As filed with the Securities and Exchange Commission on February 3, 1999
Registration No. 333-20011
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------------------
POST-EFFECTIVE AMENDMENT NO. 3
TO
FORM SB-2
Registration Statement
Under the Securities Act of 1933
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EAGLE WIRELESS INTERNATIONAL, INC.
(Exact name of Registrant as specified in its charter)
TEXAS 3669 76-0494995
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation or Industrial Classification Identification Number)
organization) Code Number)
H. DEAN CUBLEY
910 GEMINI AVENUE EAGLE WIRELESS INTERNATIONAL, INC.
HOUSTON, TEXAS 77058-2704 910 GEMINI AVENUE
(281)280-0488 HOUSTON, TEXAS 77058-2704
(Address, and telephone number (281) 280-0488
of principal executive offices) (Name, address and telephone number
of agent for service)
COPIES TO:
THOMAS C. PRITCHARD
BREWER & PRITCHARD, P.C.
1111 BAGBY, 24TH FLOOR
HOUSTON, TEXAS 77002
PHONE (713) 209-2911
FACSIMILE (713) 209-2921
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box. [X]
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CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=====================================================================================================================
TITLE OF EACH CLASS OF AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE BEING OFFERING PRICE AGGREGATE REGISTRATION FEE
REGISTERED REGISTERED PER SHARE(1)(2) OFFERING PRICE(1)(2)
---------- ---------- --------------- -------------------- ----------------
<S> <C> <C> <C> <C>
Common Stock to be Resold (3) 5,308,334 $ .56 $ 2,972,667 $ 892(4)
Class B Warrants to be Resold 5,033,334 (5) (5) (5)
Shares Underlying Class A Warrants 5,033,334 $ 4.00 (6) 20,133,336 6,040(4)
Shares Underlying Class B Warrants 5,033,334 $ 6.00 (6) 30,200,004 9,060(4)
Shares Underlying Class C Warrants 1,050,000 $ 2.00 (6) 2,100,000 630(4)
Shares Underlying $5.00 Warrants 425,000 $ 5.00 (6) 2,125,000 646(4)
TOTAL _______ -- -- $ (4)
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457.
(2) This registration statement also covers any additional securities which
may become issuable pursuant to anti-dilution provisions of the warrants.
(3) The book value of the Common Stock, calculated pursuant to Rule 457(f).
(4) Previously paid.
(5) Fee paid as described in Rule 457 (g).
(6) The exercise price of the warrants, calculated pursuant to Rule 457(g).
---------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE>
EAGLE WIRELESS INTERNATIONAL, INC.
RESALE OF 16,850,002 SHARES OF COMMON STOCK
RESALE OF 5,033,334 CLASS B WARRANTS
This prospectus relates to the resale of 16,850,002 shares of company common
stock, which are being sold by the selling stockholders. The shares of common
stock to be resold include 5,308,334 shares currently issued and outstanding and
up to 11,541,668 shares to be issued upon:
o the exercise of class A warrants outstanding to purchase an aggregate of
5,033,334 shares of common stock at $4.00 per share, which expire in August
2000,
o the exercise of class B warrants outstanding to purchase an aggregate of
5,033,334 shares of common stock at $6.00 per share, which expire in August
2000,
o the exercise of class C warrants outstanding to purchase an aggregate of
1,050,000 shares of common stock at $2.00 per share, which expire in August
2000, and
o the exercise of warrants to purchase 425,000 shares of common stock at $5.00
per share which expire in May 1999.
This prospectus also relates to the resale of the class B warrants to
purchase 5,033,334 shares of common stock. Shares offered by the selling
stockholders may be sold by one or more of the following methods without
limitation:
o ordinary brokerage transactions in which a broker solicits purchases; and
o face to face transactions between the selling stockholders and purchasers
without a broker-dealer.
A current prospectus must be in effect at the time of the sale of the shares
of common stock or the class B warrants. Each selling stockholder or dealer
effecting a transaction in the registered securities, whether or not
participating in a distribution, is required to deliver a current prospectus
upon such sale. The company will retain all proceeds from the exercise of the
subject warrants, regardless of the number exercised. The gross proceeds (a
maximum amount of approximately $54,558,340) will be used for working capital
and general corporate purposes. The company will not receive any proceeds from
the resale of common stock by the selling stockholders.
As the resale of the shares of common stock and the class B warrants are
being registered under the Securities Act of 1933, as amended, holders who
subsequently resell such shares to the public may be deemed to be underwriters
with respect to such shares of common stock for purposes of the Act with the
result that they may be subject to certain statutory liabilities if the
registration statement contains a material misstatement or omits to disclose a
statement of material fact. The company has not agreed to indemnify any of the
selling stockholders regarding such liability.
----------------------
THE COMPANY'S COMMON STOCK IS LISTED ON THE OTC BULLETIN BOARD UNDER THE
SYMBOL "EGLW." THE CLASS B WARRANTS ARE LISTED UNDER THE SYMBOL "EGLWZ."
THIS INVESTMENT INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD PURCHASE THE
SHARES OR WARRANTS ONLY IF YOU CAN AFFORD A COMPLETE LOSS. SEE "RISK FACTORS"
BEGINNING ON PAGE 5.
WE HAVE NOT AUTHORIZED ANYONE TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION ABOUT THE COMPANY THAT DIFFERS FROM, OR ADDS TO, THE INFORMATION
IN THIS PROSPECTUS OR IN OUR DOCUMENTS THAT WE FILED WITH THE SEC. ACCORDINGLY,
IF ANYONE DOES GIVE YOU DIFFERENT OR ADDITIONAL INFORMATION YOU SHOULD NOT RELY
ON IT. IF YOU ARE IN A JURISDICTION WHERE IT IS UNLAWFUL TO BUY THE SECURITIES
OFFERED BY THIS PROSPECTUS, OR IF YOU ARE A PERSON TO WHOM IT IS UNLAWFUL TO
DIRECT SUCH ACTIVITIES, THEN THE OFFER PRESENTED BY THIS PROSPECTUS DOES NOT
EXTEND TO YOU. THE INFORMATION IN THE PROSPECTUS SPEAKS ONLY AS OF THIS DATE
UNLESS THE INFORMATION SPECIFICALLY INDICATES THAT ANOTHER DATE APPLIES.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
----------------------
The date of this prospectus is ________________, 1999
<PAGE>
TABLE OF CONTENTS
PAGE
----
Prospectus Summary.......................................................1
About Our Company........................................................1
Key Facts................................................................1
Summary Financial Information..........................................2
Risk Factors.............................................................3
Limited Operating History of the Company...............................3
Capital Requirements...................................................3
Limited Sources of Liquidity...........................................3
Immediate Dilution; Disproportionate Risk of Loss......................4
Dependence of Certain Customers........................................4
Technology Change......................................................4
Dependence on Key Personnel............................................4
Lack of Patent Protection..............................................4
Federal Regulation.....................................................5
Competition............................................................5
Lack of Cash Dividends.................................................5
No Assurance of a Public Market; Possible Volatility of Stock Price....5
Shares Eligible for Future Sale........................................5
Penny Stock Regulation.................................................5
Preferred Stock as a Possible Anti-takeover Device.....................6
Use of Proceeds..........................................................6
Dividend Policy..........................................................6
Capitalization...........................................................6
Management's Discussion and Analysis of Financial Condition
and Results of Operations..............................................7
Business.................................................................9
Available Information...................................................15
Management..............................................................16
Executive Compensation..................................................17
Principal Stockholders..................................................21
Description of Capital Stock............................................22
Shares Available for Future Sale........................................25
Plan of Distribution and Selling Stockholders...........................25
Legal Matters...........................................................45
Experts.................................................................45
Financial Statements....................................................F-1
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS DOCUMENT AND MAY NOT
CONTAIN ALL OF THE INFORMATION THAT IS IMPORTANT TO YOU. TO UNDERSTAND THE
SPECIFIC TERMS OF THE COMMON STOCK AND CLASS B WARRANTS WE ARE OFFERING, YOU
SHOULD CAREFULLY READ THIS DOCUMENT. IT DESCRIBES THE COMPANY, ITS FINANCES AND
PRODUCTS. FEDERAL AND STATE SECURITIES LAWS REQUIRE THAT WE INCLUDE IN THIS
PROSPECTUS ALL THE IMPORTANT INFORMATION THAT INVESTORS WILL NEED TO MAKE AN
INVESTMENT DECISION. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT FROM WHAT IS CONTAINED IN THIS PROSPECTUS.
ABOUT OUR COMPANY
We manufacture and supply worldwide wireless communications equipment and
software for paging, wireless messaging, remote data acquisition and specialized
mobile radio markets, and we provide radio frequency engineering consulting
services. Our principal place of business is located at 910 Gemini Avenue,
Houston, Texas 77058-2704 and our telephone number is (281) 280-0488.
KEY FACTS
Common Stock Outstanding......................... 11,670,155 shares (1)(2)
Common Stock to be Resold........................ 5,308,334 shares
Common Stock to be issued upon Exercise
of the Subject Warrants........................ 11,541,668 shares (3)
Class B Warrants to be
Resold........................................... 5,033,334
Risk Factors..................................... You are urged to carefully
review the factors set forth
in "Risk Factors."
Market for Company Securities.................... The common stock and
class B warrants are
listed on the OTC
Bulletin Board. The
market for the common
stock and class B
warrants is limited,
sporadic and highly
volatile.
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(1) Does not include 15,266,668 shares of common stock underlying outstanding
warrants including: (a) class A warrants to purchase an aggregate of
5,033,334 shares of common stock at $4.00 per share, which expire in August
2000, (b) class B warrants to purchase an aggregate of 5,033,334 shares of
common stock at $6.00 per share, which expire in August 2000, (c) warrants
to purchase 1,050,000 shares of common stock at $.05 per shares which expire
in May 1999, (d) warrants to purchase 1,375,000 shares of common stock at
$.50 per share which expire in May 1999, (e) class C warrants to purchase
1,050,000 shares of common stock at $2.00 per share which expire in August
2000, (f) warrants to purchase 425,000 shares of common stock at $5.00 per
share which expire in May 1999, and (g) warrants to purchase 1,300,000
shares of common stock pursuant to the Mega Holding Corporation contract.
See"Description of Capital Stock" and "Business-Recent Developments."
(2) Does not include 83,875 shares underlying options issued pursuant to the
company's stock option plan. (3) Consists of shares of common stock
underlying the class A warrants, class B warrants, class C warrants and
$5.00 warrants. See "Plan of Distribution and Selling Stockholders."
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SUMMARY FINANCIAL INFORMATION
The following table depicts the summarized financial operations of the
company. The information is only a summary and does not provide all of the
information contained in the actual financial statements, including the related
notes, beginning at page F-1 and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
FOR THE YEAR ENDED FOR THE THREE
------------------------- MONTHS ENDED
AUGUST 31, AUGUST 31, NOVEMBER 30,
1998 1997 1998
STATEMENT OF EARNINGS AUDITED AUDITED UNAUDITED
----------- ----------- -----------
Net sales ..................... $ 4,827,434 $ 3,971,369 $ 930,897
Cost of goods sold ............ 1,964,954 1,549,004 420,101
Operating expenses ............ 2,107,058 1,605,039 534,934
Earning before income tax ..... 755,422 817,326 152,010
Net Earnings .................. 770,968 728,494 95,756
BALANCE SHEET DATA
Working capital ............... $ 6,812,622 $ 6,090,971 $ 6,916,488
Total assets .................. 8,550,443 7,379,898 8,660,205
Long-term debt, net ........... 14,803 18,952 22,020
Shareholders' equity .......... 7,516,168 6,592,388 7,611,924
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RISK FACTORS
THE SHARES OF COMMON STOCK AND WARRANTS OFFERED BY THIS PROSPECTUS ARE
SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK OF LOSS. YOU SHOULD CAREFULLY
CONSIDER THE FOLLOWING INFORMATION IN ADDITION TO THE OTHER INFORMATION IN THIS
PROSPECTUS.
LIMITED OPERATING HISTORY OF THE COMPANY
The company has a limited operating history and, accordingly, is subject to
all the substantial risks inherent in the commencement of a new business
enterprise. Additionally, the company has a limited business history that
investors can analyze to aid them in making an informed judgement as to the
merits of an investment in the company. Any investment in the company should be
considered a high risk investment because the investor will be placing funds at
risk in a company with unforeseen costs, expenses, competition and other
problems to which relatively new ventures are often subject. The company's
prospects must be considered in light of the risks, expenses and difficulties
encountered in establishing a business in a highly competitive industry
characterized by rapid technological development. The company had net sales of
$3,971,369 and net earnings of $728,494 for the fiscal year ended August 31,
1997; net sales of $4,827,434 and net earnings of $770,968 for the fiscal year
ended August 31, 1998; and net sales of $930,897 and net earnings of $95,756 for
the three-month period ended November 30, 1998. The company may incur losses in
the future and there can be no assurance when or if the company will sustain
long-term profitability.
CAPITAL REQUIREMENTS
The company requires substantial capital to pursue its operating strategy.
Since inception, the company has primarily funded its capital requirements
through the private issuance for cash of shares of common stock and the class A
warrants, class B warrants and class C warrants grossing approximately
$6,537,415. For the fiscal year ended August 31, 1997, the company obtained
$3,140,120 of cash provided by financing activities and used $2,191,780 of cash
in operations. For the fiscal year ended August 31, 1998, the company obtained
$45,596 of cash provided by financing activities and used $1,498,393 of cash in
operations. For the period ended November 30, 1998, the company used $19,000 of
cash in financing activities and used $513,000 in cash in operations. For the
fiscal year ended August 31, 1997, the company had working capital of
$6,090,971; for the fiscal year ended August 31, 1998, working capital of
$6,812,622; for the three-month period ended November 30, 1998, working capital
of $6,916,488.
LIMITED SOURCES OF LIQUIDITY
During the three months ended November 30, 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. 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. We cannot provide you any 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. There is no assurance that the company will generate
sufficient cash in future periods to satisfy its capital requirements. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
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IMMEDIATE DILUTION; DISPROPORTIONATE RISK OF LOSS
Assuming an average exercise price of the subject warrants of $4.73 per
share, purchasers will incur immediate and substantial dilution of $2.09 per
share in the pro forma net tangible book value per share of their investment. In
addition, assuming the exercise of all of the subject warrants, such purchasers
will be contributing approximately 90% of the total capital consideration to the
company, but will receive only approximately 50% of the shares outstanding.
Accordingly, in the aggregate, purchasers exercising the subject warrants will
bear a greater risk of loss than the current stockholders.
DEPENDENCE ON A CERTAIN CUSTOMERS
The company's largest customer, Link-Two, accounted for approximately 60% of
the company's revenue during the fiscal year ended August 31, 1998. Link-Two
provided revenues of $550,937 at November 30, 1998, approximately 59% of the
gross revenues at November 30, 1998. 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-Two. Mr. Clifford is
also the chairman and chief executive officer of Link-Two and Dr. Cubley is a
director of Link-Two. An additional customer, Compaq Computer Corporation,
represented approximately 12% of the company's revenues for the fiscal year
ended August 31, 1998. At November 30, 1998, Compaq provided revenues of
$249,616 which represented 27% of gross revenues. Many of the company's
customers contract with the company on a purchase order basis, which may result
in fluctuations of revenue during various periods. The sudden loss of a
significant customer could have material adverse effect on the company's
business. See "Business-Customers" and "Management-Certain Transactions."
TECHNOLOGY CHANGE
The design, development and manufacturing of personal communication systems
("PCS") and specialized mobile radio ("SMR") products is highly competitive and
characterized by rapid technology changes. The company competes with other
existing products and may compete against other development technology.
Development by others of new or improved products or technologies may make the
company's products obsolete or less competitive. While management believes that
the company's products are based on established state-of-the-art technology,
there can be no assurance that they will not be obsolete in the near future or
that the company will be able to develop a commercial market for its products in
response to future technology advances and developments. See "Business- Research
and Development."
DEPENDENCE ON KEY PERSONNEL
The success of the company is dependent upon, among other things, the
services of H. Dean Cubley, president and chief executive officer and James
Futer, executive vice-president and chief operating officer. The loss of the
services of Dr. Cubley or Mr. Futer, for any reason, could have a material
adverse effect on the prospects of the company. The company has not entered into
employment agreements with Dr. Cubley and Mr. Futer but does maintain $2.5
million of key-man life insurance on Dr. Cubley. The company has enlisted
experienced personnel in several key positions; however, we cannot provide you
any assurance that the company will be able to continue to attract and retain
qualified employees to implement its business plan. See "Management."
LACK OF PATENT PROTECTION
The company's success depends upon its proprietary technologies. The company
relies on non-disclosure agreements with employees, and common law remedies with
respect to its proprietary technology. The company has not completed filing for
or obtained patents on its key technology, and there can be no assurance that
the patents will be issued if applied for in the future. We cannot provide you
any assurance that others will not misappropriate the company's proprietary
technologies or develop competitive technologies or products that could
adversely affect
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<PAGE>
the company. In addition, although the company is not aware of any infringement
claims against it or any circumstances which could lead to such claims, we
cannot provide you any assurance that such a claim could not be made which could
adversely affect the company. See "Business-Proprietary Information."
FEDERAL REGULATION
The paging and PCS industry is heavily regulated. Although compliance with
such laws and regulations historically has not had a material adverse effect on
the company's competitive position, operations or financial condition or
required material capital expenditures, there is no assurance that the
implementation of new or amended laws or regulations in the future would not
have such an effect or require such expenditures. See "Business Regulation."
COMPETITION
The wireless personal communications industry includes equipment
manufacturers that serve many of the same customers served by the company.
Substantially all of the company's competitors have significantly greater
resources, including financial, technical and marketing, than the company, and
we cannot provide you any assurance that the company will be able to compete
successfully in the future. See "Business-Competition."
LACK OF CASH DIVIDENDS
To date, the company has not paid any cash dividends, and it is not
anticipated that any cash dividends will be paid to stockholders in the
foreseeable future. See "Dividend Policy."
NO ASSURANCE OF A PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
There is a limited, sporadic and highly volatile public trading market for
the company's common stock and there is no assurance that any public market will
continue in the future. In the event that any market continues for the company
securities, the market price of the common stock may experience fluctuations
that are unrelated to the operating performance of, or announcement concerning,
the company. Securities of issuers having relatively limited capitalization or
securities recently issued in a public offering, such as the company, are
particularly susceptible to change based on short-term trading strategies of
certain investors. See "Plan of Distribution and Selling Stockholders."
