UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10 - QSB
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QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended September 30, 2000.
ARC Wireless Solutions, Inc.
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(Exact name of small business issuer as specified in its charter)
Utah
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(State or 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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(Small Business Issuer telephone number, including area code)
Antennas America, Inc.
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(Former Name or Former Address, if Changed Since Last Report)
Check whether the issuer (1) has 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 was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes __X__ No _____
As of November 08, 2000, the Registrant had outstanding 144,849,280 shares of
its common stock, par value $0.0005.
Transitional Small Business Disclosure Format (Check One):
Yes _____ No __X__
<PAGE>
ARC Wireless Solutions, Inc.
FORM 10-QSB
September 30, 2000
Table of Contents
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 2000
(unaudited) and December 31, 1999............................3
Consolidated Statements of Operations for the
Three and Nine Months Ended
September 30, 2000 and 1999 (unaudited)......................4
Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 2000
and 1999 (unaudited).........................................5
Notes to Consolidated Financial Statements..........................6
Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition
Results of Operations...............................................9
Financial Condition.................................................9
Forward Looking Statements.........................................10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K...................................10
2
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Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
ARC Wireless Solutions, Inc.
Consolidated Balance Sheets
(Dollars in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
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Assets (unaudited)
<S> <C> <C>
Current assets:
Cash $ 2,118 $ 178
Accounts receivable, net 3,580 324
Inventory, net 5,239 580
Prepaid expenses 181 -
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Total current assets 11,118 1,082
Property and equipment, net 501 369
Other assets:
Intangible assets including goodwill, net 14,570 41
Deposits 44 16
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Total assets $ 26,233 $ 1,508
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Liabilities and stockholders' equity Current liabilities:
Bank line of credit $ 1,694 $ -
Accounts payable 5,804 357
Current portion of notes payable-others - 114
Current portion of notes payable-officers - 33
Current portion of capital lease obligations 15 55
Accrued expenses 298 71
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Total current liabilities 7,811 630
Capital lease obligations, less current portion 6 6
Notes payable-others, less current portion - 126
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Total liabilities 7,817 762
Commitments
Stockholders' equity:
Common stock 72 47
Additional paid-in capital 20,300 1,892
Accumulated deficit (1,956) (1,193)
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Total stockholders' equity 18,416 746
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Total liabilities and stockholders' equity $ 26,233 $ 1,508
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</TABLE>
See accompanying notes.
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ARC Wireless Solutions, Inc.
Consolidated Statements of Operations
(Amounts in thousands excepts per share amounts)
<TABLE>
<CAPTION>
Three months ended September 30, Nine months ended September 30,
2000 1999 2000 1999
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(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Sales, net $ 7,089 $ 1,532 $ 10,959 $ 3,195
Cost of sales 5,864 1,211 9,047 2,417
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Gross profit 1,225 321 1,912 778
Operating expenses:
Selling, general and administrative expenses 1,527 292 2,453 823
Amortization of purchased intangibles 203 - 289 -
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Total operating expenses 1,730 292 2,742 823
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Income (loss) from operations (505) 29 (830) (45)
Other income (expense):
Interest expense, net (23) (41) (43) (102)
Other income 19 - 123 -
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Total other income (expense) (4) (41) 80 (102)
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Loss before income taxes (509) (12) (750) (147)
Provision for income taxes 13 385 13 336
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Net loss $ (522) $ (397) $ (763) $ (483)
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Net loss per share (basic and diluted) $ (0.00) $ (0.01) $ (0.01) $ (0 .01)
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Weighted average shares outstanding 138,236 76,712 118,643 75,831
====================================================================
</TABLE>
See accompanying notes.
4
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ARC Wireless Solutions, Inc.
Consolidated Statements of Cash Flows
(Dollars in Thousands)
<TABLE>
<CAPTION>
Nine months ended September 30,
2000 1999
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(unaudited)
<S> <C> <C>
Operating activities
Net loss $ (763) $ (483)
Adjustments to reconcile net loss to net cash used in
Operating activities:
Depreciation and amortization 389 83
Non-cash expense for issuance of stock and options 72 1
Deferred tax expense - 335
Changes in operating assets and liabilities:
Accounts receivable (687) (147)
Inventory (2,798) (162)
Prepaid expenses (55) 12
Other assets and deposits (23) (10)
Accounts payable and accrued expenses 2,267 217
Other (28) 23
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Net cash used in operating activities (1,626) (131)
Investing activities
Patent acquisition costs (27) (4)
Acquisition of businesses, net of cash acquired (7,308) -
Purchase of plant and equipment (161) (62)
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Net cash used in investing activities (7,496) (66)
Financing activities
Repayment of notes and capital lease obligations (266) (348)
Proceeds from private placement, including warrant exercises, net 10,822 489
Proceeds from exercise of options, net 39 -
Repayment of notes payable - officers (33) (11)
Increase in bank line of credit 500 -
Proceeds from distributor note payable - 200
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Net cash provided by financing activities 11,062 330
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Net increase in cash 1,940 133
Cash, beginning of period 178 17
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Cash, end of period $ 2,118 $ 150
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Supplemental cash flow information:
Cash paid for interest $ 40 $ 87
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Non-cash financing activities:
Acquisition of stock in exercise of warrants and options for
issuance of newly issued shares of common stock $ 562 $ -
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</TABLE>
See accompanying notes.
