U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
- ------------------------------------------------------------------------------
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE FISCAL YEAR ENDED AUGUST 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
EAGLE WIRELESS INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
COMMISSION FILE NUMBER: 0-20011
TEXAS 76-0494995
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
910 GEMINI AVENUE, HOUSTON, TEXAS 77058-2704
(Address of Principal Executive Office)(Zip Code)
281-280-0488
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for past 90 days.
Yes [X] No [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
ISSUER HAD $4,827,434 REVENUES FOR THE 12 MONTHS ENDED AUGUST 31, 1998.
The aggregate market value of the voting stock held by nonaffiliates of the
registrant, based on the average bid and ask price on the OTC Electronic
Bulletin Board on December 2, 1998 was $9,437,501. As of December 2, 1998
registrant had 11,670,155 shares of Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The Company's Definitive Proxy Statement in connection with its Annual Meeting
of Stockholders to be held on January 29, 1999 is incorporated by reference in
Part III, Items 9, 10, 11 and 12.
<PAGE>
TABLE OF CONTENTS
ITEMS PAGE
PART I
ITEM 1. DESCRIPTION OF BUSINESS ............................................ 1
ITEM 2. DESCRIPTION OF PROPERTIES .......................................... 7
ITEM 3. LEGAL PROCEEDINGS .................................................. 7
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ................ 7
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS ................................................ 8
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS ............................... 8
ITEM 7. FINANCIAL STATEMENTS ............................................... 9
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE ................................ 9
PART III
ITEM 9. EXHIBITS AND REPORTS ON FORM 8-K ................................... 9
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
Eagle Wireless International, Inc. (the "Company" or "Eagle") is a
worldwide supplier and manufacturer of wireless communications equipment and
software for paging, wireless messaging, remote data acquisition and specialized
mobile radio markets. The Company designs, manufactures, markets and services
its products under the Eagle name. These products include transmitters,
receivers, controllers, software and other equipment used in personal
communications systems. The Company has a broad line of products covering the
paging spectrum as well as specific personal communication systems ("PCS") and
specialized mobile radio ("SMR") products, and products that have been tested
and approved by the Federal Communications Commission ("FCC"). Eagle provides
service and support for its products. The Company also performs consulting and
research and development on a contract basis.
The Company was incorporated in May 1993, but did not conduct any
substantive business operations until April 1996. In August 1997, the Company
amended its articles of incorporation and change its name to its current name.
Unless otherwise indicated, all information in this Form 10-KSB has been
adjusted to reflect the amended articles of incorporation. The Company's
principal place of business is located at 910 Gemini Avenue, Houston, Texas
77058-2704 and its telephone number is (281) 280-0488.
PRODUCT CATEGORIES
WIRELESS MESSAGING PRODUCTS
For the fiscal years ended August 31, 1997 and 1998, infrastructure
equipment, which includes License Starter, transmitters, base stations, power
amplifiers, link products, multi-terminal arbitrator, Extend-a-Page, and
MicroBeep, and consulting services accounted for substantially all of the
Company's net sales.
Paging is a method of wireless telecommunication which uses an assigned
radio frequency to contact a paging subscriber anywhere within a service area. A
paging system is generally operated by a service provider which incurs the cost
of building and operating the system. Each service provider in the United States
licenses spectrum from the FCC and elsewhere from the authorized government body
to operate a paging frequency within either a local, regional, or national
geographical area. Each paging subscriber is assigned a distinct telephone
number which a caller dials to activate the subscriber's pager (a pocket-sized
radio receiver carried by the subscriber). Telephone calls by the subscriber are
received by a paging switch. A network of transmitters, that broadcast a signal
over a specific geographical area, then receives the information from the paging
switch through the controller and a radio signal is sent by the transmitters via
antennae to the subscriber's pager. The transmitters manufactured by Eagle are
specifically designed to simulcast, which is the transmission of the same signal
over two or more transmitters on the same channel at the same time in an overlap
area, resulting in superior voice and data quality and coverage area. The radio
signal causes the pager to emit a beep or to vibrate, and to provide the
subscriber with information from the caller in the form of a voice, tone,
numeric or alphanumeric message.
A pager has an advantage over a landline telephone in that the pager's
reception is not restricted to a single location, and has an advantage over a
cellular portable telephone in that a pager is smaller, has a much longer
battery life, has excellent coverage, and is less expensive to use.
Historically, the principal disadvantage of traditional paging service in
comparison to landline telephones or cellular portable telephones has been that
paging provided only one-way communication capabilities.
However, this limitation may have been overcome in the United States as a
result of the auction in 1994 by the FCC of nationwide and regional licenses for
designated narrowband personal communication services ("NPCS"), radio
frequencies or spectrum to service providers. Many of the nationwide license
holders and many of the regional license holders are current Eagle customers,
directly or indirectly. The cost of the licenses to the NPCS auction winners in
1994 was approximately $1 billion. The FCC anticipates that these NPCS licenses
will be used to provide such new services as pager location, two-way
acknowledgment paging, advanced voice paging and data services.
<PAGE>
The NPCS radio frequencies or spectrum are located at three separate
points within the total radio spectrum, at 902-928 MHz, 930-931 MHz and 940-941
MHz. Initially, the radio frequencies located at 930-931 MHz and 940-941 MHz
have been designated for outbound message transmission (to the pager) and the
902-928 MHz have been designated response channels (from the pager). This
application is similar to traditional paging except that these license holders
have been granted wider frequency band width permitting the user to transmit
substantially more information. In addition, Eagle manufactures other paging
infrastructure products that cater to the VHF and UHF paging frequencies in the
United States and other areas of the world as well as supporting most
international paging brands.
The NPCS nationwide licenses cover all fifty states, the District of
Columbia, American Samoa, Guam, the Northern Marianas Islands, Puerto Rico and
the United States Virgin Islands. These licenses are divided into 50 kHz paired
and unpaired channel categories. Paired channels permit both outbound and
inbound signals while unpaired channels are limited to only outbound signals.
The FCC has imposed infrastructure construction or buildout requirements
on all NPCS license holders. Each NPCS license holder must establish a minimum
service availability for at least 37.5% of the population in its geographic
region within five years after receiving the license. After ten years, each NPCS
license holder must make the service available to at least 75% of the area's
population. If a NPCS license holder fails to achieve these build-out
requirements, it risks cancellation by the FCC of its NPCS license and a
forfeiture of any auction monies paid.
Eagle manufactures products that will enable paging license holders to
legally put their systems into operation, at a low cost, a strategy adopted by
the Company to create a "captive" customer in terms of future build out.
Eagle offers its customers an end-to-end solution for NPCS applications.
The Company has developed new technology based products with enhanced
architecture and technology from its existing paging systems to accommodate the
advanced services available through paging and PCS. This system approach
includes full product lines of radio frequency network controllers,
transmitters, receivers, and a special satellite receiver system (to receive the
response message from the end-user). The Company is currently shipping its NPCS
products to various beta test sites, based on product development schedules and
the build-out requirements of the NPCS license holders.
The design of a paging system is customer specific and depends on (i) the
number of paging subscribers the service provider desires to accommodate, (ii)
the operating radio frequency, (iii) the geography of the service area, (iv) the
expected system growth, and (v) specific features desired by the customer.
Paging equipment hardware and software developed by the Company may be used with
all types of paging service, including voice, tone numeric (telephone number
display) or alphanumeric messaging (words and numbers display).
SWITCHES
The Company is involved at an early stage in the development of industry
wide technology standards and is familiar with developments in paging protocol
standards throughout the world. The Company works closely with its customers in
the design of large, complex paging networks. Eagle believes that its customers'
purchasing decisions are based, in large part, on the quality and technological
capabilities of such networks. The Company has strategic agreements to purchase
switches from major switch manufacturers. The Company believes that the advanced
hardware and software features of its switches ensure high reliability and high
volume call processing.
RADIO FREQUENCY EQUIPMENT, TRANSMITTERS AND RECEIVERS
Transmitters are available in frequency ranges of 70 MHz to 960 MHz and in
power levels of 2 watts to 500 watts. Radio link receivers are available in
frequency ranges of 70 MHz to 960 MHz. Satellite link receivers are available
for integration directly with the transmitters at both Ku- and C-band
frequencies.
The Company's range of receivers detects the responses back from the
two-way NPCS subscriber devices. The receivers take advantage of DSP
demodulation techniques that maximize receiver performance. Depending upon
frequency, antenna height, topography and power, Eagle transmitter systems are
designed to cover broadcast cells with a diameter from 3 to 100 miles. Typical
simulcast systems have broadcast cells which vary from 3 to 15 miles in
diameter. Eagle transmitters are designed specifically for the high performance
and reliability required for high speed simulcast networks.
-2-
<PAGE>
CONTROLLERS
The Company currently offers products for transmitter control known as
Eagle's L20TX transmitter control system, which is a medium-feature transmitter
control system used in domestic and international markets.
