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FORM 10-QSB
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended September 30, 2000
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from to
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Commission File Number 000-06292
AARO BROADBAND WIRELESS COMMUNICATIONS, INC.
Formerly AAROW ENVIRONMENTAL GROUP, INC.
(Exact name of small business issuer as specified in its charter)
Nevada 73-0788886
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
210 Park Avenue, Suite 2100, Oklahoma City, Oklahoma 73102
(Address of principal executive offices)
(405) 415-2750
(Issuer's telephone number)
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the issuer (1) filed all reports required to be filed by Section
12, 13 or 15(d) of the Exchange Act after the distribution of securities under a
plan confirmed by a court. Yes No
---- ----
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of Common
Stock, as of the latest practicable date:
Common Stock, $.001 par value 50,669,018
------------------
Title of Class Number of Shares outstanding
at November 10, 2000
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AARO BROADBAND WIRELESS COMMUNICATIONS, INC.
THIRD QUARTER REPORT
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
Table of Contents
<TABLE>
<S> <C>
Part I - Financial
Information 3
Item 1. Financial Statements 3
Unaudited Condensed Consolidated Balance Sheets 3
Unaudited Condensed Consolidated Statements of Operations 4
Unaudited Condensed Consolidated Statement of Stockholders' Equity 6
Unaudited Condensed Consolidated Statements of Cash Flows 7
Notes to Unaudited Condensed Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis or Plan of Operation 10
Part II - Other Information 13
Item 1. Legal Proceedings 13
Item 2. Changes in Securities and Use of Proceeds 14
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
</TABLE>
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
Certain statements within this report constitute "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Certain, but not
necessarily all, of such forward-looking statements can be identified by the use
of forward-looking terminology such as "anticipates," "believes," "expects,"
"may," "will," or "should" or other variations thereon, or by discussions of
strategies that involve risks and uncertainties. The actual results of the
Company or industry results may be materially different from any future results
expressed or implied by such forward-looking statements. Factors that could
cause actual results to differ materially include general economic and business
conditions, the ability of the Company to implement its business strategies,
competition, availability of key personnel, increasing operating costs,
unsuccessful advertising and marketing efforts, acceptance of product offerings,
and imposition of or the failure to comply with government regulations, the
ability of the Company to obtain financing for future operations, and other
factors.
Readers are cautioned to consider the specific business risk factors described
in our annual report on Form 10-KSB for the fiscal year ended December 31, 1999
and not to place undue reliance on the forward-looking statements contained
herein, which speak only as of the date hereof. We undertake no obligation to
publicly revise forward-looking statements to reflect events or circumstances
that may arise after the date hereof.
2
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PART I - FINANCIAL STATEMENTS
ITEM 1. FINANCIAL STATEMENTS
AARO BROADBAND WIRELESS COMMUNICATIONS, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2000 AND DECEMBER 31, 1999
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
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<S> <C> <C>
ASSETS
Current Assets:
Cash and Cash Equivalents $ 83,783 $ 1,248
Accounts Receivable 43,565 3,376
Inventory -- 13,508
Notes Receivable 65,967 --
Deposits and prepaid expenses 91,567 --
----------- -----------
TOTAL CURRENT ASSETS $ 284,882 $ 18,132
PROPERTY AND EQUIPMENT (net of accumulated
depreciation of $ 110,549 and $ 147,992 respectively) 2,419,301 154,641
Other Assets:
Organization Costs (net of accumulated
amortization of $0 and $ 3,825 respectively) $ -- $ 675
Noncompete Covenant (net of accumulated
amortization of $0 and $ 6,150 respectively) -- 11,850
Intellectual Property (net of accumulated
amortization of $0 and $ 37,917 respectively) -- 287,083
Other Assets 93,860 --
----------- -----------
TOTAL OTHER ASSETS $ 93,860 $ 299,608
----------- -----------
TOTAL ASSETS $ 2,798,043 $ 472,381
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Accounts Payable $ 2,079,906 $ 61,261
Accrued and Other Current Liabilities 210,291 344,655
Debentures Payable 5,000 75,000
Litigation Settlement Payable 666,600 --
Short Term Notes 341,425 252,004
Current Portion of Long Term Notes -- 167,447
----------- -----------
TOTAL CURRENT LIABILITIES $ 3,303,222 900,367
TOTAL LIABILITIES $ 3,303,222 $ 900,367
Stockholders' Deficit:
Common Stock, $ 0.001 par value, 200,000,000 shares authorized,
30,069,309 and 16,553,457, shares, respectively, issued and outstanding $ 30,069 $ 373,615
Common Stock Issuable, $ 0.001 par value, 8,890,767 shares 8,891 --
Series I Convertible Preferred Stock, $0.001 par value, 5,000,000 shares
authorized, 2,842,770 and 3,000,000 shares, respectively, issued and
outstanding, liquidation preference $2,842,770 and 3,000,000, respectively 2,843 3,000
Paid in Capital 2,346,139 220,557
Unearned Directors' Fees (130,959) --
Accumulated Deficit (2,762,162) (1,025,158)
----------- -----------
TOTAL STOCKHOLDERS' DEFICIT $ (505,179) $ (427,986)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY $ 2,798,043 $ 472,381
=========== ===========
</TABLE>
See notes to unaudited financial statements.