5
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ARC Wireless Solutions, Inc.
Notes to Consolidated Financial Statements
September 30, 2000
Note 1. Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States for interim financial information and with the instructions to
Form 10-QSB and Item 310(b) of Regulation S-B. Accordingly, they do not include
all of the information and footnotes required by accounting principles generally
accepted in the United States for complete financial statements. In the opinion
of management, all adjustments considered necessary for a fair presentation have
been included. For further information, refer to the financial statements and
footnotes thereto included in the Company's Annual Report on Form 10-KSB for the
year ended December 31, 1999 and to the Company's Current Report on Form 8-K/A
filed August 7, 2000.
The Company operates in a single business segment offering a wide variety of
wireless component and network solutions to service providers, systems
integrators, value added resellers, businesses and consumers, primarily in the
United States.
Operating results for the three and nine month periods ended September 30, 2000
are not necessarily indicative of the results that may be expected for the year
ended December 31, 2000 or any future period.
Note 2. Consolidation Policy
The accompanying unaudited consolidated financial statements include the
accounts of ARC Wireless Solutions, Inc. ("ARC"), formerly named Antennas
America, Inc., and its wholly-owned subsidiary corporations, Winncom
Technologies Corp. ("Winncom") and Starworks Wireless Inc. ("Kit"), since their
respective acquisition dates, after elimination of all material intercompany
accounts, transactions, and profits. As Kit was acquired on the last business
day of the quarter ended September 30, 2000, only the preliminary Kit Balance
Sheet has been consolidated into these statements.
Note 3. Acquisitions
On May 24, 2000, ARC purchased, through its subsidiary, Winncom
Technologies, Corp., the outstanding shares of Winncom Technologies, Inc.
Winncom specializes in marketing, distribution and service, as well as selected
design, manufacturing and installation of wireless component and network
solutions in support of both voice and data applications, primarily through
third party distributors located in the United States. The acquisition has been
accounted for as a purchase, and accordingly, the operations for Winncom have
been included in the Company's consolidated statement of operations from May 24,
2000 (the date of acquisition) forward. ARC provided $12.0 million in aggregate
consideration, consisting of $3.0 million in cash, a $1.5 million non-interest
bearing promissory note payable 90 days from the closing date, a $1.5 million
non-interest bearing promissory note payable 180 days from the closing date and
$6 million in shares of ARC common stock (6,946,000 shares). In addition, the
Company has accrued estimated costs of $800,000 related to the acquisition of
Winncom, of which $769,000 has been paid as of September 30, 2000. The notes
were paid in full by September 2000, with an $85,000 negotiated early payment
reduction, resulting in a reduction of intangible assets in that amount.
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The purchase price has been allocated to specifically identifiable
assets acquired. The Company is in the process of obtaining an external
valuation of the approximately $12.2 million of intangible assets acquired.
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
related amortization is reflected as an adjustment to the pro-forma consolidated
results of operations presented in the summary below, as well as in the
consolidated financial statements for the period since acquisition.
On September 29, 2000, ARC purchased, through its subsidiary, Starworks
Wireless Inc., the outstanding shares of Starworks Technology, Inc. (a/k/a The
Kit Company or Kit). Kit specializes in the design, manufacturing, marketing,
distribution and service of direct-to-home dish satellite installation kits in
the United States, primarily through OEMs and third-party distributors,
retailers and the Internet. The acquisition has been accounted for as a
purchase. As Kit was acquired on the last business day of the quarter, only the
preliminary balance sheet for Kit has been consolidated in these statements. The
Company is having a certified audit of Kit completed as of the September 29,
2000 acquisition date. The consolidated September 30, 2000 balance sheet is
subject to change as a result of the audit. ARC provided $2.4 million in
aggregate consideration, consisting of $0.9 million in cash and $1.5 million in
shares of ARC common stock (1,959,000 shares). In addition, the Company has
accrued estimated costs of $150,000 related to the acquisition of Kit, of which
$25,000 has been paid as of September 30, 2000.
