Internet services to approxi-
mately 730 Internet customers in the Mobile metropolitan area via dial-in
telephone line access. The Company will continue offering Dibbs customers
the telephonic Internet service that they have now, and will also offer them
the opportunity to convert to use of high speed wireless Internet service.
The Company 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'
sole shareholder and president, Diane Summers. The Company 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 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.
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 pro-
viding Internet services within a 75 mile radius of Mobile for two years.
Ms. Summers also agreed to provide consulting services to the Company, to
help it take over and operate the Dibbs business, for up to 60 days after
the purchase, for $1,200 per week.
The pro forma balance sheet at June 30, 1999, has been prepared assuming that
the business acquisition was consummated on June 30, 1999. The pro forma
statements of operations for the year and six months ended December 31, 1998,
and June 30, 1999, respectively, have been prepared assuming that the
Business Acquisition was consummated on January 1, 1998, and January 1, 1999,
respectively.
P-5
<PAGE>
NOTE 1 - BASIS OF PRESENTATION (Continued)
The preparation of the pro forma financial statements is based on certain
adjustments to the historical financial statements of the Company and Dibbs
and are not necessarily indicative of the financial position or results of
operations had the above-described business acquisition occurred on the
assumed date. These pro forma financial statements should be read in
conjunction with the financial statements of the acquired business and of
the Company contained in this registration statement.
NOTE 2 - PRO FORMA ADJUSTMENTS
Pro forma entries necessary to adjust the historical financial statements
are as follows:
(a) Reflects cash paid to sole shareholder of Dibbs Internet Services, Inc.,
for the acquisition purchase price.
(b) Goodwill related to the Dibbs Internet Services, Inc., acquisition has
been determined as follows:
Purchase price $ 225,000
Less stockholder's equity (67,892)
Adjustment to record value of non-compete agreement
with Diane Summers and Dibbs (2,500)
Elimination of liabilities not assumed by the
Company (see Note (c)) (2,583)
Adjustment of fixed assets to fair value
(see Note (d)) 55,980
----------
Total $ 208,005
==========
(c) Reflects the elimination of liabilities not assumed in connection with
the acquisition of Dibbs Internet Services, Inc.:
Bank overdraft 282
Operating advance - related party 2,301
----------
Total $ (2,583)
==========
(d) The $55,980 adjustment for fixed assets represents the difference between
the carrying amount of the acquired fixed assets and the estimated fair
value of those assets at the date of acquisition.
- P-6 -
<PAGE>
NOTE 2- PRO FORMA ADJUSTMENTS (Continued)
(e) The acquisition of Dibbs Internet Services, Inc., has been accounted for
using the purchase method of accounting. The purchase price has been
allocated to the tangible and intangible assets acquired based upon
their fair values at the time the acquisition was consummated.
The following summarizes the additional amortization expense to be
incurred in connection with the Dibbs acquisition:
Six Months Year Ended
Estimated Ended June 30, December 31,
Useful Life 1999 1998
----------- ------------ -----------
Goodwill $208,005 3 years $ 34,668 $ 69,336
Non-compete
agreement 2,500 2 years 625 1,250
-------- ----------- ----------
$210,505 35,293 70,586
========
Less historical recorded
predecessor amounts - -
----------- ----------
Adjustment $ 35,293 $ 70,586
=========== ==========
(f) Reflects additional depreciation expense in connection with the Dibbs
acquisition:
Six Months Year Ended
Estimated Ended June 30, December 31,
Useful Life 1999 1998
----------- ----------- ----------
Recorded fair
value of property
and equipment acquired $ 14,495 5 years $ 1,450 $ 2,900
========
Less historical recorded
amounts 10,952 20,050
------------ ----------
Adjustment $ (9,502) $ (17,150)
============ ==========
(g) Reflects the decrease of Dibbs related party interest expense which would
not have been incurred had the Company purchased Dibbs at the beginning
of the period.
- P-7 -
<PAGE>
(h) Reflects the increase of consulting expense attributed to the agreement
with Diane Summers for 60 days' consulting at $1,200 per week, which
would have been incurred had the Company purchased Dibbs at the beginning
of the period.
- P-8 -
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> $ 100,944
<SECURITIES> $ 0
<RECEIVABLES> $ 2,608
<ALLOWANCES> $ 0
<INVENTORY> $ 44,763
<CURRENT-ASSETS> $ 157,365
<PP&E> $ 667,908
<DEPRECIATION> $ 563,227
<TOTAL-ASSETS> $ 625,240
<CURRENT-LIABILITIES> $ 239,958
<BONDS> $ 0
$ 0
$ 0
<COMMON> $ 47,612
<OTHER-SE> $ 350,652
<TOTAL-LIABILITY-AND-EQUITY> $ 638,222
<SALES> $ 0
<TOTAL-REVENUES> $ 90,689
<CGS> $ 123,548
<TOTAL-COSTS> $ 1,044,674
<OTHER-EXPENSES> $ 0
<LOSS-PROVISION> $ 0
<INTEREST-EXPENSE> $ 15,188
<INCOME-PRETAX> $ (969,173)
<INCOME-TAX> $ 0
<INCOME-CONTINUING> $ (969,173)
<DISCONTINUED> $ 0
<EXTRAORDINARY> $ 0
<CHANGES> $ 0
<NET-INCOME> $ (969,173)
<EPS-BASIC> $ (0.23)
<EPS-DILUTED> $ (0.23)
</TABLE>