SHARES ELIGIBLE FOR FUTURE SALE
As of the date of this prospectus, a total of 11,670,155 shares of common
stock were outstanding. The resale of the 5,308,334 shares of common stock
offered hereby, along with the resale of the 11,541,668 shares of common stock
issuable upon the exercise of the subject warrants, will be eligible for
immediate resale in the public market. In addition, 2,425,000 shares of common
stock will be issuable upon exercise of the other outstanding warrants, although
those shares will be subject to the resale provisions of Rule 144 under the Act.
The remaining 6,361,821 shares of common stock outstanding will be subject to
resale pursuant to the provisions of Rule 144. In addition, the company has
agreed to register 1,300,000 shares of common stock underlying warrants to be
issued to Mega Holding Corp. See "Business-Recent Developments." Sales of common
stock in the public market may have an adverse effect on prevailing market
prices for the common stock. See "Shares Eligible for Future Sale."
PENNY STOCK REGULATION
The SEC has adopted rules that regulate broker-dealer practices in
connection with transactions in "penny stocks." Penny stocks generally are
equity securities with a price of less than $5.00 (other than securities
registered on certain national securities exchanges or quoted on the Nasdaq
system, provided that current price and volume information with respect to
transactions in such securities is provided by the exchange system). The penny
stock rules require a broker-dealer, prior to a transaction in a penny stock not
otherwise exempt from the rules, to deliver a standardized risk disclosure
document prepared by the SEC that provides information about penny stocks and
the
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<PAGE>
nature and level of risks in the penny stock market. The broker-dealer also must
provide the customer with bid and offer quotations for the penny stock, the
compensation of the broker-dealer, and its salesperson in the transaction, and
monthly account statements showing the market value of each penny stock held in
the customer's account. In addition, the penny stock rules require that prior to
a transaction in a penny stock not otherwise exempt from such rules, the
broker-dealer must make a special written determination that a penny stock is a
suitable investment for the purchaser and receive the purchaser's written
agreement to the transaction. These disclosure requirements may have the effect
of reducing the level of trading activity in any secondary market for a stock
that becomes subject to the penny stock rules, and accordingly, investors in
company securities may find it difficult to sell their securities, if at all.
PREFERRED STOCK AS A POSSIBLE ANTI-TAKEOVER DEVICE
The Board of Directors of the company has the authority to issue up to
5,000,000 shares of "blank check" preferred stock with such designations, rights
and preferences as may be determined by the Board of Directors. Accordingly, the
Board of Directors of the company is empowered, without further shareholder
approval, to issue preferred stock with dividend, liquidation, conversion,
voting or other rights which could adversely affect the voting power or other
rights of the holders of the company's common stock. Certain companies have used
the issuance of preferred stock as an anti-takeover device and the Board of
Directors could, without further shareholder approval, issue preferred stock
with certain rights that could discourage an attempt to obtain control of the
company in a transaction not approved by the Board of Directors. The Board of
Directors of the company also has authority to issue up to 100,000,000 shares of
common stock. See "Description of Capital Stock."
USE OF PROCEEDS
Assuming exercise of all the subject warrants, the company will receive
aggregate gross proceeds of approximately $54,558,340, prior to deducting
estimated offering expenses of approximately $125,000. Other than a 3%
solicitation fee the company may pay to soliciting brokers, the company will use
these proceeds for working capital and will have broad discretion in the
application of such proceeds. As there are no commitments from the holders of
the subject warrants to exercise such securities, there can be no assurance that
any of the subject warrants will be exercised. The company will receive no
proceeds from the resale of shares of common stock by the selling stockholders.
DIVIDEND POLICY
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.
The company does not anticipate paying any cash dividends in the foreseeable
future.
CAPITALIZATION
The following table sets forth the unaudited capitalization of the company
as of November 30, 1998. This table should be read in conjunction with the
company's financial statements and notes thereto that are included elsewhere in
this prospectus.
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<PAGE>
Long-term debt, net.......................... $ 22,020
Stockholder's Equity:
Preferred Stock, par value $.001 per
share; 5,000,000 shares authorized,
0 shares outstanding.................. --
Common Stock, par value $.001 per
share; 100,000,000 shares
authorized, 11,670,155 shares
issued and outstanding(1)............. 11,670
Additional Paid-In Capital................... 5,972,832
Retained Earnings............................ 1,627,422
----------
Total Stockholders' Equity................... $7,611,924
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(1) Does not reflect 15,266,668 shares underlying the warrants.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the financial
statements of the company and accompanying notes to the financial statements.
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, 1998, 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 the fiscal year ended August 31, 1998 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 company's
sales for the
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three months ended November 30, 1998 were $930,897 as compared to the sales for
the three months ended November 30, 1997 of $557,898. The increase in sales and
net income is attributable to contract deadlines on major project shipments and
is deemed normal and is expected to be ongoing.
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. Current assets for the three months ended November 30, 1998 totaled
$7,942,488 as compared to $7,342,649 reported for the three months ended
November 30, 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. Shareholders' equity for the for the three months ended
November 30, 1998 totaled $7,611,924 as compared to $6,701,826 reported for the
three months ended November 30, 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. Cash flows invested in operations totaled $609,000, cash flows
consumed by investing activities were $26,000 and financing activities used cash
flows of $19,000 during the three months ended November 30, 1998. For the
comparable period ended November 30, 1997, cash flows invested in operations
totaled $199,904, cash flows consumed by investing activities were $135,165 and
financing activities provided cash flows of $80,325.
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.
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BUSINESS
GENERAL
The company designs, manufacturers and sells products and services that
allow individuals and machines to exchange information using mobile or remote
("wireless") devices that are not physically connected to a telephone or similar
network that relies upon wires or a physical connection to exchange information.
The company designs, manufacturers and sells its products and services under the
Eagle name. These products include electronic equipment that is not seen or
directly used by the consumer but supports the operation of wireless
communication ("infrastructure equipment") and electronic, often battery
operated, devices that are carried by or on the remote or mobile individual
("messaging devices"). The messaging devices can be used to communicate and
exchange information such as telephone numbers, textual messages and voice
messages with the infrastructure equipment and with other messaging devices
connected to the infrastructure equipment. The manufacture, sale and operation
of most of the company's products are regulated by the United States Federal
Communication Commission (the "FCC"). The company also provides consulting and
product installation and repair services.
The company became a Texas corporation in May 1993 but did not begin
conducting significant business operations until April 1996. The company filed
an amendment with the state of Texas in August 1997 changing its name from Eagle
Telecom International, Inc. to Eagle Wireless International, Inc. Unless
otherwise indicated, all of the information in this statement has been modified
to reflect the name change. The company is located at 910 Gemini Avenue,
Houston, Texas, 77058-2704 and its telephone number is 281-280-0488.
RECENT DEVELOPMENTS
In January 1998, the company entered into an agreement with Mega Holding
Corp for the provision of business and financial consulting services. In
exchange for the services, the company has agreed to issue Mega warrants to
purchase 1.3 million shares of common stock. There are seven classes of warrants
having exercise prices which range from $1.50 to $11.00. In order for the
warrants to become exercisable, the company must maintain an average stock price
ranging from $4.00 to $16.00 for a period of time ranging from 61 trading days
to 31 trading days. For a more complete description of the warrants see
"Description of Capital Stock - The Mega Holding Corporation Warrants."
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 the company and Multitone Electronics calls for Multitone to
license, manufacture, and distribute the company's 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.
In 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.
In January 1999, the company entered into an agreement to provide research
and development support to Compaq's Advanced Engineering Group. The agreement is
valued at approximately $1.4 million dollars and is anticipated to extend
through the second calendar quarter of 2000.
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PRODUCT CATEGORIES
INFRASTRUCTURE EQUIPMENT
Infrastructure Equipment includes products that are not seen or directly
used by the consumer but support and make possible the operation of a wireless
communication system. This type of equipment provides a framework within which
the wireless mobile and remote messaging devices operate. For the company's
fiscal years that ended August 31, 1997 and 1998, infrastructure equipment
accounted for the majority of the company's sales. The company's infrastructure
products are used primarily by the radio paging industry.
Paging is a method of wireless communication which allows a telephone
caller to send a message of numbers or words to a remote and mobile individual
(the "subscriber") carrying an electronic device known as a pager. The pager
carried by the subscriber can receive the telephone caller's message, alert the
subscriber that there is a message to be displayed and display the message for
viewing. The subscriber typically pays a recurring fee to the organization (the
"service provider") that constructs and maintains the paging system that
provides this messaging service. Service providers use infrastructure products
together with a broadcast license granted to them by a regulatory agency, such
as the FCC, to provide the messaging service.
The broadcast licenses granted by the regulatory agency will determine the
kind of infrastructure and messaging devices the service provider will need to
operating their paging service. Broadcast licenses will specify the geographic
region served, the location of the infrastructure equipment within the region
served, the amount of power that the infrastructure equipment uses to broadcast
messages and the unique radio frequency or channel that is used to transmit or
broadcast messages.
There are a limited number of radio frequencies available for use by
paging service providers. Paging service providers often must share the same
radio frequency within a particular geographic region. Once granted, most
broadcast license regulatory agencies require a service provider to begin
providing service by a certain date or risk forfeiture of the broadcast license.
Infrastructure products in a typical paging system include a switch or
paging terminal, one or more paging transmitters and one or more devices that
are used to coordinate and control the operation of the paging transmitters. The
switch or paging terminal is responsible for answering a message sender's
telephone call, recording the caller's messaging, determining who the message is
for and relaying the message and the recipient's unique identification to the
paging transmitter control device. The paging transmitter control device ensures
that the message and the recipient's unique identification are forwarded to one
or more paging transmitters for broadcast. The paging transmitters convert the
message and the unique identification number into a format that can be broadcast
to the intended mobile or remote recipient's pager. The transmitter then
broadcasts the message on a certain frequency at a certain power level to the
pager. The pager is designed to listen for its unique identification number on a
particular frequency and will alert the pager user when the broadcasted message
has been received.
MESSAGING DEVICES
Wireless messaging devices are electronic, often battery operated, devices
that are carried by or on the remote or mobile individual to receive numbers,
textual messages and voice messages. These messages are typically sent by
individuals using a telephone and are forwarded by a service provider's
infrastructure equipment. Certain mobile and remote messaging devices also have
the capability of responding to messages that are received. Messages from these
types of devices are collected at a central location by the infrastructure
equipment and can be relayed to other messaging devices or can be stored for
other purposes. The most common example of a wireless messaging device is a
pager or beeper that emits either an audible beep or vibrates when a message is
received. The message is displayed on a small liquid crystal display and is
stored for future reference and retrieval. A messaging device must be within the
geographic region serviced by a service provider's infrastructure equipment,
must have its unique identification code registered with the service provider
and must be tuned to listed to the service provider's unique broadcast frequency
in order to receive a message.
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SERVICES
Wireless messaging service providers often work with communication
specialist such as engineers, consultants and attorneys when building a wireless
messaging system. These specialist assist with the selection, acquisition and
installation of infrastructure equipment and the acquisition of broadcast
licenses from the appropriate regulatory authorities. These same specialist are
also used to help maintain, repair, expand, appraise and transfer ownership of
wireless messaging systems.
CURRENT PRODUCTS AND SERVICES
The principal products and services currently manufactured and sold by the
company include the following infrastructure products, messaging products and
services:
LICENSE STARTER
The License Starter is an infrastructure product that combines a paging
terminal, a transmitter control device, a transmitter and an antenna into a
single compact desktop cabinet. When connected to a standard telephone line and
110 Volt AC power outlet, the License Starter can be used to quickly begin the
broadcasting of wireless messages. Most broadcast license regulatory agencies
require a service provider to begin providing service by a certain date or risk
forfeiture of the broadcast license. This product helps service providers
quickly and economically meet these regulatory requirements while waiting for a
permanent system to be constructed.
PAGING TRANSMITTERS
The paging transmitter is an infrastructure product that receives numeric,
textual and voice messages from a paging terminal or a transmitter controller,
converts this information into a format that can be broadcast to a mobile or
remote pager and then broadcasts the message on a certain frequency at a certain
power level to the pager. The company manufacturers and sells paging
transmitters that operate in the Very-High Frequency (VHF), Ultra- High
Frequency (UHF) and the 900MHz paging bandwidths. These particular bandwidths
are groups of radio channels that are regulated by broadcast license regulatory
agencies. A paging service provider will provide their service on one or more of
these regulated channels. The company's transmitters are also available in
different power levels. The amount of power that is used to broadcast a message
is related to the distance a broadcasted message travels. Increasing the amount
of power used to broadcast a message will, in most cases, increase the distance
a message travels. The company's transmitters can be equipped to provide an
output power ranging from 15 Watts to 500 Watts.
BASE STATIONS
The company manufactures and sells an enhanced version of its transmitter
product called a base station. The base station product is a combination of the
company's transmitter with other infrastructure equipment in a single equipment
cabinet. Examples of other infrastructure equipment that might be included in
the single cabinet include a back-up transmitter and a receiver to receive
messages from remote or mobile messaging units.
REPLACEMENT COMPONENTS
The company manufacturers and sells the individual parts and assemblies
that are used to build its infrastructure equipment. These parts and assemblies
can be used by service providers to repair, upgrade and enhance existing
equipment manufactured by both the company and competitors of the company.
Examples of replacement components sold by the company include power amplifiers
and power supplies.
CONTROLLERS
Transmitter controllers are infrastructure products that are used to
coordinate and control the operation of the paging transmitters. The controllers
manufactured and sold by the company can be used to forward messages
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from paging terminals to remote broadcast paging transmitters using either
telephone lines or specialized radio- frequency transmitters. Other controllers
can be used to connect multiple paging terminals to a single paging transmitter.
MICROBEEP PAGING TERMINAL
The MicroBeep paging terminal is a small paging terminal that can be
connected to an IBM compatible personal computer. This paging terminal includes
a low-power transmitter and computer software that can be used to provide paging
services to a factory, college campus, restaurant, office or other localized
clientele.
RECEIVERS
The company is a licensed distributor of wireless messaging receivers that
can be used to receive messages from remote and mobile wireless messaging
devices. These infrastructure receivers utilize a technology called spread
spectrum to exchange wireless information. The spread spectrum method of
exchanging wireless information differs from other broadcast technology in that
it is generally not governed by regulatory authorities that control broadcasting
activities. When these receivers are used together with the company's paging
transmitters, service providers can build a complete two-way messaging system.
WIRELESS MESSAGING DEVICES
The company currently sells and distributes several products that are
designed to send messages from remote locations to the wireless messaging
receivers that the company it is licensed to distribute. These products include
a wireless water meter, power meter, home security system and vehicle tracking
system. These products also include a multi-purpose wireless device that can be
connected to a variety of machines to transmit periodic measurements. This
multi-purpose wireless device could be used to notify a copy machine technician
that a copy machine needs service or a vending machine company that a candy
machine needs to be restocked with merchandise.
CONSULTING SERVICES
The company routinely provides consulting, repair and installation
services for customers of its infrastructure equipment on a contract basis. The
company also performs research, development and product evaluation services 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
The company 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. The company's standard warranty provides its customers
with repair or replacement of any defective company 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 a company qualified technician.
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CUSTOMERS
The company 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 and the U.S. Department of Defense.
The company's largest customer, Link-Two, accounted for approximately 60%
of the company's sales for the fiscal year ended August 31, 1998. Link-Two 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-Two 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-Two has also secured several exclusive RCC frequencies providing regional
coverage in two of the top ten markets. Link-Two is currently operational in
Houston and Dallas, Texas.
An additional customer, Compaq Computer Corporation, represented
approximately 12% of the company's revenues for the fiscal year ended August 31,
1998. At November 30, 1998, Compaq provided revenues of $249,616 which
represented 27% of gross revenues.
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 an 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 the company's manufacturing and
marketing personnel, and externally with the company's customers. This strategy
has allowed the company to develop and bring to market customer-driven products.
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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 the
company 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.
MANUFACTURING
The company currently manufactures its products at its facilities in
Houston, Texas. Certain subassemblies are manufactured for the company 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 the company 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.
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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.
EMPLOYEES
At January 25, 1999, the company employed approximately 30 persons and
retained 3 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.
FACILITIES
The company's headquarters are located in Houston, Texas and include
approximately 15,000 square feet of lease 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.
LEGAL PROCEEDINGS
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. The company has accepted a settlement offer
by Micro-MRP in the amount of $28,000. A settlement agreement is currently being
drafted.
AVAILABLE INFORMATION
The SEC maintains a Web site on the Internet that contains reports, proxy
and information statements and other information regarding issuers that file
electronically with the SEC. The address of the site is http:\\www.sec.gov.
Visitors to the site may access such information by searching the EDGAR data
base on the site.
We are subject to the information and reporting requirements of the
Exchange Act. As a result, we file periodic reports, proxy materials and other
information with the SEC. We provide our shareholders with annual reports
containing audited financial statements. We have filed a registration statement
on Form SB-2 under the Act, with respect to the securities being registered.
This prospectus does not contain all the information set forth in the
registration statement and its exhibits and schedules. Copies of the
registration statement and its exhibits are on file at the offices of the SEC
and may be obtained upon payment of the fees prescribed by the SEC or may be
examined,
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without charge, at the public reference facilities of the SEC. We will provide
without charge to each person who receives a copy of the prospectus, upon
written or oral request, a copy of any of the information that is incorporated
by reference in this prospectus (not including exhibits to the information that
is incorporated by reference unless the exhibits are themselves specifically
incorporated by reference). Such request should be directed to the company,
Attention: Scott A. Cubley, at 910 Gemini Avenue, Houston, Texas 77058-2704.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The company's directors and executive officers are:
NAME AGE POSITION
---- --- --------
H. Dean Cubley 57 Chairman of the Board of Directors,
President and Chief Executive Officer
Christopher W. "James" Futer 59 Director, Executive Vice President
and Chief Operating Officer
A. L. Clifford 54 Director
Senator Gary Hart 64 Director
Richard Royall 52 Chief Financial Officer
DR. H. DEAN CUBLEY has served as chairman of the board, president and
chief executive officer of the company since March 1996. Prior to that, Dr.
Cubley served as vice-president of Eagle Telecom, Inc. from 1993 to March 1996.