3
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AARO BROADBAND WIRELESS COMMUNICATIONS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
REGISTRANT SUBSEQUENT REGISTRANT PRIOR
TO REVERSE ACQUISITION TO REVERSE ACQUISITION
---------------------- --------------------------------------
FROM MAY 1, THROUGH FROM JANUARY 1, NINE MONTHS ENDED
SEPTEMBER 30, 2000 TO APRIL 30, 2000 SEPTEMBER 30, 1999
---------------------- ----------------- ------------------
<S> <C> <C> <C>
Revenue $ 42,528 $ 44,994 $ 125,062
Operating Expenses $ 2,031,171 $ 244,062 $ 240,546
------------ ------------ ------------
LOSS FROM OPERATIONS $ (1,988,643) $ (199,068) $ (115,484)
Other Income and (Expenses)
Interest Income 3,780 -- --
Interest Expense (111,394) (23,644) (21,846)
Other (665,905) -- (5,817)
------------ ------------ ------------
Total Other Income and (Expenses) $ (773,519) $ (23,644) $ (27,663)
------------ ------------ ------------
NET LOSS BEFORE
EXTRAORDINARY ITEM $ (2,762,162) $ (222,712) $ (143,147)
Loss on Extinguishment of Debt -- 52,250 --
------------ ------------ ------------
NET LOSS $ (2,762,162) $ (274,962) $ (143,147)
============ ============ ============
Weighted Average common shares outstanding-
basic and diluted 34,689,583 17,314,221 10,937,730
============ ============ ============
NET LOSS per common share before
extraordinary item-basic and diluted $ (.08) $ (.01) $ (.01)
Loss per common share-extraordinary item $ (.00) $ (.01) $ (.00)
------------ ------------ ------------
NET LOSS per common share -
basic and diluted $ (.08) $ (.02) $ (.01)
============ ============ ============
</TABLE>
See notes to unaudited financial statements.
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AARO BROADBAND WIRELESS COMMUNICATIONS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000 AND SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
REGISTRANT SUBSEQUENT REGISTRANT PRIOR
TO REVERSE ACQUISITION TO REVERSE ACQUISITION
---------------------- ----------------------
THREE MONTHS ENDED THREE MONTHS
SEPTEMBER 30, 2000 ENDED SEPTEMBER 30, 1999
---------------------- ------------------------
<S> <C> <C>
Revenue $ 29,273 $ 34,051
Operating Expenses $ 1,253,427 $ 46,613
------------ ------------
LOSS FROM OPERATIONS $ (1,224,154) $ (12,562)
Other Income and (Expenses)
Interest Income 1,841 --
Interest Expense (36,394) (3,105)
Other (665,905) (--)
------------ ------------
Total Other Income and (Expenses) $ (700,458) $ (3,105)
------------ ------------
NET LOSS $ (1,924,612) $ (15,667)
============ ============
Weighted Average common shares outstanding-
basic and diluted 38,224,554 11,634,507
============ ============
NET LOSS per common share -
basic and diluted $ (.05) $ (.00)
============ ============
</TABLE>
See notes to unaudited financial statements.
5
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AARO BROADBAND WIRELESS COMMUNICATIONS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
COMMON
COMMON STOCK PREFERRED PAID-IN
STOCK ISSUABLE STOCK CAPITAL
------------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
BALANCE, JANUARY 1, 2000 $ 373,615 $ -- $ 3,000 $ 220,557
Net Loss through April 30, 2000
Common stock exchanged for
extinguishment of debt 675 150 106,425
Common stock issued in
exchange for services 928 174,435
Capital transactions resulting from
Reverse Acquisition (345,849) (339) (157) (839,911)
Transactions subsequent to
Reverse Acquisition:
Beneficial conversion feature
associated with convertible notes 75,000
Conversion of Notes 500 74,500
1st 506 Private Placement 8,000 1,988,422
2nd 506 Private Placement 360 119,640
Stock Issued Under Agreements
with Directors 220 149,780
Warrants issued with short-term
Notes Payable 124,767
Stock Issued on Support24
Resources, Inc Acquisition 700 152,524
Amortization of Unearned
Directors' Fees
Net Loss from May 1 through
September 30, 2000
------------- ----------- ------------- -----------
BALANCE, SEPTEMBER 30, 2000 $ 30,069 $ 8,891 $ 2,843 $ 2,346,139
============= =========== ============= ===========
</TABLE>
<TABLE>
<CAPTION>
UNEARNED
ACCUMULATED DIRECTORS'
DEFICIT FEES TOTAL
-------------- ---------- ------------
<S> <C> <C> <C>
BALANCE, JANUARY 1, 2000 $ (1,025,158) $ (427,986)
Net Loss through April 30, 2000 (274,962) (274,962)
Common stock exchanged for
extinguishment of debt 107,250
Common stock issued in
exchange for services 175,363
Capital transactions resulting from
Reverse Acquisition 1,300,120 113,864
Transactions subsequent to
Reverse Acquisition:
Beneficial conversion feature
associated with convertible notes 75,000
Conversion of Notes 75,000
1st 506 Private Placement 1,996,422
2nd 506 Private Placement 120,000
Stock Issued Under Agreements
with Directors (150,000) --
Warrants issued with short-term
Notes Payable 124,767
Stock Issued on Support24
Resources, Inc Acquisition 153,224
Amortization of Unearned
Directors' Fees 19,041 19,041
Net Loss from May 1 through
September 30, 2000 (2,762,162) (2,762,162)
------------- ------------- -----------
BALANCE, SEPTEMBER 30, 2000 $ (2,762,162) $ (130,959) $ (505,179)
============= ============= ===========
</TABLE>
See notes to unaudited financial statements.