CURRENT PRODUCTS AND SERVICES
The principal products and enhancements currently being manufactured and
sold by the Company relate to its wireless messaging products and include the
following:
LICENSE STARTER
This product provides new paging license holders a method to install a
system that will keep them in compliance with FCC regulations. The product is
expandable, giving the license holder the ability to fund the expansion from
revenues. Installation of this product requires 110-Volt AC power and a standard
telephone line.
BASE STATIONS AND TRANSMITTERS
Transmitters and full-featured transmitters called Base Stations are used
by paging carriers to broadcast radio-frequency messages to subscribers carrying
mobile receivers commonly known as pagers. Eagle offers a slimline Stealth and a
larger Quantum transmitter that is available in the 72MHz, VHF, UHF and 900MHz
broadcast frequency ranges. Each unit can be equipped to provide an output power
ranging from 15 Watts up to 500 Watts on almost any domestic or international
paging frequency.
RADIO FREQUENCY AMPLIFIERS
Radio-frequency power amplifiers are a sub-component of both paging and
SMR transmitters and base stations. The high, medium and low power base station
and link transmitter power amplifiers are designed to operate with any FCC type
accepted exciter or may be combined with an Eagle optional plug-in base station
in the same space as the power amplifier. All Eagle power amplifiers above 100
watts are equipped with Eagle "Heat Trap"(TM) design to provide the user with
long life and high reliability performance.
EXTEND-A-PAGE
Extend-a-Page is a compact lower-power transmitter and receiver set
designed to provide fill-in coverage in fringe locations where normal paging
service from a wide-area paging system is not adequate. The Extend-a-Page
receives the paging data on either a radio frequency ("RF") control link or
wireline link and converts this information into low power simulcast compatible
paging transmissions on any of the common paging frequencies. The Extend-a-Page
transmits the paging information at a one to two Watt level directly into hard
to reach locations such as hospitals, underground structures, large industrial
plants, and many locations near the outer coverage contour of paging systems.
LINK PRODUCTS
Radio-frequency and wireline communication links are needed to connect
multiple transmitters within a paging network. Eagle provides both Link
equipment (the Link 20TX, 20RX, 20GX and 20PX) and the Link 20 software to
facilitate this interconnection. Major competitors have licensed the Eagle Link
20 software and have incorporated it as an industry standard into their
radio-paging terminals. Customers may also purchase the same software directly
from Eagle as part of an Eagle system at a lesser cost. Management believes that
its software allows the user to mix and match the products of different vendors
on a common radio-paging system.
MICROBEEP
The MicroBeep paging terminal is a small paging terminal that can be
plugged into the expansion slot of a IBM compatible computer. This
fully-contained paging terminal includes a low-power transmitter and subscriber
software. This system is used for local paging applications within factories,
offices, restaurants and campuses.
-3-
<PAGE>
MULTI-TERMINAL ARBITRATOR
The Multi-Terminal Arbitrator is a programmable communications switch that
facilitates the sharing of a single radio-frequency transmitter by a maximum of
eight different paging terminals. A target market for this product is in private
carrier paging ("PCP") where multiple companies share the same radio frequency
and are required to coordinate the sharing activities.
TWO-WAY MESSAGING DEVICES
The Company is a licensed distributor of spread-spectrum wireless
messaging receivers that, when used in conjunction with the Company's one-way
paging transmitters, provides a two-way messaging system for both consumer and
industrial applications. In addition to the receivers, the Company currently
sells and distributes a wireless water meter, a wireless power meter, a wireless
home security alarm, a wireless vehicle tracking system and a multi-purpose
wireless module that can be combined with a wide variety of switch-type
applications.
CONSULTING SERVICES
The Company routinely provides consulting services on a contract basis to
support the sale of its main product lines. Examples of these consulting
services include the design and installation of radio paging systems. The
Company also performs research and development on a contract basis.
MANUFACTURE OF NEW PRODUCTS
The Company has identified several new products that would complement
existing products and broaden its product base. The Company's strategy is to
develop upgrades on existing products to enable it to obtain increased market
share or extend the life of those products by several years.
SERVICE AND SUPPORT
Eagle provides service to customers on a regular basis including
installation, project management of turnkey systems, training, service or
extended warranty contracts with the Company. The Company believes that it is
essential to provide reliable service to customers in order to solidify customer
relationships and to be the vendor of choice when new services or system
expansions are sought by a customer. This relationship is further developed as
customers come to depend upon the Company for installation, system optimization,
warranty and post-warranty services.
The Company has a warranty and maintenance program for both its hardware
and software products and maintains a customer service network in its operating
locations. Eagle's standard warranty provides its customers with repair or
replacement of any defective Eagle manufactured equipment. The warranty is valid
on all products for the period of one year from the later of the date of
shipment or the installation by an Eagle qualified technician.
Customers
Eagle sells to a broad range of customers worldwide. In the United States,
customers include the regional Bell operating companies, medical paging
operators, and public and private radio common carriers. Internationally,
customers include public telephone and telegraph companies, as well as private
telecommunication service providers. The Company's customers include Motorola,
Pac-Tel, Scientific Atlanta, Bell Atlantic, Metrocall, ProNet, Pacific Bell,
SkyTel, Link-Two Communications (Link II) and the U.S. Department of Defense.
The Company's largest customer, Link II accounted for approximately 60% of
the Company's sales for the fiscal year ended August 31, 1998. Link II is a
common carrier of exclusively wholesale one-way paging and two-way messaging
network services. Its customers purchase paging network services as an
aggregator and resell Link II's network services to individual subscribers and
other communications providers. Link II has been classified as an incumbent
carrier by the FCC and has secured the rights to use or options to purchase
spectrum in all of the major metropolitan U.S. cities on five PCP frequencies.
Link II has also secured several exclusive RCC frequencies providing regional
coverage in two of the top ten markets. Link II is currently operational in
Houston and Dallas, Texas.
-4-
<PAGE>
MARKETING AND SALES
The Company markets its products and services in the United States through
representative organizations and internationally through agents. As the
Company's business is highly technical, a majority of sales are complete systems
with technical support. A large percentage of the Company's marketing comes from
direct sales by the employees. The Company also utilizes distributors and agents
to sell its products in certain countries and geographic regions to market
outside of the Company's core markets.
The Company currently has non-exclusive arrangements with 8 of such
distributors and agents to service selected regions within the United States. A
non-exclusive arrangement is also in effect with one distributor on a worldwide
basis and the Company has one exclusive arrangement with a distributor to
service Australia. Terms of these arrangements provide for payments to the
distributors on either a fixed percentage commission or discount from list price
basis. The Company has an agreement with Motorola whereby certain products
offered by the Company are listed in Motorola's product catalog under the Eagle
name.
The Company maintains and Internet website at http://www.eglw.com where
information can be found on the Company's products and services. The website
provides customers with a mechanism to request additional information on
products and allows the customer to quickly identify and obtain contact
information for their regional sales representative.
INTERNATIONAL BUSINESS RISK
In 1997 and 1998, the Company generated net sales in markets outside of
the United States, which amounted to 6.5% and 1.3% of total Company net sales
for the fiscal years ended August 31, 1997 and 1998, respectively. Sales are
subject to the customary risks associated with international transactions,
including political risks, local laws and taxes, the potential imposition of
trade or currency exchange restrictions, tariff increases, transportation
delays, difficulties or delays in collecting accounts receivable, and, to a
lesser extent, exchange rate fluctuations. Pre-payments and letters of credit
drawn on American or limited foreign corresponding banks are required from
international customers to reduce the risk of non-payment.
RESEARCH AND DEVELOPMENT
The Company believes that a strong commitment to research and development
is essential to the continued growth of its business. One of the key components
of the Company's development strategy is the promotion of a close relationship
between its development staff, internally with Eagle's manufacturing and
marketing personnel, and externally with Eagle's customers. This strategy has
allowed Eagle to develop and bring to market customer-driven products.
The Company has extensive expertise in the technologies required to
develop wireless communications systems and products including high power, high
frequency RF design digital signal processing, real-time software, high-speed
digital logic, radio frequency and data network design. The Company believes
that by having a research and development staff with expertise in these key
areas, it is well positioned to develop enhancements for its existing products
as well as the next generation of personal communication products. Investment in
advanced computer-aided design tools for simulation and analysis has allowed
Eagle to reduce the time for bringing new products to market. Research and
development expenditures incurred by the Company for the fiscal years ended
August 31, 1998 and August 31, 1997 were $236,869 and $333,200 respectively.
-5-
<PAGE>
MANUFACTURING
Eagle currently manufactures its products at Company facilities in
Houston, Texas. Certain subassemblies are manufactured for Eagle by
subcontractors at various locations throughout the world. The Company's
manufacturing expertise resides in assembling sub-assemblies and final systems
that are configured to its customers' specifications. The components and
assemblies used in the Company's products include electronic components such as
resistors, capacitors, transistors, and semiconductors such as field
programmable gate arrays, digital signal processors and microprocessors, and
mechanical materials such as cabinets in which the systems are built.
Substantially all of the components and parts used in the Company's products are
available from multiple sources. In those instances where components are
purchased from a single source, the supplier is reviewed frequently for
stability and performance. Additionally, as necessary, the Company purchases
sufficient quantities of certain components which have long-lead requirements in
the world market. The Company ensures that all products are tested, tuned and
verified prior to shipment to the customer.