Dr. Cubley is also a member of the Oversight Committee for the University of
Houston Epitaxy Center which managed the Wake Shield Flight aboard the Shuttle
in September 1995. Dr. Cubley has over 35 years of extensive experience in the
field of telecommunications. From 1965 to 1984, Dr. Cubley worked for the NASA
Manned Spacecraft Center in the Electromagnetic Systems Branch of the
Engineering and Development Directorate. For a five-year portion of that period,
Dr. Cubley was the Antenna Subsystems Manager for all spacecraft antennas for
the Shuttle Program. Dr. Cubley's duties included overall responsibility for the
design, development, costs schedules and testing of the antennas and hardware
for all Shuttle flights. Throughout his career, Dr. Cubley has authored or
co-authored over fifty publications. In addition, he has a total of eight
patents and patents-pending registered in his name. Dr. Cubley received a
bachelor of science degree in electrical engineering from the University of
Texas in 1964 and a masters degree in electrical engineering from the University
of Texas in 1965. In 1970, Dr. Cubley received his Ph.D. in Electrical
Engineering from the University of Houston.
CHRISTOPHER W. "JAMES" FUTER has served as a director, chief operating
officer and vice president of the company since March 1996. Prior to that, Mr.
Futer served as sales manager of Eagle Aerospace, Inc. Telecom Division from
November 1994 until February 1996. From May 1993 to November 1994, Mr. Futer was
employed as a vice president of operations with Starcom, Inc. Prior thereto, he
was employed with Paging Products International. Mr. Futer was a manager of
Universal Cellular, Inc., a California corporation ("UCI"), from October 1990
until February 1991. Mr. Futer resigned from UCI in February 1991 due to his
disagreement with UCI management over its business policy and practices. In June
1993, UCI filed for protection under the federal bankruptcy laws. Mr. Futer's
spectrum of experience has included work in the fields of hi-tech flight
simulation and display technologies (especially those of light emitting diodes
and liquid crystal displays), and in consumer electronics, i.e. electronic
watches, pocket calculators, and electronic games. Most recently, he has been
involved in pager design, manufacture and marketing, as well as the wider field
of paging equipment. His international background includes work with Hatfield
Instrument (in England, where he was born), Canadian Aviation Electronics,
located in Montreal, Canada, General Instruments (in Canada and the United
States), Litronix (in California) and Siemens (living in California and England
and commuting to the head office in Munich, as well as Berlin, Paris and Milan).
In 1975, he was instrumental in implementing a major "turn-key" technology
transfer
-16-
<PAGE>
from Canada to the (then) Soviet Union for the manufacture of hand-held
electronic calculators, an operation which the Soviets then improved from the
consumer level and adapted to suit their particular requirements. Since 1975,
Mr. Futer has had extensive in-depth experience of interfacing with Pacific Rim
countries. In 1992 and 1993, he spent time in the People's Republic of China
coordinating a successful technology transfer for one of the first pager
manufacturing facilities.
A. L. CLIFFORD has served as a director since December 1996. Mr. Clifford
has served as president of Clifford & Associates for over five years, a company
involved in the distribution of electrical and electronic products throughout
the Midwest since 1920. Mr. Clifford is a graduate of the University of Miami,
where he studied business and attended law school.
SENATOR GARY HART has served as a director since January of 1988 and
served in the United States Senate from 1975 to 1987. During his twelve years in
the Senate he served on the Senate Armed Services Committee where he specialized
in nuclear arms control and naval issues. Senator Hart also served on the Senate
Select Committee to Investigate the Intelligence Operations of the United States
Government and was an original member of the new Senate Intelligence Oversight
Committee from 1975 to 1978. Senator Hart was also a congressional advisor to
the Salt II talks with the Soviet Union in Geneva. He is the author of numerous
books, including RUSSIA SHAKES THE WORLD (1991). Since leaving the Senate he has
served as a strategic advisor to major U.S. corporations, focusing on the former
Soviet Union and Eastern Europe. Senator Hart is a graduate of Yale Law School,
the Yale Divinity School and Southern Nazarene University.
RICHARD R. ROYALL has served as chief financial officer since March 1996.
Mr. Royall has been a certified public accountant since 1971. From 1971 to 1976,
Mr. Royall was employed with Haskins & Sells, Laventhol & Horwath (a partner
from 1976 to 1986), and Bracken, Krutilek & Royall (1986). In 1986, Mr. Royall
practiced accounting as a sole proprietor. Since 1987, Mr. Royall has been a
partner in Royall & Fleschler, certified public accountants. In addition to the
foregoing, Mr. Royall serves as financial officer and director of companies
operating in the oil and gas industry, software industry and chemical
industries, none of which are affiliated with the company.
The directors of the company hold office until the next annual meeting of
the stockholders of the company and until their successors are duly elected and
qualified. Directors are reimbursed for out-of-pocket expenses to attend
meetings. Senator Gary Hart is paid a $2,000 fee for each meeting that he
attends. Senator Hart received a total of $6,000 in director's fees for the
year. Senator Hart has also been granted 50,000 Class C warrants to purchase the
company's common stock at an exercise price of $2.00. The company has not
established and does not maintain any compensation, audit, executive or
nominating committees. There are no family relationships among any of the
directors and executive officers of the company.
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding compensation
paid by the company to the chief executive officer. No other executive officer
received in excess of $100,000 in compensation during the fiscal year ended
August 31, 1998.
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<PAGE>
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
----------------------------------- ----------------------
YEAR SALARY BONUS OTHER OPTIONS OTHER
---- ------ ----- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C>
H. Dean Cubley
Chief Executive Officer 1998 $91,923 $ - $ - $ - $ -
1997 $65,407 $ - $ - $ - $ -
1996 $52,181 $ - $ - $ - $ -
</TABLE>
The company has not entered into employment agreements with any of its
executive officers.
STOCK OPTIONS
In July 1996, the Board of Directors and majority stockholders adopted a
stock option plan under which 400,000 shares of common stock have been reserved
for issuance. As of the date of this Prospectus, options to purchase 80,375
shares have been granted pursuant to such plan to non-executive employees and
options to purchase 5,000 shares have been granted to executive employees.
1998 STOCK OPTION GRANTS
<TABLE>
<CAPTION>
NAME OPTIONS GRANTED PERCENT EXERCISE EXPIRATION DATE
(SHARES) OF TOTAL PRICE (PER
OPTIONS SHARE)
GRANTED
- ------------------------ ---------------- ----------------- ----------- ---------------
<S> <C> <C> <C> <C>
H. Dean Cubley -- -- -- --
Christopher W. "James" 5,000 5.8% $1.25 8/03/03
Futer
Richard Royall -- -- -- --
</TABLE>
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<PAGE>
AGGREGATED OPTION EXERCISES IN 1998 AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
SHARES
ACQUIRED NUMBER OF SECURITIES VALUE OF
ON VALUE UNDERLYING UNEXERCISED UNEXERCISED IN-THE-MONEY
NAME EXERCISE REALIZED OPTIONS OPTIONS(*)
- ------------------------------------------------------------------------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C> <C> <C>
H. Dean Cubley - - - - $ 0 $ 0
Christopher W. - - 5,000 -0- $ 0 $ 0
"James" Futer
Richard Royall - - - - $ 0 $ 0
</TABLE>
- ---------------------
(*) Computed based on the differences between the fair market value and
aggregate exercise prices.
RETIREMENT PLANS
In 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
November 30, 1998, total employee contributions were approximately $74,654,
whereas the total amount matched by the employer was approximately $22,765.
CERTAIN TRANSACTIONS
The company was incorporated in May 1993, but did not conduct any substantive
business operations until it acquired cash, certain inventory and test equipment
from Hou-Tex Trust, Bailey Trust, Futer Family Trust and John Nagel totaling
approximately $500,000 and concurrently acquired certain assets from an
affiliate of Dr. Cubley totaling approximately $260,000, both of which occurred
in April 1996. Additionally, the company assumed liabilities owed to certain
principal stockholders and founders as follows: (i) $145,000 to an affiliate of
Dr. Cubley; (ii) $33,000 to certain founding stockholders; and (iii) $82,000 to
certain unrelated third parties. Promoters of the company are Hou-Tex Trust, B
and F Trust, Futer Family Trust, Dr. Cubley, Mr. Futer, Mr. Clifford, Mr. Porter
Barton and Vonn Ltd. Dr. Cubley disclaims beneficial ownership, as well as the
voting and disposition power of the company securities owned by Hou-Tex Trust
and B and F Trust. Mr. Futer disclaims beneficial ownership, as well as voting
and disposition power, of the company securities owned by the Futer Family
Trust.
In connection with the organization of the company, 3,150,000 shares of
common stock were issued to the Hou-Tex Trust, 990,000 shares of common stock
were issued to the Futer Family Trust, 180,000 shares of common stock were
issued to the Bailey Trust, and 180,000 shares of common stock were issued to
John Nagel, such issuances were for nominal services rendered, contribution of
certain net assets and cash valued at approximately $345,000. In July 1996, the
company issued for fund-raising services rendered: $.05 warrants to purchase
350,000, 110,000, 20,000 and 20,000 shares, respectively, to the Hou-Tex Trust,
the Futer Family Trust, the Bailey Trust and Mr. Nagel, respectively; and $.50
warrants to purchase 350,000, 110,000, 20,000 and 20,000 shares, respectively,
to the Hou-Tex Trust, the Futer Family Trust, the Bailey Trust and Mr. Nagel,
respectively. Neither of these $.05 warrants or $.50 warrants are exercisable
until and unless the shares of common stock trade at a minimum of $5.50 per
share for 20 consecutive trading days. The company issued, for fund-raising
services rendered, to the Hou-Tex Trust, the Futer Family Trust, the Bailey
Trust and Mr. Nagel: currently exercisable class A warrants to purchase 350,000
shares 110,000 shares, 20,000 shares, and 20,000 shares, respectively; and
currently exercisable class B
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<PAGE>
warrants to purchase 350,000 shares, 110,000 shares, 20,000 shares, and 20,000
shares, respectively. The company issued, for fund-raising services, warrants to
purchase an aggregate of 700,000 shares of common stock at $.01 per share to the
following entities and individuals: warrants to purchase 490,000 shares to the B
and F Trust, warrants to purchase 154,000 shares to the Futer Family Trust,
warrants to purchase 28,000 shares to the Bailey Trust and warrants to purchase
28,000 shares to John Nagel. All of such warrants became exercisable in December
1996 and were exercised in full in February 1997.
From September 1996 through December 1997, the company issued to Messrs.
Clifford and Barton and Realt, LLC the following securities: 366,000, 975,000
and 567,000 shares of common stock, respectively; $.05 warrants to purchase
166,667 shares, 166,667 shares and 166,666 shares of common stock, respectively;
and $.50 warrants to purchase 166,667 shares, 71,667 shares and 166,666 shares
of common stock, respectively; class A warrants to purchase 166,667 shares,
146,667 shares, 166,666 shares, respectively; and class B warrants to purchase
166,667 shares, 146,667 shares, and 166,666 shares, respectively. Certain
company securities issued to Messrs. Clifford and Barton and Realt, LLC have
been transferred to third parties. All of the above issuances of common stock
were for approximately $120,000 of expenses incurred on behalf of the company by
these parties in connection with fund-raising activities. The issuance of the
warrants were for fund-raising services rendered.
Certain principal stockholders (or affiliates thereof) of the company,
including Messrs. Futer and Clifford are also principal stockholders of
Link-Two, which is a principal customer of the company. Mr. Clifford is also the
chairman, and chief executive officer of Link-Two and Dr. Cubley is a director
of Link-Two. In addition, the company and Link-Two have executed an agreement,
whereby the company would receive up to an 8% equity interest in Link-Two in
lieu of accruing finance charges on the outstanding balance owed by Link-Two to
the company. Under the agreement, equity in Link-Two is earned at a rate of 0.2%
per month per $100,000 payable and outstanding for more than 30 days. As of May
31, 1997, the company had earned the full 8% equity interest to be evidenced by
the issuance of 240,000 shares of Link-Two common stock to the company. The
company's 8% interest in Link-Two has subsequently been diluted to 5% as
Link-Two issued and outstanding common stock has increased. As of August 31,
1998, Link-Two owed the company $5,144,042, comprising approximately 95% of the
accounts receivable at such date. In September 1996, Richard Royall was issued
$.05 warrants to purchase 12,500 shares of common stock, and $5.00 warrants to
purchase 12,500 shares of common stock. The $.05 warrants are not exercisable
until and unless the shares of common stock trade at a minimum of $5.50 per
share for 20 consecutive trading days. In December 1997, Senator Gary Hart was
issued class C $2.00 warrants to purchase 50,000 shares of common stock as
compensation for serving on the company's board of directors. The class C
warrants expire August 31, 2000 and are callable by the company at a price of
$.05 per class C warrant when 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.
LIMITATION OF DIRECTORS' LIABILITY
The company's Articles of Incorporation eliminates, subject to certain
exceptions, the personal liability of directors of the company or its
stockholders for monetary damages for breaches of fiduciary duty by such
directors. The Articles of Incorporation do not provide for the elimination of
or any limitation on the personal liability of a director for (i) any breach of
the director's duty of loyalty to the company or its stockholders, (ii) acts or
omissions not in good faith that constitutes a breach of duty of the director or
which involve intentional misconduct or a knowing violation of law, (iii) any
transaction from which such director derives an improper personal benefit,
whether or not the benefit resulted from an action taken within the scope of the
director's office, or (iv) an act or omission for which the liability of a
director is expressly provided by an applicable statute. This provision of the
Articles of Incorporation will limit the remedies available to the stockholder
who is dissatisfied with a decision of the Board of Directors protected by this
provision; such stockholder's only remedy may be to bring a suit to prevent the
action of the Board. This remedy may not be effective in many situations,
because stockholders are often unaware of a transaction or an event prior to
Board action in respect of such transaction or event. In these cases, the
stockholders and the company could be injured by a Board's decision and have no
effective remedy.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of the date of this prospectus, the
number and percentage of outstanding shares of company common stock owned by (i)
each person known to the company to beneficially own more than 5% of its
outstanding common stock, (ii) each director, (iii) each named executive
officer, and (iv) all officers and directors as a group.
NAME AND ADDRESS SHARES OF COMMON STOCK (1) % OF VOTING POWER
- ---------------- -------------------------- -----------------
Hou-Tex Trust
1331 Lamar, Suite 1375
Houston, TX 77010 3,770,000(2) 30.6%
H. Dean Cubley
910 Gemini Avenue
Houston, TX 77058-2704 - (3) -
Futer Family Trust
1331 Lamar, Suite 1375
Houston, TX 77010 1,334,000(4) 10.8%
Christopher W. Futer
910 Gemini Avenue
Houston, TX 77058-2704 5,000(5) -
Vonn, Ltd.
P.O. Box 1407
St. Johns, Antigua, West Indies 950,332(6) 7.7%
Richard Royall
910 Gemini Avenue
Houston, TX 77058-2704 12,500(7) 0.1%
A.L. Clifford
910 Gemini Avenue
Houston, TX 77058-2704 579,334(8) 4.7%
Gary Hart
950 17th Street
Denver, CO 80202 100,000(9) 0.8%
All officers and directors as a
group (5 persons) 691,834(10) 5.6%
(1) Does not give effect to outstanding warrants to purchase shares of company
common stock at exercise prices of $.05 warrants and $.50 warrants, as 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.
It is assumed for the purposes of this table that no trading will occur
within 60 days of the date of this document.
(2) Includes warrants to purchase 310,000 shares of company common stock at
$4.00 per share which expire on August 31, 2000, and are redeemable by the
company at $.05 per share if at any time the closing bid price of the common
stock shall have equaled or exceeded $5.50 per share for a period of 20
consecutive trading days (the class A warrants), and warrants to purchase
310,000 shares of company common stock at $6.00 per share which expire on
August 31, 2000, and are redeemable by the company at $.05 per share if at
any time the closing bid price of the common stock shall have equaled or
exceeded $7.50 per share for a period of 20 consecutive trading days (the
class B warrants). See "Certain Transactions."
(3) Dr. Cubley disclaims beneficial ownership, as well as voting and disposition
power of the shares of common stock and warrants owned by the Hou-Tex Trust.
(4) Includes (i) 110,000 shares of company common stock underlying class A
warrants, and 110,000 shares of company common stock underlying class B
warrants. See "Certain Transactions."
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<PAGE>
(5) Mr. Futer disclaims beneficial ownership, as well as voting and disposition
power of the shares of common stock and warrants owned by the Futer Family
Trust. Includes options to purchase 5,000 shares of company common stock at
$1.25 per share which will expire on 8/3/03 issued pursuant to the
company's employee stock option program.
(6) Includes (i) 166,666 shares of company common stock underlying class A
warrants, 166,666 shares of company common stock underlying class B
warrants and options to purchase 25,000 shares of company common stock at
$5.00 ($5.00 warrants) per share which expire May 13, 1999. See "Certain
Transactions."
(7) Includes 12,500 shares of company common stock underlying $5.00 warrants.
(8) The record holder of these securities is the Clifford Family Trust of which
Mr. Clifford has voting and disposition power. Includes 110,000 shares of
company common stock underlying class A warrants and 110,000 shares of
company common stock underlying class B warrants.
(9) Includes 50,000 shares of company common stock underlying class C warrants
and 25,000 shares of company common stock underlying $5.00 warrants.
(10) Includes warrants to purchase 670,000 shares of company common stock that
are currently exercisable.
DESCRIPTION OF CAPITAL STOCK
COMMON STOCK
The company is authorized to issue up to 100,000,000 shares of common
stock. There are 11,670,155 shares of common stock issued and outstanding, up to
15,266,668 shares are reserved for issuance upon exercise of the warrants, and
400,000 shares are reserved for issuance under the company's stock option plan.
The holders of shares of common stock are entitled to one vote per share
on each matter submitted to a vote of stockholders. In the event of liquidation,
holders of common stock are entitled to share ratably in the distribution of
assets remaining after payment of liabilities and liquidation preferences on the
preferred stock, if any. Holders of common stock have no cumulative voting
rights, and, accordingly, the holders of a majority of the outstanding shares
have the ability to elect all of the directors. Holders of common stock have no
preemptive or other rights to subscribe for shares. Subject to the prior rights
of any series of preferred stock which may from time to time be outstanding, if
any, holders of common stock are entitled to such dividends as may be declared
by the Board of Directors out of funds legally available therefor. The
outstanding common stock is, and the common stock to be outstanding upon
completion of this offering will be, validly issued, fully paid and
non-assessable.
PREFERRED STOCK
The company is authorized to issue up to 5,000,000 shares of preferred
stock, $.001 par value per share. The preferred stock may be issued in one or
more series, the terms of which may be determined at the time of issuance by the
Board of Directors, without further action by stockholders, and may include
voting rights (including the right to vote as a series on particular matters),
preferences as to dividends and liquidation, conversion, redemption rights and
sinking fund provisions.