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AARO BROADBAND WIRELESS COMMUNICATIONS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
REGISTRANT SUBSEQUENT REGISTRANT PRIOR
TO REVERSE ACQUISITION TO REVERSE ACQUISITION
---------------------- --------------------------------------
FROM MAY 1, THROUGH FROM JANUARY 1, NINE MONTHS ENDED
SEPTEMBER 30, 2000 TO APRIL 30, 2000 SEPTEMBER 30, 1999
---------------------- ----------------- -------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $(2,762,162) $ (274,962) $ (143,147)
Adjustments to reconcile net loss to net cash used
in operating activities
Loss on Extinguishment of Debt -- 52,250 --
Common Stock Issued for Services -- 175,363 --
Non-cash Interest Expense 106,192 22,000 --
Other Non-Cash Expenses 49,652 -- --
Depreciation 110,549 11,240 34,187
Amortization -- 6,541 19,625
(Increase) decrease in:
Accounts Receivable (31,296) -- --
Deposits, Prepaid Expenses, and Other Assets (91,592) -- --
Notes Receivable (65,967) -- --
Increase (decrease) in:
Accounts Payable 361,992 (17,000) (1,402)
Litigation Settlement Payable 666,600
Accrued and Other Current Liabilities 67,851 -- 48,185
----------- ----------- -----------
NET CASH USED IN
OPERATING ACTIVITIES $(1,588,181) $ (24,568) $ (42,552)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Equipment (820,058) -- --
Cash Acquired in Business Combination 31 -- --
Cash Acquired in Reverse Acquisition 72 -- --
----------- ----------- -----------
NET CASH USED IN
INVESTING ACTIVITIES (819,955) -- --
CASH FLOWS FROM FINANCING ACTIVITIES
Short-Term Borrowings 280,233 28,720 47,319
Repayment of Borrowings (122,447) -- --
Private Placements of Common Stock 2,116,422 -- (5,274)
Beneficial Conversion Feature on Notes Payable 75,000 -- --
Issuance of Warrants 124,767 -- --
Capitalization of Global Wireless 17,944 -- --
----------- ----------- -----------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 2,491,919 28,720 42,045
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH $ 83,783 $ 4,152 $ (507)
CASH AT BEGINNING OF PERIOD -- 1,248 526
----------- ----------- -----------
CASH AT END OF PERIOD $ 83,783 $ 5,400 $ 19
=========== =========== ===========
</TABLE>
See notes to unaudited financial statements.
7
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AARO BROADBAND WIRELESS COMMUNICATIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
GENERAL
Effective September 25, 2000, the Company amended its certificate of
incorporation and changed its name from Aarow Environmental Group, Inc. to Aaro
Broadband Wireless Communications, Inc. to more closely reflect the Company's
business plan and direction.
The financial statements included in this report have been prepared by the
Company pursuant to the rules and regulations of the Securities and Exchange
Commission for interim reporting and include all adjustments which are, in the
opinion of management, necessary for fair presentation. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations for interim reporting. The
Company believes that the disclosures are adequate. However, these financial
statements should be read in conjunction with the audited financial statements
and notes thereto included in the annual report on form 10-KSB for the year
ended December 31, 1999. The financial data for the interim periods presented
may not necessarily reflect the results to be expected for the full year.
REVERSE ACQUISITION
On May 1, 2000, a subsidiary of AAROW Environmental Group, Inc. (AAROW) merged
with Global Wireless Technologies, Inc. (Global Wireless), resulting in the
stockholders of Global Wireless becoming the majority owners of AAROW. Global
Wireless was formed in April 2000 and did not have any significant operations at
the date of merger. This transaction is considered a capital transaction
equivalent to the issuance of stock by Global Wireless for the net assets of
AAROW, with no goodwill or other intangible assets recorded, accompanied by a
recapitalization; similar to a reverse acquisition.
As a result of the merger, certain of AAROW's assets, including UTICA Publishing
Corporation, a subsidiary, were disposed, certain of AAROW'S liabilities were
extinguished, certain shares of AAROW's outstanding preferred and common stock
were cancelled, and warrants exercisable for the purchase of 1,850,000 shares of
common stock at $.375 were issued. These transactions have been treated as
capital transactions.
The accompanying financial statements reflect the historical operating results
of AAROW prior to May 1, 2000 as "Registrant Prior to Reverse Acquisition" and
the historical results of Global Wireless and AAROW subsequent to May 1, 2000 as
"Registrant Subsequent to Reverse Acquisition".
STOCKHOLDERS' EQUITY
The Company's common stock is quoted on the over the counter bulletin board
under the stock symbol of AARW (previously AARO).
Common Stock: At September 30, 2000 there were 200,000,000 shares authorized,
30,069,309 issued and outstanding at $0.001 per share par value. Additionally,
at September 30, 2000, the Company had received consideration for 8,890,767
shares of common stock to be issued by the transfer agent in October 2000.
Stock Options and Warrants Outstanding at September 30, 2000:
o warrants exercisable for the purchase of 500,000 shares of common
stock at an exercise price of $.75 per share expiring on April 24,
2005,
o warrants exercisable for the purchase of 2,950,000 shares of common
stock during various periods at exercise prices of $.25 to $.375 per
share expiring on or before June 30, 2005,
o stock options granted under a stock option plan exercisable for the
purchase of 42,000 shares of common stock at $.375 per share expiring
June 30, 2005,
o warrants exercisable for the purchase of 8,240,000 shares of common
stock at $3.00 per share expiring on June 30, 2005, and
o warrants exercisable for the purchase of 620,000 shares of common
stock at $.50 per share expiring on June 30, 2005.
The board of directors is authorized to issue additional stock options
exercisable for the purchase of 2,458,000 shares of common stock under the stock
option plan.
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AARO BROADBAND WIRELESS COMMUNICATIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
STOCKHOLDERS' EQUITY - CONTINUED
Convertible Preferred Stock: At September 30, 2000, there were 5,000,000 shares
of Series I Preferred Stock authorized with 2,842,770 issued and outstanding.
Each share has a $ 0.001 par value, is convertible into three shares of common
stock, and has a liquidation preference of $1.00 per share. These shares have
subsequently been converted to common stock in the 4th quarter of 2000 per the
requests of the Series I Preferred Stock shareholders.
