UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K/A
Amendment No. 1
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Current Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 Date of report
(Date of earliest event reported): September 29, 2000
ARC Wireless Solutions, Inc.
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(Exact name of registrant as specified in its charter)
Utah
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(State of other jurisdiction of incorporation)
000-18122 87-0454148
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(Commission File Number) (IRS Employer Identification Number)
4860 Robb Street, Suite 101
Wheat Ridge, Colorado, 80033-2163
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(Address of principal executive offices including zip code)
(303) 421-4063
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(Registrant's telephone number, including area code)
Not Applicable
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(Former name or former address, if changed since last report)
1
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This Form 8-K/A amends Form 8-K filed by ARC Wireless Solutions, Inc. with the
Securities and Exchange Commission on October 13, 2000 concerning an event that
occurred on September 29, 2000 (the "Original Form 8-K") by including the
financial statements and pro forma financial information referred to below.
Item 7. Financial Statements, Pro Forma Information and Exhibits
(a) Financial Statements of Business Acquired
(1) Report of Independent Auditors.
(2) Starworks Technology, Inc. balance sheets as
of September 29, 2000 and December 31, 1999
and the related statements of operations,
shareholders' (deficit) equity, and cash
flows for the nine months ended September
29, 2000 and the year ended December 31,
1999.
(3) Notes to Financial Statements of Starworks
Technologies, Inc.
(b) Pro Forma Financial Information
(1) Unaudited Pro Forma Condensed Statement of
Operations for the year ended December 31,
1999
(2) Unaudited Pro Forma Condensed Statement of
Operations for the nine months ended
September 30, 2000
(3) Unaudited Pro Forma Condensed Balance Sheet
as of September 30, 2000
2
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Report of Independent Auditors
The Shareholders
Starworks Technology, Inc.
We have audited the accompanying balance sheets of Starworks Technology, Inc. as
of September 29, 2000 and December 31, 1999, and the related statements of
operations, shareholders' equity, and cash flows for the nine-month period ended
September 29, 2000 and the year ended December 31, 1999. 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 audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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 Starworks Technology, Inc. at
September 29, 2000 and December 31, 1999, and the results of its operations and
cash flows for the nine-month period ended September 29, 2000 and the year ended
December 31, 1999 in conformity with accounting principles generally accepted in
the United States.
/s/ ERNST & YOUNG LLP
Atlanta Georgia
November 15, 2000
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Starworks Technology, Inc.
Balance Sheets
<TABLE>
<CAPTION>
September 29, 2000 December 31, 1999
--------------------------------------------
(In thousands, except shares)
<S> <C> <C>
Assets
Current assets:
Cash $ 108 $ 222
Restricted cash 33 88
Accounts receivable, less allowance for doubtful accounts of
$50 and $20 for 2000 and 1999, respectively 305 776
Inventory 634 766
Prepaid expenses 14 7
--------------------------------------------
Total current assets 1,094 1,859
Fixed assets, net 42 36
Deposits and other assets 22 7
--------------------------------------------
Total assets $1,158 $1,902
============================================
Liabilities and shareholders' equity
Current liabilities:
Accounts payable $ 791 $ 919
Revolving bank loan 340 676
Accrued expenses 77 17
--------------------------------------------
Total current liabilities 1,208 1,612
Commitment and contingencies
Shareholders' equity:
Common stock, no par value, 100,000 shares authorized, and
Accumulated (deficit) earnings (50) 290
--------------------------------------------
Total shareholders' (deficit) equity (50) 290
--------------------------------------------
Total liabilities and stockholders' (deficit) equity $1,158 $1,902
============================================
</TABLE>
See accompanying notes.
4
<PAGE>
Starworks Technology, Inc.
Statements of Operations
<TABLE>
<CAPTION>
Nine-month
period ended Year ended
September 29, 2000 December 31, 1999
--------------------------------------------
(In thousands)
<S> <C> <C>
Net sales $3,291 $5,576
Cost of goods sold 2,823 4,689
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Gross profit 468 887
Selling, general and administrative expenses 541 793
--------------------------------------------
(Loss) income from operations (73) 94
Other (income) expense
Interest expense 77 59
Other income (20) -
--------------------------------------------
57 59
--------------------------------------------
Net (loss) income $ (130) $ 35
============================================
</TABLE>
See accompanying notes.
5
<PAGE>
Starworks Technology, Inc.