COMPETITION
The Company supplies transmitters, receivers, controllers and software
used in paging, voice messaging and message management systems. While the
services from the foregoing products represent a significant portion of the
wireless personal communications industry today, the industry is expanding to
include new services and new markets. The wireless personal communications
industry includes equipment manufacturers that serve many of the same PCS
markets served by the Company. Certain of the Company's competitors, and all
competitors that have publicly tradable securities, have significantly greater
resources than the Company, and their can be no assurance that Eagle will be
able to compete successfully in the future. In addition, manufacturers of
wireless telecommunications equipment, including those in the cellular telephone
industry, certain of which are larger and have significantly greater resources
than the Company, could elect to enter into the Company's markets and compete
with Eagle's products. There can be no assurance that the Company will be able
to increase its market share in the future.
PROPRIETARY INFORMATION
The Company attempts to protect its proprietary technology through a
combination of trade secrets, non-disclosure agreements, technical measures, and
common law remedies with respect to certain proprietary technology. Such
protection may not preclude competitors from developing products with features
similar to the Company's products. The laws of some foreign countries in which
the Company sells or may sell its products do not protect the Company's
proprietary rights in the products to the same extent as do the laws of the
United States. Although the Company believes that its products and technology do
not infringe on the proprietary rights of others, there can be no assurance that
third parties will not assert infringement claims against the Company in the
future. If such litigation resulted in the Company's inability to use
technology, the Company might be required to expend substantial resources to
develop alternative technology. There can be no assurance that the Company could
successfully develop alternative technology on commercially reasonable terms.
REGULATION
Many of the Company's products operate on radio frequencies. Radio
frequency transmissions and emissions, and certain equipment used in connection
therewith, are regulated in the United States and internationally. Regulatory
approvals generally must be obtained by the Company in connection with the
manufacture and sale of its products, and by customers to operate the Company's
products. There can be no assurance that appropriate regulatory approvals will
continue to be obtained, or that approvals required with respect to products
being developed for the personal communications services market will be
obtained. The enactment by federal, state, local or international governments of
new laws or regulations or a change in the interpretation of existing
regulations could affect the market for the Company's products. Although recent
deregulation of international telecommunications industries along with recent
radio frequency spectrum allocations made by the FCC have increased the demand
for the Company's products by providing users of those products with
opportunities to establish new paging and other wireless personal communications
services, there can be no assurance that the trend toward deregulation and
current regulatory developments favorable to the promotion of new and expanded
personal communications services will continue or that future regulatory changes
will have a positive impact on the Company.
-6-
<PAGE>
EMPLOYEES
At December 2, 1998, the Company employed approximately 29 persons and
retained 4 independent contractors. The Company believes its employee relations
to be good. The Company enters into independent contractual relationships with
various individuals, from time to time, as needed.
RECENT DEVELOPMENTS
On September 14, 1998 the Company announced that it had executed a letter
of intent to form a strategic alliance to develop, manufacture and distribute
wireless messaging products with Multitone Electronics plc. Multitone is a
wholly-owned subsidiary of Kantone Holdings Limited. Kantone trades on the Hong
Kong Stock Exchange and is part of the Champion Technologies Group, a Hong
Kong-based multinational telecommunications company which employs 2,600 people
worldwide. Multitone's global network of sales and service subsidiaries and
distributors spans 80 countries and is supplied by its ISO 9000 certified
manufacturing operations in the United Kingdom and Malaysia. The proposed
alliance between Eagle Wireless and Multitone Electronics calls for Multitone to
license, manufacture, and distribute Eagle Wireless base stations and
transmitters throughout Europe and selected areas of the Pacific Rim. A related
agreement calls for the joint development of several new and innovative wireless
messaging products that incorporate the latest in spread spectrum technology.
Terms of the proposed relationship have not been finalized.
The first week of December 1998, the Company and Nikko Japan Company, Ltd.
signed a letter of intent to form a strategic alliance to develop and distribute
wireless personal communications devices. The proposed alliance calls for the
Company to provide proprietary technology which will enable personal digital
assistants, pagers, and other wireless personal communications devices produced
by Nikko to operate on the two-way wireless messaging networks manufactured and
distributed by the Company. The agreement grants the Company exclusive
distribution rights in North, Central and South America.
ITEM 2. DESCRIPTION OF PROPERTY
The Company's headquarters are located in Houston, Texas and include
approximately 15,000 square feet of leased office and warehouse space. The lease
is at market rates and expires in 1999. Discussions are being held to extend
this lease. The Company insures its facilities in an amount it believes is
adequate and customary in the industry. The Company believes that its existing
facilities are adequate to meet its current requirements but anticipates the
need for additional space within the next year. The Company believes that
suitable additional space in close proximity to its existing headquarters will
be available as needed to accommodate such growth of its operations through the
foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
On February 13, 1998, Carl T. Jones Company (Jones), a FCC testing
laboratory, filed a lawsuit against the Company in Harris County, Texas Civil
Court seeking payment of $19,929.68 with interest and attorneys' fees for items
and services that Jones allegedly provided the Company. On March 19, 1998, the
Company filed a response to Jones' suit denying all allegations contained in
Jones' petition. On July 15, 1998, the Company responded to Jones' first set of
interrogatories. On October 19, 1998, Jones' agreed to a settlement of $9,969.84
which was remitted by the Company on December 11, 1998. Liability relating to
this lawsuit has been accrued as of the fiscal year ended August 31, 1997.
On September 23, 1998 the Company filed a petition with the District Court
in Harris County, Texas against Micro-MRP, Inc., a California corporation that
sells manufacturing and accounting software, alleging deceptive trade practices,
fraud, misrepresentation, negligence and breach of implied warranty. The Company
is seeking the payment of $28,301 in expenses and unspecified damages in
connection with its October 1996 purchase of manufacturing and accounting
software from Micro-MRP.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
-7-
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The Company's Common Stock trades under the symbol "EGLW" on the OTC
Electronic Bulletin Board. The market for the Company Common Stock on the OTC
Electronic Bulletin Board is limited, sporadic and highly volatile. The
following table sets forth the high and low bid prices per share of the
Company's Common Stock since trading commenced on the OTC Electronic Bulletin
Board on October 27, 1997, as reported by the OTC Electronic Bulletin Board.
These prices reflect inter-dealer prices, without retail mark-ups, mark-downs or
commissions, and may not necessarily represent actual transactions.
FISCAL YEAR ENDED AUGUST 31, 1998 LOW HIGH
1st Quarter (commencing October 27, 1997) $2.75 $4.75
2nd Quarter $0.88 $3.56
3rd Quarter $1.12 $1.69
4th Quarter $0.88 $2.16
On December 2, 1998, the last sales price of the Company's Common Stock as
reported by the OTC Electronic Bulletin Board was $ 1.875. The Company believes
that as of December 2, 1998, there were over 256 record owners of its Common
Stock. It is the present policy of the Company not to pay cash dividends and to
retain future earnings to support the Company's growth. Any payment of cash
dividends in the future will be dependent upon the amount of funds legally
available therefor, the Company's earnings, financial condition, capital
requirements and other factors that the Board of Directors may deem relevant.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
During the year ended August 31, 1998, the majority of the company's
revenues originated from shipments for a two-way messaging system that the
Company is installing for Link-Two Communications in the Houston and Dallas
metroplexes and from contract research and development services. Other sales
during this period were to the Company's broader customer base and were
comprised principally of paging infrastructure products. This sales mix is
consistent with the pattern of sales realized by the Company during the year
ended August 31, 1997 and is expected to continue through mid 1999. The
expansion of the Company's manufacturers' representative organization during the
year did not significantly contribute to an increase in the sales of the
Company's paging infrastructure products. A major restructuring within the
paging equipment industry by both Motorola and Glenayre Electronics and the
implementation of cost reduction campaigns by paging carriers have created
uncertainty in the paging equipment industry that has caused many customers to
delay paging infrastructure equipment purchases.
The Company is taking steps to diversify its product and service offerings
beyond the paging infrastructure market. Examples of new products either in
development or in production are wireless utility meters, vehicle tracking
systems and wireless backups for residential security monitoring systems.
Subsequent to August 31, 1997, the Company has entered into agreements with two
multi-national sales, manufacturing, and distribution corporations for the sale
of non-paging infrastructure products. The initial sales resulting from these
agreements are expected to commence in 1999. The Company has also taken steps to
expand revenues from consulting and contract research and development services.
The Company has realized a reduction in expenses through the closure of the
Arlington sales office and the termination of a relationship with a
representative organization in Rio de Janeiro, Brazil. Other support and
administrative expenses have been reduced through the use of contract labor in
lieu of full-time personnel. The company realized $203,557 in bad debt expense
during the year as a result of negotiated settlements and the bankruptcy of a
major customer.
The Company's sales for this fiscal year were $4.8 million as compared to
the sales for the fiscal year ended August 31, 1997 of $4.0 million. For the
fiscal year ended August 31, 1998, net income was $770,968 as compared to
$728,494 for the fiscal year ended August 31, 1997. The increase in sales and
net income in the fiscal year ended August 31, 1998 is attributable to timing
constraints on major project shipments and is deemed normal and is expected to
be ongoing.