On October 5, 2000, 2,000,000 shares of Series I Preferred Stock were sold to
The Oklahoma Publishing Company for a total of $2,000,000. Management believes
there is no intention to convert these to common stock in the near future, but
as with all Series I Convertible Preferred Stock they are convertible into three
shares of common stock upon request of the Series I Preferred Stock shareholder.
CONVERTIBLE NOTES
During the second quarter of 2000, the Company issued Convertible Notes of
$75,000, which contained a beneficial conversion feature and for which
conversion was automatic upon the AAROW - Global Wireless merger. The proceeds
from the notes were allocated to the beneficial conversion feature, and upon
conversion, $75,000 was reflected as interest expense.
GOING CONCERN
As shown in the accompanying financial statements, the Company has incurred a
loss for the period ended September 30, 2000. Management, through the merger
with Global Wireless Communications, Inc. has begun a plan to recapitalize the
Company and change its business emphasis. There can be no assurance that the
Company will be successful in its efforts to implement this plan. If the Company
is unsuccessful in its efforts, it may be necessary to undertake such other
actions as may be appropriate to preserve asset value. These financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
LOSS PER COMMON SHARE
Loss per common share is computed using the weighted average number of common
shares outstanding and issuable. Basic and diluted loss per share are the same
because the Company's warrants and convertible preferred stock are
anti-dilutive.
LITIGATION SETTLEMENT AND OTHER LITIGATION
The Broadband Wireless International Corporation and Broadcom Wireless
Communications lawsuits were settled and approved by the court on October 16,
2000. The effect of this settlement is reflected as Litigation Settlement
Payable and Other Expense in the three months ended September 30, 2000. Per the
settlement agreement, 3,000,000 common shares were issued for the full and final
settlement of all claims. The reduction of the Litigation Settlement Payable and
the recording of Common Stock and Paid in Capital will be recorded in October
2000, when the settlement was consummated.
On October 27, 2000, an action styled Patricia A. Camp v. Aarow Environmental
Group, Inc., Utica Publishing Corporation. D. Fredrick Shefte, Sammy D. Yates,
and Jim W. Bolt, Case No. CIV 2000-1135-4, was filed in the Circuit Court of
Washington County, Arkansas. Ms. Camp alleges that in or about 1995, she was a
50% partner with Jim Bolt operating under an oral partnership agreement as the
Arkansas Chronicle. In late 1996 Ms. Camp and Jim Bolt allegedly acquired from
Mr. Yates a business known as Copies Plus and operated and managed Copies Plus
as co-owners and participants in a joint enterprise. Furthermore, in 1999, Jim
Bolt and Sammy D. Yates allegedly merged or consolidated the Arkansas Chronicle
and Copies Plus into a new entity called Utica Publishing Corporation that on
September 2, 1999, merged with Aarow Environmental Group, Inc. In August 1999,
Ms. Camp allegedly was approached by Jim Bolt to sign Exhibit "A" of the
Agreement for Purchase and Sale of Stock of Utica Publishing to Aarow
Environmental. Ms. Camp states that she did sign the agreement without reading
the complete document and she now claims that she did not receive the proper
amount of shares for her interest in Utica Publishing.
Because of the recent filing of this case, the Company is currently unable to
assess the merits of the claims made; however, we believe the merits to be
questionable. The Company is vigorously defending this case and intends to
pursue any claims that we may have against Ms. Camp.
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Effective May 1, 2000, Global Wireless Technologies, Inc. merged with our
subsidiary and became our wholly-owned subsidiary. We are developing our
wireless communication services to become a fully integrated applications
service provider. In order to accomplish this goal and maintain the highest
quality of service, we are building our Carrier Class Network and utilizing the
latest in new wireless transport technology to deliver the broadband width
necessary to effectively run and provide our application services. These
services include Video Conferencing, Video on Demand and Application Services
Hosting. Our other services include Virtual Private Networks (VPN's) and
Telephony over IP (telephone service over Internet protocol), providing both
local and long-distance telephone services, that will also be available at
faster speeds and lower costs. On September 25, 2000, our Certificate of
Incorporation was amended to change our name to Aaro Broadband Wireless
Communications, Inc. and increased our authorized shares of common stock from
30,000,000 to 200,000,000. We believe the name change more closely reflects our
new business plan and direction.
We intend to offer our wireless communications services initially to commercial
office space tenants and owners who currently do not have high bandwidth
service. Due to the relatively low cost of building our wireless network, we
anticipate that we will be able to offer our services to customers at a cost
lower than they now incur for conventional hard-wired services. We anticipate
that our wireless communications services offer cost savings, while achieving
time savings and productivity gains.
On September 2, 1999, we acquired Utica Publishing Corporation. Utica operated a
general commercial printing and copying business and published two Spanish
language magazines in Northwest Arkansas. On May 10, 2000, we transferred and
assigned all of the outstanding capital stock of Utica Publishing to Jim Bolt.
Following this assignment, Utica Publishing ceased to be our wholly-owned
subsidiary. This transfer was pursuant to a settlement agreement, which also
resulted in the dismissal of pending litigation involving us, our directors and
officers and certain individuals.
We previously developed, manufactured, marketed and distributed a core of
products and services that addressed specific environmental issues. These
products and services were focused on soil and groundwater remediation with
emphasis on bioremediation.