No shares of preferred stock will be outstanding as of the closing of
this offering, and the company has no present plans for the issuance thereof.
The issuance of any such preferred stock could have the effect of delaying or
preventing a change in control of the company. The issuance of such preferred
stock could also adversely affect the rights of the holders of common stock and,
therefore, reduce the value of the common stock.
WARRANTS
The company has issued the following warrants to purchase an aggregate of
15,266,668 shares of common stock.
CLASS A WARRANTS
The company has issued class A warrants to purchase 5,033,334 shares of
common stock at $4.00 per share. The class A warrants are currently exercisable
and expire on August 31, 2000. If the closing bid price of the common stock
shall have equaled or exceeded $5.50 per share for a period of 20 consecutive
trading days at any time, the company may redeem the class A warrants by paying
holders $.05 per class A warrant provided that such
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<PAGE>
notice is mailed not later than 20 days after the end of such period and
prescribes a redemption date at least 30 days but not more than 60 days
thereafter. Class A warrant holders will be entitled to exercise class A
warrants at any time up to the business day next preceding the redemption date.
The class A warrants provide for the payment, by the company, of a 3%
solicitation fee.
CLASS B WARRANTS
The company has issued class B warrants to purchase 5,033,334 shares of
common stock at $6.00 per share. The class B warrants are currently exercisable
and expire on August 31, 2000. If the closing bid price of the common stock
shall have equaled or exceeded $7.50 per share for a period of 20 consecutive
trading days at any time, the company may redeem the class B warrants by paying
holders $.05 per class B warrant provided that such notice is mailed not later
than 20 days after the end of such period and prescribes a redemption date at
least 30 days but not more than 60 days thereafter. Class B warrant holders will
be entitled to exercise class B warrants at any time up to the business day next
preceding the redemption date. The class B warrants provide for the payment, by
the company, of a 3% solicitation fee.
CLASS C WARRANTS
The company has issued class C warrants to purchase 1,050,000 shares of
common stock at $2.00 per share. The class C warrants are held by insiders of
the company and are currently exercisable and expire on August 31, 2000. If the
closing bid price of the common stock shall have equaled or exceeded $5.50 per
share for a period of 20 consecutive trading days at any time, the company may
redeem the class C warrants by paying holders $.05 per class C warrant provided
that such notice is mailed not later than 20 days after the end of such period
and prescribes a redemption date at least 30 days but not more than 60 days
thereafter. Class C warrant holders will be entitled to exercise class C
warrants at any time up to the business day next preceding the redemption date.
The class C warrants provide for the payment, by the company, of a 3%
solicitation fee.
$.05 WARRANTS
The company has issued $.05 warrants to purchase 1,050,000 shares of
common stock at $.05 per share, which expire in May 1999.
$.50 WARRANTS
The company has issued $.50 warrants to purchase 1,375,000 shares of
common stock at $.50 per share, which expire in May 1999. Of the 1,375,000 $.50
warrants 960,000 are held by insiders and are not exercisable until and unless
the shares of common stock trade at a minimum of $5.50 per share for 20
consecutive trading days.
$5.00 WARRANTS
The company has issued $5.00 warrants to purchase 425,000 shares of
common stock at $5.00 per share. The $5.00 warrants are currently exercisable
and expire in May 1999.
THE MEGA HOLDING CORP. WARRANTS
CLASS 1
Warrants to purchase 150,000 shares of the common stock at a
purchase price of $1.50 per share. These warrants 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
the date hereof, the underlying shares of common stock have not been registered
for resale under the Securities Act of 1933 and thus have no set expiration
date.
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<PAGE>
CLASS 2
Warrants to purchase 150,000 shares of the common stock at a
purchase price of $2.00 per share. These warrants are not exercisable until and
unless the shares of common stock trade at a minimum of $45.50 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 the date hereof,
the underlying shares of common stock have not been registered for resale under
the Securities Act of 1933 and thus have no set expiration date.
CLASS 3
Warrants to purchase 200,000 shares of common stock at a purchase
price of $3.00 per share. These warrants 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 the date
hereof, the underlying shares of common stock have not been registered for
resale under the Securities Act of 1933 and thus have no set expiration date.
CLASS 4
Warrants to purchase 200,000 shares of common stock at a purchase
price of $5.00 per share. These warrants 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 the
date hereof, the underlying shares of common stock have not been registered for
resale under the Securities Act of 1933 and thus have no set expiration date.
CLASS 5
Warrants to purchase 200,000 shares of common stock at a purchase
price of $7.00 per share. These warrants 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 the
date hereof, the underlying shares of common stock have not been registered for
resale under the Securities Act of 1933 and thus have no set expiration date.
CLASS 6
Warrants to purchase 200,000 shares of common stock at a purchase
price of $9.00 per share. These warrants 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 the date
hereof, the underlying shares of common stock have not been registered for
resale under the Securities Act of 1933 and thus have no set expiration date.
CLASS 7
Warrants to purchase 200,000 shares of common stock at a purchase
price of $11.00 per share. These warrants 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 the date
hereof, the underlying shares of common stock have not been registered for
resale under the Securities Act of 1933 and thus have no set expiration date.
TRANSFER AGENT
Registrar & Transfer Company serves as the transfer agent for the shares
of common stock.
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<PAGE>
SHARES AVAILABLE FOR FUTURE SALE
Upon the date of this prospectus there are 11,670,155 shares of common
stock issued and outstanding and up to 15,266,668 additional shares will be
issuable upon exercise of the warrants. The 5,308,334 shares of common stock to
be resold pursuant to this offering currently outstanding are, and upon exercise
of the subject warrants, the 11,541,668 shares of common stock issuable
thereunder will be, eligible for immediate resale in the public market. The
remaining 6,361,821 shares of common stock outstanding and 2,425,000 shares
issuable upon exercise of $.05 warrants and the $.50 warrants will be subject to
the resale provisions of Rule 144. In addition, the company has agreed to
register 1,300,000 shares of common stock underlying warrants to be issued to
Mega Holding Corp. See "Business-Recent Developments." Sales of common stock in
the public market may have an adverse effect on prevailing market prices for the
common stock. See "Shares Eligible for Future Sale."
Rule 144 governs resale of "restricted securities" for the account of any
person (other than an issuer), and restricted and unrestricted securities for
the account of an "affiliate" of the issuer. Restricted securities generally
include any securities acquired directly or indirectly from an issuer or its
affiliates which were not issued or sold in connection with a public offering
registered under the Act. An affiliate of the issuer is any person who directly
or indirectly controls, is controlled by, or is under common control with, the
issuer. Affiliates of the company may include its directors, executive officers,
and persons directly or indirectly owning 10% or more of the outstanding common
stock. Under Rule 144 unregistered resales of restricted common stock cannot be
made until it has been held for one year from the later of its acquisition from
the company or an affiliate of the company. Thereafter, shares of common stock
may be resold without registration subject to Rule 144's volume limitation,
aggregation, broker transaction, notice filing requirements, and requirements
concerning publicly available information about the company ("Applicable
Requirements"). Resales by the company's affiliates of restricted and
unrestricted common stock are subject to the Applicable Requirements. The volume
limitations provide that a person (or persons who must aggregate their sales)
cannot, within any three-month period, sell more than the greater of one percent
of the then outstanding shares, or the average weekly reported trading volume
during the four calendar weeks preceding each such sale. A non-affiliate may
resell restricted common stock which has been held for two years free of the
Applicable Requirements.
PLAN OF DISTRIBUTION AND SELLING STOCKHOLDERS
This prospectus relates to the resale of 16,850,002 shares of common
stock by the selling stockholders of which 5,308,334 shares are currently issued
and outstanding and up to 11,541,668 shares to be issued upon (1) exercise of
class A warrants outstanding to purchase up to 5,033,334 shares, (2) exercise of
class B warrants outstanding to purchase up to 5,033,334 shares, and (3)
exercise of class C warrants to purchase up to 1,050,000 on shares and (4)
exercise of $5.00 warrants outstanding to purchase up to 425,000 shares of
common stock. This prospectus also relates to the resale of 5,033,334 class B
warrants.
The table below sets forth information with respect to the resale of
shares of common stock by the selling stockholders, including the resale of
shares of common stock issued upon exercise of the subject warrants. The company
will not receive any proceeds from the resale of common stock by the selling
stockholders for shares currently outstanding (not from the resale of class B
warrants); however, the company will receive the exercise price. This table does
not set forth the resale of the class B warrants. However, the numbered class B
warrants owned by each selling shareholder, the resale of which is being
registered hereby, is identical to the number of shares of common stock
underlying the class B warrants. The resale of such shares is also being
registered hereby.
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<PAGE>
RESALE OF COMMON STOCK BY SELLING STOCKHOLDERS
SHARES CURRENTLY OUTSTANDING ("S"),
SHARES TO BE ISSUED UPON EXERCISE OF CLASS A WARRANTS ("A"),
CLASS B WARRANTS ("B"),
CLASS C WARRANTS ("C"),
AND $5.00 WARRANTS ("$5.00")
<TABLE>
<CAPTION>
AMOUNT
OFFERED
SHARES (ASSUMING SHARES
BENEFICIALLY ALL BENEFICIALLY
OWNED SHARES OWNED
BEFORE IMMEDIATELY AFTER
STOCKHOLDER RESALE SOLD) RESALE PERCENTAGE
----------- ------ ----- ------ ----------
<S> <C> <C> <C> <C>
Adhikary, Tapan Kumar 5,000 S 5,000 S 0.00% 0.00%
5,000 A 5,000 A
5,000 B 5,000 B
Allen, Norman A. & Pamela 10,000 S 10,000 S 0.00% 0.00%
Holberg 10,000 A 10,000 A
10,000 B 10,000 B
Ameritrade Clearing, Inc., 10,000 S 10,000 S 0.00% 0.00%
Custodian for Donald M. 10,000 A 10,000 A
Robinson IRA 10,000 B 10,000 B
Arabella 220,000 S 220,000 S 0.00% 0.00%
220,000 A 220,000 A
220,000 B 220,000 B
Asbeck, Marcia and Peter 10,000 S 10,000 S 0.00% 0.00%
10,000 A 10,000 A
10,000 B 10,000 B
Auchstetter, Gerald A. 15,000 S 15,000 S 0.00% 0.00%
15,000 A 15,000 A
15,000 B 15,000 B
Azbell, Frederic K. & 20,000 S 20,000 S 0.00% 0.00%
Barbara A. 20,000 A 20,000 A
20,000 B 20,000 B
B and F Trust 450,000 S 450,000 S 0.00% 0.00%
Bach, Robert L. 10,000 S 10,000 S 0.00% 0.00%
10,000 A 10,000 A
10,000 B 10,000 B
Bailey Trust 208,000 S 208,000 S 0.00% 0.00%
20,000 A 20,000 A
20,000 B 20,000 B
Barnard, John E. 1,000 S 1,000 S 0.00% 0.00%
1,000 A 1,000 A
1,000 B 1,000 B
Barrett, Gloria J. & 20,000 S 20,000 S 0.00% 0.00%
James L. 20,000 A 20,000 A
</TABLE>
-26-
<PAGE>
<TABLE>
<CAPTION>
AMOUNT
OFFERED
SHARES (ASSUMING SHARES
BENEFICIALLY ALL BENEFICIALLY
OWNED SHARES OWNED
BEFORE IMMEDIATELY AFTER
STOCKHOLDER RESALE SOLD) RESALE PERCENTAGE
----------- ------ ----- ------ ----------
<S> <C> <C> <C> <C>
20,000 B 20,000 B
Barrett, James G. 20,000 S 20,000 S 0.00% 0.00%
20,000 A 20,000 A
20,000 B 20,000 B
Barrett-Nelson, Hollye J. 20,000 S 20,000 S 0.00% 0.00%
20,000 A 20,000 A
20,000 B 20,000 B
Barton Family Trust 126,667 A 126,667 A 0.00% 0.00%
126,667 B 126,667 B
Basche, Scott 10,000 S 10,000 S 0.00% 0.00%
10,000 A 10,000 A
10,000 B 10,000 B
Benson, Mark J. 10,000 S 10,000 S 0.00% 0.00%
10,000 A 10,000 A
10,000 B 10,000 B
Bergerson, Rodney L. 1,000 S 1,000 S 0.00% 0.00%
1,000 A 1,000 A
1,000 B 1,000 B
Bestgen, Ted 20,000 S 20,000 S 0.00% 0.00%
20,000 A 20,000 A
20,000 B 20,000 B
Big Cat Capital 85,000 C 85,000 C 0.00% 0.00%
Bippus, William J. 12,500 ($5.00) 12,500($5.00) 0.00% 0.00%
Bloom, James August 10,000 S 10,000 S 0.00% 0.00%
10,000 A 10,000 A
10,000 B 10,000 B
Brentwood Financial, Ltd. 160,000 S 160,000 S 0.00% 0.00%
160,000 A 160,000 A
160,000 B 160,000 B
Brown, Jodie 20,000 S 20,000 S 0.00% 0.00%
20,000 A 20,000 A
20,000 B 20,000 B
Brutger, Wayne A. 10,000 S 10,000 S 0.00% 0.00%
10,000 A 10,000 A