-8-
<PAGE>
Current assets for the fiscal year ended August 31, 1998 totaled
$7,832,094 as compared to $6,859,529 reported in the fiscal year ended August
31, 1997. The Company's shareholders' equity for the fiscal year ended August
31, 1998 totaled $7,516,168 as compared to $6,592,388 reported in the fiscal
year ended August 31, 1997. Cash flows invested in operations totaled
$1,498,393, cash flows consumed by investing activities were $344,519 and
financing activities provided cash flows of $45,596 during the fiscal year ended
August 31, 1998. For the comparable period ended August 31, 1997, cash flows
invested in operations totaled $2,191,780, cash flows consumed by investing
activities were $157,831 and financing activities provided cash flows of
$3,140,120.
A substantial portion of the Company's current assets are concentrated
within a receivable due from Link-Two Communications, Inc.. The collection of
this amount is contingent upon the successful sale of equity by Link-Two and the
generation of operating revenues from their two-way messaging system which
commenced operations in August 1998, in Houston, Texas. The Company has
established a credit committee to assist Link-Two in its securing of financing
and ultimate repayment of the receivable due the Company. Additionally,
Link-Two's receivable is secured by substantially all assets of Link-Two
including radio frequency licenses which have been valued in excess of the
amounts due the Company.
The Company believes that, through the implementation of a stringent cost
reduction program, its working capital should be sufficient to fund operations
through the end of the current fiscal year. Though negotiations are underway to
obtain a line of credit for working capital and term financing for potential
acquisitions, the Company has not established a line of credit or other similar
financing arrangements with any lenders. There can be no assurance that the
Company will be able to obtain any funding from any external sources on suitable
terms, if at all. A decrease in expected revenues resulting from adverse
economic conditions or otherwise, unforeseen costs, insufficient market
penetration, inability to collect the Company's receivable from Link-Two
Communications and any new product introductions could shorten the period during
which the current working capital may be expected to satisfy the Company's
capital requirements. As of August 31, 1998, the Company had no material capital
commitments other than its federal income and state franchise tax liabilities.
The Company is conducting a review of its computer systems and products to
identify those that could be affected by the Year 2000 Issue. The Year 2000
Issue is the result of computer programs being written using two digits rather
than four to define the applicable year. Any of the Company's programs or
products that have time-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. During the year, the Company undertook
and completed a project to replace its accounting and manufacturing information
system that was found to not be Year 2000 compliant. The Company has instigated
litigation to recover approximately $30,000 in costs associated with this
replacement. The Company presently believes that, with modifications to existing
software and conversions to new software, the Year 2000 Issue will not pose
significant operational problems for the Company, its products or installed
systems.
ITEM 7. FINANCIAL STATEMENTS
The financial statements prepared in accordance with Item 310 of
Regulation S-B are included in this report commencing on page F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been no disagreements concerning matters of accounting
principles or financial statement disclosure between the Company and McManus &
Company of the type requiring disclosure hereunder.
PART III
In accordance with General Instruction E(3), a presentation of information
in response to Items 9, 10, 11 and 12 shall appear in the Company's definitive
Proxy Statement to be filed pursuant to Regulation 14A within 120 days of the
Company's year end and shall be incorporated herein by reference.
ITEM 9. EXHIBITS AND REPORT ON FORM 8-K
No reports on Form 8-K were filed during the fiscal year ended August 31,
1998.
-9-
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
EAGLE WIRELESS INTERNATIONAL, INC.
By /S/ H. DEAN CUBLEY
H. Dean Cubley
President
Date: December 11, 1998
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
SIGNATURE TITLE DATE
/S/ H. DEAN CUBLEY President, Chief Executive December 11, 1998
H. Dean Cubley Officer, Director
/S/ RICHARD ROYALL Chief Financial Officer December 11, 1998
Richard Royall
/S/ CHRISTOPHER W. FUTER Vice President, Director December 11, 1998
Christopher W. Futer
/S/ A.L. CLIFFORD Director December 11, 1998
A.L. Clifford
/S/ GARY HART Director December 11, 1998
Gary Hart
-10-
<PAGE>
Independent Accountant's Report
To the Board of Directors and Stockholders
of Eagle Wireless International, Inc.
We have audited the accompanying balance sheets of Eagle Wireless International,
Inc. as of August 31, 1998 and 1997, and the related statements of earnings,
shareholders' equity, and cash flows for the years ended August 31, 1998, 1997,
and 1996. These financial statements are the responsibility of Eagle Wireless
International, Inc. management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, based on our audit, the financial statements referred to above
present fairly, in all material respects, the financial position of Eagle
Wireless International, Inc. as of August 31, 1998 and 1997, and the results of
their operations, shareholders' equity, and their cash flows for the years ended
August 31, 1998, 1997, and 1996 in conformity with generally accepted accounting
principles.
McManus & Co., P.C.
Certified Public Accountants
Morris Plains, New Jersey
November 30, 1998
<PAGE>
EAGLE WIRELESS INTERNATIONAL, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
August 31,
1998 1997
----------- -----------
<S> <C> <C>
Current Assets:
Cash and Cash Equivalents (Note 1) ................... $ 1,097,245 $ 2,894,561
Accounts Receivable .................................. 5,392,078 2,895,281
Inventories (Note 1) ................................. 1,273,281 1,012,218
Prepaid Expenses ..................................... 69,490 57,469
----------- -----------
Total Current Assets .............................. 7,832,094 6,859,529
Property and Equipment (Note 1):
Operating Equipment .................................. 933,050 590,461
Less: Accumulated Depreciation ....................... (223,645) (111,764)
----------- -----------
Total Property and Equipment ...................... 709,405 478,697
Other Assets:
Security Deposits .................................... 8,944 10,681
Investment In Affiliate .............................. 0 28,663
Organization Costs (net of accumulated
amortization) (Note 1) ............................ 0 2,328
----------- -----------
Total Other Assets ................................ 8,944 41,672
----------- -----------
Total Assets ......................................... $ 8,550,443 $ 7,379,898
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts Payable ..................................... $ 336,782 $ 317,169
Accrued Expenses ..................................... 117,915 0
Shareholders' Advances (Note 10) ..................... 24,519 129,372
Notes Payable (Note 2) ............................... 12,731 0
Capital Lease Obligations (Note 3) ................... 11,125 32,049
Deferred Revenues .................................... 56,504 0
Federal Income Taxes Payable (Notes 1 & 4) ........... 375,171 260,912
Franchise Taxes Payable .............................. 41,854 20,000
Sales Taxes Payable .................................. 37,983 0
Deferred Taxes (Note 4) .............................. 4,888 9,056
----------- -----------
Total Current Liabilities ......................... 1,019,472 768,558
Long - Term Liabilities:
Capital Lease Obligations (net of current
maturities) (Note 3) .............................. 8,621 2,791
Deferred Taxes (Note 4) .............................. 6,182 16,161
----------- -----------
Total Long - Term Liabilities ..................... 14,803 18,952
Commitments and Contingent Liabilities (Note 12)
Shareholders' Equity:
Preferred Stock - $.001 par value, Authorized
5,000,000 shares Issued -0- shares ................ 0 0
Common Stock - $.001 par value, Authorized
100,000,000 shares Issued and Outstanding
at 1998 and 1997 11,670,154 and 11,510,334,
respectively ...................................... 11,670 11,510
Paid in Capital ...................................... 5,972,832 5,820,180
Retained Earnings .................................... 1,531,666 760,698
----------- -----------
Total Shareholders' Equity ........................ 7,516,168 6,592,388
Total Liabilities and Shareholders' Equity ........... $ 8,550,443 $ 7,379,898
=========== ===========
</TABLE>
See accompanying accountant's report and notes to the financial statements.
-F2-
<PAGE>
EAGLE WIRELESS INTERNATIONAL, INC.
STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
For the Years Ended August 31,
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Net Sales ................................ $ 4,827,434 $ 3,971,369 $ 1,018,441
Cost of Goods Sold
Materials and Supplies ................. 1,181,776 920,375 228,765
Direct Labor and Related Costs ........ 355,644 260,776 290,743
Depreciation and Amortization .......... 17,542 21,400 19,986
Other Manufacturing Costs .............. 409,992 346,453 104,776
----------- ----------- -----------
Total Cost of Goods Sold ............ 1,964,954 1,549,004 644,271
----------- ----------- -----------
Gross Profit .............................. 2,862,480 2,422,365 374,170
----------- ----------- -----------
Operating Expenses
Selling, General and Administrative
Salaries and Related Costs .......... 736,734 607,160 181,338
Advertising and Promotion ........... 193,172 176,131 65,461
Depreciation and Amortization ....... 128,997 58,135 13,451
Research & Development .............. 236,869 333,200 0
Other Support Costs ................. 811,286 430,413 83,638
----------- ----------- -----------
Total Operating Expenses ............ 2,107,058 1,605,039 343,888
Earnings From Operations Before Other
Revenues/(Expenses), Income Taxes, and
Loss From Minority Interest in Affiliate .. 755,422 817,326 30,282
Other Revenues/(Expenses)
Interest Income ........................ 427,144 328,760 10,501
Interest Expense ....................... (5,451) (6,533) (2,896)
----------- ----------- -----------
Total Other Revenues ................ 421,693 322,227 7,605
Earnings Before Income Taxes & Loss From
Minority Interest in Affiliate ............ 1,177,115 1,139,553 37,887
Loss From Minority Interest in Affiliate (28,663) (71,337) 0
----------- ----------- -----------
Earnings Before Income Taxes .............. 1,148,452 1,068,216 37,887
Provision For Income Taxes ............. 377,484 339,722 5,683
----------- ----------- -----------
Net Earnings .............................. 770,968 728,494 32,204
Retained Earnings - Beginning of Year ..... 760,698 32,204 0
Retained Earnings - End of Year ........... $ 1,531,666 $ 760,698 $ 32,204
----------- ----------- -----------
Net Earnings Per Common Share:
Primary (Note 1) .................... $ 0.066 $ 0.070 $ 0.003
Fully Diluted (Note 1) ............. $ 0.055 $ 0.039 $ 0.002
</TABLE>
See accompanying accountant's report and notes to the financial statements.
-F3-
<PAGE>
EAGLE WIRELESS INTERNATIONAL, INC.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Additional Total
September 1, 1995 Common Preferred Paid In Retained Shareholders'
To August 31, 1998 Stock Stock Capital Earnings Equity
-------- --------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
As Of September 1, 1995 ............ $ 1,000 $ 0 $ 0 $ 0 $ 1,000
-------- --------- ----------- ---------- -----------
Net Earnings 1996 .................. -- -- -- 32,204 32,204
Common Stock Relinquished .......... (1,000) 0 0 0 (1,000)
New Stock Issued to Shareholders
Hou-Tex Trust (July 1996) .... 3,150 0 238,627 0 241,777
Futer Family Trust (July 1996) 990 0 74,996 0 75,986
John Nagel (July 1996) ....... 180 0 13,636 0 13,816
Bailey Trust (July 1996) ..... 180 0 13,636 0 13,816
Private Placement .................. 2,446 0 1,926,254 0 1,928,700
Issuance of Warrants for
Fundraising Activities .......... 0 0 88,343 0 88,343
Syndication Costs .................. 0 0 (317,636) 0 (317,636)
-------- --------- ----------- ---------- -----------
Total Shareholders' Equity
As Of August 31, 1996 ........... 6,946 0 2,037,856 32,204 2,077,006
Net Earnings 1997 .................. -- -- -- 728,494 728,494
Private Placement .................. 1,587 0 4,117,759 0 4,119,346
Conversion of Notes Payable and
Advances to Common Stock ........ 2,277 0 487,092 0 489,369
Exercise of $.01 Warrants:
B & F Trust ..................... 490 0 4,410 0 4,900
Futer Family Trust .............. 154 0 1,386 0 1,540
John Nagel ...................... 28 0 252 0 280
Bailey Trust .................... 28 0 252 0 280
Issuance of Warrants for
Fundraising Activities .......... 0 0 192,000 0 192,000
Syndication Costs .................. 0 0 (1,020,827) 0 (1,020,827)
-------- --------- ----------- ---------- -----------
Total Shareholders' Equity
As Of August 31, 1997 ........... 11,510 0 5,820,180 760,698 6,592,388
Net Earnings 1998 .................. -- -- -- 770,968 770,968
New Stock Issued to Shareholders
J. Hamilton (Nov. 1997) ......... 40 0 59,960 0 60,000
D. Walker (Nov. 1997) ........... 55 0 82,445 0 82,500
D. Walker (Aug. 1998) ........... 65 0 95,564 0 95,629
Syndication Costs ................. 0 0 (85,317) 0 (85,317)
-------- --------- ----------- ---------- -----------
Total Shareholders' Equity
As Of August 31, 1998 ........... $ 11,670 $ 0 $ 5,972,832 $1,531,666 $ 7,516,168
======== ========= =========== ========== ===========
</TABLE>
See accompanying accountant's report and notes to the financial statements.
-F4-
<PAGE>
EAGLE WIRELESS INTERNATIONAL, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended August 31,
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net Earnings .................................... $ 770,968 $ 728,494 $ 32,204
Adjustments To Reconcile Net Earnings To Net
Cash Used By Operating Activities:
Depreciation and Amortization ................ 146,539 79,535 33,437
(Increase)/Decrease in Accounts Receivable ... (2,496,797) (2,536,348) (270,144)
(Increase)/Decrease in Inventories ........... (261,063) (486,907) (228,978)
(Increase)/Decrease in Prepaid Expenses ...... (12,021) (40,846) (16,623)
Increase/(Decrease) in Accounts Payable ...... 19,613 9,868 168,013
Increase/(Decrease) in Accrued Payroll Taxes . 0 16,635 0
Increase/(Decrease) in Accrued Expenses ...... 117,915 (53,374) (760)
Increase/(Decrease) in Deferred Taxes ........ (14,147) 19,534 5,683
Increase/(Decrease) in Customer Deposits ..... 0 (209,283) 130,948
Increase/(Decrease) in Deferred Revenues ..... 56,504 0 0
Increase/(Decrease) in Sales Tax Payable ..... 37,983 0 0
Increase/(Decrease) in Fed Inc Taxes Payable . 114,259 260,912 0
Increase/(Decrease) in Franchise Taxes Payable 21,854 20,000 0
----------- ----------- -----------
Total Adjustments ............................ (2,269,361) (2,920,274) (178,424)
----------- ----------- -----------
Net Cash Used By Operating Activities ........... (1,498,393) (2,191,780) (146,220)
Cash Flows From Investing Activities
Purchase of Property and Equipment ................. (377,247) (164,937) (55,735)
(Increase)/Decrease in Other Assets ............. 4,065 35,769 (48,775)
(Increase)/Decrease in Investment in Affiliate .. 28,663 (28,663) 0
----------- ----------- -----------
Net Cash Used By Investing Activities .............. (344,519) (157,831) (104,510)
Cash Flows From Financing Activities
Increase/(Decrease) in Notes Payable ............ 0 (375,000) 375,000
Increase/(Decrease) in Notes Payable ............ 12,731 (11,082) 11,082
Increase/(Decrease) in Capital Leases ........... (15,094) (2,558) 37,398
Increase/(Decrease) in Shareholders' Advances ... (104,853) (160,628) 0
Increase/(Decrease) in Subscriptions Payable ... 0 (97,500) 97,500
Proceeds From Sale of Common Stock, Net ......... 152,812 3,786,888 1,833,802
----------- ----------- -----------
Net Cash Provided By Financing Activities .......... 45,596 3,140,120 2,354,782
Net Increase in Cash ............................... (1,797,316) 790,509 2,104,052
Cash at the Beginning of the Year .................. 2,894,561 2,104,052 0
Cash at the End of the Year ........................ $ 1,097,245 $ 2,894,561 $ 2,104,052
=========== =========== ===========
Supplemental Disclosures of Cash Flow Information:
Net cash paid during the year for:
Interest ..................................... $ 5,451 $ 6,533 $ 2,896
Income Taxes ................................. 338,688 306,254 26,812
</TABLE>
See accompanying accountant's report and notes to the financial statements.
-F5-
<PAGE>
NOTE 1 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES:
Eagle Wireless International, Inc., (the Company), incorporated as a Texas
corporation on May 24, 1993 and commenced business in April of 1996. The Company
is a worldwide supplier of telecommunications equipment and related software
used by service providers in the paging and other wireless personal
communications markets. The Company designs, manufactures, markets and services
its products under the Eagle name. These products include transmitters,
receivers, controllers, software and other equipment used in personal
communications systems (including paging, voice messaging, cellular and message
management and mobile data systems) and radio and telephone systems.
Prior to April, 1996, the Company was inactive. During April, 1996, the Company
commenced operations by the issuance of stock for cash, certain inventories,
test equipment, other assets, and the assumption of certain liabilities to its
principal shareholder. Concurrent with this transaction, the Company entered
into an asset purchase agreement with a company to acquire certain other
production equipment, inventories and furniture and equipment.
A) Cash and Cash Equivalents
The Company has $1,088,555 and $2,873,806 invested in interest bearing accounts
at August 31, 1998 and 1997, respectively.
B) Property and Equipment
Property and equipment are carried at cost less accumulated depreciation.
Depreciation is calculated by using the straight-line method for financial
reporting and accelerated methods for income tax purposes. The recovery
classifications for these assets are listed as follows:
YEARS
-----
Machinery and equipment .............. 7
Furniture and Fixtures ............... 7
Expenditures for maintenance and repairs are charged against income as incurred
and major improvements are capitalized.
