U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-QSB
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[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED FEBRUARY 28, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____ TO _____
COMMISSION FILE NUMBER: 000-23163
EAGLE WIRELESS INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
TEXAS 76-0494995
(State or other jurisdiction) (IRS Employer
of incorporation or organization Identification No.)
910 GEMINI AVENUE
HOUSTON, TEXAS 77058-2704
(Address of principal executive offices, including zip code)
(281) 280-0488
(Registrant's telephone number, including area code)
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Indicate by check mark whether the registrant (I) 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 (ii) has been subject to such filing requirements for the past 90
days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
AS OF MARCH 31, 1999 THERE WERE 11,715,160 SHARES OF COMMON STOCK OUTSTANDING
<PAGE>
EAGLE WIRELESS INTERNATIONAL, INC.
INDEX
PART 1 - FINANCIAL INFORMATION
PAGE
Item 1. Financial Statements (Unaudited)
Balance Sheets at February 28, 1999 and August 31, 1998 .... 3
Statements of Income for the three and six months
ended February 28, 1999 and 1998 ........................... 4
Statements of Changes in Shareholders' Equity for the six
months ended February 28, 1999 and 1998 .................... 5
Statements of Cash Flows for the six months ended
February 28, 1999 and 1998 ................................. 6
Notes to the financial statements .......................... 7-16
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ........................ 16-17
SIGNATURES ............................................................. 17
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<PAGE>
EAGLE WIRELESS INTERNATIONAL, INC.
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS
FEBRUARY 28, AUGUST 31,
1999 1998
(UNAUDITED) (AUDITED)
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and Cash Equivalents (Note 1) .................. $ 191 $ 1,097
Accounts Receivable ................................. 6,593 5,392
Inventories (Note 1) ................................ 1,284 1,273
Prepaid Expenses .................................... 22 70
------------ ------------
Total Current Assets ............................. 8,090 7,832
PROPERTY AND EQUIPMENT (NOTE 1):
Operating Equipment ................................. 955 933
Less: Accumulated Depreciation ...................... (284) (224)
------------ ------------
Total Property and Equipment ..................... 671 709
OTHER ASSETS:
Security Deposits ................................... 9 9
------------ ------------
Total Other Assets ............................... 9 9
TOTAL ASSETS ........................................ $ 8,770 $ 8,550
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable ................................... $ 293 $ 337
Accrued Expenses ................................... 75 118
Shareholders' Advances (Note 10) ................... -- 24
Notes Payable (Note 2) ............................. 16 13
Capital Lease Obligations (Note 3) ................ 15 11
Deferred Revenues .................................. 53 56
Federal Income Taxes Payable (Notes 1 & 4) ....... 460 375
Franchise Taxes Payable ........................... 54 42
Sales Taxes Payable ............................... 48 38
Deferred Taxes (Note 4) ............................. 5 5
------------ ------------
Total Current Liabilities ...................... 1,019 1,019
LONG - TERM LIABILITIES:
Capital Lease Obligations (net of current
maturities) (Note 3) .............................. 11 9
Deferred Taxes (Note 4) ............................. 6 6
------------ ------------
Total Long - Term Liabilities .................. 17 15
COMMITMENTS AND CONTINGENT LIABILITIES (NOTE 12)
SHAREHOLDERS' EQUITY:
Preferred Stock - $.001 par value,
Authorized 5,000,000 shares
Issued -0- shares ................................ -- --
Common Stock - $.001 par value,
Authorized 100,000,000 shares
Issued and Outstanding at February 28,
1999 and August 31, 1988, 11,715,160 and
11,670,155 shares respectfully ................... 12 12
Paid in Capital ..................................... 6,041 5,973
Retained Earnings ................................... 1,681 1,531
------------ ------------
Total Shareholders' Equity ....................... 7,734 7,516
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY .......... $ 8,770 $ 8,550
============ ============
</TABLE>
See accompanying notes to the financial statements.