Statements of Shareholders' Equity
(In thousands, except shares)
<TABLE>
<CAPTION>
Common Stock Accumulated
-------------------------------- (Deficit)
Shares Amount Earnings Total
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, January 1, 1999 10,000 $ - $ 591 $ 591
Net income - - 35 35
Shareholder distributions - - (336) (336)
------------------------------------------------------------------------
Balance, December 31, 1999 10,000 - 290 290
Net (loss) - - (130) (130)
Shareholder distributions - - (210) (210)
------------------------------------------------------------------------
Balance, September 29, 2000 10,000 $ - $ (50) $ (50)
========================================================================
</TABLE>
See accompanying notes.
6
<PAGE>
Starworks Technology, Inc.
Statements of Cash Flows
<TABLE>
<CAPTION>
Nine-month period
ended September 29, Year ended December
2000 31, 1999
--------------------------------------------
<S> <C> <C>
Operating activities
Net (loss) income $(130) $ 35
Adjustments to reconcile net (loss) income to net cash
Depreciation expense 8 5
Changes in operating assets and liabilities:
Restricted cash 55 (88)
Accounts receivable 471 (334)
Inventory 132 (425)
Prepaid expenses and other assets (22) (11)
Accounts payable and accrued expenses (68) 571
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Net cash provided by (used in) operating activities 446 (247)
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Investing activities
Cash paid for fixed assets (14) (29)
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Net cash used in investing activities (14) (29)
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Financing activities
Net (repayments) borrowings on
revolving bank loan (336) 676
Distributions to stockholders (210) (336)
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Net cash (used in) provided by financing activities (546) 340
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Net (decrease) increase in cash (114) 64
Cash, beginning of year 222 158
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Cash, end of year $ 108 $ 222
============================================
Supplemental cash flow information
Cash paid for interest $ 77 $ 59
============================================
</TABLE>
See accompanying notes.
7
<PAGE>
Starworks Technology, Inc.
Notes to Financial Statements
Nine-month period ended September 29, 2000
and the year ended December 31, 1999
1. Organization and Summary of Significant Accounting Policies
Organization
Starworks Technology, Inc. (the Company) was incorporated as a Subchapter S
corporation in Georgia on December 19, 1997. The Company operates in a single
business segment, specializing in the design, manufacturing, marketing,
distribution and service of direct-to-home dish satellite installation kits in
the United States, primarily through original equipment manufacturers and
third-party distributors, and retailers.
The products are sold to customers located primarily in the United States. The
Company performs ongoing credit evaluations of its customers and generally does
not require collateral. Losses from credit sales are provided for in the
financial statements and have historically been within management's
expectations.
Inventory
Inventory is valued at the lower of cost or market using the first-in first-out
method. Inventory consists primarily of raw materials at September 29, 2000 and
December 31, 1999.
Fixed Assets
Fixed assets are stated at cost. The Company uses the straight-line method over
estimated useful lives of three to seven years to compute depreciation for
financial reporting purposes. Fixed assets consist of the following:
September 29, 2000 December 31, 1999
-------------------- -------------------
Manufacturing equipment $ 56,000 $ 42,000
Furniture and fixtures 1,000 1,000
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57,000 43,000
Accumulated depreciation (15,000) (7,000)
-------------------- -------------------
$ 42,000 $ 36,000
==================== ===================
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1. Organization and Summary of Significant Accounting Policies (continued)
Revenue Recognition
Sales are recorded when goods are shipped.
Fair Value of Financial Instruments
The Company's short-term financial instruments consist of cash, accounts
receivable, accounts payable and accrued expenses. The carrying amounts of these
financial instruments approximate fair value because of their short-term
maturities. Financial instruments that potentially subject the Company to a
concentration of credit risk consist principally of cash and accounts
receivable.
Estimates
The preparation of the Company's financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from these estimates.
Income Taxes
There is no provision for income taxes in the financial statements of the
Company, as the Company is not subject to Corporate income taxes under the
provisions of Subchapter S of the Internal Revenue Code. Accordingly the
shareholders are taxed on their shares of the Company's taxable income, whether
distributed or not.
Advertising Costs
Advertising costs are charged to operations when incurred. Advertising costs
charged to operations were approximately $74,000 and $98,000 for the nine-month
period ended September 29, 2000 and the year ended December 31, 1999,
respectively.