Subsequent Events
On November 16, 2000, we entered into an agreement with the Oklahoma Municipal
League granting them the sole and exclusive right for two years to contract with
Oklahoma municipalities (excluding Oklahoma City, Tulsa and Stroud) for our
products and services in Oklahoma. The OML consists of 415 member municipalities
in Oklahoma out of approximately 456 total municipalities. The agreement
contains an automatic renewal for three additional terms of two years each
unless terminated in writing by either party no less than ninety days prior to
the end of the initial term or the renewal term. OML agreed not to make any
contract or agreements for our products and services with any municipalities or
other entities outside Oklahoma without the prior written consent of Aaro. Our
products and services generally include fixed wireless broadband Internet
connectivity and related applications and products. OML agreed to:
a. arrange and/or coordinate all the necessary equipment required for the
installation and operation of our products and services in each
Oklahoma municipality for our own account and ownership, but for the
exclusive use by the municipality;
b. market to and negotiate with Oklahoma municipalities for the
utilization of our products and services upon terms and conditions
agreeable to us;
c. obtain written service agreements with each Oklahoma municipality
detailing the terms and conditions relating to the provisions of the
product and services to be offered;
d. allocate and deliver 40% of the revenues to us.
On October 5, 2000, 2,000,000 shares of Series I Preferred Stock were sold to
The Oklahoma Publishing Company for $2,000,000. Each share of the Series I
Convertible Preferred Stock is convertible into three shares of common stock and
has a liquidation preference of $1.00 per share.
On September 30, 2000, we signed our first "Exclusive Master Distributorship
Agreement" with Aaro Broadband Wireless Communications of Missouri, L.L.C. The
following are some of the terms of the agreement:
a. the distributor has the sole and exclusive rights to distribute our
products and services in Springfield, Missouri, for an initial term of
10 years with two additional terms of 5 years;
b. the distributor is obligated to pay to us a one-time, non-refundable
fee of $250,000;
c. the distributor is required to pay to us a monthly utilization fee
equal to the greater of $7,500 or 50% of the gross revenues received
by the distributor in the preceding month from its customers for
products and services less: (i) long-distance fees charged by the
distributor's phone carrier; and (ii) the distributor's cost of
equipment sold to its customers;
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<PAGE> 11
d. we agreed to provide the distributor certain equipment (for our own
account and ownership, but for the exclusive use by the distributor),
including the installation and configuration at site designated by the
distributor, subject to our reasonable approval;
e. we agreed to maintain our data center and its associated backup
facilities, with servers, routers, ATM switches, modems, wireless
radios and other electronics to supply, as available to us, to the
distributor with applications including voice over IP, unified
messaging when available, streaming video, video conferencing and
electronic commerce.
As of November 13, 2000, we had requests for information regarding our
"Exclusive Master Distributorship Agreement" from other locations in Kansas,
Arkansas, Oklahoma, Texas and Virginia. These requests are in the initial phase
of analysis at this time.
Results of Operations
The following tables set forth selected results of operations for the three
months and nine months periods ended September 30, 2000 and 1999. The selected
results of operations are derived from our unaudited condensed consolidated
financial statements presented elsewhere in this report. These tables reflect
the historical operating results prior to and subsequent to our merger with
Global Wireless on May 1, 2000, as "Registrant Prior to Reverse Acquisition" and
"Registrant Subsequent to Reverse Acquisition". The period from January 1, 2000
to April 30, 2000 includes the operations of Utica Publishing, which was
acquired in September 1999. The results of operations for the period from May 1,
2000 to September 30, 2000 and the nine months ended September 30, 1999 do not
include the operations of Utica Publishing. Therefore, the combined periods
prior and subsequent to the reverse acquisition ended September 30, 2000 are not
comparable to the three months and nine months ended September 30, 1999 due to
the purchase accounting adjustments associated with the acquisition of Utica
Publishing and the inclusion of the operating results of Utica Publishing during
the period from January 1, 2000 to April 30, 2000. The results of operations for
the periods presented are not necessarily indicative of our future operations.
<TABLE>
<CAPTION>
REGISTRANT SUBSEQUENT REGISTRANT PRIOR
TO REVERSE ACQUISITION TO REVERSE ACQUISITION
------------------------ ----------------------
THREE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, 2000 SEPTEMBER 30, 1999
------------------------ ----------------------
<S> <C> <C> <C> <C>
Revenue $ 29,273 100.0% $ 34,051 100.0%
Operating Expenses $ 1,253,427 4281.9% $ 46,613 136.0%
----------- ------- -------- --------
Loss from Operations $(1,224,154) (4181.9%) $(12,562) (36.0%)
----------- ------- -------- --------
Interest Income $ 1,841 6.3% $ -- N/A
Interest Expense (36,394) (124.3%) (3,105) (9.1%)
Other (665,905) (2274.8%) -- N/A
----------- ------- -------- --------
Total Other Income and (Expense) (700,458) (2392.8%) $ (3,105) (9.1%)
----------- ------- -------- --------
Net Loss $(1,924,612) (6574.7%) $(15,667) (46.1%)
=========== ======= ======== ========
</TABLE>
Discussion of Three months ended September 30, 2000
During three months ended September 30, 2000, we had revenue of $29,273
resulting from custom programming, consulting and providing broadband wireless
transport. We experienced delays in the deployment of service to new cities and
the execution of our business plan due to cash flow shortages, delays in
availability of computer equipment and the litigation with Broadband and
Broadcom. We are currently in the process of acquiring the necessary equipment
to complete the deployment of our Regional Hubs, National Operations Center and
individual customer sites for our wireless communications services. We expect to
make progress on the connecting of broadband wireless customers in Oklahoma
City, Tulsa and Austin by December 31, 2000.
Operating expenses of $1,253,427 consisted predominately of facilities and
telecom charges, depreciation-amortization, contract services, occupancy costs
and employee costs. Facilities and telecom charges of $153,429 were incurred as
we connected offices and Regional Hubs with the National Operations Center and
related site expenses for wireless transmission. Contract Services include
expenses related to professional services and contract labor fees and totaled
$144,277. Occupancy costs of $121,946 include the cost of office leases,
insurance, and office related expenses. Public relations expenses to promote our
products and services amounted to $34,291, which included trade show and
promotional costs. Employee costs totaled $616,794 for the three months ended
September 30, 2000. Other miscellaneous operating expenses for the three months
ended September 30, 2000, were $46,103.