10,000 B 10,000 B
Buchanan, Jeffery L. 20,000 S 20,000 S 0.00% 0.00%
20,000 A 20,000 A
20,000 B 20,000 B
</TABLE>
-27-
<PAGE>
<TABLE>
<CAPTION>
AMOUNT
OFFERED
SHARES (ASSUMING SHARES
BENEFICIALLY ALL BENEFICIALLY
OWNED SHARES OWNED
BEFORE IMMEDIATELY AFTER
STOCKHOLDER RESALE SOLD) RESALE PERCENTAGE
----------- ------ ----- ------ ----------
<S> <C> <C> <C> <C>
Burger, Cynthia S. 20,000 S 20,000 S 0.00% 0.00%
20,000 A 20,000 A
20,000 B 20,000 B
Carmichael, Thomas S. 10,000 S 10,000 S 0.00% 0.00%
10,000 A 10,000 A
10,000 B 10,000 B
Carpenter, Raymond 1,000 S 1,000 S 0.00% 0.00%
1,000 A 1,000 A
1,000 B 1,000 B
CASZ LLC 50,000 S 50,000 S 0.00% 0.00%
50,000 ($5.00) 50,000($5.00)
Chisholm, Roger L. 10,000 S 10,000 S 0.00% 0.00%
10,000 A 10,000 A
10,000 B 10,000 B
CLFS Equities 25,000 S 25,000 S 0.00% 0.00%
25,000 ($5.00) 25,000($5.00)
Clifford, John C. 40,000 S 40,000 S 0.00% 0.00%
40,000 A 40,000 A
40,000 B 40,000 B
Clifford Family Trust 166,667 A 166,667 A 0.00% 0.00%
166,667 B 166,667 B
Coatta, John B. 10,000 S 10,000 S 0.00% 0.00%
10,000 A 10,000 A
10,000 B 10,000 B
Coatta, Jean E. 10,000 S 10,000 S 0.00% 0.00%
10,000 A 10,000 A
10,000 B 10,000 B
Coatta, Jay D. 20,000 S 20,000 S 0.00% 0.00%
20,000 A 20,000 A
20,000 B 20,000 B
Cohen, Morris 20,000 S 20,000 S 0.00% 0.00%
20,000 A 20,000 A
20,000 B 20,000 B
Cole, David L. 20,000 S 20,000 S 0.00% 0.00%
20,000 A 20,000 A
20,000 B 20,000 B
Collis, M.D., Noel D. 20,000 S 20,000 S 0.00% 0.00%
20,000 A 20,000 A
</TABLE>
-28-
<PAGE>
<TABLE>
<CAPTION>
AMOUNT
OFFERED
SHARES (ASSUMING SHARES
BENEFICIALLY ALL BENEFICIALLY
OWNED SHARES OWNED
BEFORE IMMEDIATELY AFTER
STOCKHOLDER RESALE SOLD) RESALE PERCENTAGE
----------- ------ ----- ------ ----------
<S> <C> <C> <C> <C>
20,000 B 20,000 B
Corliss, Robert J. 20,000 S 20,000 S 0.00% 0.00%
20,000 A 20,000 A
20,000 B 20,000 B
Craven, Richard F. 20,000 S 20,000 S 0.00% 0.00%
20,000 A 20,000 A
20,000 B 20,000 B
Crook, James W. 20,000 S 20,000 S 0.00% 0.00%
20,000 A 20,000 A
20,000 B 20,000 B
Dahlberg, David 10,000 S 10,000 S 0.00% 0.00%
10,000 A 10,000 A
10,000 B 10,000 B
David L. Cole Pension Plan 20,000 S 20,000 S 0.00% 0.00%
& Trust 20,000 A 20,000 A
20,000 B 20,000 B
Deanmore Holdings 120,000 S 120,000 S 0.00% 0.00%
120,000 A 120,000 A
120,000 B 120,000 B
Derrer, Roland Jack & Kay 20,000 S 20,000 S 0.00% 0.00%
Jean 20,000 A 20,000 A
20,000 B 20,000 B
Dillon, Jr., Robert J. 5,000 S 5,000 S 0.00% 0.00%
5,000 A 5,000 A
5,000 B 5,000 B
Dompnier, Rene 20,000 S 20,000 S 0.00% 0.00%
20,000 A 20,000 A
20,000 B 20,000 B
Dulas, Daniel 10,000 S 10,000 S 0.00% 0.00%
10,000 A 10,000 A
10,000 B 10,000 B
Dulverton Holdings 120,000 S 120,000 S 0.00% 0.00%
120,000 A 120,000 A
120,000 B 120,000 B
Econology / The Founder 750,000 C 750,000 C 0.00% 0.00%
Elituv, Chavan 40,000 S 40,000 S 0.00% 0.00%
40,000 A 40,000 A
40,000 B 40,000 B
</TABLE>
-29-
<PAGE>
<TABLE>
<CAPTION>
AMOUNT
OFFERED
SHARES (ASSUMING SHARES
BENEFICIALLY ALL BENEFICIALLY
OWNED SHARES OWNED
BEFORE IMMEDIATELY AFTER
STOCKHOLDER RESALE SOLD) RESALE PERCENTAGE
----------- ------ ----- ------ ----------
<S> <C> <C> <C> <C>
Erickson, Eric 5,000 S 5,000 S 0.00% 0.00%
5,000 A 5,000 A
5,000 B 5,000 B
Ericson, James E. 20,000 S 20,000 S 0.00% 0.00%
20,000 A 20,000 A
20,000 B 20,000 B
Erkkila, Russell E. 10,000 S 10,000 S 0.00% 0.00%
10,000 A 10,000 A
10,000 B 10,000 B
Estrich, Mark and Terry 5,000 S 5,000 S 0.00% 0.00%
5,000 A 5,000 A
5,000 B 5,000 B
Estrich, Florence 5,000 S 5,000 S 0.00% 0.00%
5,000 A 5,000 A
5,000 B 5,000 B
Eye Guys, Inc. 10,000 S 10,000 S 0.00% 0.00%
10,000 A 10,000 A
10,000 B 10,000 B
First Trust National
Association Trustee 20,000 S 20,000 S 0.00% 0.00%
FBO Thomas S. Shoopman 20,000 A 20,000 A
IRA 20,000 B 20,000 B
First Trust National
Association Trustee 40,000 S 40,000 S 0.00% 0.00%
FBO Wallace F. Miller IRA 40,000 A 40,000 A
40,000 B 40,000 B
First Trust National
Association Trustee 10,000 S 10,000 S 0.00% 0.00%
FBO Steven Graybow IRA 10,000 A 10,000 A
10,000 B 10,000 B
First Trust National
Association Trustee 3,667 S 3,667 S 0.00% 0.00%
FBO Irving J. Geislinger 3,667 A 3,667 A
IRA 3,667 B 3,667 B
First Trust National
Association Trustee 9,000 S 9,000 S 0.00% 0.00%
FBO Eric J. Overig IRA 9,000 A 9,000 A
Rollover 9,000 B 9,000 B
First Trust National
Association Trustee 10,000 S 10,000 S 0.00% 0.00%
FBO Bryan Johnson IRA 10,000 A 10,000 A
10,000 B 10,000 B
First Trust National
Association Trustee 20,000 S 20,000 S 0.00% 0.00%
FBO Charles J. Steinke 20,000 A 20,000 A
IRA
</TABLE>
-30-
<PAGE>
<TABLE>
<CAPTION>
AMOUNT
OFFERED
SHARES (ASSUMING SHARES
BENEFICIALLY ALL BENEFICIALLY
OWNED SHARES OWNED
BEFORE IMMEDIATELY AFTER
STOCKHOLDER RESALE SOLD) RESALE PERCENTAGE
----------- ------ ----- ------ ----------
<S> <C> <C> <C> <C>
20,000 B 20,000 B
First Trust National 5,000 S 5,000 S 0.00% 0.00%
Association Trustee
FBO Carmen M. Tesch IRA 5,000 A 5,000 A
5,000 B 5,000 B
First Trust National
Association Trustee 10,000 S 10,000 S 0.00% 0.00%
FBO Mark V. Redman IRA 10,000 A 10,000 A
10,000 B 10,000 B
Fleschler, Sammy 12,500 ($5.00) 12,500($5.00) 0.00% 0.00%
Flink, John Leonard 10,000 S 10,000 S 0.00% 0.00%
10,000 A 10,000 A
10,000 B 10,000 B
Forschen, Blaine M. 3,000 S 3,000 S 0.00% 0.00%
3,000 A 3,000 A
3,000 B 3,000 B
Fowler, Lawrence C. & 10,000 S 10,000 S 0.00% 0.00%
Dianne K. 10,000 A 10,000 A
10,000 B 10,000 B
Francis, Donald F. & 12,500 S 12,500 S 0.00% 0.00%
Barbara J. 12,500 ($5.00) 12,500($5.00)
Franckowiak, Norberto & Mary 10,000 S 10,000 S 0.00% 0.00%
10,000 A 10,000 A
10,000 B 10,000 B
Franckowiak, Norberto & 10,000 S 10,000 S 0.00% 0.00%
Janet 10,000 A 10,000 A
10,000 B 10,000 B
Franckowiak, James L. and 10,000 S 10,000 S 0.00% 0.00%
Deborah K. Sparks 10,000 A 10,000 A
10,000 B 10,000 B
Francine, Gene A. and Lois J. 20,000 S 20,000 S 0.00% 0.00%
20,000 A 20,000 A
20,000 B 20,000 B
Futer Family Trust 110,000 A 110,000 A 0.00% 0.00%
110,000 B 110,000 B
Gabon, John 20,000 S 20,000 S 0.00% 0.00%
20,000 A 20,000 A
20,000 B 20,000 B
Garrison, Valerie A. & Lynn R. 10,000 S 10,000 S 0.00% 0.00%
10,000 A 10,000 A
</TABLE>
-31-
<PAGE>
<TABLE>
<CAPTION>
AMOUNT
OFFERED
SHARES (ASSUMING SHARES
BENEFICIALLY ALL BENEFICIALLY
OWNED SHARES OWNED
BEFORE IMMEDIATELY AFTER
STOCKHOLDER RESALE SOLD) RESALE PERCENTAGE
----------- ------ ----- ------ ----------
<S> <C> <C> <C> <C>
10,000 B 10,000 B
Gaykin, Ladle 20,000 S 20,000 S 0.00% 0.00%
20,000 A 20,000 A
20,000 B 20,000 B
Geislinger, Betty 1,333 S 1,333 S 0.00% 0.00%
1,333 A 1,333 A
1,333 B 1,333 B
Geislinger, Irv 5,000 S 5,000 S 0.00% 0.00%
5,000 A 5,000 A
5,000 B 5,000 B
Geislinger, Jeffrey J. 5,000 S 5,000 S 0.00% 0.00%
5,000 A 5,000 A
5,000 B 5,000 B
Geraci, Joseph A. 5,000 S 5,000 S 0.00% 0.00%
5,000 A 5,000 A
5,000 B 5,000 B
Gill, Robert A. 20,000 S 20,000 S 0.00% 0.00%
20,000 A 20,000 A
20,000 B 20,000 B
Glutzer, Norman M. and 10,000 S 10,000 S 0.00% 0.00%
Barbara 10,000 A 10,000 A
10,000 B 10,000 B
Goetz, Jr., Roger H. 10,000 S 10,000 S 0.00% 0.00%
10,000 A 10,000 A
10,000 B 10,000 B
Goetzke, Lester 10,000 S 10,000 S 0.00% 0.00%
10,000 A 10,000 A
10,000 B 10,000 B
Goldberg, Bennett 10,000 S 10,000 S 0.00% 0.00%
10,000 A 10,000 A
10,000 B 10,000 B
Graybow, Rita 30,000 S 30,000 S 0.00% 0.00%
30,000 A 30,000 A
30,000 B 30,000 B
Graybow, Bruce 40,000 S 40,000 S 0.00% 0.00%
40,000 A 40,000 A
40,000 B 40,000 B
Graybow, Steven 20,000 S 20,000 S 0.00% 0.00%
</TABLE>
-32-
<PAGE>
<TABLE>
<CAPTION>
AMOUNT
OFFERED
SHARES (ASSUMING SHARES
BENEFICIALLY ALL BENEFICIALLY
OWNED SHARES OWNED
BEFORE IMMEDIATELY AFTER
STOCKHOLDER RESALE SOLD) RESALE PERCENTAGE
----------- ------ ----- ------ ----------
<S> <C> <C> <C> <C>
20,000 A 20,000 A
20,000 B 20,000 B
Griner, Jr., Frank W. 5,000 S 5,000 S 0.00% 0.00%
5,000 A 5,000 A
5,000 B 5,000 B
Gross, Charles V. 10,000 S 10,000 S 0.00% 0.00%
10,000 A 10,000 A
10,000 B 10,000 B
Gustafson, William T. and 10,000 S 10,000 S 0.00% 0.00%
Barbara J. 10,000 A 10,000 A
10,000 B 10,000 B
Hafiz, Richard J. 10,000 S 10,000 S 0.00% 0.00%
10,000 A 10,000 A
10,000 B 10,000 B
Hanneman, William E. 15,000 S 15,000 S 0.00% 0.00%
15,000 A 15,000 A
15,000 B 15,000 B
Hart, Gary 25,000 S 25,000 S 0.00% 0.00%
25,000 ($5.00) 25,000($5.00)
Helton, Michael 1,000 S 1,000 S 0.00% 0.00%
1,000 A 1,000 A
1,000 B 1,000 B
Hennen, Eugene 10,000 S 10,000 S 0.00% 0.00%
10,000 A 10,000 A
10,000 B 10,000 B
Hennen, Jr., Joseph P. 20,000 S 20,000 S 0.00% 0.00%
20,000 A 20,000 A
20,000 B 20,000 B
Hennen, Sr., Joe 20,000 S 20,000 S 0.00% 0.00%
20,000 A 20,000 A
20,000 B 20,000 B
Hewitt, Robert C. 20,000 S 20,000 S 0.00% 0.00%
20,000 A 20,000 A
20,000 B 20,000 B
Hillen, John 20,000 S 20,000 S 0.00% 0.00%
20,000 A 20,000 A
20,000 B 20,000 B
Hoffmann, D.C. 10,000 S 10,000 S 0.00% 0.00%
</TABLE>
-33-
<PAGE>
<TABLE>
<CAPTION>
AMOUNT
OFFERED
SHARES (ASSUMING SHARES
BENEFICIALLY ALL BENEFICIALLY
OWNED SHARES OWNED
BEFORE IMMEDIATELY AFTER
STOCKHOLDER RESALE SOLD) RESALE PERCENTAGE
----------- ------ ----- ------ ----------
<S> <C> <C> <C> <C>
10,000 A 10,000 A
10,000 B 10,000 B
Holberg, Larry W. 50,000 S 50,000 S 0.00% 0.00%
50,000 A 50,000 A
50,000 B 50,000 B
Holberg, Darlyne L. 5,000 S 5,000 S 0.00% 0.00%
5,000 A 5,000 A
5,000 B 5,000 B
Hooe, Jr., Nelson D. 10,000 S 10,000 S 0.00% 0.00%
10,000 A 10,000 A
10,000 B 10,000 B
Hopkins, Evan 5,000 S 5,000 S 0.00% 0.00%
5,000 A 5,000 A
5,000 B 5,000 B
Horsell, William & Cheryl 10,000 S 10,000 S 0.00% 0.00%
10,000 A 10,000 A
10,000 B 10,000 B
Hou-Tex Trust 310,000 A 310,000 A 0.00% 0.00%
310,000 B 310,000 B
Huot, Irene R. 10,000 S 10,000 S 0.00% 0.00%
10,000 A 10,000 A
10,000 B 10,000 B
Jensen, Julian S. 10,000 S 10,000 S 0.00% 0.00%
10,000 A 10,000 A
10,000 B 10,000 B
Jones, Robert A. 5,000 S 5,000 S 0.00% 0.00%
5,000 A 5,000 A
5,000 B 5,000 B
Joseph Geraci IRA 5,000 S 5,000 S 0.00% 0.00%
5,000 A 5,000 A
5,000 B 5,000 B
Kaatz, Gary 5,000 S 5,000 S 0.00% 0.00%
5,000 A 5,000 A
5,000 B 5,000 B
Kammerer, Celine 20,000 S 20,000 S 0.00% 0.00%
20,000 A 20,000 A
20,000 B 20,000 B
Kaufman, Lewis H. 40,000 S 40,000 S 0.00% 0.00%
</TABLE>
-34-
<PAGE>
<TABLE>
<CAPTION>
AMOUNT
OFFERED
SHARES (ASSUMING SHARES
BENEFICIALLY ALL BENEFICIALLY
OWNED SHARES OWNED
BEFORE IMMEDIATELY AFTER
STOCKHOLDER RESALE SOLD) RESALE PERCENTAGE
----------- ------ ----- ------ ----------
<S> <C> <C> <C> <C>
40,000 A 40,000 A
40,000 B 40,000 B
Kaufmann, Walter A. 10,000 S 10,000 S 0.00% 0.00%
10,000 A 10,000 A
10,000 B 10,000 B
Keczmer, Pamela 10,000 S 10,000 S 0.00% 0.00%
10,000 A 10,000 A
10,000 B 10,000 B
Keczmer, Daniel Patrick, 20,000 S 20,000 S 0.00% 0.00%
Sr. and Alice 20,000 A 20,000 A
20,000 B 20,000 B
Keczmer, Daniel L. & Lisa A. 20,000 S 20,000 S 0.00% 0.00%
20,000 A 20,000 A
20,000 B 20,000 B
Kelly, David J. 5,000 S 5,000 S 0.00% 0.00%
5,000 A 5,000 A
5,000 B 5,000 B
Kinney, Larry J. 20,000 S 20,000 S 0.00% 0.00%
20,000 A 20,000 A
20,000 B 20,000 B
Kinney, Patrick J. 20,000 A 20,000 A 0.00% 0.00%
20,000 B 20,000 B
Klein, Roger A. & Darlene C. 10,000 S 10,000 S 0.00% 0.00%
10,000 A 10,000 A
10,000 B 10,000 B
Klein, Robert N. 20,000 S 20,000 S 0.00% 0.00%
20,000 A 20,000 A
20,000 B 20,000 B
Klein, Gerald A. 5,000 S 5,000 S 0.00% 0.00%
5,000 A 5,000 A
5,000 B 5,000 B
Klein, Sr., Roger H. 5,000 S 5,000 S 0.00% 0.00%
5,000 A 5,000 A
5,000 B 5,000 B
Kolb, Robert T. 25,000 S 25,000 S 0.00% 0.00%
25,000 ($5.00) 25,000($5.00)
Kosar, Jr., Bernie 60,000 S 60,000 S 0.00% 0.00%
60,000 A 60,000 A
</TABLE>
-35-
<PAGE>
<TABLE>
<CAPTION>
AMOUNT
OFFERED
SHARES (ASSUMING SHARES
BENEFICIALLY ALL BENEFICIALLY
OWNED SHARES OWNED
BEFORE IMMEDIATELY AFTER
STOCKHOLDER RESALE SOLD) RESALE PERCENTAGE
----------- ------ ----- ------ ----------
<S> <C> <C> <C> <C>
60,000 B 60,000 B
Kosar, Sr., Bernard and 20,000 S 20,000 S 0.00% 0.00%
Geraldine 20,000 A 20,000 A
20,000 B 20,000 B
Langer, Michael 5,000 S 5,000 S 0.00% 0.00%
5,000 A 5,000 A
5,000 B 5,000 B
Laritson, John 5,000 S 5,000 S 0.00% 0.00%
5,000 A 5,000 A
5,000 B 5,000 B
Larson, Wayne H. 20,000 S 20,000 S 0.00% 0.00%
20,000 A 20,000 A
20,000 B 20,000 B
Lauerman, James E. 10,000 S 10,000 S 0.00% 0.00%
10,000 A 10,000 A
10,000 B 10,000 B
Lauret, Thurman 20,000 S 20,000 S 0.00% 0.00%
20,000 A 20,000 A
20,000 B 20,000 B
Lawton, Fred W. 20,000 S 20,000 S 0.00% 0.00%
20,000 A 20,000 A
20,000 B 20,000 B
Lease, Michael W. 5,000 S 5,000 S 0.00% 0.00%
5,000 A 5,000 A
5,000 B 5,000 B
Leckrone, Janine 5,000 S 5,000 S 0.00% 0.00%
5,000 A 5,000 A
5,000 B 5,000 B
Lehrke, Ronald K. 10,000 S 10,000 S 0.00% 0.00%
10,000 A 10,000 A
10,000 B 10,000 B
Lilja, David S. 40,000 S 40,000 S 0.00% 0.00%
40,000 A 40,000 A
40,000 B 40,000 B
Longhi, Bert 20,000 A 20,000 A 0.00% 0.00%
20,000 B 20,000 B
Maddern, James R. and 3,334 S 3,334 S 0.00% 0.00%
Kristine K. 3,334 A 3,334 A
</TABLE>
-36-
<PAGE>
<TABLE>
<CAPTION>
AMOUNT
OFFERED
SHARES (ASSUMING SHARES
BENEFICIALLY ALL BENEFICIALLY
OWNED SHARES OWNED
BEFORE IMMEDIATELY AFTER
STOCKHOLDER RESALE SOLD) RESALE PERCENTAGE
----------- ------ ----- ------ ----------
<S> <C> <C> <C> <C>
3,334 B 3,334 B
Magnusson, Jan H. 10,000 S 10,000 S 0.00% 0.00%
10,000 A 10,000 A
10,000 B 10,000 B
Mahon, William F. 20,000 S 20,000 S 0.00% 0.00%
20,000 A 20,000 A
20,000 B 20,000 B
Mangini, Oscar R. 20,000 S 20,000 S 0.00% 0.00%
20,000 A 20,000 A
20,000 B 20,000 B
Mark and Margaret Damon 60,000 S 60,000 S 0.00% 0.00%
Trust 60,000 A 60,000 A
60,000 B 60,000 B
Mary H. Ciszewski
Self-Trusted 20,000 S 20,000 S 0.00% 0.00%
Revocable Trust
20,000 A 20,000 A
20,000 B 20,000 B
Matelski, George 20,000 S 20,000 S 0.00% 0.00%
20,000 A 20,000 A
20,000 B 20,000 B
Matelski, Wanda E. & Carl 10,000 S 10,000 S 0.00% 0.00%