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<PAGE>
EAGLE WIRELESS INTERNATIONAL, INC.
STATEMENTS OF EARNINGS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS SIX MONTHS SIX MONTHS
ENDED ENDED ENDED ENDED
FEBRUARY 28, FEBRUARY 28, FEBRUARY 28, FEBRUARY 28,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales ...................................... $ 727 $ 1,064 $ 1,658 $ 1,622
Costs of goods sold:
Materials and supplies ..................... 159 203 344 237
Direct labor and related costs ............. 174 82 336 167
Depreciation and amortization .............. 18 18 36 35
Other manufacturing costs .................. 55 118 110 209
------------ ------------ ------------ ------------
Total costs of goods sold ...................... 406 421 826 648
------------ ------------ ------------ ------------
Gross profit ................................... 321 643 832 974
------------ ------------ ------------ ------------
Operating expenses
Selling, general and administrative:
Salaries and related costs ............. 117 220 248 375
Advertising and promotion .............. 27 64 95 182
Depreciation and amortization .......... 16 7 26 12
Other support costs .................... 155 140 328 229
Research and Development ............... 116 125 270 159
------------ ------------ ------------ ------------
Total operating expenses ............... 431 556 967 957
------------ ------------ ------------ ------------
Income from operations ......................... (110) 87 (135) 17
Other income
Interest income (net) ...................... 188 93 364 193
Gain/Loss on affiliate investments ......... -- (5) -- (10)
------------ ------------ ------------ ------------
Total other income ..................... 188 88 364 183
------------ ------------ ------------ ------------
Income before income taxes ..................... 78 175 229 200
Provisions for income taxes .................... 24 79 80 79
------------ ------------ ------------ ------------
Net income ..................................... $ 54 $ 96 $ 149 $ 121
============ ============ ============ ============
Net earnings per common share:
Basic .......................................... $ 0.005 $ 0.008 $ 0.013 $ 0.010
Diluted ........................................ $ 0.004 $ 0.008 $ 0.011 $ 0.010
============ ============ ============ ============
Weighted average basic common shares outstanding 11,685,157 11,605,334 11,677,656 11,573,667
Weighted average diluted common shares
outstanding .................................. 13,320,532 11,989,709 13,313,031 11,958,542
</TABLE>
See accompanying notes to the financial statements.
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<PAGE>
EAGLE WIRELESS INTERNATIONAL, INC.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
UNAUDITED
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
AUGUST 31, 1997 COMMON PREFERRED PAID IN RETAINED SHAREHOLDERS'
TO FEBRUARY 28, 1999 STOCK STOCK CAPITAL EARNINGS EQUITY
------ ---------- ---------- -------- -------------
<S> <C> <C> <C> <C> <C>
Total As of August 31, 1997 .... 12 -- 5,820 760 6,592
Net Earnings 1998 ............... 771 771
New Stock Issued to Shareholders
J. Hamilton (Nov. 1997) .... -- -- 60 0 60
D. Walker (Nov. 1997) ...... -- -- 82 0 82
D. Walker (Aug. 1998) ...... -- -- 96 0 96
Syndication Costs ............... -- -- (85) 0 (85)
------ ---------- ---------- -------- -------------
Total As Of August 31, 1998 ..... 12 -- 5,973 1,531 7,516
Net Earnings For The Six Months
Ended February 28, 1999 .... 150 150
New Stock Issued to Shareholders
D. Walker (Feb. 1999) ...... -- -- 68 -- 68
ESOP Stock Options Exercised -- -- -- -- --
------ ---------- ---------- -------- -------------
Total As Of February 28, 1999 ... 12 -- 6,041 1,681 7,734
</TABLE>
See accompanying notes to the financial statements.