2. Revolving Bank Loan Agreement
The Company has a $1,500,000 revolving bank loan agreement (the "Agreement")
with the First National Bank of Griffin, Georgia. The Agreement is secured by
accounts receivable and restricted cash maintained in a non-collection reserve
account as discussed below. In connection with the Agreement, the Company
assigns accounts receivable to the bank for collection by the bank.
The amounts advanced under the terms of the Agreement are equivalent to the
gross amount of the accounts receivable assigned, net of a one-time bank service
charge of 2.65% and a reserve for non-collection of 10%. The service charge is
adjusted on a quarterly basis and may be adjusted up to 3.15% based on the
average collection period of the accounts receivable. Total service charges
under the Agreement were approximately $77,000 and $55,000 for the nine-month
period ended September 29, 2000 and the year ended December 31, 1999,
respectively.
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The amount of the required non-collection reserve is calculated based on the age
of specific invoices assigned. The non-collection reserve has been established
in the form of an interest-bearing restricted cash account. Restricted cash in
connection with this arrangement totaled $33,000 and $88,000 at September 29,
2000 and December 31, 1999, respectively.
The Company may be required to repurchase any receivable remaining unpaid
following 90 days after its due date. At September 29, 2000, the non-collection
reserve was greater than the potential repurchase obligation. The Agreement is
cancelable upon 60 days written notice by either party and all amounts
outstanding become due and payable to the bank.
3. Major Customers
The Company's sales to one customer totaled $1,414,000 or 43% of net sales for
the nine-month period ended September 29, 2000. The Company's sales to three
separate customers each exceeding 10% of total sales totaled approximately
$2,032,000, or 36% of net sales for the year ended December 31, 1999.
4. Operating Leases
The Company leases a building and certain machinery and equipment. Minimum
future rentals payable under these operating leases are as follows:
2000 $ 20,000
2001 78,000
2002 39,000
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$137,000
==============
Rent expense amounted to approximately $54,000 and $64,000 for the nine-month
period ended September 29, 2000 and the year ended December 31, 1999,
respectively.
5. Subsequent Event
On September 29, 2000, ARC Wireless Solutions, Inc. (formerly named Antennas
America, Inc.) purchased, through its subsidiary, Starworks Wireless, Inc., the
outstanding shares of Starworks Technology, Inc. for cash and ARC restricted
Common Stock totaling approximately $2,300,000. The accompanying financial
statements are presented on the basis of historical cost and do not include any
adjustments which may be necessary to reflect the acquisition transaction.
10
<PAGE>
Item 7. Financial Statements, Pro Forma Information and Exhibits (continued)
(b) Pro Forma Financial Information
On September 29, 2000, ARC Wireless Solutions, Inc. (ARC) completed a
transaction providing for the merger of Starworks Technologies, Inc. (Starworks)
with and into Starworks Wireless Inc., a wholly owned subsidiary of ARC.
Starworks operates in a single business segment, specializing in the design,
manufacturing, marketing, distribution and service of direct-to-home dish
satellite installation kits. In exchange for the outstanding common shares of
Starworks, the stockholders of Starworks received aggregate consideration of
$2.3 million, consisting of a total of $0.8 million in cash and $1.5 million in
shares of restricted ARC common stock. 1,959,499 shares were issued, based on
the weighted average trading price of $0.7655 per share on the closing date. The
total purchase cost of the Starworks Technology Inc. merger is as follows:
Cash paid............................................. $ 806,000
Value of securities issued............................ 1,500,000
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2,306,000
Direct transaction costs and expenses (estimated) .... 150,000
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Total purchase cost................................... $ 2,456,000
=========
Preliminary allocation of purchase price:
Annual Useful
Amount Amortization Lives
------------ ------------- ------
Tangible net assets $ (50,000) n/a n/a
Intangible assets 2,506,000 $167,000 15
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Total purchase cost $ 2,456,000 $167,000
========= ========
ARC is in the process of performing an internal valuation of the intangible
assets acquired. Once the valuation is completed, ARC will amortize these assets
over their useful lives. Management estimates that the useful lives of the
intangible assets acquired will range from 10 to 20 years, with an expected
average life of 15 years.