D. Parker
10,000 A 10,000 A
10,000 B 10,000 B
McKeehan, Robert J. 10,000 S 10,000 S 0.00% 0.00%
10,000 A 10,000 A
10,000 B 10,000 B
Mechi, Nabil 5,000 C 5,000 C 0.00% 0.00%
Mercantile Bank N.A. Trustee 10,000 S 10,000 S 0.00% 0.00%
FBO Gerald D. Stolz 10,000 A 10,000 A
Profit Sharing Plan 10,000 B 10,000 B
Meyer, Daniel 10,000 S 10,000 S 0.00% 0.00%
10,000 A 10,000 A
10,000 B 10,000 B
Miller, Wallace F. & DeLois J. 60,000 S 60,000 S 0.00% 0.00%
60,000 A 60,000 A
60,000 B 60,000 B
Miller, Thomas D. 20,000 S 20,000 S 0.00% 0.00%
20,000 A 20,000 A
</TABLE>
-37-
<PAGE>
<TABLE>
<CAPTION>
AMOUNT
OFFERED
SHARES (ASSUMING SHARES
BENEFICIALLY ALL BENEFICIALLY
OWNED SHARES OWNED
BEFORE IMMEDIATELY AFTER
STOCKHOLDER RESALE SOLD) RESALE PERCENTAGE
----------- ------ ----- ------ ----------
<S> <C> <C> <C> <C>
20,000 B 20,000 B
Mitchell, Gerald M. 10,000 S 10,000 S 0.00% 0.00%
10,000 A 10,000 A
10,000 B 10,000 B
Mitroo, J.B. 5,000 S 5,000 S 0.00% 0.00%
5,000 A 5,000 A
5,000 B 5,000 B
Monty, Edward G. 20,000 S 20,000 S 0.00% 0.00%
20,000 A 20,000 A
20,000 B 20,000 B
Morey, Gregory M. 40,000 S 40,000 S 0.00% 0.00%
40,000 A 40,000 A
40,000 B 40,000 B
Moriarty, Barbara J. and 10,000 S 10,000 S 0.00% 0.00%
Maurice F. 10,000 A 10,000 A
10,000 B 10,000 B
Mount, Richard L. 25,000 S 25,000 S 0.00% 0.00%
25,000 ($5.00) 25,000($5.00)
Nagel, Gregory A. 10,000 S 10,000 S 0.00% 0.00%
10,000 A 10,000 A
10,000 B 10,000 B
Nagel, John 208,000 S 208,000 S 0.00% 0.00%
20,000 A 20,000 A
20,000 B 20,000 B
Nakagawa, Cressey H. 25,000 S 25,000 S 0.00% 0.00%
25,000 ($5.00) 25,000($5.00)
Nicksa, James H. 25,000 S 25,000 S 0.00% 0.00%
25,000 ($5.00) 25,000($5.00)
Nicolodi, Fulvia Casella 60,000 S 60,000 S 0.00% 0.00%
60,000 A 60,000 A
60,000 B 60,000 B
Nyquist, R. Dwight and 5,000 S 5,000 S 0.00% 0.00%
Marie Ann B. 5,000 A 5,000 A
5,000 B 5,000 B
Park, M.D., Myung C. 100,000 S 100,000 S 0.00% 0.00%
100,000 A 100,000 A
100,000 B 100,000 B
Parsons, Wayne J. 2,000 S 2,000 S 0.00% 0.00%
</TABLE>
-38-
<PAGE>
<TABLE>
<CAPTION>
AMOUNT
OFFERED
SHARES (ASSUMING SHARES
BENEFICIALLY ALL BENEFICIALLY
OWNED SHARES OWNED
BEFORE IMMEDIATELY AFTER
STOCKHOLDER RESALE SOLD) RESALE PERCENTAGE
----------- ------ ----- ------ ----------
<S> <C> <C> <C> <C>
2,000 A 2,000 A
2,000 B 2,000 B
Patzner, Rick M. 70,000 S 70,000 S 0.00% 0.00%
70,000 A 70,000 A
70,000 B 70,000 B
Pearlwave Ltd. 200,000 C 200,000 C 0.00% 0.00%
Pearson, Eldean 5,000 S 5,000 S 0.00% 0.00%
5,000 A 5,000 A
5,000 B 5,000 B
Pechota, Gary L. 5,000 S 5,000 S 0.00% 0.00%
5,000 A 5,000 A
5,000 B 5,000 B
Peddireddi, Srinivasa R. 30,000 S 30,000 S 0.00% 0.00%
30,000 A 30,000 A
30,000 B 30,000 B
Pellerito, Ronald 5,000 S 5,000 S 0.00% 0.00%
5,000 A 5,000 A
5,000 B 5,000 B
Penn, Sean 20,000 S 20,000 S 0.00% 0.00%
20,000 A 20,000 A
20,000 B 20,000 B
Perman, Mark 10,000 S 10,000 S 0.00% 0.00%
10,000 A 10,000 A
10,000 B 10,000 B
Port, Joshua 2,500 S 2,500 S 0.00% 0.00%
2,500 A 2,500 A
2,500 B 2,500 B
Port, Adam 2,500 S 2,500 S 0.00% 0.00%
2,500 A 2,500 A
2,500 B 2,500 B
Port, Moses 2,500 S 2,500 S 0.00% 0.00%
2,500 A 2,500 A
2,500 B 2,500 B
Port, Joseph 2,500 S 2,500 S 0.00% 0.00%
2,500 A 2,500 A
2,500 B 2,500 B
Port, Stephen & Phyllis 10,000 S 10,000 S 0.00% 0.00%
10,000 A 10,000 A
</TABLE>
-39-
<PAGE>
<TABLE>
<CAPTION>
AMOUNT
OFFERED
SHARES (ASSUMING SHARES
BENEFICIALLY ALL BENEFICIALLY
OWNED SHARES OWNED
BEFORE IMMEDIATELY AFTER
STOCKHOLDER RESALE SOLD) RESALE PERCENTAGE
----------- ------ ----- ------ ----------
<S> <C> <C> <C> <C>
10,000 B 10,000 B
Powell, John R. 5,000 S 5,000 S 0.00% 0.00%
5,000 A 5,000 A
5,000 B 5,000 B
Pritchard, Thomas 12,500 ($5.00) 12,500($5.00) 0.00% 0.00%
Prudential Securities, Inc. 10,000 S 10,000 S 0.00% 0.00%
Custodian for James 10,000 A 10,000 A
Ericson Sr. 10,000 B 10,000 B
Quam, Scott A. and Kristine S. 5,000 S 5,000 S 0.00% 0.00%
5,000 A 5,000 A
5,000 B 5,000 B
Redman, Mark V. And Kathryn 10,000 S 10,000 S 0.00% 0.00%
10,000 A 10,000 A
10,000 B 10,000 B
Rieman, Raymond 20,000 S 20,000 S 0.00% 0.00%
20,000 A 20,000 A
20,000 B 20,000 B
Robarge, Ralph and Patricia 10,000 S 10,000 S 0.00% 0.00%
10,000 A 10,000 A
10,000 B 10,000 B
Robert H. Tucker Trust 10,000 S 10,000 S 0.00% 0.00%
10,000 A 10,000 A
10,000 B 10,000 B
Robert J. Corliss IRA 20,000 S 20,000 S 0.00% 0.00%
20,000 A 20,000 A
20,000 B 20,000 B
Robinson, Derek K. Vehling 10,000 S 10,000 S 0.00% 0.00%
and Karen A. 10,000 A 10,000 A
10,000 B 10,000 B
Rohkohl, Arlene A. 10,000 S 10,000 S 0.00% 0.00%
10,000 A 10,000 A
10,000 B 10,000 B
Rover Enterprises, Ltd. 160,000 S 160,000 S 0.00% 0.00%
160,000 A 160,000 A
160,000 B 160,000 B
Royall, Richard 12,500 ($5.00) 12,500($5.00) 0.00% 0.00%
Sanderman, Robert J. 45,000 S 45,000 S 0.00% 0.00%
20,000 A 20,000 A
</TABLE>
-40-
<PAGE>
<TABLE>
<CAPTION>
AMOUNT
OFFERED
SHARES (ASSUMING SHARES
BENEFICIALLY ALL BENEFICIALLY
OWNED SHARES OWNED
BEFORE IMMEDIATELY AFTER
STOCKHOLDER RESALE SOLD) RESALE PERCENTAGE
----------- ------ ----- ------ ----------
<S> <C> <C> <C> <C>
20,000 B 20,000 B
25,000 ($5.00) 25,000($5.00)
Schaffer, Don M. 20,000 S 20,000 S 0.00% 0.00%
20,000 A 20,000 A
20,000 B 20,000 B
Schank, Daniel J. 5,000 S 5,000 S 0.00% 0.00%
5,000 A 5,000 A
5,000 B 5,000 B
Scott T. Zbikowski IRA 20,000 S 20,000 S 0.00% 0.00%
20,000 A 20,000 A
20,000 B 20,000 B
Segal, Randy 40,000 S 40,000 S 0.00% 0.00%
40,000 A 40,000 A
40,000 B 40,000 B
Severini, Kerrjie Aida 10,000 S 10,000 S 0.00% 0.00%
10,000 A 10,000 A
10,000 B 10,000 B
Severini, Jr., Fred 15,000 S 15,000 S 0.00% 0.00%
15,000 A 15,000 A
15,000 B 15,000 B
Severini, Jr., Vincent J. 10,000 S 10,000 S 0.00% 0.00%
10,000 A 10,000 A
10,000 B 10,000 B
Sexton, David 5,000 S 5,000 S 0.00% 0.00%
5,000 A 5,000 A
5,000 B 5,000 B
Shaffer, Byron G. 100,000 S 100,000 S 0.00% 0.00%
100,000 A 100,000 A
100,000 B 100,000 B
Sharon, Roee 10,000 C 10,000 C 0.00% 0.00%
Silletto, Jan and Donna 20,000 S 20,000 S 0.00% 0.00%
20,000 A 20,000 A
20,000 B 20,000 B
Simmons, Ed 5,000 S 5,000 S 0.00% 0.00%
5,000 A 5,000 A
5,000 B 5,000 B
Siwecki, Henry T. & Marie 60,000 S 60,000 S 0.00% 0.00%
60,000 A 60,000 A
</TABLE>
-41-
<PAGE>
<TABLE>
<CAPTION>
AMOUNT
OFFERED
SHARES (ASSUMING SHARES
BENEFICIALLY ALL BENEFICIALLY
OWNED SHARES OWNED
BEFORE IMMEDIATELY AFTER
STOCKHOLDER RESALE SOLD) RESALE PERCENTAGE
----------- ------ ----- ------ ----------
<S> <C> <C> <C> <C>
60,000 B 60,000 B
Siwecki, Henry A. & 10,000 S 10,000 S 0.00% 0.00%
Christine F. 10,000 A 10,000 A
10,000 B 10,000 B
Siwecki, Henry T. 25,000 S 25,000 S 0.00% 0.00%
25,000 ($5.00) 25,000($5.00)
Smalley, Cathy M. 2,500 S 2,500 S 0.00% 0.00%
2,500 ($5.00) 2,500($5.00)
Snyder, Dale 2,000 S 2,000 S 0.00% 0.00%
2,000 A 2,000 A
2,000 B 2,000 B
Solo One LLC 6,000 ($5.00) 6,000($5.00) 0.00% 0.00%
Spriggs, Kevin F. 10,000 S 10,000 S 0.00% 0.00%
10,000 A 10,000 A
10,000 B 10,000 B
Stark, Randall P. 10,000 S 10,000 S 0.00% 0.00%
10,000 A 10,000 A
10,000 B 10,000 B
Stein, Charles M. 15,000 S 15,000 S 0.00% 0.00%
15,000 A 15,000 A
15,000 B 15,000 B
Stelton, Craig 5,000 S 5,000 S 0.00% 0.00%
5,000 A 5,000 A
5,000 B 5,000 B
Stoffel, August M. and 10,000 S 10,000 S 0.00% 0.00%
Michelle L. 10,000 A 10,000 A
10,000 B 10,000 B
Stoffel, August M. and Ann M. 20,000 S 20,000 S 0.00% 0.00%
20,000 A 20,000 A
20,000 B 20,000 B
Sud, James P. 20,000 S 20,000 S 0.00% 0.00%
20,000 A 20,000 A
20,000 B 20,000 B
Sulak, Cecilia 12,500 S 12,500 S 0.00% 0.00%
12,500 ($5.00) 12,500($5.00)
Sylla, Craig J. 1,000 S 1,000 S 0.00% 0.00%
1,000 A 1,000 A
1,000 B 1,000 B
</TABLE>
-42-
<PAGE>
<TABLE>
<CAPTION>
AMOUNT
OFFERED
SHARES (ASSUMING SHARES
BENEFICIALLY ALL BENEFICIALLY
OWNED SHARES OWNED
BEFORE IMMEDIATELY AFTER
STOCKHOLDER RESALE SOLD) RESALE PERCENTAGE
----------- ------ ----- ------ ----------
<S> <C> <C> <C> <C>
Tancheff, John 20,000 S 20,000 S 0.00% 0.00%
20,000 A 20,000 A
20,000 B 20,000 B
Tautges, Thomas and Mary Jo 5,000 S 5,000 S 0.00% 0.00%
5,000 A 5,000 A
5,000 B 5,000 B
Tell, Dr. Brian 10,000 S 10,000 S 0.00% 0.00%
10,000 A 10,000 A
10,000 B 10,000 B
Tesch, Michael A. & Carmen M. 19,000 S 19,000 S 0.00% 0.00%
19,000 A 19,000 A
19,000 B 19,000 B
Traut, Mark Joseph 20,000 S 20,000 S 0.00% 0.00%
20,000 A 20,000 A
20,000 B 20,000 B
Tulgestke, Gordon 6,250 S 6,250 S 0.00% 0.00%
6,250 ($5.00) 6,250($5.00)
Tuschner, John M. Tuschner 5,000 S 5,000 S 0.00% 0.00%
and Julie K. Havlicek 5,000 A 5,000 A
5,000 B 5,000 B
Tuschner, Jeni 5,000 S 5,000 S 0.00% 0.00%
5,000 A 5,000 A
5,000 B 5,000 B
Tutewohl, Leo & Sharon 5,000 S 5,000 S 0.00% 0.00%
5,000 A 5,000 A
5,000 B 5,000 B
Van Alen, Judith F. 70,000 S 70,000 S 0.00% 0.00%
70,000 A 70,000 A
70,000 B 70,000 B
VanOverbeke, James C. & 10,000 S 10,000 S 0.00% 0.00%
Michaline A. 10,000 A 10,000 A
10,000 B 10,000 B
Vatland, Harlan J. 10,000 S 10,000 S 0.00% 0.00%
10,000 A 10,000 A
10,000 B 10,000 B
Vern J. Langer IRA 5,000 S 5,000 S 0.00% 0.00%
5,000 A 5,000 A
5,000 B 5,000 B
</TABLE>
-43-
<PAGE>
<TABLE>
<CAPTION>
AMOUNT
OFFERED
SHARES (ASSUMING SHARES
BENEFICIALLY ALL BENEFICIALLY
OWNED SHARES OWNED
BEFORE IMMEDIATELY AFTER
STOCKHOLDER RESALE SOLD) RESALE PERCENTAGE
----------- ------ ----- ------ ----------
<S> <C> <C> <C> <C>
Villavicencio, Gilbert 10,000 S 10,000 S 0.00% 0.00%
10,000 A 10,000 A
10,000 B 10,000 B
Vonn Ltd 25,000 S 25,000 S 0.00% 0.00%
166,666 A 166,666 A
166,666 B 166,666 B
25,000 ($5.00) 25,000($5.00)
Wayne, E. Robie 10,000 S 10,000 S 0.00% 0.00%
10,000 A 10,000 A
10,000 B 10,000 B
Westman, Bruce 20,000 S 20,000 S 0.00% 0.00%
20,000 A 20,000 A
20,000 B 20,000 B
Zaremba, John M. 3,125 S 3,125 S 0.00% 0.00%
3,125 ($5.00) 3,125($5.00)
Zaremba, James R. 3,125 S 3,125 S 0.00% 0.00%
3,125 ($5.00) 3,125($5.00)
Zaremba, Frank J. 3,125 S 3,125 S 0.00% 0.00%
3,125 ($5.00) 3,125($5.00)
Zaremba, David 3,125 S 3,125 S 0.00% 0.00%
3,125 ($5.00) 3,125($5.00)
Zaremba Group LLC 67,750 S 67,750 S 0.00% 0.00%
20,000 A 20,000 A
20,000 B 20,000 B
47,750 ($5.00) 47,750($5.00)
Zbikowski, Scott T. 50,000 S 50,000 S 0.00% 0.00%
50,000 A 50,000 A
50,000 B 50,000 B
Zurek, Mark J. 5,000 S 5,000 S 0.00% 0.00%
5,000 A 5,000 A
5,000 B 5,000 B
</TABLE>
The 16,850,002 shares offered by the Selling Stockholders, as well as the
5,033,334 Class B Warrants, may be sold from time to time by the Selling
Stockholders or by their pledgees, donees, transferees or other successors in
interest. Such sales may be made on Nasdaq, on the over-the-counter market or
otherwise at prices and at terms then prevailing or at prices related to the
current market price, or in negotiated transactions. The common stock and Class
B Warrants may be sold by one or more of the following: (a) block trade in which
the broker or dealer so engaged will attempt to sell the shares as agent but may
position and re-sell a portion of the block as principal to facilitate the
-44-
<PAGE>
transaction; (b) purchase by a broker or dealer for his account pursuant to this
Prospectus; and (c) ordinary brokerage transactions and transactions in which
the broker solicits purchases. The Selling Stockholder or dealer effecting a
transaction in the registered securities, whether or not participating in a
distribution, is required to deliver a Prospectus. In effecting sales, brokers
or dealers engaged by the Selling Stockholder may arrange for other brokers or
dealers to participate. Brokers or dealers will receive commissions or discounts
from Selling Stockholders in amounts to be negotiated immediately prior to the
sale. Such brokers or dealers and any other participating brokers or dealers may
be deemed to be "underwriters" within the meaning of the Act in connection with
such sales. One broker dealer has received 100,000 shares of the company's
common stock as compensation in connection with the company's private offering
of these securities, which may be considered by the National Association of
Securities Dealers to be compensation received in connection with this offering.
In addition, any securities covered by this Prospectus which qualify for sale
pursuant to Rule 144 may be sold under Rule 144 rather than pursuant to this
Prospectus. The company will not receive any of the proceeds from the sale of
these securities, although it has paid the expenses of preparing this Prospectus
and the related Registration Statement. The company will use its best efforts to
file, during any period in which offers or sale are being made, one or more
post-effective amendments to the Registration Statement of which this Prospectus
is a part to describe any material information with respect to the plan of
distribution not previously disclosed in this Prospectus or any material change
to such information in this Prospectus.
LEGAL MATTERS
Certain legal matters with respect to the issuance of shares of common
stock offered hereby will be passed upon for the company by Brewer & Pritchard,
P.C., Houston, Texas. Principals of Brewer & Pritchard, P.C. own $.05 Warrants
to purchase 12,500 shares of common stock and $5.00 Warrants to purchase 12,500
shares of common stock.
EXPERTS
The financial statements of Eagle Wireless International, Inc. at
August 31, 1998, and for each of the years in the three-year period ended August
31, 1998, appearing in this SB-2 Registration Statement have been audited by
McManus & Company, independent auditors, as set forth in their report thereon
appearing elsewhere herein and are included in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.
-45-
<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/(Decrease) 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-
<PAGE>
EAGLE WIRELESS INTERNATIONAL, INC.