Interest Expense of $36,394 was primarily the result of the accretion of the
discount on short-term notes issued in September 2000.
11
<PAGE> 12
This accretion was a non-cash expense. The additional interest expense was
attributable to debt service on short-term financing resulting from some bridge
financing.
Other Expense in the amount of $665,905 was mainly due to litigation expenses
associated with settlement of the Broadband and Broadcom lawsuit.
<TABLE>
<CAPTION>
REGISTRANT SUBSEQUENT REGISTRANT PRIOR
TO REVERSE ACQUISITION TO REVERSE ACQUISITION
--------------------------- ---------------------------------------------------------
FROM MAY 1, THROUGH FROM JANUARY 1, NINE MONTHS ENDED
SEPTEMBER 30, 2000 TO APRIL 30, 2000 SEPTEMBER 30, 1999
--------------------------- --------------------------- ---------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenue $ 42,528 100.0% $ 44,994 100.0% $ 125,062 100.0%
Operating Expenses $ 2,031,171 4776.1% $ 244,062 542.4% $ 240,546 192.3%
----------- ----------- ----------- ----------- ----------- -----------
Loss from Operations $(1,988,643) (4676.1%) $ (199,068) (442.4%) $ (115,484) (92.3%)
Other Income and (Expenses)
Interest Income 3,780 8.9% -- N/A -- N/A
Interest Expense (111,394) (261.9%) (23,644) (52.5%) (21,846) (17.5%)
Other (665,905) (1565.8%) -- N/A (5,817) (4.7%)
----------- ----------- ----------- ----------- ----------- -----------
Total Other Income and (Expense) $ (773,519) (1818.8%) $ (23,644) (52.5%) $ (27,663) (22.11%)
----------- ----------- ----------- ----------- ----------- -----------
Net Loss before extraordinary item $(2,762,162) (6494.9%) $ (222,712) (495.0%) $ (143,147) (114.5%)
Loss on extinguishment of debt -- N/A 52,250 116.1% -- N/A
----------- ----------- ----------- ----------- ----------- -----------
Net Loss $(2,762,162) (6494.9%) $ (274,962) (611.1%) $ (143,147) (114.5%)
=========== =========== =========== =========== =========== ===========
</TABLE>
Discussion of Period from May 1, 2000 through September 30, 2000
During the five months ended September 30, 2000, we had revenue of $42,528
resulting from custom programming, consulting and providing broadband wireless
transport. During the most recent three months, we experienced delays in the
deployment of service to new cities and the execution of our business plan due
to cash flow shortages, delays in availability of computer equipment and the
litigation with Broadband and Broadcom. We are currently in the process of
acquiring the necessary equipment to complete the deployment of our Regional
Hubs, National Operations Center and individual customer sites for our wireless
communications services. We expect to make progress on the connecting of
broadband wireless customers in Oklahoma City, Tulsa and Austin by December 31,
2000.
Operating expenses of $2,031,171 consisted predominately of facilities and
telecom charges, occupancy costs, contract services, depreciation-amortization,
public relations expenses and employee costs. Facilities and telecom charges of
$225,434 were incurred as we connected offices and Regional Hubs with the
National Operations Center and related site expenses for wireless transmission.
Occupancy costs of $220,186 include the cost of office leases, insurance and
office related expenses. Contract Services include expenses related to
professional services and contract labor fees and totaled $162,341. Depreciation
and amortization expense for the five months ended September 30, 2000, was
$139,263. Public relations expenses to promote our products and services
amounted to $68,533, which included trade shows and promotional costs. Our
efforts to build a wireless, carrier-class network requires a substantial
investment in employee costs due to the technical nature of the business and the
requirement to obtain qualified personnel. Employee costs totaled $1,126,053 for
the five months ended September 30, 2000. Other miscellaneous operating expenses
for the five months ended September 30, 2000, were $89,361.
Interest Expense of $111,394 was primarily the result of the accretion of the
discount on convertible notes issued in April 2000 and converted to common stock
upon completion of the merger-acquisition of Global and of the accretion of the
discount on short-term notes issued in September 2000. This accretion was a
non-cash expense. Additional interest expense is related to debt service on
short-term financing resulting from some bridge financing.
Other Expense in the amount of $665,905 was mainly due to litigation expenses
associated with settlement of the Broadband and Broadcom lawsuit.
Liquidity and Capital Resources
Historically, we have financed our growth from borrowings and sale of our equity
securities. Net cash used by operating activities
12
<PAGE> 13
totaled $1,588,181 in the period May 1, 2000 through September 30, 2000. Net
cash used by investing activities in the same period totaled $819,955 due to the
purchase of equipment. Cash flows provided by financing activities were
$2,491,919 during the five months ended September 30, 2000. During the five
months ended September 30, 2000, we had a net cash increase of $83,783.
On June 30, 2000, we completed a private placement offering of 8,000,000 units,
each unit consisting of one share of Common Stock and one Redeemable Warrant at
$.25 per unit. We received net proceeds from this offering of $1,996,422. Each
of the redeemable warrants is exercisable until June 30, 2005 for the purchase
of one share of common stock for $3.00. These funds have been utilized for the
purpose of payment of current liabilities and development of our wireless
communications networks and marketing of the related products and services.
In addition, as of September 30, 2000, we received net proceeds from a second
private placement offering of $120,000 for sale of 12 units, each unit
consisting of 30,000 shares of common stock and 20,000 redeemable warrants. As
of November 13, 2000, we had received approximately $830,000 in net proceeds
from this second offering from the sales of 83 units. Each of the redeemable
warrants is exercisable until June 30, 2005, for the purchase of one share of
common stock for $3.00. These funds will be utilized for the purpose of payment
of current liabilities, development of our wireless communications networks,
marketing of the related products and services and to retire short-term notes
payable.
