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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 14 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000 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
At March 31, 2000, a total of 5,052,847 shares of registrant's Common Stock
were outstanding.
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
ADVANCED WIRELESS SYSTEMS, INC.
BALANCE SHEETS
[S] [C] [C]
March 31, December 31,
2000 1999
(Unaudited) (Audited)
----------- ----------
ASSETS
Current assets
Cash $ 66,382 $ 113,228
Accounts receivable, net 11,070 8,784
Accounts receivable, related parties 19,289 15,200
Prepaid expenses 6,900 13,500
Inventories 13,056 13,056
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Total current assets 116,697 163,768
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Fixed Assets, net of depreciation 106,664 102,222
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Other assets
Deposits 300 300
License Acquisition Costs, net 127,052 138,603
Other intangibles, net of amortization of
$114,983 and $97,336 at March 31, 2000,
and December 31, 1999, respectively 163,448 181,095
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Total Other Assets 290,800 319,998
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TOTAL ASSETS $ 514,161 $ 585,988
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(Continued)
(See Accompanying Notes to Financial Statements)
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ADVANCED WIRELESS SYSTEMS, INC.
BALANCE SHEETS
March 31, December 31,
2000 1999
(Unaudited) (Audited)
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LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Current Liabilities:
Accounts payable $ 34,299 $ 20,796
Debtor certificates 6,000 6,000
Notes payable 30,000 -
Notes payable, related parties 175,000 175,000
Warrants subscribed 21,267 21,267
Accrued payroll taxes 3,382 4,402
Accrued interest payable 61,909 57,972
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Total Current Liabilities 31,857 285,437
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TOTAL LIABILITIES 331,857 285,437
Stockholders' Equity:
Common stock, $.01 par value, 50,000,000 shares
authorized; 4,989,342 and 5,052,847
issued and outstanding at December 31,
1999 and March 31, 1999, respectively 50,528 49,893
Additional paid in capital 2,198,671 2,139,176
Accumulated deficit (2,066,895) ( 1,888,518)
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Total Stockholders' Equity 182,304 300,551
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 514,161 $ 585,988
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(See Accompanying Notes to Financial Statements)
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ADVANCED WIRELESS SYSTEMS, INC.
STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended
March 31, March 31,
----------------------------
2000 1999
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REVENUES
Service and other $ 55,973 $ 22,206
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COSTS AND EXPENSES
Operating 48,746 30,931
General and administrative 142,157 114,811
Depreciation and amortization 39,509 47,391
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Total Costs and Expenses 230,412 193,133
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Net Loss from Operations (174,439) (170,927)
OTHER EXPENSE
Interest expense (3,938) (5,625)
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Total Other Expense (3,938) (5,625)
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Net Loss $ (178,377) $ (176,552)
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Basic Loss Per Share $ (0.04) $ (.04)
Weighted Average Number
of Shares Outstanding 5,016,885 3,913,438
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(See Accompanying Notes to Financial Statements)
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ADVANCED WIRELESS SYSTEMS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2000 (UNAUDITED)
Common Additional
Stock Par Paid-in Accumulated
Shares Value Capital Deficit Total
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Balance (Audited)
December 31, 1998 $3,832,009 $ 38,320 $1,169,024 $(712,531) $494,814
Exercise of
Class A Warrants
for Common Stock 243,632 2,264 180 288 182,724
Exercise of
Class B Warrants
for Common Stock 843,701 8,437 835,264 - 843,701
Shares issued as cost
of Capital 70,000 700 (700) - -
Cost of Capital - - (44,700) - (44,700)
Net Loss - - - (1,175,987)(1,175,987)
--------- --------- --------- ---------- ---------
Balance (Audited)
December 30, 1999 $4,989,342 $ 49,893 $2,139,176 $(1,888,518)$300,551
Exercise of
Class A Warrants
for Common Stock 13,500 135 9,990 - 10,125
Exercise of
Class B Warrants
for Common Stock 50,005 500 49,505 - 50,005
Net Loss - - - (179,377) (178,377)
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Balance (Unaudited)
March 31, 2000 $5,052,847 $ 50,528 $2,198,671 $(2,066,895) $182,304
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(See Accompanying Notes and Accountant's Report)
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ADVANCED WIRELESS SYSTEMS, INC.
STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended
March 31, March 31,
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2000 1999
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (178,377) $ (176,552)
Adjustments to reconcile net loss to
net cash from operating activities:
Depreciation and amortization 39,509 47,391
Write off of cable TV premises equipment 6,460 -
Changes in operating assets
and liabilities:
Accounts receivable (2,286) -
Accounts receivable, related parties (4,089) -
Prepaid expenses 6,600 -
Accounts payable 13,502 -
Notes payable 30,000 -
Accrued interest 3,937 5,625
Accrued payroll taxes (1,020) 3,163
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Net Cash Used in Operating Activities (85,764) (120,373)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (21,212) (6,300)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Exercised stock warrants 60,130 213,323
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Net Increase (Decrease) in Cash and
Cash Equivalents (46,846) 86,650
Cash and Cash Equivalents,
Beginning of Period 113,228 56,168
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Cash and Cash Equivalents, End of Period $ 66,382 $ 142,818
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(See Accompanying Notes to Financial Statements)
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ADVANCED WIRELESS SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED
MARCH 31, 2000 AND 1999 (UNAUDITED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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Basis of Presentation
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The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles. However, certain information or
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed, or
omitted, pursuant to the rules and regulations of the Securities and Exchange
Commission for interim financial statements. In the opinion of management, the
statements include all adjustments necessary for interim financial statements
(which are of a normal and recurring nature) for the fair presentation of the
results of the interim periods presented. The results of operations for such
periods are not necessarily indicative of results to be expected for the entire
current year or other future interim periods.
The financial statements and related disclosures have been prepared with the
presumption that users of the interim financial information have read or have
access to the audited consolidated financial statements for the preceding fiscal
year. Accordingly, these condensed consolidated financial statements should be
read in conjunction with the audited consolidated financial statements and
related notes thereto included in the Company Annual Report on Form 10-K for the
fiscal year ended December 31, 1999. The consolidated results of operations for
the three months ended March 31, 2000, are not necessarily indicative of the
results to be expected for any subsequent period or for the entire fiscal year
ending December 31, 1999.
Nature of Operations
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Mobile Limited Liability Company, LLC (the Debtor) was a Nevada limited
liability company formed on April 25, 1994 for purposes of acquiring and
operating certain FCC licenses in the Mobile, Alabama area. The majority
interest member of the LLC was a similarly named general partnership, Mobile
Wireless Partners (Partners) comprised of 1,094 partners, with a 94.5% interest
in the Debtor. Pursuant to the Plan of Reorganization filed by Mobile Wireless,
LLC, Advanced Wireless Systems, Inc. was created and emerged from Bankruptcy on
January 8, 1998 as the Reorganized Debtor (collectively, called the Company).
Additionally, the Plan included the acquisition by the Company of the Partners'
FCC License in exchange for 3,192,518 shares of the Company's common stock,
3,068,066 B Warrants exercisable on a 1 for 1 basis for the Company's common
stock, and the extinguishment of an intercompany loan from Partners totaling
$100,000, 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
inter-company receivable, representing all assets of the Partners, in exchange
for all outstanding shares in the newly formed corporation is deemed a transfer
of assets 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.
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NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
------------------------------------------
Management Use of Estimates
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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.
Reclassifications
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Certain reclassifications have been made to the 1998 financial statements to
conform with the 1999 financial statement presentation. Such reclassifications
had no effect on net income as previously reported.
NOTE 2 - DISCONTINUED SERVICES
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The Company has elected to cease providing cable programming services effective
March 31, 2000. Prior to March 31, 2000, customers of Advanced Wireless Systems
will be given the option to become Direct TV(TM) (a digital satellite system
customers. If they choose to convert to Direct TV(TM), AWS will sell the digital
satellite equipment to the customer and supply free installation of the system.