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<PAGE>
EAGLE WIRELESS INTERNATIONAL, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED
FEBRUARY 28, FEBRUARY 28,
1999 1998
(UNAUDITED) (UNAUDITED)
------------ ------------
<S> <C> <C>
Cash Flows From Operating Activities
Net Earnings ................................................ $ 149 $ 121
Adjustments To Reconcile Net Earnings To Net Cash
Used By Operating Activities:
Depreciation and Amortization ............................ 60 47
(Increase) / Decrease in Accounts Receivable ............ (1,201) (606)
(Increase) / Decrease in Inventories ..................... (11) (83)
(Increase) / Decrease in Prepaid Expenses ............... 48 (11)
Increase / (Decrease) in Accounts Payable and Accrued Exp (86) (16)
Increase / (Decrease) in Deferred Taxes .................. -- 6
Increase / (Decrease) in Deferred Revenues .............. (3) --
Increase / (Decrease) in Sales Tax Payable ............. 10 --
Increase / (Decrease) in Fed Inc Taxes Payable ......... 85 (125)
Increase / (Decrease) in Franchise Taxes Payable ........ 12 --
Total Adjustments ........................................ (1086) (788)
Net Cash Used By Operating Activities ........................ (937) (667)
Cash Flows From Investing Activities
Purchase of Property and Equipment ........................... (22) (319)
(Increase) / Decrease in Other Assets ........................ -- (28)
Net Cash Used By Investing Activities ............................. (22) (347)
Cash Flows From Financing Activities
Increase / (Decrease) in Notes Payable and Capital Leases .... 9 (18)
Increase / (Decrease) in Shareholders' Advances .............. (24) (52)
Proceeds From Sale of Common Stock, Net ...................... 68 75
Net Cash Provided / (Used) By Financing Activities .............. 53 5
Net Decrease in Cash ............................................. (906) (1,009)
Cash at the Beginning of the Year ................................. 1,097 2,895
Cash at the End of the Year ....................................... $ 191 $ 1,886
</TABLE>
See accompanying notes to the financial statements.
-6-
<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 $99,291 and $1,088,555 invested in interest bearing accounts at
February 28, 1999 and August 31, 1998, 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.
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:
February 28, 1999 August 31, 1998
----------------- -----------------
Raw Materials ................. $ 738,627 $ 719,157
Work in Process ............... 545,007 554,124
Finished Goods ................ - 0 - -0-
----------------- -----------------
$ 1,283,634 $ 1,273,281
================= =================
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 were expensed through amortization
expense as of the year ended August 31, 1998.
-7-
<PAGE>
NOTE 1 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES:(CONTINUED)
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 $269,980 and $158,737
were expensed for the six months ended February 28, 1999 and 1998, respectively.
Contract revenues earned for the periods ended February 28, 1999 and 1998 were
approximately $450,000 and $300,000, respectively.
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:
<TABLE>
<CAPTION>
FEBRUARY 28, 1999 FEBRUARY 28, 1998
----------------- -----------------
<S> <C> <C>
Weighted Average Number of Common
Shares Outstanding Including:
Primary Common Stock Equivalents ......... 11,677,656 11,573,667
Fully Dilutive Common Stock Equivalents .. 13,313,031 11,958,542
</TABLE>
H) Warrants for Funding Activities
To date, the Company has issued the following warrants for funding activities:
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.
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 six month periods ended
February 28, 1999 and 1998, the Company had expensed $95,344 and $181,650,
respectively.
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 six months ended
February 28, 1998 to facilitate comparison to the six months ended February 28,
1999.