The Unaudited Pro Forma Condensed Statement of Operations for the year ended
December 31, 1999 and for the nine months ended September 30, 2000 and the
Unaudited Pro Forma Condensed Balance Sheet as of September 30, 2000 should be
read in conjunction with the financial statements of ARC Wireless Solutions,
Inc., as previously filed and the separate financial statements of Starworks
Technology, Inc. included herein. This unaudited financial information is based
on the historical financial statements of ARC and Starworks after giving effect
to the acquisition under the purchase method of accounting and the assumptions
and adjustments described in the accompanying Notes to the Unaudited Pro Forma
Condensed Statements of Operations and Unaudited Pro Forma Condensed Balance
Sheet. The pro forma information does not purport to be indicative of the
results that would have been reported if the above transaction had been in
effect for the periods presented or which may result in the future. The
Unaudited Pro Forma Condensed Statements of Operations are presented as if the
operations of ARC, Winncom Technologies, Inc. (acquired May 24, 2000) and
Starworks had been combined on January 1, 1999.
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<PAGE>
Unaudited Pro Forma Condensed
Statement of Operations
Year Ended December 31, 1999
(All amounts in thousands except per share amounts)
<TABLE>
<CAPTION>
ARC Wireless Winncom Starworks
Solutions, Technologies, Technology, Pro forma Pro forma
Inc. Inc. (b) Inc. (d) Adjustments Combined
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net revenues $4,568 $7,338 $5,576 $ - $17,482
Cost of goods sold 3,484 5,540 4,689 - 13,713
---------------------------------------------------------------------------------
Gross profit 1,084 1,798 887 - 3,769
Operating expenses:
Selling, general and administrative 1,201 1,101 793 - 3,095
Amortization of purchased intangibles - - - (a, c) 980 980
---------------------------------------------------------------------------------
Total operating expenses 1,201 1,101 793 980 4,075
Income (loss) from operations (117) 697 94 (980) (306)
Interest expense and other income, net 120 24 59 - 203
---------------------------------------------------------------------------------
Income (loss) before income taxes (237) 673 35 (980) (509)
Income tax expense 335 - - - 335
---------------------------------------------------------------------------------
Net income (loss) $ (572) $ 673 $ 35 $(980) $ (844)
=================================================================================
Basic and diluted loss per share $ (0.01) $ (0.01)
================= ===============
Weighted average shares outstanding 80,090 (b) 23,464 (d) 1,959 105,513
================================================== ===============
</TABLE>
See accompanying notes to Unaudited Pro Forma Condensed Statement of Operations.
12
<PAGE>
Unaudited Pro Forma Condensed
Statement of Operations
Nine Months Ended September 30, 2000
(All amounts in thousands except per share amounts)
<TABLE>
<CAPTION>
ARC Wireless Winncom Starworks
Solutions, Technologies, Technology, Pro forma Pro forma
Inc. Inc. (b) Inc. (c) Adjustments Combined
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net revenues $10,959 $5,782 $3,291 $ - $20,032
Cost of goods sold 9,047 4,701 2,823 - 16,571
---------------------------------------------------------------------------------
Gross profit 1,912 1,081 468 - 3,461
Operating expenses:
Selling, general and administrative 2,453 718 541 - 3,712
Amortization of purchased intangibles 289 - - (a, c) 448 737
---------------------------------------------------------------------------------
Total operating expenses 2,742 718 541 448 4,449
Income (loss) from operations (830) 363 (73) (448) (988)
Interest expense and other income, net (80) 22 57 - (1)
---------------------------------------------------------------------------------
Income (loss) before income taxes (750) 341 (130) (448) (987)
Income tax expense 13 - - - 13
---------------------------------------------------------------------------------
Net income (loss) $ (763) $ 341 $ (130) $(448) $ (1,000)
=================================================================================
Basic and diluted loss per share $ (0.01) $ (0.01)
================= ===============
Weighted average shares outstanding 118,643 (a) 10,659 (c) 1,945 131,247
================================================== ===============
</TABLE>
See accompanying notes to Unaudited Pro Forma Condensed Statement of Operations.
13
<PAGE>
Notes to Unaudited Pro Forma Condensed Statement of Operations
a) The Winncom purchase price has been allocated to specifically identifiable
assets acquired. The intangible assets acquired of approximately $12
million are expected to be amortized over an average estimated useful life
of 15 years. The related amortization is reflected as a pro forma
adjustment to the Unaudited Pro Forma Condensed Statement of Operations.