If a customer chooses not to covert, they will simply be disconnected by the
Company. In either case, the customer will be removed from the AWS customer list
and billing system. A single television system costs the Company $49.95 and
will be sold to the customer for $100.00. A dual-television system costs the
Company $135.95 and will be sold to the customer for $200.00. A triple-
television system costs the Company $185.00 and will be sold to the customer for
$300.00. The cost to the Company for installation will be $70.00, which is fully
rebated by Direct TV(TM) once the system is installed. All revenues and expenses
will be accounted for appropriately as exist revenues and costs.
The Company previously impaired or recorded valuation allowances against
identifiable cable television fixed assets, inventory, and subscriber premises
equipment. The carrying value of remaining cable television assets at December
31, 1999, is considered immaterial.
NOTE 3 - PURCHASE AGREEMENTS
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On February 15, 2000, the Company executed an asset purchase agreement with an
unrelated entity (the Seller) owning the rights to certain MMDS and ITFS licenses
in Baton Rouge Louisiana, Clarksville Tennessee, Reading Pennsylvania, and
Shreveport Louisiana. The Seller is currently operating as a Debtor-in-
Possession under Chapter 11 of the US Bankruptcy Code. Under the terms of the
agreement, the Company will acquire all of the assets of the Seller acquired
prior to confirmation of its Plan of Reorganization, and will assume and agree
to pay substantially all of the Seller's indebtedness to others. The purchase
price to the Seller is 8 million shares of the Company's $0.01 par common stock,
plus 8 million Class C One-Year Warrants, 8 million Class D Eighteen-Month
Warrants, 8 million Class E Two-Year Warrants, and 8 million Class F Three-Year
Warrants. The exercise prices range from $1 to $6. In addition, the Purchase
Agreement provides for a purchase price adjustment of additional shares of the
Company's common stock if certain conditions relative to the trading of the
Company's stock are not met. As of March 16, 2000, the Court had not confirmed
the Seller's Plan of Reorganization.
Subsequent to December 31, 1999, the Company also signed Letters of Intent with
four unrelated entities to purchase the assets and assume the liabilities of each
of the businesses. Combined purchase prices total 12,094,000 shares of the
Company's $0.01 par common stock, plus 4,590,000 Class C Warrants, 9,180 Class
D Warrants, 13,770,000 Class E Warrants, and 4 million shares each of the
Company's Class G, H, I, and J Warrants. The exercise prices range from $1 to
$6.
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NOTE 4 - GOING CONCERN
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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.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following information should be read in conjunction with our financial
statements and notes appearing elsewhere in this registration statement. This
registration statement contains forward-looking statements. The words,
anticipate, believe, expect, plan, intend, estimate, project, could, may,
foresee, and similar expressions are intended to identify forward-looking
statements. These statements include information regarding expected development
of our business and development of the wireless cable TV and Internet access
service business where we will focus our marketing efforts. These statements
reflect our current views about future events and financial performance and
involve risks and uncertainties, including without limitation the risks described
in Risk Factors. Should one or more of these risks or uncertainties occur, or
should underlying assumptions prove incorrect, actual results may vary materially
and adversely from those anticipated, believed, estimated or otherwise indicated.
Among the factors that could cause actual results to differ materially are the
following: a lack of sufficient capital to finance our business strategy on
terms satisfactory to us; pricing pressures which could affect demand for our
services; changes in labor, equipment and capital costs; our inability to develop
and implement new services such as wireless broadband access and high-speed
Internet access; our inability to obtain the necessary authorizations from the
FCC for such new services; competitive factors, such as the introduction of new
technologies and competitors into the wireless communications business; or our
Company's failure to attract strategic partners; general business and economic
conditions; inexperience of management in deploying a wireless broadband access
business.
We have not yet substantially developed our high speed Internet access services
or any other business services. Nearly all operating revenues since inception
have come from wireless cable TV subscriptions, which are declining and will now
cease. Unless we are able to find a new source of revenue, such as our Internet
access service or new income from possible future acquisitions, we will be unable
to continue as a going concern. Our auditors' report contains a going concern
qualification.