-8-
<PAGE>
NOTE 2 - NOTES PAYABLE:
<TABLE>
<CAPTION>
FEBRUARY 28, 1999 AUGUST 31, 1998
----------------- -----------------
<S> <C> <C>
Unsecured note to insurance
company bearing interest at 15%,
due $1,795 monthly until November 1999 ......... $ 16,159 $ 12,731
----------------- -----------------
Total .................................... 16,159 12,731
Less Current Portion of
Long - Term Debt ...................... 16,159 12,731
----------------- -----------------
Total Long - Term Debt ................... $ - 0 - $ - 0 -
================= =================
NOTE 3 - CAPITAL LEASE OBLIGATIONS:
<CAPTION>
FEBRUARY 28, 1999 AUGUST 31, 1998
----------------- -----------------
Equipment lease with Associates
Capital bearing interest at 7%,
payable in monthly installments
of $1,177; due September 1998 ................ $ -- $ 2,272
Equipment lease with IKON Office
Solutions bearing interest at 18%
payable in monthly installments of
$105; due March 2000 .......................... $ 1,231 $ 1,746
Software lease with Manifest Group
bearing interest at 11%, payable in
monthly installments of $751; due
August 2000 ................................... $ 12,389 $ 15,728
Equipment lease with IKON Office
Solutions bearing interest at 9%,
payable in monthly installments of
$445; due September 2001 ...................... $ 11,883 $ --
----------------- -----------------
Total Obligations ...................... 25,503 19,746
Less Current Portion of
Lease Obligations ................... 14,759 11,125
----------------- -----------------
Total Long - Term Capital
Lease Obligations ....................... $ 10,744 $ 8,621
================= =================
</TABLE>
-9-
<PAGE>
NOTE 3 - CAPITAL LEASE OBLIGATIONS: (CONTINUED)
The capitalized lease obligations are collateralized by the related equipment
acquired with a net book value of approximately $ 32,925 and $ 45,000 at
February 28, 1999 and August 31, 1998, respectively. The future minimum lease
payments under the capital leases and the net present value of the future lease
payments at February 28, 1999 and August 31, 1998 are as follows:
<TABLE>
<CAPTION>
FEBRUARY 28, 1999 AUGUST 31, 1998
----------------- -----------------
<S> <C> <C>
Total minimum lease payments ............... $ 28,230 $ 22,319
Less: Amount representing interest ........ 2,727 2,573
----------------- -----------------
Present value of net minimum
lease payments ......................... $ 25,503 $ 19,746
</TABLE>
Future obligations under the lease terms are:
Period Ending
August 31, Amount
-------
1999 ....................................... $15,088
2000 ....................................... 7357
2001 ....................................... 5,340
2002 ....................................... 445
-------
Total ...................................... $28,230
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. The
Company's effective Federal Tax Rate for the years ended August 31, 1998 and
1997 was 33% and 32%, respectively. Deferred income taxes are provided for
differences between financial statement and income tax reporting. Principal
differences are in the manner in which depreciation is computed for financial
and income tax reporting purposes.
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 February
28, 1999, no Preferred Stock has been issued.
In July, 1996, the Board of Directors and majority shareholders adopted an
employee stock option plan under which 400,000 shares of Common Stock have been
reserved for issuance. The options granted under this plan are to purchase fully
paid and non-assessable shares of the Common Stock, par value $.001 per share at
a price equal to the underlying common stock's market price at the date of
issuance. These options may be redeemed six months after issuance, expire five
years from the date of issuance and contain a cashless exercise feature. The
underlying shares of common stock were registered for resale under the
Securities Act of 1933 on February 19, 1999. As of February 28, 1999, 85,375
options had been granted and 17,500 had been exercised.
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 fully paid and non-assessable shares of
common stock, par value $.001 per share. These warrants expire May 1999 if not
exercised. The shares of common stock underlying the 375,000 $5.00 Warrants were
registered for resale on September 4, 1997 under the Securities Act of 1933.
-10-
<PAGE>
NOTE 5 - PREFERRED STOCK, STOCK OPTIONS AND WARRANTS: (CONTINUED)
In July of 1998 the Company issued to a consultant of the Company Options to
purchase 100,000 fully paid and non-assessable shares of the Company's Common
Stock, par value $.001 per share at a price of $1.00 per share. The Options are
exercisable during the period commencing July 1999 and expire three years
subsequent to the termination of the agreement with the Consultant. The
agreement with the Consultant will terminate in July of 1999. The shares of
common stock underlying the 100,000 Options were registered for resale on March
19, 1999 under the Securities Act of 1933. As of February 28, 1999, none of the
Options had been exercised.