The purchase price has been preliminarily allocated to specifically
identifiable assets acquired. The Company expects to allocate the remaining
purchase price of approximately $2.6 million to intangible assets acquired once
the audit of the Kit financial statements, as required under Item 310 of
Regulation SB, has been completed. 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. Pursuant to the requirements of the Securities
Exchange Act of 1934, the Company filed on October 13, 2000 the initial current
report on Form 8-K related to the acquisition of Kit. The amended Form 8-K,
which will include the audited financial statements of Kit as well as the
pro-forma results of the combined operations of ARC and Kit, is due on or before
December 12, 2000. As a result, the pro-forma results presented below exclude
the results of Kit.
The following unaudited pro-forma summary presents the consolidated
results of operations of the Company as if the acquisition of Winncom had
occurred at the beginning of fiscal 1999 and 2000, respectively, and does not
purport to be indicative of what would have occurred had the acquisition been
made as of the beginning of those years or of results which may occur in the
future.
Nine months ended September 30
2000 1999
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Net sales $16,741,000 $7,888,000
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Net loss $ (745,000) $ (135,000)
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Loss per share $ (0.01) $ (0.00)
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The pro-forma net loss for both years includes $612,000 of amortization of
acquired intangibles.
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Note 4. Equity Transactions
In January 2000, the Company completed a private placement offering of
units for $.0525 per unit, with each unit consisting of one share of the
Company's restricted common stock and one redeemable common stock purchase
warrant to purchase one share of the Company's common stock. A minimum of
6,000,000 units and maximum of 22,000,000 units were authorized, and the maximum
offering was sold for a total of $1,155,000. Each unit entitles the holder to
purchase one share of common stock at an exercise price of $.175 per share and
became exercisable on March 14, 2000, the date a registration statement on Form
SB-2 relating to the resale of the common stock sold in the private placement
and of the common stock underlying the warrants was declared effective by the
Securities and Exchange Commission. The holders exercised all 22,000,000
warrants by June 30, 2000. As of September 30, 2000, the financial statements
include approximately $3.5 million of equity related to these private placement
transactions (purchase of shares and exercise of warrants) received in 2000, and
related offering expenses of approximately $51,000.
In March 2000, as approved by the Board of Directors, two officers who
are also directors, and one other director, exchanged previously owned shares of
the Company's common stock for their warrants acquired in the private placement.
These transactions resulted in the Company receiving 219,000 shares of stock
valued at $484,000 as payment for 2,765,000 shares underlying the outstanding
warrants. The value of the 219,000 shares of common stock received by the
Company in this transaction was based on the average closing price of the
Company's common stock on the five trading days prior to the transaction, which
was $2.2062.
In March 2000, a director of the Company used previously owned stock to
exercise vested options. These options had a total exercise price of $78,000.
Based on the same average closing price as used in the warrant exercise
transaction, a total of 35,000 shares of previously owned stock was given to the
Company as payment of the exercise price for the 900,000 new shares of common
stock underlying the options. The shares of common stock acquired by the Company
in these exchange transactions were valued at a total of $562,000 which is equal
to the average closing price for the five trading days prior to the transaction
multiplied by the number of previously owned shares that were exchanged and
which is also equal to the aggregate exercise price for the shares underlying
the warrants and options that were exercised in these transactions. The Company
received 255,000 shares from these transactions.
In September 2000, the Company completed a private placement offering
of up to 16,000,000 units, with each unit consisting of one share of the
Company's restricted common stock at a price of $0.50 per share plus one
redeemable common stock purchase warrant to purchase one share of the Company's
common stock at an exercise price of $1.50 per share. 14,800,000 shares of this
private placement were purchased, from which the Company received gross cash
proceeds of $7.4 million through September 30, 2000. Related offering expenses
were $14,000.
Note 5. Subsequent Events
At the annual shareholders meeting held on October 11, 2000, the
shareholders voted to change the Company's name to ARC Wireless Solutions, Inc.
from Antennas America, Inc. At the same meeting, the shareholders voted to amend
the Company's Articles of Incorporation to authorize a new class of capital
stock consisting of 2,000,000 shares of $0.001 par value preferred stock.