We do not have reliable projections of how long it may take to generate positive
cash flow or operating profits from the Internet business. We have ongoing
operating costs including rent, license fees for our broadcast frequencies, and
debt service. We believe that, to make a profit from our current business, we
must expand our Internet customer base to at least 3,000 customers from a current
customer list of approximately 875. Accordingly, we cannot expect to operate at
a profit in the foreseeable future.
The Company ceased providing cable programming services effective March 31, 2000.
We have offered our existing customers the option to become Direct TV(TM) (a
digital satellite system) customers. If they choose to convert to Direct TV(TM),
AWS will sell the digital satellite equipment to the customer and supply free
installation of the system. If a customer chooses not to covert, they will
simply be disconnected by the Company. In either case, the customer will be
removed from the AWS customer list and billing system. A single television
system costs the Company $49.95 and will be sold to the customer for $100.00.
A dual-television system costs the Company $135.95 and will be sold to the
customer for $200.00. A triple-television system costs the Company $185.00 and
will be sold to the customer for $300.00. The cost to the Company for
installation will be $70.00, which is fully rebated by Direct TV(TM) once the
system is installed. All revenues and expenses will be accounted for
appropriately as exist revenues and costs.
We will continue offering Direct TV(TM) to new customers. We will charge for
purchase of the digital satellite equipment needed to receive Direct TV(TM), and
we will also receive a percentage of monthly subscription charges for the
service.
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On February 15, 2000, we executed an asset purchase agreement with Digital
Wireless Services, Inc., an unrelated entity owning the rights to certain MMDS
and ITFS licenses in Baton Rouge Louisiana, Clarksville Tennessee, Reading
Pennsylvania, and Shreveport Louisiana. DWSI currently operates as a debtor-in-
possession under Chapter 11 of the U.S. Bankruptcy Code. The agreement calls for
our Company to acquire all of DWSI's assets at confirmation of its plan of
reorganization and to assume and agree to pay substantially all of DWSI's
indebtedness to others. The purchase price to DWSI is 8 million shares of our
common stock, plus 32 million warrants exercisable for up to from one to three
years at prices ranging from $1 to $6. In addition, the purchase agreement
provides for a purchase price adjustment of additional shares of our common stock
if certain conditions relating to trading of our stock are not met.
In January 2000, we also signed letters of intent to purchase four unrelated
entities and assume the liabilities of their businesses. Combined purchase
prices total approximately 12.1 million shares of our common stock plus 59.2
million warrants exercisable for up to from one to three years at prices ranging
from $1 to $6.
All of these possible future acquisitions are subject to material contingencies
and events which may prevent the consummation of each acquisition.
Results of Operations for the Three Months Ended March 31, 2000, as Compared to
the Three Months Ended March 31, 1999
We began to disengage from the business of offering wireless cable TV services
in 1999, and we completely ceased wireless cable TV operations at the end of the
first quarter of 2000. We are now offering Direct TV(TM) (a digital satellite
system) to new and existing customers. Approximately 49 of our 70 remaining
wireless cable TV customers converted to Direct TV(TM) prior to our cessation of
wireless cable TV service.
Our revenues more than doubled in the first three months of 2000, over the same
period in 1999, to $55,973 from $22,206. In the first quarter of 2000, we
derived our revenue from Internet services, while in the first quarter of last
year about half of our revenue came from Internet services and half from wireless
cable services. Our Internet service revenues were dramatically higher than
this time last year mainly because of services provided to customers of Dibbs
Internet, which we purchased in the third quarter of 1999 and which did not
contribute to earnings in the first quarter of 1999.
Operating expenses increased by $17,815 (58%) to $48,746, up from $30,931 in the
first quarter of 1999.For financial statement purposes, we consider operating
expenses to be costs such as installation, channel fees. Internet telephone
costs, maintenance and supplies. These operating expenses are much lower per
revenue dollar than our operating expenses when we operated wireless cable TV and
paid for programming expenses and channel lease expense. In the first quarter
of 2000, operating expenses were 87% of revenues, but in the first quarter of
1999, operating expenses equaled 140% of revenues.