Additionally, 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.
Additionally, the Company has issued and outstanding the following warrants
which have not yet been exercised as of February 28, 1999:
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 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.
1,000,000 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.
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. The underlying
shares of common stock were registered for resale under the Securities Act
of 1933 on March 19, 1999. These warrants expire on March 19, 2000.
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. The underlying
shares of common stock were registered for resale under the Securities Act
of 1933 on March 19, 1999. These warrants expire on March 19, 2000.
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 February 28, 1999, 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. The underlying
shares of common stock were registered for resale under the Securities Act
of 1933 on March 19, 1999. These warrants expire on March 19, 2000.
-11-
<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 February 28, 1999, 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 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 February 28, 1999, 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 February 28, 1999, 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 February 28, 1999, 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.
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.
-12-
<PAGE>
NOTE 5 - PREFERRED STOCK, STOCK OPTIONS, AND WARRANTS: (CONTINUED)
The warrants and options outstanding are segregated into three categories
(exercisable, non-exercisable, and non- registered). They are summarized
as follows:
<TABLE>
<CAPTION>
February 28, 1999
Exercise Issued February 28, Exercisable February 28, Non Non
Price 1999 1998 1999 1998 Exercised Registered
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
0.01 . Exercised Exercised 0 0 0 0
0.05 . 1,050,000 1,050,000 0 0 1,050,000 1,050,000
0.50 . 1,000,000 1,000,000 0 0 1,375,000 1,375,000
0.50 . 375,000 375,000 375,000 375,000 375,000 375,000
5.00 . 425,000 * 425,000 425,000 425,000 425,000 0
4.00 . 5,033,334 * 5,033,334 5,033,334 5,033,334 5,033,334 0
6.00 . 5,033,334 * 5,033,334 5,033,334 5,033,334 5,033,334 0
2.00 . 1,050,000 1,050,000 1,050,000 1,050,000 1,050,000 0
1.00 . 100,000 0 100,000 0 100,000 100,000
1.50 . 150,000 150,000 0 0 150,000 150,000
2.00 . 150,000 150,000 0 0 150,000 150,000
3.00 . 200,000 150,000 0 0 200,000 200,000
5.00 . 200,000 150,000 0 0 200,000 200,000
7.00 . 200,000 200,000 0 0 200,000 200,000
9.00 . 200,000 200,000 0 0 200,000 200,000
11.00 . 200,000 200,000 0 0 200,000 200,000
2.00 . 50,000 50,000 50,000 50,000 50,000 50,000
ESOP . 5,000 * 5,000 5,000 0 5,000 0
ESOP . 80,375 15,875 60,375 9,875 62,875 0
---------- ---------- ---------- ---------- ---------- ----------
15,502,043 15,237,543 12,132,043 11,976,543 15,859,543 4,250,000
</TABLE>
An asterisk (*) denotes warrants which would have an anti-dilutive effect if
currently used to calculate earnings per share for the six months ended February
28, 1999.
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, 1998, 1,908,000 shares had been issued to the Vonn, Ltd.
and Messrs. Clifford and Barton for cash advances of $120,000.
NOTE 7 - SEGMENT INFORMATION:
The Company had gross revenues of $727,087 and 1,063,905 for the three months
ended February 28, 1999 and 1998, respectively. The following parties
individually represent a greater than ten percent of these revenues.
February 28, 1999 February 28, 1998
Customer Amount Percentage Amount Percentage
- -------- -------- ---------- -------- ----------
Company A ...................... $ -- -- % $267,700 25 %
Company B ...................... $246,192 34 % 208,079 20 %
Company C ...................... $356,534 49 % 170,806 16 %
-13-
<PAGE>
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 February 28, 1999 and 1998, the Company had earned
approximately 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.