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
On May 24, 2000, an action styled Broadband Wireless International Corporation,
f/k/a Black Giant Oil Company v. Ronald L. Baker, Aarow Environmental Group,
Inc. a/k/a aaro Broadband Wireless Communications Corporation and Getmore
Communications, Inc., Case No. CJ-2000-3816, was filed in the District Court of
Oklahoma County, Oklahoma. The plaintiffs were seeking to
o prohibit further conduct, statements or actions in anyway made to
appear as acts of Broadband,
o prohibit the continued conversion by Baker of Broadband's name,
accounts, property or business opportunities,
o damages exceeding $10,000 for conversion, fraud and negligent
misrepresentation from the defendants,
o punitive damages for conversion, fraud, and negligent
misrepresentation,
o interest, attorney fees and cost.
On July 14, 2000, an action styled Broadcom Wireless Communications, Corp., and
Black Giant Resources Corporation v. Ronald L. Baker, Arrow Environmental
Groups, Inc. a/k/a aaro Broadband Wireless Communications Corporation, and
GetMore Communications, Inc., Case No. CJ-2000-5129-63, was filed in the
District Court of Oklahoma County, Oklahoma. The plaintiffs were seeking to
receive actual damages exceeding $10,000, punitive damages, interest, attorney's
fees, and the costs of the action and such other and further relief that appears
just and proper.
Both of these cases were settled and approved by the court on October 16, 2000.
The effect of this settlement is reflected as Litigation/Settlement Payable and
Other Expense in the three months ended September 30, 2000. Per the settlement
agreement, we issued 3,000,000 common shares for the full and final settlement
of all claims. The reduction of the Litigation/Settlement Payable and the
recording of Common Stock and Paid in Capital will be recorded in October 2000,
when the settlement was consummated.
On October 27, 2000, an action styled Patricia A. Camp v. Aarow Environmental
Group, Inc., Utica Publishing Corporation, D. Fredrick Shefte, Sammy D. Yates
and Jim W. Bolt, Case No. CIV 2000-1135-4, was filed in the Circuit Court of
Washington County, Arkansas. Ms. Camp alleges that in or about 1995, she was a
50% partner with Jim Bolt operating under an oral partnership agreement as the
Arkansas Chronicle. In late 1996, Ms. Camp and Jim Bolt allegedly acquired from
Mr. Yates a business known as Copies Plus and operated and managed Copies Plus
as co-owners and participants in a joint enterprise. Furthermore, in 1999, Jim
Bolt and Sammy D. Yates allegedly merged or consolidated the
13
<PAGE> 14
Arkansas Chronicle and Copies Plus into a new entity called Utica Publishing
Corporation that on September 2, 1999, merged with Aarow Environmental Group,
Inc. In August 1999, Ms. Camp allegedly was approached by Jim Bolt to sign
Exhibit "A" of the Agreement for Purchase and Sale of Stock of Utica Publishing
to Aarow Environmental. Ms. Camp states that she did sign the agreement without
reading the complete document and she now claims that she did not receive the
proper amount of shares for her interest in Utica Publishing.
Because of the recent filing of this case, the Company is currently unable to
assess the merits of the claims made; however, we believe the merits to be
questionable. The Company is vigorously defending this case and intends to
pursue any claims that we may have against Ms. Camp.
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On June 30, 2000, we completed a private placement offering of 8,000,000 units,
each consisting of one share of common stock and one redeemable warrant. Each
redeemable warrant is exercisable for the purchase of one share of common stock
for $3.00 and is subject to being called by us anytime after the common stock
has an average closing sale price of $4.50 per share for five consecutive
trading days. This offering was completed for cash proceeds of $2,000,000 ($.25
per unit). These funds have been utilized to settle certain debts incurred prior
to the merger with Global Wireless, purchase communications equipment and
computer equipment, complete the Tulsa regional hub deployment, and for working
capital including payroll, rents, operating expenses, etc. The units were sold
to 77 investors each qualifying as an accredited investor within the meaning
Rule 501(a).
On May 1, 2000, as a result of the merger-acquisition of Global Wireless
Technologies, Inc., five convertible promissory notes, in the aggregate
principal amount of $75,000, held by five lenders were converted into 500,000
shares of common stock. Each holder of these promissory notes qualified as an
accredited investor within the meaning of Rule 501(a). The original issuance of
these promissory notes and their conversion to common stock were made without
payment of sales commissions or other remuneration.
Effective May 1, 2000, in connection with the merger-acquisition of Global
Wireless Technologies, Inc., AAROW issued 22,175,961 shares of common stock to
the shareholders of Global Wireless Technologies, Inc. in exchange for the
capital stock of Global Wireless Technologies, Inc. Furthermore, 1,850,000
warrants were issued to five individuals and one limited liability company. Each
warrant is exercisable on or before June 30, 2005 for the purchase of one share
of common stock for $.375. One of the terms of the settlement with Broadband
Wireless International Corporation and Broadcom Wireless Communications, Corp.
included a provision that 1,400,000 of these warrants be exchanged for new
warrants and the shares of common stock underlying these new warrants be issued
without restrictions on transfer as free trading due to the agreement of these
individuals to forgive their Convertible Debentures owed them by Broadband
Wireless International Corporation.
On September 20, 2000, we modified a second private placement to 667 units, each
unit consisting of 30,000 shares of common stock and 20,000 redeemable warrants.