Administrative expenses continue to more than equal revenues. In the first
quarter of 2000, operating expenses were $142,157, a $27,346 (24%) increase over
the same period in 1999. These expenses reflect continuing audit and legal costs
to complete our financial reporting requirements and to prepare for possible
proposed acquisitions, including the acquisition of DWSI. It is still to early
to tell whether the proposed acquisitions (discussed in the preceding section)
can be successfully completed in the near future. Because of our high
administrative expense, compared to our revenues, our operating loss for the
first quarter of 2000 was $174,439, which represents an increase of $3,152 (2%)
from the first quarter loss in 1999 of $170,927.
CAPITAL RESOURCES AND LIQUIDITY:
Our financial statements for the years ended December 31, 1999, contain a going
concern qualification from our auditors. We emerged from bankruptcy in early
1998 and since then have continued to sustain operating losses. During the past
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two years, both during and after the Chapter 11 case, we have satisfied our
working capital needs primarily through our financing activities including
raising capital through sale of certificates of indebtedness, loans from our
directors, and the exercise of warrants that were issued as part of the Plan.
In order to continue as a going concern we must develop a profitable Internet
access service. We probably must also raise additional equity capital for
development and expansion, possibly in a public offering of securities.
Since confirmation of the Mobile LLC Plan of Reorganization, our stockholders who
acquired stock as part of the Plan and who were investors in the earlier
partnership have exercised warrants that were distributed to those stockholders
as part of the Plan. We have depended on the funds from exercise of these
warrants to purchase our common stock for operating capital during the past year,
and we expect that we will continue to depend on additional stock sales pursuant
to exercise of warrants, for additional operating capital in the next year. In
addition, we are exploring possible acquisitions of similar businesses with
positive cash flow to improve our financial position. Failure to make successful
and profitable acquisitions or to raise more capital from warrant exercises or
may jeopardize our continued operations.
We had total assets of $514,161 at March 31, 2000, compared to $585,988 at
December 31, 1999. The main component in the change was a drop in cash on hand,
from $113,228 at December 31, 1999, to $66,382 at March 31, 2000. Our cash
reserves fell as we continued to use cash to pay operating and administrative
expenses.
Operating Activities
For the three months ended March 31, 2000, cash used in operating activities was
$85,764, compared to $120,373 used in operating activities in the first three
months of 1999. The main component was an increase in our accounts payable,
including issuance of a promissory note to account for a current account payable.
Investing Activities
We paid $21,212 to purchase equipment for a new transmitter in the first three
months of 2000. This represents an increase of more than 300% from $6,300 in the
same period of 1999, for Internet equipment purchases.
Financing Activities
In the first quarter of 2000, we raised $60,130 from the exercise of warrants to
purchase common stock, compared to $213,323 raised from the exercise of warrants
in the first quarter of 1999. In both cases, we used the proceeds to pay
operating expenses.
PART II
Item 2. Changes in Securities
During the three months ended March 31, 2000, the Company issued 63,505 shares
of common stock to existing shareholders pursuant to the exercise of warrants.
The Company received total consideration of $60,130 upon exercise of the
warrants. These warrants were originally issued in 1998 pursuant to the
confirmed Plan of Reorganization of Mobile Wireless 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.
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Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
In September 1999, we filed a report on Form 8-K dated August 25, 1999 (which we
amended in December 1999), to report that we had purchased Dibbs Internet
Services, Inc., an Alabama corporation, an Internet service provider in Mobile,
Alabama, for a purchase price of $225,000. We filed three amendments to this 8-K
on March 3, March 10, and March 20, 2000, to revise the financial disclosures in
the 8-K in response to SEC comments on our previous report, as amended.
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: May 15, 2000 /s/
---------------------------------
Monte Julius, President
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