8
<PAGE>
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
Results of Operations
Sales were $7.1 million and $1.5 million for the three-month periods
ended September 30, 2000 and 1999, respectively. The 363% increase was due to
the addition of Winncom revenues, partially offset by a decrease in antenna
revenues related to the completion in the first quarter of 2000 of the Thompson
Consumer Electronics contract for local TV antenna systems under the RCA brand
name that began during the second quarter of 1999. Sales were $11.0 million and
$3.2 million for the nine-month periods ended September 30, 2000 and 1999,
respectively. This 243% increase was due to the addition of Winncom revenues,
partially offset by a decrease in antenna revenues related to the Thompson
Consumer Electronics contract.
Gross profit margins decreased from 21% and 24% for the three- and
nine-month periods ended September 30 of 1999, respectively, to 17% for the both
the comparable three and nine-month periods of 2000. These decreases are due to
a change in product mix resulting from the Winncom acquisition.
Selling, general and administrative expenses increased $1,235,000 and
$1,630,000 for the three- and nine-month periods ended September 30, 2000,
respectively, primarily due to increased overhead associated with the inclusion
of the operations of Winncom as of May 2000, and to costs associated with the
establishment of ARC Wireless Solutions, Inc. as a provider of a broad range of
wireless network components, as well as end-to-end wireless network solutions.
Management believes that $340,000 and $380,000 of the increase for the three-
and nine-month periods, respectively, which relate to fees incurred in obtaining
additional management, the termination of certain relationships and executive
moving expenses, to be non-recurring.
Net interest expense decreased by $18,000 and $59,000 for the three-
and nine-month periods ended September 30, 2000, respectively, due to the
repayment of the notes payable to others in the first quarter of 2000, partially
offset by interest on a new bank line of credit in 2000. Also, there were fewer
accounts factored during 2000, resulting in lower interest charges. The private
placement proceeds received since the fourth quarter of 1999 reduced the need
for additional cash.
In the third quarter of 1999, the Company recorded a $385,000 charge to
income tax expense to fully reserve the income tax benefits previously recorded.
The impact of recording this reserve for the nine-month period ended September
30, 1999 was a $335,000 charge against income. No tax benefit was recorded for
the three or nine-month periods ended September 30, 2000.
Financial Condition
During the three and nine month periods ended September 30, 2000, the
Company received approximately $7.4 million and $10.9 million, respectively, of
gross proceeds in funding from private placements and related warrant
conversions. Expenses relating to these private placements totaled $65,000, of
which $14,000 was incurred in the third quarter. Net funds received were used
primarily for the Winncom and Kit acquisitions, with a small portion of these
funds used to repay outstanding debt and to provide working capital.
The Company's total assets increased to $26.2 million at September 30,
2000 from $1.5 million at December 31, 1999, with Winncom and Kit assets
accounting for substantially all of the increase.
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Liabilities increased to $7.8 million at September 30, 2000 from $0.8
million at December 30, 1999. Winncom and Kit liabilities accounted for
substantially all of the increase. The outstanding notes payable to others were
paid in full in the first quarter of 2000.
The Company entered into an accounts receivable factoring agreement in
February 1999. Under this arrangement, the bank would purchase 85% of approved
accounts receivable from the Company. The financing cost for this arrangement
was 1% of the receivable for the first 10 days and 1/15 of 1% each day
thereafter until the account is paid in full. This factoring arrangement was
terminated in March 2000.
Current operations are funded through cash flow from operations and the
proceeds from the private placement transactions. Additional funding for working
capital and acquisitions may be needed to complete the Company's business
expansion plan.
Forward Looking Statements
This report contains forward-looking statements. Although the Company
believes that the expectations reflected in the forward looking statements and
the assumptions upon which the forward looking statements are based are
reasonable, it can give no assurance that such expectations and assumptions will
prove to be correct. See the Company's Annual Report on Form 10-KSB for
additional statements concerning important factors, such as demand for products,
manufacturing costs and competition, that could cause actual results to differ
materially from the Company's expectations.
PART II. OTHER INFORMATION
Item 6. Exhibits And Reports On Form 8-K
(a) Exhibits.
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Financial Data Schedule
(b) Reports on Form 8-K.
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During the quarter ended September 30, 2000, the
Company filed on August 7, 2000 an amendment to
include financial statements in the Current Report on
Form 8-K reporting the acquisition of Winncom
Technologies, Inc. on May 24, 2000.
After the end of the quarter, the Company filed one
Current Report on Form 8-K on October 13, 2000, with
respect to the closing of the acquisition of
Starworks Technology, Inc. on September 29, 2000.
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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: November 14, 2000 By: /s/ Thomas R. Reed
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Thomas R. Reed
Chief Financial Officer
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