Each redeemable warrant is exercisable for the purchase of one share of common
stock for $3.00 and is subject to being called by us anytime after the common
stock has an average closing sale price of $4.50 per share for five consecutive
trading days. As of September 30, 2000, we had received net proceeds from this
second private placement offering of $120,000 from the sale of 12 units. As of
November 13, 2000, we had received approximately $830,000 in net proceeds from
this second offering from the sales of 83 units. Each of the redeemable warrants
is exercisable until June 30, 2005, for the purchase of one share of common
stock for $3.00. These funds will be utilized for the purpose of payment of
current liabilities, development of our wireless communications networks,
marketing of the related products and services and to retire short-term notes
payable.
During September 2000, we issued eight promissory notes totaling $310,000
maturing at various dates between December 1, 2000, and December 31, 2000 at an
annual interest rate of 8% per annum. Furthermore, 620,000 redeemable warrants
were issued to these eight individuals based upon two warrants for each dollar
loaned. Each warrant is exercisable on or before June 30, 2005 for the purchase
of one share of common stock for $.50. As of November 15, 2000, an additional
$490,000 was issued on four promissory notes maturing at various dates between
December 1, 2000, and December 31, 2000, at an annual interest rate of 8% per
annum. Furthermore, these promissory notes also included redeemable warrants on
the same basis as above.
During August 2000, three independent directors began serving on our board of
directors. For their services as directors,
14
<PAGE> 15
each of these directors are entitled to receive shares of our common stock
having an aggregate value of $50,000 at the beginning of each year of their
service. The value of the shares is or will be based upon the closing sale price
of our common stock on the date of acceptance and the anniversary of their
directorships. Furthermore, we have agreed to pay them director's fees of $500
for each meeting attended and reimbursement of all normal and necessary travel,
lodging and other expenses related to their attendance. In August 2000, we
issued 220,141 shares to these directors.
On August 31, 2000, we exchanged 700,000 shares of our common stock for the
outstanding capital stock of Support24 Resources and Support24 Resources became
our wholly-owned subsidiary. This acquisition was completed in order to acquire
the services of their two management personnel for their expertise in the
communications industry. The assets and revenues of Support24 Resources, Inc. as
of the acquisition date were insignificant and all of its activities have been
suspended.
The Broadband Wireless International Corporation and Broadcom Wireless
Communications lawsuits were settled and approved by the court on October 16,
2000. The effect of this settlement was recorded as litigation settlement
payable and other expense in the three months ended September 30, 2000. Per the
settlement agreement, 3,000,000 shares of our common stock were issued. The
reduction of the litigation settlement payable and the recording of common stock
and paid in capital will be recorded in October 2000.
On October 5, 2000, 2,000,000 shares of Series I Preferred Stock were sold to
The Oklahoma Publishing Company for net proceeds of $2,000,000 ($1.00 per share)
without payment of any commissions or other remuneration. The funds from this
transaction have been set aside for capital expenditures only and are being
accounted for separately.
We relied on Rule 147 and Sections 3(a)(10) and 4(2) of the Securities Act of
1933 and Rule 506 of Regulation D for exemption from the registration
requirements of the Act. Each investor was furnished with information concerning
our formation and operations, and had the opportunity to verify the information
supplied. Additionally, we obtained a representation from each of the acquiring
persons representing the intent to acquire the securities for the purpose of
investment only, and not with a view toward the subsequent distribution thereof.
Each of the certificates representing the common stock and the warrants (other
than the securities issued in accordance with Section 3(a)(10) of the Securities
Act of 1933) carry a legend restricting transfer of the securities represented
thereby. Furthermore, we have issued stop transfer instructions to Securities
Transfer Corporation, the transfer agent for the common stock, covering the
certificates representing the common stock issued in the above-described
transactions and warrants (other than the securities issued in accordance with
Section 3(a)(10) of the Securities Act of 1933).
Item 3. DEFAULTS UPON SENIOR SECURITIES
None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
Item 5. OTHER INFORMATION
None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits--
2.1 Merger Agreement, dated May 23, 2000 with Support 24, an
Oklahoma Corporation and Aaro Broadband Wireless Communications,
Inc.
10.1 Settlement Agreement, dated September 20, 2000, by and
between AAROW Environmental Group, Inc. a/k/a AARO Broadband
Wireless Communications, Inc., Getmore Communications, Inc., GKD,
Inc., Ronald L. Baker, Gary Duke, Broadband Wireless
International Corporation f/k/a Black Giant Oil Company, Ivan
Webb, BroadCom Wireless Communications Corporation a/k/a BroadCom
Communications Group, a/k/a Broadband Wireless Communications
Corporation.
15
<PAGE> 16
10.2 Contract, dated November 16, 2000, by and between Aaro
Broadband Wireless Communications, Inc. and the Oklahoma
Municipal League.
27 Financial Data Schedule
Reports on Form 8-K--
Item 1. None
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.
AARO BROADBAND WIRELESS COMMUNICATIONS, INC.
(Registrant)
Date: November 20, 2000 By /s/ RONALD L. BAKER
--------------------------------------------
Ronald L. Baker, President
By /s/ MICHAEL W. CANFIELD
--------------------------------------------
Michael W. Canfield, Chief Financial Officer
16
<PAGE> 17
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
2.1 Merger Agreement, dated May 23, 2000 with Support 24, an Oklahoma
Corporation and Aaro Broadband Wireless Communications, Inc.
10.1 Settlement Agreement, dated September 20, 2000, by and between AAROW
Environmental Group, Inc. a/k/a AARO Broadband Wireless Communications,
Inc., Getmore Communications, Inc., GKD, Inc., Ronald L. Baker, Gary
Duke, Broadband Wireless International Corporation f/k/a Black Giant
Oil Company, Ivan Webb, BroadCom Wireless Communications Corporation
a/k/a BroadCom Communications Group, a/k/a Broadband Wireless
Communications Corporation.
10.2 Contract, dated November 16, 2000, by and between Aaro Broadband
Wireless Communications, Inc. and the Oklahoma Municipal League.
27 Financial Data Schedule
</TABLE>