The purchase price allocation is preliminary subject to change based on the
ARC's final analysis. As part of the consideration of the acquisition of
Winncom Technologies, Inc., ARC issued 6,946,053 shares of ARC common stock
on May 24, 2000 (date of Winncom acquisition).
In addition, during 2000 ARC Wireless Solutions, Inc. undertook a private
placement offering of units of its common stock with attached warrants as a
method of funding the Winncom acquisition. The pro forma weighted average
shares outstanding for Winncom include the portion of this private
placement that took place between March 31, 2000 and May 24, 2000, as these
funds were used for the acquisition of Winncom.
b) The pro forma numbers for Winncom represent the results of its operations
prior to May 24, 2000 (date of acquisition).
c) The Starworks purchase price has been allocated to specifically
identifiable assets acquired. Management expects that the intangible assets
acquired of approximately $2.5 million will be amortized over an average
estimated useful life of 15 years. The related amortization is reflected as
a pro forma adjustment to the Unaudited Pro Forma Condensed Statement of
Operations. The purchase price allocation is preliminary subject to change
based on ARC's final analysis. As part of the consideration of the
acquisition of Starworks Technology, Inc., ARC Wireless Solutions, Inc.
issued 1,959,499 shares of its common stock on September 29, 2000.
d) As September 30, 2000 was a non-working day for Starworks, the results of
operations of Starworks for the period ended September 30, 2000 would be
the same as those for the audited period ended September 29, 2000 in all
material respects. Accordingly, the Unaudited Pro Forma Condensed Statement
of Operations for September 30, 2000 includes the September 29, 2000 (date
of acquisition) results of operations for Starworks.
14
<PAGE>
Unaudited Pro Forma Condensed
Balance Sheet
As of September 30, 2000
(Dollars in thousands)
<TABLE>
<CAPTION>
ARC Wireless Starworks
Solutions, Technology, Pro forma Pro forma
Inc. Inc. Adjustments Combined
-------------------------------------------------------------------------
ASSETS (a)
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 2,997 $ 108 $(1,025) $ 2,080
Restricted cash - 33 - 33
Accounts receivable, less allowance for
doubtful accounts 3,274 305 - 3,579
Inventory 4,586 634 - 5,220
Other current assets 56 14 219 289
-------------------------------------------------------------------------
Total current assets 10,913 1,094 (806) 11,201
Other assets:
Property, plant and equipment, net 457 42 - 499
Intangible assets, including goodwill, net 12,011 - 2,506 14,517
Other assets 43 22 - 65
-------------------------------------------------------------------------
Total assets $23,424 $1,158 $ 1,700 $26,282
=========================================================================
LIABILITIES AND EQUITY
Current liabilities:
Revolving bank lines of credit $ 1,354 $ 340 $ - $ 1,694
Accounts payable 4,989 791 - 5,780
Current portion of capital lease obligations 15 - - 15
Accrued expenses and other current
liabilities 144 77 150 371
-------------------------------------------------------------------------
Total current liabilities 6,502 1,208 150 7,860
Capital lease obligations 6 - - 6
-------------------------------------------------------------------------
Total liabilities 6,508 1,208 150 7,866
Stockholders' equity:
Common stock 71 - 1 72
Additional paid-in capital 18,801 - 1,499 20,300
Retained earnings (deficit) (1,956) (50) 50 (1,956)
-------------------------------------------------------------------------
Total stockholders' equity 16,916 (50) 1,550 18,416
-------------------------------------------------------------------------
Total liabilities and stockholders' equity $23,424 $1,158 $ 1,700 $26,282
=========================================================================
</TABLE>
See accompanying notes to Unaudited Pro Forma Condensed Balance Sheet.
15
<PAGE>
Notes to Unaudited Pro Forma Condensed Balance Sheet
a) On September 29, 2000, ARC purchased, through its subsidiary, Starworks
Wireless Inc., the outstanding shares of Starworks Technology, Inc. The
acquisition has been accounted for as a purchase. ARC provided $2.3
million in aggregate consideration, consisting of $0.8 million in cash
and $1.5 million in shares of restricted ARC common stock (1,959,499
shares). In addition, ARC has accrued estimated costs of $150,000
related to the acquisition of Starworks, of which $25,000 had been paid
as of September 30, 2000.
16
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act Of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
ARC Wireless Solutions, Inc.
Date: December 12, 2000 By: /s/ Thomas R. Reed
--------------------
Thomas R. Reed
Chief Financial Officer
17