-F6-
<PAGE>
NOTE 1 -BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES: (continued)
C) Inventories
Inventories are valued at the lower of cost or market. The cost is determined by
using the FIFO method. Inventories consist of the following items:
AUGUST 31,
--------------------------
1998 1997
---------- ----------
Raw Materials ................... $ 719,157 $ 602,174
Work in Process ................. 554,124 400,069
Finished Goods .................. -0- 9,975
---------- ----------
$1,273,281 $1,012,218
========== ==========
D) Organizational Costs
For the year ended August 31, 1998, the Company has adopted the provisions of
the AICPA's Statement of Position (SOP) No. 98-5 "Reporting on the Costs of
Start-Up Activities", which requires that all costs related to a companies
start-up activities should now be expensed during the period incurred rather
than capitalized and amortized over a period of time.
Prior to the year ended August 31, 1998, organizational costs had been amortized
using the straight - line method over a period of sixty (60) months. Accumulated
amortization was $997 for the year ended August 31, 1997.
As a result of "SOP" 98-5, the remaining unamortized organization costs of
$2,328 have been expensed through amortization expense.
E) Research and Development Costs
The Company's research and development costs include obligations to perform
contractual services for outside parties. These costs are expensed as contract
revenues are earned. Research and development costs of $236,869 and $333,200
were expensed for the periods ended August 31, 1998 and 1997, respectively.
Contract revenues earned for the periods ended August 31, 1998 and 1997 were
approximately $ 656,512 and $425,000, respectively.
-F7-
<PAGE>
NOTE 1 -BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES: (continued)
F) Income Taxes
The Company adopted the provisions of Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes", which requires a change
from the deferral method to assets and liability method of accounting for income
taxes. Timing differences exist between book income and tax income which relate
primarily to depreciation methods.
G) Net Earnings Per Common Share
Net earnings per common share is shown as both primary and fully diluted.
Primary earnings per common share are computed by dividing net income less any
preferred stock dividends (if applicable) by the weighted average number of
shares of common stock outstanding. Fully diluted earnings per common share are
computed by dividing net income less any preferred stock dividends (if
applicable) by the weighted average number of shares of common stock outstanding
plus any dilutive common stock equivalents. The components used for the
computations are shown as follows:
AUGUST 31, 1998 AUGUST 31, 1997
--------------- ---------------
Weighted Average Number of Common
Shares Outstanding Including:
Primary Common Stock Equivalents ..... 11,594,902 10,368,474
Fully Dilutive Common Stock Equivalents 14,087,902 18,876,808
H) Warrants for Funding Activities
To date, the Company has issued the following warrants: 5,033,334 Class A;
5,033,334 Class B; 1,050,000 Class C; 1,050,000 $.05; 1,375,000 $.50; 425,000
$5.00;150,000 $1.50; 150,000 $2.00; 200,000 $3.00; 200,000 $5.00; 200,000 $7.00;
200,000 $9.00; 200,000 $11.00; and 50,000 $2.00. Certain of these warrants were
issued to individuals and trusts for their assistance in the fundraising
activities. The Company has assigned a value of $280,343 as compensation for
these fund raising activities.
I) Advertising and Promotion
All advertising related costs are expensed as incurred. The Company does not
incur any cost for direct-response advertising. For the periods ended August 31,
1998 and 1997, the Company had expensed $193,172 and $176,131, respectively.
-F8-
<PAGE>
NOTE 1 -BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES: (continued)
J) Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent asset and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
K) Reclassification
The Company has reclassified certain costs and expenses for the year ended
August 31, 1997 to facilitate comparison to the year ended August 31, 1998.
NOTE 2 - NOTES PAYABLE:
AUGUST 31,
-----------------
1998 1997
------- -----
Unsecured note to the insurance
company bearing interest at 9.6%,
due $2,122 monthly until January 1999 ................... $12,731 $ -0-
------- -----
Total .............................................. 12,731 -0-
Less Current Portion of
Long - Term Debt ................................ 12,731 -0-
------- -----
Total Long - Term Debt.............................. $ -0- $ -0-
======= =====
NOTE 3 - CAPITAL LEASE OBLIGATIONS:
AUGUST 31,
-----------------
1998 1997
------ ------
Equipment lease with Compix
bearing interest at 15%, payable in
monthly installments of $624; due
July 1998 ......................................... $ -0- $5,856
-F9-
<PAGE>
NOTE 3 - CAPITAL LEASE OBLIGATIONS:(continued)
AUGUST 31,
---------------------
1998 1997
------- -------
Equipment lease with IFR bearing
interest at 15%, payable in monthly
installments of $1,427; due June 1998 ....... -0- 12,133
Equipment lease with Associates
Capital bearing interest at 7%,
payable in monthly installments
of $1,177; due Sept. 1998 ................... 2,272 14,271
Equipment lease with IKON Office
Solutions bearing interest at 18%
payable in monthly installments of
$105; due March, 2000 ........................ 1,746 2,580
Software lease with Manifest Group
bearing interest at 14%, payable in
monthly installments of $751; due
August, 2000 ................................ $15,728 $ -0-
------- -------
Total Obligations .................... 19,746 34,840
Less Current Portion of
Lease Obligations ................. 11,125 32,049
------- -------
Total Long - Term Capital
Lease Obligations ..................... $ 8,621 $ 2,791
======= =======
The capitalized lease obligations are collateralized by the related equipment
acquired with a net book value of approximately $ 45,000 and $ 35,000 at August
31, 1998 and 1997, respectively. The future minimum lease payments under the
capital leases and the net present value of the future lease payments at August
31, 1998 and 1997 are as follows:
AUG. 31, 1998 AUG. 31, 1997
------------- -------------
Total minimum lease payments ................... $ 22,319 $ 39,690
Less: Amount representing interest ............. 2,573 4,850
------------- -------------
Present value of net minimum
lease payments ............................. $ 19,746 $ 34,840
-F10-
<PAGE>
NOTE 3 - CAPITAL LEASE OBLIGATIONS:(continued)
Future obligations under the lease terms are:
PERIOD ENDING
AUGUST 31, AMOUNT
---------------- -------
1999 .......................... $12,543
2000 .......................... 9,776
-------
Total ......................... $22,319
=======
NOTE 4 - INCOME TAXES:
As discussed in note 1, the Company adopted the provisions of Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income
Taxes". Implementation of SFAS 109 did not have a material cumulative effect
on prior periods nor did it result in a change to the current year's
provision.
A) The effective tax rate for the Company is reconcilable to statutory tax
rates as
follows:
AUGUST 31,
----------------
1998 1997
------ ------
% %
U.S. Federal Statutory Tax Rate ...................... 34 34
U.S. Valuation Difference ............................ (1) (7)
------ ------
Effective U.S. Tax Rate .............................. 33 27
Foreign Tax Valuation ................................ -0- 5
------ ------
Effective Tax Rate ................................... 33 32
====== ======
B) Deferred income taxes are provided for differences between financial
statement and income tax reporting. Principal difference is the manner in which
depreciation is computed for financial and income tax reporting purposes.
-F11-
<PAGE>
NOTE 5 - PREFERRED STOCK, STOCK OPTIONS AND WARRANTS:
In July, 1996, the Board of Directors and majority shareholders authorized
5,000,000 shares of Preferred Stock with a par value of $.001. As of August 31,
1997, no Preferred Stock has been issued.
In July, 1996, the Board of Directors and majority shareholders adopted a stock
option plan under which 400,000 shares of Common Stock have been reserved for
issuance. As of August 31, 1997, no options have been granted pursuant to such
plan.
In May of 1996, the Company received an aggregate of $375,000 in bridge
financing in the form of interest-free convertible notes from unaffiliated
individuals. Holders of $369,000 of these notes converted into 369,000 shares of
Company common stock, and the balance of $6,000 was retired in November of 1996.
In conjunction with the issuance of such indebtedness, the Company has issued
such investors $.50 Warrants to purchase 375,000 shares of common stock, and
$5.00 Warrants to purchase up to 375,000 shares of common stock.
The Company has issued the following warrants which have since been exercised:
700,000 stock purchase warrants which expire July, 2000. The warrants are
to purchase fully paid and non- assessable shares of the common stock, par
value $.001 per share at a purchase price of $.01 per share. These
warrants were exercised as of August 31, 1997.
The Company has issued and outstanding the following warrants which have not yet
been exercised at August 31, 1997:
1,050,000 stock purchase warrants which expire May, 1999. The warrants are
to purchase fully paid and non-assessable shares of the common stock, par
value $.001 per share at a purchase price of $.05 per share. These
warrants, however, are not exercisable until and unless the shares of
Common Stock trade at a minimum of $5.50 per share for twenty consecutive
trading days, yet still expire May, 1999 if not exercised.
1,375,000 stock purchase warrants which expire May, 1999. The warrants are
to purchase fully paid and non-assessable shares of the common stock, par
value $.001 per share at a purchase price of $.50 per share. These
warrants, however, are not exercisable until and unless the shares of
Common Stock trade at a minimum of $5.50 per share for twenty consecutive
trading days, yet still expire May, 1999 if not exercised.