NOTE 9 - RISK FACTORS:
For the three months ended February 28, 1999, and 1998, substantially all of the
Company's business activities have remained within the United States.
Approximately 87% of the Company's revenues and receivables have been created
solely in the state of Texas, and the approximate 13% remainder has been created
relatively evenly over the rest of the nation during the three months ended
February 28, 1999, whereas approximately 61% of the Company's revenues and
receivables have been created solely in the state of Texas 2% have been created
in the international market, and the approximate 37% remainder has been created
relatively evenly over the rest of the nation for the three months ended
February 28, 1998.
Through the normal course of business, the Company generally does not require
its customers to post any collateral. However, because Link II constitutes 49%
and 20% of the Company's gross revenues and 96% and 80% of the its accounts
receivable for the three months ended February 28, 1999 and 1998, 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)
The Company focused its sales and marketing efforts in the wireless
infrastructure industry during the three months ended February 28, 1999 and 1998
while continuing to invest in the development of non wireless infrastructure
products and services. It is management's belief that the Company faces minimal
credit or economic risk due to the growth within the wireless communications
market.
NOTE 10 - SHAREHOLDERS' ADVANCES:
Certain officers and an employee advanced the Company $290,000. At February 28,
1999, the advances had been paid-in-full by the Company. At August 31, 1998, the
Company owed $24,519. 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 approximately 0% and
2% at February 28, 1999 and 1998, respectively.
NOTE 12 - COMMITMENTS AND CONTINGENT LIABILITIES:
The Company leases its primary office space for $7,931 per month under a
non-cancelable lease expiring on March 31, 1999. For the periods ending February
28, 1999 and 1998, rental expenses of $23,793 and $23,793, respectively, were
incurred. Future obligations under the non-cancelable lease terms for the period
ending February 28, 1999 are $7,931.
-14-
<PAGE>
NOTE 12 - COMMITMENTS AND CONTINGENT LIABILITIES: (CONTINUED)
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 under an
agreement that will terminate in July of 1999. Additionally, the consultant has
received options to purchase 100,000 shares of the Company's common stock for
$1.00 per share.
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.
A September 1998 lawsuit filed by the Company has been resolved.
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 February 28, 1999, 85,375 warrants
have been issued to various employees. 17,500 of these outstanding warrants have
been exercised as of February 28, 1999.
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 February 28, 1999, total employee contributions were
approximately $92,631 whereas the total amount matched by the employer was
approximately $28,634.
NOTE 15 - MAJOR CUSTOMER:
As of February 28, 1999, the Company has a receivable due from Link-Two
Communications (Link II) in the amount of $6,286,416. As of February 28, 1999,
Link II is continuing to sell equity securities, assets, and services, 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 is
minimal.
-15-
<PAGE>
NOTE 16 - SUBSEQUENT EVENTS
Subsequent to February 28, 1999, the Company entered into an agreement to
continue leasing its primary office space for 120% of its base lease rate of
$7,931 per month for a period not to extend past September 30, 1999. The Company
is currently investigating the lease of alternate office space and anticipates
relocating its operations before the September 30, 1999 deadline.
In July of 1998 the Company issued to a Consultant of the Company Options to
purchase 100,000 fully paid and non-assessable shares of the Company's Common
Stock, par value $.001 per share at a price of $1.00 per share. The Options are
exercisable during the period commencing July 1999 and expire three years
subsequent to the termination of the agreement with the Consultant. The
agreement with the Consultant will terminate in July of 1999. The shares of
common stock underlying the 100,000 Options were registered for resale on March
19, 1999 under the Securities Act of 1933.
In January of 1998 the Company issued to a consultant of the Company Options to
purchase 500,000 fully paid and non-assessable shares of the Company's Common
Stock, par value $0.01 per share at various prices ranging from $1.50 to $3.00
after certain average stock price conditions are met. The Options are
exercisable during the period commencing March 1999 and expire either after a
period of either one or two years. The shares of common stock underlying the
500,000 Options were registered for resale on March 19, 1999 under the
Securities Act of 1933.