BALANCE SHEETS
(IN THOUSANDS)
ASSETS
NOVEMBER 30, AUGUST 31,
1998 1998
(UNAUDITED) (AUDITED)
CURRENT ASSETS:
Cash and Cash Equivalents (Note 1) .......... $ 539 $ 1,097
Accounts Receivable ......................... 6,084 5,392
Inventories (Note 1) ........................ 1,305 1,273
Prepaid Expenses ............................ 15 70
------- -------
Total Current Assets ..................... 7,943 7,832
PROPERTY AND EQUIPMENT (NOTE 1):
Operating Equipment ......................... 957 933
Less: Accumulated Depreciation .............. (251) (224)
------- -------
Total Property and Equipment ............. 706 709
OTHER ASSETS:
Security Deposits ........................... 11 9
------- -------
Total Other Assets ....................... 11 9
TOTAL ASSETS ................................ $ 8,660 $ 8,550
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable ........................... $ 313 $ 337
Accrued Expenses ............................ 109 118
Shareholders' Advances (Note 10) ............ -- 24
Notes Payable (Note 2) ...................... 9 13
Capital Lease Obligations (Note 3) .......... 13 11
Deferred Revenues ........................... 53 56
Federal Income Taxes Payable (Notes 1 & 4) .. 431 375
Franchise Taxes Payable ..................... 49 42
Sales Taxes Payable ......................... 44 38
Deferred Taxes (Note 4) ..................... 5 5
------- -------
Total Current Liabilities ................ 1,026 1,019
LONG - TERM LIABILITIES:
Capital Lease Obligations (net of current
maturities) (Note 3) ...................... 16 9
Deferred Taxes (Note 4) ..................... 6 6
------- -------
Total Long - Term Liabilities ............ 22 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 November 30
and August 31, 1988 11,670,155 shares ..... 12 12
Paid in Capital ............................. 5,973 5,973
Retained Earnings ........................... 1,627 1,531
------- -------
Total Shareholders' Equity ............... 7,612 7,516
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY .. $ 8,660 $ 8,550
======= =======
See accompanying notes to the financial statements.
-F22-
<PAGE>
EAGLE WIRELESS INTERNATIONAL, INC.
STATEMENTS OF EARNINGS
(IN THOUSANDS)
THREE MONTHS THREE MONTHS
ENDED ENDED
NOVEMBER 30, NOVEMBER 30,
1998 1997
(UNAUDITED) (UNAUDITED)
NET SALES ................................. $ 931 $ 558
COST OF GOODS SOLD
Materials and Supplies ................. 184 35
Direct Labor and Related Costs ......... 163 84
Depreciation and Amortization .......... 18 6
Other Manufacturing Costs .............. 55 91
------------ ------------
Total Cost of Goods Sold ............ 420 216
------------ ------------
GROSS PROFIT ............................. 511 342
OPERATING EXPENSES
Selling, General and Administrative
Salaries and Related Costs .......... 131 113
Advertising and Promotion ........... 68 215
Depreciation and Amortization ....... 9 17
Research & Development .............. 154 33
Other Support Costs ................. 173 33
------------ ------------
Total Operating Expenses ......... 535 411
------------ ------------
EARNINGS FROM OPERATIONS BEFORE OTHER
REVENUES/ (EXPENSES) AND INCOME TAXES ..... (24) (69)
OTHER REVENUES/ (EXPENSES)
Interest Income (net) .................. 176 95
------------ ------------
Total Other Revenues ................ 176 95
------------ ------------
EARNINGS BEFORE INCOME TAXES .............. 152 26
Provision For Income Taxes ............. 56 9
------------ ------------
NET EARNINGS .............................. $ 96 $ 17
============ ============
Net Earnings Per Common Share:
Primary ............................. $ .01 $ .001
Diluted ............................. $ .01 $ .001
Weighted Average Common Shares Outstanding:
Primary ............................. 11,670,155 11,542,001
Diluted ............................. 11,750,530 11,549,876
See accompanying notes to the financial statements.
-F23-
<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 November 30, 1998 Stock Stock Capital Earnings Equity
- ---------------------- -------- ----------- ------------- ---------- -------------
<S> <C> <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 Three Months
Ended November 30, 1998 ...... 96 96
------ ------ ------ ------ ------
Total As Of November 30, 1998 ... 12 -- 5,973 1,627 7,612
====== ====== ====== ====== ======
</TABLE>
See accompanying notes to the financial statements.
-F24-
<PAGE>
EAGLE WIRELESS INTERNATIONAL, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
THREE MONTHS THREE MONTHS
ENDED ENDED
NOVEMBER 30, NOVEMBER 30,
1998 1997
(UNAUDITED) (UNAUDITED)
Cash Flows From Operating Activities
Net Earnings ................................... $ 96 $ 17
Adjustments To Reconcile Net Earnings To
Net Cash
Used By Operating Activities:
Depreciation and Amortization ................ 27 23
(Increase)/Decrease in Accounts
Receivable ................................. (692) 194
(Increase)/Decrease in Inventories ........... (32) (303)
(Increase)/Decrease in Prepaid Expenses ...... 55 5
Increase/(Decrease) in Accounts Payable
and Accrued Exp ............................ (33) (141)
Increase/(Decrease) in Deferred Taxes ........ -- 4
Increase/(Decrease) in Deferred Revenues ..... (3) --
Increase/(Decrease) in Sales Tax Payable ..... 6 --
Increase/(Decrease) in Fed Inc Taxes Payable . 56 --
Increase/(Decrease) in Franchise Taxes Payable 7 --
------- -------
Total Adjustments ............................ (609) (217)
------- -------
Net Cash Used By Operating Activities ........... (513) (200)
Cash Flows From Investing Activities
Purchase of Property and Equipment .............. (24) (84)
(Increase)/Decrease in Other Assets ............. (2) (51)
------- -------
Net Cash Used By Investing Activities .............. (26) (135)
------- -------
Cash Flows From Financing Activities
Increase/(Decrease) in Notes Payable and
Capital Leases ................................ 5 (9)
Increase/(Decrease) in Shareholders' Advances ... (24) (4)
Increase/(Decrease) in Syndication Costs ........ -- (50)
Proceeds From Sale of Common Stock, Net ......... -- 143
------- -------
Net Cash Provided/(Used) By Financing Activities ... (19) 80
------- -------
Net Decrease in Cash ............................... (558) (255)
Cash at the Beginning of the Year .................. 1,097 2,895
------- -------
Cash at the End of the Year ........................ $ 539 $ 2,640
======= =======
See accompanying notes to the financial statements.
-F25-
<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 $498,559 and $1,088,555 invested in interest bearing accounts at
November 30 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:
November 30, 1988 August 31, 1988
Raw Materials $ 719,202 $ 719,157
Work in Process 585,278 554,124
Finished Goods - 0 - -0-
------------- --------------
$ 1,304,480 $ 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.
-F26-
<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 $153,529 and $33,306 were
expensed for the periods ended November 30, 1998 and 1997, respectively.
Contract revenues earned for the periods ended November 30, 1998 and 1997 were
approximately $ 225,000 and $150,000, 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:
NOVEMBER 30, 1998 NOVEMBER 30, 1997
----------------- -----------------
Weighted Average Number of Common
Shares Outstanding Including:
Primary Common Stock Equivalents 11,670,155 11,542,001
Fully Dilutive Common Stock Equivalents 11,750,530 11,549,876
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 November
30, 1998 and 1997, the Company had expensed $67,836 and $214,956, 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 three months
ended November 30, 1997 to facilitate comparison to the three months ended
November 30, 1998.
-F27-
<PAGE>
NOTE 2 - NOTES PAYABLE:
NOVEMBER 30, 1988 AUGUST 31, 1988
----------------- ---------------
Unsecured note to insurance
company bearing interest at 8%,
due $2,122 monthly until December 1998 ... $ 2,122 $12,731
Unsecured note to insurance
company, non-interest bearing,
due $2,457 quarterly until February 1999 . $ 4,913 $ --
Unsecured note to insurance
company, non-interest bearing,
due $1,074 monthly until January 1999 .... $ 2,149 --
------- -------
Total ................................ 9,184 12,731
Less Current Portion of
Long - Term Debt .................. 9,184 12,731
------- -------
Total Long - Term Debt ............... $ -0- $ -0-
======= =======
NOTE 3 - CAPITAL LEASE OBLIGATIONS:
NOVEMBER 30, 1988 AUGUST 31, 1988
----------------- ---------------
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 .................... $ 1,482 $ 1,746
Software lease with Manifest
Group bearing interest at
11%, payable in monthly
installments of $751; due
August, 2000 ............................. 14,260 15,728
Equipment lease with IKON
Office Solutions bearing
interest at 9%, payable
in monthly installments of
$445; due September, 2001 ................ $13,272 $ --
------- -------
Total Obligations .................... 29,014 19,746
Less Current Portion of
Lease Obligations ................. 13,176 11,125
------- -------
Total Long - Term Capital
Lease Obligations ................. $15,838 $ 8,621
======= =======
-F28-
<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
November 30 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 November 30 and August 31, 1998 are as follows:
NOVEMBER 30, 1998 AUGUST 31, 1998
----------------- ---------------
Total minimum lease payments ............. $ 32,576 $ 22,319
Less: Amount representing interest ...... 3,563 2,573
--------- ---------
Present value of net minimum
lease payments ....................... $ 29,014 $ 19,746
========= =========
Future obligations under the lease terms are:
Period Ending
August 31, AMOUNT
---------
1999 ................................... $ 12,017
2000 ................................... 14,774
2001 ................................... 5,340
2002 ................................... 445
---------
Total .................................. $ 32,576
=========
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, 1988 and
1987 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 November
30, 1988, 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 November 30, 1988, 85,375 options have been granted under the
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.
-F29-
<PAGE>
NOTE 5 - PREFERRED STOCK, STOCK OPTIONS AND WARRANTS: (CONTINUED)
The Company has issued and outstanding the following warrants which have not yet
been exercised as of November 30, 1988:
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.
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 November 30, 1988, 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 November 30, 1988, 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 November 30, 1988, 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 November 30, 1988, 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 $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 November 30, 1988, 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.
-F30-
<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 $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 November 30, 1988, 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 November 30, 1988, 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 November 30, 1988, 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.
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.
-F31-
<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 November 30, November 30, Non Non Exercise
Warrants 1998 1997 1998 1997 Exercised Registered Price
- -------- ----- ------ ------ ------ --------- ---------- --------
<S> <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 1,050,000 0.05
0.50 1,375,000 1,375,000 0.00 0.00 1,375,000 1,375,000 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 319,625 * 0 332,000 0 0 0 > $1.63
ESOP 80,375 0 68,000 0 0 0 < $1.63
---------- ---------- ---------- ---------- --------- ---------
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 three months ended
November 30, 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.
NOTE 7 - SEGMENT INFORMATION:
The Company had gross revenues of $930,897 and 557,898 for the three months
ended November 30, 1998 and 1997, respectively. The following parties
individually represent a greater than ten percent of these revenues.
November 30,1988 November 30, 1997
Customer Amount Percentage Amount Percentage
- -------- ----------- ---------- ----------- ----------
Company A $ -- -- % $ 195,115 34 %
Company B $ 249,616 27 % 113,186 20 %
Company C $ 550,937 59 % 75,268 13 %
-F32-
<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 November 30, 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.
NOTE 9 - RISK FACTORS:
For the three months ended November 30, 1998 and 1997, 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 approximately 1% have been created in the
international market, and the approximate 12% remainder has been created
relatively evenly over the rest of the nation during the three months ended
November 30, 1998 whereas approximately 35% 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 63% remainder has been created
relatively evenly over the rest of the nation for the three months ended
November 30, 1997.
Through the normal course of business, the Company generally does not require
its customers to post any collateral. However, because Link II constitutes 59%
and 13% of the Company's gross revenues and 96% and 83% of the its accounts
receivable for the three months ended November 30, 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 three months ended November 30, 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 November 30,
1998, 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 1% and 2% at November
30, 1998 and 1997, respectively.
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 November
30, 1998 and 1997, rental expenses of $23,793 and $23,793, respectively, were
incurred. Future obligations under the non-cancelable lease terms for the period
ending November 30, 1999 are $31,724.
-F33-
<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. 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. On October 19,
1998, the plaintiff agreed to a settlement of $9,970 which was remitted by the
Company on December 11, 1998. Management expects the suit to be settled for the
amount remitted and subsequently dismissed.
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 November 30, 1998, 85,375 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
November 30, 1998, total employee contributions were approximately $74,654
whereas the total amount matched by the employer was approximately $22,765.
NOTE 15 - MAJOR CUSTOMER:
As of November 30, 1998, the Company has a receivable due from Link-Two
Communications (Link II) in the amount of $5,811,172. As of November 30, 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.
-F34-
<PAGE>
NOTE 16 - SUBSEQUENT EVENTS
Subsequent to November 30, 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.
-F35-
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
A. The Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the Corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the Corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction or upon a plea of NOLO CONTENDERE or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
B. The Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Corporation to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the Corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
C. To the extent that a director, officer, employee or agent of the
Corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections (A) and (B), or in defense
of any claim, issue or matter therein, he shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith.
D. Any indemnification under subsections (A) and (B) (unless ordered by a
court) shall be made by the Corporation only as authorized in the specific case
upon a determination that indemnification of the director, officer, employee or
agent is proper in the circumstances because he has met the applicable standard
of conduct set forth in subsections (A) and (B). Such determination shall be
made (i) by a majority vote of the directors who are not parties to such action,
suit or proceeding, even though less than a quorum, or (ii) if there are no such
directors, or if such directors so direct, by independent legal counsel in a
written opinion, or (iii) by the stockholders.
E. Expenses (including attorneys' fees) incurred by an officer or director
in defending any civil, criminal, administrative or investigative action, suit
or proceeding may be paid by the Corporation in advance of the final disposition
of such action, suit or proceeding upon receipt of an undertaking by or on
behalf of such director or officer to repay such amount if it shall ultimately
be determined that he is not entitled to be indemnified by the Corporation as
authorized by the Articles of Incorporation. Such expenses (including attorneys'
fees) incurred by other employees and agents may be so paid upon such terms and
conditions, if any, as the Board of Directors deems appropriate.
II-1
<PAGE>
F. The indemnification and advancement of expenses provided by, or granted
pursuant to, the other subsections of this Article shall not be deemed exclusive
of any other rights to which those seeking indemnification or advancement of
expenses may be entitled under any bylaw, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his official capacity
and as to action in another capacity while holding such office.
G. The Corporation shall have the power to purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the Corporation would have the power to indemnify him against
such liability under the Articles of Incorporation.
H. The indemnification and advancement of expenses provided by, or granted
pursuant to, this Article shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the heirs, executors and
administrators of such a person.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses to be incurred in
connection with the distribution of the securities being registered. The
expenses shall be paid by the Registrant.
SEC Registration Fee ............ $ --
NASD Registration Fee ........... --
Printing and Engraving Expenses . 5,000
Legal Fees and Expenses ......... 10,000
Accounting Fees and Expenses .... 5,000
Blue Sky Fees and Expenses ...... --
Transfer Agent Fees ............. --
Miscellaneous ................... 5,000
TOTAL .................. $25,000
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
In May 1996, the company issued $375,000 of convertible indebtedness of
which $369,000 was converted into 369,000 shares of common stock and, in
connection with the original issuance of such indebtedness, the company issued
such investors 375,000 $.50 Warrants and 375,000 $5.00 Warrants. The company
believes that the above-captioned transactions are exempt from registration
pursuant to Section 4(2) of the Act as a transaction by an issuer not involving
any public offering.
In July 1996, the company issued an aggregate of 4,500,000 shares of
common stock to certain founders (or affiliates thereof) of the company for
nominal consideration. The company believes that the transactions herein are
exempt from registration pursuant to Section 4(2) of the Act as a transaction by
an issuer not involving any public offering.
In July 1996, the company issued to certain founders $.05 Warrants to
purchase an aggregate of 500,000 shares of common stock at an exercise price of
$.05 per share. The company believes that the above captioned transaction is
exempt from registration pursuant to Section 4(2) of the Act as a transaction by
an issuer not involving any public offering.
In July 1996, the company issued to certain founders $.50 Warrants to
purchase an aggregate of 500,000 shares of common stock at an exercise price of
$.50 per share. The company believes that the above captioned transaction is
exempt from registration pursuant to Section 4(2) of the Act as a transaction by
an issuer not involving any public offering.
II-2
<PAGE>
In July 1996, the company issued to certain founders warrants to purchase
an aggregate of 700,000 shares of common stock at an exercise price of $.01 per
share. In February 1997, such warrants were exercised in full. The company
believes that the above captioned transactions are exempt from registration
pursuant to Section 4(2) of the Act as a transaction by an issuer not involving
any public offering.
In July 1996, the company issued three individuals and one entity three
year warrants to purchase an aggregate of 50,000 shares of common stock at an
exercise price of $.05 per share for services rendered. The company believes
that the above captioned transaction is exempt from registration pursuant to
Section 4(2) of the Act as a transaction by an issuer not involving any public
offering.
In July 1996, the company issued three individuals and one entity three
year warrants to purchase an aggregate of 50,000 shares of common stock at an
exercise price of $5.00 per share for services rendered. The company believes
that the above captioned transaction is exempt from registration pursuant to
Section 4(2) of the Act as a transaction by an issuer not involving any public
offering.
In August 1996, the company issued 1,285,000 shares of common stock,
1,285,000 Class A Warrants to purchase 1,285,000 shares of common stock at an
exercise price of $4.00 per share, and 1,285,000 Class B Warrants to purchase
1,285,000 shares of common stock at an exercise price of $6.00
per share to a limited number of investors
pursuant to a private offering. The company believes that the above captioned
transaction is exempt from registration pursuant to Section 4(2) of the Act as a
transaction by an issuer not involving any public offering.
In November 1996, the company issued 1,908,000 shares of common stock to
two individuals and an entity for services rendered in connection with the above
captioned private offering. The company believes that the above captioned
transaction is exempt from registration pursuant to Section 4(2) of the Act as a
transaction by an issuer not involving any public offering.
In November 1996, the company issued two individuals and one entity three
year warrants to purchase an aggregate of 500,000 shares of common stock at an
exercise price of $.05 per share for services rendered. The company believes
that the above captioned transaction is exempt from registration pursuant to
Section 4(2) of the Act as a transaction by an issuer not involving any public
offering.
In November 1996, the company issued two individuals and one entity three
year warrants to purchase an aggregate of 500,000 shares of common stock at an
exercise price of $.50 per share for services rendered. The company believes
that the above captioned transaction is exempt from registration pursuant to
Section 4(2) of the Act as a transaction by an issuer not involving any public
offering.