-F12-
<PAGE>
NOTE 5 - PREFERRED STOCK, STOCK OPTIONS, AND WARRANTS: (continued)
150,000 stock purchase warrants. The warrants are to purchase fully paid
and non-assessable shares of the common stock, par value $.001 per share
at a purchase price of $1.50 per share. These warrants, however, are not
exercisable until and unless the shares of Common Stock trade at a minimum
of $4.00 per share for sixty-one consecutive trading days. These warrants
will expire one year from the date of effective registration of the
underlying shares of common stock. As of August 31, 1998, the underlying
shares of common stock have not yet been registered for resale under the
Securities Act of 1933 and thus have no set expiration date.
150,000 stock purchase warrants. The warrants are to purchase fully paid
and non-assessable shares of the common stock, par value $.001 per share
at a purchase price of $2.00 per share. These warrants, however, are not
exercisable until and unless the shares of Common Stock trade at a minimum
of $5.50 per share for sixty-one consecutive trading days. These warrants
will expire one year from the date of effective registration of the
underlying shares of common stock. As of August 31, 1998, the underlying
shares of common stock have not yet been registered for resale under the
Securities Act of 1933 and thus have no set expiration date.
50,000 stock purchase warrants which expire August 31, 2000. The warrants
are to purchase fully paid and non-assessable shares of the common stock,
par value $.001 per share, at a purchase price of $2.00 per share. If,
however, the closing bid price of the Common Stock shall have equaled or
exceeded $5.50 per share for a period of twenty consecutive trading days
at any time, the Company may redeem the warrants by paying holders $.05
per warrant. As of August 31, 1998, the underlying shares of common stock
have not yet been registered for resale under the Securities Act of 1933.
200,000 stock purchase warrants. The warrants are to purchase fully paid
and non-assessable shares of the common stock, par value $.001 per share
at a purchase price of $3.00 per share. These warrants, however, are not
exercisable until and unless the shares of Common Stock trade at a minimum
of $7.50 per share for sixty-one consecutive trading days. These warrants
will expire two years from the date of effective registration of the
underlying shares of common stock. As of August 31, 1998, the underlying
shares of common stock have not yet been registered for resale under the
Securities Act of 1933 and thus have no set expiration date.
-F13-
<PAGE>
NOTE 5 - PREFERRED STOCK, STOCK OPTIONS, AND WARRANTS: (continued)
200,000 stock purchase warrants. The warrants are to purchase fully paid
and non-assessable shares of the common stock, par value $.001 per share
at a purchase price of $5.00 per share. These warrants, however, are not
exercisable until and unless the shares of Common Stock trade at a minimum
of $10.00 per share for thirty-one consecutive trading days. These
warrants will expire three years from the date of effective registration
of the underlying shares of common stock. As of August 31, 1998, the
underlying shares of common stock have not yet been registered for resale
under the Securities Act of 1933 and thus have no set expiration date.
425,000 stock purchases warrants which expire May, 1999. The warrants are
to purchase fully paid and non-assessable shares of the common stock, par
value $.001 per share at a purchase price of $5.00 per share. These
warrants are subject to restrictions regarding the timing of exercise. The
underlying shares of common stock were registered for resale on September
4, 1997 under the Securities Act of 1933.
200,000 stock purchase warrants. The warrants are to purchase fully paid
and non-assessable shares of the common stock, par value $.001 per share
at a purchase price of $7.00 per share. These warrants, however, are not
exercisable until and unless the shares of Common Stock trade at a minimum
of $12.00 per share for thirty-one consecutive trading days. These
warrants will expire three years from the date of effective registration
of the underlying shares of common stock. As of August 31, 1998, the
underlying shares of common stock have not yet been registered for resale
under the Securities Act of 1933 and thus have no set expiration date.
200,000 stock purchase warrants. The warrants are to purchase fully paid
and non-assessable shares of the common stock, par value $.001 per share
at a purchase price of $9.00 per share. These warrants, however, are not
exercisable until and unless the shares of Common Stock trade at a minimum
of $14.00 per share for thirty-one consecutive trading days. These
warrants will expire five years from the date of effective registration of
the underlying shares of common stock. As of August 31, 1998, the
underlying shares of common stock have not yet been registered for resale
under the Securities Act of 1933 and thus have no set expiration date.
200,000 stock purchase warrants. The warrants are to purchase fully paid
and non-assessable shares of the common stock, par value $.001 per share
at a purchase price of $11.00 per share. These warrants, however, are not
exercisable until and unless the shares of Common Stock trade at a minimum
of $16.00 per share for thirty-one consecutive trading days. These
warrants will expire five years from the date of effective registration of
the underlying shares of common stock. As of August 31, 1998, the
underlying shares of common stock have not yet been registered for resale
under the Securities Act of 1933 and thus have no set expiration date.
-F14-
<PAGE>
NOTE 5 - PREFERRED STOCK, STOCK OPTIONS, AND WARRANTS: (continued)
5,033,334 Class A stock purchase warrants which expire August 31, 2000.
The warrants are to purchase fully paid and non-assessable shares of the
common stock, par value $.001 per share at a purchase price of $4.00 per
share. If, however, the closing bid price of the Common Stock shall have
equaled or exceeded $5.50 per share for a period of twenty consecutive
trading days at any time, the Company may redeem the Class A Warrants by
paying holders $.05 per Class A Warrant. The underlying shares of common
stock were registered for resale on September 4, 1997 under the Securities
Act of 1933.
5,033,334 Class B stock purchase warrants which expire August 31, 2000.
The warrants are to purchase fully paid and non-assessable shares of the
common stock, par value $.001 per share, at a purchase price of $6.00 per
share. If, however, the closing bid price of the Common Stock shall have
equaled or exceeded $7.50 per share for a period of twenty consecutive
trading days at any time, the Company may redeem the Class B Warrants by
paying holders $.05 per Class B Warrant. The underlying shares of common
stock and Class B Warrants were registered for resale on September 4, 1997
under the Securities Act of 1933.
1,050,000 Class C stock purchase warrants which expire August 31, 2000.
The warrants are to purchase fully paid and non-assessable shares of the
common stock, par value $.001 per share, at a purchase price of $2.00 per
share. If, however, the closing bid price of the Common Stock shall have
equaled or exceeded $5.50 per share for a period of twenty consecutive
trading days at any time, the Company may redeem the Class C Warrants by
paying holders $.05 per Class C Warrant. The underlying shares of common
stock were registered for resale on September 4, 1997 under the Securities
Act of 1933.
400,000 stock purchase warrants. The warrants are to purchase fully paid
and non-assessable shares of the common stock, par value $.001 per share
at various purchase prices. These warrants have been reserved to be issued
through an employee stock option plan where the exercise price is equal to
the market price at the date of issuance. These stock purchase warrants
may be redeemed after six months of issuance and expire five years after
the date of issuance. The underlying shares of common stock have been
registered for resale under the Securities Act of 1933.
-F15-
<PAGE>
NOTE 5 - PREFERRED STOCK, STOCK OPTIONS, AND WARRANTS: (continued)
The warrants outstanding are segregated into three categories
(exercisable, non-exercisable, and non- registered). They are summarized as
follows:
<TABLE>
<CAPTION>
Warrants Issued Warrants Exercisable Warrants
Class of August 31, August 31, Non Non Exercise
Warrants 1998 1997 1998 1997 Exercised Registered Price
- ------------- ---------- ---------- ------------- ------------- ---------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
0.01 Exercised Exercised 0.00 0.00 0 0 0.01
0.05 1,050,000 1,050,000 0.00 0.00 1,050,000 0 0.05
0.50 1,375,000 1,375,000 0.00 0.00 1,375,000 0 0.50
5.00 425,000* 425,000 425,000 425,000 0 0 5.00
4.00 5,033,334* 5,033,334 5,033,334 5,033,334 0 0 4.00
6.00 5,033,334* 5,033,334 5,033,334 5,033,334 0 0 6.00
2.00 1,050,000* 1,050,000 1,050,000 1,050,000 0 0 2.00
1.50 150,000 0 0.00 0.00 0 150,000 1.50
2.00 150,000 0 0.00 0.00 0 150,000 2.00
3.00 200,000 0 0.00 0.00 0 200,000 3.00
5.00 200,000 0 0.00 0.00 0 200,000 5.00
7.00 200,000 0 0.00 0.00 0 200,000 7.00
9.00 200,000 0 0.00 0.00 0 200,000 9.00
11.00 200,000 0 0.00 0.00 0 200,000 11.00
2.00 50,000* 0 50,000 0 0 0 2.00
ESOP 332,000* 0 332,000 0 0 0 >$1.38
ESOP 68,000 0 68,000 0 0 0 <$1.38
---------- ---------- ------------- ------------- ---------- ---------
15,716,668 13,966,668 11,991,668 11,541,668 2,425,000 1,300,000
</TABLE>
An asterisk (*) denotes warrants which would have an anti-dilutive effect if
currently used to calculate earnings per share for the year ended August 31,
1998.
NOTE 6 - RELATED PARTY TRANSACTIONS:
In April 1996, the Company entered into a number of non-cash transactions.
Inventories and property in the amounts of $200,000 and $300,000, respectively,
were contributed to the Company by the Hou-Tex Trust, Bailey Trust, Futer Family
Trust, and John Nagel and recorded at each individuals' respective historical
cost. The Company also received inventory, accounts receivable, and furniture
and fixtures in the amounts of $96,333, $88,789, $70,000, respectively, in
exchange for the assumption of liabilities totaling $255,122. Additionally, the
Company issued a note payable to an affiliate in the amount of $155,000 and
concurrently issued 4,500,000 shares of common stock for $345,395.