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
During the three months ended February 28, 1999, 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 sale mix is
consistent with the pattern of sales realized by the Company during the year
ended August 31, 1998, and is expected to continue through 1999. 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. The
Company has also invested substantial resources in the development of a
multi-media Internet appliance product line. The Company has entered into
agreements with two multi-national sales, manufacturing, and distribution
corporations for the sale of these 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's sales for the three months ended February 28, 1999 were $727,087
as compared to the sales for the three months ended February 28, 1998 of $1.1
million. For the three months ended February 28, 1999, net income was $53,597 as
compared to $121,421 for the three months ended February 28, 1998. The reduction
in sales and net income in the quarter ended February 28, 1999 is attributable
to a slow-down in the construction of the Link-Two system and increased
investment in the Company's new Internet appliance product line.
Current assets as of February 28, 1999 totaled $8,089,585 as compared to
$7,832,094 reported on August 31, 1998. The Company's shareholders' equity as of
February 28, 1999 totaled $7,733,449 as compared to $7,516,168 on August 31,
1998. Cash flows invested in operations totaled $937,000, cash flows consumed by
investing activities were $22,000 and financing activities provided cash flows
of $53,000 during the six months ended February 28, 1999. For the comparable
period ended February 28, 1998, cash flows invested in operations totaled
$667,000, cash flows used by investing activities were $347,000 and financing
activities provided cash flows of $5,000.
-16-
<PAGE>
A substantial portion of the Company's current assets is 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 management believes to be valued in excess of the amounts due the
Company.
The Company requires substantial capital to pursue its operating strategy and
maintain its current level of operations. The Company's current level of
operations is consuming cash at a rate of $150,000 per month and is expected to
continue at this rate through the end of the fiscal year. Though negotiations
are underway to obtain short-term working capital financing, 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
funding from any external source 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. Contingencies
that are being evaluated by management include the sale of convertible
debentures, liquidation of certain assets, the disposal of certain product
lines, and a reduction in expenditures for research and development. As of
February 28, 1999, the Company instituted stringent cash management procedures
to mitigate the Company's negative cash flow. The Company's primary financing
activity will be the exercise of various classes of warrants which should
provide the necessary funds to complete near-term projects for the immediate
fulfillment of contingent sales contracts. These funds will be applied to
currently due payables and on-going operations.
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 past year, the Company
undertook and completed a project to upgrade its accounting and manufacturing
information system as part of its Year 2000 self certification project. 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.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EAGLE WIRELESS INTERNATIONAL, INC.
Date: April 16, 1999 By:/s/ H. Dean Cubley
Dr. H. Dean Cubley
President
/s/ Richard R. Royall
Richard R. Royall
Chief Financial Officer
-17-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> Aug-01-1999
<PERIOD-END> Feb-28-1999
<CASH> 191
<SECURITIES> 0
<RECEIVABLES> 6,593
<ALLOWANCES> 0
<INVENTORY> 1,284
<CURRENT-ASSETS> 8,090
<PP&E> 955
<DEPRECIATION> 284
<TOTAL-ASSETS> 8,770
<CURRENT-LIABILITIES> 1,019
<BONDS> 0
0
0
<COMMON> 12
<OTHER-SE> 7,722
<TOTAL-LIABILITY-AND-EQUITY> 8,770
<SALES> 1,658
<TOTAL-REVENUES> 2,031
<CGS> 826
<TOTAL-COSTS> 826
<OTHER-EXPENSES> 967
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9
<INCOME-PRETAX> 229
<INCOME-TAX> 80
<INCOME-CONTINUING> 149
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 149
<EPS-PRIMARY> .013
<EPS-DILUTED> .011
</TABLE>