In November 1996, the company issued 870,000 shares of common stock,
870,000 Class A Warrants to purchase 870,000 shares of common stock at an
exercise price of $4.00 per share and 870,000 Class B Warrants to purchase
870,000 shares of common stock at an exercise price of $6.00 per
share to a limited number of investors
pursuant to a private offering. The company believes that the above-captioned
transactions are exempt from registration pursuant to Section 4(2) of the Act as
a transaction by an issuer not involving any public offering.
In December 1996, the company issued 1,110,000 shares of common stock,
1,110,000 Class A Warrants to purchase 1,110,000 shares of common stock at an
exercise price of $4.00 per share and 1,110,000 Class B Warrants to purchase
1,110,000 shares of common stock at an exercise price of $6.00 per
share to a limited number of investors
pursuant to a private offering. The company believes that the above-captioned
transactions are exempt from registration pursuant to Section 4(2) of the Act as
a transaction by an issuer not involving any public offering.
In December 1996, the company issued 1,000,000 Class A Warrants to
purchase 1,000,000 shares of common stock at a purchase price of $4.00 per share
and 1,000,000 Class B Warrants to purchase 1,000,000 shares of common stock at a
purchase price of $6.00 per share to certain insiders for services rendered. The
company believes that the above-captioned transactions are exempt from
registration pursuant to Section 4(2) of the Act as a transaction by an issuer
not involving any public offering.
II-3
<PAGE>
From January 1997, through April 15, 1997 the company issued 768,334
shares of common stock, 728,334 Class A Warrants to purchase 768,344 shares of
common stock at an exercise price of $4.00 per share, 768,334 Class B Warrants
to purchase 768,334 shares of common stock at an exercise price of $6.00 per
share and 1,050,000 Class C Warrants to purchase 1,050,000 shares of common
stock at an exercise price of $2.00 per share to a limited number of investors
pursuant to a private offering. The company believes that the above-captioned
transactions are exempt from registration pursuant to Section 4(2) of the Act as
a transaction by an issuer not involving any public offering.
In December 1997, the company issued 95,000 shares in connection with
acquisitions for consideration of $1.50 per share. The company believes that the
above-captioned transaction is exempt from registration pursuant to Section 4(2)
of the Act as a transaction by an issuer not involving any public offering.
In November 1997, the company issued 82,445 shares of common stock to an
entity for services rendered. The company believes that the above-captioned
transaction is exempt from registration pursuant to Section 4(2) of the Act as a
transaction by an issuer not involving any public offering.
In November 1997 the company issued 59,960 shares of common stock to an
individual in connection with the acquisition of his company's assets. The
company believes that the above-captioned transaction is exempt from
registration pursuant to Section 4(2) of the Act as a transaction by an issuer
not involving any public offering.
In December 1997, the company issued options to purchase 14,875 shares
pursuant to the stock option plan. The company believes that the above-captioned
transaction is exempt from registration pursuant to Section 4(2) of the Action
as a transaction by an issuer not involving any public offering.
In December 1997, the company issued class C warrants to purchase 50,000
shares of common stock to an individual for services rendered. The company
believes that the above-captioned transaction is exempt from registration
pursuant to Section 4(2) of the Act as a transaction by an issuer not involving
any public offering.
In February 1998, the company issued options to purchase 6,000 shares
pursuant to the stock option plan. The company believes that the above-captioned
transaction is exempt from registration pursuant to Section 4(2) of the Act as a
transaction by an issuer not involving any public offering.
In April 1998, the company issued options to purchase 6,500 shares
pursuant to the stock option plan. The company believes that the above-captioned
transaction is exempt from registration pursuant to Section 4(2) of the Act as a
transaction by an issuer not involving any public offering.
In July 1998, the company issued options to purchase 37,000 shares
pursuant to the stock option plan. The company believes that the above-captioned
transaction is exempt from registration pursuant to Section 4(2) of the Act as a
transaction by an issuer not involving any public offering.
In August 1998, the company issued 95,564 shares of common stock to an
entity for services rendered. The company believes that the above-captioned
transaction is exempt from registration pursuant to Section 4(2) of the Act as a
transaction by an issuer not involving any public offering.
ITEM 27. EXHIBITS
EXHIBIT NO. IDENTIFICATION OF EXHIBIT
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3.1(1) Articles of Incorporation of the Company, as Amended
3.1(a)(1) Amendment to the Articles of Incorporation
3.2(1) By-laws
4.1(1) Form of Common Stock Certificate
4.2(1) Class A Warrant Agreement and Form of Warrant
4.3(1) Class B Warrant Agreement and Form of Warrant
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4.4(1) Form of $.05 Warrant
4.5(1) Form of $.50 Warrant
4.6(1) Form of $5.00 Warrant
4.7(1) Class C Warrant Agreement and Form of Warrant
5.1(2) Legal Opinion of Brewer & Pritchard, P.C.
10.1(1) Asset Purchase Agreement
10.2(1) Stock Option Plan
10.3(1) Form of Purchase Order
10.4(2) Mega Holding Corporation Agreement
23.1(2) Consent of McManus & Co., Inc.
23.2(3) Consent of Brewer & Pritchard, P.C.
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(1) Filed as an Exhibit (with the same corresponding Exhibit No. listed herein)
to the company's Registration Statement on Form SB-2 (File No. 333-20011)
and incorporated herein by reference.
(2) Filed herewith.
(3) Included in Exhibit 5.1
ITEM 28. UNDERTAKINGS
A. The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
i. To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
ii. To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or
the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the registration
statement; and
iii. To include any additional or changed material information
with respect to the plan of distribution.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall
be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial BONA FIDE offering
thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
(4) i. That, for the purpose of determining liability under the
Securities Act of 1933, the information omitted from the
form of prospectus filed as part of this registration
statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4), or 497(h) under the Securities Act of 1933
shall be deemed to be part of this registration statement as
of the time it was declared effective.
ii. That, for the purpose of determining liability under the
Securities Act of 1933, each post-effective amendment that
contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered
therein, and the offering of such securities at that time
shall be deemed to be the initial BONA FIDE offering
thereof.
B. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Act and is, therefore,
unenforceable. In the event
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that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a
director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of
such issue.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form SB-2 and authorized this Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Houston, State of Texas, on the 3rd day of February, 1999.
Eagle Wireless International, Inc.
By: /s/ H. DEAN CUBLEY
H. Dean Cubley, President,
Chief Executive Officer and Director
-------------------------------------------------------------------
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated:
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ H. DEAN CUBLEY President, Chief Executive Officer February 3, 1999
H. Dean Cubley and Director
/s/ RICHARD ROYALL Chief Financial Officer (Principal February 3, 1999
Richard Royall Financial and Accounting Officer)
/s/ CHRISTOPHER W. FUTER Director February 3, 1999
Christopher W. Futer
/s/ A.L. CLIFFORD Director February 3, 1999
A.L. Clifford
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EXHIBIT 5.1
[BREWER & PRITCHARD LETTERHEAD]
February 3, 1999
Dr. H. Dean Cubley
Eagle Wireless International, Inc.
910 Gemini
Houston, Texas 77058
Dear Dr. Cubley:
As counsel for Eagle Wireless International, Inc., a Texas corporation
("Company"), you have requested our firm to render this opinion in connection
with the registration statement of the Company on Form SB-2 (File Number
333-20011) filed under the Securities Act of 1933, as amended ("Act"), with the
Securities and Exchange Commission relating to the resale of (i) 16,850,002
shares of common stock ("Common Stock") (of which 5,308,334 shares are currently
outstanding and 11,541,668 shares are issuable upon exercise of outstanding
warrants), and (ii) 5,033,334 class B warrants ("Warrants").
We are familiar with the registration statement and the registration
contemplated thereby. In giving this opinion, we have reviewed the registration
statement and such other documents and certificates of public officials and of
officers of the Company with respect to the accuracy of the factual matters
contained therein as we have felt necessary or appropriate in order to render
the opinions expressed herein. In making our examination, we have assumed the
genuineness of all signatures, the authenticity of all documents presented to us
as originals, the conformity to original documents of all documents presented to
us as copies thereof, and the authenticity of the original documents from which
any such copies were made, which assumptions we have not independently verified.
Based upon all the foregoing, we are of the opinion that:
1. The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Texas.
2. The shares of Common Stock and Warrants are validly issued, fully
paid and non-assessable.
<PAGE>
Dr. H. Dean Cubley
February 3, 1999
Page 2
3. The shares of Common Stock underlying the Warrants to be issued upon
exercise of such Warrants are validly authorized and, upon exercise
of the Warrants in accordance with their terms, will be validly
issued, fully paid
and nonassessable.
We consent to the use in the registration statement of the reference to
Brewer & Pritchard,
P.C. under the heading "Legal Matters."
This opinion is conditioned upon the registration statement being declared
effective and upon compliance by the Company with all applicable provisions of
the Act and such state securities rules, regulations and laws as may be
applicable.
Very truly yours,
BREWER & PRITCHARD, P.C.
//BREWER & PRITCHARD//
EXHIBIT 10.4
AGREEMENT
THIS AGREEMENT (this "Agreement") is made and entered into this 27th day
of January, 1998, by and between MEGA HOLDING CORP., 278A New Dorp Lane, Staten
Island, New York 10306 ("Mega"), and EAGLE WIRELESS INTERNATIONAL, INC., 910
Gemini Avenue, Houston, Texas 77058 (the "Company"). The parties to this
Agreement are hereinafter referred to as the "Parties" and a party to this
Agreement as a "Party."
WHEREAS, Mega provides business and financial consulting services (the
"Services"); and
WHEREAS, the Company is publicly held with its common stock ("Shares of
Common Stock") trading under the symbol "EGLW" on the OTC Bulletin Board, and
WHEREAS, the Company desires to retain Mega's services; and
WHEREAS, Mega is willing accept the Company as a client.
NOW THEREFORE, in consideration of the premises and covenants set forth
herein, it is hereby agreed:
1. ENGAGEMENT
The Company hereby engages Mega to provide the Company with Mega's
business and financial consulting services, including but not limited to,
advising and consulting with the Company on strategic opportunities, mergers and
acquisitions.
2. TERM
The services to be rendered under this Agreement shall commence upon
execution of this Agreement and shall continue for a period of three (3) years
unless terminated earlier by mutual agreement. Upon termination neither Party
shall have any continuing duty or obligations, whether financial or otherwise,
to the other party except that the obligations contained in paragraph 8 below
shall survive the termination of this Agreement.
3. COMPENSATION AND EXPENSES
In consideration of the services to be performed by Mega and any and
all expenses incurred by Mega in rendering the services, the Company will within
five business days of execution of this Agreement provide to Mega certificates
representing five hundred thousand (500,000). At a later date and as appropriate
the Company will provide to Mega certificates representing eight hundred
thousand (800,000) non-redeemable warrants as further described in Section 4.
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CLIENTS' INITIALS
<PAGE>
4. WARRANTS
Each Warrant shall give the holder thereof the right to purchase one
share of the Company's common stock. Each Warrant certificate will be legended
to restrict transfer in the absence of a registration statement filed with the
Securities and Exchange Commission ("Commission") or an exemption therefrom. It
is understood, however, that Mega intends to transfer some of the Warrants on
one occasion only to is officers, directors and/or consultants.
The Warrants shall be comprised of seven classes with the following
exercise prices and exercise period:
SHARES *EXERCISE AVERAGE **STOCK
EXERCISE UNDERLYING PERIOD STOCK DAYS
CLASS PRICE WARRANTS (YEARS) PRICE TRADED
o A $1.50 150,000 1 $ 4.00 61
o B $2.00 150,000 1 $ 5.50 61
o C $3.00 200,000 2 $ 7.50 61
X D $5.00 200,000 3 $10.00 31
X E $7.00 200,000 3 $12.00 31
X F $9.00 200,000 5 $14.00 31
X G $11.00 200,000 5 $16.00 31
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* From date of effective registration of the underlying shares of Common
Stock
** In order for warrants to be exercisable, average stock price must be
achieved for consecutive days traded as noted above.
*** All warrants shall be cashless.
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o Issued within 10 business days of the initiation of this Agreement.
X Issued within 10 business days of the attainment of the conditions for
exercise of the Class C Warrants (i.e. Average stock price of $7.50 for 62
consecutive trading days).
Each Warrant not exercised during the term of its exercise shall
become void and all rights thereunder shall cease. The exercise price and the
number of shares of Common Stock are subject to adjustment in the event of any
split or reverse split of the
Company's common stock.
The Company shall, as soon as practicable after the date of this
Agreement, file a registration statement (the "Registration Statement") with the
Commission relating to all the shares of Common Stock underlying the Warrants
and shall use its best efforts to cause the Registration Statement to become
effective on or before one hundred twenty (120) days after the date of this
Agreement. In the event the Registration Statement is not so declared effective
or does not include all the shares of Common Stock underlying the Warrants, a
Warrantholder (which may be Mega or
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CLIENTS' INITIALS
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<PAGE>
a distributee or transferee of Mega) shall have right to required by notice in
writing that the Company register all or any part of the shares of Common Stock
underlying the Warrants held by such Warrantholder (a "Demand Registration");
and the Company shall thereupon effect such registration in accordance herewith
(which may include adding such shares to an existing shelf registration).
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Mega, with each such
representation and warranty being deemed to be material, that:
a. The Company is a corporation duly organized, validly
existing and in good
standing under the laws of its jurisdiction of
organization;
b. The Company has all requisite power and authority to enter
into this Agreement and to perform its obligations hereunder;
c. The execution and performance of this Agreement by the Company
has been duly authorized by the Board of Directors of the
Company in accordance with applicable law, and to the extent
required, by the requisite number of shareholders;
d. The performance by the Company of this Agreement will not
violate any applicable court decree, law or regulation, nor
will it violate any provisions of the organizational documents
of the Company or any contractual obligation by which the
Company may be bound; and
e. The Company shall at all times reserve and keep available a
number of authorized shares of Common Stock sufficient to
permit the exercise in full of all outstanding Warrants and
will cause to be available a sufficient number of certificates
therefor.
6. REPRESENTATIONS AND WARRANTIES OF MEGA
Mega represents and warrants to the Company each such representation
and warranty being deemed to be material that:
a. Mega is a corporation duly organized, validly existing and
in good standing under the laws of its jurisdiction or
organization;
b. Mega has all the requisite corporate power and authority to
enter into this Agreement and to render the services
contemplated hereby;
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CLIENTS' INITIALS
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c. The execution and delivery of this Agreement and the services
to be performed hereunder have been duly authorized by all
necessary corporate action on the part of Mega; and
d. The performance by Mega of this Agreement will not violate any
applicable court decree, law or regulation, nor will it
violate any contractual obligation by which Mega may be bound.
7. DISCLAIMER BY MEGA
Mega makes no guarantees that its services will result in (a) the
acquisition of a business or interest in a business; (b) the enhancement of the
Company's product line, manufacturing or the marketing or its products; or (c)
the investment or loan of money to the Company.
8. CONFIDENTIALITY
Until such time as the same may become publicly known, Mega will not
reveal or disclose any confidential information to any person or entity, except
in the performance of this Agreement, and upon termination of this Agreement,
Mega shall return to the Company all materials and original documents provided
to it by the Company. Mega will require Confidentiality Agreements from its own
employees and from contractors Mega reasonably believes will come into contact
with confidential material.
9. NOTICES
All notices hereunder shall be in writing and addressed to the Party
at the address set forth herein, or at such other address as to which notice
pursuant to this paragraph may be given, and may be given by personal delivery,
by certified mail, express mail, national overnight courier, or by facsimile.
Notices shall be deemed given upon the earlier of actual receipt or two (2)
business days after being mailed or delivered to such courier service.
Notices shall be addressed to Mega at:
278A New Dorp Lane
Staten Island, New York 10306
Notices shall be addressed to the Company at:
910 Gemini Avenue
Houston, Texas 77058
Any notices to be given hereunder will be effective if executed by and sent by
the attorneys for the party giving such notice, and in connection therewith the
Parties and their respective counsel agree that in giving such notice such
counsel may communicate directly in writing with such Party receiving the notice
to the extent necessary to give such notice.
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CLIENTS' INITIALS
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<PAGE>
10. SEVERABILITY
If one or more of the provisions of this Agreement shall be held
invalid, illegal, or unenforceable in any respect, such provision, to the extent
held invalid, illegal or unenforceable, and provided that such provision is not
essential to the transaction provided for by this Agreement, shall not affect
any other provision contained herein, and this Agreement shall be construed as
if such provision had never been contained herein.
11. ARBITRATION
Any controversy or claim arising out of or relating to this
Agreement, or the breach thereof, shall be settled by arbitration in accordance
with the commercial arbitration rules of the American Arbitration Association,
and judgment upon the award rendered by arbitrator(s) shall be final and
judgment upon the award rendered by the arbitrator(s) may be entered in any
court having jurisdiction thereof. The arbitration will be held in the city of
the Party not requesting arbitration.
12. MISCELLANEOUS
a. GOVERNING LAW: This Agreement shall be governed by and
interpreted under the laws of the State of New York.
b. MULTIPLE COUNTERPARTS: This Agreement may be executed in
multiple counterparts, each of which shall be deemed an
original.
c. TELEFAX COPIES: You and the Company agree that a telefax copy
of this Agreement may be signed by each signatory party at
different places and at different times. All duly executed
facsimile documents shall be considered original documents and
shall constitute binding and enforceable instruments.
d. ENTIRE AGREEMENT: This Agreement constitutes the final,
exclusive and complete understanding of the Parties with
respect to the subject matter hereof and supersedes any and
all prior agreements, understandings and discussions with
respect thereto. Any modifications of this Agreement must in
writing and signed by both parties.
e. CAPTIONS: The captions of this Agreement are for convenience
only and shall not be considered a part of or affect the
construction or interpretation of any provision of this
Agreement.
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CLIENTS' INITIALS
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<PAGE>
IN WITNESS WHEREOF, the Parties hereto, intending to be legally
bound, have executed or caused the execution of this Agreement as of the date
first above written above.
MEGA HOLDING CORP.
By: /s/ THOMAS ABSIC
Thomas Absic, President
EAGLE WIRELESS INTERNATIONAL, INC.
By: /s/ H. DEAN CUBLEY
H. Dean Cubley, Chief Executive Officer
___________________
CLIENTS' INITIALS
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EXHIBIT 23.1
February 2, 1999
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this SB-2 Registration Statement of our report
dated November 30, 1998 on our audit of the financial statements of Eagle
Wireless International, Inc. We also consent to the reference to our firm under
the captions "Selected Financial Data" and Experts".
/s/ McMANUS & CO., P.C.
McManus & Co., P.C.
Certified Public Accountants
Morris Plains, New Jersey