For the period ended August 31, 1997, 1,908,000 shares had been issued to the
Vonn, Ltd. and Messrs. Clifford and Barton for cash advances of $120,000.
For the year ended August 31, 1998, the Company has repaid certain advances
to shareholders. (See Note 10)
-F16-
<PAGE>
NOTE 7 - SEGMENT INFORMATION:
The Company had gross revenues of $4,827,434 and $3,971,369 for the years ended
August 31, 1998 and 1997, respectively. The following parties individually
represent a greater than ten percent of these revenues.
August 31, 1998 August 31, 1997
Customer Amount Percentage Amount Percentage
- ---------------------------- ---------- ---------- ---------- ----------
Customer A ................. $2,892,769 59.92% $2,385,747 60.07%
Customer B ................. $ 656,512 11.71% $ 512,290 12.90%
NOTE 8 - INVESTMENT IN LINK - TWO COMMUNICATIONS, INC.:
The Company and Link - Two Communications, Inc. (Link II) have executed an
agreement, whereby the Company would receive up to an eight percent equity
interest in Link II in lieu of accruing finance charges on the outstanding
balance owed by Link II to the Company. Under the agreement, equity in Link II
was earned at a rate of 0.2% per month per $100,000 payable and outstanding for
more than thirty days. At August 31, 1998 and 1997, the Company had earned a
5.0% and 6.8%, respectively, minority equity interest in Link II. This is
evidenced by the issuance of 240,000 shares of Link II common stock to the
Company. As of August 31, 1998 and 1997, the Company has recorded it share of
losses in this unconsolidated affiliate. The loss as a minority shareholder
totaled $28,663 and $71,337, respectively.
Certain principal stockholders (or affiliates thereof) of the Company, including
James Futer, executive vice president, director, and chief operating officer,
and A.L. Clifford, a director of the Company, are also principal stockholders of
Link II. Mr. Clifford is also the chairman and chief executive officer of Link
II and Dr. Cubley is a director of Link II.
-F17-
<PAGE>
NOTE 9 - RISK FACTORS:
For the years ended August 31, 1998 and 1997, substantially all of the Company's
business activities have remained within the United States and have been
extended to the wireless infrastructure industry. Approximately seventy-four
percent of the Company's revenues and receivables have been created solely in
the state of Texas, one and one-half percent have been created in the
international market, and the approximate twenty-four and one-half percent
remainder has been created relatively evenly over the rest of the nation during
the year ended August 31, 1998 whereas approximately eighty-three percent of the
Company's revenues and receivables have been created solely in the state of
Texas, six and one-half percent have been created in the international market,
and the approximate ten and one-half percent remainder has been created
relatively evenly over the rest of the nation for the year ended August 31,
1997.
Through the normal course of business, the Company generally does not require
its customers to post any collateral. However, because Link II constitutes 60%
and 61% of the Company's gross revenues and 95% and 75% of the its accounts
receivable for the years ended August 31, 1998 and 1997, respectively, the two
companies have reached an agreement whereby the Company has received a minority
interest in Link II based upon accounts receivable.
(See Note 8)
Although the Company has concentrated its efforts in the wireless infrastructure
industry during the years ended August 31, 1998 and 1997, it is management's
belief that the Company faces little credit or economic risk due to the
continuous growth the market is experiencing.
NOTE 10 - SHAREHOLDERS' ADVANCES:
Certain officers and an employee advanced the Company $290,000. At August 31,
1998 and 1997, the Company owes $24,519 and $129,372, respectively. The
shareholder advances are non-interest bearing and payable upon demand.
NOTE 11 - FOREIGN OPERATIONS:
Although the Company is based in the United States, its product is sold on the
international market. Presently, international sales total 1.4 % and 6.5% at
August 31, 1998 and 1997, respectively.
-F18-
<PAGE>
NOTE 12 - COMMITMENTS AND CONTINGENT LIABILITIES:
The Company now leases its primary office space for $7,931 per month under a
non-cancelable lease expiring on March 31, 1999. For the periods ending August
31, 1998 and 1997, rental expenses of $93,510 and $94,036, respectively, were
incurred.
Future obligations under the non-cancelable lease terms are:
PERIOD ENDING
AUGUST 31, AMOUNT
-------------- ---------
1999.............. $ 55,517
=========
The Company has entered into an agreement with a public relations consultant
whereby the consultant will develop, implement, and maintain an ongoing program
to increase the investment community's awareness of the Company's activities and
to stimulate the investment community's interest in the Company. As compensation
for these services, the consultant will be paid $5,000 per month. Additionally,
the consultant will receive options to purchase 100,000 shares of the Company's
common stock for $1.00 per share. The delivery of the options to purchase the
100,000 shares of common stock is contingent upon the attainment of certain
objective criteria as outlined in the July 16, 1998 agreement between the
Company and the public relations consulting firm.
The Company has provided a finance company a limited manufacturer's guarantee
for an amount not to exceed $910,845 for equipment and services sold to a
customer of the Company. In the event of default by the customer, after a
minimum period of ninety days from the date default is declared and after having
exhausted all available remedies against the customer, the finance company may
seek payment directly from the Company. Under this guarantee, the Company may
elect to assume the lease from the finance company under the original terms and
conditions or may elect to pay all amounts due in arrears under the original
agreement and pay-off the lease through a one-time payment of the unamortized
balance.
The Company has been named as a defendant in a lawsuit involving a vendor of the
Company. Although the potential liability totals $19,940, an accrual of $10,000
had been formed during the fiscal year ended August 31, 1997. It is management's
belief that this suit will be settled for approximately $10,000, the amount of
the accrual.
-F19-
<PAGE>
NOTE 12 - COMMITMENTS AND CONTINGENT LIABILITIES (continued):
During September 1998, the Company has filed a petition with the District Court
in Harris County, Texas against Micro-MRP, Inc., a California corporation that
sells manufacturing and accounting software, alleging deceptive trade practices,
fraud, misrepresentation, negligence, and breach of implied warranty. The
Company is seeking the payment of $28,301 in expenses plus unspecified damages
in connection with its October 1996 purchase of manufacturing and accounting
software from Micro-MRP.
NOTE 13 - EMPLOYEE STOCK OPTION PLAN:
In July 1996, the Board of Directors and majority stockholders adopted a stock
option plan under which 400,000 shares of the Company's common stock have been
reserved for issuance. Under this plan, as of August 31, 1998, 82,875 warrants
have been issued to various employees. None of these outstanding warrants have
been exercised to date.
NOTE 14 - RETIREMENT PLANS:
During October 1997, the Company initiated a 401(k) plan for its employees which
is funded through the contributions of its participants. This plan maintains
that the Company will match up to 3% of each participant's contribution. As of
August 31, 1998, employee contributions were approximately $55,600 whereas the
amount matched by the employer was approximately $17,000.
NOTE 15 - MAJOR CUSTOMER:
As of August 31, 1998, the Company has a receivable due from Link-Two
Communications (link II) in the amount of $5,142,950. As of August 31, 1998,
Link II is continuing to sell equity securities, assets, and products which are
being used to retire this receivable. Link II is currently negotiating with
Nikko Co., Ltd. and affiliates to fund twenty million dollars in equity and
loans to complete the building out of its nationwide two-way messaging system.
This receivable is secured by substantially all assets of Link II including
radio frequency licenses which have been valued by outside appraisal firms to be
in excess of twenty-million dollars. In August 1998, Link II commenced
operations of its nationwide two-way messaging system. Based upon the
aforementioned, management believes the risk involved with this receivable are
minimal.
-F20-
<PAGE>
NOTE 16 - SUBSEQUENT EVENTS
Subsequent to August 31, 1998, the Company signed a letter of intent with Nikko
Co., Ltd. to form an exclusive joint venture to collaborate in the development
of communication messaging devices for the North, Central and South American
markets.
-F21-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-END> AUG-31-1998
<CASH> 1,097,245
<SECURITIES> 0
<RECEIVABLES> 5,392,078
<ALLOWANCES> 0
<INVENTORY> 1,273,281
<CURRENT-ASSETS> 7,832,094
<PP&E> 933,050
<DEPRECIATION> 223,645
<TOTAL-ASSETS> 8,550,443
<CURRENT-LIABILITIES> 1,019,472
<BONDS> 0
0
0
<COMMON> 11,670
<OTHER-SE> 7,504,498
<TOTAL-LIABILITY-AND-EQUITY> 8,550,443
<SALES> 4,827,434
<TOTAL-REVENUES> 5,254,578
<CGS> 1,964,954
<TOTAL-COSTS> 1,964,954
<OTHER-EXPENSES> 2,135,721
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,451
<INCOME-PRETAX> 1,148,452
<INCOME-TAX> 377,484
<INCOME-CONTINUING> 770,968
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 770,968
<EPS-PRIMARY> 0.066
<EPS-DILUTED> 0.055
</TABLE>
